From a NYC reader via e-mail:
My good friend is a real estate broker in Westchester/Dutchess County. He said he is seeing a real problem growing with title insurance. He said a large number of the REO properties banks try to get him to sell cannot close because of title problems. He’s worried about the growing number of vacant homes which may be impossible to sell.
For those who don’t know the New York area, Westchester County is full of wealthy bedroom communities like Scarsdale; Dutchess County is further out but well off by national standards. The unemployment rate for the state is better than the national average, and with New York famously having the longest foreclosure clearing time in the US (as in the number of defaulted homes versus throughput rates in the courts), the state is not a prime candidate for a huge inventory of unsold homes.
Put more simply, if you are seeing a significant overhang of unsold, and perhaps more important, unsellable, houses in two relatively well off counties in New York, it’s likely that the same problem exists elsewhere.
We noted last October that Bank of America was now eating title insurance liability on foreclosed properties sold by its servicer. Perhaps BofA has since reversed course, but it may be that other major servicers have not followed suit. We’ve also been told by real estate attorneys of title insurers offering policies for foreclosed properties with significant carveouts, making them more or less useless for the buyer.
One of the notions you often hear voiced is that the residential real estate market won’t recover until it “clears”. That belief is then used to argue for faster foreclosures, when foreclosures are certain to result in lower prices than modifications (to the extent that borrowers have enough income to be viable with a deep mod; there is no point in trying to rescue those beyond salvation). But whatever form of “let’s get this over with” you believe in, whether the Mellonite “liquidate homeowners” or a mix of foreclosures and mortgage mods, the tacit assumption is that the foreclosed homes will be sold in an orderly manner (or in cases where communities have shrunken, razed).
But what happens when you have unsellable homes, becoming havens for squatters or targets for vandals? They not only pull down the values of properties nearby, but they also represent a safety risk.
To put it bluntly: vacant homes are crackhouse futures.
This puts quite another complexion on the story of Fannie and Freddie’s interest in renting homes. Per the Wall Street Journal:
Mortgage giants Fannie Mae and Freddie Mac sold a record 100,000 homes during the second quarter. Together with the Federal Housing Administration, the entities owned about 250,000 homes at the end of June, or around half of all unsold, repossessed properties. Another 830,000 homes backed by the entities are in some stage of foreclosure, according to Barclays Capital.
The GSEs have been pushing banks to foreclose faster, and one has to wonder how many of those 250,000 unsold homes have clouded title that is deterring buyers. The story puts a spin on the logic of renting:
Banks are usually faster than mom-and-pop sellers to cut prices in order to unload properties quickly. In many hard-hit markets, more than half the sales have been made to non-owner-occupant investors—at discounts. The upshot is that home prices will continue to fall if many properties continue to be sold out of foreclosure. That has made it harder for traditional sellers to sell their homes at prices potential buyers have agreed to because foreclosures are driving down appraised values, killing some agreed-upon deals at the closing table.
So investor bottom fishers are important buyers. And they are also probably professional enough not to buy a property with dubious title when there are plenty of home on offer.
And notice how many they want to offload:
One proposal would sell packages of hundreds or thousands of foreclosed properties in bulk to investors that agree to rent them out. That approach is preferred by the Department of Housing and Urban Development, which is taking back properties as defaults mount on loans backed by the FHA.
Another approach would let investors enter joint ventures with Fannie or Freddie to invest in a pool of converted rental homes. A national property-management business would handle day-to-day landlord responsibilities. Investors would pay for rehabbing and maintaining properties and would share revenue from monthly rental income and the ultimate sale of the property. Such a joint venture would be modeled on the Resolution Trust Corp., which sold failed banks’ assets in the early 1990s.
See how large scale these measures are. And notice the complete absence of any discussion as to why it is better to convert these homes to rentals (as in it is not driven by any analysis of local rental needs or a change in national priorities to favor more renting). Just because speculators are buying does not mean all of them intend to be landlords. Some may simply hope to catch a bottom or near bottom and flip the homes when conditions improve.
I hope readers will provide input on whether they see a growing inventory of unsold, and particularly unsellable homes in their community. This looks to be a development worth monitoring.
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I hear the screeching of economic breaks where ever I go. And then what are we going to do? Wait until someone blinks or maybe if we all started laughing “they” would hear “us”.
I sent the article link to my real estate friends and hope they respond for you.
I bought one of these properties before the title problems became widely known, although I was aware of the issue. I can’t even remember if I have title insurance.
Paid $130,000 cash for a two family that had sold for $425,000 three years before in what was probably a fraudulent transaction in which the buyer got cash back from the loan proceeds, and the seller got what I think was his $375,000 asking price.
The title problem was, as it is in other cases, is that there was no chain to title from the foreclosing bank/mortgage securities holder (Deutsche Bank) back to the mortgage lender (WaMu).
I renovated it at the cost of about $110,000 and am renting it out now. I’m not planning to sell it for a long time, so I am not worried.
I see these properties as an investment opportunity, especially if they are vacant and the former owners have walked away. The title problems can be factored into a lower price.
..except the original WAMU loan was probably fraudulent – by WAMU’s own employees? http://www.wamuloanfraud.com
Hope you lose a bloody fortune and nobody buys your blood homes (and alternatively, your renters don’t pay you, as well.)
What goes around, comes around!
Yeah, it would be so much better for the neighborhood if the place was a vacant crackhouse instead of the renovated housing I’m providing.
I’m not concerned, and I think my investment provided significant social benefit.
I hope that no one shows up that actually has standing to foreclose. If the chain is unsure then you are probably okay, but I have steered clear of foreclosures because of the fear that someone up the chain has documentation showing standing. Too many folks out there with dorsal fins would not bat an eye on putting someone in a position of owing two entities for the same real estate. Doesn’t bear thinking about.
I can always sue Deutsche Bank for fraudulent misrepresentation if that turns out to be the case.
Owner, I walked away from a deal like this three years ago. Contract for purchase really ticked off my lawyer (among other things, it said I couldn’t sue seller for specific performance!). Seller was … MERS. Hadn’t ever heard of them, nor had my lawyer. Did a little googling and decided against the deal. My lawyer thought it would be unlikely we’d get title insurance. I was worried the foreclosed upon FB could come back with some BS, and I’d be on the hook. Is that a concern for you?
Not really, I didn’t sign a contract that I could not sue Deutsche Bank, and the previous mortgage deal was so shady that the previous owners are likely on the hook for bank fraud.
You sound like a landlord. Can you get a real job instead of rentin’ out a dump and stealing from people?
Inappropriate expectations, rednecks always belch about hearts that bleed, hehe.
You sound like a peach of a tenant! I’d love to have you living in my basement so I could steal from you real good. Care to submit an app? Stable employment not required.
Landlords in blighted suburbia are the stuff of legends. Sec 8 / Disabled is the type the land usually prefers, they usually give little shit about anything else. Then they install some drywall to add another livable closet, getting positive cash flow and then some in a lil’ wretched hell hole. Miserable for the tenants, the neighborhood and society at large.
Nyuk, nyuk, my wife and I have jobs, which is how we saved the money to invest in real property.
We were able to rescue and renovate a distressed property in a city neighborhood and provide housing convenient to public transportation to two families.
You’re welcome.
Stupid question, what kind of law does your “lawyer” practice? I cannot imagine a real estate attorney having never heard of MERS.
That said, atleast they have half a clue about contracts…
But what happens when you have unsellable homes, becoming havens for squatters or targets for vandals? They not only pull down the values of properties nearby, but they also represent a safety risk.
To put it bluntly: vacant homes are crackhouse futures.
Not if a worker/citizen movement were to self-restitute them from the bottom up. (No matter what one thinks of land propertarianism in general, there’s no question that since via the Bailout we the people own the banks, we also already own all REO.)
We need an urban/suburban version of Latin America’s marvelous Landless Workers’ Movement.
http://www.mstbrazil.org/?q=about
Of course we need the rural movement as well.
Things seem to be getting worse at BofA
http://online.wsj.com/article/SB10001424053111904823804576502680497287052.html?mod=WSJ_hp_LEFTWhatsNewsCollection
ISTM that title problems could be cleared by having another contract with the party that potentially has an interest in the property, probably in exchange for money. But of course the banks don’t want to do this because that would imply that there was a problem in the first place.
The reason why nobody but nobody wants to question fraudulent title chains is very simple.
Derivatives contracts all say that the issuer takes back the the whole derivative at face value if there is any taint (fraud, misrepresentation) in the underlying securities (mortgages usually).
Of course buyers of toxic securities would like to return them for a 100% refund to the originators, but this would completely blow up the whole financial system.
Its amazing the extremes TPTB will go to avoid free or naturally existing markets.
A national property-management business would handle day-to-day landlord responsibilities.
I can see clearly the slumlords lining up behind the curtain.
I have been an active buyer since 2008. It has been hard because prices have been falling. I evaluate prices back to mid 90’s which was the last time IMO prices were not distorted by excess finance. For 2 years, sellers would look at me in disbelief. In 2010 asking prices started to approach early 2000’s. Recently I have noticed a profound discounting of asking prices, up to 10% per month off extremely exaggerated asking prices, still overpriced but obviously sellers are in price discovery mode. Look at BofA’s REO site and see the monthly price cuts as an example.
Fannie is doing everything possible to prevent owner-occupiers from buying these houses, at least at the bottom end (<$15,000). We had been trying for the better part of a year to buy a very cheap house in a Great Lakes city.
1) All our bids for houses at the sheriff's sales were outbid by Fannie. There were qualified bids on other properties at the sales as well, but Fannie and the banks chose to outbid them. Note that Fannie and the banks almost always end up losing more money on these properties because of taxes, broker fees, etc. Fannie's purchases make sense as a welfare program for real estate agencies, but not much else. And they're rupturing taxpayer money as they do this.
2) We never succeeded in buying a house from Fannie though we made several offers close to asking price. We were so puzzled that we checked what was happening to Fannie houses. Nearly all at the lower end were never sold but were "given" to a local authority, funded by federal money supposedly designated for preventing foreclosures, and that local authority then demolished the houses. This authority expressly stated on its website that its purpose was, in part, to assemble larger parcels from individual lots, parcels that would be of interest to developers.
3) Others have chronicled how Fannie, while overpricing its low end houses and acting tough in negotiations, happily sells houses in bulk to "investors" for a $1-2,000/house. It is these houses that end up rotting in the neighborhoods, taxes unpaid and lawns unmowed. It looks like they're at least being open about being in "partnership" with these vultures, most of whom are probably golf buddies of Fannie employees or the politically connected.
So the story doesn't have a sad ending–for us at least– we did manage to buy a property a month ago from a bulk investor who purchases tax foreclosures, and we're happily embarked on our rehab project.
But I think there is a definite government policy to prevent people from buying cheap houses for rehab as owner-occupiers since that undermines the entire debt slave ethos of this society.
Why is the Treasury Department behaving like this? We have seen people’s lives seriously damaged by this malicious behavior, others have committed suicide. WTF is wrong with this picture? Why aren’t these ne’er do wells being ripped to shreds in the Court of Public Opinion?
Your health, wealth, and well-being are not their concern. The US Government is a for-profit institution.. a wealth extraction organization.
They want you taking out the largest loans possible (which cost them little or nothing) and paying it back with accumulated interest for 30 or more years. This way money is flowing en-mass into the DC-NY areas. Geddit? You have become a copper-top battery. Welcome to the matrix. Red pill or blue pill ?
Wow. Thanks, Goin’ South.
Yeah gee whiz Goin’ South. Wonder what happened to the loser/deadbeats whose house you absconded with all nice n’ legal via Fannie to investor to you? Who cares right?
‘I’m off to the liquor store, hear no evil see no evil, la di da. I’m gonna buy me a Homepath property’
“2,292 people had been killed by US missiles, including as many as 775 civilians”
Previous owner was a slumlord who didn’t do much to maintain the house, not an owner occupier. All the houses we looked at fit in that category.
To further elucidate, for each house we’ve bid on or made an offer on, we checked the court file and talked to the neighbors. The usual pattern was:
1) Landlord extracts money at the height of the bubble via a loan, but doesn’t put the money back in the house.
2) House is in disrepair and tenants leave.
3) Owner doesn’t make mortgage and/or tax payments.
4) Foreclosure that’s uncontested.
Sometimes, there’s a bubble period sale for an outrageous amount that must have involved some close dealing, and that gets the foreclosure ball rolling.
I like elucidating.
I have been doing something similar to Goin’ South, also in a Great Lakes city (mine has two crappy baseball teams), although I’ve been much less methodical. I’m looking for a 2- or 3-flat to live in with rental income from other units. Anyway, while I don’t particularly care about the saga of the previous mortgage holder, the story tends to be the same: a mini-Trump who was allowed to borrow up to 150pc of the bubble value of the building. Often, sales history shows sale at 2x or 3x price of sale 6-12 months prior. I make conventional financing offers and often find out they’ve been sold to somebody else for much less. Bleeding hearts: for every sob story, there must be at least one story of epic scamming mortgagor and mortgagee.
I’ll propose a purely fictitious scenario based on what Goin’ South speaks of based in south central LA since I was watching dataquest data by zip code the whole time and can use accurate numbers, and do it in a state I know is a non-recourse mortgage state.
Slumlord accumulates 10 properties before and in early stages of bubble. These run 50k to maybe 100K.
At peak bubble they reach 400k. Slumlord gets new non recourse loans on the properties at Peak Valuation – 3%? No down? – and pays off the original loans.
Once he has completed this on all 10 properties – so not to screw up his credit score- he then stops paying on the mortgages. When the banks foreclose he happily turns over the keys and has a few million in the bank.
The tenants get booted out on the street.
I’m just making this up, of course, and any similarity with real life people is completely coincidental.
The question must be asked: How much money changes hands under the restaurant table where Fannie agents and those “investors” sit?
If someone has a better explanation to what Goin’ South is relating here, I’m all ears.
A 2nd question have been, is and shall be asked again: “How’s the ‘Look Forward, Not Backward’ stuff workin’ out for ya, Mr. President?”
I can assure you it sucks infinitely for us, since you allowed the criminals to survive and thrive while eliminating the honest players from the market.
The white paper by David Woolley of harbinger discusses these problems in more depth. Chris Whalen of IRA linked to it as did ForeClosureFraud Blog. I recommend it. I have clients who buy REO, the title insurers are always captive and the carveouts in coverage are extreme. Yes, I do strongly recommend they have things reviewed by an RE Attorney.Read Woolley’s paper,it is enlightening.
white paper: http://harbingerag.com/Papers/MERS%20Report%20Exhibits%20Combined.pdf
In the Autumn of 2009 I was entertaining friends from Texas here in NYC. We discussed the housing crisis and downward impact on prices.
I ventured the opinion that one likely solution for FHA homes underwater would be to reduce the debt to an affordable level and let the lender take an equity interest in the house to the extent of the mortgage reduction. The borrower/owner then pays rent and, if able, some additional money to increase the owner’s equity share. When the house is sold the bank (or RMBS investors) and the borrower/owner would share in any gain realized above the outstanding loan cost.
It seemed an obvious and straight forward solution to keep borrowers in their homes and prevent a tsunami of foreclosed homes from flooding the market. Little did I realize how illogical, incompetent and corrupt our financial and political elites had become.
Cram down is a concept that is simple enough for a grade schooler to understand, yet was taken away from the folk by the rightward march of Inc Government. The wealthy can have a bankruptcy judge lift their burdens on their private aircraft, various vacation properties and so on. But what do we expect from a dying empire that kills at will the world ’round?
We continue to call victims “borrowers” and pretend that “contract law” is a default guiding principle or empirical fact. There is no contract, this is societal collapse wrapped around the convenience of delusion.
Well meaning writers continue this pretense, which is equivalent to what powerful legal lords (responsible for the debacle) continue to espouse. Obediently, much of the media – from Housing Wire to NC can’t let go of this heinous falsehood. (Why would that be boys n’ girls?)
If a house is vacant, unsellable for title reasons, and a hazard, can it be taken by a city or state authority? Does there exist any legal mechanism for fixing or recreating a chain of title? Surely this is not the first time an issue like this has ever come up; there must be some precendents (I mean, title insurance must exist for a reason, right?).
Why can’t homeless Americans just squat these homes
using the Homestead Act?
Granted you don’t want a bunch of bums moving in and
trashing the place, but if a couple of veterans and
their families occupied them, called the press and
got a good pro-bono lawyer to represent them, that
would be a triumph for common sense and justice.
Yeah ex-military, everyone just loves them. Better yet, let’s have police officers take ’em over. You know, non-bums that won’t “trash the place” and they carry a gun and during the day they lock up, round up or abuse the homeless bums.
Put a big ‘Murican Flag up in the front yard next to the SWAT vehicle. “Love it or leave it ya som’b$tch’
I suggested this a month or two ago.
The best person to squat?
The dispossessed homeowner himself. He knows the property, he knows the neighbors (who will probably be happy to see him back), he’s the best person for the job.
Since we now know what comes after foreclosure, the dispossessed homeowner should move out, wait a week, and move right back in.
The remedy is to file a lawsuit called a “quiet title” action. You would likely need a lawyer to do it, and you would “sue” (for lack of a better word) every party that does or might allege they have a lien on or interest in the home. This would be a “show me the note” action, and if they couldn’t show docs proving their claim, and if prior parties that are on record as having the docs don’t exist, like WaMu,, you would get a court order clearing (cleaning) title to the home.
I personally think these should be brought en masse. I am an attorney in NYC and am trying to get involved in this.
Of course depending on the state the title issue goes away when the adverse possession law clock comes due. In most cases this will be the shortest period since there is color of title involved here. I could see the states passing a shorter time frame for adverse possession in foreclosure cases say 2 years, i.e. if you have not begun an action to reclaim the property in 2 years then the foreclosure sale title is made valid.
It was my understanding that there is no federal statute governing land titles and each state must be responsible for the integrity of property titles. Class action sounds like a good new trend for quiet title. Only wish there were a national action that could just resolve it with a stroke of a pen. The Land Title Act of 2011. This situation is going to limp along from state to state for decades.
Wendy, glad to hear you’re involved in quiet title action. In my quest I’ve come up against this basic question: what law requires that the note be conveyed from the Originator to the Sponsor to the Depositor to the Trust? Even if I found that stipulated in the Pooling and Servicing Agreement (and I
haven’t yet) why is a deviation voidable?
Thanks for your opinion!
I would appreciate hearing more about your “quite title” action. I am a Builder/Developer in Northwest Montana, and my wife is a Real Estate Broker. Our businesses have been reduced to almost zero in the last four years. This is mostly due to manipulations of mortgage backed securities by financial institutions. Our assets were almost 100% real estate and have been depreciated by more than 45%.
Montana is a nonjudicial state, and major financial institutions have been ramming foreclosures through without resistance.
Dan Mitchell
P.O. Box 526
Bigfork, Mt 59911
Office 406 837 1800
Cell 406 261 3187
Since there are problems with titles, how about “clearing” the legal issues surrounding the title? Kinda of logical no?
Oh wait! That would mean inconvenience the banks, right?
Can’t have that! Brother O himself is busy collecting moolah from them.
Darn! For a moment, I was trying to apply business logic, the old fashioned American Way. Alas, this ain’t our America anymore, but financiers’ America.
The endgame is probably for the vast majority of the ‘title-challenged’ property to end up as rental properties for a long time – until some economy-wide ‘docfix’ is invented/pushed through congress. At least FMFM would get cash flow.
But the point that there is a lot of room for corruption made above is a good point.
Here’s a beauty…
MERS and Fannie Mae sue Short Sale Seller and Buyer
$nip>
OMG! Just when you think you’ve seen it all, along comes a new horror story that makes the thought of doing short sales even more disgusting than before!!
Because of our intense hatred of all banks (BofA and Chase head the top of the list) we decided to stop doing short sales, and most conventional real estate transaction last summer and have been buying and flipping properties instead!
The last short sale we did was one we were referred to in October of 2009 (no good deed goes unpunished!!). The client (Tom) had recently lost his job due to downsizing and, to make matters worse, his mother had been diagnosed with a life threatening disease. There was no way we could turn this opportunity down to assist him so we took the listing on his one bedroom condo in southern California. He had purchase it in 2007 for $224K and we figured the current value was about $125K. We put it on the market and got an offer for $130K within a couple of weeks! Tom moved out of state to assist his mother in her remaining days on earth and we were happy to have an offer. After 5 months of negotiating with BofA (loan servicer) with 2 different negotiators, we finally got approval for a sale price of $123k!! (First negotiator said it was worth $180K!!!- Surprise)!
We closed the deal in April, 2010 and both the Seller and Buyer were ecstatic! All was right with the world!
Fast forward to July 2011! Last week, we received a document from our Seller that he had received. Are you sitting down? It was a LAW SUIT on behalf of MERS and Fannie Mae (Plaintiffs) against the Seller and Buyer (Defendants) and a possible 23 other defendants, (Does) who are at this point unnamed!
$nip>
This will be a huge problem going forward. I’ve personally seen Purchase and Sale Agreements on short sales that have title insurance details covered with white-out.
Chicago’s Woodstock Institute has an excellent recent study of vacant and abandoned properties in Chicago. It’s available on their web site http://www.Woodstockinst.org: “Left Behind: Troubled Foreclosed Properties and Servicer Accountability in Chicago”
The neighborhoods in question are far from a Chicago version of Westchester County. They tend to be minority nieghborhoods.
Just a little more color on title insurance. It’s structured (and is intended) to be “useless” as an insurance policy. Title insurers view themselves as service providers that tell you the state of title in a Title Report. They do not expect to be paying out on many claims at all, and they are *horrified* to pay out a single dime. It means they really effed up. This is why they are, by and large, not regulated like other insurers and not required to keep the same kind of reserves as life or auto insurers.
In this case in particular, title insurers are doing what they always do (i.e., telling you the state of title, which is very clouded in this instance). They are not in the business of taking on that risk and spreading it around like other insurers do. It’s not what they do. Yes, the name is confusing.
“Because of our intense hatred of all banks (BofA and Chase head the top of the list) we decided to stop doing short sales, and most conventional real estate transaction last summer and have been buying and flipping properties instead!”
I think Fannie Mae et al are pursuing the tax consequences on re-fi cash-outs followed by borrower seeking relief from debt. I have heard short-sales are the sure road to this. Even ‘Deed in Lieu’ is on the table. The massive numbers make it a challenge but the Gubmint is gonna come after you.
Sounds incoherent, the Gov’mint is going to come after who for what now?
If it weren’t all so harmful and destructive, it would be amusing to watch the banks squirm. They are the culprits that had Congress pass the law that primary home mortgages could not be restructured in a bankruptcy. Not even a decade ago – just at the onset of their big sub-prime catastrophe. Malice aforethought. If bankruptcy could restructure mortgages still, the banks would have half the problems they have given themselves. That is if they could ever find their stupid paperwork. Karma. Banks too clever by half with help of the White House.
I live in New York City but sometimes shop the Interwebs to see what’s on auction in my hometown about 60 miles out from Detroit. I actually bid on something last year — a small three bedroom bungalow (ca. 1945, renovated) in what I know to be a quiet, rural-feeling neighborhood. Imagine, the bidding starts at $1,000 and if I can get in for $7,000 I can own it for cash! Heck, at that price, even if the plumbing is shot, I can flip it for more in a year or so. Or rent it if it’s in good shape, which the pictures seemed to show.
It was not to be. I think the final bid was around $29,000. One hometown friend following my adventure cheered my fall: At least he knew his home wasn’t underwater.
Thanks to other writers on this blog who provided a link to a white paper by a professional surveyor, it is now my understanding (right or wrong) that when a property has title problems (as in MERS disassembled and ate the documents), then all other properties on its boundary are tainted as well by extension. Apparently an innocent neighbor may be required to engage in litigation to re-establish property rights they formerly had clear title to as well. This might not be apparent to the innocent neighbor for years, not until he/she attempts a sale, at which time it could emerge. The surveyor author estimated it could take up to 100 years for properties to be cleared up.
If true, the potential social costs of this financial mess have scarcely been assessed.
It is these types of follow-on issues for innocent parties that made me write a note to Schneiderman supporting his actions against the banks on foreclosure and mortgage securitization related issues.
I live in NYS, am not underwater, but have a mortgage refinanced with Countrywide in the early 2000s, so it is almost certainly securitized in what is probably a “non-mortgage backed security.”
I made the point in my note to the NY AG that I want to make sure that when I pay off the mortgage, I can end up with clean title to my house and not have issues with neighbors’ properties either. The rule of law is essential to having property rights.
A few years ago in our neighborhood, a survey during a property sale showed that a house had been constructed several inches too close to the side property line. The house next door was in the process of being sold as well. The variance was going to require signatures from both the selling and buying parties for the adjacent property. The confusion and uncertainty in this process made the sale fall through on the property that had the incorrectly built house. It took about another 6 months for all of the issues to be resolved and a new buyer found. Surveys, setbacks, easements, deeds, notes, liens, and titles really do matter!
I have a small real estate office in the mountains of northern California. I haven’t seen or heard of any properties that are unsaleable due to mortgage issues in my small sample. In the past (pre-bubble) I’ve seen a couple of instances where an out-of-state bank tried to make my buyer take a property with less-than-clear title (I think they called it a “conditional deed” or some such claptrap). I didn’t let the buyer sign, and the banks (in two instances) finally provided clear title. What I learned from this is that some states allow banks to sell properties with less-than-perfect title, but it is supposed to be illegal to do so in California.
Read in the Palm Beach Post about a couple who put their life savings into a foreclosure “bargain.” With the cost of refurbishing, the investment totaled $152,000. Two years later, when one of them accrued heavy medical expenses, they tried to get a mortgage on their fully-paid-for home to pay the bills. The bank declined because “they didn’t own the house;” the title was not clear.
Another problem with investing in vacant housing” is that appliances may be missing. The foreclosed owner, to whom they belonged, has taken them, or vandals have. Two years ago, after being denied Making Homes Affordable, we drove 2 1/2 hours to a town worse off than ours and looked at vacant foreclosures. In one, the realtor dashed ahead of us into the kitchen, then stuck her head around the door frame and shouted, “hey, this one is great! The appliances are all here!”
Although interest on T-bills is nil, people may feel better off with those than vacant foreclosures. There’s no refurbishing cost; no property tax, insurance, yard maintenance, repair/replacement costs, etc. It’s in everyone’s interest for the mortgage servicing banks, HUD, Fannie and Freddie to work with homeowners and avoid more vacancies.
I used to buy inner city houses cheap and fix them up. There was a crew of us, traded labor skills. Much of what we found were properties that had been decent, sold at tax or estate sales (much below retail value based on the house, not the location). Because of the low purchase price, no money was invested and they were allowed to deteriorate as rentals. Anytime you sell at a dramatic reduction against the intrinsic value, you are creating a slum. The idea of selling blocks of properties to hedge funds at 1 to 10 cents on the dollar will backfire. What the government is thinking is that the hedge funds will hire a bunch of immigrant workers, rebuild the houses and sell or rent to individuals. Most likely they will just rent them out as is, for whatever they can get, creating a revenue stream that can be sold.
And that’s not all!! Remember the greatest inter-generational transfer of wealth from the greatest generation to the boomers? The crown jewel of that story is the home, usually by then either a functionally obsolete, if well maintained house in a non chic, not Scarsdale or Bryn Mawr, older suburb, or, THE CONDO, the downsized final outpost and both, usually paid for. But the aspirational have gone further out to the ex urbs for the granite kitchen McMansion or out of state or whatever zip code is de rigeur for elite. That means grandma’s place is too close to the DMZ of class, race and other problematic issues of proximity to the dangerous classes.
Bottom line, a lot of pricey real estate is dumped because not every one wants to be a land lord or keep it for when the kids get older and have condo fees in the interim. Or have rising property taxes for schools that don’t educate your blood relatives anymore. You get the idea. There is a lot of pressure downward on prices due to this class of real estate from some of the all time champions of getting a home and getting out of the mortgage and staying out of it. There is a lot of it, in a lot of not bad at all locations, of course until de classe class moves in, even if they are Ivy educated and properly healed, even if they paid all cash. It is such a messed up world so thick with attitude you could cut it with knife.
What is needed is a rental conversion foreclosure. Debt is forgiven, you pay rent and stay and maintain the property and move when practical.
I was wondering about this a while back. It seems to me that I would advise a potential buyer to walk away from a deal if the title insurer was making such large carveouts. I think it must have an impact.
I guess I have other more technical questions. Doesn’t the severity of this depend on whether the property is in a lien or title state? From what I can tell, in a lien state it is the borrower name on the title, not the bank. Thus, I would think title insurers would have more incentive to verify title problems in lien states. In title states, I can see where there might be more corruption with title insurers since the lenders name goes on the title. I have no idea if that’s correct, but I think it’s important to note that there are proceedural and standing differences between these two types of approaches to property law.
I wanted to follow up on an earlier comments about federal law. Property laws are state laws and I don’t think federal legislation could fix this. My understanding is that this would have to be done by individual state legislatures in order to provide a statewide fix. I don’t think I’ve heard of any state legislature pursuing such legislation. So, barring that you would have case by case adjudication in a court. The results could vary greatly even within the same state depending upon who was bringing suit and for what. Seems to me this isn’t just about title problems. I would think foreclosured owners might sue alleging that the “sale” and “mortgage” never took place and might attempt in equity to be put back in the position they were before the “sale” took place and void the sale. What would such a result mean for title in a case where the documents weren’t recorded locally? Would the past owner who thought he sold the land be the owner again?
The other issues with determining who has title involve where precisely in the chain title transfer broke down. I think this is why Mers sued in the shortsale because their lawyers probably feel they are the rightful title holder and BofA had no right to agree to the sale. This is why I am surprised bulk investor would buy these properties at any price because the potential for unlimited, unknown potential claimants is so large.
If the banksters doing all these fraudclosures without blue ink notes and/or complete chains of title, can’t transfer clear titles, i.e. have no real ownership interest in the properties.
How can they rent these properties they don’t own?
If you sell or rent out something you don’t own isn’t this fraud?
«If you sell or rent out something you don’t own isn’t this fraud?»
No, it is Real American Business. In Real America winners do whatever it takes.
I’ll illustrate reposting two of my favourite quotes.
A recent quote from Newt Gingrich:
http://classwebs.SPEA.Indiana.edu/bakerr/v600/a_new_look_at_environmental_poli.htm
«If you have a society where almost every middle class person routinely fudges the law, that’s telling us something. We have laws that matter-murder, rape, and we have laws that don’t matter. Speed limits are an example. Why would you think that a regulatory, process-oriented bureaucratic model would work? The first thing that every good American says each morning is “What’s the angle?” “How can I get around it?” “What does my lawyer think?” “There must be a loophole!” Then he proceeds to work the angle, and the bureaucracy spends its time chasing that and writing new regs to stop him. America is the most incentive-driven society on the planet.»
And an older one from Tocqueville:
http://xroads.virginia.edu/~HYPER/DETOC/1_ch13.htm
«Consequently, in the United States the law favors those classes that elsewhere are most interested in evading it. It may therefore be supposed that an offensive law of which the majority should not see the immediate utility would either not be enacted or not be obeyed.
In America there is no law against fraudulent bankruptcies, not because they are few, but because they are many. The dread of being prosecuted as a bankrupt is greater in the minds of the majority than the fear of being ruined by the bankruptcy of others; and a sort of guilty tolerance is extended by the public conscience to an offense which everyone condemns in his individual capacity.
hi,
thank you for nice article Another Real Estate Time Bomb: Unsellable Vacant Homes?
thanks
We have a ton of homes in the Atlanta & surrounding areas that are vacant. At the end of the day, people have to have a place to hang their hat. Whether that be renting, or buying. I suggest people get moving on these investments. Don’t wait for the Fed Govt to do it. Although that doesn’t sound like a bad idea at all.