Foreclosure Follies

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Producing the paperwork necessary to foreclose could be a Herculean task.  Many of these securitized mortgages were sold numerous times, and “due diligence,” as in maintaining proper documentation of those sales, was one of the casualties of a red-hot housing market. Unfortunately, real estate law requires the physical transfer of such documents, and only those holding the actual note signed by the borrower have the legal standing necessary to file foreclosure and proceed with evictions.  Massachusetts Justice Robert Cordy, who concurred with the court ruling, characterized the sloppy bookkeeping as “utter carelessness” on the part of banks.  “There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order,” he wrote.

The ruling in Massachusetts is the first by a high state court, one which is likely to be echoed in other states where numerous instances of “robo-signing” documents without reading them have occurred.  “The whole robo-signing scandal has caused many judges to mistrust what servicers are saying in foreclosure petitions,” said Patricia McCoy, a law professor at the University of Connecticut.  “Many judges will scrutinize filings more closely.”

Exacerbating the problem even further is the Mortgage Electronic Registration System (MERS) in which mortgages once recorded in county offices were both digitized and centralized to facilitate securitization.  According to Christopher Peterson, law professor at the University of Utah, 60% of the nation’s residential mortgages are now recorded in MERS’ name, and “(A)n increasing number of courts have begun taking a dim view of MERS-recorded mortgages and deeds of trust,” he wrote in a paper on the subject.  R.K. Arnold, MERS’ chief executive disagrees.  “The MERS process of tracking mortgages and holding title provides clarity, transparency and efficiency to the housing finance system,” he countered.

In the Massachusetts case, there is little question that the owners of the two homes in question stopped making mortgage payments and were in default.  Nor is there any question that the two banks involved were sloppy with their paperwork, going so far as attempting to provide a proper transfers of the mortgages after the foreclosures, which is why the courts nixed them.  But there is also little question that a multi-state process of delaying foreclosures, which currently comprise 25% of all exiting sales, could further devastate an already battered housing market.  “If banks can’t prove ownership, it will clog up the foreclosure process,” said Blake Howells, head of equity research at Becker Capital Management in Portland, Oregon. “The inventory on foreclosures will keep a lid on housing prices for some time.”

Right now about 5 million borrowers are at least two months behind on their mortgages, and many of those mortgages are “underwater,”  meaning the owners owe more on their mortgages then their homes are currently worth.  And despite potential court rulings, Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc., predicts “1.2 million of those homes will be repossessed this year by lenders,” and prices will dip “another 5 percent nationally” before finally bottoming out.  That decline will put even more borrowers underwater on their mortgages, a designation which currently applies to twenty percent of all homeowners.  “2011 is going to be the peak,” Mr. Sharga predicts.

Dragging out the foreclosure process serves no one’s interest, save those who get to live payment-free until this process is sorted out.  Rather than allowing it to unwind on a state-by-state basis, perhaps the Supreme Court should get involved for the simplest of reasons:  without a stabilization and eventual rebound in the housing market there will be no economic recovery–period.  The largest investment most Americans make is related to all their other spending decisions, and it’s no secret that consumer spending, or lack thereof, is the lynchpin of our economy.

That is the tangible effect.  The intangible effect is that which relates to moral hazard.  Many Americans are furious with the idea that a substantial number of their fellow Americans are “gaming the system” and living rent-free while they themselves struggle to make ends meet.  Perhaps some of those who exploited last week’s shooting in Arizona to theorize about the sources of Americans’ discontent, might want to consider what really gets people angry.  If one will forgive the expression, the answer may be a lot closer to home than many of them imagine.

Arnold Ahlert is a contributing columnist to the conservative website

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  • areyou crazy?

    So is the author ready to have the Supreme Court hand the power to foreclose without proper documentation back to the source of all evil, the industry that was relied on to self regulate, then – through greed – shatter life as we know it in the US ? While your at it, let's just give the bankers another million dollars or more bonus each for orchestrating our demise. Oh yeah, I forgot – that's what they will be getting anyway! Seriously – I personally have lost 100% of my life savings and retirement 401K in this mess, and now have no job because mine was moved overseas due to the 'competitive advantage' of paying I/T workers in India one eighth of what I used to make here. I have felt the pain personally. Let the banks feel the pain with the mortgages, don't let them off the hook or give them unlimited unregulated power to completely collapse the system. Only someone who has not felt enough pain yet would even think of doing so.

    • carol

      So sorry you have suffered so much

    • USMCSniper

      Getting crapped on just makes you stink not a better person. Just get out and hustle and get a job whiny man and stop demanding other s carry you.

      • patrick

        ignorance is bliss I suppose, though I really think you should educate yourself on the issue before throwing in your two cents, you seem to be short on change.

        • patrick

          my comment is meant for usmcsniper btw


    Are we or are we not a nation of laws? If the law says you must have the wet ink copy of the note and mortgage to foreclose, then that is what you produce, or you loose your legal right to foreclose, not that difficult to understand. We expect the law to be upheld, otherwise why bother having laws?

    This is the whole reason people are upset with the immigration debate, if we truly are a nation of laws, and we believe in those laws, they must be upheld. You are breaking the law by living in this country without being a legal citizen or resident alien. If we as a people decide those current laws need changing we will let our representatives law makers know.

  • Norge

    Wash Mutual, Countrywide (both paid and donated to Clintons and other libs) along with Wells Fargo and BofA and Fannie and Freddie all have screwed up so bad that houses are worth fractions of previous values. Yet try to re-negotiate with them, dare you. They want you to enroll in government subsidized 'programs' where you end up paying the full amount over a longer time. I've been trying to get someone…anyone at Bof A to talk to me, and I am always passed off to people all over the world in different offices and eventually you will be disconnected. It is a repeated patteren of behaviour they have pulled on me time after time after time. They are not interested in you keeping your home, dispite what they say publicly, they lie to the public and to the government, and they just won't talk to you, they will eventually disconnect you while 'transferring your call'. We need a Bof A boycott, and bring them!!

  • Norge

    Bring them down,,,was supposed to be the last comment, force their breakup and dissolution. They bought my mortgage for .40cents on the dollar and now want me to pay the full amount for a house they devalued by 70%!! They refuse to negotiate and lie to congressional hearings about it, lie in their commercials on TV and lie to your face when you try to talk to them. This kind of duplicity, carried out with government complicity, or at the least government incompetence in oversight, should result in prison time, but won't due to big political $$$ involved, and the little guy just has to bend over and take it.

    • Tom H

      There should be a law that anytime one's mortgage is sold for pennies on the dollar, that the homeowner has the right to match that offer and pay off the mortgage and take title to their home. IMHO it is criminal that someone else can buy my 200K mortgage for 80k but I can't.

  • Matt

    Credit card companies have the same problem, by and large. They have a sum they claim is the amount owed, but they have a hard time actually proving it in court. They count on the debtor defaulting if they file suit.

    In both cases its due to the lack of diligence by the financial sector. Sad, and an undeserved windfall to the debtor that runs up everyone's cost of credit. I fail to see why the Supreme Court should provide yet another "bail out."

    • Amused

      Ever take a kid to the first day of College ? What strikes you first ? That's right , every credit card company in the universe is lined up in the gyms or auditoriums to hand out credit cards toanyone willing to sign up ….what's that all about ? IRRESPONSIBLE LENDERS giving unsecured credit to what very well in many cases are potential irresponsible birrowers , and it didn't stop at the college halls . Yea we're all gonna pay for that bubble too . Maybe it's time to keep an eye on what our lawmakers of BOTH STRIPES , are allowing these white collar crooks to get away with . Like car title loans with 300% aprs .
      Yea tough on us …too bad , we're gonna suck it up .

      • Amused

        …and the boys on Wall Street are at it AGAIN with derivatives , and hedge funds . Nobody learned a bloody thing ……think maybe it's time to UN-REPEAL that seperation of what Commnercial and Investment Banks can and cannot do ? Or would you rather "free enterprise " go hog wild , setting up another bubble ?

        • Tom H.

          All the taxpayer money given to the fraudsters through TARP and bailouts has gone into commodities speculation, driving up the price of food and fuel for the people who can't afford their mortgages. It is sinister.

          "Gols is the money of Kings, Silver is the money of gentlemen, barter is the money of peasants, but debt is the money of slaves."

  • Gerald_Keene

    If, in fact, the trusts in question had not obtained the required mortgage assignments, then, IMHO, it must follow that these same trusts cannot provide lawful and binding Releases of Liens for the mortgages that are paid off. What happens to the homeowner who successfully concludes his mortgage obligations? If a lawful and binding Release of Lien cannot be provided, are the lien rights just withheld indefinitely? How can the property ever be sold? This whole mess sabotages the private ownership of a huge number of properties. Given the socialist / communist inclinations of the leftist elites, I find it difficult to come up with any benefit of doubt that this mortgage crisis was not a purposeful operation. It fits in so well with their thinking. Like a man who is compelled into performing the spinning plates act, we find ourselves struggling to keep up with the numerous ongoing crises forced upon us by the Leftist Elite. On November 2nd, we kicked some of the plate spinners off the stage. We need to go after some more of them in 2012 and keep going after them until they become powerless to harm our way of life.

  • Steve

    I'll have to side with the courts on this. Although Wells Fargo tried to close on the house, the securitized morgage is actually in many different portfolios. Thus, Wells Fargo can't suddenly claim to sole ownership of the property. The interests of all of those holding a claim have a right to due process as well.

    If a financial process is having a ruffle with the courts, that is a different issue.

  • Amused

    TOUGH LUCK !! Let the Banks BITE THE BULLET . Glad the author , matter-of-factly added , that the ruling is LEGALLY CORRECT . Yea you gotta prove you hgold the Deed before you foreclose , damn right . Every house I ever bought or sold , the legal documentation had to painfully exact , correct , debts outstanding down to the penny . In their greedy frenzy to resell these "mortgage investments " to other greedy parties , they gave nary a care to legal proceedure regarding transfer of titles etc. Seems to be the prevailing opinion atleast on this blog , not to bail anyone out and to bitch about who has been bailed out . So what's this ? "Feel sorry for the Banks" time ?

  • Amused

    Handwringing for the Banks are we ?

  • Amused

    And Gerald_Keene wants to blame WHO ? And calls this mess .."A purposefull operation " ???
    If there's anything "purposefull " here , it is the failure of the Banks to uphold their fiduciary responsibilities and legalities regarding the "investment offerings " of these sold and resold mortgages . Also the greater failure of the regulators to reign in those activities .Kudos to the Mass.Supreme Court ….for upholding the LAW .

  • Quarkonntn

    If the lender cannot prove ownership of the mortgage then the borrower cannot be sure mortgage payments are going to the correct party. Methinks there are many homeowners who need not nor should not make any more payments because even if they did, they could never prove they have discharged their obligations to the lender whomever that may be.

  • patrick

    the writer of this crap may want to consider that perhaps americans are tired of our governments sanction of lawless bankers, robbing the tax payers to fill their coffers.

    • Amused

      EXACTLY ! ….oh what short memories we have ! Like the Banking Loan Scandal of the 80's , where …."guess who " presided over and "sanctioned " the Banks , "DOING the American People " , getting a slap on the wrist , and then slithering back to do it all over again . Just as they are doing NOW …..under the guise of capitalism and free enterprise .
      And what examples we have , the new RNC chairman slamming bailouts, while previously an attorney for a law firm that specialized in securing them .

  • patrick

    It's really great to see the tide of public opinion changing. a few months ago most comments on stories like this were flaming the homeowners. People are waking up. I just hope it's not too late. TPTB are going to do their best to retroactively legalize these criminal practices, for the good of the country of course, just like the bailouts.
    While Americans must decide between paying the electric bill, or buying groceries, bankers continue to pay themselves higher and higher bonuses every year, Thanks to fantasy accounting.

  • Hoser

    Investment banks did this too themselves. I'm not saying it's right to strategically default on your loan payment but why should a homeowner throw good money down a black-hole not knowing who is really collecting? What guarantee is there that he is actually paying-off his mortgage? What guarantee that after the loan matures all the paper-work comes back together and the homeowner takes full position of the property? Where is the paper trail and is it accurate? Just a few questions I have. After 15/30 years I think it's safe to say the mess will still be there and the homeowner will get screwed then/again!

  • apberusdisvet

    History will prove that MERS was a planned Ponzi all along; aided and abetted by Greenspan to transfer wealth from the American middle class to the wealthy owners of the FED who reside in Europe. When they crash the markets this coming spring, the vast portion of the rest of our wealth will go bye-bye. Buy gold silver guns and ammo. Keep enough food in your house for 6 months. We're already past the tipping point. Our corrupt Congress and Administration are like the band on the Titanic; disingenuously clueless.

  • PGC

    Arnold Ahlert is a shill for the banksters and his Florida realtors friends. His "Many Americans are furious" is only related to his bosses. It has nothing to do with the real world outside of his circle of friends and people who pay for his trash.

    Please don't take it seriously, it is not journalism – just some useless person with a particular agenda doing his dirty work of spreading the right wing propoganda.

    The main thing that "Many Americans are furious" about is that instead of giving $20+ trillions of their tax money to banksters, we didn't bailout all the debters (cards, homes, cars) and didn't get back to more serious issues like ecology and poverty. Sure, some slackers would be bailed out too, but it will be much better than giving those money to a few hundred banksters, making, or stealing, to be more precise, $100K/hour(!) to drive us more into the crisis.

  • alan

    These banks wrap up these mortgages and sold them as investments to other companies / investors. So most homes were paid for once, some were sold several times, then the bank come back and try and foreclose on them when they are not the owners! BS!
    We're in deep doo doo!!!

  • mattputts

    I got foreclosed on last year and it not only ruined my credit, but my marriage as well. I'm getting quite sick of the gambling that's going on in Wall Street. I can barely rent an apartment with my credit score, though I've been working diligently toward credit repair it's going to take years to get back to where I was before the financial crisis. This literally has me wanting to get the heck out of this country and into a country where the banks don't have as much clout as they do here.