Free Homes? Unlikely. More Foreclosure Delays? Absolutely.

By October 1, 2010Foreclosure

My phone and email have lit up over the last week as GMAC purportedly halted foreclosures in 23 judicial foreclosure states, and JP Morgan Chase yesterday announced they’d be delaying 56,000 foreclosures. Tonight it appears more lenders may be affected as well. The core issue in both cases appear to be that affidavits were signed by people who did not have personal knowledge of the facts involved despite claiming that they did. Some, however, are making it out to be something much bigger.

The theory behind the “tip-of-the-iceberg” argument is that lenders must produce the original note (loan document) signed by the borrower in order to foreclose, as well as properly recorded transfers of that note from the original lender to the current holder of the note. This seemingly simple task has gotten amazingly complicated over the last decade as loans were securitized and traded among institutions. In an effort to simplify things, lenders created the mortgage electronic registration system (MERS), but even that has been challenged as not meeting the legal requirements for foreclosure. If lenders were actually required to produce the original note and documented chain of ownership before foreclosing the belief under this theory is that foreclosures would largely grind to a halt, past foreclosures would be overturned, and that homeowners might be able to challenge the validity of their mortgage altogether. Free homes for all! Except of course for those who actually paid for them.

Readers of this blog know that I place far more of the blame for this crisis on lenders and government than I do on homeowners. That said, I DO NOT believe paperwork errors should lead to free homes… or frankly even foreclosure delays.

It’s one thing if the paperwork error lead to a lender trying to foreclose on someone who IS making their payments. By all means that person should get their day in court, and the foreclosure should be stopped. But that’s not the argument here. Instead they are saying they should get to stay in their home even though they stopped making their payments and are now legitimately facing foreclosure as a result.

Nothing about that makes sense to me.

While the wild conjecture is entertaining, I remain convinced that these affidavit and chain of custody issues will ultimately be resolved and amount to nothing more than foreclosure delays and a lot of  attorney fees as folks tilt at windmills.

No Comments

  • foreclosure delays, PropertyRadarCJ Johnson says:

    BRAVO Sean. It had to be said…No More Free Rides! I too feel sorry for anyone loosing their home but after yesterday when I had to board up an REO where the owner had been in the house for over 24 months without making a payment and in return he carved foul sentiments in the oak wood door after trashing the house to the tune of around $50,000 I am hard pressed to say let them eat cake.

  • foreclosure delays, PropertyRadarSpring Haigler says:

    I agree, most of them will ultimately be resolved.

    I wondered how long it would be before this came to the Fed’s attention.

    Seminars, explaining how to use this as one of the methods to keep your home out of foreclosure and get your mortgage paid for by the government, were selling out at outrageous prices two years ago. Evidently, the complicated process worked for a few who could afford an attorney who knew exactly “how to work the system”.

    Just wait until the main-stream media gets a hold of the part about “natural laws” (the part that supposedly explains how to get rid of the mortgage all together)! Talk about adding fuel to the lending fires!

  • foreclosure delays, PropertyRadarSean O'Toole says:

    Note this affidavit problem just expanded to include Bank of America. So far it remains contained to 23 judicial foreclosure states, so it doesn’t impact our customers (we cover Arizona, California, Nevada, Oregon and Washington). That said it appears mis-guided law makers will probably jump in nationwide to slow foreclosures. I say misguided because delaying the process of getting folks back into homes they can afford and eliminating the negative equity in housing only delays getting back to a healthy housing market and economy.

  • foreclosure delays, PropertyRadarJeffrey Hare says:

    This may also create further unintended consequences, such as with Old Republic announcing it will not issue policies insuring REO sales by GMAC and JP Morgan (Bulletin10-04; 10/1/2010). If other Title companies follow suit – which is likely – even more transactions will simply fail, further exacerbating the already complicated process of getting distressed property back into ownership. Moreover, some law firms are gearing up to take advance fees to prosecute Quiet Title actions against lenders in their efforts to wrest principal reductions as part of settlements. By their own admission, these types of lawsuits are expensive, time-consuming, and there are no guarantees of success. Caveat Emptor!

  • foreclosure delays, PropertyRadarJeffrey Hare says:

    Old Republic bulletin 10-04 dated October 1, 2010 is addressed to “All Old Republic National Title Agents and Offices” and is from the Underwriting Dept. It cites the GMAC/Ally Financial and JP Morgan/Chase halting of evictions and REO sales in 23 states, including Florida. “Accordingly, Old Republic policies may not be issued insuring REO sales after completion of foreclosure by these two lenders.” The Bulletin goes on to say there is “no prohibition on writing title insurance on short sales or following a deed-in-lieu of foreclosure” and says they are “continuing to monitor this situation and expect to be able to resume insuring REO sales by these lenders as soon as the objectionable issues have been resolved. The Bulletin originated from the Tampa office. Here’s the link:

  • foreclosure delays, PropertyRadarJustin says:

    Much like outsourcing of loan verification with bonuses based on completions got us into systemic risk trouble 4 years ago, outsourcing of document verification to foreclosure mills is in danger of creating the same hazard in the foreclosure space, IMHO. Check the links below.

    Despite the moral hazard of allowing people free houses, the worst possible thing would be to corrupt the process, because every legislative and judicial action will now be to side with allowing people to challenge foreclosure proceedings based on this evidence.

    Something to follow closely.

  • foreclosure delays, PropertyRadarToni Kay says:

    Is there anything that can be done for someone still paying rent on a house that is in foreclosure when the landlord hasent been paying the mortgage?? Can the renter be evicted??

    • foreclosure delays, PropertyRadarCJ Johnson says:

      You are bound by your rental agreement or lease to pay rent to the owner of the house until he no longer owns the house or your agreement expires or is mutually terminated. Your options are to pay or quit and vacate. You will have other options after the foreclosure takes place but until that time the owner can always get caught up and then you may be liable for back rents if that does occur. I also seek professional advice from an Attorney.

    • foreclosure delays, PropertyRadartoni kay says:

      Thanks for the response. But going through this at the present time, it really seems unfair that my landord has not paid her mortgage since May 2009 and I just found out. Im not just going to move anywhere, it takes time to find a decent place. I have spoken to a few people who this is happening to or have heard of this that fell it should become illegal. You have to think of it as you are going to work everyday, working hard, paying your rent thinking you are paying your way to live where you are and the owner is spending the money on God knows what! Any suggestions on a political person in California that might want to help?? After watching the news on the possible stoppage of foreclosures and from your blog, what about the landlords that really have no intention of ever paying, that know the foreclosure process takes time so they can so to speak rip off their tenant.

      • foreclosure delays, PropertyRadarSean O'Toole says:

        Toni – how exactly are you getting ripped off??? You have a place to live for which you pay rent. That’s perfectly fair. Not only that but federal law has already been put in place to be sure that you get to stay for the remainder of your lease even if a foreclosure occurs. So again what exactly is the impact on you??? If you don’t have a lease then you NEVER had any security that you’d be able to stay more than 30 days into the future at any given moment anyway (assuming your month-to-month uses the typical 30 day notice clause).
        I get that you don’t like that your landlord isn’t paying their mortgage. But the lender likely has the right to come after the lender for those rents (most loans include an assignment of rents clause giving the lender dibs on any rents in cases of non-payment), and whether the lender chooses to do that or not is between the lender and owner…. bottom line there is no real impact on you under current law in this situation. Sure you may have to move at the end of your lease, but that’s simply the reality of being a renter vs. and owner.

      • foreclosure delays, PropertyRadarToni Kay says:

        I get your point, I really do. We do want to move, Im currently having some crazy female procedures done and Im trying to hurry them along so I have the strength to actually start a move process. Its just soooo frustrating when we need things repaired and she says she cant afford to and we know the payment isnt being made. Its so crazy that here in CA so many owners are doing it. I appreciate the feedback and this blog has definitely helped me understand so much.

      • foreclosure delays, PropertyRadarSean O'Toole says:

        I completely get your frustration on the repair issue. Best of luck to you with your health and move.

      • foreclosure delays, PropertyRadarCJ Johnson says:

        Hey Toni, I agree that the landlord may not be paying the lender but again that has nothing to do with your obligation to pay rent. Most lenders are not freezing foreclosures in CA as this is a non judicial foreclosure State. I am not sure why you think you are being ripped off. Are you living in the property you agreed to rent for the amount you agreed to rent it for? If so I am not sure why you would think the landlord is ripping you off. As I said pay rent and stay or quit and move out are your only two options that I am aware of at this point. If you can not afford to pay a real estate attorney for advice then contact legal aid in your community as this is not something you should count on me or anyone to give you advice on the Internet.

  • foreclosure delays, PropertyRadardave j says:

    . . . . the depositions given by current and former employees at David Stern, Florida Deafualt law group are intersting reading to say the least . . . . . . looks like outright fraud and ‘unclean hands’ . . . . . paperwork problem with sworn statements ? . . . .

  • foreclosure delays, PropertyRadarSean O'Toole says:

    Here is one courts thoughts on MERS being fraudulent. Doesn’t look good for those hoping for free homes…

    “In Cervantes v. Countrywide Home Loans, Inc., et al., Judge Teilborg rejected plaintiffs’ claims arising out of their allegation that the MERS system is unlawful. The court found that it “fails to see how the MERS system commits a fraud upon Plaintiffs.” Specifically, the court rejected plaintiffs’ contention that MERS is a “sham” beneficiary because it “never owns or acquires any beneficial interest in any of the loans in which it is named as the beneficiary under a deed of trust.” The court found plaintiffs’ argument “unconvincing” because: (1) to accept its premise would invalidate any agreement in which a beneficiary took “less than the full rights possessed by the entity … granting the beneficiary status” (2) plaintiffs did not and could not allege that “they were somehow induced to enter into their loans on the basis that MERS was a genuine and not a ‘sham’ beneficiary” (3) plaintiffs could not allege “what effect, if any, listing … MERS … as a ‘sham’ beneficiary on the deed of trust had upon their obligations as borrowers” and (4) plaintiffs had failed to identify any controlling authority to support their contention that the MERS system is fraudulent. The court also emphasized that “the fact that MERS does not obtain … rights … to collect mortgage payments or obtain legal title to the property in the event of non-payment does not transform MERS’ status into a ‘sham.’”

  • foreclosure delays, PropertyRadarBruce Jackson says:

    If state law requires changes in ownership to be recorded in the counties and mortgage notes to be legally taken posession of by endorsement, but these requirements have been subverted by using the bank owned Mortgage Electronic Recording System, Inc., so that these debt obligations could be securitized and sold into investment pools while being de-recognised as an asset on their books because Special Purpose Entities are not designed to hold assets, then have not the banks separated the note from the asset by refusing to take legal possesion of the asset for their own convenience? Of course they assumed that the trustee for security pool could just pick the asset back up from the original lender, who no longer has interest in it, when the time came to foreclose. They assumed that because they hold equitable interest in the note, but not legal title to the note. In fact legal title may have been lost by mismanagement. They did not follow the law because it would have taken way too long to get the laws changed so they could do what they wanted to do and make large profits in the securities market. They played. Perhaps they should pay. I’m not saying that everyone with a MERS loan should get free and clear homes, but I do think that while we were all taken on a balloon ride, the profiteers might provide some quality parachutes in the form of real loan modifications that reflect the adjusted value of the home and peoples ability to pay. Perhaps the only way to get that kind of cooperation from mega banks is under threat of major loss.

    • foreclosure delays, PropertyRadarSean O'Toole says:

      Bruce – Two things:
      1. I’m not an attorney but generally when the law requires something, the penalty for not doing that thing is reasonable. Completely wiping out the obligations of a note because it was transferred improperly or even lost simply isn’t fair or equitable. And how exactly was the borrower harmed by transfer issues or even a loss of a note? Some say county recorders were harmed… but I’m not aware of anything in the law that requires a mortgage or even a transfer of ownership to be recorded. Doing so is simply a way for the purchaser or lender to protect the priority of their interest vs. other claims. I see nothing of substance in any of the MERS claims, and I doubt we’ll see them turn into more than an occasional anti-MERS ruling by an activist judge who is as pissed off at these banks for creating this mess as the rest of us.
      2. The majority of these loans are now held by some combination of Freddie, Fannie and the FED. As such those quality parachutes you mention would most likely come at taxpayer expense, not the “profiteers”.

      • foreclosure delays, PropertyRadarBruce Jackson says:

        So Sean, The profiteers win and the working class has no recourse because the banks have already left the debt in the hands of the Fed. How convenient for them. Still the foreclosure mill runs 24/7 gathering up the chips for the next round of profiteering while the working class tries to start over after years of hard work. Its not the banks fault that the economy tanked, is it? The housing bubble was a natural course of free enterprise I suppose, and letting people pay what they can afford to keep their homes just doesn’t sound fair because the bankers will just get paid through the government and the peoples tax burden will increase. Hmm, sounds like business as usual. Well call me a fool, thinking that people who almost achieved their dream of owning and keeping their own home might hope for a remedy in the justice system. Perhaps those who can afford the right lawyers will prevail.

  • […] Sean O’Toole  |  Nov 4, 2010  Here’s a quick update on the impacts we are seeing from “Robo-Gate”. For those that missed this major foreclosure news item, robo-gate refers to the foreclosure freezes implemented by various lenders after revelations that foreclosure filings were being attested to in a robotic fashion that may not have met legal requirements. In the beginning the freezes were limited primarily to 23 states that use the judicial foreclosure process, but on October 8th the impact grew when Bank of America announced a national foreclosure freeze. You’ll find our initial take, back on October 1st, here: Free Homes? Unlikely. Foreclosure Delays? Absolutely. […]

  • […] Robo-signing scandal over documentation issues in judicial foreclosure filings leads to nationwide delays in foreclosure sales. […]