Mortgage Mess Question for Real Estate Folks

Parent Cafe
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<p>I am not looking for a political discussion (please take it to the politics forum and start a new thread if that is what you want to discuss). But I am trying to understand something about the most recent mortgage paperwork issues that have come up, and hope some CC real estate experts might know. I read this in the NYT today:</p>

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<p>So what I am wondering is whether this actually clouds the title for the property in some way. And if that is the case, why would this issue merely be limited to foreclosures? Isn’t it possible that my bank did the same thing with a mortgage that I do pay on time? Could this be an issue for regular home sales (and make it harder/more expensive/even impossible to get title insurance) for those? Just trying to understand…</p>

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<p>I’m not a real estate expert, just an interested observer. </p>

<p>Here’s a start to an answer to your questions:</p>

<p>What everyone calls a mortgage actually has two components: the note, which is the borrower IOU, and the mortgage (in some states, it’s called a deed of trust) which is the lien on the property. In 45 states, the mortgage is a mere accessory to the note; you must be the real party of interest in the note in order to foreclose.</p>

<p>The pooling and servicing agreement, which governs who does what when in a mortgage securitization, requires the note to be endorsed (just like a check, signed by one party over to the next), showing the full chain of title, and the minimum conveyance chain is A (originator) => B (sponsor) => C (depositor) => D (trust). The endorsements also have to be wet ink; no electronic signatures permitted.</p>

<p>It seems that in many cases for mortgages initiated in the past several years, the note has been lost or deliberately destroyed. In addition, in private label deals (meaning non Freddie and Fannie), it appears instead that the notes are back with the originator, never endorsed as required in the pooling and servicing agreement. This means that when the originator sold the mortgage, it was done using an affidavit of lost note. This is essentially a sworn statement that says, “we own this debt, but we can’t find any paperwork to prove it, so please just take our word for it”.</p>

<p>What’s happening with houses that are being foreclosed is that many lenders are routinely including a document that re-establishes the note, which states that the original note has either been lost or destroyed. In other words, they’re admitting that they don’t have the note that proves they have a right to foreclose. One problem with this is that there’s a possibility that another institution up the chain of securitization will also try to collect on the same debt in the same manner.</p>

<p>Some judges are starting to hold banks to the letter of the law, forcing them to produce the original note. From what I’ve read, people who have already purchased a house that was foreclosed without the original documents are unlikely to lose their house retroactively (the article linked below has a different opinion).</p>

<p>So far it seems that title insurance rates haven’t skyrocketed, but it’s hard to imagine why they wouldn’t.</p>

<p>You’re asking some really good questions - I’ll be interested to hear what the experts say.</p>

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<p>As the article states, “the securitization process has muddied the chain of ownership.” [understatement] But haven’t Fannie and Freddie been involved in buying mortgages from banks for years and issuing mortgage backed securities? How have they managed to avoid these chain of ownership problems for all these years?</p>

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<p>This may be the answer to the problem posed by another thread–what unemployed law school graduates from Boston College can do for money…</p>

<p>I agree that the economy needs for the foreclosures–all of them–to get through the system so that the housing/real estate industry can start moving forward. Prices will stay depressed as long as there are a slug of foreclosures still to get through the system. And now there looks to be a whole another wrench slung into the works.</p>

<p>The same problems with foreclosures (how to prove who owns what) are cropping up with loan modifications. What a mess.</p>

<p>Very few of the people whose homes are being foreclosed upon have a prayer of staying in their homes long term. They’ve lost jobs–they’ve quit paying on their mortgages at all. All this does is delay the day of reckoning…conceivably for a long time…to the detriment of us all.</p>

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<p>Someone else can correct me…I may not have a good grasp of what is actually happening with this. </p>

<p>Nonetheless…</p>

<p>I think that for anyone who owns a home and pays down the mortgage, or sells it and pays the mortgage as is normally done on a sale, none of this will have any effect. [That is to say, if your lender has an imperfect right to repossess your home, that’s his problem, not yours.) The issue seems to be with the “right” of the foreclosing lenders to take possession of title to the property, based on what would be properly called “technicalities” with the paper trails. Unless you purchased a property that had been foreclosed on by a lender, I would think your title would be just fine. </p>

<p>This is an issue that should be easy to clear up, absent the “political” issues surrounding the desire to allow people to keep living in homes that they can’t afford. If it isn’t cleared up fairly quickly, the real estate market in those states that have the biggest problem will stay “locked-up”, since no one will know the true market price of real estate until these homes are in stronger hands at the proper prices.</p>

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<p>It could, but I’ve never seen it happen. When you sell your house that still has a mortgage on it, the lender obviously has to be paid off at closing. The title company sees on the mortgage who the lender is, and requests payoff information and a release of lien from them. </p>

<p>Let’s say your original loan was from Viewpoint Bank. The payoff info comes from Chase and the release of lien comes from Chase. The title company could say “whoa, we need a release from Viewpoint.” BUT, there should be something recorded in the real estate records assigning your note and lien from Viewpoint to Chase. If that paperwork is missing, there could be a problem. But as I’ve said, I’ve never seen it happen.</p>

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<p>don’t worry about the recorded landers, as long as there is money to clear the debt, you will be fine. What clouds the titile are those private, unrecorded debts/liens that the owners of the property knowingly or not incurred through out the ownership. That is what the title insurance all about.</p>

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<p>We have an associate who used to work for a firm that did a lot of the CMBS work…it’s a good reputable firm. She says that at the height of the “boom”, the people in that group worked 20 hours a day on a regular basis and made lots of mistakes. To a bread and butter real estate lawyer like myself, it seems unthinkable to not record an assignment of note and lien for every transaction. But when you are assigning hundreds of liens at a time, 20 hours a day, 6 days a week, yes some slip through the cracks. I guess a lot slipped through the cracks.</p>

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<p>I have had closings get delayed a day or two because the busy busy lawyers wait until the last minute to do the title search, and a loan (typically a HE or second) whose discharge was not recorded will turn up.</p>

<p>The lawyers hash it out, and as long as the loan was actually paid off at some point, everything went forward.</p>

<p>I have had no trouble getting owner’s title insurance (and I <em>always</em> get owner’s title insurance) with the last few foreclosures I have bought, however that was before the crap hit the fan in the last few months.</p>

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<p>I am not sure what NYT is referring to, but new CMBS deals are no longer in todays market. Either way, don’t worry about the recorded mortgages, it will NOT cloud the title.</p>

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<p>For those who are really into this stuff, the Massachusetts Supreme Judicial Court is hearing the USBank v. Ibanez case, where a Land Court judge ruled it wasn’t legal to record and backdate ownership transfer of a mortgage to prior to the mortgage, and therefore the bank illegally foreclosed on Ibanez. If the SJC rules that this applies retroactively, we are in deep doo-doo.</p>

<p>[Ibanez</a> Foreclosure Case Oral Argument Recap | The Massachusetts Real Estate Law Blog](<a href=“http://www.massrealestatelawblog.com/ibanez-foreclosure-case-oral-argument-recap/]Ibanez”>Ibanez Foreclosure Case Oral Argument Recap | Massachusetts Real Estate Law Blog)</p>

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<p>notrichenough, I was a bit alarmed when I read your post, thinking the court was considering ruling that it was illegal to date a document “as of [some date in the past”. However, I guess this is what you were talking about:</p>

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<p>I’d have a problem with that, too. If the purpose of recording something is to provide notice to the world, how does recording an assignment without the name of the assignee do that?</p>

<p>I will say that around here, borrowers have been filing “you can’t foreclose because you can’t prove you are the owner and holder of the note” law suits for over a year.</p>

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<p>I only scanned the answers, but as a Realtor I never saw the true RE responses.</p>

<p>First, when did you buy the home?</p>

<p>Second, did you buy a home that was not in foreclosure?</p>

<p>Third, are you selling your home and are concerned from a short sale aspect?</p>

<p>Now for the answers, if you purchased the home 5-10 yrs ago, or even 3 yrs ago, I would not be concerned at all for clouds/defects.</p>

<p>If you purchased a foreclosed home, and took title insurance, for you there is no fiscal issue because the insurance will be employed to defend you regarding the cloud or defect. You will not lose the home, in the perspective that the previous owners will get title again. The previous owners will be paid out, to do a quit claim on the title.</p>

<p>Title insurance is a one time deal at settlement. </p>

<p>If you are intending o sell short sale or buy short sale it could impact you. </p>

<p>For people in the process now, buckle down and expect that titling may now take longer than in previous yrs.</p>

<p>Title Insurance is deemed by many buyers as an expensive “junk” aspect. In my RE experience I have had only 1 client over my tens of millions of dollars in sales that refused to pay for the insurance. At the closing we did conference calls with the mtg company and an RE attorney trying to explain how insane this was, we could not convince him.</p>

<p>Title is not only about who owned the property, but also mechanics liens. It is not a junk bill. It is not something to short change yourself on.</p>

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<p>Well, I’m not a lawyer but that is not how I interpret the original case.</p>

<p>From a different page in that blog:</p>

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<p>[Ibanez</a> Update: Massachusetts Land Court Decision Invalidates Foreclosures Based On Post-Sale Assignments | The Massachusetts Real Estate Law Blog](<a href=“http://www.massrealestatelawblog.com/ibanez-update-massachusetts-land-court-decision-invalidates-foreclosures-based-on-post-sale-assignments/]Ibanez”>Ibanez Update: Massachusetts Land Court Decision Invalidates Foreclosures Based On Post-Sale Assignments | Massachusetts Real Estate Law Blog)</p>

<p>This seems to state pretty clearly that everything has to be brought up to date <em>before</em> the foreclosure, or the foreclosure is invalid.</p>

<p>I don’t think the problem so much is that lenders now have to get their ducks in a row first. The big worry (for me) is if this winds up being applied retroactively, it could potentially wipe out years or decades of foreclosures and cloud the title of many properties, including several of my own.</p>

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<p>Hmm…could keep *me *busy for a few years. I hope that the courts look to whether anyone was harmed by things like documents being recorded or assigned out of order. Chase says the average borrower has not paid for 14 months before he gets foreclosed on. No one is saying that these mortgages were not in default.</p>

<p>But I agree…I wonder what heighted scrutiny title insurance companies are going to engage in. If the title companies won’t insure title when the lenders try to sell their REO, what does THAT do to housing prices?</p>

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<p>This is already happening. Title insurance companies are refusing to provide owners’ insurance to buyers of foreclosed properties owned by specific mortgage companies.</p>

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<p>Old Republic will not insure title to any property which has been foreclosed by Ally Financial, Ally Bank or GMAC.</p>

<p>[Foreclosure</a> freeze spreads uncertainty - SFGate](<a href=“http://articles.sfgate.com/2010-10-15/business/24136202_1_foreclosure-freeze-foreclosure-sales-foreclosure-process]Foreclosure”>http://articles.sfgate.com/2010-10-15/business/24136202_1_foreclosure-freeze-foreclosure-sales-foreclosure-process)</p>

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<p>Notrichenough…FYI, Blogs are against the TOS on this site. Mods don’t really monitor the parent cafe forum, but you should know it is against the TOS.</p>

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<p>It actually has no impact on the housing price, since title is an underwriting issue from the mtg lender.</p>

<p>Now it does impact pre-approval letters, because there are conditions for a pre-approval mtg letter, one is binding. Binding means title insurance. </p>

<p>The selling side might now ask that the buyer remove that condition. </p>

<p>We are legally bound through our license to remain silent and refer you to an RE attorney. It is up to you to take the risk.</p>

<p>You are a fool IMHPO to take that risk. </p>

<p>FWIW Old Republic is a big player in title insurance, if they have already called the ball, you will soon see smaller players follow suit. What does that mean to the buyer? It means that the rate for title will increase, and they need to make sure as a buyer that BINDING is in their pre-approval letter, because they may need to use it to get their EMD back. For sellers, read the pre-approval letter to see if BINDING is a contingency for the mtg. If it is ask for a pre-approval without BINDING as a contingency.</p>

<p>If I was selling my property right now, I would not want BINDING to be a part of the equation, since that is an underwriting condition, and the deal could fall apart that day.</p>

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<p>Lenders are not going to loan money without a mortgagee title policy. In Texas, rates are regulated by the state. So they can’t charge more for coverage. They can just refuse to insure.</p>