Foreclosures May Be Just a Sideshow in Paperwork Scandal

Submitted by Rich Toscano on October 16, 2010 - 9:29am
I'm a finance and economics nerd, not a legal nerd, so I'm trying to make heads or tails of the whole foreclosure signing mess just like everyone else.   Fortunately a friend sent along a Citigroup research piece, summarizing the views of a Georgetown law professor named Adam Levitin, that I found very enlightening.  Unfortunately, the piece is proprietary so I can't link to it.  But I will try to sum up some of the major points.

continue reading at voiceofsandiego.org

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Submitted by davelj on October 16, 2010 - 9:51am.

If you scroll down a bit, the entire report is here:

http://www.zerohedge.com/article/citigro...

To quote Ron Burgundy: "Rich [no pun intended, Rich]. And compelling."

Submitted by Rich Toscano on October 16, 2010 - 10:11am.

BTW thanks davelj, your offline conversation with me about this also helped some of the pieces fall into place for me.

FWIW, just after I posted this I happened to read some comments in an unrelated Calculated Risk thread, and saw that CR said that he doesn't think this Georgetown guy is right. This is what he said:

"I'll say this about that law professor paper that people keep linking to (poorly written in my view) ... Grant Deeds are still being filed in every county in the U.S. and there is an authoritative record of who owns the land in every county. (Note: just because a "law professor" makes a claim, doesn't make it true). Sure there are some title issues - but that is nothing new. On the MERS issues, I think he is just as wrong."

And later in the thread:

"I'm doing some research - and I'm pretty convinced I'm right on Foreclosure-Gate (for sure) and MERS (not related - improperly conflated) ... but it will take time to put something together"

Whole thing here for those interested: http://www.hoocoodanode.org/node/11234

I'll be interested to see what CR comes up with.

Submitted by davelj on October 16, 2010 - 10:47am.

While I understand the basic securitization process pretty well, I'm getting an education on the innards of title transfers, etc. And reading about the nitty gritty is... well... pretty damn tedious. Frankly, I still don't understand a lot of it.

Having said that... and re-acknowledging that I ain't no lawyer man... at the end of the day you've got a person who isn't paying their mortgage. We may not know right this minute exactly what entity has proper title to that property, but it shall be revealed in due time. And the person not paying will be out on their ass in due course in 99.9% of those cases.

Regarding the issue of fraud, here is a post from Kingside who posts on a number of real estate-related blogs:

"Fraud usually requires 1) a representation; 2) falsity of the representation; 3) reasonable reliance on the representation; and 4) damages or a change of position because of the reasonable reliance on the false representation. Fraud is not usually easy to prove. Irregularity in the foreclosure proceedings that do not prejudice or cause some injury to the borrower is not fraud.

Is the MERS mess fraud, or is it an irregularity in connection with non-judicial foreclosure proceedings that have not prejudiced the borrower? In the example I gave, I'm not seeing the fraud. I am not sure how you can convince a judge to set aside the sale if you are the borrower."

At the other end of the spectrum, the MBS "investors" who have exposure to the losses in this dreck are really just trying to exploit a technicality to cover up their horrible investment judgment in buying this crap in the first place. It's kind of like if I open up a brokerage account and checked the box in the account paperwork noting my risk tolerance as "moderate risk." Then I buy a stock from my broker that declines in value and I go back to him and say, "I want my money back because you shouldn't have sold that stock to me because I checked the box saying I only wanted to take MODERATE risk - not HIGH risk." As much as the servicers and originators deserve to get screwed in this whole thing, the buyers of this crap are just looking for a scape goat for their own horrible decision-making.

I think the following is the bigger risk for the originators (lots of TBTF banks among them), because this issue is not about technicalities but rather about real identifiable fraud with identifiable damages:

http://www.reuters.com/article/idUSN2115...

But, hey, we'll see how it all turns out. Probably not well.

Submitted by sobmaz on October 16, 2010 - 11:31am.

One thing I have learned in the last 5 years is what appears to be a "big problem" is down graded to no problem with the stroke of a pen.

Since this could crush the economy my best guess is, the Government will mandate that the MERV system of mortgage tracking is legitimate and the Government will be the insurer of titles of last resort.

Wala....fixed.

The Government has learned it has no monetary boundaries to do whatever it wants and so far little reaction from world financial markets. Although Gold is clearly starting to stomp its foot down and say....."Hold on a minute!"

Submitted by SK in CV on October 16, 2010 - 1:30pm.

davelj wrote:
Is the MERS mess fraud, or is it an irregularity in connection with non-judicial foreclosure proceedings that have not prejudiced the borrower? In the example I gave, I'm not seeing the fraud. I am not sure how you can convince a judge to set aside the sale if you are the borrower."

I think you mean irregularity in connection with judicial foreclosure proceedings. As you know, almost all CA foreclosures are non-judicial, and never touch the courts. Which is part of why both the MERS and the robo-signing issue are mostly non-issues in CA.

On the bigger issue, this is not a property title issue. It is a security title issue. Upon sales, deeds have been properly recorded. Security interests have been properly perfected and recorded. Subsequent transfers (often multiple transfers) in ownership of those notes, which are negotiable instruments, and the security for those notes (the Deeds of Trust) have often not been propertly conveyed, recorded and/or endorsed. Often, it seems, they didn't even go through the motions to properly convey, record or endorse the original documents.

Because state laws vary, and security interests are covered by state law, the remedies for these screw ups will not be the same everywhere. It seems to me the parties with the biggest exposure are the MBS trusts and their sponsors, who probably bought these notes (and the related security interests), without the proper paperwork. I don't really see how it can affect buyers and sellers in typical transactions, where full reconveyances of prior trust deeds are recorded, new transfer deeds are recorded, along with new trust deeds. Which is to say, I can't see the courts ever finding that the remedy for screwed up paperwork would be to undo transactions, where neither party was the party to the screw up.

As an aside, when the whole AIG debacle was going down, an investment banker that was at ground zero of the birth of CDS's in London early last decade, told me that the real reason that AIG was too big to fail was that these CDS's could never be unwound because it would magnify the paperwork screw ups by an order of magnitude and keep the US bankruptcy courts overworked for decades. I suspect he may have been right.

Submitted by UCGal on October 16, 2010 - 3:58pm.

sobmaz wrote:
One thing I have learned in the last 5 years is what appears to be a "big problem" is down graded to no problem with the stroke of a pen.

Since this could crush the economy my best guess is, the Government will mandate that the MERV system of mortgage tracking is legitimate and the Government will be the insurer of titles of last resort.

Wala....fixed.

The Government has learned it has no monetary boundaries to do whatever it wants and so far little reaction from world financial markets. Although Gold is clearly starting to stomp its foot down and say....."Hold on a minute!"

the local county governments might have a different view. It appears that one of the reasons MERS inc was created was to avoid having to go through the hassle and cost of updating the trust deeds at the county every time the mortgage was sold/bundled/traunched... It's far-fetched, but I could see the fed trying to keep MERS in place and a bunch of broke counties banding together to legally challenge MERS.

Submitted by SK in CV on October 16, 2010 - 3:59pm.

sobmaz wrote:
One thing I have learned in the last 5 years is what appears to be a "big problem" is down graded to no problem with the stroke of a pen.

Since this could crush the economy my best guess is, the Government will mandate that the MERV system of mortgage tracking is legitimate and the Government will be the insurer of titles of last resort.

Wala....fixed.

Not fixed. Federal government doesn't have the authority. It's governed by state law. And this current "crisis" (I don't really think it is a crisis) has nothing specifically to do with MERS.

Submitted by jpinpb on October 16, 2010 - 4:27pm.

My questions remains. Notes were passed around. Is it strictly only foreclosed properties that have trouble producing notes or is it any property?

Submitted by SK in CV on October 16, 2010 - 4:38pm.

jpinpb wrote:
My questions remains. Notes were passed around. Is it strictly only foreclosed properties that have trouble producing notes or is it any property?

I think it's a moot point for any property that isn't in foreclosure. I haven't heard of any disputes between two parties with both claiming to own a note. It appears to all be related to transfers of the security not being properly documented, standing to pursue remedies under the security instrument (the MERS issue), and the foreclosure process not following local rules to the letter of the law. None of those issues would be pertinent to a loan not in foreclosure. Though I'd love to hear alternate opinions on this.

Submitted by jpinpb on October 16, 2010 - 4:50pm.

Ok. That's what I wasn't sure about. Rich's comment This puts into legal question the ownership of the loans in all those mortgage-backed securities. So is it all the MBS or just the ones in foreclosure.

Submitted by peterb on October 17, 2010 - 9:08am.

Using a legal tool to avoid responsibility. It's the American way. Why not, the big banks use Congress and the Fed. Now it's the defaulters chance to get on the band wagon. Ride on!!

Submitted by outtamojo on October 17, 2010 - 10:12am.

Would it be a good idea for big banks to start buying up shares of ABK,MBI, and the GSE's as insurance?

Submitted by mike92104 on October 17, 2010 - 12:38pm.

Does anybody else see this as another excuse for the banks to collude to manipulate the market even more than they are already? It seems to me that having an excuse to hold up foreclosures even longer will just take a significant amount of inventory off the market.

Submitted by gandalf on October 17, 2010 - 7:35pm.

Worked for an investment bank out of college, analyst on a mortgage trading desk on Wall Street. Packaging up whole loans, cleaning up after the S&L debacle, RTC days. Moved on after a couple of years, joined the productive economy, easy decision despite the money.

Underwriter was a buddy of mine. He used to come back from the field after a few days poring over files and boxes in warehouses and he'd say "Jesus, their records are a mess. Don't they realize if they can't show the paper, the borrower can walk on a technicality?"

I'm fairly certain that a _significant_ number of loans in every pool are literally undocumented. This was one of my thoughts early on, when things first started breaking down, that the paperwork and signatures are a huge liability for the banks, trusts and servicers.

Submitted by SK in CV on October 17, 2010 - 7:54pm.

gandalf wrote:
Underwriter was a buddy of mine. He used to come back from the field after a few days poring over files and boxes in warehouses and he'd say "Jesus, their records are a mess. Don't they realize if they can't show the paper, the borrower can walk on a technicality?"

I'm fairly certain that a _significant_ number of loans in every pool are literally undocumented. This was one of my thoughts early on, when things first started breaking down, that the paperwork and signatures are a huge liability for the banks, trusts and servicers.

I don't think there will be a lot of cases where borrowers will be able to just walk. The paperwork is somewhere. I think (and I certainly could be wrong on this) that most of the paperwork can be located. Endorsements and recordings can be corrected and brought up to date. But it will take time. And most jurisdictions have some sort of procedure to allow for lost document substitutions.

This is a bit of speculation here, I haven't seen anyone anywhere write about it yet, but I think the loan owners and the loan servicers have a real fear of some humungous class action litigation. Which is why the moratoria. I'm not sure exactly what the cause of action would be, but something along the lines of bad faith. And this could be for both already completed foreclosures and foreclosures in process. There'd have to be some sort of provable actual damages, but even if minimal it could allow for punitive damages. And the moratoria are a preemptive action to be able to show immediate corrective action is being taken, as a defense against bad faith charges.

There was a period, I'm thinking it was late 80's, when just the threat of bad faith allegations lead to quick settlements with insurance companies after a handful of multi-million dollar bad faith findings.

I don't think this has anything to do with market manipulation. This is a very real problem that has to be fixed.

(And almost none of this applies in California.)

Submitted by bearishgurl on October 17, 2010 - 8:15pm.

I've been looking on ARCC today on clients and also people I know in default and they're ALL MERS, obviously originated by mortgage brokers (many unscrupulous). On a case I've previously discussed here who is now 30 mos. behind and trying to obtain a deed in lieu with "cash for keys," the thing that seems to be holding up the deed-in-lieu is the 1st TD holder NOT BEING ABLE TO LOCATE the investor of the 2nd TD (to sign off on it) as both loans are MERS. The property in question's value has fallen below the amount of the first so the second wouldn't be able to recover upon a trustees sale, in any case. Application for deed-in-lieu in this case is over four months old.

I was "asleep at the switch" (involved in other things) during the years these TD's were recorded in MERS' name (and frequently simultaneously in the servicer's name as well) and so am FLABBERGASTED as to how this debacle was actually allowed to take root!

I DO believe there should have been subsequent trust deeds recorded in the proper name of the new TD holder in states where a judicial foreclosure is necessary. SK in CV is correct that the titles are not in dispute . . . these are NOT title insurance issues. CA is a non-judicial foreclosure state so CA trustees should be free to foreclose informally (on the courthouse steps).

Perhaps lenders on CA properties (and other non-judicial foreclosure states) will be able to see their way clear to lifting their "moratorium" soon on CA foreclosures and move forward. It will be interesting to see how this quagmire plays itself out.

Submitted by gandalf on October 17, 2010 - 9:06pm.

Actually, with problematic documentation, if I remember correctly it was a couple of percentage points in every loan pool and that was back in 1990. I would imagine it's much higher now with all the shenanigans that occurred.

I agree the paperwork will get resolved in most cases. But it's still a very serious liability, higher costs of doing business, cause for delays, litigation risks, etc. Which is where things are now with the foreclosure moratorium.

Net result is just to clog up the system even more, as if things weren't kludged enough already. The housing bubble / banking crisis is just an insanely screwed up and irresponsible situation all the way around.

Submitted by urbanrealtor on October 17, 2010 - 10:24pm.

A good summary of a sticky (and not terribly valuable imo) point.

http://www.cnbc.com/id/39634568/Foreclos...

Here is Tanta's take on it:
http://www.calculatedriskblog.com/2007/1...

To quote Tanta:
Describing this as fraud is "fighting bongwater with bongwater".

None of these issues will change the fact that at sale time:

Someone will have to pay off a note (getting a copy (not original) is easy for an escrow officer) in a way that is consistent with the requests of the entity servicing that note.

Then the buyer will record a deed from the seller.

There may be lawsuits for who owns the debt (and deserves the money) but there really isn't much danger about whether the house can be sold or not or who owns it.

That is distinct from REO's where the actual ownership of the property is in dispute.

Submitted by gandalf on October 17, 2010 - 11:28pm.

Great link to CR post from Tanta, UR. Conforms with my understanding, certain percentage of loans with problematic documentation, not across the board but introduces costs and legal issues, added expense for the banks and servicers to resolve documentation before foreclosing.

I suspect problems are more prevalent now as careful and correct seems to have fallen by the wayside during the boom. It seems MERS serves to streamline MBS market mechanics but don't know that it resolves underlying paperwork issues. I might be wrong about this last part though.

Dan, if the various documentation issues are resolved in routine ways you describe, what's your take on the foreclosure moratorium? Concern for banks and others involved seems to rise above 'routine'. Is it possible the potential fallout and costs are more serious?

Submitted by urbanrealtor on October 18, 2010 - 7:14am.

gandalf wrote:
Great link to CR post from Tanta, UR. Conforms with my understanding, certain percentage of loans with problematic documentation, not across the board but introduces costs and legal issues, added expense for the banks and servicers to resolve documentation before foreclosing.

I suspect problems are more prevalent now as careful and correct seems to have fallen by the wayside during the boom. It seems MERS serves to streamline MBS market mechanics but don't know that it resolves underlying paperwork issues. I might be wrong about this last part though.

Dan, if the various documentation issues are resolved in routine ways you describe, what's your take on the foreclosure moratorium? Concern for banks and others involved seems to rise above 'routine'. Is it possible the potential fallout and costs are more serious?

Well the moratorium deals with a couple of different things.
First, there is the issue of the loans (and their ownerships) having problems (as described by Tanta and in various critiques of MERS).
Second, and much more importantly is the conversion of those notes (which are personal property) into titled ownership (which is real property). If you are kicking people out of their home you need to be held to a legal standard.
When some of the first horror stories came out (like foreclosing on people who were caught up or who never had a mortgage), the lawyers started smelling blood in the water.
Banks have deep pockets and are very sue-able.
Banks started putting in claims to their title insurers.
Title insurers pay out very few claims (as is the nature of the biz).
Having to pay out a stack of claims probably caused some of the insurers to review the paperwork.
In so doing they realized that the paperwork was so shoddy, that this was an un-insurable risk.
If properties cannot have their title insured, then they effectively cannot be sold.
A property with clouded or questionable title is worth 0-50% of an identical property with clear title.
Its a game-changer.
That is why the banks are shutting down their repos.
Its not out of kindness.
It is with the threat of dramatically greater losses (via fines and lawsuits), dramatically reduced market value, and potential government intervention (a potential government takeover is scary).
So they have finally decided to take a breather and check their paperwork.

Submitted by SK in CV on October 18, 2010 - 8:40am.

In re:

gandalf wrote:
Dan, if the various documentation issues are resolved in routine ways you describe, what's your take on the foreclosure moratorium? Concern for banks and others involved seems to rise above 'routine'. Is it possible the potential fallout and costs are more serious?

and
urbanrealtor wrote:

Well the moratorium deals with a couple of different things.
First, there is the issue of the loans (and their ownerships) having problems (as described by Tanta and in various critiques of MERS).
Second, and much more importantly is the conversion of those notes (which are personal property) into titled ownership (which is real property). If you are kicking people out of their home you need to be held to a legal standard.
When some of the first horror stories came out (like foreclosing on people who were caught up or who never had a mortgage), the lawyers started smelling blood in the water.
Banks have deep pockets and are very sue-able.
Banks started putting in claims to their title insurers.
Title insurers pay out very few claims (as is the nature of the biz).
Having to pay out a stack of claims probably caused some of the insurers to review the paperwork.
In so doing they realized that the paperwork was so shoddy, that this was an un-insurable risk.
If properties cannot have their title insured, then they effectively cannot be sold.
A property with clouded or questionable title is worth 0-50% of an identical property with clear title.
Its a game-changer.
That is why the banks are shutting down their repos.
Its not out of kindness.
It is with the threat of dramatically greater losses (via fines and lawsuits), dramatically reduced market value, and potential government intervention (a potential government takeover is scary).
So they have finally decided to take a breather and check their paperwork.

Neither of these comments address the cause for the moratoria. It is not the MERS issue, where the issue is the legality of en blanc transfers, and the standing of MERS to pursue foreclosure, since MERS is neither the note owner nor the trustor under the deeds of trust. It is not the sloppy paperwork issue, which is related to the MERS issue.

The current "crisis" is related only to the foreclosure process in states which only have judicial foreclosures, and more specifically, with the use of "robo-signers" in filing the foreclosure lawsuits. In most all jurisdictions, those filings require attestations that the party pursuing the claim has reviewed the documents, and has personal knowledge of the facts. They don't. They haven't. And they've filed the suits anyway. It is only peripherally related that they may not even have possession of the documents, or have sufficient information to assert, under penalty of purjury, that they have personal knowledge of the facts. (In many, I suspect they don't.)

In some jurisdictions, this could be negiligence, possibly rising to the level of gross negligence or fraud.

Both of these issues are significant. But the paperwork and MERS issue, is not the current "crisis". Going forward, the current problem is easy to fix. And I suspect the moratoria are simply to put the proper processes in place to fix it.

Submitted by urbanrealtor on October 18, 2010 - 3:51pm.

SK in CV wrote:

The current "crisis" is related only to the foreclosure process in states which only have judicial foreclosures, and more specifically, with the use of "robo-signers" in filing the foreclosure lawsuits. In most all jurisdictions, those filings require attestations that the party pursuing the claim has reviewed the documents, and has personal knowledge of the facts. They don't. They haven't. And they've filed the suits anyway. It is only peripherally related that they may not even have possession of the documents, or have sufficient information to assert, under penalty of purjury, that they have personal knowledge of the facts. (In many, I suspect they don't.)

So it is your assertion that the warnings and cancellation of title insurance by large title firms was not related to this? Or that it was only peripheral?

I don't think that is a supportable position.
The government is not going after cubicle drones or office temps whether or not it is their signature on the affidavit.
Neither the bank nor its officers are going to have any criminal repercussions.
Perjury is just not that big a threat.
The threat of lawsuits, reduced market value, and government authorities stepping in is what will have the effect.

EG: As you astutely point out, CA has no need for court action in foreclosure, yet even here, the state AG has ordered several lenders to prove their cases or halt foreclosures.

The point is that affidavits are a component but to describe them as the "only" issue in this "crisis" (however you bound that) is not a supportable position. The state-specific particulars are just not as important as you seem to suggest.

Submitted by SK in CV on October 18, 2010 - 5:23pm.

urbanrealtor wrote:
SK in CV wrote:

The current "crisis" is related only to the foreclosure process in states which only have judicial foreclosures, and more specifically, with the use of "robo-signers" in filing the foreclosure lawsuits. In most all jurisdictions, those filings require attestations that the party pursuing the claim has reviewed the documents, and has personal knowledge of the facts. They don't. They haven't. And they've filed the suits anyway. It is only peripherally related that they may not even have possession of the documents, or have sufficient information to assert, under penalty of purjury, that they have personal knowledge of the facts. (In many, I suspect they don't.)

So it is your assertion that the warnings and cancellation of title insurance by large title firms was not related to this? Or that it was only peripheral?

I don't think that is a supportable position.
The government is not going after cubicle drones or office temps whether or not it is their signature on the affidavit.
Neither the bank nor its officers are going to have any criminal repercussions.
Perjury is just not that big a threat.
The threat of lawsuits, reduced market value, and government authorities stepping in is what will have the effect.

EG: As you astutely point out, CA has no need for court action in foreclosure, yet even here, the state AG has ordered several lenders to prove their cases or halt foreclosures.

The point is that affidavits are a component but to describe them as the "only" issue in this "crisis" (however you bound that) is not a supportable position. The state-specific particulars are just not as important as you seem to suggest.

I'm not aware of any cancellations of title insurance. In fact, once a policy is issued, I doubt there is any mechanism for cancellations. I have heard of some title companies refusing to issue title policies on properties that have already gone through disputed foreclosures. Not surprising, if they can't determine a clear current title, they won't insure.

That certainly may be related to the current crisis and the moratoria.

The threat of lawsuits is absolutely what this is about. The threat of the US Attorney, and the various state attorneys general pursuing prosecutions is absolutely what it's about. (And those prosecutions, or threats of prosecution could very well be for purjury, suborning purjury, conspiracy to commit purjury and fraud, and RICO violations. I've never been a prosecutor, but if the motivation is there, there's no question that all those crimes were committed and are prosecutable.)

Reduced market value is a different story. You probably have better insight on this that I do, but it seems to me that if foreclosures are delayed it wouldn't cause the value of other properties to decline. It would keep them propped up because it keeps inventory off the market.

I'm not a big supporter of the theory that lenders and loan servicers are intentionally keeping inventory off the market as a way of manipulating prices. I just think they are incredibly inept at managing distressed assets. This current crisis is a symptom of that. Cost cutting by using inexperienced and over-worked "robo-signers" to file court documents that, by law, require individual scrutiny. That IS this "crisis". There are lots of other issues out there. None of them caused any lenders to halt foreclosures en masse.

Submitted by sdduuuude on October 18, 2010 - 8:15pm.

Maybe they should just put some of these contested loans into receivership. Foreclose on them because they are clearly late, then figure out who owns it later

Submitted by urbanrealtor on October 18, 2010 - 8:38pm.

SK in CV wrote:

I'm not aware of any cancellations of title insurance. In fact, once a policy is issued, I doubt there is any mechanism for cancellations. I have heard of some title companies refusing to issue title policies on properties that have already gone through disputed foreclosures. Not surprising, if they can't determine a clear current title, they won't insure.

I was referring to the termination (or non-renewal) of large title insurance contracts. These are ubiquitous for those of us who help buyers of foreclosures. Its why its a good idea to let the bank pick the title company.
Here is a link about that:
http://www.nytimes.com/2010/10/03/busine...
Also, cancelling a policy when material facts (like "I swear I have personal knowledge of the docs and facts") are mis-represented to the damage of the insurer (aka fraud) is pretty easy. One can never really insure against one's own fraud.

At any rate, I don't think we are disagreeing on this issue

SK in CV wrote:

That certainly may be related to the current crisis and the moratoria.

The threat of lawsuits is absolutely what this is about.


Agreed.
SK in CV wrote:

The threat of the US Attorney, and the various state attorneys general pursuing prosecutions is absolutely what it's about. (And those prosecutions, or threats of prosecution could very well be for purjury, suborning purjury, conspiracy to commit purjury and fraud, and RICO violations. I've never been a prosecutor, but if the motivation is there, there's no question that all those crimes were committed and are prosecutable.)

Seeing as how those same allegations were bandied about with regard to originating those loans (with few results) I don't buy that as a true fear.
It is possible but I doubt we will see more than 5 people in the country will be even charged. Again, nobody (not prosecutors or the angry public) cares about charging temps and cubicle drones. I am curious to see who will get charged (if anyone).
SK in CV wrote:

Reduced market value is a different story. You probably have better insight on this that I do, but it seems to me that if foreclosures are delayed it wouldn't cause the value of other properties to decline. It would keep them propped up because it keeps inventory off the market.

Delay is not the issue.
A clouded title makes a property essentially valueless.
If I am spending many thousands of dollars (not even hundreds of thousands) I want to know damn sure that I am getting what I paid for.
Regardless of condition, I expect to know that I own that dirt and what is on it.
These problems call that ownership into question.
SK in CV wrote:

I'm not a big supporter of the theory that lenders and loan servicers are intentionally keeping inventory off the market as a way of manipulating prices. I just think they are incredibly inept at managing distressed assets. This current crisis is a symptom of that. Cost cutting by using inexperienced and over-worked "robo-signers" to file court documents that, by law, require individual scrutiny. That IS this "crisis". There are lots of other issues out there. None of them caused any lenders to halt foreclosures en masse.
Well we disagree on this. Any interest in a wager on the criminal outcome of this?
I bet we could get Rich liquored up enough to hold the money.
If we give it to Allen, he'll just use it for anti-socialist propaganda.

Submitted by Rich Toscano on October 18, 2010 - 9:19pm.

Sure, send the money over. With the liquor.

Submitted by urbanrealtor on October 18, 2010 - 9:31pm.

Rich Toscano wrote:
Sure, send the money over. With the liquor.

C'mon Rich.
Everybody knows you don't read the posts.
You can't be Rich.
You are probably just one of FLU's fake users.

Submitted by SK in CV on October 18, 2010 - 9:44pm.

urbanrealtor wrote:
SK in CV wrote:

The threat of the US Attorney, and the various state attorneys general pursuing prosecutions is absolutely what it's about. (And those prosecutions, or threats of prosecution could very well be for purjury, suborning purjury, conspiracy to commit purjury and fraud, and RICO violations. I've never been a prosecutor, but if the motivation is there, there's no question that all those crimes were committed and are prosecutable.)

Seeing as how those same allegations were bandied about with regard to originating those loans (with few results) I don't buy that as a true fear.
It is possible but I doubt we will see more than 5 people in the country will be even charged. Again, nobody (not prosecutors or the angry public) cares about charging temps and cubicle drones. I am curious to see who will get charged (if anyone).

No, they weren't the same allegations. What we're dealing with here is due process. There are lots of anectodals about homeowners being foreclosed on because they made payments to the old lender when their loan was sold. Or the case, I think it was in Florida where a home was foreclosed on and the house was free and clear. I think those are anomalies. Most of these loans SHOULD be foreclosed. But borrowers are entitled to the due process specified by law. BofA figured out pretty quick how to do it right. Chase is claiming they always did it right. It's not complicated. Very fixable. But what's done is done. All those foreclosures that were done without due process are possible litigation targets. Nobody is getting their house back if they owed the money. I'm still scratching my head trying to figure out actual damages in those cases.

Apologize here for kinda repeating myself, but the danger is if some AG gets a bug up their ass, and decides the bankers knew what they were doing was depriving homeowners of due process specified under state law. It could be costly. It shouldn't affect the real estate market. It will affect lenders stock prices if it happens.

urbanrealtor wrote:
Z
SK in CV wrote:

Reduced market value is a different story. You probably have better insight on this that I do, but it seems to me that if foreclosures are delayed it wouldn't cause the value of other properties to decline. It would keep them propped up because it keeps inventory off the market.

Delay is not the issue.
A clouded title makes a property essentially valueless.
If I am spending many thousands of dollars (not even hundreds of thousands) I want to know damn sure that I am getting what I paid for.
Regardless of condition, I expect to know that I own that dirt and what is on it.
These problems call that ownership into question.

So isn't this making some of these foreclosed homes unsaleable at any price until those title issues are settled? Less inventory. Higher prices.

urbanrealtor wrote:
SK in CV wrote:

I'm not a big supporter of the theory that lenders and loan servicers are intentionally keeping inventory off the market as a way of manipulating prices. I just think they are incredibly inept at managing distressed assets. This current crisis is a symptom of that. Cost cutting by using inexperienced and over-worked "robo-signers" to file court documents that, by law, require individual scrutiny. That IS this "crisis". There are lots of other issues out there. None of them caused any lenders to halt foreclosures en masse.
Well we disagree on this. Any interest in a wager on the criminal outcome of this?
I bet we could get Rich liquored up enough to hold the money.
If we give it to Allen, he'll just use it for anti-socialist propaganda.

I think we disagree because you give lenders way too much credit. They really aren't that smart.

As to whether there really will be any prosecutions...eh. I just think there could be. I think there's cause. But you're right, it almost never happens. We can both keep our wagers, and spend the liqour money on ourselves.

BTW, what part of town are you in? If i'm remembering correctly, my sister is in escrow on a commercial building in your neighborhood. Grand opening of her new business should happen by Christmas.

Submitted by urbanrealtor on October 19, 2010 - 7:48pm.

Since we are clear about our disagreements, I will try to address our new points.

1:
Due process does not apply as a principle to non-state actors. Its possible at some time in the future it could, but since our country's founding that has not been the case. These are issues of actual or constructively fraudulent (or at least negligently inaccurate) affidavits, lawsuits, and recorded documents.
So your due process argument is not valid.

2:
As far as prosecutions, I am unclear whether or not you consider that an actual threat. If, as you say, that prosecutions are unlikely, then they are not a real threat. I think your beliefs are in agreement with those of the banks. I don't think they are particularly smarter than you but I don't think your insights are unique to you. They have done the same math.

3:
With regard to the valuelessness of clouded titles, I was clearly not communicating well.
To assume that this means that resale prices will go up is not quite right.
That is like saying that if Tylenol is recalled for a poisoning issue, then the price of Tylenol will go up.
It does not work that way (at least not entirely).
Its more like it scares buyers into postponing purchases.
Our industry is subject to highly elastic demand and huge prices.
Anything indicating that a property is toxic or tainted in some way will reduce values on it dramatically.
If that taint (insert taint joke here) appears to more widespread, then that will reduce demand much more broadly.
At a certain point a scarcity will cause a price increase but there is a lot more downhill on this particular ski slope.

Submitted by SK in CV on October 19, 2010 - 9:34pm.

urbanrealtor wrote:
Since we are clear about our disagreements, I will try to address our new points.

1:
Due process does not apply as a principle to non-state actors. Its possible at some time in the future it could, but since our country's founding that has not been the case. These are issues of actual or constructively fraudulent (or at least negligently inaccurate) affidavits, lawsuits, and recorded documents.
So your due process argument is not valid.

Just to be clear, I was not speaking of due process in a constitutional sense. The various states all have specific enumerated procedures to prosecute foreclosures. If those procedures have not been followed, the borrowers have been denied their due process.

urbanrealtor wrote:

2:
As far as prosecutions, I am unclear whether or not you consider that an actual threat. If, as you say, that prosecutions are unlikely, then they are not a real threat. I think your beliefs are in agreement with those of the banks. I don't think they are particularly smarter than you but I don't think your insights are unique to you. They have done the same math.

I consider it a possible threat. Though from the current bank friendly administration, I doubt it will come from the justice department. The various state AG's is a different story. And I suspect the bank's insight preceded mine. The issue became public, they took immediate action. They fixed it, or at least claim to have.

urbanrealtor wrote:

3:
With regard to the valuelessness of clouded titles, I was clearly not communicating well.
To assume that this means that resale prices will go up is not quite right.
That is like saying that if Tylenol is recalled for a poisoning issue, then the price of Tylenol will go up.
It does not work that way (at least not entirely).
Its more like it scares buyers into postponing purchases.
Our industry is subject to highly elastic demand and huge prices.
Anything indicating that a property is toxic or tainted in some way will reduce values on it dramatically.
If that taint (insert taint joke here) appears to more widespread, then that will reduce demand much more broadly.
At a certain point a scarcity will cause a price increase but there is a lot more downhill on this particular ski slope.

I didn't really word this the way I was thinking it. I don't think it will end up in worthless inventory or higher prices. There will probably be a tiny piece of the overall inventory which temporarily can't be marketed. The number won't be material. None will be knowingly marketed with questionable title issues. It won't be every foreclosure. It will be miniscule in California. I think it will have no affect on prices, and certainly not drive them down. The millions of empty homes across the country will take care of that.

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