Posted on July 28th, 2011 by Mark Stopa
Nearly a year ago, I was doing everything I could to alert the public about the impending title problems resulting from foreclosures being processed too quickly. The New York Times and USA Today wrote stories about it, here, and several Florida reporters did so as well, contemporaneous with my blogs, here, here, here, and here. But basically the issue went away quietly.
Now, it’s re-emerged, finally and appropriately, in two key ways.
First, MERS announced it changed its procedures to require that an assignment of mortgage be filed prior to the start of any foreclosure suit. To me, this is a tacit yet glaring admission of the huge title problems that have existed in a huge percentage of foreclosure cases. This isn’t a complicated issue, either – it’s just one that everyone has ignored.
Take your standard MERS mortgage – a mortgage recorded in the public records with MERS as nominee for XYZ Corp. Invariably, when the foreclosure lawsuit is filed, it’s not filed in the name of XYZ Corp., it’s filed in the name of Bank of America, JP Morgan Chase or some securitized trust – an entity with no relationship to XYZ Corp.
In most foreclosure cases, banks’ lawyers argue the plaintiff has standing if it is the “holder” of the Note, i.e. if it possesses the original note with a special indorsement or indorsement in blank. Many judges accept this position, no questions asked. In other words, an assignment of mortgage is often viewed as irrelevant/superfluous.
But I’ve often asked “what about title?” Remember, the ultimate purpose of a foreclosure lawsuit isn’t merely to foreclose, it’s to convey title to someone. Has that been happening? Unfortunately, no. Even if Bank of America, JP Morgan Chase, or the securitized trust has standing (a huge if, but that’s a whole other blog), without an Assignment of Mortgage in the public record, XYZ Corp. is still the mortgage holder of record. This means that even if Bank of America, JP Morgan, or whoever prevails in the foreclosure is the high bidder at the auction, acquires title, and sells the property to a third party, XYZ Corp. is still the mortgage holder of record. What does that mean? Essentially, the entire foreclosure case was like a wild deed – it took place, but XYZ Corp. can still institute a foreclosure lawsuit in its own name, as it would have priority over the bona-fide purchaser who acquired title from the bank.
That sounds crazy, I know. But think about it. If XYZ Corp. is the mortgage holder of record, and it’s not named as a party in the mortgage foreclosure suit, and there is no Assignment of Mortgage, then the mortgage in favor of XYZ Corp. still exists, even after the foreclosure, even after the auction, and even after the sale to the third party. Yes, the foreclosure happened, but as far as XYZ Corp. is concerned, the foreclosure is irrelevant – it still has the mortgage.
There are only two ways to prevent this – join XYZ Corp. as a defendant in the lawsuit (meaning the final judgment of foreclosure would be res judicata as to any subsequent claim on the mortgage), or record an Assignment of Mortgage in the public records.
In my view, MERS finally caught on to this problem, hence the change in its procedures. But what about the hundreds of thousands of foreclosure cases that were completed or remain pending (prior to this change)?
It’s up to all of us to educate judges about this problem. “Yes, judge, the plaintiff may have standing. But even if it does, XYZ Corp. is an indispensible party, and you cannot enter a final judgment of foreclosure without it.” When the judge acts confused, explain that since XYZ Corp. is the mortgage holder of record, it can prosecute a foreclosure lawsuit even after the plaintiff acquires title and sells the property to a third party. And since that defeats the purpose of a foreclosure, subjects homeowners to two lawsuits on the same debt, and will cause indescribable title problems (for innocent third parties), we cannot allow that. Apparently, MERS now realizes as much, hence the change in procedures.
Old Republic is starting to feel the impact of title problems, announcing it may have to stop issuing title policies. Is the timing of this announcement a coincidence, coming right on the heels of MERS changing its policies? Maybe, but I doubt it. Apparently … hopefully … the title insurance industry is finally catching on to the huge, widespread title problems that are emerging as a result of foreclosure cases being pushed through in a sloppy, haphazard manner.
Mark Stopa
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Posted on July 28th, 2011 by Mark Stopa
Florida truly is the epicenter of the foreclosure crisis. Want more proof? While sitting in my hotel room in NYC, I happened upon a New York Times article about foreclosure sales in Miami-Dade County. The point of the article (the author’s “angle,” if you will) was to show that the real estate market is not as bas as some people think because wealthy investors are buying houses and condos in Florida in all-cash transactions. Hence, David Streitfeld titled the article “Affluent Buyers Reviving Market for Miami Homes.”
We can debate the veracity of that viewpoint, i.e. the real estate market is improving in Florida all day long – personally, I don’t think it is. The point, though, is that the article glosses over the bigger picture … In fact, everyone is glossing over the bigger picture.
Even if you accept (which I don’t) the concept that the real estate market is improving, clearly, the market isn’t improving for everyone. As the article shows, the “deals” in this “buyer’s market” are almost always “cash” transactions. I don’t know about you, but I don’t have hundreds of thousands of dollars, cash, to buy an investment home. Do you? Do you know ANYONE who does? Clearly, it’s only the ultra-rich, the mega-wealthy, the socio-economically elite, who have the means to take advantage of this “buyer’s market.” Remember, banks aren’t lending, so you have to be independently wealthy to buy any of these investments.
So what does this mean? The mega-rich have the means to get “in” on these bargains while middle-class Americans stand helplessly on the sidelines and watch, knowing the deals are available but unable to do anything about it. Worse yet, these homes were taken from the middle-class, so it’s basically a double-whammy – the middle-class lost their homes, and they have to watch while the uber-rich buy their homes as investments at bargain-basement prices.
Am I the only one disgusted here? Where is the outrage? Why isn’t anyone in our government screaming:
THIS IS THE BIGGEST TRANSFER OF WEALTH IN THE HISTORY OF MANKIND … AND IT MUST STOP!!
It’s sadly ironic, actually. When he was running for President, Obama was accused by some of being a Socialist – of wanting to divide wealth equally among everyone. In fact, the typical Democratic viewpoint (I realize I’m simplifying) is to take from the rich and give to the poor. Yet during his Presidency, exactly the opposite has transpired – the mega-rich are getting richer while everyone else is getting poorer.
Unless something changes, this problem is only going to get worse over the next several years. Homeowners will keep getting foreclosed. Banks will keep unloading REO from their inventory, and they’ll keep doing so to the only people who can afford to pay cash – the mega-rich. Meanwhile, middle-class America will sit idly by, watching their collective wealth be transferred to those who are already wealthy.
Many Americans already believe the US government is run by the rich, for the rich. After all, if this is what’s happening on Obama’s watch, what will happen if/when a staunch Republican takes office? My point isn’t to initiate a political debate. Rather, it seems clear that nobody in our government is willing to stand up to the banking industry or the mega-elite because nobody in politics wants to bite the hands that feed them. And that’s the perpetual problem – the politicans are all rich (or depend on the rich for their re-election campaigns), so regardless of party lines, they all cater to the whims of the rich and powerful. If you disagree, you tell me – what is Obama, or anyone else in government, doing to stop/slow the unprecedented transfer of wealth from middle-class America to the uber-wealthy?
My solution? Adide from not allowing foreclosures to be processed (at breakneck speed, if at all), I see a few options. First, let’s tax the hell out of all the banks that took bailout money and aren’t lending. I suppose I agree we can’t “make” banks lend, but we can punish them for refusing to do so. Make the punishment steep enough and they’ll start lending again. That way, at least some middle-class Americans will have a chance to take advantage of the low real estate prices, if they so choose.
Second, there has to be a way to get typical, middle-class Americans into our government. Our government is supposed to be run “by the people, for the people.” The system can’t work when virtually everyone in politics is rich … All that happens is there is no voice for the majority of Americans.
I’m sure there are many other posible solutions. In my view, though, it all starts with acknowledging the problem. The current system isn’t working. It’s not fair that the rich are getting richer at the expense of mainstream America, and it’s appalling that nobody in a position of authority is saying so.
Mark Stopa
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