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« Bank Of America Accused Of Breaking Into Woman's Home, Taking Husband's Ashes | Main | Caught By Mistake In Web Of Foreclosure »
Friday
Jan072011

Lenders Selling Foreclosed Homes Without Obtaining Title

Guest post from Yves Smith of Naked Capitalism.

Earlier this week we published a similar story that you might have missed...

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When you thought you’d seen every possible stuff-up in mortgage land, a new one comes to light.  As the housing market correction started, most savvy observers pointed out that prices needed to revert to long-term relationships with rentals and income levels.  And many have also pointed out that it is reasonable to expect prices to overshoot on the downside.

The powers that be have been trying to forestall the inevitable by using super low interest rates and purchases of mortgage backed securities to keep mortgage borrowing rates low, making housing more affordable.  It isn’t clear how productive that massive effort has been.  Not only have banks have tightened up on lending standards (which was warranted) but smart buyers might be worried about financing homes when rates are artificially low.  When intervention ceases as inflation picks up and the Fed starts to mop up liquidity, the rise in mortgage rates may prove to be disproportionate to the increase in inflation, dampening appreciation.

But with these ongoing large-scale subsidies, and the almost certain prospect of banks pressing for continuing favored treatment (recall, for instance, the “securitization market is TBTF” argument by American Securitization Forum president Tom Deutsch), it’s disturbing to see members of the financial services industry continue, through incompetence and an undue focus on cost containment, take actions that are detrimental to the housing market.

Evidence of the latest self-inflicted wound comes via e-mail from Lisa Epstein of ForeclosureHamlet.org, namely that some lenders, such as Fannie Mae, had not obtained title to foreclosed properties before selling them out of foreclosures. There’s already been a hue and cry over possible clouded title due to the discovery of errors and corners-cutting, particularly the electronic mortgage registry MERS producing an inability to verify the chain of title, and MERS being so loosely run as to raise questions about the integrity of its data.  

In classic 'shoot the messenger' behavior, people who have pointed out these issue have been criticized for publicizing these failings and arguably hurting the housing market.  But this is tantamount to arguing that the media should hide information about serious auto defects because it might hurt GM.

While the latest fiasco has been reported in Orlando, it isn’t hard to believe that the same problems exist in other parts of the US, since Fannie, Freddie, and outsourced servicer process managers like LPS worked to implement standardized processes to the extent state real estate laws permitted.

From the Orlando Sentinel:

A funny thing happened to DeBary resident Russ Vas Dais as he was about to buy a foreclosed home: He learned the bank selling him the house didn’t actually own it.

Fannie Mae had foreclosed on the property but, in an apparent paperwork problem, never took ownership.

“It was quite shocking to learn the bank didn’t have title to it,” said Vas Dais, who had worked in the real-estate sales and appraisal business for 18 years. “I just felt that there are a lot of incompetent professionals who aren’t paying much attention. …

Another emerging obstacle that could further complicate the foreclosure process: legal appeals that can reverse judicial foreclosures and can put a property’s ownership into deeper doubt.

Christopher Hunt, senior attorney with the Orlando law firm KEL, said the firm has beefed up its appeals staff and plans to start filing 20 foreclosure appeals a week. The firm In July persuaded the 5th District Court of Appeal to overturn state Circuit Judge William Law’s foreclosure against Stephanie and John Crown of Lake County. The bank that took ownership, Chase Mortgage, never put the house on the market, and the Crowns have been able to continue living in it.

Buyers of foreclosed properties could find themselves caught up in such litigation if the foreclosure is overturned in the courts, Hunt said.

“I think that is actually going to happen,” he added. “We’re not going to be able to prevent that in every instance. When that does happen, it’s bad for everyone. It’s a disaster in the making.”

Even in commercial real estate, foreclosure sales have proven so problematic that one Orlando broker likens them to “catching a falling knife.”

And a mere two days ago, the Sun-Sentinel reported that a foreclosed home was sold twice, meaning two buyers closed on and paid for the same property.

As we’ve indicated repeatedly, foreclosure sales are final; the risk is not so much to the home buyer, as the article implies, but the lender that foreclosed. As Bob Lawless wrote:

…most every (or maybe even every–I’ll let someone else do the 50-state survey) state provides the strongest possible finality protections for deeds obtained through foreclosure sales. We also see similar rules for other judicially supervised sales in other contexts such as sales of personal property subject to a security interest or bankruptcy sales….

Suppose Henry and Helen Homeowner lost their home in foreclosure proceeding, and it has since been purchased by Bill and Betty Buyer. Now, Henry and Helen discover the affidavits in their foreclosure proceeding had some of the very same apparently fraudulent signatures reported in the media. When Henry and Helen complain to the court, the answer should be: “Your complaint is against Deutsche Bank (or whoever foreclosed) and not against Bill and Betty. You can recover damages from Deutsche Bank but not eject Henry and Helen from possession.” In turn, this will mean that that Bill and Betty (or their lender) will not have to look to the title insurer for recovery.

However, as one might infer, Bill and Betty Buyer may still be the initial target of litigation, and could thus wind up spending time and money in getting the wronged seller off their back and on to suing the right party.

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Earlier this week we published a similar story...

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Yves Smith blogs at:

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Previously from Yves on the Daily Bail...

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Reader Comments (14)

« Yves Smith On Failed Economists, Goldman Sachs & Wall Street Reform (WATCH) »

http://dailybail.com/home/yves-smith-of-naked-capitalism-on-failed-economists-goldman.html
Dec 17, 2010 at 1:00 AM | Registered CommenterDailyBail
« Max Keiser: "Geithner Is Smelling The Vapors Of His Own Delusions. This Man Is Psychotic!" (VIDEO) »

http://dailybail.com/home/max-keiser-geithner-is-smelling-the-vapors-of-his-own-delusi.html

interview with yves in this clip...
Dec 17, 2010 at 1:01 AM | Registered CommenterDailyBail
Robo-Signing Is Child's Play Compared To This - Bank Of America Allegedly LYING To State & Federal Courts About Fraudulent Foreclosures In Kentucky

http://dailybail.com/home/robo-signing-is-childs-play-compared-to-this-bank-of-america.html
Dec 17, 2010 at 1:02 AM | Registered CommenterDailyBail
« Caught By Mistake In Web Of Foreclosure »

http://dailybail.com/home/caught-by-mistake-in-web-of-foreclosure.html
Dec 17, 2010 at 1:04 AM | Registered CommenterDailyBail
Financial Analyst: This Is The First Recession Since the End of the FIRST World War Where Government Help Isn't Trickling Down to the American People

http://www.washingtonsblog.com/2010/12/top-banking-analyst-this-is-first.html
Dec 17, 2010 at 1:09 AM | Registered CommenterDailyBail
Dude, Where's My Mortgage? How an Obscure Outfit Called MERS Is Subverting Our Entire System of Property Rights

http://www.alternet.org/economy/149189/dude,_where's_my_mortgage_how_an_obscure_outfit_called_mers_is_subverting_our_entire_system_of_property_rights/null
Dec 17, 2010 at 4:09 AM | Registered CommenterDailyBail
Scores of HOMEOWNERS DO NOT CONTEST FORECLOSURES BECAUSE:
1. They don't have knowledge of the law in order to recognize which aspects of foreclosure are legally challengeable or even fraudulent.
2. And even those who identify wrongdoing lack funds to pay for attorneys to represent them.
3. Homeowners are told to come to foreclosure auctions with $$$$$$$ that they do not have, SO THEY STAY AWAY from foreclosure auctions.

These homeowners are oblivious about sometimes "straw buyers" and sometimes lawyers in charge of foreclosures, obtain ILLEGAL ownership of people's homes; and pay literally nothing through "credit bids;" and that those recorded deeds from such auctions are null! For these very reasons, there needs to be a probe of lawyers who file foreclosures. http://chn.ge/eU2zAm

Also, the average lay person doesn't know about legal REQUIREMENTS of "standing" that prevents their homes from being repossessed via non-existent lenders or via lenders which have no ownership of promissory notes.

Yet, COURTS ARE SUPPOSED TO ENFORCE STANDING and compliance with established laws! Illegal, defective, fraudulent foreclosures are the cause of useless property deeds for real estate sales; title companies refuse insurance coverage on foreclosed properties –and more!

Further, after certain foreclosure auctions (via simulation) result in fraudulent – NOT LENDER ACQUISITIONS, by lawyers or straw buyers, the common scenario becomes property flipping, neighborhood blight, rodents, and so on!

*Sample of fraudulent foreclosure acts:

–Deliberately use defunct lenders, lenders without “standing” for false civil and bankruptcy foreclosure proceedings.
– Create and conceal malpractice foreclosure delays and engineer billable litigation.
– Orchestrate sham foreclosure auctions; property never acquired by lenders, but 'straw buyers’
– Commit actionable wrongs (unfair debt collection, fraud, various torts) that create lawsuits
– Self-dealing foreclosures which certain lawyers themselves obtain foreclosed properties for flipping.
–Foreclosures naming defunct lenders, illegally recorded property deeds, flipping, blighted communities.
– Unconscionably create false deficiency judgments against property owners after straw buyers acquire homes for pennies on the dollar.
– Intentionally false BANKRUPTCY COURT “Motion to Lift” and “Proof of Claim” on behalf of non-existent lenders which conceals fact of “NON-SECURED” mortgage debt.
–Involved in fraudulent collection of property damage insurance, as well as mortgage-default insurance.
–Fraudulent foreclosures abet loss of property taxes to city revenue, rodents, vagrants
– Thousands of families made unlawfully homeless from null foreclosure proceedings.

Foreclosure lawyers are officers of the court. Lawyers are required to know applicable laws and civil procedure; this knowledge is not required from mortgage lenders, nor loan servicers. Lawyers are the ones who file those inadequate or questionable foreclosure which lead to useless property deeds and impediments to real estate sales; title insurance companies reluctance to cover foreclosed properties; mortgage default claims disputes due to defective foreclosures.

*MORE info: Request for Congressional Foreclosure Panel to Examine Foreclosure Lawyers
http://www.change.org/petitions/view/request_for_congressional_foreclosure_panel_to_examine_foreclosure_lawyers#
Dec 18, 2010 at 10:18 PM | Unregistered CommenterBarbara Ann Jackson
thanks barbara...
Dec 20, 2010 at 12:34 AM | Registered CommenterDailyBail
I've already sworn to NEVER do business with Bank of Unamerica in my remaining lifetime. Abuse of TARP funds and fraud in the home lending and foreclosure scams are just too much over the top in this. I hope BoA goes under, the whole firm is corrupt and deserves to fail.
Dec 20, 2010 at 4:25 PM | Unregistered CommenterMalikTous
well said malik..we are in agreement here...
Dec 20, 2010 at 4:39 PM | Registered CommenterDailyBail
This is not good. I believe that lenders must have the right title and permission to make deals
Dec 23, 2010 at 10:36 AM | Unregistered CommenterTony
Get rid of the Federal Reserve and make banks be banks instead of gambling casino's. That would leave the rotten parasites sucking the blood out of the middle class no choice but to get a real job. But, because they don't know how to do an honest days work they will end up fired. Maybe we'll get lucky and they'll all starve to death.

END THE FED!
Dec 23, 2010 at 8:04 PM | Unregistered CommenterSagebrush
This is a bad practice and people shouldn't be doing this. An investigation must put them in Jail!
Jan 7, 2011 at 2:26 PM | Unregistered CommenterForeclosure

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