Buying U.S. Foreclosures: A Risky Business

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14 Things Every Canadian Buyer Should Know Before                              Taking the Plunge

Editor’s Comment:  

Canadians and other foreign investors are joining with U.S. investors in buying distressed residential real estate in the U.S. Practically by definition they have no idea about the risks they are taking. They are taking the “knowledge” from 15 years ago and applying it to a market that does not even remotely resemble the old market.

Canada weathered the storm caused by Wall Street antics by simply not playing. Canadian banks saw inherent risks and moral hazards that they wanted no part in playing. While the rest of the world laughed at Canada’s stuffiness, the banks, and its depositors are just fine thank you, although their economy is taking a hit due to a decline in demand for exports. So Canadians with Canadian money that is not debased are coming to America in droves to take advantage of the “oversold” prices of housing. They are buying these properties in droves and unwittingly making themselves part of a corrupt marketplace in which they could lose their money, their title, their property and their right to possession of that property because they bought it from someone who didn’t own it or because they assumed that the old mortgage had been paid off and properly satisfied. This article explains why investors show exercise great care to preserve the value and existence their investments.

1. With the Massachusetts Supreme Court having decided that foreclosure is only valid if the would-be forecloser owns both the note and the mortgage — a black letter law concept that has been in existence since before the American Revolution — the questions are evolving from issues relating to wrongful foreclosures to “what do we do about it, now that we know the foreclosures did not meet the basic elements of a foreclosure action under any analysis?”

2. Some decisions, like Hogan in Arizona appear to create a debatable issue. But read closely, the decision stands for the proposition that it is not necessary to possess the note in order to give the instruction to the Trustee on Deed of Trust to issue a Notice of Default and/or a Notice of sale. It does not state that anyone without proper credentials can present themselves as the creditor. So the auction, if it occurs, is strictly limited to cash bids, since the creditor has neither stepped forward nor made a claim as to the amounts due.

3. In a prescient note, the Hogan court simply states that the borrower neither denied the debt nor the security instrument or the note. If they do so, then the game is on, and the banks and servicers are “out of the money.” They are not creditors, they have only the most tenuous argument to present themselves as sub-servicers, and they have no authority to speak for the Master servicer or the investors from whom money was taken under false pretenses.

4. It is now apparent that this has not escaped attorneys or judges. If there is a denial of the obligation, note, mortgage (Deed of Trust), plus a denial of the default and the amount claimed as due from a party whom the borrower denies is the creditor, the case must move forward into discovery. A motion for summary judgment by the banks and sub-servicers will be routinely denied if it is met with an affidavit from the homeowner or borrower that contains these denials.  Now that borrowers and even homeowners who have already lost their property in foreclosure and eviction are overturning foreclosures, regaining title and possession of the property, the “new” buyer is left with only a claim for money from their title carrier and a potential claim against the bank or servicer that “sold” them the property.

5. The title companies have already decided this point. They will and they’re routinely writing exceptions into the title policy that actually puts the liability for indemnification on the buyer rather than the title company, if the claim arises out of illegal origination or illegal foreclosures.

6. The Bank will fight the Buyer on the warranty deed recitals until the investor gives up. But the main point, is that investment is US distressed property is buying a lawsuit UNLESS you file a quiet title action and it sticks. Remember, you are giving notice to John Does 1-10,000 through publication who probably don’t read your local paper that publishes legal notices.

7. These investor lenders have a legitimate beef. They gave up money and signed papers that assured them they were getting good loans within 90 days of the transaction in which the investor advanced the money to the investment banker. What they are getting is bad loans pitched over the fence years after the transaction.  In the foreclosures, especially the non-judicial foreclosures, there is no need or opportunity to give notice to the investors that this loan is NOW claimed to be part of the pool they think they own.

8. The investors now have a good reason to enter the picture and assert that they don’t want this bad loan, they didn’t buy it and it wasn’t transferred into the “pool” within 90 days of the investor’s closing with the investment banker. Thus they can argue without any real defense from the banks that the assignments are mere offers that the pools neither accepted nor could accept under the terms of the prospectus and pooling and servicing agreement. But whether they make the claim or simply COULD make the claim, that is the essence of clouded title. And that is how you end up in a lawsuit you never imagined.

9. Add to that the assignment was fabricated, forged and fraudulently presented without any financial transaction backing it up, and the investor wins hands down.

10. Realtors are no help on this since all they want is property moving thus producing commissions. They like to point out that the deed in a short-sale is much better because it is the homeowner who actually signs the deed. And that is true. what they ignore is that the payoff of the old mortgage was taken by a stranger to the transaction who accepted the money and then issued an authorized release and satisfaction of the old mortgage lien when the buyer closes.

11. The banks and sub-services are starting up their own title companies or entering into confidential agreements with the title companies that incidentally were part owners of Mortgage Electronic Registration Systems, Inc (MERS) or the JPM entity they ran for a while when they saw the hand writing on the wall for MERS. But they are only creating the appearance of insurance protection with no intention of honoring the claim or fixing the title problem they reported to the buyer wasn’t there. Now the ttile companies say their title report is only a worksheet and you have no right to rely on it. There are about ten thousands cases in precedent that disagree with this ridiculous assertion.

12. The bottom line is that a buyer who does not negotiate the right provisions in the title policy (it CAN be done) is going to go through (1) euphoria about how brilliant he is to have picked up such a bargain (2) no title and/or (3) two or more mortgages that still encumber the property despite the supposed payoff and recording of release and satisfaction.

13. The final coup de grace is that the buyers who fail to heed these warnings wil find themselves bankrupt when it comes down to selling or refinancing the property or when they find themselves defending  a lawsuit from a former homeowner demanding that the foreclosure be overturned and possession restored. There are thousands of these cases and within the next 2 years there will be tens of thousands of these cases. Your title company is not likely to defend you unless you negotiate that and other terms into the your title policy.

14. BOTTOM LINE: Don’t close without an experienced real property attorney and if he or she is dismissive of these claims then they are just as ignorant as you are.  Move on to an attorney who does understand negotiation of the terms of deed and title policy and leave the paper pushers in the dust. If you want more help, write to me at neil@livingliesblog.com.

It was the absence of information that caused virtually everyone to misread the risks that were inherent in the mortgage meltdown period during which prices were artificially inflated.  The same absence of information is leading Canadians to misinterpret the market and assume risks that are not apparent to them.  It is only through competent professionals that they should complete any real estate transaction in the United States.  In this case competence includes special knowledge of the securitization of mortgages, the current status of corruption in our title system, and the ultimate risk of losing the entirety of their investment, the title they thought they had, and the right to possession of property which they thought had been properly purchased and protected with a title insurance policy.  Canadians would be unwise to accept the assertions of title companies who produce title reports and commitments for title insurance that merely perpetuate the corruption of title in America.  These same entities actually have ownership interests in the private system of recording established by the banks.  Virtually everyone in the marketplace has a conflict of interest that may ultimately dash the hopes on investors and potentially remove their nest egg meant for retirement.

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“What we need is the a return to the rule of law, a culture of fairness and justice and a politics of the country rather than pure personal aggrandizement. We are only going to get there if we stop lying to each other and stop public officials from lying to us about the cause of this catastrophe in which 6 million homes were essentially destroyed, with at least another 6 million on the way. We need referees back on the playing field, and if they should err, then it should be in favor of protecting our financial system rather than the profits of those who exploit it.” Neil Garfield, Livinglies.me

SEE WATCH MY PENNY, WATCH YOUR WALLET:

Banks Defrauded Investors and Homeowners, not Government

EDITOR’S NOTE: In the article below from ctvNEWS you can see that the narrative in Canada is about normal things like the world-wide recession, people taking on more debt than they should, and the drag on the economy. No talk about a death spiral, or about criminal prosecutions, or even a 5 year sinking housing market. Why not?

Canada’s financial system is essentially run by about a dozen banks of which 5 are the 800 pound gorillas. One might expect then with so few banks and so little competition that the Banks would have gone on a binge of power and money, playing the securitization roulette game to the ultimate. But they didn’t. In fact, Canadian banks and regulators agreed that securitization of mortgage loans etc. was a bad idea and could only lead to massive losses and destabilizing the economy and the currency of the country. The only winning move was not to play.

Sometimes “boring” is a lot smarter than exciting. There is always the risk, as the article points out, that a herd mentality will take over and that housing prices might get bloated. But the Canadian culture is more reserved than the U.S. culture and it seems unlikely that they could ever get in nearly as trouble as we do.

The moral of this story, I think, is that we should strive to bring back the regulations that were thrown out in the 1990’s, despite the obvious lessons of the 1980’s savings and loan crisis, and to impose the restrictions that were denuded in large part by Fannie and Freddie lobbying efforts in 1991-1992.

THE BIG LIE is that government did it. The BIG TRUTH is that the Banks did it and they will do it again. We know that because after the S&L crisis, they did it again. And the S&L crisis was after the 1927-1929 crisis, most of which was caused by the Banks.

Government doesn’t go out and defraud people to put money in its pocket by selling bogus securities and loan products. Banks do that. If anyone wants to go back to boring banking where you can actually predict and project outcomes down the road, then you must impose controls on the Banks. The Wall Street spin is that less regulation will clear up our mess. What they are suggesting is that a basketball game would go far more smoothly if the referees were taken off the court and sent to other jobs — permanently. Players would work things out amongst themselves and would abide by the rules they created and bullying and power-brokering would have nothing to do with it, or if it did, then that would be a good thing.

Anyone with a brain in their heads capable of remembering back 5 years ago knows full well that the Banks trashed our country, took control of government, made what was illegal perfectly proper and denuded the regulatory agencies and their personnel with graft, promises of jobs and out right intimidation. We know it even if the the government puppets of Wall Street tell other stories.

What we need is the a return to the rule of law, a culture of fairness and justice and a politics of the country rather than pure personal aggrandizement. We are only going to get there if we stop lying to each other and stop public officials from lying to us about the cause of this catastrophe in which 6 million homes were essentially destroyed, with at least another 6 million on the way. We need referees back on the playing field, and if they should err, then it should be in favor of protecting our financial system rather than the profits of those who exploit it.

If we need better ideas we should go out and find places that are working right in the areas of commerce where we are weak. Canadian Banks elected to steer clear of the entire securitization scam because they considered it wild and dangerous with no controls or ways to limit risk. They were teased and at times humiliated by other exuberant financiers and pundits around the world who said Canada was being left in the dust. They saw the securitization of mortgage loans as an exciting innovation that would produce trillions in profits, which it did — for a few people, while the rest crashed and burned. We can learn from Canada in this way — that if you put the Country first, the rest of the scenario falls right into place.

Finance and governing is not supposed to be sexy and exciting. It is expected to be effective and pragmatic in making sure the Country is on the right path. Let’s get boring. Leave sexy and exciting to the movies.

REAL ESTATE SLOWDOWN IN CANADA EXPECTED IN 2012

BY SUNNY FREEMAN, THE CANADIAN PRESS

SEE FULL ARTICLE ON CTV.CA

TORONTO — Francesca Asante-Frempong, a self-described “late bloomer,” believes buying her first home at age 35 will have been worth the wait if economists are right about dwindling competition and ultra-low mortgage rates persisting into 2012.

“It’s encouraging to know that, as far as being able to afford something, any time from now would be a good chance to do that,” the newlywed said in an interview from England, where her husband is living until they find a home.

Asante-Frempong, a registered nurse in Toronto, says she’s optimistic she can take her time searching for an affordable starter home in the city, one of Canada’s hottest and most expensive real estate centres.

And the likelihood that mortgage rates will remain low well into next year means she doesn’t have to rush out of her parents home and into a bidding war, she added.

“I think that at least, although I didn’t invest in a condominium say four years ago, I’m ready to go right into a house where my friends (who did) may not be able to at this point.”

First-time homebuyers like Asante-Frempong are poised to comprise an even bigger proportion of real estate activity next year. Sales and prices are expected to stabilize as demand from owners intent on upgrading while mortgages are cheap dries up after more than two years of stimulative interest rates.

Low overnight lending rates at the Bank of Canada — which have been at one per cent since September 2010 — affect variable mortgage rates and other loans tied to banks’ prime rates. Meanwhile, government debt crises in Europe and the U.S. are keeping fixed rate mortgages at ultra low levels by depressing the bonds that back them.

Mortgage rates had been expected to rise in 2011, increasing the cost of home ownership and keeping house prices in check. That was supposed to lead to a slowdown in the housing market, according to the predictions of several top economists at the end of 2010.

They were wrong. Now they believe that easing is coming in 2012.

A looming economic slowdown, tepid wage growth, unaffordable home prices and record consumer debt levels could put downward pressure on the market next year.

But those troubling signs, as well concerns about the domestic impact of turmoil outside Canada’s borders should also push the Bank of Canada to leave interest rates on hold, fostering a friendly environment for home buyers.

Mortgage Meltdown: NAFTA-Gate

NAFTA-GATE

The mortgage meltdown is a by product of many different unsavory things. One of them is the effect of NAFTA and our complete lack of control over our borders which has suddenly sliced into the ability of middle-class to keep their job, get a job or earn enough to pay the mortgage and other expenses, even with multiple incomes. 

NAFTA-GATE is a good thing. It focuses attention on a central problem. When President Clinton signed it, congress loved it, Hillary praised it right up until 2 years ago despite the obvious loss of jobs, and the American public didn’t understand it. Now that we are starting to understand it, and we don’t like it. The more we learn about how it is being executed, the less we like it. Executive ability again comes front and center. 

Canada has its own problems with lower wages and loss of economic power. They have their own interest in seeing changes in NAFTA. It is quite likely that they reached out to find out what specifically the candidates had in mind. 

Obama’s people, according to the latest reports simply repeated what he had said in public. 

Clinton’s people apparently did two things according to the very latest information — [a] reassured Canadian officials that campaign rhetoric is not policy and [b] got someone in Canada to leak an anti-Obama memo that would give Clinton an advantage in Ohio and Texas. Clinton admits that the untruthful NAFTA leak gave her an advantage. This eliminates Obama as a likely player in the creation of this script.

With investigations started in Canada, demands for resignations, accusations of meddling in American politics, apologies and finger-pointing we are once again left with dishonesty on the part of SOMEONE in the Canadian government, SOMEONE in the CLINTON campaign, and at least confusion in the Obama Campaign. It seems obvious that the one with the most likely access to Canadian officials would be Bill Clinton as former President since Obama had very little to do with Canada until now.

Once again we are dealing with a failure of executive leadership on the part of the Prime MInister, who should have had a handle on this if neutrality was the objective and a failure of executive leadership and judgment on the part of Hillary Clinton who was either dishonest or didn’t know what was going on).

Once again we are diverted from the real issues of renegotiating or opting out of NAFTA. In theory it was a great idea. In practice it is killing us. Canada could start with publicly stating its position on NAFTA, what it likes and what it doesn’t like.

The Candidates have started that discourse, but whether Clinton means what she says now or intends to return to her consistent praise of NAFTA and pride in her husband’s achievement in signing NAFTA is anyone’s guess.

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