Why Title Insurance on “Securitized” Properties are Worthless

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Editor’s Comment:  
If you can’t rely on the title report issued by the title agent and title carrier, what chance do you have of getting clear title to that bargain you were picking up dirt-cheap?

While many writers are theorizing about title problems, there are actual cases being litigated but are largely missed in reporting because nobody catches their significance. It all boils down to this: title insurance companies are (a) going to avoid paying or defending a claim that they deemed is not covered by the title policy and (b) generally, even when you would expect that they would be liable for such damages they cannot responsible for damages caused by title defects arising out off record transactions like in MERS. The courts are heavily favoring the title companies in most cases.

Hot off the presses, Mark A Brown and Christopher W Smart have published an article in The Florida Bar Journal July/August Edition starting on page 47–see link below. While they disagree with some of the rulings contained in that article it is obvious that one way or the other, you are pretty much screwed when dealing with foreclosure properties unless you have safeguards in place by renegotiating the contents of the title policy (something we were successful at here in Arizona), AND by obtaining cures of all potential title defects via Court Order. While this increases the expense of closing, is assures the buyer of something he is not getting now — clear title without clouds or defects and real insurance if the defects cannot be cured.

In cases involving foreclosure resulting from off record activity, even if the title insurer wins it will be years before the issue is resolved and if a temporary injunction is not entered preventing the new foreclosure from a pretender lender, the foreclosure will be allowed and so will the eviction. The worst case scenario is that the person buying such property for use or investment ends up, at a minimum, out of the house, no right to possession, no way to sell it, and no way to refinance it. No title, no possession and clawing their way back to the money or the house with the former “owner” and the title insurer fighting you every step of the way.

As the authors point out, if you have a contract to sell or finance your property, the buyer or financing entity is not going to wait around for 3 years while you figure out how to offer clear title. The very fact that there are many decisions, each in conflict with the other, presents an obvious cloud on title, which will stop any sale or financing, and probably presents a fatal defect in title for which the title carrier should pay you in full but (a) only if you make them through additional litigation and (b) without the damages you suffered during the long delays of seeking curative title instruments and litigating the rest of the case.

Does this make title insurance worthless? Yes, if you allow them to make exceptions for properties on which there was off record activity and they disclaim that that title is as reported in the policy. The position of the carriers, apparently supported by the courts, is that the title report given to you by the title company does not need to be correct and could even be negligent without any liability arising out of their conduct. Their liability is limited strictly to what is in the title insurance contract in its FINAL form, which often differs remarkably from the policy COMMITMENT.

For “unreasonable” delays there are a few scattered cases in which the insured buyer was allowed damages but then there is another fight over the right to recover attorney fees when you finally get them to pay — and no lawyer is going to take one of these complex cases on contingency.

If you already own property and you took no protective measures then you might want to initiate a transaction in which the property is refinanced or title changes to a trust or another party in which new title insurance is required. Then hire someone who knows what they are doing to hammer out the right title policy terms, and file a quiet title action to confirm that title is as reported. If you don’t own the property yet, then operate on the same assumptions and (a) make sure you actually have good title and (b) you actually have a title policy that will pay if the title had defects or was clouded.

It is insane that the title carriers are getting away with this. Everyone relies on the title report from the title agent and the title carrier. The way these cases are going, the buyer must always get an independent title and securitization review if they want to sleep at night. And closing without a licensed, competent attorney who is familiar with off record transactions like MERS, maximizes your risk even though it minimizes your expense. My suggestion is that you treat it as part of the cost of the house. If you spend another $3,000 it is money well spent.

At a minimum it would seem that if you are buying property you should obtain the combo title and securitization report here or elsewhere from someone who knows what they are doing.





Zillow Raises Estimate Again: 16 Million Homes Underwater

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Editor’s Comment:

This is why I am re-starting my seminar tours. The information out there is disinformation and in this case sellers don’t realize how badly they have been screwed until they are walking toward the closing table. The “underwater” phenomenon represents a vast market inventory shadow that is not being counted by anyone — which is why my estimates of market activity and prices are so much lower than what you hear from everyone else. So far I have been right every year.

Zillow is at least making an effort. It is sharpening the definition of “underwater.” We have been saying for years that the number of homes “underwater” is both rising and vastly underestimated. The reason I knew was that just by putting pencil to paper and using all the factors that measure the amount of money one might get as proceeds from the sale of a home, the average PROCEEDS from the sale of residential property was substantially below the average VALUES that were being used. Zillow has now entered the world of reality by adding all the relevant mortgages and not just the last one allocated to that property.

Once upon a time when you sold a house you received a check for the proceeds of the sale. It was always lower than what you expected because of expenses and charges that you incurred and after you deducted the expenses that didn’t appear on the HUD 1 Settlement Statement (money that you spent preparing the house for sale).

Now the situation is different. Instead of getting a check, many if not most homeowners must bring a check if they want to sell their home. Most homeowners, in other words, must pay money out of their pocket if they want to sell their home. In some cases, the bank will allow a short-sale where they will accept a payoff less than the amount they say is owed, but even then, the hapless homeowner will still be unable to recover his down payment, all the money he put into the house in furnishings and improvements, and all the principal payments made on a house that was intentionally overvalued, using inflated appraisals that would  leave the homeowner screwed.  

When they start looking at “Seller’s Proceeds” from the standpoint of a real HUD 1 settlement sttements, the figure will be even lower than the current Zillow estimate. The disconnect between “prices”, “home values” and “proceeds” has never been greater. The question of whether or not a home is underwater is determined by proceeds of sale — without regard to price or value. Being underwater means to answer a question: “How much money will the seller need to spend in order to sell the property with free and clear title.”

Forgetting the whole issue of title corruption caused by the use of MERS which further affects prices, values and proceeds, the amount of money required from the seller in order to sell his/her home is nothing short of sticker shock and the fact remains that a majority of the people affected do not know what has happened to their wealth. They do not understand the extent to which they suffered damage by Wall Street schemes. And of course they don’t know that there is something they can do about it — like any rational businessman instead of the deadbeat bottom-feeders  portrayed by bank mythology.

Once all factors (other than MERS) are taken into consideration, the Zillow numbers will change again to more than 20 million homes and will probably reach 25 million homes that are really underwater, most of which are hopeless because values and prices will never get enough lift, even with inflation, to make up the difference between what they must pay as sellers to get out of the deal and what they can get from buyers who are willing to buy the home. Add the MERS’ factors in, now that title questions we raised 4 years ago are being considered, and it is possible that many homes cannot ever be sold at any price. Where the levels of “securitization” are limited to only 1, then perhaps it is possible to sell the property but not without spending more money to clear title. 

Nearly 16M Homes Are Now Underwater


Zillow just reported that their data shows nearly 16 million homes in this country are now in a negative equity position where the house is worth less than the mortgages on the home. This number is dramatically higher than the approximate 11 million reported by other entities. Why the huge difference? Zillow professes to take into consideration ALL loans on the property not just the most recent loan (purchase or refinance).

The key findings in the study:

▪       Nearly one-third (31.4 percent) of U.S. homeowners with mortgages – or 15.7 million – were underwater on their mortgage.

▪       A slower pace of foreclosures after the robo-signing issues of 2010 contributed to slower progress in working down negative equity. Foreclosures cause homes to come out of negative equity when a bank or third party takes ownership.

▪       Nine in 10 homeowners continue to make their mortgage and home loan payments on time, with just 10.1 percent of underwater homeowners more than 90 days delinquent.

▪       Nearly 40 percent of underwater homeowners, or 12.4 percent of all homeowners with a mortgage, owe between 1 and 20 percent more than their home is worth.

▪       An additional 21 percent of underwater homeowners, or 6.6 percent of all homeowners with a mortgage, owe between 21 and 40 percent more than their home is worth.

▪       About 2.4 million, or 4.7 percent of all homeowners with mortgages owe more than double what their home is worth.

How can negative equity impact the housing market? In the report, Zillow Chief Economist Stan Humphries explains:

“Not only does negative equity tie many to their homes, by making homeowners unable to move when they may want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures.”

Case Shiller: House Prices fall to new post-bubble lows in March NSA

by CalculatedRisk

S&P/Case-Shiller released the monthly Home Price Indices for March (a 3 month average of January, February and March).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the National index.

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Pace of Decline in Home Prices Moderates as the First Quarter of 2012 Ends, According to the S&P/Case-Shiller Home Price Indices

Data through March 2012, released today by S&P Indices for its S&P/CaseShiller Home Price Indices … showed that all three headline composites ended the first quarter of 2012 at new post-crisis lows. The national composite fell by 2.0% in the first quarter of 2012 and was down 1.9% versus the first quarter of 2011. The 10- and 20-City Composites posted respective annual returns of -2.8% and -2.6% in March 2012. Month-over-month, their changes were minimal; average home prices in the 10-City Composite fell by 0.1% compared to February and the 20-City remained basically unchanged in March over February. However, with these latest data, all three composites still posted their lowest levels since the housing crisis began in mid-2006.

“While there has been improvement in some regions, housing prices have not turned,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time.”

Case-Shiller House Prices Indices

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 34.1% from the peak, and up 0.2% in March (SA). The Composite 10 is at a new post bubble low Not Seasonally Adjusted.

The Composite 20 index is off 33.8% from the peak, and up 0.2% (SA) from March. The Composite 20 is also at a new post-bubble low NSA.

Case-Shiller House Prices Indices

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 2.8% compared to March 2011.

The Composite 20 SA is down 2.6% compared to March 2011. This was a smaller year-over-year decline for both indexes than in February.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Case-Shiller Price Declines

Prices increased (SA) in 15 of the 20 Case-Shiller cities in March seasonally adjusted (12 cities increased NSA). Prices in Las Vegas are off 61.5% from the peak, and prices in Dallas only off 6.7% from the peak.

The NSA indexes are at new post-bubble lows – and the NSA indexes will continue to decline in March (this report was for the three months ending in February). I’ll have more on prices later

Clear Title May Not Derive From A Fraud




    Javier Labra

1. Clear Title May Not Derive From A Fraud (including a bona fide purchaser for value).

In the case of a fraudulent transaction California law is settled. The Court in Trout v. Trout, (1934), 220 Cal. 652 at 656 made as much plain:

“Numerous authorities have established the rule that an instrument wholly void, such as an undelivered deed, a forged instrument, or a deed in blank, cannot be made the foundation of a good title, even under the equitable doctrine of bona fide purchase. Consequently, the fact that defendant Archer acted in good faith in dealing with persons who apparently held legal title, is not in itself sufficient basis for relief.” (Emphasis added, internal citations omitted).

This sentiment was clearly echoed in 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279 at 1286 where the Court stated:

“It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties.” (Emphasis added).

Hence, if forged Robo Signed signatures are used to obtain the foreclosure, it CERTAINLY makes a difference in California and other non-judicial foreclosure states.

MERS Fatal Defense Flaw as of October 18th, 2010
On July 21, 2010 MERS registered with the California Secretary of State.
MERS registration in California is not retroactive until its complete for the following reasons:

1.            As a result of MERS intentional failure from obtaining a certificate of qualification from the California Secretary of State as a “Beneficiary”, including filing returns and paying taxes, MERS is not allowed the right to defend a lawsuit when named as or defending its actions in a “Beneficiary” capacity, pursuant to California Revenue & Taxation Code Section §§ 23301, 23301.6, 23304.1.

“A suspended corporation is not allowed to exercise the powers and privileges of a corporation in good standing, including the right to sue or defend a lawsuit while its taxes remain unpaid”
PERFORMANCE PLASTERING v. RICHMOND AM. HOMES, 153 Cal.App.4th 659 (2007) 63 Cal.Rptr.3d 537

2.            MERS must first produce a Certificate of Relief from Voidability for the time prior to July 21, 2010, California Revenue & Tax Code 23305.1 and file with this Superior Court Clerk receipt of payment to the California Secretary of State for taxes and penalties, California Corporations Code §2203(c).

“UMML qualified to transact intrastate business, but failed to pay the necessary fees, penalties and taxes.
The trial court correctly dismissed the complaint without prejudice.”
United Medical Management Ltd. v. Gatto, 49 Cal. App. 4th 1732 – Cal: Court of Appeals, 2nd Appellate

3.        MERS will very likely cite one of these two cases:

United Medical Management Ltd. v. Gatto 49 Cal.App.4th 1732 (1996),
or an unpublished case as of 10/18/2010 Perlas v. Mortgage Elec. Registration Systems, Inc., 2010 WL 3079262 * 7

Both of which are based upon this case:

“A nonqualified corporation subject to a misdemeanor prosecution and on conviction to a heavy fine for doing business without complying with the law, is permitted to qualify, be restored to full legal competency and have its prior transactions given full effect.” (Tucker v. Cave Springs Min. Corp. (1934) 139 Cal. App. 213, 217 [33 P.2d 871].

So demand MERS filing of receipts and that Certificat of Relief from Voidability!

Non-Profit Lenders Step in to Provide Post-Foreclosure Modification

Editor’s Note: Principal reduction can be achieved in more ways than one. Here Non-profit Lenders see the clear opportunity to buy mortgages from dubious sources and then enter into new mortgages with the homeowner thus preventing eviction and restoring the homeowner to non-distress status.

The problem here is that title is not clear and eventually there is going to be a day of reckoning. The underlying theme here is that principal reduction is the ONLY way this mess will be cleared up and getting it right about WHO can sell a mortgage, execute a satisfaction of mortgage, or otherwise enforce or foreclose a mortgage is still in flux.
The reason is that it is in flux is that Judges and lawyers are just starting to get the the counter-intuitive idea that the finance sector actually set out to make bad loans because that was how they made money.
It’s not counter-intuitive if you realize that the real creditor is the investor who put up the money and all the rest are pretenders who pocketed a big portion of the proceeds of securities sale before funding mortgages. It is those pretenders who are “selling” and “enforcing” the “loans.”
My suggestion is that regardless of how and with whom you resolved your mortgage dispute, a quiet title action needs to filed naming all potential claimants in which a Judge declares the rights of the parties and confirms your title subject to whatever new mortgage or modified mortgage you executed. I don’t see any other immediate way to resolve the title problems
March 21, 2010

Finding in Foreclosure a Beginning, Not an End


BOSTON — Jane Petion lived in her home for 15 years and saw its value rise slowly, rise rapidly and, when the housing bubble burst, plunge at a sickening pace that left her owing $400,000 on a house worth closer to $250,000. Last June, her lender foreclosed on the property. The family received notices of eviction and appeared in housing court.

Then they discovered a surprising paradox within the nation’s housing crisis: Their power to negotiate began after foreclosure, rather than ending there.

In December Ms. Petion signed a new mortgage on her house for $250,000, with monthly payments of less than half the previous level. She and her husband now have a mortgage they can afford in a neighborhood that benefits from the stability they provide. A nonprofit lender made the deal possible by buying the house from her original mortgage company and selling it to her for 25 percent more than its purchase price — a gain to hedge against future defaults.

“It was exactly what we needed to get back on our feet,” said Ms. Petion, who works for a state agency. “We have income. But another bank, it would have been easy to look at our foreclosure and say, ‘I’m sorry, we have nothing for you now.’ ”

This counterintuitive solution — intervening after foreclosure rather than before — is the brainchild of Boston Community Capital, a nonprofit community development financial institution, and a housing advocacy group called City Life/Vida Urbana, working with law students and professors at Harvard Law School.

Though the program, which started last fall, is small so far, there is no reason it cannot be replicated around the country, especially in areas that have had huge spikes in housing prices, said Patricia Hanratty of Boston Community Capital. “If what you’ve got is a real estate market that went nuts and a mortgage market that went nuts, what you’ve got is an opportunity.”

Two years into the nation’s housing meltdown, and after hundreds of billions of dollars of federal rescue programs, government officials and housing advocates denounce the unwillingness of lenders to adjust the balances on homes that are worth less than the mortgage owed on them.

Research suggests that such disparity, rather than exotic interest rates, is the main driver of foreclosures, in tandem with a job loss or another financial setback. The financial industry lobbied aggressively to defeat legislation that would empower bankruptcy judges to adjust mortgage balances to properties’ market value.

That reluctance, however, eases after foreclosure, when lenders find themselves holding properties they need to unload, Ms. Hanratty said.

“We found, frankly, the industry wasn’t ready to do much pre-foreclosure,” she said. “But once it was either on the cusp of foreclosure or had been taken into the bank portfolio, banks really do not want to hold on to these properties because they don’t know how to manage them, don’t know what to do with them.”

Working with borrowed money, Boston Community Capital buys homes after foreclosure and sells or rents them to their previous owners, providing new mortgages and counseling to the owners, who typically have ruined credit. During the process the families remain in their homes. Since late fall it has completed or nearly completed deals on 50 homes, with an additional 20 in progress, Ms. Hanratty said. The organization is now trying to raise $50 million to expand the program.

Steve Meacham, an organizer at City Life/Vida Urbana, is one reason banks may be willing to sell their foreclosed properties to Boston Community Capital. When families receive eviction notices, his group holds demonstrations or blockades outside the properties, calling on lenders to sell at market value. It also connects the residents with the Harvard Legal Aid Bureau, whose students work to pressure lenders to sell rather than evict by prolonging eviction and “driving up litigation costs,” said Dave Grossman, the clinic’s director.

“So they’re being defended legally, and we’re ramping up the pressure publicity-wise,” Mr. Meacham said. “And B.C.C. came in; they had a part that buys properties and a part that writes mortgages. It wouldn’t work without all three.”

A focus of the program has been the working-class neighborhood of Dorchester, where home prices dropped 40 percent between 2005 and 2007, compared with a 20 percent drop statewide, according to research by the Federal Reserve Bank of Boston. Foreclosures and delinquencies there are more than twice the state average, the bank found.

In such neighborhoods, lenders and residents are hurt by evictions, which often leave vacant properties that invite crime and drive down values of neighboring houses, Ms. Hanratty said. “So it’s in the lenders’ interest to get fair market value as quickly as possible, and in the interest of the community to have as little displacement as possible.”

The program is not a solution for all lenders or distressed homeowners. After months of post-foreclosure negotiations with her bank, Ursula Humes, a transit police detective, is waiting for her final 48-hour eviction notice. Her belongings are in boxes.

Mrs. Humes owed $440,000 on her home; her lender offered to sell it to Boston Community Capital for $260,000. But after assessing Mrs. Hume’s finances, the nonprofit asked for a lower selling price, and the lender refused.

On a recent evening, Mr. Grossman of the Harvard law clinic counseled Mrs. Humes on her options. “This is a case that doesn’t have a happy ending,” Mr. Grossman said.

Mrs. Humes said, “I depleted my retirement account and everything I owned, but I’m still going to lose it.”

Many commercial lenders, similarly, would shy away from such a program because it involves writing mortgages for borrowers who have already defaulted once — a high risk for a small reward.

For other homeowners, though, the program is a rescue at the last possible second. Roberto Velasquez, a building contractor, lost his home to foreclosure last November, owing the lender $550,000. After extensive wrangling, during which his family stayed in the house, he bought it again in March for $280,000, a price he can afford.

On the night after he closed, he joined other members of City Life/Vida Urbana at a foreclosed four-unit building in Dorchester from which most of the tenants had been evicted. A group of artists projected videos on sheets in the windows, showing silhouettes of families re-enacting their last 72 hours before eviction. Garbage filled one of the units. Mr. Velasquez said it hurt to stand amid such loss, but he was jubilant at his own perseverance.

“We’ve been fighting for so long,” he said, “and we win, because we’re still in the house.”

Foreclosures Stopped?: Relief Bill falls Far Short

Ultimately, title examiners will start raising questions about whether the loan negotiations under this bill have any legal effect on the recorded mortgage from your original loan closing. It is for this reason that I believe that quiet title is the ONLY clear way out of this and that the probability is that you will not only get rid of the nominal lender (i.e., the party who appears as lender on your mortgage and note) but that no further claim can or will be made by third parties (e.g. investors) using this strategy. (see below for caveats)


The new relief bill passed by congress, has a number of peculiarities, shortcomings and flaws but it IS a good start. However, very few of the people in foreclosure will be helped in the near future by this bill and it is therefore imperative that you NOT sit on your rights and expect that your problems are over.

While I see many problems flaws and defects in the bill, if your lender expresses a willingness to go into the program, I would recommend that, at the very least, you commence negotiations with the help of a knowledgeable lawyer who understands the points raised in this post and the Garfield Glossary. It will, if nothing else, buy you time.

In a nutshell, it allows you and the “lender” to come to an agreement that the new mortgage amount is 85% of the current value of the home and establishes terms that hopefully you will be able to pay on a monthly basis. The new loan is insured by a Federal agency through “premiums” paid by the lender and you. If the value of the house goes up and you sell or refinance later, the Federal Agency shares in the appreciation with you in what some are calling a silent second mortgage. In my opinion it is the lenders who should share in the appreciation since that would impact the value of the asset backed securities that have been written off by so many financial institutions and investors. It would also engage all parties in the securitization process and probably avoid the title problems that are being created by both the current foreclosure market and the future one, as amended by this new relief bill.

The essential provisions of the bill require that your loan fits specified criteria which applies to many mortgages but not nearly enough to stem the flood of foreclosures. It also is moot if the lender says it doesn’t want to do it. You can’t simply say to the lender they must stop the collection or the foreclosure.

The essential flaw of the bill is that it ignores the title problems created by securitization. The “lender” to whom you are addressing your correspondence and who is dunning you for collection or has issued a notice of default or notice of sale has already been paid in full by a third party, PLUS a premium. Whether this lender can enter into negotiations or change the loan terms is dubious at best. Congress has not and cannot change state property laws. Both the servicer and the lender are expressly excluded from being considered real parties in interest in the loan if the loan was transferred, sold or pledged to back asset backed securities (ABS); they are expressly barred from presenting themselves as creditors under TILA and expressly barred from exercising rights of a “lender” if they have no financial interest in the loan. And even if they have  partial financial interest or a contingent financial interest, the REST of the real parties in interest (holders in due course) would have to be included as necessary and indispensable parties.

As you no doubt know, it is my opinion that in many cases you can foreclose on the “lender” through a quiet title action and that the lender will have no valid legal defenses. It is my opinion that any homeowner that was involved in a securitized mortgage transaction from 2001-2008 probably has rights to clear title, damages, attorneys fees, and all the costs of closing includling points. However, this is an opinion, and while it has proved true in about 100 cases across the country, there is no guarantee that your situation will qualify you to pursue this relief.

Because of the problem of clear title and because of the securitized transaction, I think the new bill creates more problems than it solves. Ultimately, title examiners will start raising questions about whether the loan negotiations under this bill have any legal effect on the recorded mortgage from your original loan closing. It is for this reason that I believe that quiet title is the ONLY clear way out of this and that the probability is that you will not only get rid of the nominal lender (i.e., the party who appears as lender on your mortgage and note) but that no further claim can or will be made by third parties (e.g. investors) using this strategy.

This is not rocket science but neither is it as simple as writing a letter. Lawyers are trained to do this and you are not. Lawyers who are licensed to practice where your home is located will know things about local laws and procedures that I don’t know and you don’t know. So this post should be taken as guidance and not a firm legal opinion on which you should base your actions. You should check with local lawyers before making any decisions about taking any steps or entering into any negotiations.



An analysis of the transfers of title to a piece of property over the years. IT IS THIS ANALYSIS THAT PRESENTS THE CONCLUSION OF A LEGAL EXPERT IN TITLE EXAMINATION AS TO WHETHER CLEAR TITLE IS BEING OFFERED OR PASSED. The significance of this in the context of the Mortgage Meltdown is that in most cases, a proper analysis of the title records and the transactions that are actually known by at least some of the parties would disclose a possible claim by third parties to the property, the mortgage or the note.
A title that is free of liens or legal questions as to ownership of the property. THIS IS AN IMPORTANT ISSUE IN ANY PROPOSED SALE OF RESIDENTIAL PROPERTY ENCUMBERED BY A SECURITIZED MORTGAGE. THE SALE OF THE PROPERTY IN A TRADITIONAL TRANSACTION OR BY SHORT-SALE OR FORECLOSURE AUCTION SALE PROBABLY INCLUDES A CLOUD ON TITLE. In fact, it is likely that if you sold property anytime in the past few years you paid off the old mortgage and received a Satisfaction of Mortgage from the “lender.” However, if the Lender does not have clear title to the mortgage instruments, the execution of the Satisfaction of Mortgage, and even the Recording, may have dubious or no meaning inasmuch as the loan was transmitted up line and pledged to Buyers of Derivative Securities. The various instruments of transmittal combined with the “security” pledged to those investors probably conveys an interest in the mortgage and note to the investor, the investment banking firm, the SPV, the SIV, the mortgage aggregator or some other third party(ies). Hence clear title could not be conveyed in any sale. If the “lender” accepted the full payment at a closing or partial payment (short-sale) and did not pass on the proceeds to the third parties that have an interest in the note and mortgage, the Buyer and the Seller of the property are exposed to potential litigation over title, liability on the note, and right to possession. See Cloud on Title.
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands. It is important to distinguish between the two “closing” that occur at the time of each transaction in which real property is transferred from a Seller to a Buyer and money passes from the Buyer’s Lender to the Seller, the appraiser, the mortgage broker, the sales agents, the title company etc. Failure to make this distinction has resulted in confusion in understanding the consequences of rescission. Title to the property changed hands only in the closing between Buyer and Seller. Rescission of the loan closing does NOT mean return of the property. Only a rescission of the real estate property closing between the Buyer and the Seller would mean a return of the property.
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate (GFE) which they must issue to the borrower within three days of receiving a home loan application. IN THE CONTEXT OF THE THE MORTGAGE MELTDOWN, THE GFE IS EXTREMELY IMPORTANT. Under the Truth in Lending Act all parties to the loan closing must be disclosed along with their compensation. In virtually every closing, there is no disclosure of the premium (usually 2.5% of the loan) paid to the “lender” for posing as the lender in place of an unregulated lending source, the rebates, bonuses, yield spread premiums, commission and kickbacks on the loans.
closing statement. While the rescission remedy under TILA says it does not apply to residential mortgages, it DOES apply to HELOC’s and the right of rescission or cancellation resulting from fraud and non-disclosure is NOT limited to TILA and RESPA.
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust. The issue raised in this Treatise is whether a securitized loan can EVER be paid or repaid to the proper party and therefore whether the loan can EVER be satisfied and therefore whether ANY party has the right or authority to foreclose, give notice of default, post a notice of sale, get a judgment ordering the sale, conduct an auction sale, issue a certificate of title, or evict the homeowner based upon the “default” in a loan that has already been paid and repaid to the nominal lender at closing as well as to other parties upstream, some of whom added to the revenue stream and the payments on the same mortgage that is alleged to be in default. In fact, the issue is whether the “loan closing” was in substance a mortgage transaction at all but rather, an undisclosed deception to issue negotiable instruments that would be sold to investors under additional pretenses.
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property. The issue here of course is “who is the lender.” If the loan has been transmitted, transferred, assigned and or pledged to one or more parties, (or hundreds of parties in the case of securitized transactions) and if the obligation has been commingled with the obligations of other parties (which happens in the pooling of loans and the sale of ABSs), then it is highly probable that the loan servicer has no authority beyond accepting payments, and it is possible they do not actually have that authority inasmuch as they may  have received it from a party who had already sold the the loan to yet another party. In fact, collection by the mortgage servicer might have been improper especially if there was a failure to transmit the entire payment to the ultimate investor. Note that in TILA a mortgage servicer is expressly excluded from being considered a party in interest and is therefore NOT authorized to foreclose or in any way present itself as a creditor of the “borrower.” This is part of the reason this Treatise has repeatedly made the point that in any bankruptcy petition the alleged mortgage should be listed as a contingent liability with an unknown owner.
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.

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