Wells Fargo: Insured Mortgages Still Being Foreclosed After Death Benefit is Paid to Bank

In my newly formed practice and thanks to the diligent work of my partners at GGKW, we have discovered something that is over the top even by current standards in the current mortgage mess, to wit: servicers, banks and other entities are receiving complete payoffs of the mortgage upon the death of the insured homeowner and then either (1) getting the heirs to sign a modification agreement as though the debt was still owed or (2) FORECLOSING. (OR BOTH).

This is not accident. The Banks are rolling the dice. Many of the mortgages were in foreclosure or had been declared in default before the payment came in. Others were completely current. But the common factor is that the heirs did not know the policy existed because it was done at closing of the loan. The heirs either didn’t know or forgot if they were told. Either way the Bank received payment directly or through one of the many agents in the securitization chain and continued to collect the money as though it was due. And the affidavit or testimony of the bank representative does not disclose the payment even though it was received, cashed and posted — and that goes a long way toward showing that the corporate representative is neither corporate, a representative or with any knowledge.

This phenomenon is entirely different than the mortgage bond insurance that was also paid to the bank or one of its many agents in the securitization chain.

Why is this happening? Because the banks have elected not to make it a data input factor at LPS whose roulette wheel decides who to foreclose, when, how, and by whom regardless of the facts of the case. Nobody seems to know just how many homes were foreclosed on mortgages that were paid once by accidental death coverage or other PMI, and paid several times over by mortgage bond insurance and credit default swaps.

The bottom line is that if one of the alleged mortgagors (homeowners) has died, check thoroughly to see if an insurance policy may have been in force and if it is already paid off. It is obvious that the banks would rather pay the damages and sanctions when they caught than change their practices. The reason is that only 5% of foreclosures are contested. If they win most of those, which they have been doing, the benefits of taking multiple payments on the same mortgage are far outweighed by the occasional sanction or damage award.

Until Judges start assuming that they should be vigilant and instead of expedient, the tide will turn.

Paid by Insurance, Wells Fargo continues collection and foreclosure. Damages $3 Million awarded


How Does Insurance Payee Match Up with Claims of Ownership of the Loan?

There have been many admissions by government officials and even parties to the litigation over mortgage Foreclosures to the effect that at this point the ownership of most loans is in doubt. Even President Obama said it, reflecting the views and advice of the senior advisors at the White House. On appeal, recently in California, BOTH sides admitted they had no way of identifying the true creditor — and that is why we have all this litigation, why we have gridlock on modifications and settlements. So what do we do?

One insurance expert I interviewed suggested that his industry might solve the problem, but I think his points raise more questions than answers. Nonetheless, to prove the question, and overcome certain presumptions that are legally applied, examining the insurance policies and the changes that occur in forced placed insurance might reveal the issues and even illuminate the potential solution.

Bank of America is an example of a bank that rushes to take any excuse to place insurance from their own carrier BalBOA, naming BOA as the loss payee on liability policies. The usual previous loss payee was someone else — perhaps the originator or some alleged assignee. The procedure of forced placed insurance creates both additional income to the bank and skips over the question of who owns the loan. When the insurance is reinstated or shown to have never lapsed in the the first place, it often names BOA thus lending support to the bank’s position that it is the owner of the loan.

Looking at the title insurance, who is the loss payee? Besides the owner’s policy there is a rider for the mortgagee named in the mortgage. Of course that party may not be a mortgagee when the mortgage is examined carefully. But changes in loss payees under title insurance usually requires notice and consent of the owner of the property.

Thus the question could be asked in Discovery about who was responsible for tracking title insurance, liability insurance and PMI, why does the policy name a loss payee other than the bank claiming ownership and what efforts were made by the bank to correct the identity of the creditor?

The same thing applies to PMI. If the payee is somebody different than the Forecloser you will notice that none of the banks allege that this is a breach of the mortgage contract. Why not? I think it is because the insurer would demand more proof than what is offered in court as to ownership and that the bank would not be able to satisfy the insurer that it had an insurable interest in the property.

Az Seizes PMI Group: Orders Stop to Paying on PMI Mortgage Insurance


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EDITOR’S COMMENT: Well here is one insurer that won’t pay the Banks and won’t get federal bailout to do it. This Arizona Group simply doesn’t have the money to pay out on claims. Remember that the Government bailed out AIG so it could pay 100 cents on the dollar to Goldman, Chase, BOA, Citi, Credit Suisse et al. Now the company is saying the most they will is 50 cents on the dollar and there is a veiled threat that they won’t pay anything.Expect other Private Mortgage Insurance companies to do the same. This used to be a highly profitable add-on to mortgage expense that significantly added to the monthly payment and was required by most lending institutions.

Who is getting this money? What due diligence has been done to determine who gets this money. In the previous post I show that the parties foreclosing are basically a fictitious name without any legal existence — so there is nobody to counterclaim against because there is nothing but thin air to fight against. If you are fighting for your life and home in court you are probably fighting against an entity that has no greater legal existence than Donald Duck.

By using a phrase instead of a name of an actual entity, they create the appearance of an entity, especially when the phrase starts out with the name of a Bank that is not acting as a party to the transaction or foreclosure. It’s the ultimate asset protection plan for the Banks —we can sue you, we can take your property, your title and evict you and if we do it wrong, lie or commit outright fraud, you can sue a non-existent entity with no assets.

Judge Stephens in Missouri had no trouble in seeing through this ruse. When you get right down to it, virtually every entity involved in the mortgage origination right through the foreclosure was either a completely fictitious entity or a nominee or unauthroized agent for a fictitious entity. PMI insurers would do well to sit up and take notice that they were scammed. They should refuse to pay any amount to anyone unless the recipient proves that they are in fact the creditor.

By forcing the Banks into court to prove that point, they probably won’t have any takers. Because none of the Banks are the creditors and they know it. But they are very willing to take money from PMI carriers if they can get it. It’s another example of how the servicers and banks are acting against the interests of investors.

Oct. 23 (Bloomberg) — PMI Group Inc., the mortgage insurer that was ordered in August to stop writing policies, said a unit that sells such coverage was seized by Arizona authorities and will pay out claims at 50 percent starting tomorrow.

The Arizona insurance regulator has full possession, management and control of the unit, PMI Group said in a statement on its website. Bill Horning, a spokesman for PMI, didn’t respond to a message seeking comment.

In August, the Arizona Department of Insurance told PMI that the unit, PMI Mortgage Insurance Co., was to halt sales of new policies and stop making interest payments on $285 million in surplus notes. PMI, which is based in Walnut Creek, California, said it needed to provide the regulator with a plan to improve its ability to meet policyholder obligations.

“The department may take appropriate action, including commencing conservatorship proceedings” if PMI fails to satisfy regulators’ demands, the company said on Aug. 19.

That same month, PMI Group posted its 16th straight quarterly loss.

The worst U.S. housing crash in seven decades has pressured mortgage insurers, which pay lenders when homeowners default and foreclosures fail to recoup costs. Home prices fell 3.3 percent in the 12 months through July as a U.S. unemployment rate of more than 9 percent sapped the confidence of potential home buyers.

Most Profitable

Until 2007, private mortgage policies had been among the most profitable types of coverage sold by insurers. From 2000 to 2006, members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar they collected in premiums.

MGIC Investment Corp., the largest U.S. guarantor of home loans, reported a wider third-quarter loss on Oct. 21 as the cost of claims from mortgage delinquencies rose.

PMI shares have fallen 91 percent year to date, and traded at 31 cents on Oct. 21 in New York before the stock was halted.

–Editors: Sylvia Wier, Joe Sabo

To contact the reporters on this story: Mike Millard in Seattle at Mmillard2@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Sylvia Wier at swier@bloomberg.net

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