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

Posted on October 3, 2013 by Neil Garfield

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.

Filed under: CORRUPTION, evidence, expert witness, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, investment banking, Investor, MODIFICATION, Mortgage, Pleading, securities fraud, Servicer, trustee | Tagged: Balboa, Bank of America, discovery, forced placed insurance, liability insurance, mortgages, PMI, title insurance | 26 Comments »

What Lawyers Are Being Taught in Current Seminars About Foreclosure

Posted on October 2, 2012 by Neil Garfield

It might strike a note of dissonance when you realize that all the knowledge, facts and theories are well-known by title experts and they are teaching mostly correct things to lawyers. The problem is not whether the information is being disseminated. The problem is that the Lawyers are either not paying attention at these seminars or they are refusing or failing to follow what they have been taught. That includes lawyers who become Judges.

If you don’t know these things, you should be a member of this blog, participate in our twice monthly teleconferences, and attend any seminar you can lay your hands on. NBI has several although they shy away from the third rail of securitization.

In the end BOTH the Max Gardner of approaching the documents and the Neil Garfield method of following the money will be needed to drill the point home — i.e., that the mortgages, notes and obligations were faked from beginning to end and then covered up with false assignments, indorsements, “allonges” and other affidavits or instruments that make it look pretty but fail to meet the test of a proper foreclosure.

And you arrive at the same conclusion regardless of whether you start with first money exchanging hands with the investor or first funding with the borrower at the time of origination.

As the pace picks up on government, borrower and investor lawsuits that soon will be facing statute of limitations arguments from the banks, the realities are closing in on the banks and servicers. Any Bank will tell you that you can’t go in in with a gun, make a “withdrawal” and then settle the case with pennies on the dollar. ALL the money is seized, and the perpetrator goes to jail. I predict some nasty surprises for the megabanks next year and some of those will lead to break up of those banks into smaller banks that are more easily regulated. Glass Steagel might not come back completely but administratively we are headed in that direction.

The following is from my notes taken from many different seminars at which the presenters were title examiners, real estate lawyers, professors of law and even executives from the title insurance industry who articulated the situation quite clearly. Title is corrupt, but they fault the banks for misleading the title carriers as to the character and content of the closing. They understand the problems with “credit bids” and that is why they charge extra for a title guarantee — an instrument that is usually not even mentioned to ordinary people buying property.

Heads up to those on the fringe of real estate transactions. Title must be clear, not clouded or defective and must be insurable. In the case of transactions in which securitization and assignment claims are being made, the “economic interest” rule of thumb and industry standard is the sticking point. When you actually follow the money the documents don’t add up, which is layman’s way of saying what lawyers call an absence of a nexus between the transaction and the documents.

This is where the giants will fall. In fact, it was the the improper, illegal and fraudulent use of the money and the signatures of the parties that got them to appear so fat to begin with. When the dust clears, banks like BOA, (which is already executing on a contingency plan for a breakup by quietly dumping all contested foreclosures into third party hands), will not exist in their present form.

MAIN TAKEAWAY ITEMS:

1. Title insurance only applies if there is an insurable interest. It was universally
accepted by the conference (including those who were there to protect the interests of the banks and pretenders), that an insurable interest includes two elements: (a) a recorded instrument naming that party and (b) an economic interest in the property. Thus if we take the position that an insurable interest is based upon law and not just policy, it can be argued that in the absence of an insurable interest, the title company will not issue the policy and the Court should not and may not validate the interest, since it is ipso facto, uninsurable.
2. As the number of transfer of the “indebtedness” (the note) increases, the duty to inquire increases, and the more nervous the title examiner or transactional lawyer becomes.
3. Producing the note is universally accepted as law despite some court decisions to the contrary. In Florida and other states the forecloser must produce and tender the original note to the court in order to obtain an order from a Judge to sell the property, and without the note, the forecloser cannot submit a credit bid. So even if the Judge lets the case go through, the sale can be attacked as being no sale (Void, not voidable) because the forecloser did not comply with the requirements of law to establish itself as the creditor.
4. Title insurance policies universally have an exception for the rights of the parties in possession. Presumably that means at the time of the transaction. So if the transaction was are financing (which accounts for more than half of all mortgage transactions, the party in possession is the homeowner. The argument can be made that the title carrier made the exception — and that assuming they are experts in title — that exclusion should be used in any litigation of the parties regardless of whether the issue involves the title policy. Thus the homeownerʼs rights include multiple affirmative defenses, counterclaims and cross claims which need to be heard in a hearing in which actual evidence is heard which means that actual COMPETENT witnesses must be heard to authenticate any documents proffered into evidence.
5. Any situation in which the named insured on the title policy is different than the instrument on record identifying the mortgagee or beneficiary results in an uninsurable interest which can be translated as non-marketable title. Hence the originated loan documents prove that the transaction was a table-funded loan in which the true lender was not disclosed. This means the original documents are fatally defective and cannot be cured without the signature of the borrower or a Court order which would require a hearing in which actual evidence is heard which means that actual COMPETENT witnesses must be heard to authenticate any documents proffered into evidence.
6. Only a creditor may submit a credit bid. If anyone else bids, the Trustee or clerk usually has no discretion but to issue a certificate of title (deed) which gives clear title to the grantee, which can either be the borrower or someone standing in for the borrower.
7. Title insurance is not a magic bullet. It does not prove the status of title.
8. Generally unrecorded instruments are not covered by title insurance. In Arizona and other states there is general acceptance of the idea that based upon statute and ATLA standards successors in interest to the debt do not need a new title policy. By inference this would mean that they are giving credence to the idea that the mortgage follows the note, whether the transfer was recorded or not. But upon questioning the experts who delivered the presentation agreed that as the number of transfers increased the transaction becomes suspicious and that the rule regarding successors was probably meant for single transfers.
9. A transfer by a corporation not in good standing in the state or states in which it is required to be registered may not transact business nor bring any judicial proceeding. Mere ownership of property is not considered doing business. But a pattern of conduct of transactions is all that is needed. If the entities (any of them) that are involved in the chain of title are either defunct or in bankruptcy, any assignment, allonge or other instrument is invalid. It can be cured but there are time limits on how long they have before they cure, and it may be that reinstatement may require a name change. After 6 months in Arizona the name of the entity that should have registered is up for grabs which means you can incorporate under that name. What you can do with that name is an interesting proposition that was not discussed.
10.Conflicts of interests apparent on the face of the document or otherwise known to the title examiner create a duty to inquire. Therefore, since the usual pattern is that these documents are created after notice of default and usually after the matter is in litigation and sometimes not until hours or days before a hearing in which the documents need to be produced, the matter is a question of fact that needs to be decided after hearing evidence which requires competent witnesses testifying from personal knowledge.
11.BOARD RESOLUTION REQUIRED: No officer may sign a deed without board resolution. It is possible that estoppel, waiver or apparent authority might apply in the situation where the complaining party is a bona fide third party arms length purchaser for value.
12.In Arizona the knowledge of the Trustee is not imputed to the Lender, but there is no reference or prohibition against imputing the knowledge of the Lender to the Trustee. The practice of ALWAYS substituting trustees instead of using the old one is a cover for the fact that the old trustee would probably ask some questions rather than simply follow orders and send the notice of default, notice of sale etc.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: ATLA standards, chain of title, economic interest, imputed knowledge, insurable interest, multiple transfers, title insurance | 42 Comments »

It’s Not Even a Bubble: Foreclosures on the Rise

Posted on July 27, 2012 by Neil Garfield

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Editor’s Comment: Realtors and Banks want you to think that you need to buy now before the market takes off and prices spiral upward. I say don’t believe a word of it.

If you are buying to live in a house, you should know that the actual and shadow inventory of foreclosures will keep intense downward pressure on housing prices for many years to come. Some estimates, including mine, are that the housing market might take more than 10 years to recover and that it could be as much as 20 years. This is why so many people are renting rather than buying. Rental values are going up because there is actual demand for renting.

If you are buying for investment, see the above paragraph. You might have a viable investment if you are willing to stay in for the long pull and you are willing to take on the duties and obligations of a landlord.

If you are selling and you are waiting for the market to bottom out, or maybe you see a spike and you think you’ll wait just a little bit longer to get a higher price, forget it. Sellers, as realtors will even tell you, are mostly unrealistic about the sales price of their property. This is because they bought or once saw the price of their property at twice the price as the offers now. The reason is simple — prices went up but values stayed the same or even declined. The difference between prices and values has never been as big a deal as it is now.

Prices can be forced up by actual demand but never as much as we saw from the late 90’s to the peak at 2006. The prices went up because the payments went down or appeared to go down.

Free money was everywhere and nobody was reading the fine print or even questioning why Banks would offer such deals as teaser rates and other nonsensical things to entice people into signing up for mortgages, whose payment would eventually rise above their household income or where the payment was the equivalent of doubling the interest rate because they were going to be sitting with a home that declined to its real value.

The truth is that even if a recovery eventually occurs, it will be 20+ years before we see those prices again. And that will only result from inflation which eventually will pick up steam.

And by all means remember what I have been writing about these last few weeks. The title they are offering you, with a deed signed by a bank, or even a satisfaction of mortgage signed by a bank may not be worth the paper it is written on and the title policy normally excludes that sort of risk from what they are covering in title insurance. So if you don’t pose the hard questions and negotiate a real title policy that covers all the known risks, you could be the angry owner of a white elephant that cannot be sold later nor refinanced.

From CNBC:

Home prices rose, just barely, in the second quarter of this year annually for the first time since 2007, according to online real estate firm Zillow. That prompted the popular site to call a “bottom” to home prices nationally. The increase was a mere 0.2 percent, but in today’s touch and go housing recovery, that was enough.

Nearly one third of the 167 markets Zillow tracks in this survey saw annual price gains from a year ago.

“After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries. “The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own.”

Zillow’s report, which compares prices of homes sold in the same neighborhood, also showed a stronger 2.1 percent gain quarter to quarter, which is the biggest uptick since 2005. The biggest price gains, however, are in the markets that saw the biggest price drops during the latest housing crash. Phoenix, for example, saw a 12 percent annual price gain on the Zillow index.

That has other analysts claiming that the overall surge in national prices is due to price bubbles in certain markets.

“Strong demand, particularly in areas of California, Arizona and Nevada, are pushing up home prices very quickly in the short-term. And because many of the home purchases in these areas are cash transactions, there appears to be less braking of prices by our current appraisal system than seen in other parts of the country,” noted Thomas Popik, research director for Campbell Surveys and chief analyst for HousingPulse. “The trend raises the distinct possibility of housing price bubbles emerging in some of these hot housing markets.”

The supply of foreclosed properties for sale has been dropping steadily, as lenders try to modify more loans or actively pursue foreclosure alternatives, like short sales (where the home is sold for less than the value of the mortgage). Investors, eager to take advantage of the hot rental market, are having to spread out to more markets in order to find the best deals.

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“We were heavily into Phoenix early in the cycle. Those markets are heating up,” said James Breitenstein, CEO of investment firm Landsmith in an interview on CNBC Monday. “We see a shift more to the east, states like North Carolina, Michigan, Florida.”

While home prices on the Zillow index are improving most in formerly distressed markets, like Miami, Orlando and much of California, they are still dropping in other non-distressed markets, like St. Louis (down 4 percent annually) Chicago (down 5.8 percent annually) and Philadelphia (down 3.5 percent annually).

“Those people looking at current results and calling a bottom are being dangerously short-sighted,” said Michael Feder, CEO of Radar Logic, a real estate data and analytics company. “Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short.”

Radar Logic sees price increases as well, but blames that on mild winter weather that temporarily boosted demand. This means there will be payback, or weakness in prices during the latter half of this year. And even without the weather hypothesis, they see further trouble ahead:

“On the supply side, higher prices will entice financial institutions to sell more of their inventories of foreclosed homes and allow households that were previously unable to sell due to negative equity to put their homes on the market. As a result, the supply of homes for sale will increase, placing downward pressure on prices. On the demand side, rising prices could reduce investment buying,” according to the Radar Logic report.

Investors are driving much of the housing market today, anywhere from one third to one quarter of home sales. That makes these supposedly national price gains more precarious than ever, because they are based on a finite supply of distressed homes and that supply is dependent on the nation’s big banks. First time home buyers, who should be 40 percent of the market, are barely making up one third, and millions of potential move-up buyers are trapped in their homes due to negative and near negative equity.

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: association dues, bank regulators, Barclays, home prices, home values, pension benefits, PENSIONS, shadow banking, title insurance, title policies, underfunded pensions, Wall Street Journal, yield spread | 27 Comments »

LPS Countersues With Limp Complaint Against Nevada

Posted on July 4, 2012 by Neil Garfield

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Editor’s Note: After being named as a defendant is a suit brought by Nevada AG Masto, LPS figured the best defense is a good offense. This will undoubtedly backfire. The smart move for the banks and servicers has always been to allege nothing formally, and then “proffer” facts to the Judge that the Judge thinks are already true. This is called taking control of the narrative or story. In this case, LPS subject itself to scrutiny and allows for discovery which they most certainly will seek.

AG Masto outsourced the suit to a private law firm deputized by the state to prosecute. LPS complains that this is illegal or that it was done improperly. As any pilot knows from the military, you don;t get flack until you are over the target. These counter-shots demonstrate how the banks and servicers are starting to feel extremely vulnerable. This is a departure from prior strategy wherein the banks and servicers led the investigators down rabbit holes without actually saying anything of offering any actual evidence with proper foundation from a competent witness with personal knowledge.

So far, criminal charges have been brought against several notaries and two LPS officers. Masto is claiming widespread fraud involving mass document signing.

The problems with the documents are many and seem like low-hanging fruit, but borrowers are still losing their court battles because of the presumption that they did take the loan, they did default and that they did sign a note and mortgage that accurately described the financial part of transaction. When these borrowers get to court they are confronted with a Judge that hears their silence or active admissions that these facts are true.

Many of us were led down that rabbit hole, including myself. Theoretically the defective documents should be enough to defeat the foreclosure. But theory isn’t enough. A thorough understanding of BOTH the academic version of securitization and the actual facts as they occurred is required to get the Judge off dead center.

From origination to the last assignment into the “pool” none of the transactions actually were taking place. There was no financial transaction, there was no value received or payment and so there was no transaction at all. Writing up a document that says otherwise besides being fraudulent, forged fabricated and robo-signed, is just not enough for most judges to let the borrower win.

While the Judge a are wrong in their application of the law, they feel justified in ignoring the niceties of documents that have not been subject to tampering, forging and fabrication.

And they might not be wrong procedurally. If the borrower admits or fails to object to proffers of evidence in the record as to the existence of the financial transaction between the borrower and the “lender” at the origination of the document, and admits or fails to object to proffers of evidence that the assignments were for value or payment, then he pretty much is forced to admit and rule that the document defects are cured by the admissions of the borrower.

This particular problem is caused by the borrower and the borrower’s attorney. It is a rare circumstances that the Judge will sustain an objection after the answer has been heard, rare still that they will strike it from the record and even more rare, that they could wipe it out of their own memory of having heard it.

But if the borrower starts from the beginning denying the debt, denying the obligation, thus denying any possibility of default for a financial transaction that never existed, then the Judge is faced with a material fact in issue. Some Judges might still rubber stamp the foreclosure, but unless the borrower screws things up with explanations of why he denies the loan, etc. which gives the Judge room to rule on that basis of denial, the Judge will almost always be overturned on procedural grounds for rubber stamping a lawsuit where there were material factual issues in dispute.

Which brings us back to LPS and Masto. The LPS position is weak at best. But even more important is that they broadening the area of inquiry and allowing discovery into things that they certainly don’t want discovered in terms of fabrication of documents and recording documents with recitals and declarations that are patently untrue. The damn is cracking.

In order to simply deny those allegations you must do so without taking frivolous positions. That’s easy if you understand how to track the money. And that is why you should not walk into court with an independent report showing that neither the document trail nor the money trail follow the academic securitization trail that was intended.

You don’t need to be right. All you need is a reasonable basis for making the allegation or denying the allegation of the other party. The big mistake that most pro se litigants and many lawyers make is that they spill the beans in the first hearing giving the Judge multiple targets from which to choose a reason to deny any relief to the borrower.

LPS Countersues Nevada AG Masto

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: First American Title, Lloyd's of London, title insurance | 33 Comments »

MERS’ Owners Offer Bogus Title Certification

Posted on June 28, 2012 by Neil Garfield

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WE’VE GOT THEM ON THE RUN

Banks and servicers concede that title is probably not going their way in the courts

Editor’s Notes:

SECURITIZATION SCAM REACHES NEW HIEGHTS IN DOCUMENT FABRICATION

In a bold move to head off obviously correct arguments about the lack of authenticity of title or authority to pursue fake foreclosures, the banks and services and title companies have come up with a new product: A Title Guarantee Certificate and Policy, that on its face will get Judges, lawyers and even homeowners thinking they were wrong to challenge the chain of ownership and that the foreclosure is legitimate. This gives cover to the investment bank who can now pitch bad loans over the fence onto investors who were explicitly and expressly protected from risks associated with bad or shaky loans.

Taken straight out of the pages of the con man’s playbook, the banks and servicers have come up with another fabricated piece of paper to waive in front of ignorant judges to prove that the chain of title “is what it is.” This ignores the basic rule of evidence that while the title report and policy may be admitted into evidence they are not admitted (if the lawyer does his job) as to what is contained in them — nor, more importantly are they proof of title. But the newly minted “Foreclosure Title Guuarantee Certificate and Policy” issued by 1st American title is probably going to shift the burden of persasion over to the borrower at least temporarily. The only remedy for the homeowner is to file for discovery an convince the judge that you are entitled to full, complete, and accurate answers.

Here is the scam once used extensively with Lloyd’s of London. I had a client whose business was conning people out of their money but he stuck with large institutions and people with enough wealth they could afford to lose some money. He borrows several bars of lead made up in the shape of platinum bars. He buys a Lloyd’s certificate for a fee and his indemnification of Lloyd’s that neither he, nor anyone through him or even as co-beneficiary of the insurance policy will make a claim and if they do, he will pay for the defense and pay the damage award.

At the same time he has already sold the lead to someone else under an arrangement whereby he maintains the lead bars in the vault for safe-keeping. So like the rating companies and appraisers, Lloyd’s issues the policies, collects the fee, gets the signature of the buyer of the policy that no claims will be made, and Lloyd’s retreats into the background. So if Lloyd’s wants good faith money on deposit, this only re duces the “profit” or reward from the scam but ti doesn’t eliminate it. At worst one scam will pay for the other.

The lead/iron bars are put into a high security vault with the Lloyd’s of London certificate, appearing to authenticate the bars as platinum and insuring them for millions of dollars. My client goes out and buys 3 Sheraton hotels in Houston using the “platinum” as collateral. He drains the hotels dry in three or four months, holds onto them another month or two and then gives the hotels back to the previous owners in lieu of foreclosure.

When the hapless former owners go to the vault and collect the collateral they bring it to a professional who states that it is not platinum it is lead and pretty rough lead at that looking nothing like platinum. So then they go to Lloyd’s who confirmed the issuance of the certificate and policy of insurance who informs them that the policy no longer covers the loss because of a breach of the indemnification.

This is what the banks, service companies and title companies who own MERS are suddenly coming up with and it is advertised that this special certificate and title insurance policy can be procured at the beginning or in the middle of a foreclosure. No such insurance product ever existed before and none will exist for very long now, but it might be enough to convince judges and demoralize homeowner and their attorneys to get another few hundred thousand foreclosures through the system.

What lawyer should do in practice is to demand to see the entire transaction and correspondence file. The title company will be forced to reveal the separate declaration in which the promise is made not to ever make a claim and that if there is one, the bank or servicer “indemnifies” the ttile company and holds the title company harmless from any potential payment of any potential claim, although the payment will appear to look like it came from the title carrier. If they don’t show it, then they really are on the hook for the moneny suppoedly guaranteed in the policy.

This is the same story as the fake securitization of badly originated loans in which the paperwork from the very start was wrong and the parties who loaned and borrowed money wer left with no documents setting forth the terms of repayment — except the documentation contained in the PSA that establishes co-obligors and guarantors of payment.

Thus the newest document from the fake securitizers is another official looking instrument that effectively disposes of the issue of title — unless it is tested in court. The carrier dare not withhold the declaration that they can’t be responsible for payment without becoming responsible for payment bringing their exposure up from zero to hundreds of thousand of dollars on each transaction.

DO NOT ACCEPT TITLE POLICIES WITHOUT ASSURANCES THAT THEY WILL PAY AND THAT NO OTHER AGREEMENT EXISTS IN WHICH THE TITLE COMPANY IS PROTECTED FROM PAYING. ATTORNEYS SOULD BE ALERT FOR THIS IS A DEFINITE AREA OF POTENTIAL MALPRACTICE THAT IS MOST CERTAINLY GOING TO HIT OUR SHORES. HOMEOWNERS SHOULD MAKE CERTAIN THEY HIRE A LICENSED ATTORNEY WITH PLENTY OF EXPERIENCE IN NEGOTIATING THE TERMS OF THE TITLE COMMITMENT AND TITLE POLICY.

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The Lies They’re Telling US to Make Us Stupid (Again)

Posted on June 27, 2012 by Neil Garfield

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The Banks and servicers are doubling down on fooling the American public with planted articles, paid pundits and specious (empty, lying ) studies that skew data. Their goal is to lull the easily lulled American voter into another stupor where, unlike Europe, we fail to act against the Banks and more importantly fail to act to the benefit of our country and its citizens.

The other object is to get the foreign investors to keep pouring into the country and buying property and creating the appearance of a recovery. Except that once the foreign buying slows down, which it will, we will again be stuck with a glut of empty houses, probably in need of major repairs or demolition, and an absence of any substantial number of people who can buy or even rent real estate.

The biggest lie that deserves its very own headline is that “evidence suggests that anti-foreclosure laws may backfire” sending the nation into a slump. Of course no such evidence exists. What they are saying is that the Banks and servicers are starting to get nervous about how cases are turning, especially on the appellate level, so they are turning their mighty attention to the state legislatures. And they want people to support legislators who would otherwise vote for laws that eliminate fake foreclosures into lawmakers voting for amnesty for banks and servicers for the sake of the real estate market and the national economy. Lobbyists and campaign money bag men are getting the attention of many legislators in just this way.

The lies are getting louder and more frequent. Soon they will be at the level of a dull roar as publicity companies and lobbyists and campaign donators whisper or shout into the ear of anyone close enough to hear or see the message. The message is “don’t stop foreclosures now, our plan is only half way done.”

Every time a foreclosure is completed two things happen: a family loses a home and an investor pension funds who might be funding the same family is taking a loss. Neither one should be happening since the original debt or obligation giving rise to the supposed mortgage or deed of trust lien has been paid several times over.

The investment pool is getting these “bad” mortgages thrown over the fence into their pool despite the fact that they have very specific agreements stating that no such mortgages will be allowed into the pool. But that’s OK because the creditor — the REMIC or Trust — has probably been paid or settled and doesn’t even exist any more.

The Banks and servicers MUST HAVE THEIR FORECLOSURES or else they face a torrent of potential problem arising from the fact that they are in effect still trading on mortgages and obligations that are dead, extinguished, gone.

Here are some of the lies from today’s headlines:

1. Housing activity Improves

2. Pent-up housing demand in families who moved in together after foreclosure.

3. Phoenix Prices hit 41 month high

4. Cantor Fitzgerald (bond trader): “real estate’s got life!”

5. Foreigners competing to buy property in US states — California, Arizona, Florida and Texas.

6. (Only) Detroit has a problem – article goes on to state that the rest of the real estate market is in recovery.

7. “Prices rising”

8. Owning beats renting

9. Mumbai Real Estate market Red Hot

10. Pent-up demand hits market as foreigners seek safe haven for their money.

Each article has about one or two grains of truth and the rest is worse than pure spin. It consists of lying and misleading the American public into thinking the crisis is over. But nothing is going to remove the corruption of our title system unless the legislatures pass measures that reset title assurance like Florida did in the Murphy Act. The fact remains that unless buyers have really big money, they are probably going to be in the second crop of little people who get crushed by Wall Street.

The facts are that median income in the U.S. is getting to be stubbornly accepted at unacceptable levels, a fact that simple arithmetic will show that prices cannot rise, renters will not be able to afford their rent and the properties are going to end up back again in the control of the banks and servicers , despite the fact that when they sold the property, the banks and servicers had no valid, legal right to title or possession. They had obtained the appearance or illusion of ownership by lying to Judges, borrowers, investors and legislatures.

The truth is that the real estate market is unsound, the economy is unsound and anyone who buys property without getting a judge to quiet title is buying a lawsuit that could arise and result in restoration of the title and possession to the “former” homeowner. Title insurance as it is now written must be carefully re-written through negotiations that practically nobody even thinks about, let alone the lawyers that sometimes get involved in these transactions. Bottom line: Don’t believe the media and don’t even believe the title company. Be careful in your selection of an attorney who really knows the risk of loss and knows how to negotiate the right remedy for the defects in title caused by MERS and securitization

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Cantor Fitzgerald, foreclosures, investment pools, lies, MERS, Murphy Act, real estate market unsound, REMIC, securitization, title insurance, trust | 49 Comments »

Don’t leave or enter short sale home without quiet title and adequate title insurance.

Posted on April 25, 2012 by Neil Garfield

U.S. home short sales surpass foreclosure deals for first time

Editor’s Comment:

Well of course short sales will be higher than REO sales. REO sales of foreclosed property where the bank or its agent owns the property presents a virtually impossible situation with respect to title. The odds are rising every day that a homeowner is going to sue, reverse the eviction, reverse the foreclosure, get title free of the mortgage and note and have the right to exclusive possession. We are getting reports of this across the country. While the banks are trying to keep a stiff upper lip about it all they are in a state of panic (!) because of the loss of ill-gotten gains they thought they had in the bag and (2) because this loss must now be written down on their balance sheet which means that their capital reserves must be correspondingly increased. Where will they get the money?

SO REO sales are going to be increasingly problematic.

But in a short sale it is the actual homeowner who signs the deed. That eliminates a wild card that is totally out of the control of the banks. The balance of the problem is that the satisfaction of the old mortgage is being executed by parties who have no ownership of the loan nor any agency authority to represent the true creditors (in most cases). But if the short-sale goes thorugh the new buyer can file a quiet title action for a few hundred dollars in fees and a couple of hundred dollars in court costs, and get a judge to sign off on all title claims. To paraphrase American Express’ “don’t leave home without it” It is the best interest of both the old homeowner who could be subject to liability a second time if the real creditor wakes up and in the interest of the new buyer who doesn’t want to lose his home to the claims of some creditor who can actually prove a case. So don’t leave or enter a short-sale home with quiet title — and a REAL title insurance policy that does not exclude claims arising from supposed securitization of the loan.

U.S. home short sales surpass foreclosure deals for first time New Mexico Business Weekly

In a sign that banks are becoming more willing to sell houses for less than the amount that is owed on them, the number of U.S. home short sales surpassed foreclosure deals for the first time, Bloomberg reports, citing Lender Processing Services Inc.

Short sales accounted for 23.9 percent of home purchases in January, the most recent month available, compared with 19.7 percent for sales of foreclosed homes, data compiled by the company show. A year earlier, 16.3 percent of transactions were short sales and 24.9 percent involved foreclosures.

The three largest banks in New Mexico are Wells Fargo, Bank of America and U.S. Bancorp , respectively.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, borrower, creditor, foreclosure, foreclosure defense, foreclosure fraud, foreclosure offense, FORECLOSURE SETTLEMENT, foreclosures, housing market, housing prices, Mortgage, mortgage fruad, mortgage meltdown, mortgages, New Mexico, predatory lending, quiet title, REO sales, reverse eviction, reverse foreclosure, short-sale, title insurance | 23 Comments »

BANKS ARE TRYING MERS 2 IN EFFORT TO LEGALIZE THEIR BEHAVIOR

Posted on December 5, 2011 by Neil Garfield

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EDITOR’S COMMENT: The Banks have tried many things to legalize their illegal activities, resulting in corruption of our title registries around the country and siphoning off money from investors, homeowners and and taxpayers that has brought us to the ever-present likelihood of collapse. MERS One of the tools they used to insulate themselves from activities they knew were wrong. They tried slipping in amnesty provisions from the proposed electronic signature act, which was almost unanimously approved by Congress, but then vetoed by Obama. They tried outright amnesty but that didn’t get very far in Congress or state legislatures. Now they want to propose MERS 2, which even realtors and title insurers think is a rotten idea.

They will keep trying. Persistence sometimes pays off. If they do succeed we will have allowed them to dodge the bullet. In the 1980’s the savings and loan scandal resulted in more than 800 people going to jail — people from the banking industry. In the securitization scam or “mortgage meltdown” as some refer to it, the number of high level people prosecuted is zero. CBS’ 60 minutes pointed that out last night. The real question is why aren’t these people in jail? The answer is because they are not being prosecuted.

Write your congressman, senator, state legislators and governor and tell them how unhappy you are with the stewardship of the economy and the housing crisis that caused it. Most of all tell them that MERS 2 is a bad idea and you will hold them accountable at the polls in November. And mean what you say — go to those polls and vote against the bank interests and the political lackeys that brought us to this point.

For those who don’t quite get what NAILTA is saying, it is simple. Title insurers are worried about liability. They know there is going to be a major test of their liability as cases float toward the courts and up the appellate chain, with suits alleging they should recognize the current title defects, admit that the defect was caused at closing, and that the exceptions on the policy did NOT exclude liability for title problems associated with the securitization scam. Title insurers are obviously not writing the same policies that they did when this scam was in full operation.

So the banks answer is to create more sham companies that will issue title insurance in order for them to sell the properties they stole. MERS 2 is an essential ingredient of being able to do that so that they can “rely” upon information over which the Banks have total control. This is akin to the “substitution of trustee” in nonjudicial states where Banks declare themselves to be creditors when in fact they are not and then go on to substitute themselves (a subsidiary or affiliate) as the “independent” trustee on the deed of trust. It is a sham and should be treated as such.

NAILTA Announces Opposition to “MERS 2” Proposal
Slade Smith
12/1/2011

The National Association of Independent Land Title Agents (NAILTA) has announced that it is opposed to a provision in legislation offered by Senator Bob Corker (R-TN) that would create “MERS 2”, a federal mortgage registry modeled after and designed to replace the existing bank-owned MERS mortgage registry.

In its position paper on the Corker bill, Senate Bill 1834, NAILTA says that it “is opposed to any reconstituted MERS system because the MERS model is a deeply flawed system that continues to harm consumers, small business owners, and county governments across the United States.”

According to NAILTA, “[A]ny consideration of creating a new MERS without having successfully resolved the well-known flaws and inadequacies of the previous MERS system is a foolhardy exercise. S.B. 1834 proposes no solution to the prevalent flaws with the current MERS system. Instead, it merely seeks to establish MERS 2.0 based upon the MERS in use on the date of enactment.” One of those purported flaws in MERS is that it “fails to reconcile 50 states worth
of mortgage recording and foreclosure law.”

NAILTA claims that MERS, a system “built by the mortgage industry, for the mortgage industry” according to its founders, has harmed the land title industry in particular by shifting the business of title insurance away from title professionals and toward banks. NAILTA says that MERS has also damaged land title records and deprived local governments of fees used for general purposes such as public safety.

NAILTA characterizes MERS 2 as a Federal Torrens title system– subject to the considerable expense and difficulty of reconciling states’ differing recording and foreclosure laws into one system. MERS failed because of the same pitfall, and consumers, county governments, and title agents have borne this expense while only the owners of MERS have benefited, according to NAILTA.

NAILTA has contacted Senator Corker’s office and requested a meeting with the Senator, to express its “deep reservations and opposition concerning MERS and the specific problem we have with [the MERS 2] provision.”

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, MERS, modification, quiet title, rescission, RESPA, securitization, TILA audit, title insurance, trustee, WEISBAND | 23 Comments »

WATCH OUT! BEFORE YOU BUY THAT NEXT PROPERTY — TITLE ISSUES

Posted on November 11, 2011 by Neil Garfield

LAWYERS TAKING NOTE OF TITLE PROBLEMS AND HOW TO FIX THEM

Posted on October 26, 2011 by Neil Garfield

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What Now? Bevilacqua v. Rodriguez Leaves Toxic Foreclosure Titles Unclear

by Rich Vetstein

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No Easy Fix For Defective Foreclosure Titles After U.S. Bank v. Ibanez Ruling

The Massachusetts Supreme Judicial Court issued its opinion today in the much anticipated Bevilacqua v. Rodriguez case considering property owners’ rights when they are saddled with defective titles stemming from improper foreclosures in the aftermath of the landmark U.S. Bank v. Ibanez ruling last January. (Text of case is embedded below). Where Ibanez consider the validity of foreclosures plagued by late-recorded or missing mortgage assignments, Bevilacqua is the next step, considering what happens when lenders sell defective foreclosure titles to third party purchasers. Previously, I discussed the oral argument in the case here and detailed background of the case here.

The final ruling is mix of bad and good news, with the bad outweighing the good as fixing defective Massachusetts foreclosure titles just got a lot harder and more expensive. But, contrary to some sensationalist headlines, the sky is not falling down as the majority of foreclosures performed in the last several years were legal and conveyed good title. Bevilacqua affects those small percentage of foreclosures where mortgage assignments were not recorded in a timely fashion and were otherwise conducted unlawfully. Bevilacqua does not address the robo-signing controversy.

The Bad News

First the bad news. The Court held that owners cannot bring a court action to clear their titles under the “try title” procedure in the Massachusetts Land Court. This is the headline that the major news outlets have been running with, but it was not a surprise to anyone who has been following the case. Sorry Daily Kos, but the court did not take away a property from a foreclosure sale buyer. The buyer never owned it in the first place. If you don’t own a piece of property (say the Brooklyn Bridge), you cannot come into court and ask a judge to proclaim you the owner of that property, even if the true owner doesn’t show up to defend himself. It’s Property Law 101.

The Good News

Next the good news. The court left open whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles. Unfortunately, the SJC did not provide the real estate community with any further guidance as to how best to resolve these complicated title defects.

In the larger scheme, however, we are now seeing full scale real estate nuclear fallout from the banking crisis. As Barry Ritzholz eloquently states, “a deadly combination of MERS, robo-signing, and illegal shortcuts have created a horrific situation. A bedrock of our society — the ability for the owner of a piece of real estate to confidently convey that property, along with all associated property rights — is now in danger.” This problem is not unique to Massachusetts, and in fact, in harder hit states could be significantly worse. So the bigger question remains where do we go from here and what are banking regulators and attorneys general going to do about it?

Background: Developer Buys Defective Foreclosure Title

Frank Bevilacqua purchased property in Haverhill out of foreclosure from U.S. Bank. Apparently, Bevilacqua invested several hundred thousand dollars into the property, converting it into condominiums. The prior foreclosure, however, was bungled by U.S. Bank and rendered void under the Ibanez case. Mr. Bevilacqua (or presumably his title insurance attorney) brought an action to “try title” in the Land Court to clear up his title, arguing that he is the rightful owner of the property, despite the faulty foreclosure, inasmuch as the prior owner, Rodriguez, was nowhere to be found.

Land Court Judge Keith Long (ironically the same judge who originally decided the Ibanez case) closed the door on Mr. Bevilacqua, dismissing his case, but with compassion for his plight.

“I have great sympathy for Mr. Bevilacqua’s situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied,” Long wrote.

Given the case’s importance, the SJC took the unusual step of hearing it on direct review.

No Standing To “Try Title” Action In Land Court

The SJC agreed with Judge Long that Bevilacqua did not own the property, and therefore, lacked any standing to pursue a “try title” action in the Land Court. The faulty foreclosure was void, thereby voiding the foreclosure deed to Bevilacqua. The Court endorsed Judge Long’s “Brooklyn Bridge” analogy, which posits that if someone records a deed to the Brooklyn Bridge, then brings a lawsuit to uphold such ownership and the “owner” of the bridge doesn’t appear, title to the bridge is not conveyed magically. The claimant in a try title or quiet title case, the court ruled, must have some plausible ownership interest in the property, and Bevilacqua lacked any at this point in time.

The court also held, for many of the same reasons, that Bevilacqua lacked standing as a “bona fide good faith purchaser for value.” The record title left no question that U.S. Bank had conducted an invalid foreclosure sale, the court reasoned.

Door Left Open? Re-Foreclosure In Owner’s Name?

A remedy left open, however, was whether owners could attempt to put their chains of title back together and conduct new foreclosure sales in their name to clear their titles. The legal reasoning behind this remedy is rather complex, but essentially it says that Bevilacqua would be granted the right to foreclosure by virtue of holding an “equitable assignment” of the mortgage foreclosed upon by U.S. Bank. There are some logistical issues with the current owner conducting a new foreclosure sale and it’s expensive, but it could work. That is, of course, if the SJC rules in the upcoming Eaton v. FNMA case that foreclosing parties do not need to hold both the promissory note and the mortgage when they foreclose. An adverse ruling in the Eaton case could throw a monkey wrench into the re-foreclosure remedy.

In Bevilacqua’s case, he did not conduct the new foreclosure sale, so it was premature for the court to rule on that issue. Look for Bevilacqua to conduct the new foreclosure and come back to court again. The SJC left that option open.

Other Remedies & What’s Next?

The other remedy to fix an Ibanez defect, which is always available, is to track down the old owner and obtain a quitclaim deed from him. This eliminates the need for a second foreclosure sale and is often the “cleanest” way to resolve Ibanez titles.

Another option is waiting out the 3 year entry period. Foreclosure can be completed by sale or by entry which is the act of the foreclosure attorney or lender representative physically entering onto the property. Foreclosures by entry are deemed valid after 3 years have expired from the certificate of entry which should be filed with the foreclosure. It’s best to check with a real estate attorney to see if this option is available.

The last resort is to demand that the foreclosing lender re-do its foreclosure sale. The problem is that a new foreclosure could open the door for a competing bid to the property and other logistical issues, not to mention recalcitrant foreclosing lenders and their foreclosure mill attorneys.

Title insurance companies who have insured Ibanez afflicted titles have been steadily resolving these titles since the original Ibanez decision in 2009. I’m not sure how many defective foreclosure titles remain out there right now. There certainly could be a fair amount lurking in titles unknown to those purchasers who bought REO properties from lenders such as U.S. Bank, Deutsche Bank, etc. If you bought such a property, I recommend you have an attorney check the back title and find your owner’s title insurance policy. Those without title insurance, of course, have and will continue to bear the brunt of this mess.

More Coverage:

_____________________________________

Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure title defect matters & cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

Bevilacqua v. Rodriguez; Massachusetts Supreme Judicial Court October 18, 2011

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, borrower, countrywide, Deeds, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LIENS, LOAN MODIFICATION, Massachusetts Real Estate Law, modification, Mortgage Crisis, mortgages, quiet title, Real Estate Litigation, rescission, RESPA, securitization, TILA audit, title defects, title insurance, trustee, WEISBAND | 36 Comments »

MASS SUPREME COURT CLARIFIES: YOU CAN’T SELL WHAT YOU DON’T OWN — MISSING HOMEOWNER WINS CASE WITHOUT KNOWING IT

Posted on October 20, 2011 by Neil Garfield

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WRONGFUL FORECLOSURE IS NOT THE FOUNDATION FOR TITLE

PROSPECTS FOR TITLE PROBLEMS ACROSS THE NATION ARE MUSHROOMING

EDITOR’S NOTE: Likening the claims of the bank and the person who received a “quitclaim” deed to a Brooklyn Bridge transaction, the Court simply stated the most basic law: you can’t sell what you don’t own. But the reasoning of this Supreme Court decision, citing cases from long ago that are as valid to day as when they first decided, also goes directly to the issue of whether title can be challenged in an eviction arising from a foreclosure case.

The rule that a tenant cannot challenge the title of his landlord in an eviction case makes sense — if it is a landlord tenant case. But foreclosure cases are not landlord tenant cases. The fallacy of applying the rule to foreclosure cases is obvious and just as simple as the Massachusetts Supreme Court decision itself.

In a landlord-tenant case the allegation is that the defendant is a tenant under a lease and that they didn’t pay their rent under the lease terms. To allow title challenges that frankly are not really relevant would be to clog the courts with unnecessary litigation and stretch out the time a tenant could stay without paying rent. Thus the rule that says you can’t raise defects in title in an eviction action between landlord and tenant. The allegation is made that by the Landlord that he is the Landlord, that the defendant is a tenant and that there is a lease, with the payment due of $x dollars per month or per week and that the tenant did not pay — which has caused the landlord damage and therefore they need the possession of the property back so they can receive rent again to pay the mortgage, maintenance etc.

Foreclosure cases are much different. Here the allegation is that the Plaintiff is the owner, not a landlord as in the landlord-tenant case. Further, the allegation is that the occupant was the owner and isn’t anymore. The allegation MUST be that the change occurred as a result of a foreclosure that was duly prosecuted and in which there was a proper sale in which the Plaintiff obtained title and in which the rights to ownership and thus possession by the homeowner were foreclosed.

In civil procedure EVERYWHERE what is alleged is presumed to be true only in a motion to dismiss. If the allegations are denied, then there must be evidence from the plaintiff proving their allegations. In this case in Massachusetts as is the case in thousands of other instances, the evidence clearly shows that US bank was not the mortgagee when it initiated foreclosure.

Therefore US BANK could not foreclose. But it did anyway. And because they received a deed, they say that is enough. But a homeowner need only deny the allegations of the foreclosure and the sale and force the Plaintiff to prove it obtained real title in proper form and substance. Here is where US Bank fails and therefore the case was dismissed (in this case not an eviction, but a suit to quiet title against a homeowner who cannot be found).

If the allegation supporting the eviction action is faulty and cannot be proven, then the occupant wins. Those are the rules. If you make an allegation you must prove it with real evidence — not with presumptions that would allow people to sell the Brooklyn Bridge 100 times and make claims of presumption of title.

SEE 10.18.2011 Mass Sup Ct Bevi;aqua

Nemo Dat Trumps Bona Fide Purchaser

posted by Adam Levitin

The Massachusetts Supreme Judicial Court just handed down a second
major mortgage foreclosure ruling, Bevilacqua v. Rodriguez. The case
was an Ibanez follow-up dealing with the rights of a purchaser at an
invalid foreclosure sale. I thought this was a no brainer case and
said so in an amicus brief co-authored with some of the Credit Slips
crew. As the trial court noted, the foreclosure sale purchaser has to
lose otherwise I could actually sell you the Brooklyn Bridge or some
other property I don’t own.

What was cool about this case from an academic perspective was that it
pitted two heavyweight, Latin-inscribed principles of commercial law
against each other: the nemo dat quod non habet principle (you can’t
give what you don’t have) and the bona fide purchaser principle (one
who takes in good faith for value and without notice of defect will
get legal protection against claims). While these are both venerable
principles of commercial law, there should have been no question that
nemo dat prevails. It is arguably the foundational principle of
commercial law: the most one party can transfer to another are the
rights it has.
We have one critical carve-out to that principle, the
holder-in-due-course doctrine, but the holder-in-due-course is much
like the bona fide purchaser: it only applies if you take in good
faith and without notice of defect. And if you’re buying at a
non-judicial foreclosure sale, you’ve got notice of possible defect
(and one might argue about good faith). It’s a little like the problem
of finding a bargain when shopping–if it’s too good of a deal, it
could be a fraudulent transfer.

And so the Massachusetts Supreme Judicial Court held. If the
foreclosure was done improperly, the foreclosing party didn’t have
title to the property and thus couldn’t transfer title to the
purchaser. The court didn’t dismiss the suit with prejudice, so Mr.
Bevilacqua could get the property–if the foreclosure is done right in
the first place, but that means starting over again.

A lot of people think that the ruling in Bevilacqua will kill the REO
market. I doubt it. It might make it a bit harder to get title
insurance, but the title insurers have to keep issuing titles because
they need the cash flow. If there’s a widespread problem, they’re
already insolvent, so why not keep on doing business? There’s no tort
of deepening insolvency (at least in Delaware).

As with Ibanez, the Supreme Judicial Court merely upheld very sensible
principles that shouldn’t be controversial: you need to be the
mortgagee to foreclose and you can’t sell what you can’t deliver.
What’s kind of astounding is that the banks have had the chutzpah to
challenge these basic principles of commercial law, as if centuries of
commercial law jurisprudence should suddenly bend to their
convenience. This is the same sort of arrogance that engendered the
creation of MERS and the Article 9 mortgage transfer process.

There’s a third case awaiting decision from the Massachusetts Supreme
Judicial Court, Eaton v. Fannie Mae, which deals with the question of
whether a “naked mortgagee”–a mortgagee that isn’t the
noteholder–can foreclose. I filed an amicus arguing no way no how,
but we’ll see how the court rules.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: assignment, bankruptcy, borrower, challenge title, civil procedure, countrywide, disclosure, Eviction, foreclosure defense, foreclosure offense, landlord-tenant, LOAN MODIFICATION, MERS, modification, quiet title, quitclaim deed, rescission, RESPA, securitization, TILA audit, title, title insurance, trustee, US BANK, WEISBAND | 42 Comments »

DO YOU DARE ISSUE A WARRANTY DEED OR ANY DEED WITHOUT LIABILITY?

Posted on September 19, 2011 by Neil Garfield

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The inescapable conclusion at this point, is that title on more than 100 million real estate transactions is at the very least in doubt and quite probably corrupted. In legalese that would be expressed as clouded, unmarketable (i.e., you can’t sell it or finance it, because nobody will take it), defective or fatally defective. The only exceptions I can think of are those deals where raw land has been purchased from a long-standing owner with no debt attached to the land or where a home is purchased or refinanced where the last transaction is twenty years ago. Most people are unaware that they are sitting on shifting sands instead of a solid foundation — where title is properly recorded in the recording office of the county in which the property is located.

Yet people and institutions are issuing instruments fraught with liability and the high probability that the transaction — and the representations contained in the instrument they signed —- will be the subject of litigation later when someone tries to clear title or collect damages. Here are some examples:

A Warranty Deed, required in most transactions, requires the person signing to (a) attest and prove they are who they say they are (b) that they or the party whom they represent has title (usually fee simple absolute) and (c) that if they are signing as an agent, they have provided proof (usually recorded with the deed in properly recordable form) of their authority. The signor is promising, in exchange for the consideration paid, that if this Warranty Deed turns out to be challenged by anyone, they will defend the challenge and pay damages if they lose. Reliance on the title company, mortgage banker, mortgage lender or anyone else is not a defense although the signor could cross claim against those people and bring them into the lawsuit. The point is that the cost of litigating these cases could rise into tens of thousands of dollars. The cost of losing could rise into hundreds of thousands of dollars, or even millions of dollars.
A “Special Warranty Deed” might have some language of limitations that SHOULD put the buyer on notice but most people rely upon the title or closing agent, or their lawyer (if they have one) to make sure that the deed gives them the title they thought they were getting. This too could give rise to litigation because of representations at closing, representations in the title commitment or policy etc.
A Satisfaction of Mortgage requires the person signing to (a) attest and prove they are who they say they are (b) that they or the party whom they represent is the creditor and is the owner of the rights under the mortgage or deed of trust and (c) that if they are signing as an agent, they have provided proof (usually recorded with the Satisfaction in properly recordable form) of their authority. The signor is promising (unless someone played withe the wording), in exchange for the consideration paid, that if this Satisfaction turns out to be challenged by anyone, they will defend the challenge and pay damages if they lose. Reliance on the title company, mortgage banker, mortgage lender or anyone else is not a defense although the signor could cross claim against those people and bring them into the lawsuit. The point is that the cost of litigating these cases could rise into tens of thousands of dollars. The cost of losing could rise into hundreds of thousands of dollars, or even millions of dollars.
A Release and Reconveyance is the same as a Satisfaction of Mortgage. So whether you received a satisfaction of mortgage or a release and reconveyance, your assumption that the prior lien was paid off and is now officially satisfied and removed from the records as encumbrance on the land may be, and I think, probably is wrong. We have seen several cases here at livinglies where the wrong party (Ocwen in one case) took the oney issued the Satisfaction and then refused to either give back the money or provide any additional information even though it is now apparent that they were not the creditor, not he owner of the mortgage and had no authority to issue the satisfaction.
A Trustees Deed on Foreclosure is much the same as a Warranty Deed. Potential Trustee liability here is huge. It requires the person signing to (a) attest and prove they are who they say they are (b) that they or the party whom they represent is the Trustee or “substitute Trustee” (see below) and is the owner of the rights under the mortgage or deed of trust, (c) that if they are signing as an agent, they have provided proof (usually recorded with the Satisfaction in properly recordable form) of their authority and (d) that they are in fact the Trustee and that they have performed the statutory duties of due diligence that is required of a Trustee under a Deed of Trust. The signor is promising (unless someone played withe the wording), in exchange for the consideration paid, that if this Deed turns out to be challenged by anyone, they will defend the challenge and pay damages if they lose. Reliance on the “beneficiary” who usually comes out of nowhere, “lender” who also usually comes out of nowhere, title company, mortgage banker, mortgage lender or anyone else is not a defense although the signor could cross claim against those people and bring them into the lawsuit. The point is that the cost of litigating these cases could rise into tens of thousands of dollars. The cost of losing could rise into hundreds of thousands of dollars, or even millions of dollars. The banks don’t actually worry about this because most “Trustees” are “substitute Trustees” in which a substitution was filed given apparent authority to a new “Trustee” who is not an independent title agent or some similar entity but rather an agent that is in the foreclosure business with the bank that has inserted itself into the transaction as a “pretender lender.” Due diligence by the Trustee would have revealed most robosigning and other fraudulent practices, but due diligence, contrary to the requirements of statute, was never performed because they were no longer taking the orders from the legislature. They were skipping over their statutory duties and taking orders from a party who is merely alleged to be the lender even though it is not the same party as stated on the original note and mortgage ( deed of trust).
Substitution of Trustee: Until securitization came into play it was a rare occurrence that the trustee would be substituted. The Trustee on teh Deed of Trfust would simply be given instructions by the payee on the note and the named secured party in the mortgage) deed of trust) to commence default and dforeclosure proceedigns. But now in virtually every foreclosure there is first a “substitution of trustee’probably because the original trustee would perform the due diligence required under statute and revealed potential problems which would have held up or cancelled the foreclosure. requires the person signing to (a) attest and prove they are who they say they are (b) that they or the party whom they represent is the creditor and is the owner of the rights under the mortgage or deed of trust and (c) that if they are signing as an agent, they have provided proof (usually recorded with the Satisfaction in properly recordable form) of their authority. The signor is promising (unless someone played withe the wording) that if this Substitution of Trustee turns out to be challenged by anyone, they will defend the challenge and pay damages if they lose. Reliance on the “beneficiary” who usually comes out of nowhere, “lender” who also usually comes out of nowhere, title company, mortgage banker, mortgage lender or anyone else is not a defense although the signor could cross claim against those people and bring them into the lawsuit. In many cases the substance of the substitution is that the “new” beneficiary is in effect appointing itself or its agents who promise to do their bidding instead of using the original Trustee or someone else who take their duties seriously. The point is that the cost of litigating these cases could rise into tens of thousands of dollars. The cost of losing could rise into hundreds of thousands of dollars, or even millions of dollars. The banks don’t actually worry about this because most “Trustees” are “substitute Trustees” in which a substitution was filed given apparent authority to a new “Trustee” who is not an independent title agent or some similar entity but rather an agent that is in the foreclosure business with the bank that has inserted itself into the transaction as a “pretender lender.” Due diligence by the Trustee would have revealed most robosigning and other fraudulent practices, but due diligence, contrary to the requirements of statute, was never performed because they were no longer taking the orders from the legislature. They were skipping over their statutory duties and taking orders from a party who is merely alleged to be the lender even though it is not the same party as stated on the original note and mortgage ( deed of trust).

There are many other documents that fall within the same level of analysis like the Notice of Default (which comes from the alleged authority of the Substitute Trustee, based upon information from what is probably an undisclosed source, the Notice of Sale (which appears right on its face, but is subject to the same analysis as to the signor, and other documents.

The Bottom Line is that homeowners and institutions alike are facing potential litigation and liability as the years roll on, with few if any witnesses to back them up and in the case of homeowners precious little in the way of resources to fight off the litigation.

Check with a real property and litigation attorney before you take any action based upon what you see here. They should be licensed in the county in which the property is located.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, beneficiary, borrower, countrywide, creditor, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, quitclaim deed, release and reconveyance, rescission, RESPA, satisfaction of mortgage, securitization, special warranty deed, Substitution of Trustee, TILA audit, title insurance, trustee, warranty deed, WEISBAND | 13 Comments »

NEW FORECLOSURE PROBLEM- DEFECTIVE TITLE — AFFECTS EVEN NON-FORECLOSED PROPERTY

Posted on August 3, 2011 by Neil Garfield

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OLD REPUBLIC WILL NOT ISSUE TITLE POLICIES

EDITOR’S NOTE: The issue is not just with foreclosures. It is any property which was subject to a closing in which the loan was claimed as securitized. 95% of the transactions did not go into foreclosure. But those owners are unaware that the satisfaction of the old mortgage was signed by a party who had no right to do so. If the house was EVER foreclosed in PRIOR transactions, the title is probably defective — fatally so. Most homeowners are sitting on a ticking title time bomb.

SEE takeyourhomeback.com

NEW FORECLOSURE PROBLEM- DEFECTIVE TITLE
Title Problems for Foreclosed Properties

The impending title problems resulting from foreclosures being processed too quickly is now becoming a major problem in this country with a direct effect on housing prices. Old Republic National Title Insurance, told its agents that it would not write policies on foreclosed Chase properties until “the objectionable issues have been resolved,” according to a memorandum sent out by the firm’s underwriting department.

A Chase spokesman declined to comment. Old Republic executives did not return calls for comment. The title insurer, which is based in Minneapolis, said earlier in the week that it would not write policies for properties that had been foreclosed by another big lender, GMAC Mortgage.

Let me put it in non-lawyer terms. Even if a bank wins a foreclosure lawsuit, if service of process on the homeowner was ineffective (and it often is, especially if service was done via publication), or if the bank failed to join all necessary defendants (e.g. junior lien holders or the mortgage holder of record), or if the bank relied on evidence that was fraudulent (like the affidavits of ROBO SIGNERS), then the Final Judgment may be vacated. This means, essentially, that even if the bank won a foreclosure lawsuit, was the high bidder at a foreclosure sale, and sold the house to an independent third party, the original homeowner may still ask the Court to vacate the Final Judgment and re-take possession, and ownership, of the home.

The bank filed a foreclosure suit, won, took title, and sold the property to an independent third party. Now imagine you’re the independent, third party purchaser. You bought a home from a bank that obtained title via foreclosure. You did nothing wrong. You’re living in a house you purchased from a bank. Yet suddenly, out of nowhere, the original homeowner, who owned the property before the bank foreclosed, has convinced a court that it still owns the property. Incredibly, in light of the bank’s failure to prosecute the foreclosure lawsuit the right way, the homeowner is right – it’s still his house. Hence, you’re being forced to vacate the home that you purchased even though you did nothing wrong.

If that happened to you, what’s the first thing you’d do? I know what I’d do – make a claim against the title insurance policy. That’s what title insurance is for – to protect homeowners in the event of a problem with the title to the property they’ve purchased. Title insurance is routine in real estate closings. The purchaser pays a little extra at closing in exchange for an insurance company agreeing to pay that homeowner the entire sale price in the event the seller does not actually have title to the property. The way it’s supposed to work, the insurance company collects a little bit at a lot of closings and rarely has to pay anything, so it makes money, and the homeowner has the peace of mind of knowing that if the seller did not have title to the house that the title insurance company will pay. Given how many sales will be done out of REO, and the rising number of problems surfacing with making sure that mortgage securitizations took all the steps to become the real party of interest in a particular property, it is only a matter of time before we see some blowups of the sort the attorney was worried about, of a buyer shelling out hard dollars for a house, or taking a big mortgage, and winding up with nothing. And a few incidents like that getting the press they deserve will put a pall on REO sales.

Think the risk isn’t real? Then why has Wells Fargo bothered to insist that REO buyers sign a new type of addendum, when it has been selling REO for decades? This effort to shift all title risks on to the buyer is a tacit admission of problems. And look at the document itself. The buyer has to initial it in eight places as well as sign it. That’s a clear statement of Wells’ intent to shift the risk to the buyer.

Now imagine this scenario playing out over and over again, thousands of cases at a time. If you’re the title insurance company, wouldn’t you stop issuing title insurance properties when the bank obtained title by foreclosure? Absolutely. It wouldn’t be worth the risk. You couldn’t possibly afford to stay in business. As far as I can tell, that’s precisely what is happening right now.

Title insurance companies have realized that title via foreclosure is unreliable, so they don’t want to write title insurance policies for such properties

The problem is created through a break in the chain of mortgage ownership. Until the 1980’s, most mortgages were loans between the homeowner and a bank, who lent the money directly. More recently, the mortgage financing system transformed into an international system of securitization, with mortgage lenders packaging their loans into securities, bought and sold by investors like stocks. These transactions even split individual mortgages into sections, where each loan could have parts owned by different investment banks.

The transfer of ownership in these mortgage backed securities (MBS) was done with contracts on the balance sheets of Wall Street investment banks, such as Morgan Stanley and Goldman Sachs. The company who originally appeared to make the loan was normally a retail lending company such as Countrywide or Lending Tree, who typically acted as a sales company, and sometimes remained contracted to service the loan.

In the event that the loan goes into foreclosure at a later date, the then-current owner of the loan files the foreclosure and sells the property to a new owner, often at auction. The land records would show a deed of transfer from the investment bank to the new owner. This creates a break in the chain of ownership of the mortgage rights. In many cases, the transfer of ownership of the mortgage loan has gone from the original lender, through several owners, and then to the foreclosing bank, none of which is recorded on the property title history. Technically, the foreclosing bank has no recorded title rights to foreclose in the first place.

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 those 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.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, borrower, countrywide, defects in title, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, title, title insurance, trustee, WEISBAND | 178 Comments »

WHAT I LEARNED AT THE NBI ADVANCED TITLE ISSUES SEMINAR

Posted on June 8, 2011 by Neil Garfield

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HERE ARE MY NOTES: NBI Advanced Title ISsues

I attended a seminar yesterday and came up with some interesting information, as well as receiving news that a guy I know won his UD action and in the process was restored to full ownership of his home free and clear of the mortgage. The case didn’t extinguish the debt, but ti is going to be hard for HSBC to come back into court unless they have ALL their ducks in a row. Amongst the things I picked up (see below) is that the issue securitization is avoided like the plague by the insurance carriers, the insurance agents, the attorneys who do the transactions, and the attorneys who litigate title issues. They treat securitization as an issue where all the facts or events occur AFTER the closing and thus AFTER the title policy was issued. This of course is a mistaken presumption.

I was surprised by the lack of knowledge regarding table-funded loans, the secondary markets and how they operate. But I did get corroboration of what Dave Krieger told me. The carriers definitely agree that that the mortgages are probably invalid for a number of reasons. So their position is that the elements of an insurable interest are not met (see below). SO if they were presented with claims from the banks, which they are NOT receiving on any case where the title issue is lost, the insurers will take position that there is no coverage because (a) there is no properly recorded instrument to insure — e.g.., Deed of Trust, Mortgage Deed etc. and (b) there was no economic interest to insure and thus no damages. The successors to the title policy, if any, do not acquire greater rights than the original insured, which is some party designated by the securitizing parties who orchestrated the table funded loan.

BUT neither the attorneys who make their living off these policies and closings and litigation regarding the policies nor the title companies are willing to come right out and say the mortgages are all unperfected security interests because the banks would hate them for that. And where do they get their business referrals? The Banks. So the securitizing banks are not submitting the claims on the title insurance and the insurance companies know that the old mortgages are not valid and potential void or wild deeds. But, as I thought about it after leaving the conference, that woudl mean that there are problems with any title policies they issue today on property that ever had a loan that was claimed as securitized but which is subject to being overturned or eliminated from the property records.

One of the main things is that the homeowner is relying upon the title company to do its job and is relying upon the title company’s representation of the status of title. But the title companies maintain that theirs is only a contract that states the risk they are willing to undertake and NOT a representation as tot he status of title. As a practical matter, when I brought it up, they conceded that if that position were upheld, the buyer of a piece of property would never know if he/she was really getting title unless they ordered a title abstract or otherwise ordered an extra service from the title company. The title agents do not offer this extra service, You must know about it and ask for it and pay for it.

BOTTOM LINE: Title examiners when presented with specific facts are universally applying the same standards and reaching the same conclusions: a mortgage that does not have the correct legal description, a foreclosure sale that is defective, a table funded loan in which the mortgagee or beneficiary is not the party who was the actual lender and therefore not possessed of an insurable interest.

Hence we have a left-handed statement that completely corroborates what we have been saying on these pages — that the pretenders are just that, pretending to be lenders, and that the original mortgage is a void wild deed that does not in fact create a security interest in the property but instead describes a transaction that occurred between people who were not made party to the signed documents. It is the same as a bad legal description of the property itself.

The documents do not describe the right parties or the right transaction. That leaves a potential obligation hanging out there, but not owed to any of the securitizers unless they can show they loaned the money, they didn’t get paid for it, or that they purchased the loan and didn’t get paid for it.

WHAT I LEARNED AT THE NBI ADVANCED TITLE ISSUES SEMINAR
MAIN TAKEAWAY ITEMS:

1. INSURABLE INTEREST (RELATES TO STANDING AND REAL PARTY IN INTEREST): Title insurance only applies if there is an insurable interest. It was universally accepted by the conference (including those who were there to protect the interests of the banks and pretenders), that an insurable interest includes two elements: (a) a recorded instrument naming that party and (b) an economic interest in the property. Thus if we take the position that an insurable interest is based upon law and not just policy, it can be argued that in the absence of an insurable interest, the title company will not issue the policy and the Court should not and may not validate the interest, since it is ipso facto, uninsurable.
2. DUTY TO INQUIRE: As the number of transfer of the “indebtedness” (the note) increases, the duty to inquire increases, and the more nervous the title examiner or transactional lawyer becomes.
3. PRODUCE THE NOTE: Producing the note is universally accepted as law despite some court decisions to the contrary. In Florida and other states the forecloser must produce and tender the original note to the court in order to obtain an order from a Judge to sell the property, and without the note, the forecloser cannot submit a credit bid. So even if the Judge lets the case go through, the sale can be attacked as being no sale (Void, not voidable) because the forecloser did not comply with the requirements of law to establish itself as the creditor.
4. PARTIES IN POSSESSION: Title insurance policies universally have an exception for the rights of the parties in possession. Presumably that means at the time of the transaction. So if the transaction was are financing (which accounts for more than half of all mortgage transactions, the party in possession is the homeowner. The argument can be made that the title carrier made the exception — and that assuming they are experts in title — that exclusion should be used in any litigation of the parties regardless of whether the issue involves the title policy. Thus the homeownerʼs rights include multiple affirmative defenses, counterclaims and cross claims which need to be heard in a hearing in which actual evidence is heard which means that actual COMPETENT witnesses must be heard to authenticate any documents proffered into evidence.
5. IDENTITY OF PARTIES: Any situation in which the named insured on the title policy is different than the instrument on record identifying the mortgagee or beneficiary results in an uninsurable interest which can be translated as non-marketable title. Hence the originated loan documents prove that the transaction was a table-funded loan in which the true lender was not disclosed. This means the original documents are fatally defective and cannot be cured without the signature of the borrower or a Court order which would require a hearing in which actual evidence is heard which means that actual COMPETENT witnesses must be heard to authenticate any documents proffered into evidence.
6. CREDIT BID AND CREDITOR: Only a creditor may submit a credit bid. If anyone else bids, the Trustee or clerk usually has no discretion but to issue a certificate of title (deed) which gives clear title to the grantee, which c an either be the borrower or someone standing in for the borrower.
7. Title insurance is not a magic bullet. It does not prove the status of title.
8. UNRECORDED INSTRUMENTS AND EXCEPTIONS: Generally unrecorded instruments are not covered by title insurance. In Arizona and other states there is general acceptance of the idea that based upon statute and ATLA standards successors in interest to the debt do not need a new title policy. BY inference this would mean that they are giving credence to the idea that the mortgage follows the note, whether the transfer was recorded or not. But upon questioning the experts who delivered the presentation agreed that as the number of transfers increased the transaction becomes suspicious and that the rule regarding successors was probably meant for single transfers.
9. REGISTRATION AND GOOD STANDING OF CORPORATE ENTITIES: A transfer by a corporation not in good standing in the state or states in which it is required to be registered may not transact business nor bring any judicial proceeding. Mere ownership of property is not considered doing business. But a pattern of conduct of transactions is all that is needed. If the entities (any of them) that are involved in the chain of title are either defunct or in bankruptcy, any assignment, allonge or other instrument is invalid. It can be cured but there are time limits on how long they have before they cure, and it may be that reinstatement may require a name change. After 6 months in Arizona the name of the entity that should have registered is up for grabs which means you can incorporate under that name. What you can do with that name is an interesting proposition that was not discussed.
10.CONFLICTS OF INTERESTS: Conflicts of interests apparent on the face of the document or otherwise known to the title examiner create a duty to inquire. Therefore, since the usual pattern is that these documents are created after notice of default and usually after the matter is in litigation and sometimes not until hours or days before a hearing in which the documents need to be produced, the matter is a question of fact that needs to be decided after hearing evidence which requires competent witnesses testifying from personal knowledge.
11.BOARD RESOLUTION REQUIRED: No officer may sign a deed without board resolution. It is possible that estoppel, waiver or apparent authority might apply in the situation where the complaining party is a bona fide third party arms length purchaser for value.
12. IMPUTATION OF KNOWLEDGE: In Arizona the knowledge of the Trustee is not imputed to the Lender, but there is no reference or prohibition against imputing the knowledge of the Lender tot he Trustee. The practice of ALWAYS substituting trustees instead of using the old one is a cover for the fact that the old trustee would probably ask some questions rather than simply follow orders and send the notice of default, notice of sale etc.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, predatory lending, quiet title, rescission, securitization, TILA audit, title companies, title insurance, trustee | 44 Comments »

After Foreclosure, a Focus on Title Insurance

Posted on October 9, 2010 by Neil Garfield

After Foreclosure, a Focus on Title Insurance

By RON LIEBER

When home buyers and people refinancing their mortgages first see the itemized estimate for all the closing costs and fees, the largest number is often for title insurance.

This moment is often profoundly irritating, mysterious and rushed — just like so much of the home-buying process. Lenders require buyers to have title insurance, but buyers are often not sure who picked the insurance company. And the buyers are so exhausted by the gauntlet they’ve already run that they’re not interested in spending any time learning more about the policies and shopping around for a better one.

Besides, does anyone actually know people who have had to collect on title insurance? It ultimately feels like a tax — an extortionate one at that — and not a protective measure.

But all of the sudden, the importance of title insurance is becoming crystal-clear. In recent weeks, big lenders like GMAC Mortgage, JPMorgan Chase and Bank of America have halted many or all of their foreclosure proceedings in the wake of allegations of sloppiness, shortcuts or worse. And a potential nightmare situation has emerged that has spooked not only homeowners but lawyers, title insurance companies and their investors.

What would happen if scores of people who had lost their homes to foreclosure somehow persuaded a judge to overturn the proceedings? Could they somehow win back the rights to their homes, free and clear of any mortgage? But they may not be able to simply move back into their home at that point. Banks, after all, have turned around and sold some of those foreclosed homes to nice young families reaching out for a bit of the American dream. Would they simply be put out on the street? And then what?

The answer to that last question may depend on whether those new homeowners have title insurance, because people who buy a home without a mortgage can choose to go without a policy.

Title insurance covers you in case people turn up months or years after you buy your home saying that they, in fact, are the rightful owners of the house or the land, or at least had a stake in the transaction. (The insurance may cover you in other instances as well, relating to easements and other matters, but we’ll leave those aside for now.)

The insurance companies or their agents begin any transaction by running a title search, sifting through government filings related to the property. They do this before you buy a home or refinance your mortgage to help sort out any problems ahead of time and to reduce the risk of your filing a claim later.

But sometimes they miss things, and new issues can arise later.

For instance, the person doing the title search may not notice that a home equity loan is still outstanding or that a contracting firm filed a lien against the owner years ago. That could create problems for you later, when you try to sell the home.

Then there are the psychodramas that can ensue. The previous owner’s long-lost heirs or a previously unknown love child could show up, saying that they never agreed to the sale of the property. Or perhaps there was fraud against a seller who was elderly or had a mental disability, or forgery of an estranged spouse’s signature. It’s rare, but it happens, and when it does, your title insurance company is supposed to provide legal counsel or settle with whomever is making a claim.

Title insurance companies would like you believe that they are the good guys standing behind you. After all, you are the customer who owns the policy.

In fact, many of the title insurance companies are more concerned about the real estate agents, lawyers and lenders who can steer business their way. The title insurance companies are well aware that most people do not shop around for title insurance, even though it’s possible to do so — say through a Web site like entitledirect.com.

While the title insurers are not supposed to kick back money directly to companies or brokers that send business their way, various government investigations over the years have turned up all sorts of cozy dealings that make you shake your head in disgust.

But since you have to buy the insurance if you need a mortgage, there is not much you can do except hold your nose.

That’s what John Kovalick did in January when he bought a foreclosed house in Deltona, Fla., for $102,000 from Deutsche Bank. But in recent weeks, he’s seen the headlines about other banks halting foreclosures and wondered whether something might have gone wrong with the foreclosure on his new house. A spokesman for Deutsche Bank declined comment.

Mr. Kovalick is not the only one pondering what could go wrong. While the banks were pressing the pause button on many foreclosures, some title insurers were growing concerned as well.

On Oct. 1, Old Republic National Title Insurance Company released a notice forbidding any agents or employees to issue new policies on homes that had been recently foreclosed by GMAC Mortgage or Chase.

Clearly, the title insurer was also worried about a situation in which untold numbers of former homeowners have their foreclosures overturned. At that point, those individuals might claim the right to take back their old homes, but they’d also be responsible for, say, a $400,000 loan on a home that is worth half that.

So what would happen next? The banks that foreclosed might start the process over again. At that point, lawyers for the people who had been foreclosed upon might take the next logical step and try to show that the banks never had the documents to prove ownership of the mortgage in the first place. The banks might settle at that point, writing checks to everyone who had gone through a disputed foreclosure in exchange for each of them giving up the title.

But if banks did not settle, or the evicted homeowners refused to settle and fought on and won, they might end up owning their homes once again and not owing the bank either.

Or banks might agree to slice a big chunk off the remaining balance in exchange for a release from any liability for the errors it made.

At that point — and again, this is what Old Republic and investors in other title insurers fear — those homeowners might actually want to move back in. But some foreclosed homes were sold by the banks to others who now live there. And those new residents would have big, fat title insurance claims if their predecessors ever turned up at their doorsteps, proclaimed them trespassers and told them to leave.

“All of these Joe Schmos who did everything legally would then be in the middle of it, too,” said Mr. Kovalick, who manages an auto repair shop and is now hoping not to be one of those Schmos.

“Now, you’d have two total disasters,” he said. “How would you like to be the judge to get that first case?”

While homeowners like Mr. Kovalick may have title insurance, it generally covers them only for the purchase price of the home. When you buy a home out of foreclosure, however, it often needs a lot of work. “If I bought it at $200,000 and it’s a steal but I had to gut it and sink $100,000 more in, my recovery is limited if there is a problem,” said Matthew Weidner, a lawyer in St. Petersburg, Fla.

Indeed, this possibility has occurred to Mr. Kovalick, who has plans to put an addition on his home and is asking how he could extract that investment if someone ever turned up on his doorstep and asked him to leave. “What do I do, take the paint off the walls and the custom blinds off the windows?”

Chances are, it will not come to that. After all, title insurers could settle with the previous residents, allowing them to walk away with a big check to restart their lives elsewhere.

Still, for anyone considering buying a bargain home out of foreclosure anytime soon, consider asking your title insurer if any special riders are available that can cover appreciation on your home in the event of a total loss.

That said, if you can possibly help it, stay away from foreclosed homes until the scene shakes out a little bit.

Some people will undoubtedly make a fortune investing in these properties in the next few months. But if your down payment represents most of what you have in the world, it’s hard to justify betting it all on a situation like this one.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Ron Lieber, title, title companies, title insurance | 16 Comments »

Signing New Docs Creates New Loan and Waives Prior Defenses

Posted on March 14, 2010 by Neil Garfield

Question from blogger:

In an awkward position and can’t seem to get a straight answer. We refinanced our property in 2006 and in 2009 received a letter from the title insurers requesting we re-sign all docs. The note is lost and was never recorded with the county. I can’t find precedent in such a case and am unsure if quiet title action is the course to pursue.

Any thoughts?

Sounds to me that there are obvious title defects, that the title agent is worried about liability and that the ability of ANY mortgagee to enforce the note and mortgage is in doubt or maybe impossible. Don’t give up your superior position until you speak to a lawyer who understands securitization and mortgages.

It is possible that you don’t have a note or mortgage but that doesn’t mean you have no obligation. If they want to re-establish the formal documentation the burden should be on them, not you. Press the point aggressively since you appear to be in position to demand a very favorable settlement.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: county recorder, lost note, recordation, title agent, title insurance | 4 Comments »

Obama Considers Ban on Foreclosures

Posted on February 26, 2010 by Neil Garfield

the obligation created when the debtor entered the transaction may well be satisfied in whole or in part by the U.S. Taxpayer, insurers, or counterparties in credit default swaps. Wall Street attempts to frame the argument as giving a free house to the unworthy homeowner. The TRUE argument is what to do with all the excess undisclosed profits that paid the obligations of the homeowners many times over.

If the foreclosures were done in the name of entities that never advanced any money toward the funding of the loan, directly or indirectly, then all of the sales are improper, all of them create defective title and all of them will produce a torrent of unmarketable transactions in the coming years as buyers and lenders discover they cannot get title insurance.

Editor’s Note: Obama’s incremental approach is maddening but it seems that he is “getting it” step by step. First reported by Bloomberg news. this article from the NY Times summarizes the progress.

The problem remains that the administration is not addressing the issue of clear title and legal authority. Mr. Frey from Greenwich Financial highlights the point in his lawsuit against Bank of America accusing them of negotiating loans that the servicer does not own. This problem is not going away, and is getting worse with each new foreclosure sale at the steps of courthouses across the country.

If the foreclosures were done in the name of entities that never advanced any money toward the funding of the loan, directly or indirectly, then all of the sales are improper, all of them create defective title and all of them will produce a torrent of unmarketable transactions in the coming years as buyers and lenders discover they cannot get title insurance.

If money is being paid to servicers who lack authority to collect, then the debtor (borrower/homeowner) is in financial double jeopardy when the real creditor makes a claim. What will happen when Greenwich Financial or some other holder of mortgage backed securities makes their claim for repayment of the money they forked over allegedly to fund mortgages? What will happen when Greenwich Financial realizes that only a fraction of the money they paid went to fund mortgages and that the rest went to fees, profits, commissions and kickbacks? And where are the other investors, who incidentally are the only real creditors in this scenario?

An inconvenient and inescapable truth is that the servicers, whose fees rise as the loan becomes troubled and progresses from performing to delinquent, to default, to foreclosure and sale, are still getting paid on non-performing loans. If the loans are non-performing, where is the money coming from? It can only be coming from the payments made under performing loans, which directs our attention to the essential defect in the securitization of residential mortgage loans: the simplest of terms in every note that require the payments be allocated to the interest and principal on the note is being breached regularly and universally. This is the unethical and illegal result of cross collateralization and over-collateralization.

Wall Street blithely assumed they could disregard the terms of the note (use of proceeds) and mortgage when they securitized these “assets.” And there is the nub of the problem. The transaction starts out simple — money advanced by investors to fund mortgage loans to homeowners (debtors). But in order to make virtually ALL the money turn into fees and profits for Wall Street, the participants in the securitization chain ignored basic contract law, property law, lending laws, rules and regulations. The result was a tangle of claims from intermediaries who have no legal nor equitable interest in the revenue stream, principal or interest derived from those loans — all at the expense of the only two real parties to the transaction, to wit: the investor (creditor) and the homeowner (debtor).

A ban on foreclosures pending mandatory modification procedures is an imperfect step, but definitely in the right direction. It’s going to be a big pill to swallow when we finally come to terms with the fact that the parties at mediation or discussing modification only include one side (the debtor). It means coming to accept that all that TARP money went to the brokers instead of the principals. It means unraveling the now secret AIG documents that would show where the money went. It means performing an audit to determine where the money should be allocated.

And all of THAT means the obligation created when the debtor entered the transaction may well be satisfied in whole or in part by the U.S. Taxpayer, insurers, or counterparties in credit default swaps. Wall Street attempts to frame the argument as giving a free house to the unworthy homeowner.

The TRUE argument is what to do with all the excess undisclosed profits that paid the obligations of the homeowners many times over. Federal and State laws generally agree — failure to disclose the real parties and the real fees paid to all the participants in the transaction results in a liability to the homeowner for those undisclosed fees. The real answer is NOT to give more money to the intermediaries who never advanced a dime to fund these loans but rather, how to claw back the money and put the investors and the homeowners back in the position they were in before this huge fraud began.

Existing laws seem to address all of this in both lending and the issuance of securities. It’s payback time. The only question is whether anyone with the power to do so, will enforce the laws as they are already written. As of this writing, complaints to the FTC, OTC, FDIC, FED etc. produce nothing but an acknowledgment of receipt. The power is there. Where is the will?

February 26, 2010

U.S. Weighs Requiring Lenders to Consider Changes Before Foreclosures

By DAVID STREITFELD

The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.

That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.

Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.

Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”

The government could use some favorable public relations for its modification program, which has been deemed disappointing.

Begun a year ago, the program was meant to help as many as four million homeowners but has fallen considerably short of those goals. The Treasury Department has said 116,297 loans have been permanently modified and more than 800,000 more are in trial programs.

The Mortgage Bankers Association said its members were already doing what the administration was considering.

“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.

Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.

The modification program was designed for people who had subprime loans, he said, not for borrowers with high-quality loans who are unemployed. Tweaking the interest rate for an unemployed family does not provide enough help.

The Mortgage Bankers Association announced this week their own plan for reducing foreclosures: Lenders and loan servicers would reduce unemployed borrowers’ payments for up to nine months while they looked for new jobs.

The banking group said the servicers would need special loans from the Treasury to pay for the program. The administration has not commented publicly on the proposal.

“The real strategy in Washington now is to pray for an improving economy so these issues will resolve themselves,” Mr. Glaser said. “At the end of the day, a strong jobs market will prevent the generation of new foreclosures.”

There was some positive news in that regard last week, when the mortgage bankers said the number of borrowers entering default unexpectedly declined in the fourth quarter. But on Thursday, the government reported that home prices sank 1.6 percent in December, a fresh sign that the real estate market is nowhere near healed.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: ban on foreclosures, Bank of America, contract, creditor, cross-collateralization, DEBTOR, FDIC, Fed, financial double jeopardy, Frey, FTC, Greenwich Financial, Mortgage, note, Ny Times, Obligation, OTC, over-collateralization, Streitfeld, taxpayer, title defects, title insurance, unmarketable title, Use of proceeds | 10 Comments »

MERS AND COUNTRYWIDE V AGIN: THE DEVIL IS IN THE DETAILS

Posted on November 29, 2009 by Neil Garfield

NOW AVAILABLE ON AMAZON KINDLE!

MERS and Countrywide v Agin Trustee D Ct Mass Aff’d B Ct on Avoidance Mtg 20091117

NOTE FROM EDITOR SEEKING HELP: Rumor has it San Diego has stopped all foreclosures. I need this corroborated or debunked quickly. Can I get a little help here?

The case in this POST comes out of Massachusetts where the cases are not quite stopped, but almost so — AND where property title insurance companies are NOT underwriting ANY policy that covers a home whose mortgage was securitized.

Many thanks to MAX GARDNER for this case and best wishes for his speedy recovery. He’s one of the titans of this movement. we want him around!

The primary point that needs emphasis here is that as you read this case you will see that if you give the Court something SOLID to hang its hat on, you can get the results you want.

The mistake being made repeatedly out there is simple: either the homeowner or the lawyer goes in with a legal argument addressing the conclusions of the case instead of directing the Judge’s attention to the beginning of the case — discovery, motions to compel, TRO etc. based upon discovery requirements.

The obvious requirement that you need to know in your mind what you are talking about it so you know the significance of the issue legally seems to have escaped all but a few lawyers. Many lawyers are taking half baked “audits” going to court and making legal arguments about a report they have not read, do not understand and which does not contains all the elements needed anyway.

You must educate the Judge not lecture him. You must NOT rely on securitization in your preliminary arguments because it sounds like legal maneuvering to get out of a legitimate debt.

Unfortunately these mistakes are being made even by people who have attended our survey courses. So we are expanding our offering by adding DVDs, Boot Camps and home study.

Our own efforts at providing forensic review and expert support to lawyers has been challenged by the growing demand vs manpower limitations. Consequently, we will embark on efforts to increase the bandwith or resources in terms of people through educational programs. We will then start to refer cases to forensic analysts and lawyers.

We are starting courses to train, and certify forensic analysts who pick up even the most minute flaw in a document — like a document you you know in your heart is fabricated and forged but feel intimidated by the process of proving it.

In conjunction with specific courses on training forensic analysts we will also offer addtional courses on how to be expert witnesses, how to prepare expert declarations and affidavits and how to defend your expert declarations in deposition or in an evidentiary hearing. The course is also for lawyers who feel they could use a little support on direct and cross examination of experts.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: audit, countrywide, disclosure, expert, expert witness, fabricated documents, foreclosure defense, foreclosure offense, forensic analyst, forensic review, forged documents, Massachusetts, MAX GARDNER, MERS, MERS v Agin, Mortgage Avoidance, mortgage securitization, securitization, title insurance, TRO, trustee | 21 Comments »

Title Carriers Hit the Fan: Their Solvency in Question

Posted on November 27, 2008 by Neil Garfield

One of the hidden issues in the mortgage meltdown is the issue of clouded title caused by non-disclosed table-funded loans that were “securitized.” The unquestionable presence of unknown parties, MERS (or MERS like pooling, service and assignment agreements) who at least COULD assert claims on the “borrower’s” obligation, note or mortgage, means that your loan closing created an immediate title question.

The question is who can prove that they are the proper party to file a satisfaction of mortgage, enter into a short-sale or modification of a loan, enforce the obligation, declare a default on the note and enforce it, or foreclose on the mortgage. Right now there is no answer. In fact, most loan servicers have taken to saying that the name and information concerning the “investor” is confidential!

This is good since they are confirming that the name of the true lender has been and is continuing ot be withheld from you. It’s good because it means that your THREE-DAY Right of Rescission can’t start running until you know who the lender is. How can you send a letter of rescission to the lender when they are withholding the name of the lender?

But for those that are relying upon title insurance to protect them consider the article which follows: the solvency of title insurance carriers is now in question — both because of liability on these title issues arising out of the mortgage meltdown and because the insurance carriers themselves bought mortgage-backed securities. Here is a story about one that went bankrupt which I lifted off of Mario Kenny’s comment.

+++++++++++—————+++++++++++++——————

LandAmerica Financial Group Seeks Bankruptcy Protection
November 26, 2008

Late the night of Nov. 25, LandAmerica Financial Group, Inc. and its subsidiary, LandAmerica 1031 Exchange Services, Inc., filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Eastern District of Virginia (”Bankruptcy Court”), seeking bankruptcy protection for both entities. The action does not cover Commonwealth Land Title Insurance Company or Lawyers Title Insurance Company, two LandAmerica subsidiaries that are each domiciled in the State of Nebraska. Under the federal Bankruptcy Code, these insurance company subsidiaries cannot be debtors in the federal bankruptcy proceeding. The LandAmerica subsidiaries together comprise the country’s third largest underwriter of title insurance.

By separate agreement, LandAmerica agreed to sell Commonwealth to Chicago Title Insurance Company as well as Lawyers and United Capital Title Insurance Company to Fidelity National Financial Inc. The proposed sales will require approval of the Bankruptcy Court and various state insurance regulators. LandAmerica filed a first day motion in the Chapter 11 proceeding seeking expedited approval of the sales, which could occur as early as late December. The motion to approve the sales is on the agenda of matters to be heard by the Bankruptcy Court beginning at 11 a.m. EST on Nov. 26.

The Nebraska Department of Insurance (”the Department”) issued a statement on Nov. 24 that, based on the latest statutory accounting reports received by the Department from the insurers, both Commonwealth and Lawyers are solvent and are continuing to write title insurance. However, while the sale agreement is pending, representatives of the Department have confirmed that the Department instituted proceedings the week of Nov. 24 to place both Commonwealth and Lawyers into rehabilitation under state insurance laws. A hearing is expected the afternoon of Nov. 26. A rehabilitation would allow both insurers to continue business as usual, but with enhanced oversight by the Department. At this time, the Department has indicated that it is not pursuing a liquidation of either insurer. Lawyers acquired Transnation Title Insurance Company earlier this year and assumed its obligations by merger. We will provide additional information on the implications of the Nebraska insurance regulatory issues once we confirm what level of oversight the Department obtains.

LandAmerica and its subsidiaries have reported a decline in financial position in recent weeks. The situation became more tenuous on Friday, Nov. 21, when Fidelity elected not to proceed with an acquisition of LandAmerica after completing its due diligence review. Shares of LandAmerica fell 88 percent in trading the Monday following Fidelity’s announcement. LandAmerica 1031 Exchange Services abruptly issued a press release announcing that it had ceased operations, citing investments in auction rate securities as a reason for being unable to meet all of its obligations as qualified intermediary to taxpayers under exchange agreements. LandAmerica also confirmed that it is not in compliance with loan covenants in its existing credit agreements with its lenders. Fitch Ratings downgraded LandAmerica’s insurance subsidiaries to a BB rating.

What Does this Mean for Real Estate Owners, Investors and Lenders?

We recommend that you complete a review of your property files to determine which properties may have title insurance through a LandAmerica insurer to (i) identify any existing cash escrows held by the LandAmerica insurers, (ii) identify any projects with construction funds being disbursed through a LandAmerica company, and (iii) determine any active claims pending against any of the LandAmerica insurers. Those projects with current cash escrows and ongoing needs to disburse funds through a LandAmerica insurer or prosecute claims against a LandAmerica insurer should be closely monitored as the proposed sales move forward. If you are currently a party to an exchange agreement with LandAmerica’s exchange subsidiary that is a debtor in the bankruptcy, we would be happy to discuss a course of action.

Assuming Commonwealth and Lawyers are placed into rehabilitation in Nebraska, both companies should be able to continue business as usual, subject to enhanced oversight by the Department of Insurance. No assets of the title insurance subsidiaries, including any escrows held by the subsidiaries in a fiduciary capacity, would be captured by the bankruptcy estate of LandAmerica. However, until the sales to Fidelity and Chicago are complete, we recommend that you monitor the progress of the sale agreement closely and carefully consider how funds are being handled in the course of transactions. If the sales do not occur and the title insurers are forced into a liquidation in Nebraska, then cash escrows and funds disbursed through a LandAmerica insurer could be captured through the Nebraska proceedings.

Even if you have no active projects with a LandAmerica insurer, if you hold a title policy written by a LandAmerica insurer, then you should still monitor the proposed sales. Acquisition of the LandAmerica title insurance obligations by rival Fidelity should alleviate concerns of insureds over a possible failure of the LandAmerica insurers and impact on the value of title policies issued by the LandAmerica companies.

As more information becomes available on the LandAmerica situation, we will provide updates and more detail on a recommended course of action to address the potential issues. In the meantime, please feel free to contact Jenny Marler ( 314.259.5874 or jmarler@sonnenschein.com) for transactional real estate and lender issues, Robert Millner ( 312.876.7994 or rmillner@sonnenschein.com) for bankruptcy issues, Corinne Carr ( 312.876.7477 or ccarr@sonnenschein.com) for insurance regulatory issues, or your regular Sonnenschein contact for additional information.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: Chicago Land Title, cloud on title, foreclosure defense, foreclosure offense, Land America, title, title insurance | 4 Comments »

TITLE AGENT ERRORS AND OMISSIONS CLAIM AND TITLE POLICY

Posted on September 19, 2008 by Neil Garfield

FROM FAQ RECENT ENTRY:

> Comment:
> Interesting idea, although flawed.
>
> Your title insurance company will only process a claim if there has been a loss (or an imminent danger of one. i.e., an attack on the title), and only then if it is not of the insured’s doing (or could have been prevented through action by the insured.)
>
> Since foreclosure is ostensibly always the insured’s fault (except of course in the rare case of forgery and intervening liens), you would be hard pressed to find any insurance company that would see it as an insurable loss or attack on title. The insured had an obligation to perform under the note they signed (ahem, which usually includes a “successors and/or assigns” clause), and failing to follow through on that creates an uninsurable loss – securitization or no.

ANSWER: My point, perhaps not articulate enough, is different from what you are addressing. If at the closing there was a pooling and service agreement already in existence and known to the title agent.

If at the item of the loan closing there was an assignment and assumption agreement already in place. If the investors had already purchased mortgage backed securities, that included a description of a “temporary” set of notes (See Lehman filings), that would be replaced by “real” notes and security instruments pledged as security to the holders of asset backed securities, and if the terms of the pledge within the SPV was an allocation of funds contrary to the terms of the note and mortgage, and if the title agent was aware of sufficient facts to put him on notice that (a) undisclosed third parties were involved in the transaction and (b) that undisclosed fees were being paid and (c) that this could create grounds for three-day rescission, but for the fact that the real “lender” has not been disclosed— assuming all of that, because that is actually what happened — does that not mean that there was actual knowledge by the title agent that there are dozens and perhaps hundreds of even thousands of people who have an equitable and legal interest in the security instrument encumbering the property.

I agree that the title policy does not require intervention of the carrier until there is a claim. But the errors and omissions carrier for the title agent when put on notice of the claim would have an immediate interest in mitigating the potential loss. It is not that there is a hypothetical cloud on title, it is real from the moment that the transaction was consummated.

Filed under: CDO, currency, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: ACTUAL KNOWLEDGE, cloud on title, TITLE AGENT LIABILITY, title insurance | 5 Comments »

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