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And I don't claim to have the last, best, or only word on the subject anyway, especially given that new information comes out daily. Let me be clear: I DON'T KNOW how all of this will shake out.
So please take or leave my opinions on their merits (or lack of same) alone. I WILL disclaim that I have any interest in the Evil side of this, since that accusation was tossed at me in another thread. Not a lender or employee of a lender, or a foreclosure lawyer, or the owner of MERS, or anything. :)
What I do know is that if someone received a purchase money loan, or funds to pay off a purchase money loan for real property, that it's extremely rare for any legal argument to defeat the accompanying mortgage, or, barring that, a claim for an equitable lien based on the loan.
I think a leap is being made here, based on a lot of things, including (righteous) anger at the banks and investment companies, the bad things they've already been caught doing, and people in distress who would very much like for their mortgage to go away. The conclusion I question is that there are, as one article making the rounds suggested, "60 million foreclosure-proof houses!"
I question the idea that these people were cheating on the foreclosure paperwork because the mortgages themselves were somehow wholly invalid. I don't disagree that the whole market bubble, subprime, "tranching" debacle was a species of fraud on the public, the country, and the world. And maybe it would be just if the result was that ALL such mortgages were unenforceable. I just doubt it's going to work out that way.
It looks to be clear that banks and the foreclosure firms have been cheating on documents needed for foreclosures on a huge scale. What I question is the deeper conspiracy suggesting they did this because there was really no mortgage to enforce. I think in most cases they simply couldn't be bothered to track down notes, or get the necessary affidavits from notoriously slow-responding banks, who nonetheless stress foreclosing quickly over everything else. That's illegal, of course, and upon a challenge, could overturn a foreclosure. Barring some other problem, though, a new foreclosure action would be brought.
Even a lost note isn't fatal -- if the borrower signed one, it can be "re-established." Basically, it's very hard to argue to a judge that you took $400,000 to buy a house, signed a mortgage pledging the house as collateral, but now believe there is no lien because the paperwork was mishandled. Not saying it can't happen, but I do think people are missing some forest for the trees.
One "big idea" that's being raised has to do with the way the mortgages were transferred electronically through "MERS." MERS is basically a database lenders came up with so that wouldn't have to actually produce and record "Assignments of Mortgage" to transfer mortgages from one institution to another. In theory, the transfers occurred, but simply didn't get put on paper until the mortgage was to be enforced. There would be some computer trail as to who supposedly owned the mortgage at any given time, or an "Assignment in blank," to be filled in with the name of the very last holder of the mortgage, but recording laws don't recognize such transfers if not put on paper and recorded in the local land records. When the mortgage was to be foreclosed, the Plaintiff would only then produce the paperwork. Question, is, does that even work? What if one entity in the "chain" of transfers is bankruptcy and defunct when the paperwork is created?
A lot of people have thought that MERS was a bad idea, and anti-consumer, for a long time. It makes it nearly impossible to tell who holds a mortgage. And the lenders and investors like it that way.
Then there's another argument suggesting that the process of securitization itself makes these transfers impossible. The mortgages are "chopped up" and divided at the outset, it is argued, and can't really be transferred to anyone after the fact, so all the purported MERS-enabled whizzing mortgages from one entity to another is a nullity. That's really outside of my area, but it's an interesting question, and may hold some water. A couple of things though.
1) Not all mortgages were handled this way. A non-subprime mortgage typically wouldn't be, for example. Maybe one lender originates it, and it goes to just one more. Typically there will be a real "Assignment." In that case, I don't think any of these arguments apply. If you had good credit, and got a standard 30-yr, fixed mortgage with Countrywide (now BOA) there's probably no "MERS" or securitization argument to make.
2) With the others -- the subprime stuff that got chopped and flung about and whipped through MERS like a souffle, I think there's a real question as to how whoever is trying to foreclose can establish that THAT entity really owns and holds the mortgage. I'm aware of foreclosing lenders stopping in their tracks when asked to show that. They usually come up with the documents they need, eventually. But if those documents are faked ...?
Either way, I'm not sure I buy the idea that these mortgages disintegrated at inception. But if so, too bad. I have no sympathy for the investors in the subprime frenzy that crashed the world economy. Maybe that IS the way to convince everyone that this giant con game the lenders and financiers cooked up really is a failure for everyone.
Just don't bail them out this time.
I also don't there's going to some global determination that already-completed foreclosures were invalid en masse, and that the titles held by anyone who purchased out of those foreclosures are "broken." For a title to really be "broken," there has to be someone out there who can challenge it with a better claim. Who would that be? The former owner who defaulted on their mortgage? Not likely. So, I don't think the real estate market is going to implode under the weight of millions of "bad" post-foreclosure titles.
Some title insurance companies are refusing to insure titles coming out of foreclosure. That's going to slow down lenders' sales of property they acquired at their own foreclosure sales. But I don't think it will stop it. Whack off a few more dollars, and investors will buy without title insurance.
I don't think it's a good time to be trying to sell a house, whichever way you look at it. I think it's good for *people* that foreclosures are slowing and stopping on a big scale -- tossing families out on the street and having more and more houses owned by "investors" looking to rent or flip for a quick buck is bad for everyone. But it will probably depress prices even more.
What I'd really like to see happen is for the Administration to use this opportunity to force a foreclosure relief program on all the big lenders. The Obama administration has asked nicely already -- twice -- and been completely ignored. Make it mandatory, in exchange for some certainty that "60 million mortgages" aren't going to simply be unenforceable.
I'm worried that won't happen. Or that the "relief" that appears will be for lenders only. "Here, this a law that lets you foreclose no matter what, you poor things." "Here's some taxpayer money so you don't lose your collective shirts, because that would crash the real estate market AGAIN, and we can't have that."
The White House has already said it doesn't favor a moratorium on foreclosures. The voice I hear speaking though, is that of lenders and their investors, who are terrified of this. Despite the fact that I think it's unlikely all of these mortgages are permanently unenforceable, if we can't get some relief for people victimized by the insane housing frenzy the LENDERS CAUSED, I'd say this:
Let them fall this time. Grit our teeth and let it happen. Let the investors and their banks burn, even if they takes some of us with them, because until those guys feel some pain, this cycle will be repeated endlessly.
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