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Title to Property Is Sacred and Must Be Protected by the Rule of Law

By
Real Estate Agent with Atlanta Communities Real Estate Brokerage GREC #208281

What makes our system so much more productive than many other countries around the world?

Hernando DeSota takes it back to the basics of having good property records and a system of rules that protects those records.

So, what we have developed over 150-200 years, is a system of property records that allow you, every time you want to buy an object, tangible or intangible, an idea, a recipe, a protocol, or a thing, like a horse, or an automobile, what you buy is a description that describes not only the thing itself, but all the rights that exist on it...

So pieces of paper are supposed to inform you of risks and benefits so that you can infer uncertainty better than you can with anything else. So, how precise a document it is, how legal it is, the property system which does all that, is absolutely crucial.

... it occurs in all poor countries one of the most solemn and constant characteristics is that most of the assets that developing countries have, whether they are African, whether they are Asian, former Soviet Union, or Latin America, is that they are not titled. They are not actually comprised within the official property system. And that is why a lot of these things cannot be put into value. In other words, you find an interesting place in Nigeria to drill oil, but it is not clear who owns it. Until that is clarified, of course, you cannot make a deal. In the United States, all of these things are much clearer, like they are in Canada and Western Europe, and that is why you can invest with much more certainty.

The market economy is essentially an economy that has survived all of its enemies, whether it be central planning, Soviet style, or central planning, fascist style, or whatever other government-regulated market, because information has been available. You basically know what you are getting into, and you have a rule of law. Rule of law does not mean that there are many rules, it means that there is one standard way of measuring – offences, frauds, whatever it is – and everything is measurable. That is the first thing.

So what have we done instead?  Over the past ten years through mortgage securitization, the basic foundation of property titles and rights has been totally screwed up.  State laws on proper procedures for transferring title and recording the transfers have been ignored or circumvented for convenience and economy. 

So now no one is certain who owns what and who can properly foreclose on a property.  People being foreclosed on are saying "Show me the paper" and the banks are saying they lost it or are recreating it out of thin air.  With the rules having been systematically ignored, we are now clogging up the court system and  relying on  judges to decide what to do.

Our system relies on honoring the justice system and trusting it  to dole out equitable justice no matter what. What happens when judges decide not to follow the black letter of the law because they think that it will do too much damage to the economy?  What happens when certain people who commit fraud and perjury are left unpunished.   We soon become a nation of men and not a nation of law.  People begin to  see that following the law is for chumps and doesn't get you anywhere.  It starts us down the road to anarchy. On the way down that path it grinds down the wheels of commerce with fear and uncertainty.  Who wants to take risks doing business when they don't know if the rules will change and they can't trust the rules that are in place will be enforced.

Let's face it.  There was a housing bubble that burst.  The losses are real and eventually must be realized.  We do that by having the lenders and the borrowers work it out either through modifications, short sales or foreclosures.  We are now coming to understand that our sacred system of title transfers has been messed with and now there seems to be no easy way to clean it up and still follow the rules and the law. 

We have a decision to make.  Do we do what's expedient or do we do what the  law requires?  Do we change the rules of the game in order to favor one group over another?  Do we overlook fraud and deception because we are afraid of the consequences?

I'm not a legal scholar but I know a good plan when I see one. Here is a plan of action that is likely to take care of the problem and preserve the rule of law.  It is a  solution that will remove the uncertainty and get our system of title back to where it was.

Karl Denninger is a genius with this plan:

  • Halt all foreclosures and sales - stand-still - until this process is completed.  Those who currently have possession will continue to have it for the time being.

  • Halt all mortgage payments where the servicer (the entity to whom the payment is made) is not the original lender, or where the loan was securitized.  Instead, such payments are made to suspense accounts held by the Clerks of the Court in each county where titles are maintained and recorded.  This is necessary in order to provide the essential motive of cooperation by those who allege they are owed the money.

  • For each parcel with mortgage(s), those who claim interest must then come to court and prove it up with an unbroken chain of assignments.  Provide a reasonable amount of time (one year?) for them to do so.  If there are multiple claimants then the court must resolve who actually has standing and who does not.  This will resolve with either one valid claimant or none at all.

  • If there is one valid claimant, then that chain of assignments is recorded, the impounded funds are released, and the homeowner now knows who pay.  If there are no valid claimants within the time provided then the title is quieted and a judicial release of liens is recorded.  Either way, we resolve the land title problem and the entity entitled to receive the payment stream has proven their case and obtained a release of their funds.

  • The lack of a valid claimant under state law does not extinguish the debt - only the security instrument.  Those who think they're going to get a "Free House" are likely to be sadly mistaken.  The creditor still has a claim for the money owed (if he can prove it up in court) and can enforce it via lawsuit as with any other unsecured debt but he can't seize the property in a foreclosure action.  As with any claim of a debt in a court, the creditor still has to prove standing - which means he needs to prove the obligation was taken by the borrower and he has acquired sole and lawful ownership of that obligation.  Note that this is similar to the above process but not identical - in many states it is entirely possible to irrevocably sever a security interest on real property, but that does not extinguish the debt - only the lien on the title.

  • We MUST compel Trustees to audit all MBS files.   If investors are holding an empty box they certainly have a cause of action.  So far we have seen few of these actions, and no evidence that these audits were ever done - including at inception of the Trust.  It was and is a legal duty of the securitizing parties to insure compliance with both the representations and warranties provided to investors regarding loan quality and IRS regulations.  The proper "hammer" to wield here is via the IRS - these trusts must meet specific legal requirements in order to have and keep their "pass-through" status.  Most of the scams and frauds, if they occurred in a given trust, would cause it to violate those requirements.  We have a serious budget problem in the United States, and this is one way to help address it.

  • We must enjoin by permanent legal process future subversion of land titles.  This includes entities such as "MERS".  If MERS wishes to "track" mortgages for people's convenience that's fine and well but that cannot be allowed to stand in for recordation of transfers of security and ownership interests.  MERS cannot be allowed to replace, subvert or supplant the land title system in The United States.  This is a State Law function - not a federal one and is well-supported in State Law.  It is historically, and with good cause, vested at the level of the county government, where ad-valorem taxes are levied as well for local government support.  As such any claim made by an entity such as MERS must have no legal standing whatsoever - recorded county records control, period.

  • Where criminal conduct is found - whether it be securities fraud, control fraud, borrower fraud or any other sort of fraud, the case must be referred for prosecution.  We must start with the "heads of the snakes" but we must not stop there.  There are plenty of people who were involved in this and knew what they were doing was illegal - but didn't care.  Most of the offenses involved are felonies, and we are well-beyond where we should be seeing indictments by the hundreds with civil forfeiture actions attached.

 

This isn't an easy fix but the problem isn't  a simple one either.  But it would follow the law and it would get the job done.  It would protect our system and remove the fear and uncertainty so that we can get back to business again.

 

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About the Author:  Tim Maitski has been a full time Realtor since 1999. He has sold several hundreds of homes in areas around metro Atlanta.  Tim started with RE/MAX Greater Atlanta and is now with Atlanta Communities Real Estate Brokerage.

 

Along with blogging on ActiveRain, he provides one of the best real estate websites in Atlanta at www.HomeAtlanta.com .

 

His proprietary  "Maitski Line Reports" chart out the absorption rates over the past 14 years in 37 different market areas.  Know when it's a good time to buy or a good time to sell.    

 

His online Property Tax Calculator allows you to compare property taxes in many counties and cities around the Atlanta area.  He provides the Atlanta MLS Power Search Tool that allows searches of homes using over 35 specific criteria.

 

Over the years, Tim has optimized his business so that he now can offer a huge 50% commission rebate to his buyers.  The more experience one gets, the easier the job becomes.

 

Tim also has a "Five Days to Sold" System that uses an intensive marketing blitz to create a showing frenzy that creates urgency and offers.

 

Tim is always looking to LinkIn with anyone who is interested in building their social network.

 

View Tim Maitski ●Atlanta Realtor●'s profile on LinkedIn

Comments (4)

Kellie Morrissey
Keller Williams Realty Success LLC - Littleton, CO
CO Realtor CRS, GRI, CDPE

GREAT BLOG ABOUT THE INDUSTRY!  I liked the points you made about the title industry... I can tell you did your research.  If I come in contact with someone looking in your area I'll be sure to send them your way.

Oct 11, 2010 12:46 AM
Kellie Morrissey
Keller Williams Realty Success LLC - Littleton, CO
CO Realtor CRS, GRI, CDPE

GREAT BLOG ABOUT THE INDUSTRY!  I liked the points you made about the title industry... I can tell you did your research.  If I come in contact with someone looking in your area I'll be sure to send them your way.

Oct 11, 2010 12:46 AM
Laurie Mindnich
Centennial, CO

Tim, great post. I particularly like the solution of all payments being forwarded to a trustworthy suspense account, because while it provides motivation for lenders to correct mistakes, it also offers to ALL the willingness/ability of homeowners to make the payments. No free ride for those that are stratgically defaulting, but safety for those in the process seeking to keep their property.

Oct 11, 2010 02:57 AM
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Laurie,  I also like that suspense account.  I takes care of the "free house" problem and it also takes care of people paying on a mortgage and not knowing if the money is actually go to the right people so that at the end of 30 years they can be certain that they own something.  It also motivates everyone to deal with it because there's a pot of money sittting there for the ones who can prove that they are owed it.

Oct 11, 2010 03:46 AM