Title problems may interfere with foreclosure actions.

Real Estate Agent with RE/MAX Properties SW, Inc.

A recent court case in Florida signifies problems for banks wanting to foreclose. A bank filed for foreclosure and submitted an assignment of mortgage as basis for the case. The court found that the mortgage was carried on the books of Fannie Mae and, thus, didn't belong to the servicing bank. Apparently only Fannie Mae, the owner of the mortgage, had the right to foreclose, yet the servicing bank filed the case. The judge found that the servicing bank's actions amount to a knowing deception and are therefore fraud. How often does this type of fraud occur? Are there a large number of these types of cases currently in process? This could possibly impact a large percentage of the foreclosures we're seeing nationwide.

In short the problem is this: Banks used to hold the loan for its entire life, but then they started selling and reselling the loans. The loans were pooled with other loans and these pools (or tranches) were sold. Because of the cost of recording the individual title transfers with the relevant counties, the banks didn't bother to register the transactions. So, because of this practice, for a bank to claim title to a particular house is almost like claiming title to an individual shingle on the roof of a condominium. The roof is common property and owned by all.

This is a potential problem for not only the loan servicer, but also for anyone who purchases an REO property. Will the title company defend your title to a house you bought in the event of a lawsuit showing that the foreclosing bank did not hold appropriate title? This is an interesting possibility.

For the time being, investors or anyone contemplating purchasing a foreclosed property, at the minimum, should make an effort to trace and understand the prior chain of title.

Comments (30)

Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

It is very hard for a consumer to do a Title Claim against a title company anyway. The local ones, look to the big ones who underwrite, it is a mess.

Of course we always on my team have our buyers get their own Title policy.

Sep 21, 2010 12:59 AM
Mike Morrison
Will & Will Real Estate Brokers, The Woodlands, Texas - Houston, TX

Missy that's a great idea. However, it is my understanding, at least the title insurers I have contacted, there is no specific endorsement a buyer could purchase to address this specific encumbrance.

Sep 21, 2010 03:15 AM
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

I was reading about this on the market ticker blog this morning.

There's some serious problems brewing. 

Mike #10, you are right.  This really should be a hot topic here, a site devoted to real estate.  I guess it's too confusing.  But then I thought we all wanted to be treated like doctors and lawyers.  Here's a huge issue that could blow things apart and hardly a word about it.

Eric,  Thanks for the post.  I'm going to do some serious research and monitoring of this issue.

Sep 21, 2010 03:49 AM
Eric Martell
RE/MAX Properties SW, Inc. - Orlando, FL


Thanks for the comments.  I agree that this is a serious issue.  It seems as if it could potentially place our whole system of homeownership in jeopardy. 

Here are some links in case anyone wants further reading on the topic. 



http://www.zerohedge.com/article/jpmorgan-brings-foreclosure-case-mortgage-which-it-was-just-servicer-court-finds-bank-commit --got the motion to dismiss with prejudice scribed here

Sep 21, 2010 05:04 AM
Mike Morrison
Will & Will Real Estate Brokers, The Woodlands, Texas - Houston, TX

Tim, Eric if you read the lawsuit I cited, you will see thousands of MERS power of atty. documents were signed at closing by unsuspecting buyers. The escrow officer did not think this was out of the ordinary only another lender requirement. Boy, if that doesn't pass the smell test...

Keep on top of this. One good thing about Figueroa v. MERSCorp, David J. Stern. It's a CLASS ACTION RICO Civil Suit. If the civil suit doesn't fly, then the justice dept will have no choice but to open a RICO CRIMINAL investigation. The rats will scurry then.

Sep 21, 2010 05:24 AM
Jack Mossman - The Nines Team at Keller Williams in Lodi
The Nines Team at Keller Williams in Lodi - Lodi, CA
The Nines Team in Lodi

Eric - I'm getting this post (and the conversations) to my title rep of preference.  I'd like to see if they are being proactive here ... and to what extent.  Thanks for the enlightened warning!

Sep 21, 2010 10:30 AM
Eric Martell
RE/MAX Properties SW, Inc. - Orlando, FL

Just talked to our title agent.  I'm sorry to say that she had no clue about the issue, but she did agree that title insurance companies probably wouldn't stand behind a buyer of such a property in the event of a lawsuit placed by a wrongly foreclosed owner in the future.  IMHO, this brings into question the chain of title of any property.  How can the mortgage be released after a sale by a lender who does not legally own the loan?

The Florida attorney general is now investigating the MERS issue.

I've read some blog posts which suggest that there will just be a law passed which will say that the banks can go ahead and foreclose without a clear chain of title.  This is essentially saying that any bank can foreclose on any property regardless of who owns the loan.  Isn't this great! </sarcasm off>

This is going to be a huge mess.  When county governments figure out that the banks have shortchanged them millions of dollars in filing fees, the issue will get even more complicated.  I can't see it going away quietly.


Sep 21, 2010 10:55 AM
Roger Johnson
Hickory Real Estate Group - Hickory, NC
Realtor - Hickory NC Real Estate

This is happening a lot more than most realize.  Servicing companies illegally filing foreclosures will prompt the next be wave of lawsuits, I'm sure.

Sep 22, 2010 02:29 AM
Mindy Sylvester
MVP Realty - Naples, FL
Naples Fl Real Estate

I agree, Florida will definitely be THE testing ground for MERS. I am watching this very, very closely and I'm glad other Realtors recognize how important this is.

Big thanks to Mike Morrison for all the additional info -- this thread is a treasure. For anyone who wants a long, but detailed and FASCINATING rundown of what's happening on the ground in Florida, I recommend this:


Sep 22, 2010 06:38 AM
Brien Berard
Remax Professionals Laurel MD - Laurel, MD
Maryland Real Estate Agents - Laurel Real Estate

Just incredible!  I hope this gets big, I hope the big banks get their ass whipped!  I think NAR was part of the problem when the market was going crazy, they said it was wonderful.  They refused to say it was a bubble.  The should have been petitioning the feds to regulate the crap out of all the FREE money that was out there.

Sep 22, 2010 08:35 AM
Mindy Sylvester
MVP Realty - Naples, FL
Naples Fl Real Estate

@Laurie -- thanks for that link! I'm halfway through now...and starting to think this is an even bigger story than I'd originally thought.

Sep 22, 2010 09:15 AM
Michael Eisenberg
eXp Realty - Bellingham, WA
Bellingham Real Estate Guy

Thyis looks like the tip of a very big iceberg.. It's keeping me busy reading

Sep 22, 2010 10:45 AM
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY

There is no shame in this discussion starting out slowly, but it will be bad if it does not start getting momentum. 

This should be understood and word gotten out. 

Sep 22, 2010 10:56 AM
Craig Frazer
Farmington, UT
Real Estate, RE/MAX Metro, Davis & Salt Lake County

Just a couple of quick points.  On the surface it certainly looks like the MERS lawsuits will have merit (based on decisions in California, Florida and in lower courts in other states (this thing is getting traction).  However, it likely doesn't mean an end to foreclosures but rather the addition of another step in the process by which the original lender (on the Trust Deed) will need to be identified and will need to initiate the foreclosure process.  When the foreclosure is completed and the asset liquidated the proceeds of the liquidation will then need to be distributed to the downline purchasers based on their "assigned equity." 

There could be an issue if they can't identify the original lender or the lender ceases to exist without a successor organization to take legal standing.  What would be interesting in this process is if people who are current on their loans which have been securitized, to argue that the underlying security was illegally transferred (fraud?) and as a result is no longer viable as a means of being secured by the property (chain of title issue)?

You know some lawyers are likely already giving that concept a few looks.  This whole process could get very, very ugly.  Although, it is difficult for me to have any sympathy for the banking industry after their raping of the system for the past decade.  It appears the banks got "hoist by their own petard" (with due credit to Billy Shakespeare).

Sep 22, 2010 12:28 PM
Suzanne McLaughlin
Sabinske & Associates, Inc. (Albertville, St. Michael) - Saint Michael, MN
Sabinske & Associates, Realtor

You know, this makes sense in so many ways.  And, I had given it some thought....but I ASSumed that there were people a lot smarter than me who knew what they were doing.  Oh, so bad an assumption.  This could be a nightmare of epic proportions. 

Now, I won't be able to sleep.  Thank god, I have never bought a short sale or foreclosure. Or any house in the last fifteen years. 

Sep 22, 2010 02:53 PM
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

This could be a huge problem.  I will be interested to learn more and look forward to reading more on this topic. 

Sep 22, 2010 09:59 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

This is a very interestng topic.  What I am unclear on is how could the title companies choose not to cover this?  They're the ones doing the chain of title and reviewing it before close.

Sep 23, 2010 05:49 PM
Key Title Corporation - Perry Hall, MD
Insuring the Past to Protect Your Future

I am a Maryland title agent specializing in REO transfers. I have written many blogs about this issue and have been following the class action law suits in Florida and other states. I have transferred more than 5000 REO properties in the recent past, most out of Fannie Mae. I can tell you that there have been many many cases where there were assignments recorded in the wrong order, dated incorrectly, and on and on.  The case that involves MERS is of particular interest to me because there are literally millions of mortgages that named MERS as a "servicing entity" or words to that effect. 

In cases where the foreclosure mills are beig assigned the file and being told to handle it from "cradle to grave" there is absolutely NO OVERSIGHT.  The poor consumer who purchases the property after foreclosure is the potential LOSER here. In a "cradle to grave" environment the foreclosure attorney is tasked with conducting the foreclosure, operating as a foreclosure mill, then they are tasked with transferring property to the new owner.  Well, if they created the problem in the foreclosure, and if they never did an actual full title search on the property, AND they are then being paid again to transfer this property to the new buyer, do you think they are going to go backwards to look for any inconsistency in the foreclosure process or defects in title? NO!!!

Please protect your clients by insisting that they use their own independent title agent for any property they are buying out of foreclosure, and please make sure that the independent title agent is very well versed in transferring REO property, 

Charlene Perry

The Preferred Title Group, Inc.


Sep 24, 2010 01:03 PM
Eric Martell
RE/MAX Properties SW, Inc. - Orlando, FL


Thanks for your post explaining the potential problem for purchasers of REOs.  At this point, I've spoken to quite a few of our fellow agents and most have no idea that this is an issue.  Most of them just shrug it off when I explain.  IMHO, this isn't going to turn out well for a lot of people.

Sep 24, 2010 03:36 PM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Just re-blogged.  Great post!

Oct 06, 2010 09:27 AM