Mortgage Paperwork? WHO OWNS THE FORECLOSED PROPERTY???

By
Real Estate Agent with Keller Williams Realty - Atlantic Shore

October 14, 2010

With the foreclosure process grinding to a halt, reports of the banks' paperwork problems keep worsening. Banks and mortgage servicing firms sometimes can't prove who owns the title to the property in foreclosure.

And that threatens to make a bad situation worse.

To understand this latest issue, picture yourself facing foreclosure. You are running out of time ... and options.  Finally, you say to your bank: "Show me the note."

That simple request is tying banks in knots.

Gary Klein is a lawyer representing people fighting foreclosure. He says that in many cases, banks cannot, in fact, show them the note. And that, he says, is a big problem.

"The fundamental issue is that no one really knows who owns hundreds of thousands of mortgages that have been made in the last decade, and really no one really knows who has the right to foreclose," Klein says.

Sometimes banks have no record of the original loan. Or, there are faulty records of which investor owns the loan. And that's not all.

I've heard that at certain points they found it too costly to even store all the notes, and a lot of them just got shredded.

- Alan White, a law professor at Valparaiso University

"The issue, as these cases start to shake out, is not always whether the paper is public, the issue is whether the paperwork exists at all," Klein says.

How could this be? The answer is a problem of both complexity and volume.

Many of the mortgages generated in the past decade were bundled, then sold in the form of securities. As many as half of mortgages were bought and sold at least four times before reaching their final investors. The chain of ownership became hard to follow.

Every time that ownership changed, there should have been a record of that transfer. Not just digital forms, but actual 20th-century-style paper that physically traveled to each investor. But in the rush to process millions of new mortgages, the papers often didn't make it.

Alan White, a law professor at Valparaiso University, says the industry began cutting corners.

"They devised various shortcuts with the assurance of some high-powered lawyers that these shortcuts were fully, legally equivalent to doing it the old-fashioned way. But nobody really knew for sure whether they were the full legal equivalent or not. And now we're going to find out," White says.

White says to "show you the note," banks or their loan servicing operations might have to do some forensic digging. Some of the paper might exist at a warehouse somewhere. Some might exist in the MERS, the industry's mortgage electronic registration system. But some might not exist at all.

"And I've heard that at certain points they found it too costly to even store all the notes, and a lot of them just got shredded," White says.

The lack of a note may mean some owners can avoid foreclosure - although that's not exactly clear.

The real new issue here is what this might mean for the banking industry.

Investors in mortgage securities - which in many cases have lost all or most of their value - might turn to banks to cover their losses.

My concern is, is maybe this is the tip of the iceberg and there were other shortcuts taken that we don't completely understand.

- Paul Miller, managing director of financial services, FBR Capital Markets

Chris Katopis, executive director of the Association of Mortgage Investors, says investors are protected by agreements that say if there's any defect with the contract, the banks will buy back those securities.

"What we're hoping for is banks to step up and do what they're legally accountable to do under these agreements, and be responsible," he says.

Paul Miller, managing director of financial services at investment firm FBR Capital Markets, says banks "will probably be held most responsible if there is a problem."

He says the evidence so far does not indicate that the problem will hold up most foreclosures. But no one knows yet for sure.

"My concern is, is maybe this is the tip of the iceberg and there were other shortcuts taken that we don't completely understand," Miller says.

And if that is the case, Miller says, these paperwork issues could amount to a huge economic problem

Posted by

Wishing You The Comforts Of Home.

 

Julie Staradumsky

Keller Williams Realty - Atlantic Shore

200 Tilton Rd.   Suite #5

Northfield, NJ 08225

(609) 484-9890     fax:(877) 773-6675

Star@kw.com      www.SJshoreRealtor.com

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Rainmaker
552,217
Lynda Eisenmann
Preferred Home Brokers - Brea, CA
Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co

Hi Julie,

"banks cannot, in fact, show them the note" is something I've been hearing for a while now. I'm sure this happens more than we realize. However the issue as I see it, is how does a homeowner stop the wheels of foreclosure once it's started. I'd imagine there are a fair share of foreclosures that were unlawful, but then how does one prove it?

Oct 14, 2010 04:37 PM #1
Rainer
82,537
Julie Staradumsky
Keller Williams Realty - Atlantic Shore - Northfield, NJ
CREN

ONE of the PROBLEMS IS WHOM HOLDS THE NOTE..!!!  I have found out that overseas company's hold a majority of mortgage notes, between Germany, Japan & even China...??? find the ORIGINATING NOTE HOLDER CAN BE A REAL PAIN IN THE A--!

 

WISHING THE BEST TO EVERYONE IN OUR TRYING ECONOMY.

Oct 14, 2010 05:25 PM #2
Rainmaker
589,983
Phil Leng
Retired - Kirkland, WA
Phil Leng - Retired

Hi Julie,

Reminds me of the runaway best selling ad by Wendy's

"Where's the beef?"

Where's the note?

Interesting...

Phil

Oct 14, 2010 05:47 PM #3
Rainer
288,529
Thomas McCombs
Century 21 HomeStar - Akron, OH

It's not so much a question of whether a foreclosure is warranted, but of who is the proper party to file the action. Often there is a real question there. The plaintiff on the complaint may not be the one who has that right.

Maybe we can encourage some attorneys to stop suing Realtors and to start suing loan servicers!.

Oct 15, 2010 11:26 AM #4
Rainer
82,537
Julie Staradumsky
Keller Williams Realty - Atlantic Shore - Northfield, NJ
CREN
Ahhhhh, THOMAS.............THE ATTORNEY'S NEED TO SEE THE LIGHT.....(.......ET.....PHONE HOME....)......... HUMMMM, THE MORTGAGE COMPANY OWN THE PROPERTY (SO THEY SAY? WHOM OWN THE NOTE ISSUE AT THIS TIME) (ATTORNEY'S AND TITLE COMPANY'S  ARE WORKING FOR THEM???) SOOOOOO.....WHAT IS THE ISSUE WITH SUING REALTORS.............WHEN THESE PROPERTIES ARE SUPPOSE TO BE FREE AND CLEAR TITLE WITH NO ENCUMBRANCES TO THE NEW OWNER (UNLESS OTHER WISES STATES ON SETTLEMENT DOCUMENT)???   EACH PROPERTY IS A SEPARATE CASE......AND EACH STATE HAS THEIR OWN LAWS....BUT.....HUMMMM........WHAT I SEE IS ALL BUYERS AND SELLER SHOULD HAVE EXPERIENCED (BANK OWNED - FORECLOSURES, EXPERIENCED) ATTORNEY'S, TO HELP DEAL WITH THE HOUSING MESS, THAT WE ARE EXPERIENCING AT THIS TIME, TO READ ALL DOCUMENTS AND TITLE WORK!!!
Oct 28, 2010 08:52 PM #5
Rainmaker
412,379
Catherine Chaudemanche - Edison & Central NJ
Metuchen Keller Williams Elite Realty / Middlesex County, NJ - Edison, NJ
Full Time, Informed and Involved- Results Driven

Hi Julie,

More is available in our Keller Williams Intranet (prints, pictures, disclaimer...). Just wanted to make sure you did not miss it:

- Keller Williams Realty Has Done It Again!
Keller Williams Realty Ranked “Highest Overall Satisfaction For Home Buyers Among National Full Service Real Estate Firms,” Three Years in a Row! -

 

Nov 14, 2010 12:11 AM #6
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Julie Staradumsky

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