Posted on 01/19/2011 10:16:36 AM PST by survivingcalifornia
The foreclosure mess just got messier.
Inquiring minds are watching the fallout in Utah where a man just beat the banks in court by agruing that the bank had no right to foreclose…and he got his house given to him with clear title. This means Mr. Walter Keane does not even have to pay his loan of $132,000. All because of the way MERS handled his documents…or that MERS handled the documents:
A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.
The award of a title free of liens means that whoever owns the promissory note on the Draper property — likely a group of faraway investors — no longer has the right to foreclose to collect on a delinquent loan. Indeed, the townhouse owner has sold the property and kept the money. Those who own the promissory note probably don’t even know what occurred.
This is now the second state which has decided against the banks. Remember this SurvivingCalifornia.com post on Massachuetts Supreme Court’s similar decision last month.
This case in Utah may have even more importance:
Decisions such as the one 3rd District Judge Glen Iwasaki handed down in the Draper case could have a big impact as the state wends its way through hundreds of lawsuits involving foreclosures, loans on properties for more than they’re worth and predatory lending practices that led Utahns to lose their homes as the real-estate bubble burst.
As always it seems, MERS is at the center of the storm:
This is all tied up with MERS, the online database that has stood in for the land records system in as many as 60% of the mortgages in America over the past decade or so. As we’ve seen, MERS is essentially a way for the largest banks to avoid recording fees, by naming them as the mortgagee on the original record and then transferring the mortgage and the note through their database. The problem is that MERS is named as an owner on loans in which it has no financial interest, and the judicial system doesn’t yet know how to manage that. This has confused the hell out of title insurance companies, who cannot determine who holds the note or even who can collect payments on it. As a result, in this case, the courts and the title company failed to figure any of that out, so they gave title back to the homeowner.
The ‘why’ in this case has been discussed before here at SurvivingCalifornia.com. If you remember one our most popular posts “The F-Bomb” you will see a similar metaphor of “photocopying a $100 Federal note” used by Christopher Peterson of the University of Utah quoted in “The F-Bomb”. Mr. Peterson says that in this case in Utah, MERS calls into question their ability to succeed:
Under laws adopted by all 50 states, the owner of a “negotiable instrument” such as a promissory note must be in physical possession of the document, said Peterson. Otherwise it would be like someone trying to cash a photocopy of a check instead of the actual check. [SC editor's bolding]
“One cannot be a holder of a note unless one is in physical possession of that note,” he said.
But Peterson said evidence is coming out in courts that shows the actual promissory notes or mortgages signed by buyers were not transferred as the notes made their way into the mortgage-backed securities investment pools.
Yes, we have been saying that 2011 was going to be an interesting year…and the fireworks have already begun!
Other SurvivingCalifornia.com posts on this topic:
“Foreclose on the Foreclosure Fraudsters“ “More on Mortgage Mess“
This is what I wrote in the comments at the blog to respond about this same type of question:
Yes, it looks as if courts have the power. If you read “The F-Bomb” (it is linked) you will get an idea.
Also, there was a case about 2 years ago in New York where a bank (BofA I think) kept putting off court appearences. Then, when the bank’s representative finally did show up, she was caught lying. At that point, the Judge slammed his gavel, said a latin phrase, and the home was the owner’s free and clear. And, from what was said at the time, because of this old tradition, it couldn’t even be appealed. At least, with hope of being overturned.
The courts have enormous power.
So, let’s cut to the chase. When do you expect this ripple effect to begin hitting the economy, if it hasn’t already, and what do you expect the final outcome of this effect to be?
Are we talking in the coming year, six months, quarter or are we just weeks out from seeing this begin to surface fully?
???
In the summer/fall, when the original problem hit with foreclosures, it was almost instantaneous and devastating. The market stopped. Look at the data. This is much worse.
I just don’t know how an intelligent buyer goes ahead and purchases a foreclosure right now. I don’t know how a Title Insurance company insures one. And, if I am holding a MBS, I am scared as hell and already have legal on the phone.
Our Federal government should be on this like white on rice. But, the POTUS is excited because he got a few laughs from the press corp while doing the presser with Hu.
Everyone is asleep at the wheel.
Its rippling now. How long to go through the whole economy? A few months.
So what you’re saying is that by late spring to early summer, we should start seeing the ripple fully recognized in the economy, correct?
So would it be beyond the pale to expect a collapse in confidence in the dollar (due to the “backed by the full faith and credit of the Government” part of modern American dollars), with a resulting collapse in the dollar value immediately afterwards, due to this shortly after this event takes place?
Simply put, are we looking at a market-wide collapse of the housing industry that could spiral into a complete economic collapse in the next few coming months?
Business isn’t so hot here. We are keeping our heads above water, that’s about all I can say. I thank God for that. I’m wondering if this year will be worse then last year? I’m pretty sure it won’t be any better then last year at any rate. But who knows.
thanks for the insight.
I’m trying to help my son buy a house and we are looking at short-sale\foreclosures. (Illinois)
The prices have come down a ton and I think they’ll come down a ton more in the next few months.
But in reading these things, i’m starting to get the vapors.
Yes, for the ripple effect.
I am not a person who believes in doomsday scenarios.
I think this will go through the economy like wild fire and cause a ton of problems. However, the people matter will rush around and get a ‘fix’ together ASAP.
But even after this fix is in place, the economy will have suffered ANOTHER setback. It will make things hard for awhile.
The first comment about changing a law is what will happen. But this will still cause untold damage to the US economy and, therefore, the people.
>> “This is going to chill the hell out of the real estate market...both in purchasing the property and mortgage backed securities.” <<
.
No, what it will do is drive the cost of Title Insurance through the roof.
.
That should pretty well kill buying foreclosed properties.
I’m investigating this now. I’ve never missed a payment nor have I been late, but I have to say that if they have left themselves open I will take the same track. Not a question of right or wrong, it’s just business.
Where’s the best site for news and updates on the foreclosure mess? I want to read up.
Refresh my memory on notes: if the original is lost, is there a way for the noteholder to prove the existence of the debt, and seek to recover on the loan? For example, in case of a fire?
No, its about right and wrong.
To this case and how it effects your home: this case was about the banks foreclosing on a property before they have the correct documents. This will be corrected. And probably a lot quicker than most realize because of the effect it will have on the markets.
By the time they would foreclose on your property, it will most likely be rememdied.
This is not a doomsday scenario at all. Just very serious and needs to be fixed quickly.
Yes, I believe so. Hence my reply to the comment above yours. It is time consuming but there is. Read that reply of mine.
In California, we are looking at about a 17% rate of forclosure when all is said and done.
If I heard this right, about 60% of mortgages are delinquent in Riverside Co, CA. And to get the real inventory, you need to multiply the inventory shown in the MLS (CA) by 4.25.
Right and wrong have nothing to do with profit and loss. If they have left themselves open I will take advantage of the situation just as they would, and have.
Mine of course! SurvivingCalifornia.com
Haha.
Actually, there is no one site. I scour every day a ton of them.
It does for me. My business life is my personal life.
When I lost everything, it was some former clients who came to my rescue and staked me with money to start all over.
But, even that never happened, I live to a higher standard. Without ethics, nothing gets done and the free market fails. Bad ethics create a huge drag on the economy. Much like terrorism does. As does deficit spending.
If you don’t see that, you need to back up your universe. The history of this country is replete with great business ethics. For one: Mission Viejo, CA was a handshake deal that took two generations and 30 years to fulfill. But it was fulfilled...on a handshake.
I’m in Michigan it’s probably just as bad. I know in Flint and Detroit it’s terrible. Blocks of houses are empty, they’ve actually been bulldozing houses down in Detroit. I’m about 9 hours our more away from there. It’s a bit better where I am, but, it’s not great. And the average home price here is probably $40,000.
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