Foreclosuregate is About to Explode

If you work in the mortgage industry or for a title insurer, you might not want to make any plans for the next six months. Foreclosuregate is about to explode. It is being alleged that many prominent mortgage lenders have been using materially flawed paperwork to evict homeowners. Apparently officials at quite a few of these firms have been signing thousands upon thousands of foreclosure documents without even looking at them. In addition, it is being alleged that much of the documentation for these mortgages that are being foreclosed upon is either "improper" or is actually "missing". As lawyers start to smell blood in the water, lawsuits challenging these foreclosures have already started springing up from coast to coast. In fact, some are already calling Foreclosuregate the biggest fraud in the history of the capital markets. JPMorgan Chase, Ally Bank's GMAC Mortgage and PNC Financial have all suspended foreclosures in the 23 U.S. states where foreclosures must be approved by a judge. Bank of America has actually suspended foreclosures in all 50 states. Now, law enforcement authorities from coast to coast are calling for investigations into this controversy and it could be years before this thing gets unraveled.

This thing just seems to escalate with each passing day. It is being reported that the attorneys general of up to 40 U.S. states will be working together on a joint investigation into this foreclosure crisis. Lawmakers in both houses of the U.S. Congress, including Nancy Pelosi and Christopher Dodd, have called for an investigation to begin on the national level. U.S. Attorney General Eric Holder said last week that he is looking into the issue. Things are certainly getting very serious out there. Never before has there ever been such a national focus on foreclosure paperwork.

*One GMAC Mortgage official admitted during a December 2009 deposition that his team of 13 people signed approximately 10,000 foreclosure documents a month without reading them.

*One Bank of America employee confessed during a Massachusetts bankruptcy case that she signed up to 8,000 foreclosure documents a month and typically did not look them over "because of the volume".

But the "robo-signing" aspect of Foreclosuregate is just the tip of the iceberg. Apparently there is a whole lot more going on than just a bunch of bad signatures.

Peter J. Henning, a professor at Wayne State University Law School in Detroit, was recently quoted by MSNBC as saying the following about Foreclosuregate....

"You've got so many potential avenues of liability. You don't even know the parameters of this yet."

The sad truth is that potentially millions of foreclosures across the United States could potentially be invalid because the securitization process has muddied the chain of ownership. In fact, an increasing number of judges from coast to coast have been ruling that the "owners" of the mortgage have no right to foreclose on a property because they lack clear title.

At the core of this title controversy is MERS - Mortgage Electronic Registration Systems. MERS is based in Reston, Virginia and it was created by the mortgage industry to enable that big financial firms to securitize and swap mortgages at high speed. MERS allowed these big financial firms to largely avoid the hassle of filling out more forms and submitting new filing fees every time that a mortgage was traded.

But now MERS is facing some very serious legal challenges. A recent article in Businessweek described the situation this way....

A lawsuit filed on September 28th in federal court in Louisville on behalf of all Kentucky homeowners claims that MERS was part of a conspiracy to create false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures. Similar class actions have been filed on behalf of homeowners in Florida and New York. Karmela Lejarde, a MERS spokeswoman, declined to comment on any pending litigation.

The reality is that as millions of U.S. mortgages have been bunched together and traded around the globe at lightning speed, it has become increasingly unclear who actually has title to them and who actually has the right to foreclose on these properties.

Title insurers have backed the titles of millions of these foreclosed properties and now potentially find themselves in a heap of trouble. Some of the biggest title insurers have already begun circling the wagons in an attempt at damage control. For example, one of the biggest title insurance companies in the United States, Old Republic National Title Insurance, has already declared that it will no longer write new policies for homes that have been foreclosed on by JPMorgan Chase and GMAC Mortgage.

So what happens if nearly all title insurers start avoiding foreclosed properties?

Won't that make it much more difficult for the banks to sell the massive backlog of foreclosed properties that they have accumulated?

In addition, Americans that have purchased foreclosed homes may now be facing some serious problems themselves. Millions of Americans may now "own" homes that they do not have clear title for. When it comes times to sell those homes, many Americans may find themselves unable to do so.

Already, U.S. banks have a record number of foreclosed properties that they need to clear out, and now all of this scrutiny on foreclosure paperwork and all of these lawsuits are going to grind the process of getting these homes sold off to a standstill.

In fact, the true legacy of Foreclosuregate may be the massive amount of bank failures that it causes.

It would be difficult to understate how much of a nightmare Foreclosuregate is going to be for U.S. mortgage lenders. Having to go back through the paperwork of millions of old mortgages is going to be a complete and total disaster. If banks end up being unable to foreclose on a large number of bad mortgages, it could potentially be enough to put many banks out of commission for good. Not only that, but the legal fees that many of these banks will accumulate defending lawsuits related to Foreclosuregate will be astronomical.

The U.S. mortgage industry was already on the verge of death, and Foreclosuregate may just be the straw that broke the camel's back.

The reality is that U.S. banks are drowning in foreclosures and this current crisis is just going to make things a lot worse. Back in 2005, there were approximately 100,000 home repossessions in the United States. In 2009, there were approximately 1 million home repossessions in the U.S. and RealtyTrac is now projecting that there will be an all-time record of 1.2 million home repossessions in the United States this year.

For the U.S. mortgage industry, Foreclosuregate must feel like someone has dropped a bomb on them after they have already been beaten up and doused with gasoline.

Attorney Richard Kessler, who recently conducted a study that found serious errors in approximately three-fourths of court filings related to home repossessions, says that foreclosuregate could haunt the U.S. mortgage industry for the next ten years....

"Defective documentation has created millions of blighted titles that will plague the nation for the next decade."

While it may be easy to beat up U.S. mortgage lenders and say that they deserve all this, let us not forget that this is going to impact a whole lot of other people too.

It is going to become much harder to get a mortgage. It is going to become much harder to buy a home. It is going to become much harder to sell a home. The U.S. housing industry is likely to suffer a significant downturn due to all of this. There is even a good chance that the entire U.S. economy could be dragged down for an extended period of time.

But for virtually everyone else this is really bad news. Any hope that the U.S. housing industry would experience a quick recovery is completely and totally gone.

Debt and secured debt are importantly different in that
the asset (car, house) securing the secured debt can
be seized by the lender. That’s why there’s the horrific
scandal about illegal foreclosures; banks are taking houses
they cannot prove they have a right to take.

I know the difference, but to me there is no difference in the obligation. Walking away from a mortgage is as disgusting as not paying your credit card. I don't care what the legal difference is, there is NO moral difference.

Both involve people taking something and then not paying for it. If you will do something like that, then who would be dumb enough to employ you?

I wasn’t looking at the culpability of the debtor, but
the culpability of those who allege they hold the debt.
If they don’t, and that is the gravamen of all the AG
actions, they are committing crimes when they take over
houses.

That’s fine, the banks are culpable, but so are those who default, and especially those who walk away. As I said earlier, if you lose your job, or you suffer a catastrophic illness, that is one thing, but to walk away because you are underwater....sorry, I hope their credit is marked and they never qualify for a mortgage again. I’m tired of paying for the deadbeats of this world.

There use to be a time when signing on the dotted line meant something... well before that it use to be your word... now none of it matters.

Oh for goodness sake, we've reached maximum density. I don't disagree with your statement. Here was my point as clear as I can make it:

You sign your name on something that says pay the bank or the bank gets the house. If you don't pay and don't give the house back, then you broke your word. Shame on you.

If you don't pay and give the house back, you have lived up to your end of the deal. Legal, moral and ethical.

I think all those looking down their nose at anyone deciding to walk away from a bad deal must either be a renter, or still have net equity in their house. God bless them and I pray they do not have their convictions tested by the adverse circumstances that many find themselves in.

>>I think all those looking down their nose at anyone deciding to walk away from a bad deal must either be a renter, or still have net equity in their house. God bless them and I pray they do not have their convictions tested by the adverse circumstances that many find themselves in. <<

JTHomes, I think I would take the write up about your being a realtor off your homepage. Giving this advice is not very ethical. And as many of us know, it is easy to find out who you are and contact your employer. It happened to Buckhead and it can happen to you.

"I think all those looking down their nose at anyone deciding to walk away from a bad deal must either be a renter, or still have net equity in their house."

i feel that way and fit none of your assertions......

you really don't realize how f'd up your thinking is do you???? or that that type thinking is at the core of America's dysfunction

You might also be forgetting something. In many of these cases the Government as encouraged banks to forgive the negative equity difference. They aren’t just walking away from a bad deal but they are getting a huge gift in the process.

I don’t give advice, only analysis. People can agree or disagree and decide accordingly. And whether that is a well intentioned warning or some kind of veiled threat, I stand behind every transaction I’ve been a part of. I’ve walked away from several shady deals that came across my desk as well as told the truth to buyers who were lied to by dishonest mortgage brokers about what the loan would really cost them. I’ve left tens of thousands of dollars of commissions on the table standing up for ethical standards during what we all know was a very lose and fraud filled industry for years.

this is just an attempt by ‘Dead Beats’ to get a FREE HOUSE

I disagree it is just deadbeats....it's a scam being played by many now...everyman is for himself in order to move away from the mess..and this is at all levels of society in this real-estate scam. From buyers to sellers and the lot of those maneuvering the fiasco.

how f'd up your thinking is do you

Try making an argument, not just hurling insults. And argue the main point, not some ancillary post script comment. But if you want to debate that point, I was simply trying to tie in an underlying inconsistency that otherwise freedom loving people on this thread have exposed in themselves, that it's easy for people sitting fat and pretty to sit on a moral high horse and spout some imagined ideal of how they think others should act. Many on this thread have expressed concern that they might be hurt because others let their house go to foreclosure. So the alternative is to force those people to keep paying the bank no matter what? Even when the contract they signed allows them to stop paying and leave the house? That sounds like the opposite of liberty. Besides, the foreclosures are not causing lower prices, they are happening because houses became overvalued, because of easy money from the FED, from the secondary mortgage and security market, and government meddling.

Government [h]as encouraged banks to forgive the negative equity difference

True enough, and I think the government has done enough damage and should stay out of it. But in non-recourse states, after the foreclosure, the lender has no right to the full value of the note. They get the house and that's were it ends. If the former home owner had negative equity, the debt forgiveness could be called a gift, but it's not like they got cash. I'm not saying there are people who didn't game the system with home equity or 125% loans etc, but most people I know who have been through a foreclosure don't feel like they came out ahead.

>>And whether that is a well intentioned warning or some kind of veiled threat,<<

Dude, perhaps you should consider which site you are on. This is not the DU. We here at FR don’t threaten our fellow FReepers. You’ve gone a bit off on this argument and need to remember who you are talking to.

However, any of us who have lived through the various witch hunts against our FRiends, know the facts. While you are selling houses to people who must get bank loans, you are recommending that they walk away from their obligations if things get too tough, ruining their credit and screwing a good faith agreement.

It’s not me you have to worry about.

You’re right, I got a little defensive there for a second. I know we can debate on this site and keep things on a civil level. But I also want to make it clear that I don’t recommend people walk away from a house. Or stay in a house they can’t afford either. There are consequences either way. People have to decide what they can live with.

I’m sure many people don’t feel like they came ahead. But in this entitled filled society many people think they should a better than fair shake.

How many of these people kept their mortgage payments in their pockets for 6,8,12,18 months before they were finally foreclosed on as well?

Their are many ways to skin a cat.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.