Recently, there’s been a lot of talk as to whether all of the many forclosures have been done properly. I’m sure that it’s possible that a bank might accidentally forclose on someone who is not behind on their morgage, but I figure the possibility is quite remote. This leads to my question: is this “controversy” really anything more than a desperate attempt to delay the inevitable? Is there any evidence that a significant number of errors have occurred?
May take on it is that a large number of errors have occurred. One big problem is that banks bundled up their mortgages and sold them off and then they got resold again etc. In real estate law, there is supposed to be official documents that can be traced back to every sale and many of those have gone missing so no one can prove that they have the right to foreclose on the house. Remember, this is a matter of real estate law with specific rules that are supposed to be followed. The banks can’t just make up rules and procedures on their own as they go along. They really do need the documents to foreclose on properties and no one really knows what to do if large numbers of them just disappeared. They may turn up eventually but maybe not.
It could be just a stalling tactic on the part of the people who are facing foreclosure but that isn’t without benefits either. Given a choice between staying in the same house they have for free or packing up and moving god knows where, I think it is understandable that some of them don’t have a problems letting the bank become the one stuck in the hot seat. It will get straightened out eventually but some people may get a free place to stay in the mean-time.
I figure the odds are pretty remote, but it does happen. Hell, one guy was foreclosed upon by mistake- and he’d never even financed his house.
I think the fact that many banks have stopped foreclosing until they get this cleaned up clearly indicates it is a real problem. The vast majority of these is for people not trying to delay. It is also bad enough that bank stocks are taking a big hit, which is unlikely to be the case if a few people were trying to delay.
It turns out that it’s also possible that the bank is foreclosing on homes that they don’t even know they hold paper on.
Now I’d love to foreclose on your home, and make a nice profit selling it on the open market, but not being a bank, I’d have to actually prove I have a right to sell your home out from under you.
I’ve also heard vague, unsubstantiated mumblings that it could cause problems down the road if, say, you make all your mortgage payments but the bank still can’t find your note, so now they can’t actually transfer the house to you…
I would think it’s more common than appears. I know from the number of bank errors I’ve gotten on a checking account or even from a charge card, it happens too much.
I worked for a large hotel chain and we had a major computer meltdown. The controller told me “Bill everyone who stayed last week again. If they complain, we’ll reverse it.”
It’s that kind of attitude. The hotel didn’t care if they were billing people incorrectly, they wanted to get paid, which they deserved, but it was their own fault for not doing the back up correctly.
I think most businesses have that attitude
Here are some interesting posts from a weblog called Calculated Risk, from back when some early symptoms of this disease were first being noticed. (The author, Doris “Tanta” Dungey, has sadly passed away. 
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Deutsche Bank FC Problems and Revenge of the Nerd
In Re Foreclosure Cases
And many of the customers for large hotel chains are business people, whose bill is paid not by them, but by the accounting department of their business. And they are probably paying a lot of bills. It’s easily possible that they wouldn’t notice this, and would pay it again. Increased profits for your hotel chain!
There is a whole scam industry built on this – sending businesses fake bills, or things that appear to be an invoice, but the fine print reveals it’s actually an order. Enough of these get paid in error for scammers to get rich off this.
If I have understood this article:
http://www.nytimes.com/2010/10/19/business/19norris.html?ref=mortgage_electronic_registration_systems_inc
from yesterday’s Times, a large percentage of the mortgages issued in the US in the last several years may be unenforceable. This doesn’t mean the loans disappear, but they might no longer be backed by the property.
I will try to give a brief explanation of something I barely understand myself, so be warned and look at the cited article for more. Apparently, there is a legal distinction between the mortgage (which appears to be the right to foreclose) and the loan itself. But US courts have consistently ruled that they cannot be separated; if you are the mortgage holder, you better hang on to the loan note.
MERS (Mortgage Electronic Registration Systems) was set up to smooth the path to securitization and also avoid having to pay the county government their registration fee every time the mortgage was sold. So MERS holds the mortgage and the loan is sold to a third party. And a fourth, and a fifth,… This would appear to contravene the ban on separating the mortgage from the note, which is now an unsecured loan. It can still be collected (if you can find the signer and he is not bankrupt) but you can’t seize the property. He could even sell it and pay off other debts, declare bankruptcy and the note is so much paper.
Even more fun, even if the banks get a ruling that the mortgages are tied to the property, there may be another problem.
From the cited article:
The banks saving money on filing fees and the staff to do the proper paperwork sure caused a mess.
I can guarantee that this is not a delaying tactic on the part of the home owners. Any such tactic that relies upon legal action is going to be quite a bit more expensive to prosecute than simply making your monthly payment. It might be a cost effective option if your “home” is a 50 acre, 8 building compound, but there’s no way it would be even for the average McMansion owner.
I don’t think there are any publicly available stats on this, but I firmly believe that in many cases, issues with the legal standing of the banks to foreclose due to the epic clusterfuck known as MERS is only part of the problem. I think that in many cases banks don’t even have most of the paperwork used to close on the properties. Seriously. I would put money on the proposition that many defaulting borrowers will skate, not only because of issues with MERS (which may or may not be susceptible of being remedied), but also because so much essential documentation has simply disappeared - or worse yet, never existed in the first place.
Not necessarily the case. There can be economies of scale. There may well be law firms who have figured out standard tactics that they can implement for a very low per unit cost.
Yeah, in hindsight that was probably a bit strident on my part. 