Dear Homeowners Of America, if you can't walk after reading this, it's because you've been well and truly...

October 9, 2010 8:00 AM

Somebody fed the hydra a hand grenade. The “robo-signer” scandal began September 20th when news broke that GMAC/Ally was suspending foreclosures in 23 states due to flawed affidavits submitted in foreclosure proceedings there. Since then, JP Morgan Chase, and Bank of America, and now possibly Littleton Loan Servicing (a subsidiary of Goldman Sachs) have admitted similar problems. With yesterday’s announcement by Bank of America that it will be suspending foreclosures in all 50 states (not just the ones where foreclosures go before a judge) all signs point to the fact that mere false affidavits are no longer the issue; other, more serious problems are now being uncovered, e.g. forged assignments and failure to serve papers. Up to 40 state’s attorney’s general are poised to announce a joint investigation. What does all this mean? Well…uh…can you actually prove you own your house? And can your bank? And can the investment bank who’s been collecting the payments from the bond they made out of your mortgage? If you can’t, you’re going to have a hell of a time selling it.* And so will all the banks.* Did I mention that bank-owned (REO/forclosures) sales are 25 percent of the housing market?

For more background, try Yves Smith, 4ClosureFraud, Calculated Risk, and previously.

*NB: Those links relate to title insurance, which many people may not be familiar with (even though they probably have it if they own their home). Cliff Notes: Back in the 19th century, it was a fairly common for scamsters to try and steal property with forged deeds, or conversely sell property they didn't have the right to sell. Title insurance arose to combat this: After checking to make sure there's nobody out there claiming rights on the property, the insurer writes a policy which guarantees to pay back the purchase price of the home if someone does turn up later with a legitimate claim. Banks require prospective homeowners to purchase title insurance when issuing a mortgage, in order to protect their loan. However, nowadays claims are exceedingly rare, so much so that even Forbes has called title insurance a racket. If, however, judges were to rule that banks have been foreclosing on homes improperly, previously foreclosed homeowners could sue to try get their houses back. They may not win, but the mere possibility makes it a hell of a lot riskier to issue title insurance on any property which has been foreclosed on. And banks won't issue mortgages if there's no title insurance.

posted by Diablevert (146 comments total)

Just tell me how this means I can legally stop making mortgage payments and continue to live in my house forever.
posted by Faint of Butt at 8:10 AM on October 9, 2010 [6 favorites]

This can't possibly be true. We all know the FBI is a highly efficient, technologically advanced super-duper sleuther.

If there was something wrong, the FBI would be all over these guys years ago.

Well, maybe not.
posted by warbaby at 8:21 AM on October 9, 2010 [1 favorite]

Damn, I don't know how I missed this before, but this is very important and useful explanation of the mortgage servicing process: Foreclosure Fraud for Dummies.
posted by Diablevert at 8:32 AM on October 9, 2010 [1 favorite]

Met a guy at a party last weekend who got into a rant about how he hadn't made a mortgage payment in over a year and the bank couldn't do anything about it. He asked me "How can you prove that you own your house?" and told me that my deed, loan documents, title insurance, etc, were likely fraudulent documents that wouldn't stand up to legal scrutiny. All the time I'm thinking tin-foil-hat, but maybe he's on to something....
posted by squalor at 8:35 AM on October 9, 2010

Did I mention that bank-owned (REO/forclosures) sales are 25 percent of the housing market?

At its (potential) worst, this problem is not at all limited to REO sales. If the problem is defective conveyance of the note among all the various entities that had to "own" it at a given time for the securitization to work, then any securitized mortgage would be affected, even as an "above-water," non-distressed sale. Now, not a lot of mortgages that issued between ~2003 and 2008 avoided the CDO sausage grinder - so ALL homes sold during those years could potentially have clouded title. Even if you never missed a payment.

That's the factor that seems to be missing from much of this discussion. It's not just a matter of paperwork "technicalities" with "deadbeats" who weren't paying anyway; it's not a matter of "yeah well screw the banks anyway." It could be as bad as everyone involved with real estate in the last several years, even the totally responsible people, getting screwed because they can't prove proper title.

I'm using hedge words like "potentially" and "could be" because ultimately, the amount of confidence you require in the title to an asset is up to the purchaser. I mean, to a certain extent these investment vehicles were working as intended, and it was just a paperwork screwup. And it's likely that no random party from several steps up the chain is going to come and sue a bona fide purchaser. But you can't be sure. And you probably can't get title insurance, if you're in this position. So ultimately, more risk taken on by the little guy, if he wants to own a house. Yay!
posted by rkent at 8:44 AM on October 9, 2010 [8 favorites]

We have burned through most of our savings during the last 17 months of unemployment, but we have managed to make our mortgage payment on time for the most part. We are now in the middle of trying to make a short sale on our house in the Detroit area (where we no longer live). I thought I was doing this the right way, but now I feel like I'm the world's biggest sucker.
posted by DaddyNewt at 8:46 AM on October 9, 2010 [3 favorites]

were likely fraudulent documents that wouldn't stand up to legal scrutiny.

He's probably right, but judges have allowed mechanics liens that didn't follow the law, "A bankruptcy judge has said he will not throw out a $12.4 million mechanic’s lien ... JE Dunn admitted that it didn’t follow the letter of the law in registering its lien but argued that it fulfilled the spirit of the law through its construction paperwork .. If the bankruptcy court says that contractors don’t necessarily have to follow the Missouri statutes as long as their paperwork, taken as a whole, put the owner on notice of lien rights, the effect on construction and real estate could be significant.”
posted by geoff. at 8:49 AM on October 9, 2010 [1 favorite]

How is it that every level of the mortgage machine is now filled with fraud, apparent fraud, or actions that would be fraudulent were they intentional?
posted by wierdo at 8:50 AM on October 9, 2010

Denial of reality issued by Brian Moynihan, Bank of America CEO. "A few weeks we'll be through the process of double checking the pieces of paper we need to double check."

A few weeks?

To at least one bankruptcy attorney, that claim is "beyond absurd" (via).
That level of willful ignorance and self-deception got us here in the first place and heralds our next and worst economic nightmare. If 25% of the housing market is immediately paralyzed by tainted, fraudulent or missing documentation, housing prices will plummet to never-before-seen depressed levels, banks will be vaporized and the collapse of mortgage securities will make Iceland look like a rounding error.

Even a miraculous, lightning-fast resolution regime will be an extinction event for current-generation Wall Street. I'm not saying this end to such galactic-level fraud is unnecessary. Rather, I think it's required.

The only encouraging sign out of all this is Obama's veto of HR 3808, which was cravenly passed by a voice vote in the House, and by unanimous consent in the Senate, leaving no voting records in either chamber. Convenient!

Thank you, Diablavert, for your post, and thank you, Mr. President, for showing us some guts.
posted by nj_subgenius at 8:54 AM on October 9, 2010 [15 favorites]

But hey guys remember, it's all the fault of Fannie/Freddie and had NOTHING to do with honest reputable Capitalist corporations. It's ALWAYS the government's fault. Yes sirree.
posted by symbioid at 8:59 AM on October 9, 2010

Someone's creating a scheme right now to "solve" this problem as we speak, and it will be the new bubble.
posted by symbioid at 8:59 AM on October 9, 2010 [6 favorites]

Banks haven't been able to get their title nonsense straight for decades. My partner had a house in Albany he'd owned outright for years and years and he finally decided to sell it (after years of having an incompetent caretaker living in it and not doing what he was supposed to do). After getting all the negotiations finished and the paperwork in place, the sale was delayed for something like 9 months because the bank (the ever-beloved Bank Of America) hadn't finalized the title after the mortgage was paid off, something like 15 years earlier.

It's really difficult to get the machinery to move when you live 2000 miles away from the place where the fuckup happened. Many many hours of phone calls and bunches of certified letters had to be exchanged before anyone would even admit to knowing where the title was, and it was finally filed properly and THEN the house could be sold.

That pretty much ended my already non-existent trust in banks to do their work properly. This whole mortgage fraud mess (by which I mean the bank paperwork scandal, not the other consumer-based fraud) only underscores my belief that banks live in their own world where rules don't apply and they never hold the customer's interests in any regard at all as long as they can make a buck.
posted by hippybear at 9:10 AM on October 9, 2010 [5 favorites]

well, mr and mrs america, if you can't be sure who owns your home, can you be sure who owns your company? your local shopping mall? your stocks?

if the housing market is getting this screwed up due to incompetent record keeping, how can we trust ANY record keeping?
posted by pyramid termite at 9:25 AM on October 9, 2010 [5 favorites]

But hey guys remember, it's all the fault of Fannie/Freddie and had NOTHING to do with honest reputable Capitalist corporations. It's ALWAYS the government's fault. Yes sirree.

And the poor minorities who bought mansions.
posted by furiousxgeorge at 9:25 AM on October 9, 2010 [4 favorites]

This development seems to back up my long held opinion that the United States of America is one big ponzi scheme.
posted by AElfwine Evenstar at 9:26 AM on October 9, 2010 [10 favorites]

rkent,
It's even worse. One of the things that concerns me is that the actual bearer paper, the notes, are floating around out there. I have heard rumors that many of the mortgage orginators were supposed to have shredded the original notes after scanning them into an electronic records system. There are also rumors that some financial institutions scanned notes and then dumped them into big warehouses.

Knowing the level of competence on display so far, I would not be surprised if some of the notes slated for destruction were actually never destroyed. I expect to see scammers show up who are holding the actual paper and try to take a shot at collecting the payments. Now, they probably would not be able to win in court. However, that won't be the goal-- the goal will be to shake down homeowners into paying the scammers to go away.

I realize this sounds a little paranoid, but think about this-- if someone had come to you 3 years ago and said "look the entire mortgage system is shot through with fraud, and it's possible the people you are making your house payments to, aren't even entitled to receive those payments," wouldn't that have sounded totally crazy?
posted by wuwei at 9:33 AM on October 9, 2010

Oh look, a pheasant.

human race is a ponzi scheme.
posted by clavdivs at 9:40 AM on October 9, 2010 [4 favorites]

How will this influence the stockmarket on Monday and thusly the global economy in the coming week?
posted by The Lady is a designer at 9:43 AM on October 9, 2010 [1 favorite]

or massive capitalizing on human weaknesses bounces back
posted by clavdivs at 9:43 AM on October 9, 2010

And it looks like Bank of America is still filing foreclosures in Florida, according to this local Florida news story.
posted by wuwei at 9:55 AM on October 9, 2010

Didn't there used to be some kind of regulations in place to prevent this kind of stuff?
posted by Max Power at 9:59 AM on October 9, 2010 [3 favorites]

Didn't there used to be some kind of regulations in place to prevent this kind of stuff?

Easy there, Trotsky.
posted by TrialByMedia at 10:07 AM on October 9, 2010 [90 favorites]

So how much fraud can the major title insurance companies cover before they pull an AIG? 0.00001%?
posted by ryanrs at 10:10 AM on October 9, 2010 [2 favorites]

pt: "well, mr and mrs america, if you can't be sure who owns your home, can you be sure who owns your company? your local shopping mall? your stocks?"

But I thought ownership of private property was one of the cornerstones of Capitalism, if not the US Constitution? Snark yes, but it's pretty ironic all the same.
posted by sneebler at 10:17 AM on October 9, 2010 [1 favorite]

This development seems to back up my long held opinion that the United States of America is one big ponzi scheme.

How do they regulate this on Middle Earth?
posted by anigbrowl at 10:19 AM on October 9, 2010 [5 favorites]

I have been involved in just about all aspects of the mortgage banking industry, from origination, back-end servicing, mortgage insurance to property disposition. I was a workout specialist and fraud investigator for servicers and insurers years ago, then went on to do IT work and even brokerage. It is a dirty business, staffed in many areas with the incompetent and unscrupulous.

There are so many opportunities for these folks to make massive errors as we see in the above reports. I have seen mortgages invalidated because small origination fees like recording charges were misrepresented or inflated. I wish I could help some of these people through a horrible time. If I were to offer some general advice to someone facing foreclosure, it would be to start with the original documents and challenge every single representation made by the bank: every fee, every signature, every affidavit, the validity of the original loan application, every date, everything.

DaddyNewt, don't be bullied. They'll try to get you to sign an unsecured note for the balance of the total due. Challenge the fees, everything. In my experience, they'll do just about anything to ensure the sale goes through, especially in that market. You're saving them many many thousands of dollars. They know this. They track the savings that workouts generate, and in some cases even pay their employees a bonus on that basis.
posted by Shike at 10:23 AM on October 9, 2010 [20 favorites]

How do they regulate this on Middle Earth?

dragons - they sit around on all the money all day and you get to figure out how to make a withdrawal without being burned

it's just like our banking system but more honest
posted by pyramid termite at 10:26 AM on October 9, 2010 [37 favorites]

dragons - they sit around on all the money all day and you get to figure out how to make a withdrawal without being burned

it's just like our banking system but more honest

Yeah pretty much this. Originally the five Istari were supposed to regulate the system. Two wandered off into the east never to be seen again. Radgast the Brown became interested in agriculture and basically resigned his position to go start a hippy commune with some ents. The remaining two, Gandalf and Saruman, were so intent on fighting each ignoring their responsibilities to regulate the system that the dragons easily took over without much of a fight. Sure Gandalf made token gestures(Lonely Mountain) but in the end he was too preoccupied with wars that he was too busy to do the job correctly. Saruman, on the other hand, was actively involved in the fraud.
posted by AElfwine Evenstar at 10:36 AM on October 9, 2010 [11 favorites]

But wait, there's more.
posted by anigbrowl at 10:36 AM on October 9, 2010 [1 favorite]

Financial Apocalyse II: The Chickens Come Home to Roost!

This really comes as no surprise. The velocity of money in the real estate bubble made it almost impossible for human beings to keep up with all the paperwork. Hell, part of the reason no doc loans became more commonplace was beacuse it sped the loan process up. Leaving aside the ouright fraud being committed, the lack of title documenation shouldn't really shock anybody. Everybody was so busy counting money they hadn't made yet that no one realized they forget to get a receipt.
posted by KingEdRa at 10:50 AM on October 9, 2010 [2 favorites]

But hey guys remember, it's all the fault of Fannie/Freddie and had NOTHING to do with honest reputable Capitalist corporations. It's ALWAYS the government's fault. Yes sirree.

I don't think anyone's saying that, but it's worth pointing out that most of these repos aren't really fraudulent. This particular problem is, for the most part, clerical error, and people are all excited about the idea of keeping their houses forever for free.

I'm sorry, but THAT'S fraud, right there. If you borrowed money to buy your house, taking advantage of paperwork deficiencies to walk away from an obligation you willingly incurred is absoliutely fraudulent. There are established clauses in essentially all lending contracts by which you can surrender the house and stop making payments; taking advantage of those clauses is fulfilling your contract as intended, although not in a way that the bank would prefer. It's right there in writing, and there's nothing unethical about mailing in your keys and walking away. But trying to both stop paying AND keep the house is absolutely, 1000% fraud. You are stealing your house from Japanese housewives and retirement funds and 401Ks.

And it's not the fucking banks at fault when that happens. It's perfectly normal, mainstream, unethical people. And if you're cheering for the little guy in these cases, you are on the side of liars and cheaters.
posted by Malor at 10:54 AM on October 9, 2010 [9 favorites]

I've dealt with mortgage recission cases where my clients had been quite clearly defrauded by their brokers and the underwriting banks. BOA was one of our 'problem' holders, in that they would ignore our attempts to renegotiate right up to, and often after, we filed suit.

Part of the problem here is the almost total absence of real land registration systems in the USA. Even in states like mine where such a system was created by statute, participation is extremely low because lawyers and real estate brokers are actively discouraging buyers from registering their land. Why? Because confusion over state of the title is where they make a lot of their lucre. We should do what Australia did what, over 100 years ago, and enact a universal and mandatory registered land system.
posted by 1adam12 at 10:56 AM on October 9, 2010 [4 favorites]

resigned his position to go start a hippy commune with some ents

LOLTREEHUGGERS amirite?
posted by hippybear at 10:57 AM on October 9, 2010

Eponysterical, in the deepest Tolkien nerd kind of way.
posted by KingEdRa at 10:57 AM on October 9, 2010 [1 favorite]

So The Two Towers was a novel about real-estate? No wonder it was so boring.
posted by Neale at 11:01 AM on October 9, 2010 [4 favorites]

the dog ate my mortgage

Can someone smarter than me explain something -- since banks in every chain of the home ownership process had so much incentive to push up housing values (that no one could pay without real wages) then aren't we also looking at the fact that everyone has been turning over their monthly pay to either highly inflated rent or mortgages? none of our houses, buildings, apartments are worth what we've been told they are.

when i hear people gripe about taxes it doesnt even make sense if you look at the numbers -- in a economy this shitty and with debt-levels this high -- getting a year off of your taxes is mainly a way to engineer a movement of money back to the banks -- see George Bush's $600 dollar check
posted by lslelel at 11:06 AM on October 9, 2010

LOLTREEHUGGERS amirite?

Not necessarily, but if you read Unfinished Tales you will learn that the Istari were sent to Middle-Earth by the Valar for a reason and Radgast basically failed in his mission because he became enamored by the plants and animals( kelvar and olvar if you are a big Tolkien nerd and into the Elvish languages) of Middle-Earth giving up his mission. He is also an unwitting pawn of Saruman on several occasions.
posted by AElfwine Evenstar at 11:07 AM on October 9, 2010 [2 favorites]

This is why one should never joke with a nerd about their topic of nerd-ness.
posted by hippybear at 11:12 AM on October 9, 2010 [8 favorites]

Malor: If you borrowed money to buy your house, taking advantage of paperwork deficiencies to walk away from an obligation you willingly incurred is absoliutely fraudulent.

I presume you have never been screwed over by a corporation or institution invoking their own kind of bullying through paper. Lucky you.
posted by Rumple at 11:15 AM on October 9, 2010 [8 favorites]

This guy's been blogging and ranting about this for three years now. I go to the site every day to get my daily dose of reality compared to the pablum and lies that get posted in the mass media. Then I take a giant hit of Prozac.
posted by diode at 11:17 AM on October 9, 2010 [3 favorites]

And if you're cheering for the little guy in these cases, you are on the side of liars and cheaters.

That seems to be the case if you are cheering for the big boys as well, only more so.

The banks do not seem to have realized how badly they have fucked up, here. Their incompetence has reached the point of shredding due process, and for that they deserve to get burned, and quite badly. The only potential positive outcome of this is if the absolute and utter La-Brea-Scale debacle they have made of the foreclosure process scares them enough to go forward with actual, substantial principle reductions and quick and painless short sales. Of course, they may not be able to offer principle reductions because they'd have to write down all the bad paper they still hold on 2nds. In which case....
posted by Diablevert at 11:17 AM on October 9, 2010

anigbrowl: "But wait, there's more"

"...cannot in fact be sold to them at the agreed upon purchase price unless either the lenders agree to short sales or the seller deposits a whopping $392,000 in cash into escrow to cover the shortfall. "

Is "whopping" a legal term? I look forward to 200 years from now when that word is looked back upon and most people will wonder what the hell it meant.
posted by symbioid at 11:25 AM on October 9, 2010 [2 favorites]

Real land registration? Why that's SOCIALISM, letting the GOVERNMENT DECIDE who can own what, FREE MARKET should decide blar blar blar LIBERTY hurf derf ACTIVIST JUDGES wharrgarbl PURCHASE THE LAWS OF YOUR CHOICE did I say that out loud?
posted by infinitewindow at 11:25 AM on October 9, 2010 [7 favorites]

Each time I read something about this whole mess, I think, "Wow, epic clusterfuck." Then I read the next thing about it, and realize that what I thought was epic wasn't - this is the epic clusterfuck! Then I read the next thing, and now, really, all of it is just an onion of epic clusterfuckness, with each layer being more epic and more fucked than the last.
posted by rtha at 11:26 AM on October 9, 2010 [18 favorites]

It's LITTON Mortgage Servicing, not Littleton. I did legal work for them when they were just a little 2-room operation in Houston 20 or so years ago. The Littons were decent people who filled a real market need, and while their people weren't bleeding hearts WRT people who defaulted on their mortgages, I saw them act honorably and legally.

It sounds like a lot has changed, and it makes me very sad. I do know that this sort of document fraud was happening 20 years ago, only on a much smaller scale. Most people didn't get caught, but a few did and I went to visit two of them that I knew once while they were doing their time in a federal prison camp. It may have been soft time but their lives were ruined.
posted by missouri_lawyer at 11:29 AM on October 9, 2010 [1 favorite]

So The Two Towers was a novel about real-estate? No wonder it was so boring.

Sounds like the only titles you can trust nowadays are on books!
posted by pwnguin at 11:31 AM on October 9, 2010 [2 favorites]

all of it is just an onion of epic clusterfuckness

I believe the correct term is either "clusterfuckedness" or clusterfuckeduppedness" :)
posted by AElfwine Evenstar at 11:32 AM on October 9, 2010 [1 favorite]

It's LITTON Mortgage Servicing, not Littleton

Aw, nuts. I'm sorry. This why I'm such a lousy copyeditor. Any chance of a fix, mods?
posted by Diablevert at 11:33 AM on October 9, 2010

This particular problem is, for the most part, clerical error, and people are all excited about the idea of keeping their houses forever for free.

Ooh, this burns me. Clerical errors in filing and maintaining legal documents necessary to establish ownership are really big fucking errors, to the point that the legal relationship the documents would otherwise establish may not exist at all.

If I were to, say, forget to sign my rent check, that'd be a clerical error, but the clerical nature wouldn't make the unsigned check any less useless.

I'm sorry, but THAT'S fraud, right there. If you borrowed money to buy your house, taking advantage of paperwork deficiencies to walk away from an obligation you willingly incurred is absoliutely fraudulent.

And just who is being defrauded? And how do we know? Mortgage servicers and note holders change multiple times with our new securitized system. Further complicating things, the entity with the right to foreclose may not be the same as the entity with the right to receive the mortgage payments. That's why those clerical errors are so important. If you fuck them up enough, there's simply no way to know who can actually foreclose--even if the homeowner has been making mortgage payments to the same entity for years. You might think you know who can foreclose, but unless you have the documents, you really don't. So that's not "taking advantage of paperwork deficiencies" (though, last I checked, the U.S. had an adversarial system for resolving disputes, and I see no need for homeowners to bear the cost of insuring banks against their own shoddy legal compliance practices); that's pointing out the absence of a basic requirement to bring a case to court at all.
posted by Marty Marx at 11:42 AM on October 9, 2010 [14 favorites]

"Clusterfuckery" is better.

re:cheering the banks -- there's nobody worth cheering here. But this is simply corruption on the part of individuals, and it's that kind of corruption that kills societies. Corruption by other entities is not an excuse for doing it yourself... it's that kind of finger-pointing (but HE'S doing it!) that ends up in places like Somalia.

You're not stealing your house from banks, you're stealing it from the rest of society, from people who need the money you're supposed to send in every month to pay for food and medicine. They saved up a bunch of wealth and lent it to you, and just because it's going through a bank as an intermediary doesn't change that you're stealing that wealth from its original source, some other saver.

Real land registration? Why that's SOCIALISM, letting the GOVERNMENT DECIDE who can own what, FREE MARKET should decide blar blar blar LIBERTY hurf derf ACTIVIST JUDGES wharrgarbl PURCHASE THE LAWS OF YOUR CHOICE did I say that out loud?

No libertarian anywhere will say that. The entire point of libertarianism is to reduce violence to the minimum possible level, and 'might makes right' is the antithesis of that movement. Strong property rights are the linchpin of libertarianism, and that requires a central government that's strong enough to enforce them.

The overall idea is to NEVER reward violence, particularly using the government's monopoly on violence to steal things from you. To that ethos, very roughly, you have builders and you have looters, and the idea is to reward builders and make looting as unprofitable as possible. And all of that is dependent on a government that protects property interests fiercely. Otherwise, again, you just end up in Somalia, where the guys with the biggest guns steal everything from the people who would be generating wealth, and everyone starves.
posted by Malor at 11:52 AM on October 9, 2010 [2 favorites]

Part of the problem here is the almost total absence of real land registration systems in the USA. Even in states like mine where such a system was created by statute, participation is extremely low because lawyers and real estate brokers are actively discouraging buyers from registering their land. Why? Because confusion over state of the title is where they make a lot of their lucre. We should do what Australia did what, over 100 years ago, and enact a universal and mandatory registered land system.

You don't have what now? Bugger me.

(Now, where's an opportunistic First Nations lawyer willing to argue that anything with no clear title clearly belongs to the Native Americans who historically lived there...)
posted by rodgerd at 11:59 AM on October 9, 2010 [3 favorites]

You're not stealing your house from banks, you're stealing it from the rest of society, from people who need the money you're supposed to send in every month to pay for food and medicine. They saved up a bunch of wealth and lent it to you, and just because it's going through a bank as an intermediary doesn't change that you're stealing that wealth from its original source, some other saver.

They who? The investors in JPMorgan Chase, or the investors in Bank of America? Or First National? Or Citizens'? It's fine to say that the homeowner owes someone money, but that's entirely different from saying that the homeowner owes this particular entity money. And to foreclose, you have to prove that you have the right, not that someone does.

Fortunately, we have a set of rules to ensure clarity on these matters. Complying with these rules is expensive in a securitization system, and some banks have decided to decrease their costs by not complying with those rules and hoping that nothing goes wrong. That's a risk the banks took (on behalf of their investors), so they (and their investors) take the bath when it doesn't pay off.

That's not theft; that's not being able to bring the machinery of the state to bear because you bet that you wouldn't need it in the first place. The real theft would be forcing homeowners to absorb the costs of that risk while allowing the investors to absorb the profits.
posted by Marty Marx at 12:13 PM on October 9, 2010 [39 favorites]

Mortgage Foreclosure Fraud, the Great Kerfuffle-Ruckus, with Nazi’s.
posted by adamvasco at 12:14 PM on October 9, 2010

I think the banks and mortgage companies should be treated with the same compassion, understanding, and civic-mindedness that they demonstrate towards their employees and customers.
posted by vibrotronica at 12:19 PM on October 9, 2010 [6 favorites]

Yeah, telling homeowners to not take advantage of whatever legal remedies they can avail themselves of betrays a very strong (and unpleasant) ideology of compliance, deference and authoritarianism.

Right now the housing market is going wild west, and homeowners shouldn't be counselled or shamed into bringing a knife to the proverbial gunfight.
posted by Rumple at 12:20 PM on October 9, 2010 [8 favorites]

I hate to repeat myself from only 24 hours ago, but this discussion still isn't getting to the bigger, scarier issue here.

As messed up and headachey as the situation may be between every (erstwhile) homeowner and their (supposed) mortgage company, it ignores the issue that almost all of these mortgages made over the past 5-10 years were bundled up and sold as Mortgage Backed Securities (MBS's). And now we know that those MBS's may or may not actually have the clear right to the mortgages they say they do, or they may instead be a promise to pay that is not backed up by any secured debt at all because the paperwork was muffed. In other words, they may be as creditworthy as a piece of construction paper that says "I.O.U." on it in crayon, which is to say they're defective and not worth what they were paid for. Alternately, they could lose their special tax advantages that made them attractive to their investors in the first place, and they could now owe huge back taxes retroactively (check out the simplified explanation here and here).

And those MBS's are everywhere, held by teachers' pension funds, and city worker funds, and union funds, and your dad's "stable" and "safe" retirement fund... Oh, and the Federal Reserve too, thanks to the bailouts, which means you own them too. And overseas central banks, particularly in Europe and Asia, bought tons of this stuff, so that covers most of the globe here.

Now, it was bad enough when they were buying up these MBS's on the promise that they would be a good investment because real estate "never goes down!", so they would provide a nice stream of income 4eva! And it was bad enough when they created MBS^2 (that's "squared", and it's as stupid as it sounds). And then it was bad enough when homeowners started defaulting on their mortgages so the MBS holders had to take a big "haircut" (loss) on what they thought they would be getting as income. And then it was all these bad jokes that well, it looks like the US government or the Chinese government will end up being the world's largest landlord by virtue of owning all these MBS's that held houses that foreclosed. But now it's even worse than that -- now the MBS's may not even have the title conveyed in them, not legally, and so they're just a piece of paper that alleges debt but is unsecured. They can maybe sue the originators or the banks for this, alleging fraud, but that could take years to work through the court system, and in the meantime, who's to say the money they say they are owed will keep coming in? And if they do win, but the original bank goes bust (or has already gone bust!) and can't pay the claims, have they really won? Do we the people have to go save the banks' asses yet again? Can we? We're talking about BILLIONS of dollars at stake here.

Do you get it yet? It's not just that every one of us who bought a house in the past ten years may now have a clouded title -- even those of us who have always paid our mortgage on time and never did anything wrong. It's that this road is leading to financial gridlock and an International political shitstorm and maybe another attempt at a massive bailout and maybe banks going under (or threatening to do so if laws aren't changed). This is not just Jane Underwater-Homeowner fighting with her mortgage lender who lost the title to her house or gave her false papers with a robo-signer and notary fraud. This is everywhere. This is going to affect taxes and the courts and maybe International relationships. THE SEPSIS IS SYSTEMIC AND WE ARE OUT OF ANTIBIOTICS.
posted by Asparagirl at 12:32 PM on October 9, 2010 [59 favorites]

taking advantage of paperwork deficiencies to walk away from an obligation you willingly incurred is absoliutely fraudulent.

I agree with that 180%. It is, however, also absolutely fraudulent if you do pay off your mortgage as agreed and don't get a clear "I own this, no questions" title in your hand back.
posted by ctmf at 12:34 PM on October 9, 2010 [6 favorites]

Malor, I think the point that Marty Marx is trying to make is that strategic defaulters are taking legal advantage of the same sort of chicanery that banks have availed themselves of for sometime now. Is is WRONG? Yes, but the fact of the matter is that it is technically legal (in most cases) to do so. It's not like there's a magical sky-wizard who is going to punish wrong-doers.

The thing that this crisis has exposed in a very real and easy to grasp way is that the moral and ethical basis of commerce has been subverted and abused to such a degree that EVERYONE (and not just the people with the money & the power) has the oportunity to try and game the sytem to their advantage. A while back I made a comment in a related thread strategic defaults were an example of the Invisible Hand of the Market being given the Invisible Finger. What I neglected to say was it was giving it to itself. Somalia? We're already on that road, albeit at the vey start and with the end still a lways off. What my worry is is that we're starting to pick up speed.
posted by KingEdRa at 12:47 PM on October 9, 2010

No libertarian anywhere will say that.

I never said libertarians would. There are a lot of people in the US who do want to control the legal system through monetary means, though, and some of them hide behind the rhetoric of nationalistic libertarianism to do so.
posted by infinitewindow at 1:00 PM on October 9, 2010

Given that there was somewhere north of 1 TRILLION dollars worth of the things sold... who has the money now? Why can't we hunt them down and claw it back?
posted by MikeWarot at 1:09 PM on October 9, 2010

The Chinese have it, and they'd be amused to see you try.
posted by seanmpuckett at 1:12 PM on October 9, 2010 [4 favorites]

"Clusterfuckery" is better.

I rarely agree with Malor, but I do think that "an onion of epic clusterfuckery" rolls of the tongue in a particularly satisfying way.
posted by rtha at 1:23 PM on October 9, 2010 [1 favorite]

Given that there was somewhere north of 1 TRILLION dollars worth of the things sold... who has the money now? Why can't we hunt them down and claw it back?

*Wall Street whistles and looks away while walking past gravestone that says "taxpayer funded bailout"*
posted by KingEdRa at 1:41 PM on October 9, 2010

It is, however, also absolutely fraudulent if you do pay off your mortgage as agreed and don't get a clear "I own this, no questions" title in your hand back.

I should say, if you are currently paying off your mortgage as agreed, while the other party is negligently and recklessly compromising their ability to give you your title in return. i.e., it's fraud NOW, not just when the shit hits the fan later. FTFMyself.
posted by ctmf at 1:56 PM on October 9, 2010 [3 favorites]

I'm going to be really bummed if the stupidity of countries that didn't keep their banks to heel and don't have proper land title registries end up taking my country down with them.
posted by five fresh fish at 2:09 PM on October 9, 2010 [7 favorites]

Asparagirl: Yes. I don't see how this possibly gets unfucked.
posted by kgasmart at 2:19 PM on October 9, 2010 [1 favorite]

Let the Fed buy the mortgage bonds using quantative easing. We then figure it out in a few yeare. Simple effective and we will watch as Ron Paul and the goldbugs go apeshit. There is no evidence that moral hazzard affects future
behavior anyway.
posted by humanfont at 2:21 PM on October 9, 2010

I'm going to be really bummed if the stupidity of countries that didn't keep their banks to heel and don't have proper land title registries end up taking my country down with them.

The counterparty just said "I'm going to be bummed if the banks can't keep the countries to heel and my bonus check this year is smaller."
posted by telstar at 2:37 PM on October 9, 2010 [1 favorite]

"If you borrowed money to buy your house, taking advantage of paperwork deficiencies to walk away from an obligation you willingly incurred is absolutely fraudulent."


From a legal standpoint (and yes, IAAL), that's not fraud. Fraud requires some misrepresentation -- either a false statement, or an omission that makes your other statements misleading.

What we have here is essentially the following exchange:

Bank: "I own your home."

Borrower: "Prove it."

There's nothing false or misleading about requiring the bank to prove they own your home, even if you're taking advantage of the rules somehow in doing so.

Now, is it unfair? Is it immoral? Perhaps, but that's a different question. It is not fraud, however.
posted by mikeand1 at 2:38 PM on October 9, 2010 [14 favorites]

Now, is it unfair? Is it immoral?

Immoral? No. The corporations and their free market fundamentalist enablers have defined morality as "whatever makes me the most money." This is their system. They designed it, and I, as an American, have no choice but to live in it. And now, the thing that would make ME the most money is to call them on their incompetence. There is no moral element here. They are hoisted on their own petard.
posted by vibrotronica at 2:59 PM on October 9, 2010 [9 favorites]

Part of the problem here is the almost total absence of real land registration systems in the USA.

OK, as a dirty furriner I just couldn't understand this whole ruckus until reading that: WTF, YOU DON'T HAVE A LAND REGISTER??!! How can a developed nation, let alone the biggest real estate market in the world, not have a fucking land register??
posted by Skeptic at 3:13 PM on October 9, 2010 [3 favorites]

There's nothing false or misleading about requiring the bank to prove they own your home, even if you're taking advantage of the rules somehow in doing so.

If you fail to follow the proper paperwork in documenting your finances, you can suffer severely. That's why it pays to follow the rules.

They didn't. They decided that proper document retention cost too much, and that they could fake it with LNAs and the like if they needed to foreclose. Then they committed fraud when they realized that they didn't have the papers they needed, and it would take too long to properly file the required documents to legally recreate those papers.

The correct answer in this case is, if they have committed fraud in a rush to assert a lien in foreclosure, they lose the lien. Then and only then will they play by the rules.

Because, you know, if it was the homeowner cheating on the documentation, not only would they foreclose, they'd throw the owner in jail.
posted by eriko at 3:19 PM on October 9, 2010 [10 favorites]

Hitler finds out that Obama vetoed HR3808.
posted by 445supermag at 3:20 PM on October 9, 2010 [3 favorites]

It is a dirty business, staffed in many areas with the incompetent and unscrupulous.

Where should I send my resume?
posted by Jimmy Havok at 3:24 PM on October 9, 2010 [4 favorites]

If I thought there was any chance that my bank wouldn't be able to give me clear title when I finished paying off the mortgage, damn right I'd ask them to prove that I have an obligation to pay it before I continued to do so. And I wouldn't feel even a little bit fraudulent.

Anyway, how do people in the US keep track of who owns what? Does every homeowner have an old-style deed of title, with a wax seal and everything, hidden in a safe somewhere?
posted by A Thousand Baited Hooks at 3:40 PM on October 9, 2010 [2 favorites]

Three words: federal backed Jubilee.
posted by SirOmega at 3:43 PM on October 9, 2010 [4 favorites]

Anyway, how do people in the US keep track of who owns what? Does every homeowner have an old-style deed of title, with a wax seal and everything, hidden in a safe somewhere?

It varies, but typically deeds are recorded with the County Recorder's Office (for example). Because of the complexities of our system, there's a lot of money to be made through the sale of title insurance so that you have someone to go after if it turns out you don't have clear title after all.
posted by jedicus at 3:45 PM on October 9, 2010 [1 favorite]

WTF, YOU DON'T HAVE A LAND REGISTER??!! How can a developed nation, let alone the biggest real estate market in the world, not have a fucking land register??

I think it's a combination of the legal fact that real estate law in the U.S. is largely state law rather than federal law and the historical fact that while, in europe ownership can be traced back for centuries for various reasons and historically land ownership was restricted to the aristocratic classes, land ownership in the U.S. has never been well reported and has largely been a free-for-all. Even in New England, you can't trace ownership much past 1900 for many buildings which were built well before then. If there isn't a good historical paper trail for a property, registering doesn't mean a whole lot.

Instead of a land registration system, the U.S. survives by title insurance, which in principle establishes a framework for resolving and paying for disputes over who owns what (but in practice has huge problems.)
posted by ennui.bz at 3:47 PM on October 9, 2010 [2 favorites]

The economic engine got run too fast, too long without that thin layer of regulatory oil and now the fucker has seized.
posted by telstar at 3:52 PM on October 9, 2010 [2 favorites]

Skeptic wrote: "OK, as a dirty furriner I just couldn't understand this whole ruckus until reading that: WTF, YOU DON'T HAVE A LAND REGISTER??!! How can a developed nation, let alone the biggest real estate market in the world, not have a fucking land register??"

Oh, deeds are supposed to be recorded with some state, county, or local agency in every state, but there's not an authoritative database saying who owns what. Moreover, the fucking banks decided they didn't like paying the taxes and fees required to record the transfers, so they decided to just forget about doing that part. That's the problem. If everything was recorded as it should have been, it would be trivial to figure out who owns what.

Some states still require abstracts of title, where someone goes back and traces the deeds all the way back to the original grant. (usually the federal government west of the Mississippi river) Most have gotten rid of that as unneeded expense.
posted by wierdo at 4:09 PM on October 9, 2010

Perhaps everyone with a paid-up mortgage would be wise to file a claim of adverse possession at this point.
posted by Jimmy Havok at 4:10 PM on October 9, 2010

Moreover, the fucking banks decided they didn't like paying the taxes and fees required to record the transfers, so they decided to just forget about doing that part. That's the problem.

If that's the nub of the problem, what exactly is the difference between the banks and a criminal syndicate?...I mean, apart from the fact that the Mob is rather more scrupulous keeping track of who owes it money and on what concept?
Also, those CDS they've been selling to investors ( starting with our stupid banks, dammit!) are based on this utter fuckup? No matter they call them toxic...and I wonder whether the issuers of those securities, if they actually neglected to do their paperwork properly, may not be liable for fraud against the buyers of those securities. One thing is losing your money because the underlying assets are distressed, quite another thing is losing it because they're nonexistent!
posted by Skeptic at 4:50 PM on October 9, 2010

"The corporations and their free market fundamentalist enablers have defined morality as "whatever makes me the most money." This is their system. They designed it, and I, as an American, have no choice but to live in it. And now, the thing that would make ME the most money is to call them on their incompetence. There is no moral element here."

Without taking a position on whether the practice in question is moral, I would at least say this:

(1) You DO in fact have a choice about whether to live in that particular system. Nobody is forcing you to buy a house, much less taking a mortgage to do so.

(2) The fact that they might define morality in a certain (particularly twisted) way, does not actually make it moral. There are those of us who believe in such a thing as moral philosophy, a set of consistent rules based on first principles, and otherwise logically constructed (i.e. not dependent on religion or faith.)

Now I don't know about you, but in my philosophy of morality, I don't give much credence to the rule that "other people are doing it, so I can too."

And by the way, I don't think they are claiming their rules are moral. They're just making the rules, morality be damned.
posted by mikeand1 at 4:53 PM on October 9, 2010 [1 favorite]

"Anyway, how do people in the US keep track of who owns what? Does every homeowner have an old-style deed of title, with a wax seal and everything, hidden in a safe somewhere?"

It used to be that anything affecting the chain of title for a given property would get recorded at the county recorder's office. There was nothing in the law requiring that a mortgage be recorded, but if you wanted to enforce it, you were smart to do so.

But the county recorders' offices charge fees. To get around this, mortgage servicers decided to set up their own, cheaper, private system: MERS, the Mortgage Electronic Registration System.

It costs a whole lot less than using county recorders. Of course, as it turns out, you get what you pay for.
posted by mikeand1 at 5:05 PM on October 9, 2010

in europe ownership can be traced back for centuries

Centuries containing WW I and II, Italian and German unification, the Franco-Prussian War, Napoleon, the French Revolution, five French Republics, the Weimar Republic, the Congress of Vienna... and that's just a few high points from the 19th and 20th Centuries.

land ownership in the U.S. has never been well reported and has largely been a free-for-all.

Americans don't know what a free-for-all is, by comparison.
posted by rodgerd at 5:05 PM on October 9, 2010 [1 favorite]

It costs a whole lot less than using county recorders. Of course, as it turns out, you get what you pay for.

And, of course, it's meaningless when it comes to foreclosure in most states. In 45 states, you must have the *original* note, with a full chain of endorsements showing that you are the noteholder, to foreclose.

The whole point of this nightmare is the banks and servicers decided that this was too troublesome and expensive, so they didn't bother.

Now, there's no way to tell if the guy foreclosing on you owns the note, because they never bothered to do the paperwork. So, if we let them foreclose anyway, what's to stop them from foreclosing on properties they never had an interest in?
posted by eriko at 5:21 PM on October 9, 2010 [2 favorites]

What's to stop a person from declaring that they own a random property that was bought or re-financed in the 2003-2008 era? If nobody has the deed couldn't anyone properly claim ownership?
posted by localhuman at 6:29 PM on October 9, 2010

What's to stop a person from declaring that they own a random property that was bought or re-financed in the 2003-2008 era? If nobody has the deed couldn't anyone properly claim ownership?

The true owner's records may not be perfect, but they're going to be better than some random pretender. Even something as simple as a long history of occupying the property, paying taxes on it, etc will be a lot more convincing than a bare assertion of ownership, and generally a court will decide in favor of whoever has the best claim.

I'm not sure that this situation will lead to a lot of intentionally fraudulent ownership claims (i.e., people who know good and well they don't own something claiming that they do). It may lead to a lot of erroneous claims of ownership, though.
posted by jedicus at 7:00 PM on October 9, 2010 [1 favorite]

"You're not stealing your house from banks, you're stealing it from the rest of society, from people who need the money you're supposed to send in every month to pay for food and medicine. They saved up a bunch of wealth and lent it to you, and just because it's going through a bank as an intermediary doesn't change that you're stealing that wealth from its original source, some other saver."

Malor, I have to go back to this and point out that in our present fiat currency system, your "savers" scenario is unlikely. The vast majority of the trillions of dollars involved in this were literally created out of thin air by the Federal Reserve and lenders, and loaned to people in expectation that they would be made "real" by peoples' productive work generating their income with which they would pay back the loan, plus interest.

However, instead of real material wealth being generated by productivity, money was being made by moving money back and forth, inflating "house value" with each transaction, multiplying the already ethereal numbers. Nothing real happened to allow the principals to be paid back with interest, and so the loans are failing.

The folks not paying their mortgages aren't stealing money from anyone, because the money never had a solid existence in the first place. The banks weren't lending from actual cash they kept on hand, they were lending fiat money. These paperwork problems are just the outer layers of an onion that's mostly hollow.

If banks had to risk actual cash on making loans, they'd almost never make them!
posted by zoogleplex at 9:34 PM on October 9, 2010 [5 favorites]

rtha writes "Each time I read something about this whole mess, I think, 'Wow, epic clusterfuck.'"

This must be what going mad feels like.

rtha writes " Then I read the next thing about it, and realize that what I thought was epic wasn't - this is the epic clusterfuck! "

No. This must be what going mad feels like.

rtha writes " Then I read the next thing, and now, really, all of it is just an onion of epic clusterfuckness, with each layer being more epic and more fucked than the last."

No. [Surely] This must be what going mad feels like.
posted by Mitheral at 10:24 PM on October 9, 2010 [2 favorites]

Of interest: One of the first attorneys in Florida -- maybe the nation -- to go public with these allegations is Foreclosure Fraud blogger Mike Wasylik of Ricardo, Wasylik & Kaniuk, PL -- otherwise known as MeFi's Own™ mikewas [twitter].
(Mike, if you want this comment delinked or something, apologies and permission in advance.)
posted by dhartung at 1:03 AM on October 10, 2010 [5 favorites]

Asparagirl:
Do you get it yet? It's not just that every one of us who bought a house in the past ten years may now have a clouded title -- even those of us who have always paid our mortgage on time and never did anything wrong.

And don't you dare ask the bank if they actually hold the note to your home; if you do, the bank will sue you.
posted by ryoshu at 7:23 AM on October 10, 2010 [1 favorite]

Good god! Sued for asking questions! What a godawful mess.
posted by five fresh fish at 7:46 AM on October 10, 2010

The Plaintiffs claim that they did more than just ask questions. Then again, Plaintiffs can claim anything.
posted by Stu-Pendous at 7:55 AM on October 10, 2010

Some interesting stuff in the link Stu has. This is the only claim the judge let stand, and on the basis of this claim the homeowners may continue to pursue their suit:

"Borrowers have also adequately alleged damages resulting from Colonial Savings's alleged failure to respond to this request. Borrowers assert that they have been damaged because Colonial Savings's failure to respond has "plac[ed] a cloud" on the title to Borrowers' property. They also allege that Colonial Savings's repeated refusal to respond creates uncertainty as to the validity of the title to their property. Because RESPA's damages requirement is interpreted "liberally," Shepherd, 2009 WL 4505925, at *4, the Court will allow Borrowers to pursue this claim further. It is plausible that a borrower's title would be placed into question by a lender's repeated refusal to provide verification that payments are being correctly applied to reduce the borrower's account balance."

In English, that translates to "Bingo." Or in other words, these homeowners, who were fully up to date on their mortgage and not being foreclosed on (which caused the judge to dismiss a number of their other claims) might yet have been harmed by a clouded title if the bank and MERS can't come up with the note. There are millions like them, of which 99% would not take the trouble to sue if the bank isn't going after them, but 1 percent of 10 million is quite enough...and if I were a generous class action attorney, perhaps I'd be willing to take up their cause...
posted by Diablevert at 9:25 AM on October 10, 2010

"Then again, Plaintiffs can claim anything."

In this case, we don't have to take the Plaintiffs at their word, because they filed the borrowers' letter to them as an exhibit to the complaint, so that it's filed on PACER. If the journalist writing the story had taken the 30 seconds required to download it, he/she would have seen that the borrowers sent the Plaintiffs a letter purporting to rescind the loan, probably because the house is worth several hundred thousand dollars less than what the borrowers paid for it, and they perceive this as strategically superior to simply walking away and undergoing foreclosure.

So the claim by one of the borrowers:

“We're not interested in walking,” Reagan said. “We're not interested in saying we're not going to pay. We just need a little help with the interest rate."


is a bald-faced lie. Their rescission letter is explicitly saying, "The loan doesn't exist anymore, so take the house back, give us our money back, and we'll pretend like we never bought the house in the first place."

Then it goes on to say, "Of course, if you don't want to do this (and why would they), we're willing to settle this on other terms."

The lawsuit filed by the servicer is simply seeking a declaratory judgment, not money damages. In other words, the servicer filed the suit in order to get the court to declare whether or not the borrowers actually have the right to rescind the loan. There's nothing wrong with that.

"In English, that translates to "Bingo.""

Not really. The court is not deciding whether the claim has any merit; the court is simply refusing to dismiss the claim outright because the borrowers managed to state the elements of the claim. (The Plaintiffs had filed a motion to dismiss it for failure to state a claim.)

That's a really low hurdle to get over. Proving the claim with evidence is much, much more difficult.


"and if I were a generous class action attorney, perhaps I'd be willing to take up their cause..."


And if your class was made up of plaintiffs like these folks, you'd lose a lot of money.
posted by mikeand1 at 10:18 AM on October 10, 2010 [1 favorite]

If the journalist writing the story had taken the 30 seconds required to download it
Could you take the 2s required to link it?
posted by bonaldi at 11:14 AM on October 10, 2010

"Could you take the 2s required to link it?"

It isn't linkable, sorry. You have to log into the PACER system, and look it up.
posted by mikeand1 at 11:36 AM on October 10, 2010

Here's a link to the relevant PACER login page, that's the best I can do.
posted by mikeand1 at 11:47 AM on October 10, 2010

That's a really low hurdle to get over. Proving the claim with evidence is much, much more difficult.

Oh, I agree completely. However, the fact that the judge let it stand is what's interesting to me. I think the fact that you now have a class of millions of paid-up homeowners who might have legal standing to bring suit over clouded title opens up the banks to considerably more in legal costs. And in this case, the bank isn't trying to take their home --- if they were, a lot of the judge's reasons for dismissing their other grounds would seem to open back up again.

There might not be many who'd chance their arms the way these people have --- but it might help push anyone who's thinking of strategic default over the line. And even people who are have no desire to sue, necessarily, might be pounding on the bank's door wanting to know where the note is, in case they want to sell their house someday (cf. asparagirl). If that happens, we really will flip over the rock and find out what's squiggling underneath.
posted by Diablevert at 1:08 PM on October 10, 2010

Ridiculous is the new sublime.
posted by Fupped Duck at 2:10 PM on October 10, 2010 [1 favorite]

My mortgage is with a local credit union that I belong to. According to the paperwork when we signed for the loan, they had not resold any of the loans they had made. Assuming that's still the case, am I insulated from this mess at all? (Given the general twistedness of the financial system today, I wouldn't be surprised to learn that I'm still potentially screwed...)
posted by mbrubeck at 3:39 PM on October 10, 2010

And even people who are have no desire to sue, necessarily, might be pounding on the bank's door wanting to know where the note is, in case they want to sell their house someday (cf. asparagirl).

Ayep. Guess who's calling Bank of America tomorrow afternoon with a teensy little question about the owner of her mortgage. Just out of sheer curiosity, mind you.

(Will report back.)
posted by Asparagirl at 5:44 PM on October 10, 2010

mbrubeck. Not necessarily, the previous owner may have had the same issue, or have been foreclosed on, this is why this is such a problem, even if your loan is fine, and was all taken care of, the chain-of-custody, as it were, could be FUBAR'd.
posted by Sportbilly at 6:09 PM on October 10, 2010

So glad that I don't own real estate in the USA any longer. The sales transactions when I did always seems to be equal parts incantation, prayer and bullshit. Like the worst magics, it only works if you don't question it.
posted by seanmpuckett at 7:41 PM on October 10, 2010

"It isn't linkable, sorry. You have to log into the PACER system, and look it up."

Random thought:.... Is the document in question available through the ReCap plugin?
posted by jmnugent at 7:57 PM on October 10, 2010

So glad that I don't own real estate in the USA any longer.

Can you prove that?
posted by heathkit at 11:49 PM on October 10, 2010 [4 favorites]

Oh my. The "Foreclosuregate" tracking website 4closurefraud.org just posted an exclusive report showing that President Obama's own mortgage -- on his property in Chicago which he sold in 2006 -- was a victim of robo-signing fraud compounded by notary fraud. In other words, his own final release of mortgage is probably not legal and whoever now owns his old apartment may have a busted title. And presumably neither the president nor the new owner knows this.

(Er, I guess they do now.)

When we said that everyone who was involved in some kind of property transfer in the past ten years could get hit by this mess, we really did mean everybody.
posted by Asparagirl at 12:35 AM on October 11, 2010 [3 favorites]

How much worse does it get until revolution looks like a better option than complacency?
posted by five fresh fish at 1:18 AM on October 11, 2010

Dunno, said the observer, been watching righteous indignation ebb and flow over the past five years but not a single squeak IRL
posted by The Lady is a designer at 4:04 AM on October 11, 2010 [1 favorite]

How much worse does it get until revolution looks like a better option than complacency?

Depends. Which subset of society has the most guns?

Oh right. Yeah, it has to get a lot worse.
posted by Riki tiki at 6:56 AM on October 11, 2010 [1 favorite]

@dhartung — thanks for the link, my friend. Credit where credit is due: One of the first Florida attorneys to call attention to this has been April Charney of Jacksonville Area Legal Aid—and I think she had some input from nationally-recognized bankruptcy attorney Max Gardner.
posted by mikewas at 8:18 AM on October 11, 2010

When the revolution comes, it will be by the hands of people who listen to Glenn Beck and love Sarah Palin.

Good luck with turning the results into something that isn't Somalia writ large.
posted by five fresh fish at 9:30 AM on October 11, 2010

Someone's creating a scheme right now to "solve" this problem as we speak, and it will be the new bubble.

Dunno about the new bubble, but Friday I got a mailing on official-looking stationery that claimed the government was recommending everyone have a hard copy of their title, and if I just filled out this form and signed it and gave them $160, they'd send me a copy, but I'd better do it right away. Front side English, back side Spanish. These folks are quick to jump on any opportunity to defraud, even if it's just a little scam like this.
posted by davejay at 10:09 AM on October 11, 2010 [3 favorites]

And don't you dare ask the bank if they actually hold the note to your home; if you do, the bank will sue you.

Oh yeah, we asked our bank a year or so ago, as this whole thing burst -- we wanted to know who held the title, so that we'd know where to start if something went awry. First, they hemmed and hawed and claimed they couldn't find out; after we pressed, they faxed us a piece of paper that said, essentially, that they'd established the title holder, but that it was an independent investor whose privacy had to be protected..

So that's going to be interesting to deal with, whether that's the truth or a straight lie. Happily not in a position to find out which, yet, but I'm thinking I should pursue it anyway.
posted by davejay at 10:14 AM on October 11, 2010

The Obama administration does not back a nationwide moratorium. Sorry, thanks for playing.
posted by wuwei at 10:53 AM on October 11, 2010

Foreclosure Fraud For Dummies
posted by ryoshu at 11:48 AM on October 11, 2010 [1 favorite]

I'm not sure how the Obama mortgage signatures being a little different means anything? I sign shit all day long at work, and my signature has variations depending on how much of a hurry I'm in, the surface I'm writing on, how I'm holding my pen, etc.

If anything, I'd think a signature machine (which I'm sure Mr. Obama is quite familiar with these days) would sign the same every time. And even if it were signed by a machine, so what? As long as the conditions for signing were met, and the person whose name is on it gave the authority to sign it, who cares if the physically scratched on the paper with a pen attached to their hand?

Unauthorized signatures might be a problem, but I don't see how this necessarily is that.
posted by ctmf at 3:47 PM on October 11, 2010

Oh, I see. A robo-signer is a guy, not a machine. Still, same thing.
posted by ctmf at 3:52 PM on October 11, 2010

RAGE. RAGE. RAGE. RAGE.
/hissyfit

So I'm still never going to be able to own a house right?
posted by thsmchnekllsfascists at 4:26 PM on October 11, 2010

Unauthorized signatures might be a problem, but I don't see how this necessarily is that.

Here's part 2 of the robo-signing. Karl Denninger points to a paper about MERS and why this whole foreclosure business is a huge mess. Here's a taste:

"If the growing line of cases asserting that MERS is neither a mortgagee nor a deed of trust beneficiary is correct, then courts must soon confront profound questions about the very enforceability of MERS’ security agreements. ... There is a compelling legal argument that loans originated through the MERS system fail to create enforceable liens."

The entire is mortgage/home/foreclosure market is rife with fraud right now.
posted by ryoshu at 7:40 PM on October 11, 2010 [1 favorite]

I'm sure there is some fraud and some sloppy paperwork, but a lot of the discussion here is tending toward the overheated. For example, the "robo-signing" article that ryoshu links suggests only that a bank might have one or more people sign for the bank employee whose name appears on the satisfaction of mortgage document. There is no suggestion in the article that there has been some kind or fraud or error in the documents other than the signature "mismatch." So, there's absolutely no practical effect of a "robo-signer" in this case - other than mismatched signatures, it appears that everything went fine with the loan.

Saying that the buyer now has a "busted title" because of the signature issue is really a wild leap, with no legal support that I can imagine. When you sign a legal document with Joe the bank Vice President., the document binds the bank, not Joe the individual person. If a bank had some employee sign on behalf of Joe because Joe was too busy or whatever, the bank cannot escape the contract by saying "it wasn't really Joe's signature!" If it were otherwise, this would be a pretty obvious way to duck out of contracts -- it doesn't work that way.

For the vast majority of cases, people wind up in foreclosure because they don't (or can't) pay their mortgage. Putting the paperwork under a microscope does not change that fundamental problem.
posted by Mid at 8:23 PM on October 11, 2010

There is no suggestion in the article that there has been some kind or fraud or error in the documents other than the signature "mismatch." So, there's absolutely no practical effect of a "robo-signer" in this case - other than mismatched signatures, it appears that everything went fine with the loan.

The signature is an affidavit that the signer has determined that the loan documents are in order. Since the robo-signers have absolutely no chance of determining that in the time they are given to examine the documents, they are committing perjury. Because they do not determine that the loan documents are in order, the courts cannot in good conscience proceed with action. Because MERS is not actually a legal entity entitled to transfer ownership deeds, and in fact in many cases none of the legally mandated transfers of title were even done, there are an unknown number of busted titles. There is a reason for the formalities of title transfer paperwork, and when they are not observed, the system fails.

System failure: there has been at least one documented case of a paid-for house being foreclosed on. There are probably more of them. Oh, look, here's another. Oh, look, three more!

It's not a matter of a signature mismatch, it's a matter of banks covering up the fact that they are failing to do due diligence when they file court documents.
posted by Jimmy Havok at 2:57 AM on October 12, 2010 [4 favorites]

Why Foreclosure Fraud Is So Dangerous to Property Rights
posted by ryoshu at 7:55 AM on October 12, 2010 [1 favorite]

Foreclosing on the wrong house is obviously a big problem when it happens, but any system is going to have an error rate and a few examples of errors in a nation of 300 million does not mean that there is an intolerable error rate on a system-wide basis.

But all of that is largely beside the point I was trying to make, and I certainly don't want to defend people that foreclose on the wrong house.

My point is that what people are complaining about here is much broader than wrongful foreclosure and seems overblown. For example, the assertion that a "signature mismatch" on an otherwise uneventful and non-erroneous transaction somehow creates a "busted title." This seems to me untrue and untrue in a FUD sort of way.
posted by Mid at 3:30 PM on October 12, 2010

Mid wrote: "Foreclosing on the wrong house is obviously a big problem when it happens, but any system is going to have an error rate and a few examples of errors in a nation of 300 million does not mean that there is an intolerable error rate on a system-wide basis."

On this, the acceptable error rate is zero. This should be relatively easy to achieve, given that there are quite a few different organizations involved in the process.
posted by wierdo at 3:57 PM on October 12, 2010 [1 favorite]

On this, the acceptable error rate is zero.

But that's not true of any system that has to process millions of transactions and has to do so at a reasonable expense. It is especially not true for systems where errors are reversible. Wrongful foreclosures can be reversed by the courts. This isn't medicine, where mistakes are not always reversible and which of course does not have a zero percent error rate.
posted by Mid at 4:17 PM on October 12, 2010

This isn't medicine

Medicine is complicated. Making sure a few documents match the ownership history of a piece of property is simple. All you do is follow the well-established procedures and it works. It only fails when someone cuts a corner, as the banks have been doing for nearly two decades now. It's not cellular biology, it's the simplest sort of accounting, and the procedures were worked out hundreds of years ago. These aren't mistakes, these are the result of an organized group who thought they could make a profit by ignoring the law. They screwed the economy two years ago, now they're screwing the economy again.
posted by Jimmy Havok at 5:37 PM on October 12, 2010 [1 favorite]

Jimmy Havok gets my point. It's not difficult nor expensive to keep these things from happening before the cost of rectifying the situation are foisted on some random homeowner. It merely requires that the banks and attorneys exercise a minimal level of care in their dealings.

It's a fucking miracle that despite their complete recklessness in the foreclosure process that more mistakes haven't been made. Or perhaps they have and many people haven't fought it because they simply didn't know any better. Either way, there is presently rampant negligence in the foreclosure process. Some punishment is in order here.
posted by wierdo at 6:25 PM on October 12, 2010

It's worse than negligence, MERS was invented to get around the laws dealing with title transfer. It is a criminal conspiracy.
posted by Jimmy Havok at 7:38 PM on October 12, 2010

It's not about mistakes it was about generating fraud from the very beginning. It looks like most of the REMICs , the Real Estate Mortgage Investment Conduits, did not take delivery of the bearer paper, i.e. the notes. That means they don't own anything. And because of the law that governs the REMICs, if they did not take possession within a certain window....they can't EVER take possession. There's a lot of indications that the original notes were shredded at origination. Also, if a REMIC did not take possession then the special tax benefits go away. Special tax benefits = being able to not pay taxes. The investors in the REMIC pay, but the REMIC itself, which is just supposed to be a "vehicle" didn't. Well guess what, looks like there may be A LOT of back taxes due...that is, if the IRS chooses to go after this. Which I am betting it won't.

Which means, that really, no one owns the debt. That's right. No one. So yeah, a homeowner might not be paying-- and that may be 100 percent all right, because no one actually owns his or her loan. Suck on that.
posted by wuwei at 8:51 PM on October 12, 2010

At this point it's not at all settled that MERS is or is not a valid way of transferring title. Does state law generally require that deeds be recorded within a certain time frame for the transfer to be valid? Does the UCC require that the notes be physically transferred and physically endorsed, even if the seller and buyer agree to do it otherwise?

What I'm getting at is that the banks may have screwed themselves out of certain legal protections, but perhaps didn't actually break the law in doing so.

Also, wouldn't an invalid transfer of the note or mortgage only mean that ownership did not transfer, and that therefore the original owner is still legally the owner? It seems like that shouldn't make much difference to the borrower, unless some shady originator decided that since no valid transfer took place they have the right to foreclose since the borrower never sent them any payments. In that case it seems like the borrower would be left to sue the servicer.

As far as the tax implications, I'm not well enough informed to even ask questions, much less have an opinion.
posted by wierdo at 9:10 PM on October 12, 2010

The REMIC issue is separate from MERS. The REMICs are the vehicles that own a lot of the notes. The REMIC is a company that holds the notes, and then it sold securities as an interest in the REMIC as a whole, is my understanding. MERS is the stand in for them, in some cases.

Regarding the original owner, in many cases the originators of the loans, who are on the notes, no longer exist. In California, a lot of originators never used their own funds-- they were sales organizations. They received commissions for selling the loans. What would happen is that you'd have investors out there, who wanted to buy mortgage backed securities. They'd put the money down and then put the word out that they wanted mortgages to back it. Then the originators would go out and make the loans. It was all about building a stream of payments based on real estate. The originators made their commissions and they were out. A lot of them shredded the notes after scanning or sent them out for storage.

It's a clusterfuck.
posted by wuwei at 9:41 PM on October 12, 2010

That the originator uses borrowed funds to close the loan doesn't have any bearing on the issue. They were the original holder of the note and the mortgage and are owed the payments until the note is transferred to someone else. If it never transferred, they are still owed the money, whether they're still in business or not.

In the case of my recent refi, the originator had a line of credit from Citi which they use to fund the loan. Within a day or two the note and mortgage was sold off to Wells Fargo, presumably so that they could get servicing rights and package it all up for securitization.
posted by wierdo at 6:20 AM on October 13, 2010

Also, wouldn't an invalid transfer of the note or mortgage only mean that ownership did not transfer, and that therefore the original owner is still legally the owner?

Exactly. And the original owner likely has some successor in interest even if the owner does not exist anymore.

Which means, that really, no one owns the debt. That's right. No one. So yeah, a homeowner might not be paying-- and that may be 100 percent all right, because no one actually owns his or her loan. Suck on that.

This is just nonsense on the same level as Wesley Snipes tax theories.

There are obviously a lot of problems with the system of foreclosure, but those problems don't add up to "the loans don't even exist, man!" I can guarantee that the end result of this foreclosure crisis will not be that courts declare that billions of dollars of loans have vanished.
posted by Mid at 7:28 AM on October 13, 2010

Mid:
Actually, that was the way the law used to work in most states. No possession of bearer paper and proof of ownership? No foreclosure.

Note that I did not say that the courts will declare billions of dollars of loans have vanished. Try reading more carefully next time.
posted by wuwei at 9:51 AM on October 13, 2010

Regarding the missing or improperly conveyed notes:

http://www.nakedcapitalism.com/2010/10/banks-looking-further-than-robo-signers-lost-note-affidavits-a-point-of-failure.html

(Note that the author of this article doubts that originators destroyed notes)

Before you go around calling my points nonsense, you should do your own homework.
posted by wuwei at 9:58 AM on October 13, 2010

I was specifically responding to your contention that people may be "100 percent all right" not paying their mortgages because of the various issues you have raised. One way or another, these problems will get worked through / patched over / fixed by legislative action / litigated and the result will not be that tens of millions of people are permitted to walk away with free houses and creditors are left with nothing. The court system (and, generally, the government) just doesn't work that way.
posted by Mid at 11:46 AM on October 13, 2010

One way or another, these problems will get worked through / patched over / fixed by legislative action / litigated and the result will not be that tens of millions of people are permitted to walk away with free houses and creditors are left with nothing.

The creditors won't be left with nothing, it's true. If all that is fucked up is the affidavit, then presuming the judges let them resubmit the case, they can resubmit with their i's dotted and foreclose sometime down the line. If what's fucked up is more serious --- they lost the note or the assignment was improper --- then there is a pickle no one's quite worked out the answer to, yet. Legally, they may have bollixed things up so badly they'd have lost the right to foreclose. They'd still have the unsecured debt --- the IOU for the $300,000 they lent you --- but they won't have the right to take your house to cover it. Being that we don't got debtor's prison no more, there'd be a bit of a Mexican standoff created....

Plus, the latest wrinkle is some serious questions about whether the securitizations were even legally done in the first place, meaning that in a lot of instances the legal owner of the note might be a bankrupt, non-existent institution. If the securitization process was indeed fucked up wholesale, then the outcome of the various litigation won't matter much because the banks won't be around to take the houses....so there's a bright side, I guess.

(Well, perhaps I exaggerate, but even I'm not sure by how much, which is a wee bit frightening. The latest allegations are that many servicers weren't conveying the notes into trust in the way you're supposed to under NY State Securities Law, which governs about 99.9 of RMBS since Wall Street banks underwrote them. Under said securities law, you have 90 days for a do-over, otherwise it ain't in the trust and the trust doesn't own it. People who currently own the securities (large institutional investors: banks, your pension plan) would be able to sue the people who sold them the notes for fucking this up. This would, in turn raise questions about how much any such trust was worth. Last I looked BoA, to take an example, had $130 billion of RMBS on its books, if I'm reading its 10K right.)
posted by Diablevert at 4:09 PM on October 13, 2010 [1 favorite]

The robo-signing is a microcosm of how well and truly fucked everything is. We have multiple signers, for multiple institutions (Wells Fargo just got caught too), admitting they were signing 500 documents a day. Hair dressers, Wal-Mart floor workers, etc. were hired to sign their names, but don't worry about what the document says. The Florida AG's office just subpoenaed a bunch of documents from LPS and DOCX, specifically calling out one person who was a "Vice President" at over a dozen banks(check page 6).

And now, as Diablevert mentioned, it looks like the original notes may not even be owned by the REMICs because of the shortcuts taken by the banks. Add to that the allegations that the companies selling the MBSs made material mis-representations and this may be an enormous clusterfuck.
posted by ryoshu at 5:50 PM on October 13, 2010

So I guess then the question becomes how do we effect some sort of orderly resolution to all this that doesn't reward the various actors for their malfeasance, yet also won't freeze the credit markets entirely?

Just letting all the big banks implode chaotically isn't really an option. Nationalization would be one option, although not a particularly great one, but how would you capitalize new banks or increase the size of existing banks to handle the load. More importantly, how can it be done in a way that lends some assurance that the problems are, if not solved, at least kept to a dull roar?
posted by wierdo at 6:55 PM on October 13, 2010

I think that first off, we need to recognize that it was people who committed the actions that led to this situation, not corporations. So the people who are responsible for those actions need to be punished and deprived of the benefits they received, but the situation should be resolved in such a way that the corporations involved can continue to do business under new management. The shareholders do not deserve to be left holding the bag, the managers who created this mess need to be stuffed into the bag and pitched into the Hudson River.

The fact that it is pervasive makes finding new management difficult, but there should be junior executives within the organizations involved who have the experience to take on the job, who don't have culpability in the crimes beyond having been party to the lower level actions, such as setting up the robo-signing. And seeing their seniors ruined by their own greed ought to have a salutary effect on their future actions.

One of the causes of this has been the way whitecollar crime has been winked at. Mismanagement of investor funds for personal gain has become SOP within the financial community when it should properly be regarded as fraud, fraud of the same type as Madoff's. There is a significant difference between taking calculated risks with investments and creating legal fictions like MERS or, as was discussed in an earlier FPP, creating securities deliberately designed to fail in order to profit from that failure.
posted by Jimmy Havok at 7:26 PM on October 13, 2010

So I guess then the question becomes how do we effect some sort of orderly resolution to all this that doesn't reward the various actors for their malfeasance, yet also won't freeze the credit markets entirely?

I have an idea: Let's start by actually arresting people that manage these banks, try them in court for fraud, and see how far that can take us.
posted by odinsdream at 12:57 PM on October 14, 2010

The New Tax Man: Big Banks And Hedge Funds
posted by homunculus at 1:12 PM on October 18, 2010

Nobel Laureate Joseph Stiglitz: Foreclosure Moratorium, Government Stimulus Needed to Revive US Economy
posted by homunculus at 10:19 AM on October 20, 2010

Too big to fall/fail, eh?
posted by The Lady is a designer at 10:28 AM on October 20, 2010