Foreclosure Mess Created By Greed

It’s a disaster, no its not. We will insure it, no we won’t. Or wait a minute, yes we will. The Courts can’t seem to make up their minds. The states seem to disagree, some say the physical possession of the mortgage note is imperative, others not. But everyone agrees that both not being able to foreclose properties and removing homeowners from their homes is a mess.

We are paying for the poor quality work that many performed over the BIG years of mortgage lending.  Lenders lending to those who did not qualify; lender lending to those who could not afford the payments; lenders lending to those who were told that their houses would be worth more in the future and they could just continue to refinance… Which many did, and they are now seriously underwater.

We could blame all this on the Lending industry.  And we could believe that it will all be better because now (belatedly) the government is trying to regulate mortgage bankers with background checks, testing and licensing. But in the BIG picture, isn’t it the consumer who was negligent in making good decisions. Did they really need to refinance out their equity to get that new TV and computer equipment they wanted? You might way that they were “suckered into it” but where do we draw the line for personal responsibility? After all, many of us were tempted, but not all of us succumbed. And now we are all paying the price.

40 State Attorneys General to Investigate Mortgage Fraud; Bank of America Halts Evictions Nationwide; Senator Reid Calls for More Suspensions

Important Update on Foreclosure Issues for Title Insurers.  See Video of Ohio AG on Foreclosure Issues:

Attorneys general in about 40 states may announce a joint investigation into foreclosures at the largest banks and mortgage firms, according to a person with direct knowledge of the matter.
State attorneys general led by Iowa’s Tom Miller are in talks that may lead to the announcement of a coordinated probe as soon as Oct. 12, said the person, who declined to be identified because a final agreement hasn’t been reached. The number of states may change because several are still deciding whether to join the investigation, the person said. New Mexico Attorney General Gary King said today in a statement that his state will join a multi-state effort.
Lawyers representing the banks are expecting a more widespread investigation…  See more at Bloomberg

FNMA FHLMC Show Concern Regarding Bad Foreclosures

Lender Letter LL-2010-11 October 01, 2010
TO: All Fannie Mae Single-Family Servicers
RE:  Servicer Review of Procedures Relating to the Execution of Affidavits, Verifications, and Other Legal Documents

Issues have recently arisen with respect to potential defects with affidavits submitted by servicers in support of motions for summary judgment in states with judicial foreclosure processes. The issues pertain to whether the individuals executing the affidavits on behalf of the servicer had the required personal knowledge of the information contained in the affidavits and whether the affidavits were notarized in accordance with applicable requirements.
Fannie Mae is directing all of its servicers to immediately undertake a review of their policies and procedures relating to the execution of affidavits, verifications, and other legal documents in connection with the default process.  See full letter here.

Underwriter Declines to Write Title Policies for Ally and GMAC Foreclosures

It has been reported that Old Republic Title, known for it’s quality products, thoughtful and cautious underwriting, is declining to write new title policies on Ally and GMAC foreclosures, due to the questionable foreclosure tactics used by the entities performing their foreclosures.

Those purchasing foreclosures should be particularly careful to buy an owner’s policy of title insurance, as many of the foreclosure mills doing the technical work have been shoddy, usingpoor judgment and some even illegal methods to speed the foreclosure process.  See MORE HERE at Palm Beach Post.

Mortgage Fraud Years Away from Investigation

National Mortgage News reports that the high levels of fraud have created a tremendous backlog in investigation of fraud cases by the FBI. Cases currently being investigated go back as much as 5 years and with the continuing flood of foreclosures and foreclosure problems the FBI investigators are overwhelmed. Of particular concern are title companies, who have enlisted ill-prepared staff. Read more at National Mortgage News

$7.5 B Lawsuit Filed Against MERS

A RICO class action lawsuit against MERS and one of the Country’s largest foreclosure law firms, David J. Stern PA has been filed, demanding a Jury trial.  See ABA article here.
The court case alleges that MERS was created “in order to undermine and eventually eviscerate long-standing principles of real property law, such as the requirement that any person or entity who seeks to foreclose upon a parcel of real property: 1) be in possession of the original note and mortgage and 2) possess a written assignment giving he, she or it actual rights to the payments due from the borrower pursuant to the mortgage and note”

It also alleges that “part of the scheme was the use of words in ways inconsistent with their traditional meanings, and the creation of new terms which could be used to blur important distinctions between parties and their interests…” making it difficult to determine who had the right to receive payments and foreclose.

The 24 page lawsuit details a hilarious deposition by the attorney’s assistant who acknowledges signing documents as “assistant secretary,” and as “vice president” of MERS taken in the Defendant Firm’s office. He inquired of Ms. Samons how she could possibly have acted on behalf of MERS, and the meaning of the label “Assistant Secretary:” Part of the suit reads as follows:
Q: The question was you have no job duties as an assistant secretary of MERS, correct?
A: I do not have any job duties other than signing the assignments and mortgage. Does that help?
Q: Yes. Here, I’ll try to rephrase this. Do you attend any board meetings at MERS?
A: No, sir.
Q: Do you attend any meetings at all at MERS?
A: No, sir.
Q: Do you report to the secretary of MERS?
A: No, sir.
Q: Who is the secretary of MERS?
A: I have no idea.
[ . . . ]
Q: Where are the MERS offices located?
A: I can’t remember. Q: How many offices do they have?
A: I have no idea.
Q: Do you know where their headquarters are?
A: Nope.
Q: Have you ever been there?
A: No.
Q: How many employees do they have?
A: I have no idea.

She testified that her signatures on “these assignments,” which from all indications were and are at least several thousand in number, were in no way attestations that the statements contained therein were accurate or truthful. She further testified that she was the person with the most knowledge about the subject assignment…

To arrive at the estimated damages of $7.5 billion, plus costs and attorney fees, the suit claims that the measure of damages “is the average of the accelerated amounts demanded from the [Plaintiffs] in the subject complaints to foreclose.” Read the full suit here.

Linking the Chain of Title in Mortgage Foreclosures

A new industry has emerged. There has been much discussion about whether or not clearing title problems is a marketable idea. Well, apparently, the rash of bad titles over the last few years has shown it is. A new company, Nationwide Title Clearing is advertising

Our experience has proven that, perhaps due to the volume of foreclosures in progress, a large number of attorney requests do not match what is required when reviewing the actual recorded chain of title and unrecorded assignments in the collateral file.

Yes, with the huge volume of foreclosures, attorneys are often asking “Who holds the Note?” I recently read a good blog question asking: “Can a consumer determine who holds their note when the mortgage or DOT is registered in the MERS system?”
The returned answer was: Maybe. The response said Investors participating in MERS have options to disclose their information on the MERS System or not.
However, under TILA, the servicer must provide information regarding the holder of the mortgage loan when requested by the debtor. It states “Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, the name, address, and telephone number of the owner of the obligation…” 15 U.S.C. section 1641(f)(2). Servicers are also still required to notify homeowners in writing when loan servicing is transferred under RESPA, 12. U.S.C. §2601 et seq

Foreclosures Account for 31 Percent of Residential Sales in First Quarter

press release

RealtyTrac® (, the leading online marketplace for foreclosure properties, today released its first U.S. Foreclosure Sales Report™, which shows that foreclosure homes accounted for 31 percent of all residential sales in the first quarter of 2010, and that the average sales price of properties that sold while in some stage of foreclosure was nearly 27 percent below the average sales price of properties not in the foreclosure process.

A total of 232,959 U.S. properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — sold to third parties in the first quarter, a decrease of 14 percent from the previous quarter and down 33 percent from the peak during the first quarter of 2009, when sales of foreclosure homes accounted for 37 percent of all residential sales.

“First time homebuyers and investors continue to buy foreclosure properties in large numbers, and at substantial discounts,” said James J. Saccacio, chief executive officer of RealtyTrac. “As lenders have begun repossessing homes at record levels over the first half of 2010, it will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration.”

The average sales prices on properties in some stage of foreclosure decreased 23 percent from 2006 to 2009 while the average discounts on foreclosure purchases steadily increased from 21 percent in 2006 to 27 percent in the first quarter of 2010. Discounts on REOs are larger than discounts on pre-foreclosures, although discounts on pre-foreclosures appear to be trending higher as short sales become more common.

Foreclosure sales increase 2,500 percent from 2005 to 2009
More than 1.2 million U.S. properties in some stage of foreclosure sold to third parties in 2009, an increase of 25 percent from 2008 and an increase of nearly 327 percent from 2007. Total foreclosure sales in 2009 were up more than 1,100 percent from 2006 and up more than 2,500 percent from 2005. Foreclosure sales accounted for 29 percent of all sales in 2009, up from 23 percent in 2008 and up from 6 percent in 2007.

The average sales price of properties that sold while in some stage of foreclosure in 2009 was 25 percent below the average sales price of properties not in the foreclosure process. That was up from an average discount of 22 percent in 2008 but down from an average discount of 26 percent in 2007. The average foreclosure discount in 2005 was 35 percent, driven by a nearly 50 percent discount on REOs; however, the discount on pre-foreclosures trended up slightly over the same five-year period, from nearly 12 percent in 2005 to 15 percent in 2008 and 2009.

Foreclosure sales by type in first quarter
A total of 144,503 bank-owned (REO) properties sold to third parties in the first quarter, down 13 percent from the previous quarter and down 27 percent from the first quarter of 2009. REO sales accounted for 19 percent of all sales in the first quarter, up from nearly 16 percent in the previous quarter but down from 21 percent of all sales in the first quarter of 2009. REOs sold for an average discount of 34 percent, up from an average discount of nearly 32 percent in both the previous quarter and the first quarter of 2009.

A total of 88,456 pre-foreclosure properties — in default or scheduled for auction — sold to third parties in the first quarter, down 15 percent from the previous quarter and down nearly 41 percent from the first quarter of 2009. Pre-foreclosure sales accounted for nearly 12 percent of all sales, up from nearly 10 percent in the previous quarter but down from 16 percent in the first quarter of 2009. Pre-foreclosures, which are often short sales, sold for an average discount of nearly 15 percent, up from nearly 14 percent in the previous quarter but down from 16 percent in the first quarter of 2009.

Nevada, California, Arizona post highest percentage of foreclosure sales in Q1
Foreclosure sales accounted for 64 percent of all sales in Nevada in the first quarter, the highest percentage of any state, although Nevada’s percentage was down from 65 percent of all sales in the previous quarter and 75 percent of all sales in the first quarter of 2009.

California posted the second highest percentage, with foreclosure sales accounting for 51 percent of all sales there in the first quarter — up slightly from 50 percent in the previous quarter but down from 70 percent of all sales in the first quarter of 2009.

Foreclosure sales as a percentage of all sales were also down in Arizona from the first quarter of 2009, but the state still posted the third highest percentage in the first quarter, with foreclosure sales accounting for 50 percent of all sales.

Other states where foreclosure sales accounted for at least one-third of all sales were Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho and Oregon.

Ohio, Kentucky, Illinois post highest foreclosure discounts
The average sales price of properties that sold while in some stage of foreclosure in the first quarter was 39 percent below the average sales price of properties not in the foreclosure process in Ohio, Kentucky and Illinois — the states with the three highest average foreclosure discounts.

The average overall foreclosure discount was at least 35 percent in California, Tennessee, Pennsylvania, DC and New Jersey.

The biggest discount on bank-owned properties was in New York, where the average sales price for REOs was 52 percent below the average sales price for properties not in foreclosure. The biggest discount on pre-foreclosure properties was in Rhode Island, where the average sales price for properties in default or scheduled for auction was 33 percent below the average sales price for properties not in foreclosure.

Some Loan Servicers Run a Scam

A great article by George Mantor at RisMedia points out problems with some loan servicers. It reads in part:
“Servicing, the collecting and distributing of mortgage payments, is the land of opportunity…Who is in a better position to exploit a defaulting borrower than a person posing as someone who wants to help? And, it’s all part of a scam…”

link to  RisMedia article here

What does Mortgage Modification mean to the Title Industry?

The Title Insurance industry has slowed to a crawl. Most of the business at the closing table is either a foreclosure or a short sales. And with Congress’ plan to modify existing mortgages, even that pittance will be drying up. 

Congress plans to modify existing mortgages to lower rates so borrowers can afford their monthly payments.  How does this affect the title industry you ask? In the past, when mortgages were modified, title policies were still in the picture, because intervening liens were a concern. For example, let’s say Sam Smith wanted to modify the terms of his loan by increasing the loan amount. You were the first mortgage lender. If you modified the loan, you had to worry about what that would do to your 1st lien position. If there was a second mortgage or a tax lien on the property, changing the terms of your loan might bump you into second place or third place. The title industry therefore stepped forward with updates to the policies. we checked for intervening liens, we got subordination agreements from the secondary lien holders, we recorded lots of documentation, and endorsed the policy with matching fees for our work.

So, how is this different? Think about it. Titles on all of these troubled loans have already been insured. But this time, they likely won’t need to be insured again. The new loan modification law will generally decrease the interest rate and that will be an advantage to any secondary lien holders, putting them in a stronger position. Therefore, the modification should stand on its face, and no endorsements should be needed. So, there won’t be any need for that title review, or an endorsement to the policy, or new title insurance premium fees. Their might be a pittance for sitting down with the consumer to sign the modification agreement and record it (and with the new RESPA law, title companies won’t even be able to mark up the recording fee.)

Loan modifications are good for the consumer, and good for the economy. They help neighborhoods. They keep banks out of the painful REO business. But they provide little role for title companies. Ouch – another big ding for an already hurting industry.

Info On Home Closing

Home Closing 101: An Educational Initiative of the American Land Title Association