John Carney, in a CNBC column, paints a plausible scenario about why it could be tough for banks to foreclose in Massachusetts in the wake of a couple of state law decisions about the documentation necessary to proceed with the foreclosure. I haven’t read the decisions, but apparently the Massachusetts state courts have decided to be a little more picky about the documentation necessary to foreclose – not unduly so, but given the sloppiness that apparently took hold of the home loan financing industry, possibly more than they can accommodate. (And, Matt Taibbi has pointed out that the sloppiness was probably more of a feature than a bug for some of the upstream parts of the home finance casino).
At the state level, the originating lender probably recorded their interest then assigned it to a purchaser who also probably recorded the interest. Beyond that, things get fuzzy. At some point in the chain, there was probably a purchaser who was part of MERS or some system where there was only a nominal recording – the real party in interest kept changing as the loan was bundled, securitized, and sold hither & yon. The court wants the foreclosing bank to be able to prove a chain of title that keeps the note of indebtedness with the mortgage. (Without the mortgage, the note is an unsecured IOU with no special attachment to the real estate.)
So, anyway, getting proof of that assignment could present practical difficulties with folks back down the chain two or three links or more: a) not knowing if the person making the claim is really the true owner; and b) more importantly, not wanting the hassle or liability associated with verifying and executing an assignment.
I have to agree this could get very difficult, since it seems there were widespread breakdowns in mortgage and property recording in Mass. The phrase “sin in haste, repent at leisure” seems to apply here. What many mortgage activist seem to want is a short sale on the property, creating a loan for an amount backed by the real value of the collateral now. Let’s hope they don’t leave the whole property system in some sort of morass. It shows the worth of good credit and honor that so many pay on loans way in excess of the market value of their houses now. Polls indicate as many as a third of payers think their loan is for more than the house is worth.
In my collections work, I’m often surprised by the number of people who avoid bankruptcy out of a sense of honor. I don’t think the companies they’re paying would feel a similar sense of honor were the positions reversed.
The mortgage & banking industries are VERY sloppy – and shamefully, hideously disorganized. I don’t know if they simply use inferior database software or what, but two things that I’ve seen happen recently give me cause to believe that large financial institutions are as poorly managed as for-profit health insurance companies.
1) A recently widowed and unemployed woman, who also happens to be an anal-retentive record keeper, tried to work with her mortgage co. to make her payments more doable in her time of need. Letter after letter, phone call after phone call, promise after promise…. for some reason they just could NOT get her loan modified. Thankfully she had a prodigious paper trail and it seems – for now – that her 6 month ordeal has been resolved.
2) Our home was broken into, and besides stealing most of our electronics and jewelry, the thieves went through my desk and a stack of mail. So we closed our bank account and opened a new one within the same bank, and the large multinational bank was supposed to help us out a LOT more than they did, resulting in a bunch of nastygrams from various places that were on our auto debit list. What a mess.
You’d think that individual company representatives would have access to, and the authority to modify, your account that resides in ONE GIANT SECURE DATABASE. You’d think that vast multinational corporations would be at the forefront of that kind of technology.
You’d be wrong.
I’ve always hated the MERS system. These lenders should have been recording their assignments every time the mortgage is, well, assigned. You can go back and fix the problem later by executing new assignments, but thinks like bankruptcies, mergers of lenders often make it difficult.
I don’t know why the article make it sound like a new thing that the lender filing the lawsuit have to show it currently has the mortgage. That’s always been the case.
The problem is you have people take it too far. I have heard people argue they can’t foreclose unless they have a “wet ink” original mortgage. That’s nonsense, at least here in Indiana. A lot of them too suggest the MERS system and/or the securitizations of the mortgage after they entered into the mortgage, makes it invalid. It does not affect the loan they got that’s secured by the home.
If they took out a mortgage, the bottom line is they have to pay someone. There might be an issue figuring out who that someone is…but they’re not entitled to live in the house for free.
Yup. I think it’s always helpful to point out that the note and the mortgage are two related but distinct things. Just because they may no longer have a first priority lien on your house doesn’t mean you don’t owe them money. (If you can figure out who “them” is.)
Are you saying that is a bad thing? I would be the same way. If I said I was going to do something, it is a matter of honor that I do what I say I would do. The fact that the person I’m dealing with might not be as honorable as me doesn’t change my behavior.
I’ve also seen people that might be better served by taking welfare instead work 3 jobs because of honor (or pride). Frankly, I think we need more people like that rather than people that figure out how to work the system and do what is legal yet unethical.
I don’t know that it’s a “bad” thing. It’s usually better for my clients and for me if they don’t discharge their debt in bankruptcy. (Though, not always; sometimes it gives me and the front line account manager a bright line way of closing a file that was otherwise probably going to be unprofitable to keep open anyway.)
But I do think there is a disparity in how we perceive these things. If MegaCorp goes through a bankruptcy reorganization; it’s not perceived as a “good” thing, but there doesn’t seem to be any real shame attached to it. It’s just business. If Mr. Smith files for bankruptcy there is often shame and humiliation involved.
Doug, you are exactly correct. The mortgage just establishes the lien against the property. The note is the personal obligation. Even if the mortgage were wiped away by some defect, you still have a personal obligation as a result of the note you signed. If you don’t pay your note, they go to court and get a judgment against you. With a judgment, they once again have a lien on your property.
As far as the “wet ink” theory goes, Indiana law allows you to sue on a copy. Heck, you often can’t even tell which is the original “wet ink” document anymore with modern copiers. Still let’s assume a “wet ink” copy were required, at the end of the day, there is still the “unjust enrichment” theory which means you can’t get the benefit of walking away from your debt without paying.
It’s surprising the people who have moral obligations against bankruptcy, but they have no problem trying to use technicalities to try to get out of paying a mortgage/loan.
Jason: I understand the honoring your obligations comment, but some of these people with high credit card debt have actually fully paid the amount they charged over time, and the high interest rate has left them with a balance that is actually just as much (or higher) than the amount originally charged.
Paul C. surely you don’t suggest they should get to use that money interest free?
If they still owe money because of the interest rate the originally agreed to you, I’ have no sympathy. If they owe money because the credit card company jacked the rates up at some point, then I sympathize. I think the ability of companies to raise rates for missing a payment or having a bad credit rating needs to be stopped. I think though this was addressed in the most recent legislation.