patrick.net

I think I'm going on 3 years of stories like this that are supposed to be the game changer and lead to the downfall of the banking system. Still waiting...

Even if they can't foreclose that doesn't necessarily mean they can't collect - they may still be able to garnish your wages, seize your bank accounts, etc. Not the panacea that some might hope for, though why anyone would hope that people who bought homes they couldn't afford would get to keep them, effectively forcing the rest of us to pay for them - the responsible to cover the losses of the gamblers and irresponsible, yet again - is beyond me to begin with.

Garnish your wages?

Not likely That happens when the IRS comes after you. That doesn't happen in a foreclosure.

I recommend, everyone read my posting from ealier this year.

http://patrick.net/?p=28945

People should consider stopping their mortgage payment and saving up resources if it makes sense economically for them to do so.

Banks run this country, do you think they will ever let this happen?

larrypatrickmaloney says

Garnish your wages?
Not likely That happens when the IRS comes after you. That doesn’t happen in a foreclosure.
I recommend, everyone read my posting from ealier this year.
http://patrick.net/?p=28945

The scope of what they can do would vary state to state, and I don't know what the rules are for when they can get them directly from the employer (which again would vary state to state), but see, e.g., http://www.sun-sentinel.com/business/fl-bank-mortgage-garnish-20110107,0,5129126.story right from the front page - they are seizing funds directly from people's bank accounts, etc., and wage garnishment for a judgment is certainly a possibility. Other states are not like California, and even here, if you converted your loan to a recourse loan (through refinance, etc.), all kinds of badness may wait on the other side for you.

ChrisLosAngeles says

Banks run this country, do you think they will ever let this happen?

Apparently not. However, if public do something en-mass, make no mistake it can give the banks some real trouble. I still remember the bank run to Indymac in 2008, it was a phenomenon. The law is created to govern those who obey. When in chaos, the law is useless, only the force or military is the real power that governs.

JimAtLaw says

larrypa

Jim, apparently you are correct, in certain circumstances. I spoke with a mortgage broker yesterday (while spending the afternoon having fun looking at open houses).

Seems that if you have an equity loan (heloc), and you use the funds for something OTHER than house improvements, it can convert to a recourse loan) However, I'm not sure about the status of the first, I"m pretty sure the 1st is always a non-recourse.

The first converts to a recourse loan if it is refinanced or modified.

larrypatrickmaloney says

JimAtLaw says

larrypa

Jim, apparently you are correct, in certain circumstances. I spoke with a mortgage broker yesterday (while spending the afternoon having fun looking at open houses).
Seems that if you have an equity loan (heloc), and you use the funds for something OTHER than house improvements, it can convert to a recourse loan) However, I’m not sure about the status of the first, I”m pretty sure the 1st is always a non-recourse.

You mean use funds for things like a Hawaii vacation and a Porsche? That's what a lot of people did. I'd like it if that were recourse. Actually I'd like for HELOCs to be strictly limited to 'capital improvements' to the house.

It's unclear to me how many mortgages this applies to. You seem to be saying that ALL securitized mortgages are affected, but I really doubt that. I'm no legal expert, but it looks like all defaulters can still be foreclosed on, but they need the representative of the trust to foreclose, since the bank isn't the legal owner of the mortgage. Banks just screwed up lots of cases in the past.

Also seems to me the main ones in trouble are the ones that own the SECURIITIES. The banks are just the servicer. The suckers that bought the securities are the ones who lose when the bank can't foreclose.

@MarkInSF

My limited understanding was the securities have buy back clauses in them for exactly this case. The bank mishandled the title and incorrectly sold the rights. Thus, the banks would be screwed (after a lengthy legal battle ;).

This is out of my area and I haven't done the research, but I'm betting that even if the servicer can't foreclose, the note does not generally just disappear - *someone* is the obligee of the note, and if you think any material number of borrowers will just be allowed to walk away without paying because of recording errors I've got a bridge to sell you. (Google "unjust enrichment.") What could happen, I suppose, in what would become an armageddon of fiscal meltdown, is that the originator is forced to pay back the ostensible assignee (the "put back" scenario) and to chase the borrower themselves... and if this on a large scale pushed the originating bank into receivership, then perhaps the government or a successor bank that acquired the assets of the failed institution would be chasing the borrower.

One important issue is if the bank can really prove they own the note. For those securitized mortgage, some original docs may have been lost or accidentally destroyed. How the banks are going to prove they own the note in this scenario, can they ever foreclose the own legally? This is not a challenging statement, it is a question.

JimAtLaw says

if you think any material number of borrowers will just be allowed to walk away without paying because of recording errors I’ve got a bridge to sell you. (Google “unjust enrichment.”)

Don't know about "material numbers", but if I'm reading this article right, it appears that this is precisely what has happened in 2 cases:

http://www.nytimes.com/2011/01/08/business/08mortgage.html?source=patrick.net

Seems a scary precedent. Given that the government is bent on propping up Wall Street at ANY cost, I wonder who's going to take it in the ass if a substantial number of deadbeat borrowers are awarded free houses. The good old American taxpayers, perhaps? The middle class has been decimated, but I don't think the powers-that-be will be happy until it is completely annihilated. I don't think people get that bank execs are not going to be the ones who suffer. Trying to "stick it to the banks" will do absolutely no good, because they have an automatic lifetime get-out-of-jail-free card.

I'm not at all sure I read that article this way - it doesn't say the banks have no other remedies, merely that foreclosure did not work. To the extent they can still obtain a judgment for money owed (procedurally, they may have screwed up here and not be able to do that either, but that doesn't mean that will happen in future cases), they may yet be able to recover from the buyer, and if they can't, perhaps the originator can (and will have to). The law does not favor an outcome where the buyer gets the house for free without paying a debt legitimately incurred because of a paperwork foulup by the bank, and if that were to happen in more than a tiny fraction of cases, legislative change would follow faster than you can say insolvent FDIC.

JimAtLaw says

I’m not at all sure I read that article this way - it doesn’t say the banks have no other remedies, merely that foreclosure did not work.

Really? You're not reading it that way? Because the article says this:

"U.S. Bancorp, as trustee, will either have to pay Mr. Ibanez to buy a deed from him, Mr. Collier said, or walk away from the property, leaving it to Mr. Ibanez.

The loss on the property will be taken by investors in the trust that had claimed ownership of the mortgage. "

"Walk away"..."loss on the property taken by investors"... That seems pretty clear to me. Again, am I reading it wrong?

To the extent they can still obtain a judgment for money owed (procedurally, they may have screwed up here and not be able to do that either, but that doesn’t mean that will happen in future cases), they may yet be able to recover from the buyer, and if they can’t, perhaps the originator can (and will have to). The law does not favor an outcome where the buyer gets the house for free without paying a debt legitimately incurred because of a paperwork foulup by the bank, and if that were to happen in more than a tiny fraction of cases, legislative change would follow faster than you can say insolvent FDIC.

But if you can't foreclose because you can't prove title, how can you "obtain a judgment for money owed" if you still can't prove title? Home loans are non-recourse in most states, aren't they? The bank can't just take the money back; they have to take the HOUSE back.

I'd like to believe that legislative change would be enacted to prevent the huge can of worms that would be opened if this continues, but are you that sure it would? Does the government really care if the FDIC is insolvent? The entire banking industry has been nationalized and the banks are all zombie banks being supported by the taxpayers. I guess I have less confidence than you that the government would do the right thing. They don't seem to have any problem at all with being insolvent. I assume that if they need to continue bailing out banks, they will simply print more money as they have already.

The Massachusetts' case is more about the failure to properly assign the mortgage in subsequent transfers of the mortgage, including the right to foreclose. The MA court only said there was no valid assignment of the mortgages. Just because Wells Fargo and US Bank were not properly assigned the right to foreclose does not mean the right does not exist. You just have to trace the failed assignments back to last properly done assignment or the mortgage originator to find the entity who has the right to foreclose.

Once the you find that entity, they can 1) give notice under MA law and foreclose or 2) make a legally enforcable assignment to Wells Fargo/ US Bank who can then give proper notice under MA law and foreclose.

From a theoretical perspective, it's that easy. From a practical perspective, it's a pain in the ass. There are likely a minimum of four transfers and a maximum of God knows how many. But depending on the State your in, that's why they have a Recorder's Office to record real estate transfers. Ooops...banks (other than the originating bank) probably did not record the transfer of the mortgage. Why? They believe it was too costly? Well, you get what you pay for. They believe their own system of accounting was better than the Office of the Recorder? Well, they took the risk, they were wrong. You do a half ass job and you get a half ass result. They believed the courts would simply bail them out? Just what we need in a "free market"...banks that do a half ass job, crying about how important they are, and getting another bailout when the "free market" would send them to bankruptcy court.

Well, guess not this time. They are going to have to actually hire people and spend money to clean up their mess. They will have to go through the records of the transactions to find the last entity who got a valid assignment. Work out a deal with them or possibly clutter up our courts with lawsuits over contracts that failed to properly assign the mortgages. OR, THEY COULD WORK OUT A DEAL WITH THE HOME OWNERS. Wow, what a concept...banks having to actually talk to homeowners as equals.

Go Massachusetts. Let's hope other states finally get the gumption to protect their citizens. But, will it encourage mortgage holders to stop paying? Well, putting aside it is only one state so far, only 1) those who like to gamble that their mortgage was not properly assigned, 2) those who were going to stop paying anyway, and 3) those with enough smarts to ask the alleged trustee of their mortgage to prove they have the right to forclose would stop paying.

There are so many house owners are underwater nationally. They already don't pay their mortgage for months if not years. They have nothing to lose, especially those who really try to squat out to 60 months, then claim the house theirs legally if the banks do not try to foreclose them. Thinking about chasing all the notes and documentation, I can see one silver lining here: banks need to hire a lot, A LOT of human force to do it, which translates to the financial job market booming. Just like the RE construction job marketing booming few years ago. This can really help to bring down the unemployment rate and this time, BANKS are the SAVIORS!!!!

Ryan1781 says

The Massachusetts’ case is more about the failure to properly assign the mortgage in subsequent transfers of the mortgage, including the right to foreclose. The MA court only said there was no valid assignment of the mortgages. Just because Wells Fargo and US Bank were not properly assigned the right to foreclose does not mean the right does not exist. You just have to trace the failed assignments back to last properly done assignment or the mortgage originator to find the entity who has the right to foreclose.
Once the you find that entity, they can 1) give notice under MA law and foreclose or 2) make a legally enforcable assignment to Wells Fargo/ US Bank who can then give proper notice under MA law and foreclose.

The article didn't say anything about that. If the loan was divided up and bought by multiple investors, and there is no chain of custody, how exactly does "finding the last properly done assignment" work? If subsequent assignments were done improperly, that doesn't mean the loan wasn't bought. Just because a certain entity was the last one who did the paperwork right doesn't mean that entity owns the loan, does it? Doesn't make sense.

They believe their own system of accounting was better than the Office of the Recorder? Well, they took the risk, they were wrong. You do a half ass job and you get a half ass result. They believed the courts would simply bail them out? Just what we need in a “free market”…banks that do a half ass job, crying about how important they are, and getting another bailout when the “free market” would send them to bankruptcy court.

I agree that they should have done it right. But they didn't. Does that mean people should get free houses? I don't think it should mean that.

OR, THEY COULD WORK OUT A DEAL WITH THE HOME OWNERS. Wow, what a concept…banks having to actually talk to homeowners as equals.

That's all well and good to talk about homeowners getting all or part of their loan wiped out and getting a free or discounted house, but surely you don't think a certain class of people can be enriched without it costing ANOTHER class of people? You have to ask yourself, who is going to pay for the good fortune of deadbeat borrowers who default on their loans but then get off scot free (or get a special "deal")? And what I'm saying is, it's not going to be Wall Street. It's going to be the middle class taxpayer who gets the short end of the stick.