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My boss went through a really bad divorce and has seen slower business activity the last few years, which together have hurt his financial position to the point where he hasn't paid a cent on his mortgage in over a year.
The bank simply doesn't want his house. I assume they'd rather let him live there and maintain it rather than leave it and have it sit stagnant and deteriorate.
I'm not sure if it completely relates to this thread, though.
Actually deeds and notes get lost with dismaying regularity. Misfiling, accidental shredding and all sorts of other crap happen all of the time only usually prior to 2006 it did not matter. Up until that time homeowners either defaulted within one year of purchase or otherwise 1% of the time. Losing documents 20-30% of the time after the first year had little or no consequences. "Your Honor, my client lost the note and deed of mr. and mrs. Smith will you authorize issuance of replacements?" That use of the courts cost less than storing the documents.I looked into this Willie and as best as I can tell nobody knows how meaningful this will be.
But a worse case scenario is that foreclosures will be delayed by months as paperwork processing and legal filings get log jammed. But all of the same foreclosures will still proceed after considerably more expense is incurred in preparing them.
Somebody still has a deed, and a right to foreclose. They just have to prove it.
If anything this only proves the completely irrational character of the mortgage securitization industry. As in, should it even exist?
Why shouldn't banks be required to retain accounts that they originate?
the deeds and notes didn't even need to exist prior to the bust. 99% of the time the house was sold or refinanced within five years and many of the lawyers in the country treat escrow accounts as piggy banks not all and maybe not even a majority but quite a few. Real estate was a cozy little industry where one hand washed the other. When it turned into a sales mill a lot of corners were cut. What happened with Ally was that gaps in public records developed. The rest of this is speculation based on widespread problems with other companies and Ally was primarily an MBS packager not an originator so some of what follows probably happened to them too.well if 20-30% of the US property deeds have been lost at least local registrars have back up copies. Except in the case of quick deeds which banks don't deal in.
There is a whole industry intent on guaranteeing the validity of deeds. Escrow agencies. They rely on public records for their data.
That system has been almost bullet proof.
So it will take a lot more time and money to establish some facts pertinent to foreclosure. The world will wait, unless something more emerges.
If the story breaks before the election the effects will be huge but I think the riddle of Munger and Buffet sticking their feet in their mouth may be solved. Anything big here will set off audits throughout the financial sector maybe even including Ron Paul's audit of the Fed. Congress does not always use anesthesia before inserting their multiple proctoscopes or grease eitherMoody's downgraded GMAC's foreclosure dept today.
Not sure what the real significance of that is but it is the first truly serious indicator I have yet seen of real looming trouble.
So far everything that I have read indicates that Ally voluntarily stopped foreclosures in 23 states. '
And two state DAs are investigating. What they are investigating I have no idea.
Brown Asks for Halt to All GMAC/Ally Financial Evictions in California
When Ally Financial, formerly GMAC Mortgage, appeared to suspend foreclosure evictions in 23 states, they left out the ones where a judge is not required to sign off on foreclosures, including California, one of the four “sand states” with a massive amount of delinquencies and defaults. However, Attorney General Jerry Brown, who is running for Governor, has found a reason to demand a delay to any Ally/GMAC foreclosures:
California officials today demanded that Ally Financial Inc. stop foreclosing on homes in the state, citing reports indicating the big mortgage lender is violating the law.
The cease-and-desist letter, issued by Attorney General Jerry Brown, came as officials in several other states began investigating Ally’s operations [...]
According to Brown, California law forbids a lender from issuing a notice of default – the first step toward foreclosure – unless it can show it has tried to contact the borrower. The law covers mortgages originated between 2003 and 2007.
The New York Times has finally jumped in on this, assigning the article to David Streitfeld, who has revealed his bias against homeowners in previous stories. Streitfeld generally gets this one right, although you can see his slip showing at various points.
Florida lawyers representing borrowers in default said they would start filing motions as early as next week to have hundreds of foreclosure actions dismissed.
While GMAC is the first big lender to publicly acknowledge that its practices might have been improper, defense lawyers and consumer advocates have long argued that numerous lenders have used inaccurate or incomplete documents to remove delinquent owners from their houses.
The issue has broad consequences for the millions of buyers of foreclosed homes, some of whom might not have clear title to their bargain property. And it may offer unforeseen opportunities for those who were evicted.
“You know those billboards that lawyers put up seeking divorcing or bankrupt clients?” asked Greg Clark, a Florida real estate lawyer. “It’s only a matter of time until they start putting up signs that say, ‘You might be entitled to cash payment for wrongful foreclosure.’”
I hope he’s not intimating that the borrowers are taking advantage of the poor lenders and servicers, and using fly-by-night ambulance chasers to boot. GMAC/Ally, and many other lenders, broke the rules, lied to the judges, forged signatures, and took people’s homes under false pretenses. I know this isn’t normal practice in this country anymore, but they’re supposed to face the consequences.
Streitfeld also gets the Treasury Department on the record. The federal government is the majority owner in GMAC during the bank bailout.
“We have discussed the current situation with GMAC and expect them to take prompt action to correct any errors,” said Mark Paustenbach, a spokesman for the Treasury Department.
Sounds pretty hands-off to me. But they’re going to have to face up to this problem soon, because it’s about to spread nationwide.
GMAC Mortgage, a unit of Ally Financial, is moving forward with foreclosure proceedings using disputed affidavits, despite saying last week that it would halt evictions and sales of repossessed properties until it completed an internal review of its procedures.
The controversy, which has prompted investigations into GMAC by the Attorneys General of Illinois and Texas, underscores a larger problem facing the US housing industry: record keeping has not kept pace with the explosion of mortgage originations and securitisations that took place during the housing boom.
As a result, many lenders are finding that they do not have the legal documents required to foreclose on delinquent borrowers.
“The financial industry became cavalier about the documentation and paperwork underlying these loans,” says Christopher Peterson, an associate dean for academic affairs and law professor at the University of Utah. “That has resulted in a recipe for not knowing who owns what.”
The issue highlights the problems faced by banks as record numbers of homeowners fall behind on mortgage repayments.
In the days before loans were packaged into securities and sold to investors, a mortgage was filed with the local county land registry and those records were updated each time the loan changed hands, creating a tangible paper trail.
Securitisation allowed mortgages to be transferred among owners, known as securitised trusts, much more frequently. Banks were either unwilling or unable to keep up with the paperwork, according to scores of lawsuits brought by homeowners who say they were improperly foreclosed on.
Compounding the problem is an electronic registry – Mortgage Electronic Registration Systems – developed in 1997 by the big banks in conjunction with Fannie Mae and Freddie Mac that lawyers for these homeowners say has complicated the process.
Carmella Lejarde, MERS spokeswoman, says that any borrower who has one of the 64m loans registered on their system can easily find out the owner of his or her loan. But she also says sometimes the owners “opt out,” meaning that MERS does not have to disclose anything about them. “That puts borrowers at a huge disadvantage,” says Prof Peterson.
J.P. Morgan Chase, one of the nation's leading banks, announced Wednesday that it will freeze foreclosures in about half the country because of flawed paperwork, a move that Wall Street analysts said will pressure the rest of the industry to follow suit.
The bank's decision will affect 56,000 borrowers in 23 states where allegations of forged documents and signatures and other similar problems are being used to try to overturn court-ordered evictions. Yet the impact may be much broader, given J.P. Morgan's stature in the industry. If other banks adopt the same approach, the foreclosure process in many parts of the country will grind to a halt.
Officials at Fitch Ratings, a credit-rating firm that measures the health of companies, said the "defects" found in foreclosure documents at J.P. Morgan are industry-wide. Underscoring that concern, Fitch said it is considering whether to lower the grades it gives to the mortgage servicing divisions of the nation's largest lenders.
"Over the next few weeks, we expect to see more and more companies come out with similar announcements," said Diane Pendley, a managing director at Fitch.
In addition to the measures that private lenders have taken, four states - California, Colorado, Connecticut and Illinois - have called for a moratorium on all foreclosures initiated by Ally, while attorneys general in seven other states have opened civil or criminal investigations related to flawed foreclosures.
Even as the extent of the problems has become more apparent, the Treasury Department has declined to answer specific questions about the matter since it surfaced last week.
On Wednesday, Treasury spokesman Mark Paustenbach said that officials have been in touch with Ally and that they expect it to take "prompt action to correct any errors." He added that the agency is "monitoring their progress."
Treasury officials raised the issue personally with Ally chief executive Michael Carpenter during a recent meeting, according to an administration official.
Yet the agency's response has frustrated some consumer advocates. A few lawmakers have also called for investigations of whether homeowners are being improperly removed from their homes.
Sen. Al Franken (D-Minn.) said Wednesday that the Treasury Department and relevant federal agencies should begin their own inquiry.
"With millions of families losing their homes, it's inexcusable for companies like Ally to be this patently negligent," he said. "I want the federal government to hold Ally accountable and ensure that homeowners who wrongly received foreclosure get the compensation they deserve."
Mark Zandi, chief economist for Moodys.com, said that, in the worst-case scenario, the document-processing problems could lengthen the foreclosure process from three years to as long as a decade, especially if homeowners use the flawed paperwork to appeal their evictions.
The long holdup could have "macroeconomic consequences" as a destabilizing force on housing prices. Banks could become more unwilling to extend credit to households or to small-business owners who use homes as collateral. And investors who had been keeping home prices propped up by buying foreclosures may stop and never come back.
He added, however, that it is still an open question how the courts will handle the paperwork problems.
Ally officials on Wednesday declined to comment on any ongoing or potential investigations, but they have said that they are confident that "the processing errors did not result in any inappropriate foreclosures."
Company officials have declined to disclose how many loans may be affected and how much remedying the issue might cost, but spokeswoman Gina Proia said the firm "does not anticipate significant adverse effect on Ally related to this matter."
