foreclosure listings

MOVIES

Nevada Smith: Steve McQueen plays novelist Harold Robbins' character at a younger age in this 1966 Western that sends the title character on a mission of vengeance after his father is murdered by three men in a dispute over gold — and nothing and no one will stand in his way. The strong supporting cast includes Karl Malden, Brian Keith and Suzanne Pleshette (2:30 p.m. TCM). 

The Lovely Bones: Director Peter Jackson's 2009 adaptation of Alice Sebold's bestseller stars Stanley Tucci as a neighbor of a murdered youngster (Saoirse Ronan). Her survivors, including her parents (Rachel Weisz, Mark Wahlberg), are seen through her eyes as her spirit witnesses the aftermath of the tragedy from above (8 p.m. HBO). 

SPORTS

College football: Boston College at Florida State (9 a.m. ESPN); Arkansas at Auburn (12:30 p.m. CBS); Texas at Nebraska (12:30 p.m. ABC); Iowa at Michigan (12:30 p.m. ESPN); California at USC (12:30 p.m. FS Prime); South Carolina at Kentucky (3 p.m. ESPN2); Ohio State at Wisconsin (4 p.m. ESPN); Iowa State at Oklahoma (4 p.m. FS Prime); Arizona at Washington State (4:30 p.m. VS); Mississippi at Alabama (6 p.m. ESPN2); Oregon State at Washington (7:15 p.m. ESPN).

Baseball: Playoffs: The New York Yankees visit the Texas Rangers (1 p.m. TBS); the San Francisco Giants visit the Philadelphia Phillies (4:30 p.m. Fox). 

Exhibition basketball: The Denver Nuggets visit the Lakers (7:30 p.m. FSN).

Photo: Justin Stephens / Cartoon Network

The Foreclosure Mess-a Follow-up

October 18, 2010

David Kotok

>

Wow, there were many, many emails in response to the recent piece entitled “Foreclosure Mess.” Here are some of those observations.

Some folks missed the opening disclaimer and attributed the piece to me; that was their error. I did not write it [BR: The original was from Gonzalo Lira's blog]. I only edited out the expletives. I do not believe that F this and F that add anything. MK wrote back: “The article’s issues needed the expletives. In this particular case they would have been in context and not extraneous. Next time leave them in. &%$)@%%$.” Readers who get to the end of today’s follow-up will be able to judge for themselves.

The piece had many technical and legal errors, although most professionals agreed with this overall theme. Barry Ritholtz summarized the legal side with a “lawyer’s hat” on: “The flaw in this piece is that courts have long been authorized to apply principles of equity, as opposed to law, to cases brought before it. This means that we do not want to create unjust enrichment for either wrongdoers or other bad outcomes. We have two bad actors here: The homeowner who is in default, and the banks/securitizes who failed to do the document creation and title management correctly. Most judges do not want to see, in civil cases, an absurd outcome. Rewarding the homeowner (free house!) or the lenders (No penalty for massive screw-ups!), a total victory would offend those principles. An example of a possible outcome in a full-blown litigation might be for the court to order the mortgage modified to the current equity value of the home, so that it punishes the lenders who failed to do their proper legal work on the documents, but does not give a home to a defaulted homeowner free. Courts of “equity” (meaning fairness, not ownership) apply these principles to avoid ridiculous outcomes.”

A senior bank executive with extensive mortgage experience also responded. WP wrote: “There are technical errors made by the writer, but much of it is accurate.”

JR replied: “David, how are you, my mother fwd this to me as I am in the business. Is it safe to assume that the bank foreclosures will be taken off the market, which would then decrease the amount of homes that are listed dramatically (over 70%) in some markets. The market has been saturated with foreclosure listings. Over the past 2 years, it has been very easy to get a foreclosure sale, where individuals were able to buy a home for 76 cents on the dollar, in essence bringing the values down on sales-cost comparisons (appraisals). What impact will we see to the market? I’m thinking that with the foreclosures no longer as easy to get as a McDonalds happy meal, the remaining properties that are listed will now sell at or above market value, because the “value foreclosure meal” will be no longer available to the buyer. What will this do to the short sale market, being that short sales were the bank alternative to foreclosure?”

Another lawyer weighed in. Mr. B wrote: “In this case, I must quibble. I believe that the mortgagor cannot go scot-free. While enforcing the mortgage is by far the more convenient route, the claimant standing in the shoes of the mortgagee/note owner could claim against the home “owner” for unjust enrichment outside the mortgage enforcement procedure. Evidence of the existence of the claim can be adduced from related documentation. The “home owner” could be required to prove the source of funds for buying the house…, which of course he could not. All very inconvenient, time consuming and expensive. But look on the bright side. It’s employment for lawyers.”

And another lawyer. Jay wrote: “Despite what your friend says, just because the chain of ownership of the note is broken does NOT mean a borrower is relieved of his debt. Observers have speculated for a long time about what would happen if a judge demanded that only the right owner could foreclose, and that particular chicken has come home to roost. It may take awhile, but sooner or later the banks will find the original note and the proper successor in interest will be found and the defaulting borrower will have to make a deal or be foreclosed out. Meanwhile, all the shenanigans are true and they will result in big delays and huge costs as lenders have to go back and do things right. Some homeowners who were improperly evicted will have claims and they will get some relief but they won’t get their houses back. This is indeed a mess and the lenders deserve everything they are getting – particularly Bank of America, which bought one of the worst offenders, Countrywide.

In addition, another lawyer named Howard said: “While it is true that some may take advantage of the mortgage mess, the process will always win. You do not make good law for the bad cases. You cannot have people lying and fraudulently fixing chain of title due to the inconvenience. I once had a mortgage foreclosure that XXXXXX handled. It took years, and at the end he had made a theoretical mistake and was forced to start over or seek judicial help in fixing the error. While the client was furious, the process was righteous.

Michael G. added to the debate: “We’re talking about estimates of $20bn or more in losses (from put-backs, etc.). I agree that you do not make good law from bad cases. And I know that shortcuts were taken when loans were securitized. I was not suggesting a solution, only the gravity of the problem. The halting of foreclosures is one more factor that will prevent the housing market from finding equilibrium and weigh on the health of American banks. Stagnant economic growth, a financial system under heavy stress, and plenty of landmines to side-step… but hey, at least NBER says that the recession ended!”

Kathy is a skilled observer of our system. She wrote “Suggesting the dissolution of civil society is fear mongering/hyperbole. I believe the US is in for a long uncertain meandering period as housing unravels, but I don’t think we’re going back to keeping cash and guns under the mattress.”

A senior partner in a major accounting firm liked the original piece. JB replied: “Whoever wrote it explained this situation as clearly as the Big Short explained the base mess. Please pass on my thanks for a job well done.”

CG chimed in from Hawaii: “The whole purpose of MBSs was for Wall Street to “Madoff the World.”

MS is a skilled lawyer and former judge. He wrote: “First paragraph starts off wrong. The note does not permit foreclosure. Suing on the note gives plaintiff a judgment. It is the mortgage which makes the property security for the note. No mortgage, no foreclosure. So I stopped reading.”

Highly tech-savvy businessperson GC wrote: “While it is popular to try and pin all the blame on Fannie and Freddie (and they certainly deserve as much opprobrium as we have energy left to give), in fact the ownership of MERS is a good indictment of all the players in the game. See this link: http://www.mersinc.org/about/shareholders.aspx . ”

Lastly, Elliot S. wrote and linked websites. He did this in response to John Mauldin who ran the original piece in his newsletter. “They are wrong with regards to the Note and chain of title. Actually, they couldn’t more wrong. The Note is just the IOU and gives the lender the right to collect any money lost. MERS has nothing to do with Notes only with mortgages. The mortgage is the controlling document that is used for the foreclosure and the ONLY document. The mortgage gets assigned from one lender to another and often the assignments didn’t get recorded and the last lender, who actually owned the mortgage, didn’t have the right to foreclosure. Therefore, they created MERS, which is a registration of the mortgage but not to a bank, but to MERS. MERS is the mortgage holder and the loans are assigned via registration number. Therefore, if XYZ sells a mortgage to ABC, MERS is notified that the lender’s MERS ID is changed from XYZ to ABC and there is no need for a recorded assignment and that alleviated a huge problem for unrecorded or lost assignment. The foreclosure is actually performed in the name of MERS. So I am not sure what the heck this guy is talking about. The issue with GMAC and other lenders has NOTHING to do with this. The issue is what they are calling “Robo-signers” which are individuals who signed affidavits stating that they had “personal knowledge” of the facts in a foreclosure case, when in fact they did not. http://www.forextv.com/forex-news-story/forex-why-did-the-mortgage-servicers-use-robo-signers Read this actual and in the paragraph that starts with Second, they will provide the support for my claims. Here are additional articles I searched for on the web. http://www.fiercefinance.com/story/robo-signer-wells-fargo-no-foreclosure-halt-yet/2010-10-14 and http://www.housingwire.com/2010/10/15/robo-signers-are-a-drop-in-the-bucket-to-mortgage-industrys-problems I hate people that have no idea what they are talking about and mislead people. They don’t even know what a Note and Mortgage are or what they are used for, holy cows. And MERS doesn’t slice or dice mortgages they are just a repository. Must of the slicing and dicing is done in CDOs, which if needed I will explain why. CDO unlike MBS or RBMS continually slice and dice the junior pieces or Mezz into new CDO whereby they take the more riskier debt make them look like AAA.”

I will stop and add just add a few personal observations. No writer mentioned the role of real estate taxes so we discussed this with NE, a highly skilled, community development real estate professional. He described how a well-informed tax-sale certificate buyer could jump ahead of the other lien holders and get a house on the cheap. In addition, an occupant could keep the tax payments current, delay the mortgage payment while the mess is in the courts, and remain in the house for quite a while. He noted how many mortgage servicers do not collect the real estate taxes and are therefore exposed.

Also, state law prevails on mortgages. That means 50 jurisdictions with 50 different sets of rules. The securities are mostly through NY trusts, noted Josh Rosner. The trust will determine how the securitizations are unwound, not the rules under which the foreclosures will occur. Many of our diverse legal opinions are coming to us because the lawyers involved are citing their own local jurisdictions.

We thank the many, many readers for their thoughtful comments. We do not normally pass on a piece and keep the writer anonymous. Had he written without rudeness and expletives the outcome might have been different. It is too bad he had to resort to abusive language. The original text, despite the technical errors, was provocative and captured the gist of the mess.

Many have asked about the identity of the original writer, LG sent this email: “David Kotok: A simple Google search would have revealed to you who wrote the following. I doubt he is need of you providing him 15 minutes of fame, but who knows…http://gonzalolira.blogspot.com/2010/10/second-leg-down-of-americas-death.html .” Thank you, LG.

BTW, there is an investment implication in our view. We believe the banking system will weather this mess and the weakness in the sector will evolve into a buying opportunity as a result. The new Fed policy of additional QE implies more liquidity to offset the economic weakness of the foreclosure mess and more subsidies for banks.

eric seiger

Arrowheadlines: Chiefs <b>News</b> 11/5 - Arrowhead Pride

Good morning! Almost there. Here's your Kansas City Chiefs news. Enjoy.

Facebook Wins Another <b>News</b> Feed Patent

When Facebook originally filed for the patent in the fall of 2006, it was just a month before the company launched its news feed. It argued at the time that as more and more users joined the social network, the amount of information it ...

World <b>news</b> coverage evaporating in the UK | openDemocracy

International news, in case you hadn't realised, is disappearing across the UK media. The trends are documented in 'Shrinking World' - an authoritative and compelling report on the demise of foreign news reporting in the UK, ...

eric seiger


MOVIES

Nevada Smith: Steve McQueen plays novelist Harold Robbins' character at a younger age in this 1966 Western that sends the title character on a mission of vengeance after his father is murdered by three men in a dispute over gold — and nothing and no one will stand in his way. The strong supporting cast includes Karl Malden, Brian Keith and Suzanne Pleshette (2:30 p.m. TCM). 

The Lovely Bones: Director Peter Jackson's 2009 adaptation of Alice Sebold's bestseller stars Stanley Tucci as a neighbor of a murdered youngster (Saoirse Ronan). Her survivors, including her parents (Rachel Weisz, Mark Wahlberg), are seen through her eyes as her spirit witnesses the aftermath of the tragedy from above (8 p.m. HBO). 

SPORTS

College football: Boston College at Florida State (9 a.m. ESPN); Arkansas at Auburn (12:30 p.m. CBS); Texas at Nebraska (12:30 p.m. ABC); Iowa at Michigan (12:30 p.m. ESPN); California at USC (12:30 p.m. FS Prime); South Carolina at Kentucky (3 p.m. ESPN2); Ohio State at Wisconsin (4 p.m. ESPN); Iowa State at Oklahoma (4 p.m. FS Prime); Arizona at Washington State (4:30 p.m. VS); Mississippi at Alabama (6 p.m. ESPN2); Oregon State at Washington (7:15 p.m. ESPN).

Baseball: Playoffs: The New York Yankees visit the Texas Rangers (1 p.m. TBS); the San Francisco Giants visit the Philadelphia Phillies (4:30 p.m. Fox). 

Exhibition basketball: The Denver Nuggets visit the Lakers (7:30 p.m. FSN).

Photo: Justin Stephens / Cartoon Network

The Foreclosure Mess-a Follow-up

October 18, 2010

David Kotok

>

Wow, there were many, many emails in response to the recent piece entitled “Foreclosure Mess.” Here are some of those observations.

Some folks missed the opening disclaimer and attributed the piece to me; that was their error. I did not write it [BR: The original was from Gonzalo Lira's blog]. I only edited out the expletives. I do not believe that F this and F that add anything. MK wrote back: “The article’s issues needed the expletives. In this particular case they would have been in context and not extraneous. Next time leave them in. &%$)@%%$.” Readers who get to the end of today’s follow-up will be able to judge for themselves.

The piece had many technical and legal errors, although most professionals agreed with this overall theme. Barry Ritholtz summarized the legal side with a “lawyer’s hat” on: “The flaw in this piece is that courts have long been authorized to apply principles of equity, as opposed to law, to cases brought before it. This means that we do not want to create unjust enrichment for either wrongdoers or other bad outcomes. We have two bad actors here: The homeowner who is in default, and the banks/securitizes who failed to do the document creation and title management correctly. Most judges do not want to see, in civil cases, an absurd outcome. Rewarding the homeowner (free house!) or the lenders (No penalty for massive screw-ups!), a total victory would offend those principles. An example of a possible outcome in a full-blown litigation might be for the court to order the mortgage modified to the current equity value of the home, so that it punishes the lenders who failed to do their proper legal work on the documents, but does not give a home to a defaulted homeowner free. Courts of “equity” (meaning fairness, not ownership) apply these principles to avoid ridiculous outcomes.”

A senior bank executive with extensive mortgage experience also responded. WP wrote: “There are technical errors made by the writer, but much of it is accurate.”

JR replied: “David, how are you, my mother fwd this to me as I am in the business. Is it safe to assume that the bank foreclosures will be taken off the market, which would then decrease the amount of homes that are listed dramatically (over 70%) in some markets. The market has been saturated with foreclosure listings. Over the past 2 years, it has been very easy to get a foreclosure sale, where individuals were able to buy a home for 76 cents on the dollar, in essence bringing the values down on sales-cost comparisons (appraisals). What impact will we see to the market? I’m thinking that with the foreclosures no longer as easy to get as a McDonalds happy meal, the remaining properties that are listed will now sell at or above market value, because the “value foreclosure meal” will be no longer available to the buyer. What will this do to the short sale market, being that short sales were the bank alternative to foreclosure?”

Another lawyer weighed in. Mr. B wrote: “In this case, I must quibble. I believe that the mortgagor cannot go scot-free. While enforcing the mortgage is by far the more convenient route, the claimant standing in the shoes of the mortgagee/note owner could claim against the home “owner” for unjust enrichment outside the mortgage enforcement procedure. Evidence of the existence of the claim can be adduced from related documentation. The “home owner” could be required to prove the source of funds for buying the house…, which of course he could not. All very inconvenient, time consuming and expensive. But look on the bright side. It’s employment for lawyers.”

And another lawyer. Jay wrote: “Despite what your friend says, just because the chain of ownership of the note is broken does NOT mean a borrower is relieved of his debt. Observers have speculated for a long time about what would happen if a judge demanded that only the right owner could foreclose, and that particular chicken has come home to roost. It may take awhile, but sooner or later the banks will find the original note and the proper successor in interest will be found and the defaulting borrower will have to make a deal or be foreclosed out. Meanwhile, all the shenanigans are true and they will result in big delays and huge costs as lenders have to go back and do things right. Some homeowners who were improperly evicted will have claims and they will get some relief but they won’t get their houses back. This is indeed a mess and the lenders deserve everything they are getting – particularly Bank of America, which bought one of the worst offenders, Countrywide.

In addition, another lawyer named Howard said: “While it is true that some may take advantage of the mortgage mess, the process will always win. You do not make good law for the bad cases. You cannot have people lying and fraudulently fixing chain of title due to the inconvenience. I once had a mortgage foreclosure that XXXXXX handled. It took years, and at the end he had made a theoretical mistake and was forced to start over or seek judicial help in fixing the error. While the client was furious, the process was righteous.

Michael G. added to the debate: “We’re talking about estimates of $20bn or more in losses (from put-backs, etc.). I agree that you do not make good law from bad cases. And I know that shortcuts were taken when loans were securitized. I was not suggesting a solution, only the gravity of the problem. The halting of foreclosures is one more factor that will prevent the housing market from finding equilibrium and weigh on the health of American banks. Stagnant economic growth, a financial system under heavy stress, and plenty of landmines to side-step… but hey, at least NBER says that the recession ended!”

Kathy is a skilled observer of our system. She wrote “Suggesting the dissolution of civil society is fear mongering/hyperbole. I believe the US is in for a long uncertain meandering period as housing unravels, but I don’t think we’re going back to keeping cash and guns under the mattress.”

A senior partner in a major accounting firm liked the original piece. JB replied: “Whoever wrote it explained this situation as clearly as the Big Short explained the base mess. Please pass on my thanks for a job well done.”

CG chimed in from Hawaii: “The whole purpose of MBSs was for Wall Street to “Madoff the World.”

MS is a skilled lawyer and former judge. He wrote: “First paragraph starts off wrong. The note does not permit foreclosure. Suing on the note gives plaintiff a judgment. It is the mortgage which makes the property security for the note. No mortgage, no foreclosure. So I stopped reading.”

Highly tech-savvy businessperson GC wrote: “While it is popular to try and pin all the blame on Fannie and Freddie (and they certainly deserve as much opprobrium as we have energy left to give), in fact the ownership of MERS is a good indictment of all the players in the game. See this link: http://www.mersinc.org/about/shareholders.aspx . ”

Lastly, Elliot S. wrote and linked websites. He did this in response to John Mauldin who ran the original piece in his newsletter. “They are wrong with regards to the Note and chain of title. Actually, they couldn’t more wrong. The Note is just the IOU and gives the lender the right to collect any money lost. MERS has nothing to do with Notes only with mortgages. The mortgage is the controlling document that is used for the foreclosure and the ONLY document. The mortgage gets assigned from one lender to another and often the assignments didn’t get recorded and the last lender, who actually owned the mortgage, didn’t have the right to foreclosure. Therefore, they created MERS, which is a registration of the mortgage but not to a bank, but to MERS. MERS is the mortgage holder and the loans are assigned via registration number. Therefore, if XYZ sells a mortgage to ABC, MERS is notified that the lender’s MERS ID is changed from XYZ to ABC and there is no need for a recorded assignment and that alleviated a huge problem for unrecorded or lost assignment. The foreclosure is actually performed in the name of MERS. So I am not sure what the heck this guy is talking about. The issue with GMAC and other lenders has NOTHING to do with this. The issue is what they are calling “Robo-signers” which are individuals who signed affidavits stating that they had “personal knowledge” of the facts in a foreclosure case, when in fact they did not. http://www.forextv.com/forex-news-story/forex-why-did-the-mortgage-servicers-use-robo-signers Read this actual and in the paragraph that starts with Second, they will provide the support for my claims. Here are additional articles I searched for on the web. http://www.fiercefinance.com/story/robo-signer-wells-fargo-no-foreclosure-halt-yet/2010-10-14 and http://www.housingwire.com/2010/10/15/robo-signers-are-a-drop-in-the-bucket-to-mortgage-industrys-problems I hate people that have no idea what they are talking about and mislead people. They don’t even know what a Note and Mortgage are or what they are used for, holy cows. And MERS doesn’t slice or dice mortgages they are just a repository. Must of the slicing and dicing is done in CDOs, which if needed I will explain why. CDO unlike MBS or RBMS continually slice and dice the junior pieces or Mezz into new CDO whereby they take the more riskier debt make them look like AAA.”

I will stop and add just add a few personal observations. No writer mentioned the role of real estate taxes so we discussed this with NE, a highly skilled, community development real estate professional. He described how a well-informed tax-sale certificate buyer could jump ahead of the other lien holders and get a house on the cheap. In addition, an occupant could keep the tax payments current, delay the mortgage payment while the mess is in the courts, and remain in the house for quite a while. He noted how many mortgage servicers do not collect the real estate taxes and are therefore exposed.

Also, state law prevails on mortgages. That means 50 jurisdictions with 50 different sets of rules. The securities are mostly through NY trusts, noted Josh Rosner. The trust will determine how the securitizations are unwound, not the rules under which the foreclosures will occur. Many of our diverse legal opinions are coming to us because the lawyers involved are citing their own local jurisdictions.

We thank the many, many readers for their thoughtful comments. We do not normally pass on a piece and keep the writer anonymous. Had he written without rudeness and expletives the outcome might have been different. It is too bad he had to resort to abusive language. The original text, despite the technical errors, was provocative and captured the gist of the mess.

Many have asked about the identity of the original writer, LG sent this email: “David Kotok: A simple Google search would have revealed to you who wrote the following. I doubt he is need of you providing him 15 minutes of fame, but who knows…http://gonzalolira.blogspot.com/2010/10/second-leg-down-of-americas-death.html .” Thank you, LG.

BTW, there is an investment implication in our view. We believe the banking system will weather this mess and the weakness in the sector will evolve into a buying opportunity as a result. The new Fed policy of additional QE implies more liquidity to offset the economic weakness of the foreclosure mess and more subsidies for banks.

eric seiger

Arrowheadlines: Chiefs <b>News</b> 11/5 - Arrowhead Pride

Good morning! Almost there. Here's your Kansas City Chiefs news. Enjoy.

Facebook Wins Another <b>News</b> Feed Patent

When Facebook originally filed for the patent in the fall of 2006, it was just a month before the company launched its news feed. It argued at the time that as more and more users joined the social network, the amount of information it ...

World <b>news</b> coverage evaporating in the UK | openDemocracy

International news, in case you hadn't realised, is disappearing across the UK media. The trends are documented in 'Shrinking World' - an authoritative and compelling report on the demise of foreign news reporting in the UK, ...

eric seiger

eric seiger

eric seiger

Arrowheadlines: Chiefs <b>News</b> 11/5 - Arrowhead Pride

Good morning! Almost there. Here's your Kansas City Chiefs news. Enjoy.

Facebook Wins Another <b>News</b> Feed Patent

When Facebook originally filed for the patent in the fall of 2006, it was just a month before the company launched its news feed. It argued at the time that as more and more users joined the social network, the amount of information it ...

World <b>news</b> coverage evaporating in the UK | openDemocracy

International news, in case you hadn't realised, is disappearing across the UK media. The trends are documented in 'Shrinking World' - an authoritative and compelling report on the demise of foreign news reporting in the UK, ...

eric seiger


MOVIES

Nevada Smith: Steve McQueen plays novelist Harold Robbins' character at a younger age in this 1966 Western that sends the title character on a mission of vengeance after his father is murdered by three men in a dispute over gold — and nothing and no one will stand in his way. The strong supporting cast includes Karl Malden, Brian Keith and Suzanne Pleshette (2:30 p.m. TCM). 

The Lovely Bones: Director Peter Jackson's 2009 adaptation of Alice Sebold's bestseller stars Stanley Tucci as a neighbor of a murdered youngster (Saoirse Ronan). Her survivors, including her parents (Rachel Weisz, Mark Wahlberg), are seen through her eyes as her spirit witnesses the aftermath of the tragedy from above (8 p.m. HBO). 

SPORTS

College football: Boston College at Florida State (9 a.m. ESPN); Arkansas at Auburn (12:30 p.m. CBS); Texas at Nebraska (12:30 p.m. ABC); Iowa at Michigan (12:30 p.m. ESPN); California at USC (12:30 p.m. FS Prime); South Carolina at Kentucky (3 p.m. ESPN2); Ohio State at Wisconsin (4 p.m. ESPN); Iowa State at Oklahoma (4 p.m. FS Prime); Arizona at Washington State (4:30 p.m. VS); Mississippi at Alabama (6 p.m. ESPN2); Oregon State at Washington (7:15 p.m. ESPN).

Baseball: Playoffs: The New York Yankees visit the Texas Rangers (1 p.m. TBS); the San Francisco Giants visit the Philadelphia Phillies (4:30 p.m. Fox). 

Exhibition basketball: The Denver Nuggets visit the Lakers (7:30 p.m. FSN).

Photo: Justin Stephens / Cartoon Network

The Foreclosure Mess-a Follow-up

October 18, 2010

David Kotok

>

Wow, there were many, many emails in response to the recent piece entitled “Foreclosure Mess.” Here are some of those observations.

Some folks missed the opening disclaimer and attributed the piece to me; that was their error. I did not write it [BR: The original was from Gonzalo Lira's blog]. I only edited out the expletives. I do not believe that F this and F that add anything. MK wrote back: “The article’s issues needed the expletives. In this particular case they would have been in context and not extraneous. Next time leave them in. &%$)@%%$.” Readers who get to the end of today’s follow-up will be able to judge for themselves.

The piece had many technical and legal errors, although most professionals agreed with this overall theme. Barry Ritholtz summarized the legal side with a “lawyer’s hat” on: “The flaw in this piece is that courts have long been authorized to apply principles of equity, as opposed to law, to cases brought before it. This means that we do not want to create unjust enrichment for either wrongdoers or other bad outcomes. We have two bad actors here: The homeowner who is in default, and the banks/securitizes who failed to do the document creation and title management correctly. Most judges do not want to see, in civil cases, an absurd outcome. Rewarding the homeowner (free house!) or the lenders (No penalty for massive screw-ups!), a total victory would offend those principles. An example of a possible outcome in a full-blown litigation might be for the court to order the mortgage modified to the current equity value of the home, so that it punishes the lenders who failed to do their proper legal work on the documents, but does not give a home to a defaulted homeowner free. Courts of “equity” (meaning fairness, not ownership) apply these principles to avoid ridiculous outcomes.”

A senior bank executive with extensive mortgage experience also responded. WP wrote: “There are technical errors made by the writer, but much of it is accurate.”

JR replied: “David, how are you, my mother fwd this to me as I am in the business. Is it safe to assume that the bank foreclosures will be taken off the market, which would then decrease the amount of homes that are listed dramatically (over 70%) in some markets. The market has been saturated with foreclosure listings. Over the past 2 years, it has been very easy to get a foreclosure sale, where individuals were able to buy a home for 76 cents on the dollar, in essence bringing the values down on sales-cost comparisons (appraisals). What impact will we see to the market? I’m thinking that with the foreclosures no longer as easy to get as a McDonalds happy meal, the remaining properties that are listed will now sell at or above market value, because the “value foreclosure meal” will be no longer available to the buyer. What will this do to the short sale market, being that short sales were the bank alternative to foreclosure?”

Another lawyer weighed in. Mr. B wrote: “In this case, I must quibble. I believe that the mortgagor cannot go scot-free. While enforcing the mortgage is by far the more convenient route, the claimant standing in the shoes of the mortgagee/note owner could claim against the home “owner” for unjust enrichment outside the mortgage enforcement procedure. Evidence of the existence of the claim can be adduced from related documentation. The “home owner” could be required to prove the source of funds for buying the house…, which of course he could not. All very inconvenient, time consuming and expensive. But look on the bright side. It’s employment for lawyers.”

And another lawyer. Jay wrote: “Despite what your friend says, just because the chain of ownership of the note is broken does NOT mean a borrower is relieved of his debt. Observers have speculated for a long time about what would happen if a judge demanded that only the right owner could foreclose, and that particular chicken has come home to roost. It may take awhile, but sooner or later the banks will find the original note and the proper successor in interest will be found and the defaulting borrower will have to make a deal or be foreclosed out. Meanwhile, all the shenanigans are true and they will result in big delays and huge costs as lenders have to go back and do things right. Some homeowners who were improperly evicted will have claims and they will get some relief but they won’t get their houses back. This is indeed a mess and the lenders deserve everything they are getting – particularly Bank of America, which bought one of the worst offenders, Countrywide.

In addition, another lawyer named Howard said: “While it is true that some may take advantage of the mortgage mess, the process will always win. You do not make good law for the bad cases. You cannot have people lying and fraudulently fixing chain of title due to the inconvenience. I once had a mortgage foreclosure that XXXXXX handled. It took years, and at the end he had made a theoretical mistake and was forced to start over or seek judicial help in fixing the error. While the client was furious, the process was righteous.

Michael G. added to the debate: “We’re talking about estimates of $20bn or more in losses (from put-backs, etc.). I agree that you do not make good law from bad cases. And I know that shortcuts were taken when loans were securitized. I was not suggesting a solution, only the gravity of the problem. The halting of foreclosures is one more factor that will prevent the housing market from finding equilibrium and weigh on the health of American banks. Stagnant economic growth, a financial system under heavy stress, and plenty of landmines to side-step… but hey, at least NBER says that the recession ended!”

Kathy is a skilled observer of our system. She wrote “Suggesting the dissolution of civil society is fear mongering/hyperbole. I believe the US is in for a long uncertain meandering period as housing unravels, but I don’t think we’re going back to keeping cash and guns under the mattress.”

A senior partner in a major accounting firm liked the original piece. JB replied: “Whoever wrote it explained this situation as clearly as the Big Short explained the base mess. Please pass on my thanks for a job well done.”

CG chimed in from Hawaii: “The whole purpose of MBSs was for Wall Street to “Madoff the World.”

MS is a skilled lawyer and former judge. He wrote: “First paragraph starts off wrong. The note does not permit foreclosure. Suing on the note gives plaintiff a judgment. It is the mortgage which makes the property security for the note. No mortgage, no foreclosure. So I stopped reading.”

Highly tech-savvy businessperson GC wrote: “While it is popular to try and pin all the blame on Fannie and Freddie (and they certainly deserve as much opprobrium as we have energy left to give), in fact the ownership of MERS is a good indictment of all the players in the game. See this link: http://www.mersinc.org/about/shareholders.aspx . ”

Lastly, Elliot S. wrote and linked websites. He did this in response to John Mauldin who ran the original piece in his newsletter. “They are wrong with regards to the Note and chain of title. Actually, they couldn’t more wrong. The Note is just the IOU and gives the lender the right to collect any money lost. MERS has nothing to do with Notes only with mortgages. The mortgage is the controlling document that is used for the foreclosure and the ONLY document. The mortgage gets assigned from one lender to another and often the assignments didn’t get recorded and the last lender, who actually owned the mortgage, didn’t have the right to foreclosure. Therefore, they created MERS, which is a registration of the mortgage but not to a bank, but to MERS. MERS is the mortgage holder and the loans are assigned via registration number. Therefore, if XYZ sells a mortgage to ABC, MERS is notified that the lender’s MERS ID is changed from XYZ to ABC and there is no need for a recorded assignment and that alleviated a huge problem for unrecorded or lost assignment. The foreclosure is actually performed in the name of MERS. So I am not sure what the heck this guy is talking about. The issue with GMAC and other lenders has NOTHING to do with this. The issue is what they are calling “Robo-signers” which are individuals who signed affidavits stating that they had “personal knowledge” of the facts in a foreclosure case, when in fact they did not. http://www.forextv.com/forex-news-story/forex-why-did-the-mortgage-servicers-use-robo-signers Read this actual and in the paragraph that starts with Second, they will provide the support for my claims. Here are additional articles I searched for on the web. http://www.fiercefinance.com/story/robo-signer-wells-fargo-no-foreclosure-halt-yet/2010-10-14 and http://www.housingwire.com/2010/10/15/robo-signers-are-a-drop-in-the-bucket-to-mortgage-industrys-problems I hate people that have no idea what they are talking about and mislead people. They don’t even know what a Note and Mortgage are or what they are used for, holy cows. And MERS doesn’t slice or dice mortgages they are just a repository. Must of the slicing and dicing is done in CDOs, which if needed I will explain why. CDO unlike MBS or RBMS continually slice and dice the junior pieces or Mezz into new CDO whereby they take the more riskier debt make them look like AAA.”

I will stop and add just add a few personal observations. No writer mentioned the role of real estate taxes so we discussed this with NE, a highly skilled, community development real estate professional. He described how a well-informed tax-sale certificate buyer could jump ahead of the other lien holders and get a house on the cheap. In addition, an occupant could keep the tax payments current, delay the mortgage payment while the mess is in the courts, and remain in the house for quite a while. He noted how many mortgage servicers do not collect the real estate taxes and are therefore exposed.

Also, state law prevails on mortgages. That means 50 jurisdictions with 50 different sets of rules. The securities are mostly through NY trusts, noted Josh Rosner. The trust will determine how the securitizations are unwound, not the rules under which the foreclosures will occur. Many of our diverse legal opinions are coming to us because the lawyers involved are citing their own local jurisdictions.

We thank the many, many readers for their thoughtful comments. We do not normally pass on a piece and keep the writer anonymous. Had he written without rudeness and expletives the outcome might have been different. It is too bad he had to resort to abusive language. The original text, despite the technical errors, was provocative and captured the gist of the mess.

Many have asked about the identity of the original writer, LG sent this email: “David Kotok: A simple Google search would have revealed to you who wrote the following. I doubt he is need of you providing him 15 minutes of fame, but who knows…http://gonzalolira.blogspot.com/2010/10/second-leg-down-of-americas-death.html .” Thank you, LG.

BTW, there is an investment implication in our view. We believe the banking system will weather this mess and the weakness in the sector will evolve into a buying opportunity as a result. The new Fed policy of additional QE implies more liquidity to offset the economic weakness of the foreclosure mess and more subsidies for banks.

eric seiger

eric seiger

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big seminar 14

In my small town of Templeton, MA and the surrounding areas the foreclosure rate has hit hard in this small working class community. Homes that were selling for $400,000.00 or more are now about half price in the foreclosure market. You would think if you are a first time home buyer, that this is the time for you to buy a bigger house with same amount of money that you had two years ago. Not so, with the manufacturing industry that was so prevalent just three years ago when most people had job to afford monthly house payments. Since there is not that many jobs in the area, most of the people that are living in Templeton are commuting to larger cities to work. Now, it is another story with most of the manufacturing jobs gone overseas and the new construction has slowed down to a snail's pace, so it is now very hard for first time home buyers to buy their first house and STAY in it for a long time. Many of the website that are listing the houses are listings that I have in my town, are bank owned and they have been on the bank's books for more than two years. When people couldn't not afford their current mortgage since it usually was not a traditional refinanced mortgage. Two years ago there was a wide variety of different type of refinance products on the market. For most people who sign into these risky products (and didn't study the paperwork before hand what they were signing) they didn't understand that they were taking out equity out of their house like it was a piggy bank. Little did they know that when the bottom fell out of the housing market, here in the New England, people with these risky refinance loans couldn't afford to make the payments because they lost their jobs. It became a terrible spiral of debt that was created that no one could of imagined. These are the websites that have some of the home listings in my small town of Templeton, MA:

Yahoo
realestate.yahoo.com/Massachusetts/Templeton/foreclosures
This site is very easy to navigate and there is no registration that is required to look at the local listings.

Massachusetts Foreclosure Listings
www.freeforeclosuredatabase.com
This site lets you look through the listings but unless you register at the site you are not able to see pictures for homes that you might be interested in. If you do sign up for the site they do email you listings of what they have available in your area that you are interested in.

Trulia.com
www.trulia.com/MA/Templeton
I thought that this site was wonderful to navigate through. It has areas where you can ask questions and hear opinions of different listings that are available. For a skilled computer person this will be easy to look through the listing and find the home for you.

These sites can help you to navigate all the different listings that are out on the web quickly and easily with just a few steps. If you are wanting to relocate to Templeton, Massachusetts, then check out these website for quick and easy information that will be helpful in your search for looking for a home. With this information at your finger tips looking for a foreclosed home has never been so easy has it has been these days!


eric seiger

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