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View Diary: 60 Minutes uncovers the blatant Fraud, behind Mortgage Foreclosure Document Mills (204 comments)

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  •  I'm more used to "title theory" states (1+ / 0-)
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    MindRayge

    Where the bank takes the "legal title" but the homeowner receives "equitable title" -- so you get the title docs only when you pay off the mortgage.

    One thing you get when you make the mortgage is some rather detailed original loan contracts -- your own copy of the "mortgage" itself.  These are important in the case of servicer fee fraud.  The bank must STILL have the original of the note in order to foreclose.  Separation of the note from the title STILL means that foreclosure becomes impossible.  (Just like in lien states.)  

    In title theory states, the bank must prove that it has the title (which is tracked through a long sequence of deeds; the title abstract is not the title) in order to have any right to the property whatsoever.... MERS doesn't cut it.  And it must prove that it has the note and that the note has not been paid as contracted in order to claim the right to extinguish your equitable title.  (If they're separated, the party with the note could theoretically claim the right to extinguish your title, but it can't get title, because the party with title still has title... and therefore it has no standing to appear in court, because it cannot actually possibly win anything.)

    In a non-recourse state or with a non-recourse loan, it goes further than that: if a bank has the note and it hasn't been paid, it can foreclose but it can't collect money from you any other way ("no recourse").  

    So.  Title-theory non-recourse: if the note and title get separated, the bank with the title can't evict you (you have equitable title) and the bank with the note can't collect money (non-recourse) and can't collect the property (no legal claim).  In most states, additionally, the note and title are not permitted to be "re-united" -- once they are split, a non-recourse note becomes a nullity.

    Notice how bad this position is for the banks.  When the laws are followed by the judges, this leaves the homeowner free and clear with the only equitable title to the house -- the homeowner can then ask the judge to quiet title by eliminating the legal title held by the bank.  This hasn't been done often as the judges generally assume that SOME bank had SOME equitable claim on the house, but when the bank shows "unclean hands" or other bad behavior, the judges have started to do this.

    NY courts have started to crack down hard on the banks.  NY tends to have very black-and-white, legalistic laws.

    Read pp. 1-7 of Krugman's _The Great Unraveling_ (available from Google Books). NOW.

    by neroden on Mon Aug 08, 2011 at 06:46:49 PM PDT

    [ Parent ]

    •  Yes exactly (1+ / 0-)
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      Brian B

      One of the other things is that is going on has to do with re-finance.  Refinancing ends the whole previous debacle with respect to a given home and homeowner and creates a brand new mortgage/note pair that I would expect to have everything in order. And I believe it is in all states where mortgages for the purpose of refinance are recourse loans. This does a double whammy on someone that, at least in theory, could have walked away with a home without having to make any more payments.

      On a different vein I suspect that because the vast majority of Notes were endorsed en blanc (effectively made them like bearer bonds) that they were used by the financial entities in possession of them as collateral for short term borrowings in the repo/money markets. I suspect this because the REMIC part of the Trust requires that it be a static pool rather than a dynamic pool where notes can be transfered in and out or even lent out to other entities. Since many of the Trusts would be in existence for many years before it could be extinguished under the Pooling and Servicing Agreement it didn't make sense at all to skip naming the trust in the actual endorsement - even if they didn't file the assignments.

      What could possibly be the difference if a note sits for 7-10 years endorsed en blanc or endorsed to the trust? Ostensibly, under the tax laws and contract creating the trust the notes had to sit anyway. But it seems far to tempting to the kind of people we are talking about for it to just sit there - an idle asset with collateral value. If you could just find your note being posted as part of a collateral pool for say a two day commercial paper borrowing then that would blow out the whole chain and any court battles over signatures and what not becomes unnecessary.

      And following on that I suspect that is why the special handling of IndyMac, Washington Mutual, Wachovia, Bear Sterns, Lehman occurred and especially why the very first move the government made was to offer $250,000 FDIC insurance to Money Market account and to backstop the paper markets. Imagine if through the collateral takings it was discovered that there were mortgage notes there that (via prior contract) should have belonged to someone else (trust).

      I base that on the fact that commercial paper has a maximum maturity of 270 days - much more often shorter durations are used - and the timing from when the big TARP giveaways happened to the time the firms that would have been big in the repo/money markets - Goldman, Morgan Stanley, State Street, BONY, Northern Trust - all started complaining about having to have taken the TARP money and wanted to give it back.

      But this is all just suspicion on my part.

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