Arizona Bill Would Void Foreclosures Without Full Title Hist

[dbackjon]

Arizona may become the first state to require lenders to prove they have the right to foreclose by providing a complete list of any previous owners of the mortgage, under a bill passed yesterday by its Senate.

The legislation, which is headed to the House after being approved 28-2 in the Republican-dominated Senate, would allow foreclosure sales to be voided if lenders that didn't originate the loan can't produce the full chain of title. Arizona permits nonjudicial foreclosures, meaning property can be seized from the homeowner without a court order.

Lawmakers in states including New York, Oregon and Virginia also have proposed legislation to address concerns among consumer advocates that lenders or mortgage servicers are using incomplete or false paperwork to repossess properties in default. The attorneys general of all 50 states are jointly investigating how the mortgage-servicing industry operates.
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[SuperHornet]

I don't know enough about this to have an opinion. I suspect AZ and maybe BWahlberg would probably be the best qualified people to explain/express opinion about it....

[Chizzang]

Interesting...
I heard a story (it sounded true) where Washington Mutual (now defunct and owned by Chase) was attempting to foreclose on a home but the homeowner hired a lawyer and made WAMU prove they owned the Title... which they were unable to do in a reasonable amount of time (the court date came and went) and WAMU had no proof of title other than data they get when they purchase bundled loans by the hundreds...

This will make the bundling and selling of loans more difficult

[93henfan]

Interesting...
I heard a story (it sounded true) where Washington Mutual (now defunct and owned by Chase) was attempting to foreclose on a home but the homeowner hired a lawyer and made WAMU prove they owned the Title... which they were unable to do in a reasonable amount of time (the court date came and went) and WAMU had no proof of title other than data they get when they purchase bundled loans by the hundreds...

This will make the bundling and selling of loans more difficult

So what happens in a case like that? Does the deadbeat homeowner suddenly become a rent-free squatter?

If so, how can I get in on that action?

[dbackjon]

Interesting...
I heard a story (it sounded true) where Washington Mutual (now defunct and owned by Chase) was attempting to foreclose on a home but the homeowner hired a lawyer and made WAMU prove they owned the Title... which they were unable to do in a reasonable amount of time (the court date came and went) and WAMU had no proof of title other than data they get when they purchase bundled loans by the hundreds...

This will make the bundling and selling of loans more difficult

So what happens in a case like that? Does the deadbeat homeowner suddenly become a rent-free squatter?

If so, how can I get in on that action?

They still owe the mortgage - it is just not a secured debt any longer. The mortgage holder would be in the same position as any other unsecured creditor. Could still go after the debtor, just not foreclose. A judge could still liquidate assets to satify debts

[TwinTownBisonFan]

Interesting...
I heard a story (it sounded true) where Washington Mutual (now defunct and owned by Chase) was attempting to foreclose on a home but the homeowner hired a lawyer and made WAMU prove they owned the Title... which they were unable to do in a reasonable amount of time (the court date came and went) and WAMU had no proof of title other than data they get when they purchase bundled loans by the hundreds...

This will make the bundling and selling of loans more difficult

would appear to be the intent of the bill...

[JoltinJoe]

So what happens in a case like that? Does the deadbeat homeowner suddenly become a rent-free squatter?

If so, how can I get in on that action?

They still owe the mortgage - it is just not a secured debt any longer. The mortgage holder would be in the same position as any other unsecured creditor. Could still go after the debtor, just not foreclose. A judge could still liquidate assets to satify debts

Technically, you don't "owe" the mortgage; the mortgage serves as collateral for the promissory note; you owe the promissory note.

What you say is correct, though, assuming that the bank can prove it is the holder of the promissory obligation. You owe the bank the money on the promissory note, but the note is now unsecured. If the bank gets a judgment on the note, it could proceed to lien up your assets (including your residence), and then sell your assets to pay the debt. But that it is much more time-consuming process than a straight foreclosure.

What could have possibly gone wrong? How could the mortgages which were security for the promissory obligations, become separated from the notes and thus become worthless. Google "MERS." If your mortgage was, at any time, assigned to MERS, there is a good chance that no bank could ever foreclose against you (as case law is developing on this issue at this moment).

[dbackjon]

Thanks for the clarification.


MERS was designed, IIRC, to save banks/mortgage companies money, by forgoing the traditional step of registering mortgages at the county clerk's office, by doing it centrally, and electronically.

[JoltinJoe]

Thanks for the clarification.


MERS was designed, IIRC, to save banks/mortgage companies money, by forgoing the traditional step of registering mortgages at the county clerk's office, by doing it centrally, and electronically.

That one was one reason. But another reason was to avoid payment of mortgage filing fees every time the mortgage was assigned from one institution to another. Since MERS was the "nominee" of the original mortgagee (the original lender, that is), the argument was that any assignment of the mortgage did not need to be publicly recorded unless and until the mortgagor defaulted (an assignment simply being recorded internally at MERS).

In the event of default, MERS would assign the mortgage to the "holder" so that the holder could foreclose; or it would not assign the mortgage and initiate a foreclosure on behalf of its "principal," the "assignee" bank.

A number of courts have held that MERS lacked standing to initiate foreclosures, because it was merely the nominee of the original mortgagee and held no interest in the promissory notes. So assignments from MERS to the so-called assignee bank became commonplace. But then courts began questioning whether the so-called assignee bank actually was the holder of the promissory note, because MERS never had an interest in the promissory note itself, and was merely assigned nominee status as to the mortgage (but not the note). The courts questioned how MERS could assign something that it never had an interest in (the promissory note) to the "assignee" bank which was trying to foreclose. This becomes as a problem, because the bank cannot foreclose on the mortgage unless it proves that it is the holder of the note (i.e., the party to whom the borrower owes the money).

BTW, MERS is currently in the chain of 60,000,000 mortgages in the US, and courts in judicial foreclosure states are carefully scrutinizing every foreclosure in which MERS is in the chain to be sure that the bank trying to foreclose can prove it holds both the mortgage and the note -- and that the two have never been separated.

This is a potentially huge, looming problem for the mortgage industry and could trigger a need for government intervention.

Look for congress to pass legislation which allows for foreclosure even if the note and mortgage have been separated at some point, or allow for foreclosure even if the law of assignments has not been technically followed. The other solution would be another massive government bailout program of perhaps nearly $1T ...

[kalm]

Thanks for the clarification.


MERS was designed, IIRC, to save banks/mortgage companies money, by forgoing the traditional step of registering mortgages at the county clerk's office, by doing it centrally, and electronically.

That one was one reason. But another reason was to avoid payment of mortgage filing fees every time the mortgage was assigned from one institution to another. Since MERS was the "nominee" of the original mortgagee (the original lender, that is), the argument was that any assignment of the mortgage did not need to be publicly recorded unless and until the mortgagor defaulted (an assignment simply being recorded internally at MERS).

In the event of default, MERS would assign the mortgage to the "holder" so that the holder could foreclose; or it would not assign the mortgage and initiate a foreclosure on behalf of its "principal," the "assignee" bank.

A number of courts have held that MERS lacked standing to initiate foreclosures, because it was merely the nominee of the original mortgagee and held no interest in the promissory notes. So assignments from MERS to the so-called assignee bank became commonplace. But then courts began questioning whether the so-called assignee bank actually was the holder of the promissory note, because MERS never had an interest in the promissory note itself, and was merely assigned nominee status as to the mortgage (but not the note). The courts questioned how MERS could assign something that it never had an interest in (the promissory note) to the "assignee" bank which was trying to foreclose. This becomes as a problem, because the bank cannot foreclose on the mortgage unless it proves that it is the holder of the note (i.e., the party to whom the borrower owes the money).

BTW, MERS is currently in the chain of 60,000,000 mortgages in the US, and courts in judicial foreclosure states are carefully scrutinizing every foreclosure in which MERS is in the chain to be sure that the bank trying to foreclose can prove it holds both the mortgage and the note -- and that the two have never been separated.

This is a potentially huge, looming problem for the mortgage industry and could trigger a need for government intervention.

Look for congress to pass legislation which allows for foreclosure even if the note and mortgage have been separated at some point, or allow for foreclosure even if the law of assignments has not been technically followed. The other solution would be another massive government bailout program of perhaps nearly $1T ...

Why did they ever need to make the process so complicated?

[JoltinJoe]

That one was one reason. But another reason was to avoid payment of mortgage filing fees every time the mortgage was assigned from one institution to another. Since MERS was the "nominee" of the original mortgagee (the original lender, that is), the argument was that any assignment of the mortgage did not need to be publicly recorded unless and until the mortgagor defaulted (an assignment simply being recorded internally at MERS).

In the event of default, MERS would assign the mortgage to the "holder" so that the holder could foreclose; or it would not assign the mortgage and initiate a foreclosure on behalf of its "principal," the "assignee" bank.

A number of courts have held that MERS lacked standing to initiate foreclosures, because it was merely the nominee of the original mortgagee and held no interest in the promissory notes. So assignments from MERS to the so-called assignee bank became commonplace. But then courts began questioning whether the so-called assignee bank actually was the holder of the promissory note, because MERS never had an interest in the promissory note itself, and was merely assigned nominee status as to the mortgage (but not the note). The courts questioned how MERS could assign something that it never had an interest in (the promissory note) to the "assignee" bank which was trying to foreclose. This becomes as a problem, because the bank cannot foreclose on the mortgage unless it proves that it is the holder of the note (i.e., the party to whom the borrower owes the money).

BTW, MERS is currently in the chain of 60,000,000 mortgages in the US, and courts in judicial foreclosure states are carefully scrutinizing every foreclosure in which MERS is in the chain to be sure that the bank trying to foreclose can prove it holds both the mortgage and the note -- and that the two have never been separated.

This is a potentially huge, looming problem for the mortgage industry and could trigger a need for government intervention.

Look for congress to pass legislation which allows for foreclosure even if the note and mortgage have been separated at some point, or allow for foreclosure even if the law of assignments has not been technically followed. The other solution would be another massive government bailout program of perhaps nearly $1T ...

Why did they ever need to make the process so complicated?

Everyone was getting rich creating pools of mortgages, and selling them as securities, in theory "spreading the risk" around to the point where there was zero market risk -- but in truth simply poisoning everyone's well, because so many of the underlying mortgages were non-conforming, risky loans with gimmicky repayment terms (short-term ARMs, interest only balloon notes, etc).

Who can be bothered with following the niceties of assignment law (or paying a new recording fee every time a mortgage is assigned?) when there was so much money being made?

[kalm]

Why did they ever need to make the process so complicated?

Everyone was getting rich creating pools of mortgages, and selling them as securities, in theory "spreading the risk" around to the point where there was zero market risk -- but in truth simply poisoning everyone's well, because so many of the underlying mortgages were non-conforming, risky loans with gimmicky repayment terms (short-term ARMs, interest only balloon notes, etc).

Who can be bothered with following the niceties of assignment law (or paying a new recording fee every time a mortgage is assigned?) when there was so much money being made?

I know, I was taking a shot at the "free market" folks. Beware when things become unneccessarily complicated. If it's intentional, somebody is stealing, if not, nobody knows what the fuck is going on. Or in the case of the recent crisis, it might be a combination of both.

[blueballs]

They still owe the mortgage - it is just not a secured debt any longer. The mortgage holder would be in the same position as any other unsecured creditor. Could still go after the debtor, just not foreclose. A judge could still liquidate assets to satify debts

Technically, you don't "owe" the mortgage; the mortgage serves as collateral for the promissory note; you owe the promissory note.

What you say is correct, though, assuming that the bank can prove it is the holder of the promissory obligation. You owe the bank the money on the promissory note, but the note is now unsecured. If the bank gets a judgment on the note, it could proceed to lien up your assets (including your residence), and then sell your assets to pay the debt. But that it is much more time-consuming process than a straight foreclosure.

What could have possibly gone wrong? How could the mortgages which were security for the promissory obligations, become separated from the notes and thus become worthless. Google "MERS." If your mortgage was, at any time, assigned to MERS, there is a good chance that no bank could ever foreclose against you (as case law is developing on this issue at this moment).

This is absolutely correct.

[dbackjon]

Thanks for the clarification.


MERS was designed, IIRC, to save banks/mortgage companies money, by forgoing the traditional step of registering mortgages at the county clerk's office, by doing it centrally, and electronically.

That one was one reason. But another reason was to avoid payment of mortgage filing fees every time the mortgage was assigned from one institution to another. Since MERS was the "nominee" of the original mortgagee (the original lender, that is), the argument was that any assignment of the mortgage did not need to be publicly recorded unless and until the mortgagor defaulted (an assignment simply being recorded internally at MERS).

In the event of default, MERS would assign the mortgage to the "holder" so that the holder could foreclose; or it would not assign the mortgage and initiate a foreclosure on behalf of its "principal," the "assignee" bank.

A number of courts have held that MERS lacked standing to initiate foreclosures, because it was merely the nominee of the original mortgagee and held no interest in the promissory notes. So assignments from MERS to the so-called assignee bank became commonplace. But then courts began questioning whether the so-called assignee bank actually was the holder of the promissory note, because MERS never had an interest in the promissory note itself, and was merely assigned nominee status as to the mortgage (but not the note). The courts questioned how MERS could assign something that it never had an interest in (the promissory note) to the "assignee" bank which was trying to foreclose. This becomes as a problem, because the bank cannot foreclose on the mortgage unless it proves that it is the holder of the note (i.e., the party to whom the borrower owes the money).

BTW, MERS is currently in the chain of 60,000,000 mortgages in the US, and courts in judicial foreclosure states are carefully scrutinizing every foreclosure in which MERS is in the chain to be sure that the bank trying to foreclose can prove it holds both the mortgage and the note -- and that the two have never been separated.

This is a potentially huge, looming problem for the mortgage industry and could trigger a need for government intervention.

Look for congress to pass legislation which allows for foreclosure even if the note and mortgage have been separated at some point, or allow for foreclosure even if the law of assignments has not been technically followed. The other solution would be another massive government bailout program of perhaps nearly $1T ...

So typical Wall Street - create an instrument that is illegal, immoral, and too big too fail.

[TwinTownBisonFan]

That one was one reason. But another reason was to avoid payment of mortgage filing fees every time the mortgage was assigned from one institution to another. Since MERS was the "nominee" of the original mortgagee (the original lender, that is), the argument was that any assignment of the mortgage did not need to be publicly recorded unless and until the mortgagor defaulted (an assignment simply being recorded internally at MERS).

In the event of default, MERS would assign the mortgage to the "holder" so that the holder could foreclose; or it would not assign the mortgage and initiate a foreclosure on behalf of its "principal," the "assignee" bank.

A number of courts have held that MERS lacked standing to initiate foreclosures, because it was merely the nominee of the original mortgagee and held no interest in the promissory notes. So assignments from MERS to the so-called assignee bank became commonplace. But then courts began questioning whether the so-called assignee bank actually was the holder of the promissory note, because MERS never had an interest in the promissory note itself, and was merely assigned nominee status as to the mortgage (but not the note). The courts questioned how MERS could assign something that it never had an interest in (the promissory note) to the "assignee" bank which was trying to foreclose. This becomes as a problem, because the bank cannot foreclose on the mortgage unless it proves that it is the holder of the note (i.e., the party to whom the borrower owes the money).

BTW, MERS is currently in the chain of 60,000,000 mortgages in the US, and courts in judicial foreclosure states are carefully scrutinizing every foreclosure in which MERS is in the chain to be sure that the bank trying to foreclose can prove it holds both the mortgage and the note -- and that the two have never been separated.

This is a potentially huge, looming problem for the mortgage industry and could trigger a need for government intervention.

Look for congress to pass legislation which allows for foreclosure even if the note and mortgage have been separated at some point, or allow for foreclosure even if the law of assignments has not been technically followed. The other solution would be another massive government bailout program of perhaps nearly $1T ...

So typical Wall Street - create an instrument that is illegal, immoral, and too big too fail.

nah, just unethical, needlessly complex and too greedy to care.

[UNI88]

So typical Wall Street - create an instrument that is illegal, immoral, and too big too fail.

nah, just unethical, needlessly complex and too greedy to care.

Are you two talking about MERS or the United States Government?

[AZGrizFan]

Interesting...
I heard a story (it sounded true) where Washington Mutual (now defunct and owned by Chase) was attempting to foreclose on a home but the homeowner hired a lawyer and made WAMU prove they owned the Title... which they were unable to do in a reasonable amount of time (the court date came and went) and WAMU had no proof of title other than data they get when they purchase bundled loans by the hundreds...

This will make the bundling and selling of loans more difficult

would appear to be the intent of the bill...

Great. But, if Fannie and Freddie go away as has been rumored lately, the packaging and selling of loans will become a thing of the past anyways. What a concept: retain the risk you underwrite on your OWN balance sheet.

You will see homeownership plummet to the 50% or less range if that happens.

[kalm]

would appear to be the intent of the bill...

Great. But, if Fannie and Freddie go away as has been rumored lately, the packaging and selling of loans will become a thing of the past anyways. What a concept: retain the risk you underwrite on your OWN balance sheet.

You will see homeownership plummet to the 50% or less range if that happens.

Given the rate of unemployment and amount of personal debt, is that bad thing in the long run?

[AZGrizFan]

Great. But, if Fannie and Freddie go away as has been rumored lately, the packaging and selling of loans will become a thing of the past anyways. What a concept: retain the risk you underwrite on your OWN balance sheet.

You will see homeownership plummet to the 50% or less range if that happens.

Given the rate of unemployment and amount of personal debt, is that bad thing in the long run?

Nope. Thank Bill Clinton & Barney Frank for coming up with an arbitrary # of 65% that they just HAD to hit.

[GannonFan]

Given the rate of unemployment and amount of personal debt, is that bad thing in the long run?

Nope. Thank Bill Clinton & Barney Frank for coming up with an arbitrary # of 65% that they just HAD to hit.

Well, throw Bush into that as well since he made it a selling point of his administration that he was boosting home ownership rates.

As for where the rates go in the absence of Fannie/Freddie, there are plenty of schools of thought out there that eventually the levels won't be vastly different with or without those government entities. Plenty of other countries have similar home ownership rates and yet they don't have bodies like that out there to help get there.

[dbackjon]

Nope. Thank Bill Clinton & Barney Frank for coming up with an arbitrary # of 65% that they just HAD to hit.

Well, throw Bush into that as well since he made it a selling point of his administration that he was boosting home ownership rates.

As for where the rates go in the absence of Fannie/Freddie, there are plenty of schools of thought out there that eventually the levels won't be vastly different with or without those government entities. Plenty of other countries have similar home ownership rates and yet they don't have bodies like that out there to help get there.

Or mortgage deductions... 60-65% seems to be a common number