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Friday, February 22, 2008

Stupidity To The Fifth Power

Ah, heck. I read this Bloomberg article this morning and felt like hanging it all up. There's too much BS in this article to cover without citing more than half of it. The bottom line is that no, when a lawyer goes to court and points out to the judge that the outfit trying to foreclose on his or her client hasn't shown they own the mortgage, the judge is not being some sort of social activist by requesting the documents to prove it. Statements like:
Requiring banks to produce the paperwork at a foreclosure hearing is a nuisance, said Jeffrey Naimon, a partner in the Washington office of Buckley Kolar LLP.

``It's a gigantic waste of time,'' Naimon said. ``The mortgage may have transferred five, six, eight times. It's possible that you don't have all the pieces of paper, but it was enough to convince the next guy in the chain. There's no true controversy over whether the owner owns the loan.''
Bullshit. Why does MERS, the industry standard, require that the proper documentation be produced before they add it to their system? They don't want the liabilities, that's why. If you don't verify that the true owner of the debt is foreclosing, you may in fact be giving property owned by someone else to an entity with no claim. You may also be wrongfully foreclosing on the owner. It does happen.

For example, the Chief ran into this once. What happened is that the organization that owned his mortgage merged with another, and then sold a piece. So two entities merged, and then were split into two entities. Due to a little problem with recordkeeping, it ended up that both of the final entities had his one mortgage on their individual books. Both were trying to collect and he switched making payments between entities when contacted and told that he was making payments to the wrong place. He made every payment, spent months trying to prove to each of them that he had made every payment, hired a lawyer to write a letter, and still a foreclosure action was filed. He and the lawyer went to court with the original note and proof of payment, and the judge dismissed the foreclosure. As part of the dismissal it was stipulated which entity had rights to the payments and the other entity had to transfer the payments it had to the entity that rightfully owned the mortgage. The late charges were cancelled, etc. It took another year and a half to get the loan books fixed and all the payments properly credited.

The idea that these documents are a "waste of time" is beyond crazy. Obviously the recent climate has the potential to generate confusion, but that only serves to point out the necessity of covering all the bases. To imply that judges are the problem here is quite an amazing legal theory.

I cannot believe that some of the lawyers quoted in this article were lunatic enough to make these statements. Of my immediate family, every single one have had problems with their mortgages. Every one - and it hasn't been that the payments were missing. When servicing is transferred it is not rare to have some confusion, but it is very odd indeed to have lawyers claiming that legal documents establishing ownership are erroneous and irrelevant. With every month that passes I grow more convinced that we are eventually going to have more federal legislation to deal with the excesses of an industry that has grown fat, criminally arrogant, sloppy, and proud of it.

I hope Tanta goes to town on this.

I do not believe for one moment that most of these documents have been lost. I just think everyone is trying to operate as cheaply as possible and becoming irate when called on the sloppiness. Remember CW's "fake but accurate" escrow letters? The bottom line is that the homeowner either made payments or didn't. If they did but the payments got mislaid in the shuffle, the homeowner will have to prove payment in court. If they didn't, making sure that the legal owner of the debt is the entity that sells the property and take the proceeds is quite important.

For example, in at least some states failure to file the original mortgage or deed of trust within a certain period will result in losing your claim to the property. You'll still have a debt, and you can go to court to collect, but you don't have the legal right to foreclose for nonpayment of that debt. You'd have to get a judgment and then file against the property to satisfy the judgment, but if anyone else had since lent against it, you'd be up a creek without a paddle. An expensive error - but look at it another way. If someone applies for a loan secured by that property, and you never recorded your lien, and the subsequent creditor couldn't find any trace of it and so lent money secured by a free and clear property, why should they pay for your mistake? Perfection of security is always the responsibility of the creditor. How can a meaningful system work otherwise? It is the same with mortgages.

If people are buying mortgages without bothering to verify the legal provenance they're crazily stupid, and you cannot blame a judge for other people's crazy stupidity. But I believe that the ownership is really known in almost all cases, and that these foreclosures are being sloppily prepared. I do have questions as to why the homeowners would spend all the money for legal fees unless they believe that they eventually have a good chance of keeping the property, which would imply that they think there is something wrong with the reported arrears, so I find the headline on this article "
Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish" a bit demented.

Believe me, if community banks operated like this they'd be out of business in a heartbeat.

There is one reason why lawyers might routinely file affidavits saying the note was lost when it wasn't. That is to avoid potential grounds for litigation due to improper booking, rate adjustment or transfer of the loan. Oddly enough, many borrowers do not keep their copies of the original note or notes. This passage raises a lot of questions:
Nobody knows how widespread the use of lost-note affidavits are, Charney said. She's had foreclosure proceedings for 300 clients dismissed or postponed in the past year, with about 80 percent of them involving lost-note affidavits, she said.

``They raise the issue of whether the trusts own the loans at all,'' Charney said. ``Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule.''
If they are the rule something is wrong.

ed in texas

There's a legal/financial principle here that you seem to be missing.

"Rules are for the little people."
Well, in this case the rule is that if you try to collect a debt you may find that you have to prove that you are really owed the money. The fact that the judges are applying that rule is good for the "little people" and seems to be making a lot of lawyers incredulous, irritated or both.

So, yes, in a country of laws rather than men the little people do need the rules.
I agree -- no ticky, no laundry. Or, to paraphrase Tom Cruise: "SHOW ME THE MORTGAGE!!!"
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