Saturday, November 17, 2018

Think It’s a Great Time to Buy Real Estate? Think Again

Chain of title problems and improper foreclosures have created a mess that may take years to sort out—and until that happens, it will be hard to know whether you really own the house you buy.

The wave of foreclosures that was once projected to peak in 2009 and then in 2010 just keeps coming: wishful projections aside, there’s no clear end in sight. And since any guess as to when the market will stabilize is just that—a guess—opinions as to whether or not this is a good time to buy real estate vary. But that’s because most analysts are looking at the wrong factors. The real question for anyone considering buying real estate today isn’t whether prices will continue to fall, rise again or stay stable. The real question for a home buyer today is “When the dust settles, will I actually own this house?”

In January, a Massachusetts court ruled that a bank couldn’t foreclose on a property if it couldn’t demonstrate a proper chain of title. That shouldn’t have come as a surprise: the ruling basically affirmed that only an entity with a valid security interest in the property could foreclose on the property. But the Massachusetts court took that rule to its logical conclusion and invalidated the two foreclosures in question—foreclosures that had occurred nearly four years earlier.

Legally, the decision was the correct one, but it sent shock waves through the industry because those two cases were far from the only ones in which the chain of title was questionable. And many of those foreclosed properties—perhaps hundreds of thousands of them—had already been transferred to new owners who had paid value in good faith. Suddenly, the future of those properties was back in question. The Massachusetts case isn’t binding precedent in other states, but the same issue is cropping up around the country.

Earlier this year, the Florida Bar advised foreclosure attorneys that they were obligated to inform the court if they had reason to believe that forged or fraudulent documents were being entered into evidence, even if the case was closed and the property had already been re-sold.

Where the dust settles on those improper foreclosures remains to be seen, and purchasing a foreclosure property without thoroughly investigating the chain of title and the foreclosure procedure followed in the case would be a bit like rolling the dice in Vegas. But it doesn’t end there. If these issues applied only to foreclosed properties, it would be a simple matter to avoid them. It might limit a buyer’s options in the current market, but it would be possible. However, the widespread disregard for legal process and even fraud in the mortgage industry calls many other properties into question—perhaps most properties.

In the rush to flip, slice, dice and securitize mortgage debt over the past 10-15 years, a lot of corners were cut. And, frankly, a lot of laws were broken.

Conservatively, 60% of current US mortgages are held by MERS, an electronic recording company. However, the manner in which MERS “holds” those notes has no legal basis in most states, and recording statutes have largely been ignored. As a result, many transfers that have taken place within the MERS system aren’t valid. It’s difficult or impossible to untangle who really owns the note and has the ability to transfer it or release a security interest.

To further complicate an already disastrous situation, recent revelations of widespread robo-signing have created new doubts about the chain of title with regard to hundreds of thousands (or perhaps millions) of properties. Because of the sloppy transfers described above, many mortgage servicers found themselves entering the foreclosure fray without valid documents. For a while, that wasn’t too much of a problem: they’d simply whip up an affidavit saying the note was lost and proceed as usual. But through the efforts of a handful of consumer attorneys like O. Max Gardner, III and April Charney, courts began to recognize that the problem ran deeper than a lost note and homeowners and their attorneys began to see ways to fight foreclosure. When that happened, servicers needed a paper trail.

Since that paper trail didn’t exist, many mortgage servicers set about creating it, some with the help of outside companies like the now-defunct Lender Processing Services subsidiary DocX. Low-level employees spent each day sitting in rooms forging the back-dated signatures of people who had been falsely appointed Vice-Presidents of various institutions to try to plug the holes in the paper trail. But the rush continued; some robo-signers say they processed a thousand documents a day. That meant sloppy work, and the forgeries soon became obvious.

Registers of Deeds like Jeff Thigpen in North Carolina and John O’Brien in Massachusetts started digging into their records, and discovered thousands of forged documents. Although it remains to be seen how those documents will be handled, both men have pledged to reject any new documents that contain forgeries. That might seem like a no-brainer, but the consequences will be serious: there are hundreds of thousands of forged documents floating around in the chains of title of existing properties, and thus far no clear answer as to how homeowners can obtain valid title to their own homes or effect a valid transfer.

With those questions unanswered, purchasing real property can be very risky business.

About the Writer

Tiffany Sanders is a retired attorney and educator currently making her living as a writer. Her publications range from fiction and parenting articles to music history and legal commentary.
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7 comments on Think It’s a Great Time to Buy Real Estate? Think Again

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By Theresa H Hall on June 13, 2011 at 04:41 pm

You certainly hit the nail on the head with this article Tiffany. There have been a lot of cagey dealings going on for quite some time, and the fact there are attorneys willing to stand up and shout down the mortgage banking industry is refreshing.

Losing one's home isn't the end of the world, but it is an end of an era ... living like the Jones Family really cares a hoot about what you and your family are doing. More possessions don't make for a finer life. The quality of life is in your thinking about living instead of hoarding things which can be bought.

It's a strong lesson to learn, and for those of us who have learned the hard way, your article might just give some one out there the glimmer of hope they need to press forward and retain their home for a bit longer.

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By Tiffany Sanders on June 14, 2011 at 10:40 am

Thanks, Theresa. I would definitely encourage anyone facing foreclosure at this point to fight tooth and nail IF keeping the home makes sense for them. The process has been so mangled that there are many defenses available and while that rarely results in the "free houses" some want to complain about, it does mean that mortgage servicers have a new incentive to negotiate; otherwise, foreclosure is more profitable for them than modification. But keeping the house isn't the right answer for everyone, either--declining real property values combined with low initial equity have put a lot of people in the position where keeping the house is a losing proposition even if they are able to swing it.

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By Lady D on June 14, 2011 at 07:51 pm

Great article. My question is, do you really ever own the home you buy? Even if your home was completely paid for years ago, the fax man still must be paid or... so do you ever really own it?

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By Tiffany Sanders on June 14, 2011 at 10:45 pm

Lady D, you're basically asking if you ever really own ANYTHING, aren't you? Because your home is hardly the only asset that can be levied against for unpaid tax debt--or many other kinds of debt. If you don't pay your income taxes, the IRS can seize your bank account, and if you don't pay your credit card bill Chase can sue you and use the judgment to attach your boat or your jewelry or any other valuable (non-exempt) asset they can find out about.

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By Theresa H Hall on June 15, 2011 at 02:06 pm

Downsizing is becoming more and more attractive. Maybe an RV is in my future? I keep hearing Tom Selleck's voice-overs "Go RV'ing!"

Less possessions means more freedom of movement. Remember when we all were first fresh out of school and renting an apartment with friends? We didn't have much but we had all those good times. Ah ... (sighs).

Really a good read Tiffany!

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By Lady D on June 15, 2011 at 02:49 pm

Teresa, If you do the RV thing make sure you can live in a small space for a long period of time. I just moved from a small winnobago to a house, feeling the space feels good.

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By Tiffany Sanders on June 17, 2011 at 11:52 pm

Theresa, I have actually only ever owned a house once, very briefly, and it's not something I have any particular inclination to do again. Ownership doesn't mean much to me, and I decided a long time ago that I'd rather spend my money traveling with my daughter and taking her to the theater and supporting her creative interests and such than buying stuff. I'm quite content to rent, usually less than we can afford, and to stick to used cars I can pay for in cash.

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