Naked Capitalism – Latest Real Estate Time Bomb: Title of Foreclosed Properties Clouded; Wells Fargo Dumping Risk on Hapless Buyers

A post from 4closureFraud.org  on Toxic Titles from last February gets a little attention over at the Naked Capitalism Blog…

I am starting to see things ramping up here everyone. More and more respected outlets on the web are catching on the the games we all have been screaming about for years…

Check out the article below if you haven’t already.

Toxic Titles effect everyone…

From my post in February…

Recently Discovered Flaw in Recording System Clouds Titles on Previously Foreclosed Properties

Looks like the title industry is starting to catch on…

PRWEB

The modern system of mortgage refinancing and assignments created during the housing boom has left behind a wave of title defects on properties that have ever had a foreclosure in their history, due to a loophole in the property records recording system. This has been detected on a number of properties currently in foreclosure, and found to have been uncorrected on properties previously foreclosed.

“A significant number of previously foreclosed properties have a title defect which could technically affect ownership rights for future owner.”

Dawsonville, GA (PRWEB) February 10, 2010 — A previously undetected title flaw has been discovered on many previously foreclosed properties. As the number of real estate foreclosures skyrockets, the odds are higher that a home you live in today, or at some point in the future may have had a foreclosure in its history. Even if the foreclosure has long since passed, a loophole in the way mortgages are recorded can create a serious title defect for future owners. Title analysis performed this month by AFX Title has detected this error to be common in random samples of properties it reviewed. “This could affect the property ownership of millions of homes nationwide” said David Pelligrinelli, of AFX Title. “The mortgage recording method which created this title flaw did not exist until recently. As title abstractors are just seeing this problem emerge now but a wave of title claims is coming over the next year or so.”

The problem is created through a break in the chain of mortgage ownership. Until the 1980’s, most mortgages were loans between the homeowner and a bank, who lent the money directly. More recently, the mortgage financing system transformed into an international system of securitization, with mortgage lenders packaging their loans into securities, bought and sold by investors like stocks. These transactions even split individual mortgages into sections, where each loan could have parts owned by different investment banks.

The transfer of ownership in these mortgage backed securities (MBS) was done with contracts on the balance sheets of Wall Street investment banks, such as Morgan Stanley and Goldman Sachs. The company who originally appeared to make the loan was normally a retail lending company such as Countrywide or Lending Tree, who typically acted as a sales company, and sometimes remained contracted to service the loan.

In the event that the loan goes into foreclosure at a later date, the then-current owner of the loan files the foreclosure and sells the property to a new owner, often at auction. The land records would show a deed of transfer from the investment bank to the new owner. This creates a break in the chain of ownership of the mortgage rights. In many cases, the transfer of ownership of the mortgage loan has gone from the original lender, through several owners, and then to the foreclosing bank, none of which is recorded on the property title history. Technically, the foreclosing bank has no recorded title rights to foreclose in the first place. Owners of the loan normally do not publicly record each of the transfers out of expediency, and cost. Filing a document of transfer (called an assignment) in the land records incurs a substantial fee paid to the county clerk.

Some delinquent homeowners have used this error to delay the foreclosure, forcing lenders to “produce the note.” In these cases, the bank has to go through the process of getting assignments to the foreclosing bank after the fact. However, the title repair process is not required however in the majority of cases when the homeowner does not contest the foreclosure.

This leaves the break in chain of title dormant in the property records, vulnerable to be contested in the future. A few largely overlooked cases have already been decided by courts on this issue. In Lowell MA, a judge invalidated the foreclosure of homes based on missing and out-of-order assignments (US Bank v Ibanez).

Unraveling the chain of title and clarifying ownership of loans will create challenges for the courts and legislative bodies in all states. In the meantime, homeowners and buyers should be aware of how this could affect their property title. There are reports that some title insurers are indicating that they will not insure for this title defect.

As a national provider of property title searches, AFX Title is seeing an increasing number of files where the chain of title has obvious gaps in the recorded mortgage assignments. According to Pelligrinelli, the issue is serious. “When running searches for clients, we are noticing that a significant number of previously foreclosed properties have unconnected chain of assignments in the mortgage history. This could represent a title defect which could technically affect ownership rights for future owner.

Pelligrinelli adds that some lenders and government institutions are rushing to repair the titles on lender-owned properties as they discover them in their portfolio. This does not help individual owners who own properties previously foreclosed.

Editors note…

I wonder if they are trying to “repair titles” by filing BOGUS (literally) mortgage assignments…

4closureFraud
www.4closureFraud.org

This is where Naked Capitalism comes in…

Latest Real Estate Time Bomb: Title of Foreclosed Properties Clouded; Wells Fargo Dumping Risk on Hapless Buyers

Another ticking time bomb in the realm of real estate bad behavior is bound to go off sooner rather than later, and it is likely to impede normalization of values of residential property.

As readers no doubt know, there is a lot of actual and shadow residential real estate inventory in the US. The time from serious delinquency to foreclosure has lengthened considerably, due not just to crowded court dockets, but also bank/servicer disinclination to take possession (reasons include that investors take a dim view of bank real estate holdings; the bank is liable for expenses, most important real estate taxes, once it takes possession; more foreclosures would lead banks to have to write down clearly overvalued second mortgages, leading to losses and lowering bank capital levels).

Most analysts have argued that it would be preferable to accelerate the process of clearing the overhang of housing inventory, since prices need ultimately to return to price level in relationship to incomes and rent rates more in line with long standing historical norms. And the officialdom seems to accept this view, since Fannie and Freddie are pressuring servicers to move faster on foreclosures.

But what if this resolution process has new land mines planted in it? What if there are not widely understood impediement to foreclosed properties ending up with new owners? If there are good reasons buyers will have reason to be leery of buying houses out of foreclosure, we could have a lot of homes sitting vacant, a blight on neighborhoods and a source of even greater losses to banks and investors.

Yet it appears that the very same sort of corners-cutting that led financial firms to shovel money to weak borrowers could impede working through the inventory of seized residential real estate. An article discusses an analysis by AFX Title, a title search company, that shows problems with title on foreclosed properties to be widespread:

Referring to the issues in my post above…

In a nut shell:

Technically, the foreclosing bank has no recorded title rights to foreclose in the first place

Then the writer over at Naked Capitalism goes on to say some interesting things about the sales of foreclosed homes…

Yves here. Some readers may take this all to be unduly alarmist. But confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.

Now why is this a big deal? Go reread the boldfaced sentence above. If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own.

Let’s say you buy a vase from a store. You open the box when you get home and find out the box is empty. You’d clearly be within your rights to get your money back.

With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.

Let’s go back and give a bit of context. Wells is encouraging buyers in foreclosures to use its attorney and title insurers and reportedly offers to split fees. So the bank is taking steps to steer buyers not to get legal advice. This matters because the problems in this document would not be evident to a layperson. And it’s not even evident to lawyers not expert in real estate; I learned about this situation because a lawyer I know who does a fair bit of real estate work had been contacted by a friend of his, a lawyer looking to buy a house over foreclosure. Wells had presented the prospective buyer with this supposed “standard” addendum on the day of closing and said they would not negotiate it (you can read it in full at ScribD). The buyer was advised not to sign it.

On the surface, this document may not seem all that troubling. But what it does, in effect, is say “Warning, warning, you are buying a property out of foreclosure, there is risk here, and you can’t hold us responsible for anything we told you in the sale process.” (see paragraphs 1 and 2). Now the not-trivial problem with that is: how can you possibly evaluate the risk of buying a property out of foreclosure without asking the current owner? And if the current owner isn’t legally responsible for what they say, or more important, what they deny is a problem, they buyer cannot perform effective due diligence. This vitiates a principle that is well embodied in most areas of consumer and business law, that a seller is liable for the representations he makes about his wares.

Now specifically, the potential problem with the deal is the bank in many states will at best be giving the buyer a “quitclaim” deed (the addendum finesses this in paragraph 18, that the buyer only gets a “special/limited warranty deed. As the lawyer who took a dim view of this addendum put it, “This is like the ‘Special Olympics,’ not like ‘You are my special someone’.” That means the bank is merely transferring whatever it interest it has.

But per the AFX article above, the bank may own nothing. It may have foreclosed without having a clear enforceable right to the property (this is the basis of the burgeoning number of cases where borrowers are successfully challenging the bank/servicer’s right to foreclose, because it cannot prove it actually owns the note, which is the IOU between the borrower and the lender; if you don’t own the note, in 45 states, you have no right to enforce the lien on the property).

Now this little problem can be solved by title insurance, right? Well, guess what, some title insurers have exited the business, some others are starting to write policies with meaningful exceptions when they can’t go to the courthouse and find a clear chain of title. Oh, and Wells is trying to steer you towards their title insurer. What do you think the odds are that their title insurance policy doesn’t have exceptions?

So what is the risk? The lawyer explains:

The typical (unsophisticated) buyer thinks that because they have a lawyer at closing (no matter whose lawyer it is), a title policy, etc…….that they are all safe and sound. They struggle through one of these REO transactions for a month or two, finally get in the house, something bad goes wrong, and they find out that 1) the title policy won’t cover them and 2) the land isn’t unique (see the nasty provision in paragraph 27 on “specific performance”), so a refund is all you get – and you are out on your ear. Hopefully, with a refund – and that may be the best outcome. But if somebody comes in, and voids a foreclosure, your title policy doesn’t pay – Wells Fargo has clearly disclosed that this was a foreclosure, so you only got what they had (nothing), and you have no recourse, no insurance, and guess what, an unsecured loan for half a million bucks.

Given how many sales will be done out of REO, and the rising number of problems surfacing with making sure that mortgage securitizations took all the steps to become the real party of interest in a particular property, it is only a matter of time before we see some blowups of the sort the attorney was worried about, of a buyer shelling out hard dollars for a house, or taking a big mortgage, and winding up with nothing. And a few incidents like that getting the press they deserve will put a pall on REO sales.

Think the risk isn’t real? Then why has Wells bothered to insist that REO buyers sign a new type of addendum, when it has been selling REO for decades? This effort to shift all title risks on to the buyer is a tacit admission of problems. And look at the document itself. The buyer has to initial it in eight places as well as sign it. That’s a clear statement of Wells’ intent to shift the risk to the buyer.

Wait until the masses find out what is going on in the Florida court system and realize thousands of properties a week are hitting the market with title problems. In my opinion, titles in Florida, and probably everywhere else have been destroyed…

Good thing we have MERS to track em…

~

4closureFraud.org

~

Buyer Beware – Wells Fargo Standard Sellers Form REO Addendum

Comments
18 Responses to “Naked Capitalism – Latest Real Estate Time Bomb: Title of Foreclosed Properties Clouded; Wells Fargo Dumping Risk on Hapless Buyers”
  1. marilyn lane says:

    Even when a bank like Astoria Federal S & L admits they didn’t own my two condos when their corrupt attorneys auctioned them off, and the bank’s new attorney stated its Indemnify Indemnify Indemnify, we are stepping aside and the title attorneys are taking over.

    In steps Frank Malone of Fidelity National Title and David K Fiveson of Coronet Title who don’t want to indemnify but want their forged deeds to act as good and they paid a bribe to Judge Alice Schlesinger of NYSC for her to see it their way.

    Fidelity;s LPS Docx forgerys and false documents are the tip of the iceberg. There is not a morsal of honesty or ethics in that company.

    Time to indict William P Foley, CEO of Fidelity National Title and former chairman of Lenders Processing Service. Who is going to indict him in Florida when AG Bondi is connected to him. At least in New York
    we have AG Eric Schneiderman.

  2. If I’m wrong correct me , all the wellsfargo asset are stolen , everything the money and the realistate .anything after year 2001 march is stolen . All the banks asset are stolen , so if they have no insurance they could be hi jacked . But tittle insurance is soppose to be a up front thing on.a sell if u a good seller .I had one property I told the folks who bought it from the fraud , about its hi jacked the land and he said he didn’t care he had tittle insurance . But where is the , fraud flag for the buyer to no this stuff hi jacked . This is crazy . If a warrent hit 2004 stolen . fraud flag should have stop everybody rite their . I mean the flag should have stop when they tried summite tax return and other ss number requireing documents to state and federal govements ,. I now u can’t shoot them folks fasle ss number and they don’t flag or catch that a ss number is fake , donnit , I tried get a credic card one times just trying with a wrong ssnumber , and the company told me I had a false number . So u can’t get by with a false ss number with nobody relly . So how did they do it . ?

  3. malikgrimes says:

    All the banks ! Have a fraudulent president owner . Starting with lasalla bank na ,and indymac bancorp .I’d theft 1st degree of it . With fraudulent activtys .michael david grimes sr has been arrested a few times for fraud , I haven’t been served not 1 court date I’m the vitim of all this fraud “.gbi” atl ga Fulton county da office, mr bobby wolf and mr long has my contact infor . This is a night mare . I want to be in court to see who robbed me and left me for dead .

  4. malikgrimes says:

    I’m a sue the kitchen sink off mers ! They no good and well that not me , michael d grimes sr age 59 glori mayes 59 ,have chopped these folks minds up , got them think they me , a born bank banking giants with money skill that a kill a comet from space .headed toward earth , now wellsfargo bank na , wachovia ,and bank of america , and jpmorgan new I had fraud by 2005 .they didn’t give a flying **** only get their pay ckecks and out the door .I don’t and will not run no companies like that , me and my family love our job and jobs doing banking and companies , these fraud crook got me my dad and all of this family looking like a pile of crap . And the public just letting them take everything ,nobody told them to touch wellsfargo , bank of america jpmorgan -etal .lisa duehring , at alliance bancorp been following the fraud for 10 years look like I bet she saying ! The law scard of them . Well I’m not , I’m waiting to meet them . Trust me I’m way bader than my great grand daddy on that jpmorgan picture in 1865 . And his son 1905 ap gannini ,in macon ga , and my aunt over in the mlk west end of atl ga mosly park aka hunter hill commity aka unitedbank / citizen&bank trust , in 1935 , and my dad over at the mlk jr.in person himself , house on auburn ave ne of atl ga .they better start loading my 10 million documents they took from my office on west end fast getting back to me , or I’m a send 6000 cops at them . With no laugh on their faces .

  5. Now kim from real house wives , knew about the united companies fraud , 2 years ago and didn’t say nothing . Kim kandashian too , paris hilton , they just didn’t give a flying plane . People we got to start careing for one a nother cause we all the same here . Middle class and low class need a 10 ,000 tax ckeck for 2011 . And all this fraud in all hi places need to stop . I need the police to arrest the overheard at alliance bancorp .all of them .starting with wellsfargo and wachovia bank merger fradulent , nobody told them to take the blue signs down , and nobody ask to to charge all my folks who bank with me all the fee s . I didn’t tell them to forclose no house ,if I evict somebody from a home of anything , they would have a chance first .hey my chances are well . They don’t call me fargo for nothing .the fraud at alliance bancorp and jpmorgan is just a warping mess . Don’t worry folks I’m a make this good ! When I’m back to my companies ! Folks a have their head up . Not down !

  6. malikgrimes says:

    Been dialing 911 for all of my companies sinse 2002 . Up to 2010 . Loophole somewhere , overheard at alliance bancorp should have never been . They got my family history looking like trash starting with wellsfargo , jpmorgan , and bank of america .they isent a way in the world a born banking giant,aka financial towel , a be elected to all of this stuff , and his hold career , put up for power of attoneys .and his skill been seen no where at all . That a sign their something wrong right their folks . That just like mike tyson saying hey , bush go fight my fight , that a not work out , bush a president not a bull fighter . All 236 of those companies by now should have about 400 trillion in funds in the companies saving accounts , folks with that much money ,100 trillion of that need to be giving back to the pulbic , for peek sake . Cause they world need some of the money back ,, that’s just a good saleman giving back to who help him get huge in funds . Now I would my self try give away tax free money to the public on my on pick and select . 75 billion at most . Which could be 1000 new million air . But I need my accounts and saving funds too do that . I need all my companies too do that . And I need to do this asap . For peek sake . Their so many familys that need a financial blessing . I have some of the oldest companies in the world american gen , 20 insurnace companies . 500 years of making money .

  7. malikgrimes says:

    I didn’t tell nobody to touch none of my companies , the law of the usa , letting all of this happen , cause the law of the land make the land work , but when the law don’t work , nothing wOrk , the law says if u have any problem call them , 911 .jp morgan , Citizen trust bank aka c&s bank , nationsbank , 1stunion bank na wachovia bank. South trust bank , united financial mortgage corp , united companies , centex home mortgage corp , buy rite home inc , delta financial corp , was taken from me , with no I’d or ss card , its just can’t be somebody can walk into the court of law a swear to the bible and just take a person stuff from them . Financial cris is because of fraudulent activtys in hi places , all hi place . Not just the court house , all of them . Now I want the cops to take care of this now . My companies paying huge amount of taxes , oh almost forgot the theves not paying the taxes . They taking that money too . Are the police scard of them , I’m not , I’m not scard of nobody but the almighty powerful god .this is 1st degree fraud , in every way their can be fraud .

  8. malikgrimes says:

    I didn’t tell nobody to touch none of my companies , the law of the usa , letting all of this happen , cause the law of the land make the land work , but when the law don’t work , nothing wOrk , the law says if u have any problem call them , 911 .jp morgan , Citizen trust bank aka c&s bank , nationsbank , 1stunion bank na wachovia bank. South trust bank , united financial mortgage corp , united companies , centex home mortgage corp , buy rite home inc , delta financial corp , was taken from me , with no I’d or ss card , its just can’t be somebody can walk into the court of law a swear to the bible and just take a person stuff from them . Financial cris is because of fraudulent activtys in hi places , all hi place . Not just the court house , all of them . Now I want the cops to take care of this now . My companies paying huge amount of taxes , oh almost forgot the theves not paying the taxes . They taking that money too . Are the police scard of them , I’m not , I’m not scard of nobody but the almighty powerful god .

  9. judge says:

    Hey indio007 , I am against the banks completely but what you do not understand is the banks chopped up those loans into thousands of pieces and sold them over and over again. Now that 200 dollar fee runs into the tens of thousands ! Here is an idea…………. The counties in all the states should demand these fees and then most of the states would be debt free! 🙂

  10. AW says:

    My house was foreclosed since March. we had filed Lis Pendens & quiet title. Judge allows the buyer of the house to intervene in the lawsuit. On county record, County Trustee & my name was grantor to new buyer
    for both confirmation deed & Public Trustee’s Certificate of Purchase. How can I win the quiet title suit.

    The loan was securitized.

    • Shannon says:

      In your Quiet title action, you may want to request from the defendant (bank) if they had clear title to foreclose in you. If the loan was securitized, were all of the assignment, substitutions or deed filed on your property done by a legitimate person or a robosigner? If your loan was securitized, the trustee would have to ensure they have the proper power of attorney to represent all investors involved in the pool of securities. Along with that, when the trustee sale was filed, did the bank have the legal right to actually stake a claim of you being in default. The borrower in your home, could lose out on the house. But you have to make sure that you put the bank into the hotseat. And you can ask the Judge to reverse the foreclosure & any future claims against your property.

      • AW says:

        under the quiet title lawsuit, can we ask that the foreclosure be considered null & void.
        as the time for appealing the foreclosure has passed. I doubt if the same judge who foreclosed on us will sign the default judgement for us to regain the title.

  11. leapfrog says:

    Thanks for the laugh (the last sentence – ‘Good thing we have MERS to track em…” Oh my, that was hilarious!

  12. housemanrob says:

    Here is a terrible thought……………or…is it……. remember the post offices and then the college campuses and then the discovery bldg incident in sept 2010. Could anger and despair, evolving into hate….cause these type of things…I mean…..could these banksters and brokers be next?

  13. housemanrob says:

    All I can say………………Who is the truly irresonsible parties here……the deadbeat homeowners?? HAHAHAHAHAHAHAHAHAHAHAHA……… You could not make thi stuff up. Nobody would believe it. Like a senior judge who forecloses on some 30 homes in one morning of court duty…..and says….”What is this hamp thing anyway????” Wes cravens “pinhead” from “hellbound” could not have said anything morehorrifying!!!!!!!!!!!!

  14. azusgm says:

    I backed out of a house deal with Freddie Mac last month after being presented with an addendum on a Friday afternoon. Since Freddie required a cashier’s check for the earnest money and my bank was out of town, my papers were not ready to turn in until the following Monday. The provisions of the addendum made me uncomfortable so I started searching on the internet for reports of title issues with GSE foreclosures. That weekend was when I read the California qui tam filing in the MERS case from the 4closurefraud.org website. By Sunday night, I was loaded for bear. On that Monday, I returned to the realtor’s office and offered a revision of Freddie’s addendum in which I insisted on a general warranty deed and a title policy to back up a general warranty. After a couple of weeks of back and forth, I offered to accept a special warranty deed that reached back to the date of the previous sale in 2007 (prior to the transfer into the MERS system). I made it perfectly clear that I view MERS as a bomb waiting to go off. Freddie’s lawyers refused to warrant the period under MERS, so our interactions were terminated. The house remains on the market and the asking price has been discounted another $5,000. I’m still house shopping. Now I do a title search before a walk-through.

    Thank you for pointing out the MERS bullet so it could be dodged.

  15. indio007 says:

    WHAT A BUNCH OF HORSESHIT!

    ” Filing a document of transfer (called an assignment) in the land records incurs a substantial fee paid to the county clerk.”

    OMFG HOW CAN A BANK AFFORD between $75 – $200 ?!?!?!!?

    Bull Crap it has nothing to do with the cost of the fee. What a lame excuse.

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