A Crumbling House Riding a Black Horse


Half million dollar house in Salinas, Californ...
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It’s been a while since I did this particular type of post, and for that I apologize for that.  We’ve had a few minor emergencies including having to pull out of buying a house due to the water damage being more extensive and expensive than originally thought.  We’re currently looking at going back to an apartment and saving up for another year before making another go at home ownership.

Which leads into our first item . . .

“Bank of America, the nation’s largest lender, said Friday it will suspend foreclosure sales across the country, a decision that could confound some Texans at risk of losing their homes and put further pressure on an already-struggling housing market,” reports Chron.com. They were joined by J.P. Morgan.

Why is BoA putting a hold on its forclosures?  Well, it turns out that an enormous number of home loans simply do not have the right paperwork anymore . . . and the banks are overwhelmed trying to review them all.  J.P. Morgan found 56,000 foreclosures that it’s employees didn’t bother to read.  Brent Arends notes,

In one case, a bank employee said she was approving 8,000 foreclosures a month. By my math, that’s roughly one for every minute and a half. No, she wasn’t reading all the documents thoroughly. (As one wit observed, the banks paid about as much attention to foreclosing on the loans as they did to making them five years ago.)

Complicating the issue even further is the securitization of home loans; that is, the practice of bundling home loans together into investment packages to be sold on Wall Street.  As a result of such bundling, Diana Olick explains,

Mortgages and property titles are transferred several times in the process of a home purchase from originators to securitization sponsors to depositors to trusts. Trustees hold the note (which is the IOU on the mortgage), the mortgage (the security that says the house is collateral) and the assignment of the note and security instrument.

The issue is in that final stage getting to the trust. The law demands that when the papers get moved around they are “wet ink,” that is, real signatures on real paper. But Prof. Levin tells me that’s not the worst of it. Affidavits assigned to the notes and security instruments are supposed to be endorsed over to the trust at the time of sale, but in many foreclosure scenarios the affidavits have been backdated illegally.

The paper trail for many homes has become so muddled and so fraud-ridden that one California family, under advice from their lawyer, broke back into their foreclosed home with local news crews observing, claiming that they had been fraudulently evicted.  Police arrived but did not stop them.

The situation is so bad, in fact, that USA Today reports that “Old Republic National Title Insurance, among the nation’s largest title insurance companies, will no longer write new policies for homes foreclosed upon by J.P. Morgan Chase and Ally Financial’s GMAC Mortgage unit –– a sign that concerns about faulty foreclosure paperwork could now endanger new sales of foreclosed homes.”

Wow.  I’m not an economist or a real estate lawyer, but even I can see how bad this is.  Even those with houses which have never been in foreclosure may have trouble establishing ownership when they want to sell.  Those buying foreclosed houses may find themselves facing previous owners claiming fraud.

I’ll abstain from offering advice outside of my area of expertise, other than to say that you should protect yourself and demand your rights.



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