Wall Street Journal Figures Out Massive Chain of Title Problem


The Wall Street Journal discovers today that the banks have hit what they call a “foreclosure hurdle.” Just a hurdle, just something to be jumped with Edwin Moses-like effortlessness. Not “the effective destruction of the land recording system in America,” just a hurdle.

Here’s what they’re talking about:

…some delinquent borrowers are successfully arguing that their mortgage companies can’t prove they own the loans and therefore don’t have the right to foreclose.

These “show me the paper” cases have been winding through the courts for several years. But in recent months, some judges have been siding with borrowers and stopping foreclosures after concluding that banks’ paperwork problems are more serious than previously thought and raise broader ethical questions.

This year, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and others have raised questions about whether banks properly demonstrated ownership.

I’ll give you the quintessential version of these cases, of which dozens have been forwarded my way over the past several weeks. In a recent case in Oregon, a US district judge stopped a foreclosure proceeding because of questions about MERS. The judge also mused whether Oregon, a non-judicial foreclosure state, needed judicial supervision to determine the extent of the improprieties in the mortgage system.

(Judge Owen) Panner specifically warned of problems in cases involving the Mortgage Electronic Registration System. MERS was set up by the banking industry to rapidly package and sell mortgages as securities without recording each sale in county recorder offices.

The “MERS system raises serious concerns regarding the appropriateness and validity of foreclosure by advertisement and sale outside of any judicial proceeding,” he said Wednesday in a 16-page ruling.

“Given the numerous problems I see in nearly every non-judicial foreclosure case I preside over, a procedure relying on a bank or trustee to self-assess its own authority to foreclose is deeply troubling to me,” he wrote […]

“MERS makes it much more difficult for all parties to discover who owns the loan,” Panner wrote. “When a borrower on the verge of default cannot find out who has the authority to modify the loan, a modification or a short sale, even if beneficial to both the borrower and the beneficiary, cannot occur.”

Here’s how the banking industry reacted. They sought refuge with the Oregon legislature, pushing a bill that would retroactively legalize MERS in Oregon and change the recording requirements needed in the state for MERS to foreclose. None of the transfers of the loan in question in the court case were recorded in the county office. This legislation would legalize that current violation of the law in Oregon, and would “relieve lenders of ensuring a property’s ownership history is properly recorded in public records before foreclosing outside a courtroom.”

So far, the legislation has been delayed in committee, but if it passed, it would set a standard for how the bank lobby could proceed in states where MERS has come into question. They would merely get the state legislature to legalize whatever illegal practice has been signified by the courts. Consumer and housing advocates are fighting this in Oregon with everything they’ve got, given the precedent it would set.

Hopefully they will succeed. Because this is really the last gasp for the industry, appealing for a “get out of jail free” card. The evidence is clear: banks flubbed mortgage assignments in MBS deals, and are backdating, fabricating and forging documents to cover it up. They split with accepted practice for hundreds of years and did not engage in the careful system of land transfer that is an essential component of modern society. Judges who actually see the evidence cannot deny this.

The investors are finally peeking in on this and seeing that mortgage servicers are not acting in their interests with their rush to foreclose. State Attorneys General have finally begun investigating all these associated practices from the industry, and even in a conservative state like Utah, the AG unequivocally told Bank of America that one of their units is engaging in illegal foreclosures.

So this all makes the Oregon case very important, as it represents a safety valve for the banks. A denial there means that they will simply not be able to foreclose on a growing number of borrowers. As foreclosure defense attorney Thomas Ice says, “This is a huge assault on our legal system,” and judges have caught up to it. The question is whether the banks can manipulate the other branches of government to get out of it.