“In the West, this formal property system begins to process assets into capital by describing and organizing the most economically and socially useful aspects about assets, preserving this information in a recording system—as insertions in a written ledger or a blip on a computer disk—and then embodying it in a title. A set of detailed and precise legal rules governs this entire process. Formal property records and titles thus represent our shared concept of what is economically meaningful about any asset. They capture and organize all the relevant information required to conceptualize the potential value of an asset and so allow us to control it . . .

The reason capitalism has triumphed in the West and sputtered in the rest of the world is because most of the assets in Western nations have been integrated into one formal representational system . . . By transforming people with real property interests into accountable individuals, formal property created individuals from masses. People no longer needed to rely on neighborhood relationships or make local arrangements to protect their rights to assets. They were thus freed to explore how to generate surplus value from their own assets.”

-Hernando de Soto, The Mystery of Capital


The woes in the mortgage market are complex, deep and structural. This is more than just a few shortcuts taken by paralegals here and there — there are endemic structural problems within the US real estate and mortgage markets.  (Yesterday, we touched upon the problems associated with foreclosure mills).

We are not discussing economic problems of too many homes for sale and falling prices. What is being discussed here is a full blown crisis underlying home titles, foreclosure procedures, and securitized mortgages.  The rampant, epidemic and systemic abuse of legal property protections is now reaching a crisis.

Today, we will put that crisis into the greater context of the entire real estate industry, from purchases to the securitization of mortgages to default and foreclosure. What this discussion reveals are a series of short cuts, (il)legal fictions, and an utter disrespect for the mechanisms of legal property transfer that underlies our entire system of Capitalism. As Hernando de Soto discovered, the organized, reliable, functional systemic approach to property rights is the key reason why “Why Capitalism triumphs in the West and fails everywhere else.”

And we will see that at every step along the process, the reckless rush for easy profits has systemically undermined these legal property rights — how mortgages are recorded, the bungled bundling of notes to be securitized, the electronic system that fictionalized the process of assembling transfer documents, and how all the players along the way — The investment firms, banks, law firms, even court system, utterly lost sight of what they were doing.

If de Soto were to come to the United States today and review all of this, he would see a system that ignores its own laws, cheats on process, engages in wanton fraud, and is in danger of sliding not just backwards to the 18th century, but slipping towards a third world nation of dubious legal protections and the worst form of crony capitalism.

Welcome to 21st century America.


Capitalism in the West thrives because of our ability to legally transfer property, with confidence and certitude. A buyer knows they will be getting good title to  what they are buying, a lender can confidently encumber a property.

Only, not so much any more.

Centuries of property law have been undercut by the entire Real Estate financing complex.  From the mortgage brokers who told borrowers “just leave those lines blank, I’ll fill them in” to the banks that taught their own agents how to game their computer loan approval systems to the financial engineers assembling the mortgage sausage to the myriad law firms, process servers and courts that oversee those loans final resting place, the entire system has been corrupted as a cost-savings/profit maximizing exercise.

Here’s how to eviscerate the advantage of western law & economics in three simple steps

1) MERS:  We start with the Mortgage Electronic Registration Systems. MERS is a computer registry that was “created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands.” It holds over 60 million mortgages on American homes. Thanks to a legal fiction that pretends to follow the law — but actually does not — MERS has saved banks more than $1 billion. It has also turned what was a very successful system of tracking who owns what property and making it easy to transfer into a dysfunctional nightmare.

Gretchen Morgenson explains exactly how this worked, and then unraveled:

“For centuries, when a property changed hands, the transaction was submitted to county clerks who recorded it and filed it away. These records ensured that the history of a property’s ownership was complete and that the priority of multiple liens placed on the property — a mortgage and a home equity loan, for example — was accurate.

During the mortgage lending spree, however, home loans changed hands constantly. Those that ended up packaged inside of mortgage pools, for instance, were often involved in a dizzying series of transactions.

To avoid the costs and complexity of tracking all these exchanges, Fannie Mae, Freddie Mac and the mortgage industry set up MERS to record loan assignments electronically. This company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder . . .

As long as real estate prices rose, this system ran smoothly. When that trajectory stopped, however, foreclosures brought against delinquent borrowers began flooding the nation’s courts. MERS filed many of them . . .

As cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, was among the first to argue that MERS, which didn’t own the note or the mortgage, could not move against a borrower.Initially, judges rejected those arguments and allowed MERS foreclosures to proceed. Recently, however, MERS has begun losing some cases, and the Kansas ruling is a pivotal loss, experts say. While the matter before the Kansas Supreme Court didn’t involve an action that MERS took against a borrower, the registry’s legal standing is still central to the ruling.”

Because of the egregious abuse of the property transfers in the legal system, MERS eventually lost its legal shield and cloak of privacy.

More significant than that, their unique combination of legal fictions and incompetence implies a huge underlying problem with many of the structured finance. This means that Residential mortgage-backed securities (RMBS) and Collateralized Debt Obligation (CDO) that relied on MERS have enormous structural problems.

2) Improper Construction of RMBS/CDOs:

Structured mortgage securities are typically constructed as Trusts. The Trust holds the mortgage notes, which allows the bundling to occur.

Under normal circumstances, the re should be some assignment of  the Note by the original lender to the Trust. Frequently, this step did not occur. Nor did the requisite filing of the mortgage lien with the appropriate county clerk.

These errors plus the MERS issue led to very serious problems for much of the structured finance that was built on top of it. The creation of an RMBS or CDO needs at least two legal events to occur: One, the actual note the bank holds needs to be deposited into the Trust. Observe that it is the note holder who is entitled to receive principle and interest payments, who has a lien against the encumbered property, and has the right to foreclose and take the property in the event of a default.

The Note seems to  have been somehow ignored in the structuring process. And on top of that, the proper filing of the mortgage note every time a structured product changes hand was mostly ignored. As Corrente noted:

“Because of the expense, time and paperwork it would take to record each of the assignments of the thousands of mortgages in each securitization, Wall Street firms decided to just issue blank mortgage assignments all along the channel of transfers, skipping the actual physical recording of the mortgage at the county registry of deeds.

Astonishingly, representatives for the trusts have been foreclosing on homes across the country, evicting the families, then auctioning the homes, without a proper paper trail on the mortgage assignments or proof that they had legal standing. In some cases, the courts have allowed the representatives to foreclose and evict despite their admission that the original mortgage note is lost. (This raises the question as to whether these mortgage notes are really lost or might have been fraudulently used in multiple securitizations, a concern raised by some Wall Street veterans.)

See also The American Banker.

Karl Denniger went so far as to suggest the entire MERS/structured finance industry engages in such systemic illegality as to be guilty of RICO — the Racketeering statute used to bring down drug lords and mafia kingpins. If he is right, and I suspect he is, our Banana Republic status is getting ever closer.

3) Foreclosure Fraud: This is the third and final step to the disassembling of Capitalism’s property rights. It is indirectly related to prior two steps. Mostly it reflects the same disrespect for legal process int he headlong rush for profits, legal and otherwise.

We’ve discussed this before. Rather than repeat that diatribe, let me show exactly how endemic this is, via the price list for fabricating Foreclosure documents. From naked capitalism, (4ClosureFraud Posts Lender Processing Services Mortgage Document Fabrication Price Sheet), we learn that for a price, a firm will fabricate whatever documents need for foreclosure, real or otherwise.

This makes Denniger’s RICO accusation even more poignant. Need paper work for a foreclosure, legal or otherwise? There’s an app for that.

You can view the entire Lender Processing Services price sheet here.

Welcome to the Banana Republic…



How to Get an “Iffy” loan approved at JPM Chase (March 28th, 2008 )

The Mortgage Netherworld (April 26th, 2009)

Mortgage Electronic Registration Systems Loses Legal Shield (September 23rd, 2009)

Gretchen Explains MERS For You (September 27th, 2009)

Slowing the Runaway Foreclosure Train (October 4th, 2010)

How ‘Flawed’ Was the Paperwork? (October 4th, 2010)

The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto

Category: Bailouts, Credit, Foreclosures, Legal, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

117 Responses to “Foreclosure Fraud Reveals Structural & Legal Crisis”

  1. jdlfla says:

    Florida newspapers are reporting this morning that two of the three law firms identified as foreclosure mills have sued the Florida AG, claiming that the state has no standing to investigate misconduct and that only the Florida Bar can do so. Circuit Court Judge Cox in West Palm Beach has issued a ruling in favor of the law firm position. It will presumbably be appealed, but clearly these firms are going to fight against the end of this very profitable gravy train.

    It should be added that prior to this ruling Cox had entered his name for an open seat on the 4th Fla. Judicial District Court of Appeals, a promotion in terms of salary and power…It will be interesting to see how this affects his chances for the promotion.

  2. curbyourrisk says:

    Nice to see someone finally giving Mr. Denninger some props.. As he is the ONLY blogger out there who has been on this sham from 2007. He has been right all along, dspite many people referring to him as a kook or a fringe blogger.

    I give you props BR for doing so.

  3. rktbrkr says:

    Kentucky homeowners file class action RICO suit against Citi and Ditech/GMAC/Ally. Interesting both banks are US dependents. I think this is the first RICO case against these scoundrels


  4. wunsacon says:

    >> By transforming people with real property interests into accountable individuals, formal property created individuals from masses.

    …And the corporate form undoes that, by spreading accountability, making individuals un-accountable, shielding them from the negative consequences of their actions.

    What would happen if the world were run by partnerships, even limited liability partnerships, instead of corporations?

  5. I often disagree with Karl, but always find him thought provoking.

  6. dead hobo says:

    I’m going to take the other side of this and state this will amount to a two or four week story and then fade away and be forgotten. At worst, it will be a scandal on the fringes between those who committed outright fraud and those who simply went along with the flow.


    To allow borrowers who aren’t making payments to keep their homes and still not make payments because of paperwork flaws would amount to unjust enrichment. You may be a good person but that does not entitle you to a free house because you think you won the golden ticket.

    People usually don’t become managers because they are the best and the brightest. They often succeed because they get things done and their bosses feel good around them. Everybody screws up and the unwritten rule in life is “I’ll ignore your foul up if you ignore mine and if I can divert the blame into outer space somehow.” (The most important thing is making your boss feel good around you. The rest is often ancillary.) Also, if you blame a subordinate, you are indirectly accepting blame yourself and volunteering to fall on a sword. No successful manager ever does that.

    So, right now, the search is on to continue with foreclosures and paper over this paperwork problem. It will succeed.

    For example, signers aren’t guarantors in the bank. If a clerk (oops, now they’re called managers or directors) signed a lot of documents and read them, they wouldn’t be offering a better guarantee than if they auto penned them and shuffled them through. Overall, the end result is no different. The borrower loses the house.

    The transfer issue is really a fight between banks and the current holder of the note. The debtor still owes the money. The fight is really between who has the right to payments. And, again, topics such as unjust enrichment end up as the controlling issue after all embarrassments are resolved.

    Thus, the end result is a scandal followed by nothing really different except for possible the exposure of some real fraud in the mix. Eventually, some law may be written to modernize the realities of mortgages today.

  7. Dead Hobo –

    This is not an argument for allowing defaulters to live in their homes without paying. It is a discussion as to the illegal actions of banks and law firms that undercut legitimate property and procedural rights.

    The solution is to force the banker/lawyers to go back and do this right. That you could so totally miss this point is quite frankly, mystifying.

    Please reread the entire post. Nobody is suggesting giving the houses to the defaulted borrowers for free. That is simply an absurd strawman argument. How you from DO THE LEGAL PROCEDURES CORRECTLY to an entirely different GIVE DEFAULTED BORROWERS THEIR HOUSES FOR FREE is unfathomable . . . .

  8. rktbrkr says:

    I don’t know about the other sand states but the Florida legal system is starting to look like something out of a banana republic. Real estate/construction is one of the biggest industry in Florida and the other sand states and if they get mired in a decade long unraveling of foreclosure snafus then they will be in an extended great recession regardless of what is happening in the other states.

    We’re starting to see Gresham’s Law take effect or what kids used to call “electricity”. The bad subprime and AltA mortgages ripple out and affect all mortgages. The foreclosures ripple out and affect all real estate prices and now, finally fraudulent foreclosure documentation and clouded titles will ripple out to impact all foreclosure values which will in turn affect all other property values – especially if title insurance becomes unavailable. If widespread title problems are found in these big bank foreclosures then all foreclosures will be tarred with the same brush and some tar will be even be splattered on non-foreclosure homes especially in areas where foreclosures are a large portion of property sales. The nominal value of these foreclosed home will be like counterfeit currency.

    Florida has been looking toward foreign buyers to come in and snap up these real estate “bargains”. I think this situation has to be extra scary to an outsider.

    I think anyone contemplating a foreclosure purchase, especially in Florida, should finance as much of the purchase as possible to minimize their risk and to have a pro walking point for them.

  9. Ilya says:

    The dearly departed Tanta who contributed to the Calc Risk site pretty much nailed this coffin shut several years ago. The autopsy of a dead member of Corrupt Finance Inc. only confirms what we already knew.

  10. TJ says:

    When that whole rule of law thingie gets inconvenient, just get rid of it!

    Way to go, Hobo!

  11. [...] Is the foreclosure scanadal going to increase the number of strategic defaults?  (ROI also Big Picture) [...]

  12. Lugnut says:

    I for one would be interested in hearing some commentary from the SVP of Claims and/or Underwirting for Fidelity National, First American, or one of the other large title insurance companies.

    I bet those guys are having kittens over this deal.

    PS its a small testament to our civility as a nation that the fine folks of Shapiro & Fishman and other foreclosure mill firms haven’t driven in to work to find their building a burnt out smoking shell yet.

  13. dead hobo says:

    Barry Ritholtz Says:
    October 5th, 2010 at 9:25 am

    Dead Hobo –

    This is not an argument for allowing defaulters to live in their homes without paying. It is a discussion as to the illegal actions of banks and law firms that undercut legitimate property and procedural rights.

    The solution is to force the banker/lawyers to go back and do thid right.

    That you could so totally miss this point is quite frankly, mystifying.

    Wow. So, why don’t you project out (no, this isn’t an assignment. It’s a challenge to defend your opinion on how this resolves) and guesstimate how this will end if a few weeks. Total gridlock and the end of foreclosure as we know it or a new means to deal with procedural issues that didn’t contemplate this scale of operation.

    Remember thingies such as unjust enrichment and intent of the parties?

    I thought opposing views were welcome because they sharpened you up. I guess not.

  14. mysterious eggs says:

    The usual wikipedia-is-not-an-oracle warnings apply but here it is.


    “Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes—27 federal crimes and 8 state crimes—within a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $25,000 and sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of “racketeering activity.” RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.”

    Whether or not it falls underneath it directly I would agree with your statement that we have a “system that ignores its own laws, cheats on process, engages in wanton fraud, and is in danger of sliding not just backwards to the 18th century, but slipping towards a third world nation of dubious legal protections and the worst form of crony capitalism.”

    For people who haven’t lived, worked or been exposed to third world economic habits it’s tough for them to see that the US, and a large portion of their trading partners, are beginning to act in a way where it’s business practice to intentionally defraud and ignore rights. If people don’t know what it looks like, then they have to imagine that “it could never happen here” and that “we’re better than Nigeria/Malaysia/Argentina/*insert token Democratic Republic of *. It has always occured in the US, but the stigma attached is disappearing. Now, if you’re not taking advantage of your customers, you’re a schmuck.

  15. Robespierre says:

    IMO fraud happened during the creation of RMBS and not the foreclosure. Foreclosures robo signers etc are just uncovering the initial con.

  16. Robespierre says:

    @dead hobo Says:

    “and the end of foreclosure as we know it ”

    The way these foreclosures are being done is not the way “as we know it”. It is precisely that that is causing the problems. In other words by-passing laws and procedure as a cover up of what seems to be fraud. Of course your solution is to re-write the laws and procedures retroactively to help banks etc. What’s your industry?

  17. rktbrkr says:

    Citi and Wells still haven’t halted their foreclosures. Maybe they see this as a rapidly closing window of opportunity to unload as much of their shadow inventory as possible while their competitors are frozen and then deal with the consequences afterward. Wells seems especially sleazy with that last minute title loophole they drop on buyers.

    No new announcements about additional title insurors limiting business for foreclosures.

    I wonder if these banks offer any special financing for foreclosure purchases – finance 95% and then drop it back in their laps if there are title problems.

  18. rktbrkr says:

    Texas freezes all foreclosures – not just the big 3, short just a couple weeks.


  19. dead hobo says:

    Robespierre Says:
    October 5th, 2010 at 9:53 am

    @dead hobo Says:

    Of course your solution is to re-write the laws and procedures retroactively to help banks etc. What’s your industry?

    My first impression of this last week was similar to BR’s. I thought it would be world shaking and another crushing economic event. I’ve since settled down and remembered concepts such as unjust enrichment and the intent of the parties. I also noticed that real estate law is not generally equipped for modern day realities that deal with securitization and mass foreclosure. I’m not a lawyer but I remember enough business law from school and from hobby reading (odd hobby, yes I know) to realize this is essentially procedural more than fraudulent. Yes, fraudsters are in the mix and sleepy regulators might choose to get involved with them.

    The real issue is keeping the economic system flowing according to modern day realities and not based on parochial procedures that were designed for simpler times. Excepting away genuine fraud and not allowing it to be a distraction, this is essentially a giant paperwork problem.

    Congress will ultimately have to pass a mortgage modernization act that contemplates these issues.

    My industry is ‘undisclosed’.

  20. Steve W says:


    this crooked sole practioner runs a foreclosure mill here in south Florida (plantation). The guy has 500 employees has a pending injunction to stop filing foreclosures by the Supreme Court of Florida. The interesting twist is that his law firm (which does $250 million in revenue) is publicly traded on the NASDAQ, symbol DJSP. It was as high as $13.65 per share and after the pending issue mentioned above has dropped to $3.60.

    My understanding from a legislature friend is that the courts are going to halt every foreclosure he has filed currently as well as within the last year. The courts are going to go through every case in order to verify which were filed fraudulently. This could take years! What this means is that every current owner pending foreclosure will get a free ride pending the outcome of the litigation. More trouble for the banks and even more trouble for the real estate market here in Florida which is going to force me to remain in my current home until it collapses!

  21. Alex says:

    Barry, this is one of your best posts ever.

    I was also thinking about Mr. DeSoto when I noted all the shenanigans with mortgage documents.

    We are at a cross-roads as a nation. We have to decide whether we wish people to trust institutions in the most basic right pertaining to capitalistic commerce, or…we wish to live with the consequences of not being able to do so.

    This may go away in a week..as an issue on CNBC, etc. But it will never go away in terms of its impact, if we allow this kind of thing to go un-checked.

    OH…and the banks wonder why no one wants to buy their crappy securitized paper. Well…HELLO! This would be on of those reasons.

    So if everyone wants to “restore” that market, then why are the regulators and the administration dithering on fixing this?

  22. Let’s make clear that it is not the recording of mortgages that is at issue. Mortgages still must be recorded in the probate offices of the various counties in order to perfect a lien against the property. It is the assignments that were perhaps not recorded. Which frankly, is a non-issue in most states. The legal ramifications of failing to record an assignment before foreclosure at worst means the assignment needs recording to provide a clear chain of title for the foreclosing entity. This is just a paperwork problem.

    I’m w/ Dead Hobo. This issue is way overwrought, and will blow away in short order, or at least it will if we hope to have any semblance of a private residential mortgage market. Nobody is disputing that the putative homeowners borrowed the money. No one is disputing that they have failed to pay the money back according to the terms of the note. All that is at issue is who actually has the right to those payments. It would indeed be the end of the private residential real estate industry in the US if homeowners were allowed to prevent foreclosure because of sloppy paperwork endorsing notes and assigning mortgages. It would be the essence of unjust enrichment, and would close the door completely for the mortgage market to ever get off life support. Fannie and Freddie would become gargantuan vehicles for funneling other people’s taxes into the pockets of homeowers that won the lottery for having discovered some uncrossed i’s and t’s.

    The idea that property titles have been irreparably damaged is utter nonsense. Titles that lack an assignment can be easily fixed by simply filing the proper mortgage assignment. Notes don’t have to be assigned in the public records, just endorsed, like a check is endorsed, but whomever has actual possession of the note is presumed to be the owner absent some compelling evidence to the contrary.

    It’s true that capitalism thrives or dies depending on the sanctity of contract. But the essence of contract enforceability has never been technicalities. It has always been whether there was a meeting of the minds, and if the note underlying a residential real estate transaction was signed by the borrowers and the money was provided them, it has been the presumption that a meeting of the minds occurred, and the contract should be enforced. Anything less, if done on a wholesale basis, would utterly destroy the residential real estate market.

  23. rktbrkr says:

    Writing a US law to cure problems in some states real estate courts will create issues with states rights, maybe they’ll approach it from the securitization angle – but only after it becomes a big pwobwem.

    I don’t see the banks being so innocent after seeing their mulletted Sgt Shultz “I Know Nothing” Robosigner.

  24. J-Man says:

    bravo for connecting all of these separate pieces.

    This really is the big — very big — picture

  25. Kirkspencer says:


    Unjust Enrichment is not solely the province of the deficient homeowners. If I succeed in selling you the Brooklyn Bridge despite the fact I have no right to sell it, I am unjustly enriched. If I sell you a house for which I have the right to sell, then sell your note to someone else, then force you out of the house and sell that to someone else, I am unjustly enriched.

    Once I have sold that note, my right to be enriched by evicting you and selling the house ended.

    The point I keep hammering, however, is that concentrating solely on the foreclosures is missing the larger picture. When the loans not in foreclosure the homeowner is supposed to have the title conveyed from whomever has it. The servicers appear to be unable to identify who those holders actually are. That is the underlying issue — potentially every property any of these institutions touched has lost clear title.

    There are mechanisms to recover from lost documentation, but one of the key mechanisms is true knowledge of a professional involved – the same professionals now involved in robosigning.

    The foreclosures are only the start, and they’re only a symptom.

  26. JB says:

    You don’t need a foreclosure moratorium — you just have to enforce the fucking laws

  27. tspck says:

    Foreclosure is an equitable remedy. It is black letter law that one must “do equity” in order to “get equity”. Cutting corners (to put it mildly) is not “doing equity”. The banks still have remedies. They can sue on the note (which is a legal remedy), get a judgment and seek to enforce the judgment (albeit behind any other existing secured creditors), but if they want the benefits of the equitable remedy of foreclosure — and the priority that their mortgage should have entitled them to — they need to play straight.

  28. Kirkspencer says:

    Curmudgeon, I respectfully disagree.

    The assignments are not “just a paperwork problem”. Transfer must be by endorsement. While some states allow the transfer endorsement to be on a separate paper, they still require the valid signatures.

    Let us assume a home loan from Countrywide, sent to Bank of America, which has sold the note to an investment group which has sold it other places. From existing reports we know that some Countrywide notes never physically left, and that of the remainder BoA has no true record of the owner of the note. Further we know that BoA has not recorded the vast majority of these transfers, not even the receipt from Countrywide.

    When the note matures the owner must receive a legitimate transfer that traces the possession of the note from either Countrywide or the last county recording. If it does not, the true owner of the note is questionable.

    Now because of the terms it’s likely the borrower, by proving he has paid the note, can get the county recorder to issue a deed with full validity. But if the borrower has sold the house to someone else, that becomes much more difficult.

  29. dead hobo says:

    Barry Ritholtz Says:
    October 5th, 2010 at 9:15 am

    Dead Hobo –

    Please reread the entire post. Nobody is suggesting giving the houses to the defaulted borrowers for free. That is simply an absurd strawman argument. How you from DO THE LEGAL PROCEDURES CORRECTLY to an entirely different GIVE DEFAULTED BORROWERS THEIR HOUSES FOR FREE is unfathomable . . . .

    I’ll respond but then I’m done here. There’s something in my genes that won’t let me back down. No Low-T here.

    I read your post. It’s my nature to look at systems. I look at how things fit together. Where they come from. What they do, where they go. Side effects. Intended and unintended consequences. It’s as natural as breathing and I’m really good at it. And I do it really fast, usually. Most people only see the issue in front of them and sometimes get angry if you ask them to explain how that issue relates to it’s world.

    You wrote in depth of an issue. The issue is a part of a system. You don’t pay much attention to the system in which the issue resides. You appear to parsing the issue as the system. I’m putting the issue into context within the larger system (The Big Picture, so to speak.)

    If you stop foreclosures, even just to force the parties to go back and redo the paperwork, then you allow unjust enrichment because the residents get to keep the home for a while longer without paying the note owner. Excepting away outright fraud, the issue developed because of too much paperwork for a court system that isn’t designed to handle it. It’s the nature of people (managers) to find the least cost solution, both personally and economically for the firm. The manager bit above is just my folksy way of making a point that’s easy to grasp. Breaking it down to it’s essence, this is just a ginormous paperwork problem that is still revealing itself. Once people know how deep it really is, the solution(s) will appear.

    Have a good one.

  30. Robespierre says:

    @dead hobo Says:

    ” I also noticed that real estate law is not generally equipped for modern day realities that deal with securitization and mass foreclosure.”

    And this is where we see thing differently. Because current law could not deal with the “new” realities that bankers wanted in order to enrich themselves (RMBS etc). They decided to completely ignore them. So basically bankers looked at the laws and they said: “well this does not fit my “ripoff the public” business plans”. So lets ignore the laws in the books and do whatever we want since we are above the law anyway. So that is your argument I guess

  31. Mark Down says:

    2-4 weeks and the story goes the way of Rick Sanchez? I’ll take the the over.

  32. perra says:

    BR, speaking of Western capitalism, how long do you think this morning’s market erection is going to last?

  33. gavingunhold says:

    @dead hobo, you’re putting way too much faith in the concept of “unjust enrichment”. The courts don’t really care. People are “unjustly enriched” all the time in our civil courts. If the banks failed to properly record the mortgages, then they are going to have to go back and record them properly. And the longer it takes them to do that, the longer the home owner is going to be “unjustly enriched”. And the courts will happily sit back and allow that too happen.

  34. ACS says:

    The real question is not if a solution will be found, it will or if the story resonates with the public, it won’t. The big picture is if the solution upholds the rule of law or perverts it. That is when we find how close to the United States of Banana Republica we are.

  35. contrabandista13 says:

    “….Whether or not it falls underneath it directly I would agree with your statement that we have a “system that ignores its own laws, cheats on process, engages in wanton fraud, and is in danger of sliding not just backwards to the 18th century, but slipping towards a third world nation of dubious legal protections and the worst form of crony capitalism.”….”

    Having been born in Cuba and having lived through, “the worst form of crony capitalism”, I understand what the consequences of engaging in lawlessness are… You need look no further than 91 miles south of the continental US to see where we’re heading. My family were members of the “ruling class”, we were very lucky to get out with our skins attached to our bodies, we didn’t deserve the mercy that was granted to us by the people. We were very lucky.

    I’ve always said this and I will continue to say it… Revolutions do not evolve in a vacuum… Beware…!

    Best regards,


  36. Kirkspencer:

    What the note holder does with his note is not the concern of the borrower, except for knowing to whom he should send the money. If, as was often the case w/ Countrywide loans (I have first-hand knowledge), the note was sold a gazillion times, but the note and mortgage was done in Countrywide’s name and Countrywide retained servicing rights, Countrywide is the entity that must foreclose, or it is the entity that must first assign the mortgage to the foreclosing entity. It matters not a whit with whom or where the note actually is, unless there is a dispute regarding the actual existence of the debt.

    If the note is paid off, in the above scenario, Countrywide is also the entity responsible for issuing and recording the mortgage satisfaction (except in Louisiana, but it alone among the fifty states has a civil law background–it requires the closing attorney to file the satisfaction).

    Notes do not affect real estate titles, and are not filed in the public records. Only mortgages do and are. There is a clear chain of title if the last assignee of the mortgage in the public records releases or forecloses. If there is no assignee, the original mortgagee must release or foreclose. What happens with the note vis a vis the chain of title is irrelevant.

    The trial court judges that are awarding houses to homeowers because of some missed assignments or endorsements will either have their rulings overturned by cooler heads in the appellate courts, or the whole system of financing residential real estate will collapse.

  37. gavingunhold says:

    “The trial court judges that are awarding houses to homeowers because of some missed assignments or endorsements will either have their rulings overturned by cooler heads in the appellate courts, or the whole system of financing residential real estate will collapse.”

    …or the financial industry will learn to take the time to properly follow mortgage regulations.” It’s called moral hazard and it works both ways.

  38. DeDude says:

    mysterious eggs @ 9:45

    “are beginning to act in a way where it’s business practice to intentionally defraud and ignore rights”

    Exactly and we started down this road when common business practices began to include swindling (next natural step is to allow outright theft). Trying to get people to think you are selling them the more valuable product/service “A” when in reality you will only deliver the less valuable product/service “B” is pretty much standard procedure in today’s business climate. When is the last time anybody was prosecuted for this type of swindle. It is pretty much considered a must, and any management that is not trying to swindle the costumers will be replaced for not being sufficiently aggressive and profit seeking. Third world here we come – step by step.

  39. pintelho says:

    Great…so looks like all I need now is someone to find out if my mortgage falls into this category and tell me so that I stop shoving money to the bank on something they don’t any rights to….

    I smell an opportunity here…

  40. beaufou says:

    There was a time when no laws were written, the King or your local Overlord would make them up as he went along, his best interest alone was the deciding factor.
    Nowadays, it’s bankers.

  41. Arequipa01 says:

    Here is a video of Hernando de Soto with Stiglitz and Klein, may be of some interest:


    I hasten to add that Hernando de Soto, like almost every Peruvian troublemaker is arequipeño. (Both Montesinos and Abimael Guzmán are arequipeños.)

  42. Mannwich says:

    I think we’ve arrived at a time where we either no longer have the creativity or imagination (or motivation) to foster a legitimate business environment, or there simply aren’t enough legitimate businesses to fill our day to day needs anymore, so as DeDude points out, much of our activity is in the realm of fraud or at least dubious borderline fraud in ripping each other off by any means possible, while cloaking it as “win-win” or “good business”. What happens when all trust is lost in our institutions and each other? A healthy system of commerce ceases to function. After all, institutions or “corporations” are made of individuals like you and me. It’s a slippery slope we’re on now, folks. Our economy and economic system can’t be mostly about ripping each other off if we hope for it to have an enduring future.

  43. …or the financial industry will learn to take the time to properly follow mortgage regulations.” It’s called moral hazard and it works both ways.

    Filing mortgage assignments are not necessary in a great many states, except to protect the new mortgage owner’s interest. In other words, if the new mortgage owner doesn’t file an assignment, and the old mortgagee sells the mortgage again (a fraud) but does file the assignment in the public records, then so far a public records law is concerned, the second sale trumps the first one.

    As you can see, however, none of this has anything at all to do with whether the borrower owes the money, or even to whom he owes the money. The note determines whether or not the borrower owes money and to whom, and it is not filed for record, nor are its endorsements filed for record. The mortgage only operates to secure the repayment of the note. Without a note, the mortgage is a nullity, a mere cloud on the title of the property, that is easily resolved with a satisfaction or other means. The note is the source of all legal remedies available against the borrower.

  44. Petey Wheatstraw says:

    BR & DH:

    Jumped down here after reading your exchange, so this might have already been pointed out:

    I the crux of the problem is one of clear title (Denninger explains it in his posts). The only remedy available to the banks will more than crush them, as they will take a huge tax hit should they try to undo this retroactively. As DH points out, the debtor still owes money, but what he fails to recognize is that there is really no way to know who he legally owes it to. As we’ve seen, several banks have already foreclosed on the same mortgages. As things stand, the debtor on the mortgage being foreclosed has a clear legal standing as well as a financial interest in the property. There is no legitimate counter-party (unless the banks want to take that tax hit and bear the costs associated with unravelling their scheme). Short of that, there is no legal way to assert title to the property underpinning the mortgage. The banks have placed themselves in check-mate (don’t think for a moment that the rules won’t be changed from chess to checkers by the Corporatist PTB, in order to assert a claim to title where there is none — the courts are already clearly violating the law in order to arrive at that very result).

    This might just become a waiting game. Adverse possession of real estate is as much an underpinning of western land rights as the orderly and official transfer of title. We already have a burgeoning class of 21st century squatters (in the technical sense), and the clock is running.

  45. Mannwich says:

    I think I agree with the premise that this will be resolved one way or another in short order because the alternative is the real estate market grinds to a halt.

    I mean, we’ve already seen just what the Feds will do when really motivated to help those who are really in control of everything, namely, the banking industry elites. Why wouldn’t they do the same (and more) here to “resolve” this issue? They’re way too far down this path now to turn back.

  46. Dowtown Josh Brown says:

    I thought your post this morning was epic, something big is about to happen with this, the moratorium on foreclosures combined with US Attorney action

  47. rktbrkr says:

    Tsunami coming for the TBTF mortgage mills.

    “By this time next year we’ll be looking at a crisis in mortgage finance and asset values in both residential and commercial that will appear to be as severe as what we went through in 2008.”

    Chris Whalen uses the D word in this interview, Big 5 mortgage banks facing a couple $Trillion in losses.

    Banks under attack from 3 directions
    1)Foreclosure documentation problems
    2) Put backs – more loan documentation problems
    3) Strategic foreclosures


  48. Kirkspencer says:


    If a note contains terms that it is secured by the deed, then the note-holder can make claim against the deed. In 27 states the note tends to be connected to a deed in trust (or Georgia’s deed to secure debt), which tends to require presentment of the concluded note to convey the title. Many of these states allow conveyance on declaration of the servicer, but they also contain clauses to the effect that this is only possible if the servicer knows who has the note and has their permission. (Simplifying that language a lot, but that’s the base.)

    If I pay off Bank of America (to name an example), and six weeks later the Upper Mongolia Grandmother’s Investment company brings the lien against my property because the note is unpaid, I can only hope they’ll pursue the contractual failure of BoA and leave me alone. But the black letter of the note says (usually) that the property secures it.

    The servicer can claim the debt is cleared, but until the secured note is cleared the claim is at risk.

  49. Mannwich says:

    No problem, rktbker. Nothing a little QE ad infinitum wouldn’t “fix”.

  50. Petey Wheatstraw says:

    contrabandista13 Says:

    “My family were members of the “ruling class”, we were very lucky to get out with our skins attached to our bodies, we didn’t deserve the mercy that was granted to us by the people. We were very lucky.”

    My hat is off to you.

    I lived in Tampa for a few years in the ’80s and ’90s, and I met many second-generation Cubans (many of them had never become naturalized citizens, as they were raised to believe that their families’ holdings in Cuba would someday be restored), and naturalized Cuban-Americans who never contemplated exactly why the Cuban revolution was successful. In their view, they had been cheated. They never spoke of the those Cubans who had been completely disenfranchised so that their families could prosper. Your honest assessment of your family’s fortunes is a breath of fresh air.

  51. wally says:

    Given events of the last three years, it is hard to see ‘unjust enrichment’ as anethema to our system or our government. In fact, it seems to be central.

  52. Mannwich says:

    Exactly wally. This behavior is now the norm. Get used to it.

  53. Zungstache says:

    The thing that’s getting overlooked with all of this is that this is Florida and that the “fraudsters” are going to be coming out of the woodwork (and probably already have) to game the foreclosure courts to make a quick buck. This is why the system will be cleaned up… eventually. I’m not talking about the banks and law firms who actually own (or think they own) the mortgages, I’m talking about good, old-fashioned hucksters. These folks are reading the newspaper (and blog) coverage of the kangaroo court system the state has set up to deal with foreclosures and saying to themselves: “I can game this.”

    Let’s look at the fundamental issue: property owners are not receiving proper judicial process, nor are they getting their day in court. Why not pay a few grand for a law firm to file for foreclosure on the mortgages to some expensive-looking Palm Beach properties? Hell, file the documents yourself, because nobody seems to be verifying much of anything. I’m sure you can find someone at one of the foreclosure mills to take the case without looking too closely at the documentation for a few extra bucks. Plus, they’re already falsifying the service documents on legitimate mortgages, why would they go out of their way to actually serve homeowners all the way out in Palm Beach? Even if the homeowner does get his day in court, there’s ample evidence the judge’s won’t listen to any evidence about flaws in the documentation. You then approach the homeowner and offer to make the problem go away, for a modest fee. I just fail to see how this won’t happen.

    And, when it happens to enough people with political ties, the government will eventually do something about it. There is just no way to avoid wholesale fraud of this type under the current system.

  54. DM RTA says:

    Imagine you are a young person between the ages of 10 and 22 and you’ve seen you parents or (one or more) of your good friend’s families go through foreclosure as a result of the many possible problems following the RE bust. It doesn’t matter to you whether unemployment is the primary cause. why? You are hearing constantly about adjustable rates that make paying impossible, tricky mortgage brokers, and falling house prices, and now this subject. But to that young person seeing all of this happen in their social circles, the issue is becoming very clear cut: Why would anyone buy a house ever with all these risks attached when it can do such damage to your life?

    Of course all the adults see the various reasons separately as issues that adults should prepare to deal with but then the politicians come along and temporarily suspend failure to another sector of the game and again, that adds to the growing cognitive dissonance that always exists even if not talked about directly. Do you really think those young adults will be saving to buy a house anytime soon? No amount of “we make it easy” financial commercials will convince them to risk reliving what they witnessed in their youth.
    The two sides of arguments in this thread are very interesting but in the end we will see a generation of young people who do not see the value in taking a chance on the RE craps table. The sad part is that there is no way to claw that back from anyone. And if it turns out that some mortgage notes were used in multiple securitizations, the news cycle will not end for years deepening the new trend.

  55. Lugnut says:

    Robespierre Says:

    October 5th, 2010 at 9:48 am
    “IMO fraud happened during the creation of RMBS and not the foreclosure. Foreclosures robo signers etc are just uncovering the initial con.”

    I guess the follow on question to this is, if the issue of clear title is the main conern, how might this affect people who have NOT been deliquent on their payments. Can anyone forsee possible downstream clear title problems with the legitimate sale of a ‘current’ home between two private parties under this scenario? I guess the guy who had his home with no mortgage foreclosed on him might point to that. If so, then the problem potentially expands beyond the sampling of 7,000,000 homes in foreclosure, no?

    Could the legit 2nd buyer be somehow exposed to possible claims by these third party assigness after the fact? I would hope not, if the notes been satisfied, but again,does it raise questions about free and clear title to the larger population of homeowners?

  56. Petey Wheatstraw says:

    The real problem:

    How does one undo a situation of one’s own making and based on criminal fraud, without admitting to the fraud in the first place?

    DH: Thought about your opinions a little more, and it led me to this question:

    If the lenders and their cohort have a legal means of resolving any of these issues, why have they resorted to additional fraud to make their cases? MERS is a black hole.

  57. rktbrkr says:

    I forgot to mention that ARM resets are going to be another nightmare for the banks over the next 18 months, these were used largely in the sand states and in spite of lower rates now they’ll never qualify for refi if they’re way under water. So whether they’re inclined to walk away or not they won’t be able to refinance. Just stop paying, pay the utilities and hire a lawyer to fight a rear guard action on eviction and foreclosure, should get a couple of free years in this environment LOL


  58. James says:

    Great stuff, BR.

  59. contrabandista13 says:

    Petey Wheatstraw Says:

    “My hat is off to you…..”

    “Your honest assessment of your family’s fortunes is a breath of fresh air….”

    Thank you… However, you can’t argue with the facts…. Who am I going to believe, the dogmatic zealots or my lying eyes…?

    I was a young boy…. I witnessed the injustice and the oppression first hand…. I felt it in my bones….. My nanny, Maria Dolores was my mother, my brother’s nanny Ema was my aunt, the chauffer, Oracio, my grandfathers body guard, was my uncle, the chef Antonio was my best friend, I played with their children, after I would get home from my private school, they were my family…. I felt so helpless when they were abused and threatened by the ranking members of my biological family, I hated them for that…. I will never forget the ones I loved….. Sometimes I wish I could have stayed behind…. I’ve thought of them every day for the past 50 years…



  60. Robert M says:

    Thank you for a very informative article. You have once again made a complicated issue simple. How the debate can rage on whether or not not following the law is unimportant escapes me completely.

  61. [...] leave a comment » It’s hard to tell whether Barry Ritholtz doesn’t understand the fundamentals of the real estate mortgage business, or is just trying to pull traffic to his blog, but he’s making a mountain out of a molehill claiming in his latest post that Foreclosure Fraud Reveals Structural and Legal Crisis. [...]

  62. hammerandtong2001 says:

    IMO, this is more than mere paperwork snafu’s.

    How can an insurance company, domiciled in say, Roumania, bring cause on a foreclosed home in West Virginia? Aren’t there legitimate issues of jurisidction here?

    And regarding the actual RMBS instruments — given the mess on the backend — how can anyone be sure what inside those products — it cold very well be that some of these mortgages are in there, 2 and 3 times — and others that are supposed to be there, aren’t there at all.

    And whether a homeowner who fails to pay a mortgage on time — this doesn’t always devolve into “unjustified enrichment” for the homeowner. It actually used to be that banks — real banks — might even find ways to work with the homeowner to find a manageable payment schedule in the event of arrears. But why and how would the insurance firm in Roumania do that —?


  63. AGORACOM says:

    1. I commend all of you for the great information pertaining to laws and procedures. As a Canadian, I have no idea about these things, so its good to get an education.

    2. Laws and procedures aside, step back and take a look at what you are discussing. Chaos. As a foreigner, I thank god right now that I don’t own real estate in the United States.

    What happened to America? What will happen to America?

    It’s one thing to watch a person/company/team/country lose its stature based on a clean beat by the competition. We can all handle that. It is quite another to watch a country (b)eat itself from within.

    I just don’t see how this ends well. Either the financial system will collapse under the burden of its own mess (Think Sub Captain that torpedoed his own sub in Hunt For Red October), or the people are going to revolt and clean house.

    George From Canada

    p.s. Barry, would like to hear how you think this plays out and how to best plan for it.

  64. penntex says:

    What no one has calculated are claw backs. How many people were illegally foreclosed? What about the people who bought those illegally foreclosed properties? Do they have clear title? What happens if the properties were flipped. Is that illegal X2? At what price are the loans held on the investment owners books? There is no income stream, correct? So if one cannot foreclose on a property, what is the loan worth? How many lawyers does it take to unscrew a light bulb? ALL OF THEM. Damn the torpedoes, full steam ahead into new property law. It will be ugly. Will Congress enact laws taking the soon to be foreclosed properties by force, aka the KELO case? We must work for the common good for society. Ooops, wrong empire.

  65. AHodge says:

    outstanding best i have ever seen on this
    like the stinkin asset backed class generally
    which is not fixed income
    and WITHOUT ANY hold to maturity
    the banks will now come and say cut us some slack on this
    make good our “asset”
    or our system will implode
    let us still keep accounting and priceing it like it was
    or securitization will never come back (we refuse to do old banking)

  66. AHodge says:

    or let fannie and freddie eat it like the half trillion so far

  67. alnval says:

    “We are not discussing economic problems of too many homes for sale and falling prices. What is being discussed here is a full blown crisis underlying home titles, foreclosure procedures, and securitized mortgages.  The rampant, epidemic and systemic abuse of legal property protections is now reaching a crisis.”

    In the same way that automatic elevators allowed us to get rid of elevator attendants, our pursuit of profits nurtured by advances in technology, but now more obviously unguided by any recognition of the potential moral/human consequences of our actions, has grown to the point that we are falling over a cliff.

    IMO today’s issue extends by analogy to the Flash Trading problem. If I remember correctly, Barry pointed out that the problem resulted because the black box traders depended on the computer to do the ‘right’ thing. Again, no humans around to even think about the right or wrong of the decision. ‘Easy Al’s’ arguments that markets are self-correcting and therefore don’t need regulation are truly crazy.

    Without serious regulatory fixes our ability to create technology that improves the bottom line by reducing/removing human participation in the process, coupled with our innate ability as humans to rationalize away any concerns we might have about the adverse moral consequences of our behavior will only lead us to new and even bigger Laurel and Hardy moments. “Another nice mess you’ve got me into Ollie.”

  68. formerlawyer says:

    One alternative may be to “nationalize” the mortgage pools (TARP II). Under such a program, banks could unload their mortgages at a significant markdown upon a Federal Agency (Fannie/Freddie/FDIC/HUD?) This markdown representing (1) the cost of foreclosing “fixes” (2) the loss of equity adjusted on a regional basis (3) the current writedown requirements on home equity secured Consumer Loans (Lines of Credit). The Federal Agency will issue non-tradeable non-voiting shares/securities to be held on the asset side of the various originating banks. That Federal Agency would then be authorized to conduct swift foreclosures, guarantee good title and would incorporate an insurance program to satisfy title claimants. This could be accomplished by an amendment to say Title 12 s. 3760′s.

    Any insurance scheme would have a preferential bias in favour of registered homeowners ie. no notice – when homes taken away pay any equity promptly. Other mortgage claimants, claiming an interest in a mortgage would have to demonstrate their entitlement to any insurance proceeds. If successful that claimant would be paid and the shares of an originating bank (one who sold the offending mortgage to the Agency) would be charged with that payment.

    This Federal program would be limited in time ie. say 10 years. What say yee?

  69. dsawy says:

    A couple of thoughts:

    1. There appears to me to be far too much passion directed towards making sure people who are deadbeats (or at the very least, very poor financial planners) are not unjustly enriched. This is a natural human reaction, and I understand why people resent unjust enrichment of deadbeats with what seems like a paperwork argument. We all resent “unjust luck” – eg, the person who does a slip-n-fall and then successfully sues for millions (and wins) because a business owner wasn’t legally astute in sign placement and idiotic disclaimers. We all dislike these sorts of people.

    I don’t like the idea of deadbeats getting free houses, but I’m willing to overlook this, because…

    2. The level of fraud being perpetrated by the banks endangers ALL who own property and all who might want to buy property that has been through one of these foreclosures. The more case law that is built up from the banks saying in court that the “little details” don’t matter, the greater the erosion of everyone’s property rights – whether you have a mortgage or not, whether you have a perfect FICO score and pay your mortgage on time without fail or not. There is a due process of law, and it is being shredded here, just as much as someone standing up in court and telling a lie that is a provable lie on the spot and the judge waving his hand and saying “Pffft. Details.” That’s what a false affidavit is: written perjury. I have a problem with lies gaining standing as facts.

    If you’re OK with falsified affidavits, then you’re also OK with bold lies in a court told in person and upheld by the judge.

    3. The banks KNEW the law on property assignment and succession before they went down the path of creating an abortion like MERS. The law has been there for all to see for at least the last 100 years, the law is easily available in law libraries and legal practices in all 50 states. There was no mystery as to the legal requirements of documentation necessary for foreclosure prior to 1999, because properties had been foreclosed upon quite successfully prior to MERS being created, and many of the banks who created this mess had foreclosed on properties previous to the securitization from ’99 onwards. There can be no claims of legal ignorance by the bankers that they didn’t know the details and required paperwork trail for a successful foreclosure.

    There is nothing wrong with the law, there is nothing wrong with the courts, there is no problem in preservation of a lender’s rights to avail themselves of the securing property. The bankers willingly divested themselves of these powers and rights through their own actions in their myopic fixation on profits. As such, I’m not impressed with any argument that the law needs to be changed, or courts need to change for the pleasure of the banks. The system worked fine before, it would be working fine now – but for the securitization snarl created by the banks. The homeowners and borrowers had nothing to do with the actions of the banks that have now compromised their ability to recover collateral property, so if as a result of the stupidity of the bankers who created these instruments, someone gets a “free house,” then I say, so be it. If I had carried a note on property I’ve sold in the past, I’m quite certain that I would be able to foreclose if the borrower defaulted today.

    The banks have to learn a lesson somewhere in this mess, and the lesson will have to involve the banks actually losing money. They understand no other lesson or language.

  70. Kirkspencer:

    I’ve never heard of anyone being able to make a claim against property solely by dint of a promissory note. I don’t know the particulars in all jurisdictions, but I know that in mine, there must also be an actual security interest, and for it to be enforceable against third parties, it must be filed in the public records.

    A mortgage alone won’t suffice, either. A mortgage without a note is a title problem that is easy enough to clear up. But it is not enforceable unless there exists a note evidencing the indebtedness to be secured.

    On October 1st, America’s largest servicer, Bank of America,joined GMAC Mortgage and JPMorgan Chase in suspending foreclosure cases in 23 states in order to amend any affidavits that were improperly executed. Apparently, in an effort to keep up the with the ever increasing volume of foreclosures (see chart 1), many servicers are now realizing they violated the foreclosure commencement requirements of judicial jurisdictions which necessitate that:

    1.) anyone who signs an affidavit must have verified all of the information contained within the document to ensure its accuracy and;
    2.) all affidavits must be executed in the presence of a notary.
    The 23 states impacted are as follows:
    Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, NewJersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.

    As the list of servicers who have mishandled foreclosures continues to grow, the Treasury Department has asked federal regulators “to look into these troubling developments” and the Office of the Comptroller of the Currency (OCC) has directed seven of the nation’s largest lenders to review their foreclosure processes. Additionally, some state attorneygenerals and consumer advocates have called for a moratorium on foreclosures until effective remedies can be put in place.
    The recent findings could have far reaching implications throughout the industry with hundreds of thousands of homeowners contesting foreclosures that are in process or have been completed; ultimately causing servicers to face losses due to expensive litigation and class action lawsuits. The biggest uncertainty remains on how the courts will view the “legality” of foreclosures that have already taken place and what actions, if any, will be taken to remedy the situation.
    DBRS believes that servicers will be able to quickly correct and refile any deficient affidavits in addition to implementing the appropriate controls to ensure there is not another breakdown in process. However, RMBS that contain these loans will likely experience higher loss severities due to longer liquidation timelines, negative rating actions and the potential for loans to be repurchased out of the transaction due to breaches of representation and warranties if it is proven that they were not serviced in accordance with applicable guidelines.

  72. Bergens says:

    As much as we love to badmouth lawyers and make lawyer jokes, the more I live overseas and travel the world (12 years and counting), the more I realize that what has made America much more productive than the rest of the world is the rule of law. In America, a deal is a deal and if you break your word, I’ll see you in court. As pointed out by Hernando De Soto in one of my favorite books, “The Mystery of Capital” (thanks, Bill), this is what makes the US and (to a lesser extent) the west work. Now this foundation of our prosperity and our way of life is in danger. If you haven’t read “The Mystery of Capital” you owe it to yourself to read it. At a minimum, read Barry’s take on the current situation:

  73. Todd Ruger says:

    Bank changes locks on occupied, foreclosed homes

    CHARLOTTE COUNTY – Two Canadian tourists returning to their rental home from a day at the beach found evidence burglars had struck — or so it seemed.

    Their laptop computer and MP3 player were missing, as were six bottles of wine. A half-empty beer opened by the intruders was still cold and sitting on the kitchen counter.

    But why, then, had the locks on the front door been changed?

    It turns out that a Sarasota company working for a lender trying to retake the property through foreclosure sent two men to the Punta Gorda home to break in and change the locks, even though the home was obviously occupied.

    It is illegal for any bank representative to enter a property if they have not yet retaken it at a foreclosure sale, especially if there is any sign the home is occupied, foreclosure experts say.
    The process of banks hiring people to break into homes, even when occupied, is just the latest oddity of the messy foreclosure crisis in Florida.

    Some property owners are reporting the break-ins to law enforcement as burglaries. Yet investigators consider the disputes a civil matter because the contractors do not display criminal intent. That essentially leaves the property owners without recourse.

    The attorney for the owner of the Punta Gorda home where the beer was left on the counter in March says the banks “have become intoxicated with power” because there are no consequences to sending contractors out to break into homes that they do not own.

    “It is vastly underreported; it is happening in counties all across the state,” said St. Petersburg foreclosure defense attorney Matt Weidner. “The more this occurs, the more prevalent it’s going to become.”

    The break-ins are happening because homeowners can stay in their property, or even rent it out, until completion of the foreclosure sale, which can take months or years after a foreclosure suit is filed.

    When contractors break into a home to change the locks, it often leaves residents feeling like crime victims.

    In North Port, one family returned home from a weekend vacation and called their attorney in a panic: The front door lock was changed, the alarm system dismantled and family gerbil gone.

    Landlord Brenda Perron of Sarasota has been in a three-year battle with Bank of America, which has sent people to change the locks on Perron’s rented condo three times because the bank mistakenly believed her condo was in foreclosure.

    “When my tenant came home, he was like, ‘I can’t live here, I can’t live like this,’” Perron said. “They felt violated. I was understanding and released them from the lease. I can imagine how that would feel to have someone in your home.”

    Perron said she got an apology from an official at Bank of America headquarters in Houston. The locks have not been changed since, but her requests to have the bank reimburse her for the four months her condo sat empty have gone unanswered.

    Another man went to check on the North Port property his father owned to find his keys no longer worked, magazines moved from where they were in the home, cabinets opened and some tools missing.

    The lock-changing strategy can help a lender protect the value of the property, since the lender usually retakes a property at the foreclosure sale and many owners simply leave the house vacant, unsecured and unmaintained.

    But locks should never be changed on a property when there are signs it is occupied, such as the power meter turning or a car in the driveway, said Chip Waterman, a Coldwell Banker real estate agent who has specialized in foreclosed properties for 30 years.

    Waterman says none of the banks his company works with “would let us step onto the property if it appeared somebody was living there. They should be able to stick their head in the door to see if there’s people still living in there. At that juncture they should back right off.”

    While many reports are from months ago, a Sarasota homeowner says that someone knocked on his door in August and said he would have changed the locks if no one had answered.

    The Canadian renters went back home because they did not feel comfortable, and landlord Debra Fischer had to return some of their monthly rent and pay for some of the missing items, Weidner said.

  74. “…Karl Denniger went so far as to suggest the entire MERS/structured finance industry engages in such systemic illegality as to be guilty of RICO — the Racketeering statute used to bring down drug lords and mafia kingpins….”

    “went so far” ??


    MERS is Textbook RICO, no?

    aren’t you damning him with ‘faint praise’?

    also, w/ ‘curbyourrisk’, above, @08:40..

    “Nice to see someone finally giving Mr. Denninger some props.. As he is the ONLY blogger out there who has been on this sham from 2007. He has been right all along, despite many people referring to him as a kook or a fringe blogger.

    I give you props BR for doing so.”
    http://market-ticker.org/ is a worthwhile read..

  75. louis says:

    Why doesn’t the govt step in with a bailout of all these loans and redo them and the title?

  76. Arequipa01 says:


    You’ve been on a Fran Tarkenton scramble- you’ve been outta de pocket! Wussup!

  77. JohnT says:

    I’ve been toying with the term “post-capitalism.” Sort of rhymes with post-communism.

    Like, “we’re not in capitalism anymore, Toto.”

    What do you all think?

  78. Kirkspencer says:


    You said in part “… there must also be an actual security interest, and for it to be enforceable against third parties, it must be filed in the public records.”

    I’ve been looking at several promissory notes in conjunction with mortgages, and they all tend to have the following clause (or a variation thereof) contained within.

    “This Note is secured by, among other things, that certain Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated of even date herewith (as the same may be amended or modified, the “ Mortgage ”), executed by Borrower for the benefit of Lender.”

    I do believe such language satisfies the security interest. And if I can demonstrate I, the person to whom this promissory note was endorsed, have not received the money from the borrower, I have the rights the note grants to include demanding full payment and/or the property subject to the mortgage.

    You’re right, it hasn’t been done much. I’ve only found similar case, Ms. Fredenburg in Florida. It was swiftly resolved as one of the two companies pursuing foreclosure was able to show the other had indeed endorsed the note over (eventually) to them. However, the other was there because their electronic files said they still had the note.

    Had the note been missing, sold by the first company without proper tracking, it would not have been swiftly resolved, and further left the possibility that there was a third party who had the true right to foreclose (or not).

    Sorry, but the notes for mortgages are, in my experience, secured by those mortgages and the related property and possession of the note can lead to title disputes. It hasn’t happened before because efforts were made to ensure the possibility wasn’t there – that there was no confusion as to where the notes might be and who owned them.

  79. Arequipa01 says:

    “I’ve been tied to the whipping post-(capitalism)!”

  80. gordo365 says:

    DM RTA …but in the end we will see a generation of young people who do not see the value in taking a chance on the RE craps table.

    But – the young couples are supposed to buy the entry level houses, so the entry level owners can move up to mid level houses, and mid level owners can buy the McMansions from the retiring baby boomers.

    What happens when the whole stack is grid-locked and retiring baby boomers can’t sell their house for what they think it is worth?

  81. dead hobo says:


    (Back again)

    Curmudgeon has been carrying my water to this point because he appears to be a lawyer while I am not. I don’t know if you are, or are just a student or an enthusiast, but your analysis above consisted of a lot of ifs, maybees, and cans.

    Had the signature issue not risen, there would be no BR post above. MERS dislike reminds me a little of the debate over the CRA. Lots of heat but little light. I can only assume that MERS is legal because it has existed and worked with full acceptance for years prior to this. Can you say Red Herring (or CRA)

    Fraud behind the tree doesn’t mean fraud exists in front of me. Missing notes here and there among millions of mortgages everywhere don’t amount to much in the context of this debate.

    I’m with Curmudgeon for the simple reason that nobody will shut down the economy if the only problem is a giant paperwork fuck up.

  82. OT:


    not so much, but, in context, I’d be patterning Steve Young, methinks..
    though, again, BR, nice post~!

    maybe we can get a few more on this, general, Topic : “The Fraud that our Financial Schema has become, 1913-” ?

  83. willid3 says:

    i sort of understand the gripe about the borrowers getting to keep the house they didn’t pay for. got that. they make the payments they get to keep the house. seems fair to me. but to give the banks the house when they can’t prove that they own it, seems equally to just as much unjust enrichment as letting the borrower keep the house they didn’t pay for. after all, the paperwork is what proves that they have a right to the property after all. with out which they should have no right to take money for it, or foreclose on it. the banks messed up not keeping the paper work. which sounds more like a normal business decision that they would have done. after all its the sale that makes them money. not the paper work. also seems short sighted in the extreme as they may have lost their rights by the negligence. and trying to cover up with fraud doesn’t help them much

  84. Marc P says:

    I have a couple of thoughts that I would add to the many good comments here.

    First, the CDO documentation problem will affect homeowners with performing loans. Imagine purchasing a home in 2004 and in a few years from now you want to sell it to take a job in another city. Your loan was sold, resold, collateralized, split into tranches, sold in pieces, then some of the pieces were resold, then the CDO organizer and the RMBS trust both went through bankruptcy. In either a refi or a sale you must have the promissory note signed off as paid, and you must have the security interest released in the public records. Who would sign? Without those signatures the buyer and the financing bank are not going to close the deal, and the title company is not going to insure.

    Second, this is a documentation problem and the burden is on the lender. It is up to the foreclosing party to prove that they are the true owner of the promissory note and are the real party in interest on the mortgage or deed of trust and thus have the standing to foreclose. If they can’t, then they cannot foreclose, it’s as simple as that. The courts are correct to simply say no until this first step of the foreclosure process is satisfied.

    From a social policy point of view the challenge is that while the lenders are figuring out how to find the documentation or correct the record, the homeowners are not making payments and are effectively living rent free, while simultaneously having no incentive to maintain the house.

    Here’s an idea: a state legislature could create an emergency foreclosure bill that would handle the narrow class of situations where it is clear that the loan is nonperforming and that there should be a foreclosure, but it is not clear where the money from the foreclosure sale should go. The bill would create a public trust, and the trustee would work on behalf of the state and go through the foreclosure process with the proceeds staying in trust until the proper loan holder could prove its legitimacy in court. If no true loan owners could be found then the funds could go to the state under the normal escheat statutes (usually several years with no claimant) or be used to pay for the process.

    The downside would be that sometimes there are too few foreclosure buyers and note holders choose to take the property into inventory rather than accept a low bid. It would be a difficult question whether it would be wise to give the trustee that power to hold title with the huge administrative burden of maintaining the property, leasing the property for a short term lease, choosing when to put the property on the market for sale, marketing the property, etc. Similarly, I would be cautious about giving such a trustee the right to do loan modifications or short sales because that simply would make the process too complicated and is rife with moral hazard. Perhaps the best course would be to require a vanilla process: the trustee does the foreclosure, the property is always sold at the foreclosure sale, and the market decides the price.


  85. Kirkspencer says:

    Dead Hobo,

    I never mentioned MERS. That was in the original post. However, since you’ve raised it perhaps I should point out that Kansas is not the only state in which courts ruled MERS not to have the authority it claimed. Or in the case of the Nebraska situation, where the courts agreed with MERS that it didn’t have any authority (which it was using, in that case, to escape liabilities). However, to your contention that MERS is fine because it has existed, I will point out that while the company was begun in 1995, the program that has been at the root of its problems, the MERS eRegistry, was launched in 2004 as a means of coping with the quantity and velocity of the mortgages and the papers they backed. Full acceptance has only come from the mortgage industry, not the courts. It is a point to keep in mind.

    As to the remainder of your post that fraud here does not indicate fraud there, I would almost agree were it not for rather convincing evidence in the existing affidavits that the problems are endemic to the current industry. Specifically I will point you to the thousand of documents signed by so-called robosigners. They are also witnessed, and in many documented cases by more than one witness. In more than one case the affiant is the witness, not the “officer with true knowledge of the note”.

    And many of the notes’ notarizations are dated differently than the signatures, or in locations different from where the affiants worked. What this reasonably indicates is that there were multiple individuals at multiple locations where this occurred.

    But the most damning fact is that these papers were brought to them in stacks by clerks. Our affiants didn’t seek them out, they didn’t tell the clerks to bring them the stacks. The routine business of the day at these peoples’ places of work was to bring stacks of these papers for signature.

    No, the circumstantial evidence is that what we’ve seen may not be universal but is certainly widespread.

    All that said there is indeed the possibility that nobody would destroy the economy just to fix a big paper problem. However, it’s not just a big paper problem. Instead there are a number of people who are seeking clawbacks from what has been found. And there is at least one major (and a growing number of smaller) title insurance companies who have decided this problem hits them in the pocket book – that letting business as usual continue means they will go bankrupt. Further there are a number of investigative offices who think there is more to this than a simple but large paperwork fuckup.

    These people ignored the law for their own gain, and because they are so large fixing it is going to hurt. At the same time fixing is necessary because in the long run not fixing it will hurt worse.

  86. Kirkspencer says:

    Two general points I want to make again is that the foreclosure problem is “limited” to only 23 states – the states where the courts are normally involved in the foreclosure. The people are swearing to know of documents that do not exist, or at least that they have never seen, but the reason it’s causing the companies to sweat is that this may be seen as submitting false filings to court.

    There are 27 other states. IN these states there are very few false filings to court, and as a result the battles you see in other places aren’t happening. Yet the papers that were signed that initiated these foreclosures were on properties in all 50 states. It is already, not as big as it’s going to be.

    Add to that the other point I keep making. The same industries following the same procedures dealt with commercial real estate. Those properties are different in many ways, but the documentation issue of deeds and transfers plus investments built on those documents also exists. I do not know when, or even if, these will surface into common awareness, but I know there are cases in the system already.

    This party is just getting started.

  87. Kirkspencer:

    Let me reiterate that a promissory note alone, without a mortgage, even though it contains verbiage that it is secured by a mortgage, will not, I repeat, will not be sufficient to foreclose on a house. There must be an actual mortgage.

    There is a reason for this. Mortgages are signed and notarized. Notes are just signed. Assignments of mortgages must be signed and notarized as well, if they are to be valid. And if they are to be enforceable against third-parties (the borrower is not a third-party), must be filed for record in the public records.

    If notarizations are improperly done, i.e., the party signing the document is not doing so in the presence of the one notarizing the document, then the notary is liable for fraud.

    If the party attesting to the document’s veracity in a signed and notarized affidavit doesn’t actually know of the veracity of the document, then he is liable for fraud.

    I just ran through the list of foreclosure services offered in the post above. There is nothing illegal about any of it, unless you believe there must be, e.g., some nefarious purpose behind obtaining a certified copy of a mortgage (from the probate court, which makes it as good as an original).

    I posted a defense of Mers on my little blog (BR, not trying to pull eyes away from here, but also not wanting to post a three-page comment). If you read it, let me know why I’m wrong.

  88. “In either a refi or a sale you must have the promissory note signed off as paid, and you must have the security interest released in the public records. Who would sign? Without those signatures the buyer and the financing bank are not going to close the deal, and the title company is not going to insure.”

    Defunct CDO’s and RMBS’s do not, not even when they were funct, service mortgage loans. The servicers generally retain all the rights of satisfying mortgages and returning notes. This is a non-problem. The securitizers just wanted money–the stream of payments, i.e.–they never collected those payments themselves. In part, that was the whole point behind Mers and the servicing industry–to allow the private assignment of mortgages without having to track down who actually owns the mortgage when it came time to foreclose.

    To Kirkspencer’s recent point:

    The 27 states that don’t require judicial foreclosures are not suffering from this problem of identifying who the true party in interest is. Why? Because it doesn’t matter, except to local kangaroo courts in jurisdictions that require judicial foreclosures, wishing to gum up the works so their constituents, er, the defendants in their courtrooms, can ride the free housing train a while longer.

  89. Marc P says:

    Curmudgeon – I’m no expert in the process of MERS or loan servicing. As to your point that this would be not be a problem in nonjudicial foreclosures, I can only speak to the State of Washington, but those laws are typical. In a nonjudicial foreclosure here, an entity that is not the real party in interest who starts a nonjudicial foreclosure would be guilty of both civil and criminal fraud.

    If an entity that is not real party in interest started a nonjudicial foreclosure, the borrower/homeowner can simply make a motion to the court to terminate the nonjudicial foreclosure for lack of a real party in interest. At that point the burden is on the foreclosing party to prove that they have complete documentation showing that they are the real party in interest. This is fairly straightforward because the only thing that counts is the deed of trust that is filed and recorded with the county recorder. If the person standing in the courtroom trying to foreclose isn’t the person listed in the county records (or has a POA from that person), then the judge terminates the non-judicial foreclosure (and then likely will sanction the wrongdoer).

    The system is designed to be extremely transparent and straightforward. Your comment that not having the documentation “doesn’t matter, except to local kangaroo courts in jurisdictions that require judicial foreclosures” is simply wrong, at least in this state. I think the judges would reject a legal argument that following the statutes that have been the same for decades makes them a kangaroo court.

  90. [...] crisis of historic proportions. And it’s front page news, too, bringing the market pundits out of the woodwork to exclaim as loudly as they possibly can that the entire U.S. mortgage system is a fraud. Banks [...]

  91. ezrasfund says:

    @deadhobo et al

    Re: Unjust enrichment

    The issue is not that the defaulting homeowner gets to keep the house. The point is that the ownership of the property has become completely obscured, and it cannot be easily proven just which financial entity owns the property.

    If I took 100 vehicle titles and tore them each up into 50 pieces each and put them in a jar and sold off most of the pieces of those titles, could someone then pull out any 50 pieces and present them to you as title for one of those cars? Maybe on a good day.

  92. Captain Jack says:

    Dead hobo said: “I’m with Curmudgeon for the simple reason that nobody will shut down the economy if the only problem is a giant paperwork fuck up.”

    This is where I disagree, and the reason I suspect the story could have legs.

    Of course nobody WANTS to shut down the economy. But nobody wanted the Lehman or AIG aftermaths either, and as a general rule nobody wants trade war. As a general, when shit happens in a complex system, it’s because the keepers of the system are powerless to stop it.

    The way I see it, the potential problem here isn’t about morality, moral hazard, or the nature of high level decision making. It’s about logistics. How do we know this problem is logistically solvable?

    Consider what happened with Lehman’s frozen assets in the UK. An unintended consequence of British laws led to complete dysfunction and panic because assets were frozen and counterparties couldn’t be made whole. It doesn’t matter whether Hank Paulson and Alistair Darling really, really wanted things to be okay. A combination of severe financial stresses and an unexpected quirk of the legal system led to the blue screen of death.

    My working metaphor for the global financial system is a huge network of pipes and plumbing. I don’t recall who originally came up with this metaphor, but it’s a great one. It captures how attempts to drive liquidity through the system don’t always work in the manner intended, and sometimes don’t work at all. Sometimes pipes are blocked, sometimes they leak, and sometimes they explode.

    And so, a la a creaky financial plumbing system, the problem with massive scale paperwork jam-ups and counterparty chaos is this: You can’t always fix the problem, even if you desperately want to.

    In my view, we don’t know how severe the fallout from this foreclosure mess will be for similar reasons as to why few really knew in advance how serious the Lehman problem would be. Before Lehman went kablooey, I believe it was Evan Newmark in the WSJ who predicted a Lehman shutdown would be trivial. He wasn’t the only one who thought that.

    Again, the dilemma here (as I see it) is the unknown fallout from serious logistical issues within the confines of a tightly coupled complex system. It may not matter what anyone really wants. The authorities might agree with you that it’s not a good idea to “shut down the economy,” but if the pipes are backed up enough, that doesn’t mean the boiler can’t explode.

  93. Captain Jack says:

    p.s. Word has it Hernando de Soto owns two German Shepherds named Marx and Engels — so dubbed because they are “a pair of hairy Germans with no respect for property.”

  94. rktbrkr says:

    I’m about to payoff my mort with a local bank which has had a buy and hold policy, it didn’t mean much to me 15 years ago but I’m relieved now that I’ll be able to record it without undue agita (I think!)

  95. MinnItMan says:

    Dead Hobo states the one case, the pragmatic one where things will really get interesting in ignoring pretty fundamental rules, like the ones that cause judges to frown upon perjury. I’m not saying he’s wrong (and note that I’m not saying he’s in favor of perjury). The only close historical analogy I can think of is actually nothing like this: the Clinton Impeachment. I was wrong about that (I think). It’s the bizzaro opposite. There, perjury was assumed, but politically and structurally, the powers that be decided it didn’t/COULDN’T matter. Politics precluded the President from vigorously arguing that “is” isn’t the same as whatever the hell as whatever whoever was asking about. (My point isn’t to refight this, btw).

    Here, perjury has been admitted, and it’s not clever evasion. It’s a different kind of perjury, mostly because it surely is perjury. Systematic, identifiable, with voidable consequences. The statements made were literally false, even if Six Sigma quality controls can definitively tell us that the “accuracy” rate of the substantive allegations are true (which they already have and probably are). A true philosophical battle here between quantity and quality here. Courts hate philsophical debates. I’m betting they go with “false,” and not “substantially true.”

    The title insurance industry has been a frequent target of derision by Forbes, WSJ, local media etc. as “toll takers.” Plenty of smart people have asked “WTF am I paying these pirates for?” In particular, it used to be for making a judgment that that there are certain irreducible pains-in-the-asses that couldn’t be wished away, assembly-lined, out-sourced, or otherwise quantified into acceptable business risk – or giving a clean bill of health for the absence thereof. (A major part of the real story of MERS, BTW). This used to affect negotiations of price, but as lending rules, closing dates for filling lender pools, etc., became increasingly inflexible, price was determined first. The number of moving parts to get a deal closed kept multiplying and ran head-first into the push for simplicity and predictability. OMG, does capitalism work? Qui WGAF?

    Virtually everything having to do with real estate – a business inherently prone to high transaction costs – has been subject to the faster, better, cheaper mantra. To a certain extent, as it should be.

    But here we are. OMG, does capitalism work? Qui WGAF? I’m repeating myself.

  96. LarryT says:

    The issue related to the Trusts and the failure to record the Assignment is problematic for two other important reasons. First, the most of these Trusts, by their own terms, are required to take ownership of the Notes and Mortgages within 90 days of their formation. That relates to tax treatment of the REMIC. Second, the terms of the Trusts do not permit them to take possession of defaulted Notes. The game that was being played was that the Assignments were mysteriously being prepared, signed and recorded the week before the foreclosure was filed, even though the mortgage was originated, in some case, years earlier. Terrible! In my estimation, only an act of Congress, can fix this. I think?

  97. philipat says:

    Perhaps the Third World country I live in isn’t so bad after all. Noting that foreigners cannot own landed property (Post-Colonial xenophobia that, according to Fox News, Obama would understand and support) every piece of land across the enormous country has an ownership title in the form of a Land Certificate, without which sale of the property is impossible. Any encumbrances are entered into the Certificate so are clear to see. A National Land Office allows checks to be made against the title, which is a standard procedure ahead of nay land transaction by a Notary (Who, incidentally, in a Civil law jurisdiction, has a completely different status and function in comparison to a Common law country like the US)

    Call me old-fashioned, but this works very well in a third world country of 250 Million people and over 3000 miles across. It’s actually not rocket science and even one of the world’s most corrupt countries hasn’t been able to corrupt the system of basic property rights.

    Perhaps the US is already a third world country?

  98. hammerandtong2001 says:

    You’ve heard of Second Market, I’d presume.

    There will be a “Second Market” for this mess too. And that market will not only play by the rules, but be a market for “consumers” and “lenders” of “first resort” desiring transparency, honesty and integrity in their dealings regarding the residence in which the consumer’s family resides. And lives. And makes their home.

    There is a powerful point regarding “psychic income and value” inherently missing in the securitization paperwork nightmare.

    And the dream consumers buy when they go long a few $100K for a house is the memory of their children on Christmas morning in front of the fireplace, or the Thanksgiving dinner with grandma — it still is that way.

    People pay for homes –not houses. And there is a market for that business.

    And that market does not have to be beholden to MBS process and the dubious nature of that business.



  99. kaleberg says:

    In Berle and Means 1932 classic, The Modern Corporation and Private Property, the authors ask what it means to “own” a share of a corporation when one is sharing ownership with perhaps 100,000 other individuals, and likely control of one’s property is in the hands of another party. Owning 100 shares of U.S. Steel was quite different from owner 100 tons of U.S. steel. They were addressing the crisis following the 1929 stock market collapse, and part of their solution was the SEC and Glass-Steagal.

    Now we have mortgages where one person owns the house and land, but the debt backed by that simple, single asset is as subdivided and distributed among hundreds or thousands of parties. It’s like that old joke about protecting a piece of land from development by selling it by the square foot to 10,000 parties. That was then. Good luck at the zoning office. This is now. We’ve subdivided the debt rather than the land. It might look like the debt is backed by an acre of land, but its actually backed by 43,560 square feet.