Over the past 2 years, I have warned repeatedly about the dangers to American property rights caused by massive bank fraud, A deadly combination of MERS, robo-signing, and illegal shortcuts have created a horrific situation. A bedrock of our society — the ability for the owner of a piece of real estate to confidently convey that property, along with all associated property rights — is now in danger.

It was the inevitable result of the frauds that too many state Attorneys General seem unwilling to prosecute.

The end results of that massive fraud, and the State’s refusal to hold the wrongdoers accountable, are simply this:

“The highest court in Massachusetts ruled that a homeowner who bought a foreclosure that hadn’t been properly conducted by the foreclosing bank in 2006 didn’t have legal ownership of the property.

The decision by the Supreme Judicial Court casts a cloud over the legal ownership of any properties in Massachusetts where banks didn’t properly convey title when foreclosing. The problem has gained attention nationwide because of banks’ use of “robo-signing” and other dubious practices that may have broken chains of title on foreclosures.

The case follows a previous state court decision that voided a foreclosure when banks couldn’t prove that they owned mortgages when they initiated foreclosure proceedings.”

(WSJ, State Rules on Foreclosure)

The Rule of Law is yet another bedrock foundation of this nation. It seems to get ignored when the criminals involved received billions in bipartisan bailout monies.

The line of bullshit being used on State AGs is that we risk an economic crisis if we prosecute these folks.

The people who claim that fail to realize that the opposite is true — the protest at Occupy Wall Street, the negative sentiment, the general economic angst — traces itself to the belief that there is no justice, that senior bankers have gotten away with economic murder, and that we have a two-tiered criminal system, one for the rich and one for the poor.

Today’s NYT notes the gloom that has descended over consumers, and they suggest it may be home prices. I think they are wrong — in my experience, the sort of generalized rage and frustration comes about when people realize the institutions they have trusted have betrayed them. Humans deal with financial losses in a very specific way — and its not fury.  This is about a fundamental breakdown of the role of government, courts, and leadership in the nation. And it all traces back to the bailouts of reckless bankers, and the refusal to hold then in any way accountable.

There will not be a fundamental economic recovery until that is recognized.

>

Previously :
Florida AG Takes Orders, Money from Fraudclosure Firm (October 12th, 2011)

About That Perjury, Judge . . . (January 11th, 2011)

Foreclosure Mill Attorney Explains How to Commit Fraud (December 30th, 2010)

The Big Lie on Fraudclosure (October 29th, 2010)

Foreclosure Fraud: “Systemic, Industrywide, Pervasive” (October 16th, 2010)

The Impact of Error From Securitization to Foreclosure (October 15th, 2010)

Legal Impossibilities & Foreclosure Errors (October 14th, 2010)

Why Foreclosure Fraud Is So Dangerous to Property Rights (October 12th, 2010)

Foreclosure Fraud Reveals Structural & Legal Crisis (October 5th, 2010)

Sources:
State Rules on Foreclosure
NICK TIMIRAOS
WSJ, October 19, 2011

http://online.wsj.com/article/SB10001424052970203658804576639553359831240.html

Gloom Grips Consumers, and It May Be Home Prices
BINYAMIN APPELBAUM
NYT, October 18, 2011

http://www.nytimes.com/2011/10/19/business/economic-outlook-in-us-follows-home-prices-downhill.html

Category: Bailouts, Foreclosures, Legal, Psychology, 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.

56 Responses to “Fraudclosure Errors Destroying Americans’ Property Rights”

  1. machinehead says:

    ‘Generalized rage and frustration comes about when people realize the institutions they have trusted have betrayed them. This is about a fundamental breakdown of the role of government, courts, and leadership in the nation.’

    For a moment there, I was transported back to August 1974, watching Nixon flash the ‘V’ sign as he climbed into the presidential helicopter for his last ride.

    The times rhyme. And we need a political catharsis. How do you spell relief? I-M-P-E-A-C-H-M-E-N-T.

  2. Pod says:

    Perhaps there have been no prosecutions of “mortgage fraud”, never mind convictions, because the collective AG’s have been unable to uncover any real evidence of illegal activity.

    Even Angelo Mozillo, the man whose company (CFC) originated almost one-third of sub prime mortgages, was investigated and convicted only on misleading shareholders in CFC; there were no charges relating to so-called “mortgage fraud”.

  3. Barry, I would have to respectfully point out that what the court is saying is that the bank cannot convey a property that was improperly taken from Foreclosed Homeowner A and conveyed it to Buyer B. It’s not so much about protecting the banks as it is about protecting the original homeowner.

    What we’re fighting (from the wrongly foreclosed perspective) is the banks knowingly “getting away with” an improper foreclosure and then flipping the property to essentially cover up the crime. Once a new homeowner has possession, courts are generally loathe to throw someone out of a home but meanwhile, poor Foreclosed Homeowner A may be going through a long-term nightmare trying to prove the bank had no right to take their property in the first place.

    Hell, this case was from 2006 and is only being decided now!

    Overall, it’s a good decision that will force banks to go through proper legal channels and provide good proof of title before holding foreclosure sales. Hopefully it will force the banks to come to the table with more homeowners before hastily swiping their properties as well.

  4. Forbes says:

    “The highest court in Massachusetts ruled that a homeowner who bought a foreclosure that hadn’t been properly conducted by the foreclosing bank in 2006 didn’t have legal ownership of the property.

    the risks of purchasing on the courthouse steps are manifold, some of the deals seem too good to be true and are

    (for context readers would do well to review not only the full text of the WSJ article but associated court documents)

  5. Futuredome says:

    This has gone on for years. The rule of law says so.

  6. Transor Z says:

    @Philstockworld:

    You’re misinterpreting Barry’s post as a criticism of the Massachusetts Supreme Judicial Court decision.

  7. Petey Wheatstraw says:

    The underlying principle is that you can’t sell what you don’t own.

    The banks’ argument seems to be that someone must own the property, and since the chain of title has been broken, it must be them. This leads, naturally, to the question: who broke the chain of title (and to a lesser extent and more importantly, when it comes to prosecution of the banks for fraud, why was it broken)? We all know the answer: the banks committed fraud on both ends of the mortgage origination and securitization process.

    If the banks’ argument is taken at face value, and the AGs/courts agree, it would set the precedent that crime, specifically criminal fraud, does pay. It seems that the argument the AGs appear to be making, and one that, if upheld by the courts, will formally extinguish the rule of law in our society, is that the underlying scam is too messy to unravel, primarily, and that doing so would endanger the status quo, secondarily (TBTF becoming an undefeatable legal precedent and the courts becoming the primary power in government by virtue of the law being what the courts say it is, arbitrarily). The reality is that the secondary argument is actually more important to the banks, the AGs, and the courts — entanglement/complexity being the red herring used to add false legitimacy to the end result.

    The larger problematic result of this systemic criminality being allowed to go forward is that the same argument will be used to completely divorce the courts and their clients (NOT the People), from any responsibility for adhering to the law, Rues of Procedure, or precedent. People will be found guilty of crimes because bringing all of the evidence before a court will be too messy, costly, and complex. Corporations/favored parties will be immune from prosecution for the same reason(s).

    Perhaps this problem, and the already mandated solution to it (due process, impartiality, and fairness of the Judicial branch of government), should be the primary goal of the OWS movement (all else being dependent on upholding that mandate).

  8. Seaton says:

    Last 5 paragraphs are quite critical to America’s citizens. We, indeed have a lack of faith in a Justice System (and instead coping with America’s myriad numbers of “legal system having jurisdiction in this area” that most attorneys & obviously we, the people, can’t cope with. We’re back to the 1960′s, “The Man,” once again. “Those” that can take advantage of “thems” that weren’t sufficiently able to not be taken advantage of are just skipping along wealthy as Croesus. The 1% crowd. Phil’s accurate enough…but the whole world is watching yet again, and a whole lot are fed-up. Indeed, “The Banks” got bailed out, and “Main Street” got sold-out. Enough is enough…now, can these 99-%-ers people realize most of their problems are with the Federal Government & get out and vote out these miscreants?

  9. PeterR says:

    Right on Barry.

    The malaise lies deep, and its unleashing and awakening could be strong and vituperative IMO.

  10. [...] again, Barry Ritholtz at The Big Picture pretty much summed it: Today’s NYT notes the gloom that has descended over consumers, and they [...]

  11. gloppie says:

    Where are the locusts I ordered?

  12. Winston Munn says:

    The last time I recognized such a national sentiment of disenfranchisement from the establishment was the late 1960s and early 1970s, when we as a nation were transforming from a group of naive exceptionalists into multilayered pockets of cynical malcontents.

    Barry is correct in his assessment – the action then and now stems from a French-revolutionary-like sense of impotence within the ordinary citizen.

    All I can say is that it is probably good there is no draft now else blood might be again running in the streets of Chicago and Ohio. On the positive side, I am in favor of another Woodstock.

  13. [...] however, we are now seeing full scale real estate nuclear fallout from the banking crisis. As Barry Ritzholz eloquently states, “a deadly combination of MERS, robo-signing, and illegal shortcuts have [...]

  14. [...] Fraudclosure Errors Destroying Americans’ Property Rights | The Big Picture [...]

  15. dougc says:

    @Seaton, when the choices are selected by other miscreants it doesn’t matter ,the result will be the same, the corrupt system will continue.

  16. zcwotun says:

    http://www.comedycentral.com/videos/index.jhtml?title=tron-carter-s-law—order&videoId=219426

    the easiest way to deter white-collar crime is to treat white-collar convicts just like low-level crack dealers—surely liberals and conservatives can agree to that?

  17. Jim67545 says:

    1. A few months ago I pointed out here that the settlement with the AGs HAS to happen because, if it doesn’t, it will result in a widespread discrediting of the chain of title. This will impact millions of properties – those being sold now and those sold over the past decade. This will freeze up, for God knows how long, the entire real estate market. Now we have the actual problem. For those of you who criticize the AGs solving the problem consider the alternative.
    2. Recently I asked an attorney who runs a title company what he is doing about it. He said the title insurance companies are stepping up standards but basically it is still a situation where they are relying on the seller’s representations. The next step is for someone to sue the title insurance company and title firm’s E&O policy for losses they incur. Keep in mind that the “problem” might not be the most recent transfer. It could be several transfers back – or several transfers on the one property. The problem pertains to ANY transfer that involves foreclosure, short sale or mortgage (after all are we SURE the right lender agreed to the short sale or got the payoff?) This will freeze real estate transfers.
    #1 or #2 if allowed to fester would be a disaster and would throw the country into a depression.
    3. I think the term “fraud” is misused here – at least as universally as it is. This is characterized as a situation where the 1st Bank of Podunk in Alabama decides, for no reason, to foreclose on a particular property in Tennessee. In reality, the servicer has been collecting payments on their own behalf or on behalf of the holder of the mortgage for some time, has communicated with the borrower during the delinquency and foreclosure and legitimately believe they have standing to foreclose. They’re not driving down the street picking properties to foreclose upon. Maybe, (properly) pushed by the courts to prove that they have standing, they cannot produce the documents.
    It’s akin to going through security at an airport, being asked for your name and then for a photo ID. When you discover that your photo ID is not in your wallet does this constitute a mistake, a lost document issue or have you committed a fraud?

  18. ZackAttack says:

    I guess the move in the title insurers the last couple of days indicates that the originator can’t file a claim for not being paid for something they don’t own, either.

    Why would anyone buy an existing home, given this type of legal cloud? Seems it could benefit the builders as well.

  19. rct01 says:

    Wake me when they foreclose on someone who is making their payments! No one has ever been foreclosed upon who is making their payments! I love your blog but I think you make way too big of a deal about this. Yes they banks need their butts kicked for it.

    But this whole nonsense that borrowers who cashed out equity out of their properties and bought with payments they couldn’t afford b/c of their greed seeing their neighrbors house going up $100k a year in 2005, deserve principle reductions or loan modifcations is so rediculous. I think throughout this whole housing bubble too much of the blame has shifted OFF the borrowers. How about not cashing out your equity to buy the boat dipshit? How about not signing up for a $5k/mo payment when you make $4k/mo? I used financial prudence and didn’t get myself into a payment I couldn’t afford and so did a lot of my friends. I have no mercy for these dumb asses that bought properties at the peak with payments they NEVER could afford and cashed out all their equity and now are WHINING for principle reductions after sitting in their houses for 3 years not making payments.

    Yes the banks made some shitty subprime loans & screwed up some paperwork, but to me the media has shifted WAY to much blame off the MENTAL MIDGIT homeonwers. We need to just foreclose on their asses and clear out this inventory. Not reward their stupid behavior with loan modifications and principle reductions.

    ~~~

    BR: You must gave missed the many posts we have had on that precise subject — We have discussed this repeatedly over the past year:

    The Erroneous Foreclosure Central Data Repository:

    • Lawsuit accuses Bank of America of seizing wrong house: Dr. Alan Schroit filed the lawsuit Monday in the 122nd State District Court in Galveston against the bank with which he has neither a relationship nor a mortgage. (The Galveston County Daily News)

    • Christopher Hamby of Wheelwright, Ky., filed a lawsuit against Bank of America for repossessing his home by mistake and refusing to pay for damages other than replacing the locks. (Floyd County Times)

    • Jason Grodensky bought his modest Fort Lauderdale home in December, he paid cash. But seven months later, he was surprised to learn that Bank of America had foreclosed on the house, even though Grodensky did not have a mortgage. (Sun Sentinel)

    • A Hampton Pennsylvania woman is suing Bank of America, saying one of its contractors wrongly repossessed her home, padlocked the doors, shut off the utilities, damaged the furniture and confiscated a pet parrot, though her mortgage payments were on time. (Pittsburgh Post-Gazette)

    • Charlie P. and Maria Cardoso of New Bedford claimed that their home in Florida was free of any mortgage. They filed a lawsuit for a wrong foreclosure, claiming that the Bank of America had foreclosed. Their lawyers argued that the Bank had already been notified about the wrong foreclosure, in July, despite which it got foreclosed (South Coast Today)

    • A Las Vegas woman whose condo was mistakenly emptied in a bungled foreclosure action could be the first person to benefit from a new state law. Nilly Mauck, left Las Vegas in mid-December for a snowboarding trip to Utah and returned to stay with a friend for a few days when she received a disturbing phone call. Something was amiss at the Coronado Palms condominium on Badura Avenue that she had owned for the past two years. (Las Vegas Sun)

    • Ricky Rought paid cash to the Deutsche Bank National Trust Company for a four-room cabin in Michigan with the intention of fixing it up for his daughter. Instead, the bank tried to foreclose on the property and the locks were changed, court records show. (Dealbook)

    • Sonya Robison is facing a foreclosure suit in Colorado after the company handling her mortgage encouraged her to skip a payment, she says, to square up for mistakenly changing the locks on her home, too. (Colorado Springs Business Journal)

    • Thomas and Charlotte Sexton, of Kentucky, were successfully foreclosed upon by a mortgage trust that, according to court records, does not exist. (NYT)

    • Ron and LaRhonda Wilson Sr. in a process that allows debtors to reorganize their finances. Lawyers representing Option One Mortgage Corp. alleged that Mr. Wilson was delinquent in mortgage payments and late charges, and asked to foreclose in March 2008, documents show. That foreclosure motion included a document now central to the case being pursued by the trustee: an affidavit submitted by Dory Goebel, an employee at a predecessor company to Lender Processing called Fidelity National Information Services Inc. In a notarized “affidavit of debt,” Ms. Goebel said the Wilsons were delinquent on monthly payments between November 2007 and February 2008, according to documents. The Wilsons’ lawyer subsequently proved to the court that the Wilsons had made debt payments, according to court documents. (WSJ)

    THIS IS WHY FRAUDCLOSURE IS SO DANGEROUS — PEOPLE WITHOUT MORTGAGES BEING FORECLOSED UPON — THIS CAN ONLY HAPPEN WHEN BANK FRAUD IS SYSTEMIC AND WIDESPREAD

  20. DSS10 says:

    It’s not just property rights, is also the denial of access to the courts through binding arbatration, it’s tort law that favors corporate interests over those of the consumer (who paid for either products and services), it’s regulations that are tailored to the interests of a few dominant companies with in an industry surpressing both competition and innovation, it’s a legislature that does not act in the best interest of the country as a whole.

    The property rights issue is like a bloody nose for a cancer patient….

  21. Petey Wheatstraw says:

    Jim67545:

    1. It is because the chain of title has been intentionally broken — in the process of committing fraud (and yes, it is fraud) — that the legal process must move forward, by the book (not as a decision to not prosecute or to let the perpetrators off the hook, because the crime was so large that it endangered the system).

    2. These are titles to real property we’re talking about. If there is, in fact, a defect, the chain must be delinked back to that point. If anyone subsequent to the fraud got screwed, they can seek redress through the courts against any and all complicit parties, as is appropriate and AS OUR LEGITIMATE SYSTEM OF GOVERNMENT REQUIRES.

    It isn’t the cure that would cause such a depression, it’s the crime. A crime of such magnitude should be punished accordingly. I’d rather have a (worse) depression than to see our government legitimize criminality by the powerful.

    3. What do you think title to a property is? It’s a document. If you don’t have it, or if what you have is not legitimate, YOU DO NOT, IN FACT, HOLD TITLE. The fraud in question is not whether the moving party believes they hold title, it IS that the title they hold is most likely fraudulent, and was made so by the banks, in their hurry to securitize-away the risks they knew were bound to holding the title in the first place, that broke the chain by failure to transfer the title AS REQUIRED BY LAW. The securitization process was nothing more than money laundering.

    Your analogy regarding the photo ID is bullshit. In the case of these titles, there was no innocent mistake by a third party. It was clearly the intention of the banks to commit fraud upon society, for profit.

  22. theexpertisin says:

    Another extreme issue that must be resolved is the ridiculous real estate (property) taxes being assessed by local governments nationwide.

    How can a house appraised at 26,000 be taxed at 174,000?

    If true, currrent (even a three year average would be fair) values were the taxable values, I believe local governments would have to slash their bloated budgets by another 30% or more.

    Maybe a class action suit would start the ball rolling.

  23. Petey Wheatstraw says:

    rct01 Says:

    Yes the banks made some shitty subprime loans & screwed up some paperwork, but to me the media has shifted WAY to much blame off the MENTAL MIDGIT homeonwers.
    _______________

    They did not make “some shitty subprime loans & screwed up some paperwork.” They made many prime and subprime loans which they knew would never be repaid. Furthermore, they relied on the complicity of assessors and ratings agencies — the first to inflate the value of the underlying asset(s), and the second to falsely legitimize the quality of the resulting loan. In order to keep the scam moving and transfer risk, they cut their own throats by trying to transfer the risk of these loans by ignoring the requirements of title transfer.

    The banks broke the chain of title, not the borrowers. The borrower has nothing to do with it.

    As for borrowers not making good on their mortgages, it is those folks the banks fear most. Not because the loans won’t be repaid (the banks knew this the day they made the loans, and they have already transferred the risk to the purchasers of their fraudulently generated securities), but because the inability to foreclose legitimately exposes their fraud.

  24. Finster says:

    If the US had the “principle of abstraction” employed in German law and decent book and title management, all of this wouldn’t happen. Where is legitimacy if even the right to property is in question. Where is legitimacy if you can’t even obtain property from a court ruling.

    The US government is defunct, Congress is defunct, the regulators are defunct, the rule of law is defunct, the US of A are defunct.

    Legitimacy, that is what OWS is about.

  25. maddog2020 says:

    @Jim67545: “When you discover that your photo ID is not in your wallet does this constitute a mistake, a lost document issue or have you committed a fraud?”

    So is the answer to that question to make a fake ID, like you did in your dorm room so you could buy beer? Unfortunately, all too often the banks’ answer to that question is to hire firms who could fix their document problems by doing exactly that.

  26. rct01 says:

    Thanks Barry for the info and I understand what you are saying and appreciate it. I still don’t think state attorney generals trying to extract billions (see Kamela Harris California) to write down principles of deadbeat homeowners for a small handful of people being wrongfully foreclosed upon makes a lot of sense.

    Still the point is 99.999% of the people being foreclosed are NOT MAKING THEIR PAYMENTS. Make your payments and you have no problem. And the point is 100% of the blame in the media is being shifted off the homeowners, when at the least it is 50/50 blame between them and the banks (if not 70/30).

    [BR: The business of banks is making loans that will be repaid -- that is their sole basis for existence. That we have dumb homeowners who borrowed more than they could afford is irrelevant - there are ALWAYS dumb homeowners who try to borrow more than they can afford. Banks are supposed to weed them out, and they failed miserably at that.

    The LEGAL liability for bad loans, the actual obligation and responsibility for making good loans is first and always on the banks].

    I really believe the entire blame is being shifted way to much to banks who made the loans and none to the homeowners who made a lot of stupid financial decisions, mostly out of greed (buying a house they couldn’t afford b/c they saw their neighbors house went up $100k that year) and consumerism (cashing out their equity to buy the boat and the Mercedes) during the boom. It’s dangerous for the whole society to shift blame off themselves and blame it entirely all on someone else (banks) and not have to suffer the financial consequences of their stupid decisions (foreclosurThen lessons are not learned to be more prudent financially and frugal. And people like me who held back during the boom and made diligent financial decisions, make my mortgage payments…I get no principle reduction or loan modification reward.

    And I even don’t get the reward of being to scoop up cheap investment properties hitting the market in California because the banks/government keep inventory off the market, modify loans, and don’t let the prices drop enough and the market cleanse itself naturally though the normal much faster foreclosure process.

    ~~~

    BR: You do not seem to appreciate property rights or the rule of law, nor do you understand the fiduciary obligations of bank lenders who borrow from the government and use government insurance on their deposits. They were irresponsible, when their jobs are to be responsible.

    The non bank lenders were simply outrageously reckless.

  27. GrafSchweik says:

    As to why Mr Holder’s DOJ has not gone after anyone for mortgage and securities fraud, my brother tells me that under Bush II a lot—I have no idea how many—graduates of ‘Christian’ law schools—such as Jerry Falwell’s Liberty University—were given permanent positions there, apparently due to the skids being greased in some way—as in the twisting or ignoring of civil service regulations.

    He contends that has been a major contributing factor to the inaction since Obama’s election.

    Have any of the lawyers here heard anything on their professional grapevines about this? Would it even be possible?

  28. libarbarian says:

    @ Jim67545,

    “This will freeze up, for God knows how long, the entire real estate market. Now we have the actual problem. For those of you who criticize the AGs solving the problem consider the alternative.”

    Well, call me Sampson because I, for one, am totally willing to bring this whole thing down on all of our heads. It would be better to put this economy into a depression than let those bastards get away with their crimes.

    If you are going to suffer anyways then it is best to at least make sure that your enemies suffer along with you.

  29. libarbarian says:

    rct01,

    In other words, you have sympathy for people who lend crackheads money and then cry about not getting paid back?

    You blame the crackhead.

    Intelligent people blame the moron who lent him money.

  30. [...] Barry Ritholtz, “Humans deal with financial losses in a very specific way — and its not fury.”  (Big Picture) [...]

  31. slowkarma says:

    In general, I think you’re correct — but the NYT article is essentially correct as well. The NYT’s “homeownership” is a metaphor for the entire sense of American well-being, perhaps (or not) a result of decades of homeownership propaganda. I’d say that the general financial status of homeownership is the main contributor to Shiller’s “Animal Spirits.” If you’ve got a terrific piece of equity in your house, that you’re confident that you can cash in, then you feel that you have some protection against things like a health disaster, loss of a job, etc. If millions of people have it, then the whole country feels buoyant.

    The banking/mortgage fraud is a disaster, and the only way out is to go back and rework the mortgages. The problem is the AG’s don’t seem to be looking for a solution to the problem as much as they are looking for a penalty. We need to fix the problem — any penalties are mostly irrelevant, except to assuage people’s outrage at what they see as an injustice. But: most of the foreclosures are fundamentally legitimate – that is, the owners have stopped paying on their mortgages. They didn’t stop paying because of robosigning or because a piece of paper fell on the floor, they stopped paying because they didn’t have the money to pay. The people who are most damaged are those who buy a piece of property, paying out real money, only to find that they don’t have good title. Which brings up the question, whatever happened to title insurance? I personally have owned nine houses in my life, and I wouldn’t have signed on any of them without title insurance…I’ve always assumed that everybody had it. Not true? Or is the title insurance industry the next to take the gas pipe?

  32. Long term says:

    We are exactly one bubble away from all the public anger over injustice and property rights being fully resolved.

  33. rd says:

    I ma looking into refinancing a 2003 Countrywide (BAC now) mortgage for a home in NY that is not underwater, is less than 80% of the home value, and all payments are current.

    Some of the things that I am looking into with respect to this include:

    1. Is this a MERS mortgage?
    2. How do I make sure that the old mortgage is expunged from all of the systems so that faulty documentation could not come back with a foreclosure?
    3. How can I make sure that my title insurance company will be solvent a decade or two from now? Are the mortgage companies using the most financially stable title insurers?

    I am assuming that new mortgage company will be trying to make sure that these items are looked after, but there are enough issues out there to do some double-checking. My understanding is that NY is a state that lets mortgage holders do a one-time choice of going after the proeprty or the person’s other assets, so there is significant potential future risk personally.

    It used to be so much easier when the only records that mattered were the county clerk’s. This is where the routine acceptance by the courts’ of bank’s fraudulent filings with made up documents is so dangerous, since I could have a paid-off mortgage that could magically re-appear with a foreclosure notice. At least, NYS has been taking some steps to provide some assurances against this occurring.

  34. rd says:

    @GrafSchweik:

    If Holder and Obama wanted to investigate and prosecute mortgage fraud, some Christian attorneys won’t stop them. Pure apologist BS.

  35. libarbarian says:

    @slowkarma ,

    “We need to fix the problem — any penalties are mostly irrelevant, except to assuage people’s outrage at what they see as an injustice. ”

    “Fixing the problem” includes taking steps to prevent future scenarios like it and not just cleaning up the current mess. With no penalties there is every incentive for future bankers to do the same thing again. It’s almost guaranteed given that it allows the perps to earn lots of money.

    Seize the personal assets of people who committed securities and other frauds, just like we do with people who make their money selling drugs, and their future replacements will be a lot more careful to follow the law … if only out of self-interest.

  36. slowkarma says:

    @ libarbarian:

    “Fixing the problem includes taking steps to prevent future scenarios like it and not just cleaning up the current mess. With no penalties there is every incentive for future bankers to do the same thing again. It’s almost guaranteed given that it allows the perps to earn lots of money.”

    I don’t disagree, andI’m not against penalties, but penalties always come down to money, which is promptly thrown down some political rathole…and in the overall scheme of things, isn’t that much anyway. The problem right now, to use your term, is to “cleaning up the current mess.” That’s critical. There are all kinds of things that need to be done downstream, penalties, jail time for people convicted of fraud, whatever, but cleaning up the current mess is essential.

  37. Frwip says:

    @slowkarma

    There was nothing metaphoric about housing wealth. It was objectively the last asset the middle class could tap in the 2000s to maintain the lifestyle it couldn’t support any longer on the sole basis of its falling wages and benefits.

    Just look at home equity loans growth in the same period (from BR’s wild years in blogistan :-) funny what the Google can find):

    http://www.ritholtz.com/blog/2006/01/home-equity-loans-fall-of-the-cliff/

    Home ownership WAS literally the sole basis for the entire sense of American well-being, the last dam.

    Now, it’s gone.

  38. Francois says:

    Even after the countless articles, investigative pieces, court cases, explanation of what constitute “control fraud”, there are STILL people coming to this blog to troll and shill for the banksters.

    Just amazing!

  39. Francois says:

    The problems run very deep, the interests at play will not let go without a fierce and dirty fight…for it is about the most potent aphrodisiac known: POWER!!

    Just like Andy Xie wrote two years ago; without perp walks for the responsibles of the biggest financial control fraud in History, there won’t be economic recovery. There can’t be any without a reset in the collective psyche of this nation, not without restoring a sense of confidence that the game isn’t hopelessly rigged. Why would anyone invest in an economy where the bank can literally steal your assets without any fear of retribution?

    The only question remaining is this: Will this restoration be done peacefully…or otherwise?

  40. bonzo says:

    That does it. I’m so pissed off that I’m going to vote for Cain’s 9-9-9 tax cuts for the rich plan to REALLY teach Wall Street a lesson.

  41. Finster says:

    And pardon me for being provocative:

    Americans finally have to realize that they have

    1. An outdated, inefficient law system
    2. An outdated, unequal election system
    3. An outdated, fraudulent banking system
    4. An outdated, inefficient education system
    5. An outdated, inefficient healthcare system

    As a German I say: losing a war and being occupied at times is good, because you get your house back in order and start from scratch! Reboot the system.

  42. rd says:

    A recent Massachusetts court ruling that outlines why the bank documentation problems are so critical to the real estate market: http://www.creditslips.org/creditslips/2011/10/nemo-dat-trumps-bona-fide-purchaser.html#tp

    MERS and the banks have created problems that could resurface for decades.

    A big question that I have is whether or not title insurance is just the ordinary man’s CDS, where there is so much written on a common problem of such magnitude that the issuers could easily be unable to perform. Would the federal government step in to keep the title insurance system solvent in a crisis?

    If you assume that typical title insurance is 2%-3% of the mortgage value if both the mortgage holder and the mortgagee buy it and the typical house has a mortgage worth two-thirds the value of the house, then 1 title failure in 50 would potentially make the title insurance industry insolvent. MERS and sloppy banks industrialized the potential for title defects, so what was historically a very small probability is now much larger because of the sheer quantity of both foreclosures and the deliberate end-run around around the traditional recording system for a high percentage of the failed mortgages.

  43. bear_in_mind says:

    Thanks Barry!!! Couldn’t agree more… and props to Petey Wheatstraw for adding some good grist for the mill.

    On this we should all agree: we citizens MUST have an effective judiciary which upholds the rule of law and defends our property rights against unreasonable and/or unlawful seizure. Without it, we’re truly a banana republic.

    Some have argued that prosecuting these crimes would bring our economy to its knees. “It’ll cost too much!” “It will take forever!” “Home sales won’t rebound for a decade!” “And local property revenues will plummet! Oh my gawd, oh my gawd!” Well, guess what, Cassandra? It’s already happened!

    The best way out of this is to prosecute the responsible parties up-and-down the bankster food chain; apply treble damages to those who knowingly engaged in this fraud; seize ill-gotten assets; and put the most egregious, felonious offenders in the Cross-Bar Hotel for an 8 to 15 year visit. Now, THAT’S a stimulus program that 99 percent of the public could get behind!

    The nascent OccupyWallStreet movement may be the tipping point that pressures E. Holder and B. Obama into action… but only if enough people make their voices heard!

    Start by telling your state AG’s that the taxpaying, law-abiding citizens deserve their day in court. Do not let them crumble under pressure from the banksters and political parties, who risk losing their precious ‘Citizen’s United’ fundraising mother lode if Wall Street executives land in court.

  44. bear_in_mind says:

    NPR: All Things Considered
    Host: Robert Siegel
    August 18, 2011

    Robert Siegel: The news that the federal government is investigating Standard & Poor’s is remarkable given the very small number of cases of prosecutions or even federal civil suits arising from the collapse of mortgage-backed securities. In past financial crises, when millions were lost, there were trials and convictions that aimed to punish those responsible for fraud and deter others from committing similar fraud in the future.

    To explain what was different this time, Robert Siegel speaks with William Black, a professor at the University of Missouri – Kansas City. Black was litigation director of the Federal Home Loan Bank Board.

    STORY: http://www.npr.org/2011/08/18/139763198/in-past-financial-crisis-fewer-pursued-in-courts

  45. libarbarian says:

    @slowkarma

    “I don’t disagree, andI’m not against penalties, but penalties always come down to money, which is promptly thrown down some political rathole…and in the overall scheme of things, isn’t that much anyway.”

    Well, I can only agree with this is we refer to fines against the Banks themselves. Those fines will just be a “business expense” and past on to the customers. It won’t do anything to deter future wrongdoing because the management and staff will still be able to personally profit and know that, if they are caught, the stockholders & customers will be the ones who pay for their actions.

    I disagree, however, that going after the money of the actual people who engaged in these frauds would be pointless. In fact, I think that it will produce results quickly because it targets their main motivation – personal profit. I’m not worried about the money getting thrown down some rathole because the point isn’t to use the money recovered for some great purpose – it is simply to deny ill-gotten gains to the fraudsters and thereby make it less attractive to commit fraud.

  46. libarbarian says:

    pardon my numerous typos :)

  47. bear_in_mind says:

    A complimentary addition to the discussion:

    The Sweep-It-Under-the-Rug Housing Plan
    CREDIT SLIPS
    by Adam Levitin
    October 18, 2011
    http://www.creditslips.org/creditslips/2011/10/the-sweep-it-under-the-rug-housing-plan.html

  48. drewburn says:

    I’m sorry folks. This is common sense. Barry is right. Good God. Nothing is simpler. It’s not a matter or recreating the universe/country. This stuff was illegal from the git go. And the stuff that wasn’t illegal should have been and was manipulated and stretched by the big financial firms. They all deserve to pay. Take them down, recapitalize them, shrink them, sell them back to the public.

    This is not rocket science. They deserve to pay. I’m sorry if you work for any of them……

    There was a day when there were banks, simple little lenders to simple little businesses. And there were investment bankers who did other stuff. So it should be again, and America could get back to doing real business, not stupifying finance that does nothing for productivity. Volker was right: The only financial innovation of the last three decades was the teller machine!!!

  49. rct01 says:

    I agree the rule of law was not followed, punish the banks as much as you want, I have nothing against that.

    I just don’t think their punishment should be paying principles down and modifying loans of deadbeat homeowners not making their payments, and thus rewarding them for stupid financial decisions and greedy decisions to do cash out refinances at the peak.

    And I don’t think the Government should be involved in forcing loan mods or principle reductions.

    ~~~

    BR: On that, you and I agree.

    See: More Foreclosure, Please

  50. AlexM says:

    I think that this goes much further back than the failure to prosecute the current batch of thieves. When Nixon was not prosecuted for his crimes it set the new era standard that there are people who can do anything at will and never fear prosecution. The second Bush administration should have been prosecuted to the full extent of the law, and nothing was done. Now the next batch of criminals are getting away scott free and nothing will be done.

    The common thread is that there are those who are too powerful or too rich to be prosecuted.

  51. HungryHoneyBadger says:

    “[BR: The business of banks is making loans that will be repaid -- that is their sole basis for existence.]”

    Really?

    How come a credit card rate is greater than an RV loan?
    How come an RV loan rate is greater than car loan?
    How come a car loan rate is greater than home loan?

    If the bank expects to get paid back on every loan, how come the rates of interest are different?

    And why are they all much more than the risk free rate from USTreasurys?

    C’mon Barry…I know you have a greater intellect than that which is portrayed by the above comment.

    We’ll forgive you this one time. :)

  52. [...] fund manager Barry Ritholtz articulated those objections quite well, in a recent piece supporting the State Attorneys General who are resisting the efforts by the Justice Department to [...]

  53. Desi Erasmus says:

    “The business of banks is making loans that [probably] will be repaid — that is their sole basis for existence.”

    The differences in probability of repayment, and prospects of repayment given default, as established by long and deep bodies of underwriting experience, are reflected in the different interest rates charged for collateralized and uncollateralized loans by prudent underwriters.

    I suspect that BR knows that, and that his slightly abbreviated statement implicitly contained it. Given the manifestly ‘broken-at-origination’ trash the banks and the reckless lenders they financed were originating-for-securitization, his abbreviation can be forgiven. The same banks’ vandalizing of the real property ownership records through fraudulent foreclosure practices and use of the MERS system to circumvent recording fees and blur the chain of title have created an even more costly mess after their original misbehavior.

    MERS: Unreported Effects of Lost Chain of Title on Real Property Owners and Their Neighbors
    http://harbingerag.com/Papers/MERS%20Report%20Exhibits%20Combined.pdf

  54. Jim67545 says:

    Interesting. We seem to have several intertwining issues: lenders who foreclose on properties in which they have no (mortgage) interest (See BRs examples), lenders who foreclose on properties in which they HAVE an interest but cannot document that interest and lenders who foreclose on properties in which they have a properly documented interest.
    Regarding the first, despite the dozen or so examples versus several 100,000 foreclosures, I fail to see this as either a fraud or a widespread problem. I’ll give you another example. A friend had a rental property foreclosed upon AND SOLD without his being notified. Of course, (at my advice) he sued and won a settlement. How did this happen? He had set up an arrangement where the tenant paid the rent to the bank and it was applied to the loan. To get that done the bank apparently put the tenant’s name as the (mortgage) account holder and all notices went to that tenant. The point is that sh-t does happen. I know that those incensed about this entire matter will rail at dismissing this as “sh-t happening” but the fact is that it does and a incidence of 10 in 400,000 does not seem beyond the limit of possibilities.
    As to the second, has anyone asked the borrower if they have a mortgage? If they are making payments to anyone? Who that is? If they are current in their payments? If the borrower agrees that they borrowed money from XYZ Bank and are seriously delinquent and have been properly notified of right to cure (or whatever the State law requires), then why would foreclosure be a “fraud?”
    As to the third, while we are talking law a loan is a contract between the lender and the borrower. If the borrower dislikes how their investment turned out – so what? If their circumstances change and they cannot make payments – so what? How can this be fraud (aside from situations where the borrower was disclosed that the loan was such-in-such and it wasn’t?)

  55. [...] Barry Ritholtz, “Humans deal with financial losses in a very specific way — and its not fury.”  (Big Picture) [...]

  56. [...] however, we are now seeing full scale real estate nuclear fallout from the banking crisis. As Barry Ritzholz eloquently states, “a deadly combination of MERS, robo-signing, and illegal shortcuts have created [...]