Banks walk away from houses
Tom aka Rusty Rustbelt
The Un-foreclosure
What could be worse than a foreclosure? An Un-foreclosure (HT: Columbus Dispatch) also known as a dropped foreclosure or a bank walkaway.
Although exact statistics are hard to come by, the un-foreclosure is apparently become very common in Ohio, Michigan and Indiana. At some point the bank decides the economics of taking title do not justify further action, and walks away.
The General Accountability Office is investigating the problem, and believes as many as 50% of the drops are in these three states. Senator Sherrod Brown (D, Ohio) has gotten involved.
The mortgage servicer forecloses on the property and evicts the former owners, but then fails to take title to the property, leaving the property in limbo. No owner equals no property taxes paid, no insurance, and probably no maintenance. The property is left to rot, damaging the neighborhood. Ironically, due to the failure of the bank to take title, the former owner may still be on the hook for property taxes, and not know it.
The bad news just keeps on coming.
“What could be worse than a foreclosure?”
Glad you asked. Here’s some more background info. The original promissory notes don’t get transferred to the MBS trust fund. This was Countrywide’s standard procedure. In this case, legally the MBS trust fund does not have “standing to foreclose” and therefore neither does the “servicer” who is acting one behalf of the trust fund. The trust fund can’t legally “launch” either in that case, but that is another matter we will get to take up later. There is court case by court case evidence that other banks besides just the “bad boy” poster child, Countrywide, also didn’t bother with proper transfer of the note to the trust funds.
http://economistsview.typepad.com/economistsview/2010/11/countrywide-routinely-failed-to-send-key-docs-to-mbs-trustees.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView%28Economist%27s+View+%28 EconomistsView%29%29
The other bit of real estate law to understand is that in 45 states, the “mortgage” (which is the lien that empowers the right of the promissory note holder to foreclose) automatically “follows the note” which is the correct legal parlance as best I can understand it. There can be additional state specific laws that say both “mortgage” and “note” must be endorsed in parallel (hopefully by the same legal entity), and the trust fund can also specify more strict rules which override standard state real estate law and the Uniform Commercial Code. But the basic legal standard is that whomever holds the original promissory note also holds the lien. This looks problematic because it is usually the lienholder that gets registered at county or state level, and oftentimes MERS is named as the lienholder. Or the lienholder is not updated as the promissory note (which now could be the original, or an electronic copy) gets resold, transferred, or maybe in a legal sense nothing happened at all.
So what could be worse than a Unforeclosure?
Fixing one.
I’m just a armchair lawyer on this, but I have been trying to pay attention, so when I let my overactive imagination run wild I get a plausible scenario like this:
1) The states double foreclose (my term) using a tax lien. They dutifully record the property as owned by the state.
2) They sell the property at market price. The new owner completes escrow as usual with a new lender whom of course requires title insurance and then someone dutifully records the title and mortgage.
3) BofA, new owner of Countrywide, finally finds the warehouse of original promissory notes. The BofA legal department realizes that since they never had “standing to foreclose”, they did not foreclose and in fact still own a valid note and lien.
4) They begin billing the new owner (or they sell the note to a foreign bank who begins billing the new owner). The new owner doesn’t pay of course, he’s paying his new bank. 90 […]
http://www.msfraud.org/
most of these problems were brought out 2=3, possibly 4, yrs relations ago in a ohio fed court case v. deutsche bank, which could not prove ownership. [+ calculated risk and various posters to the original prudent bear board]
in effect a demolition of private property within and by a system founded on such legal relations.
what a deal when capitalism strives to commodify and profit on its self=destruction and, as yet, we have no developed replacement…..makes me think yrs and yrs of stagnation punctuated with episodic rebellions, further delegitimization…….not a middle road period.
“The mortgage servicer forecloses on the property and evicts the former owners, but then fails to take title to the property, leaving the property in limbo. No owner equals no property taxes paid, no insurance, and probably no maintenance. The property is left to rot, damaging the neighborhood. Ironically, due to the failure of the bank to take title, the former owner may still be on the hook for property taxes, and not know it.”
Time for a new homestead act. End homelessness now! “Just get a house.” — Nancy Reagan (not really ;))
It seems to me that there is an old common law concept of abandonment of land and establishment of title by adverse possession. Deal would be that an individual could take over the property and reside on it for 7 years or whatever length of time is required under state law to establish clear title to the land/house or other real property.
Also, there is eminent domain by which the state can claim title to land belonging to a citizen without his consent through condemnation procedures. Seems like the local jurisdiction (city or county) could condemn the abandoned property based on unpaid taxes or the simple act of abandonment. If so, the property could have its title cleared and the local government could then auction the property for taxes owed, etc. Regarding new owners and lenders, the local jurisdiction would be able to negotiate a FMV for the property and settle all around. Anyway all of this stuff comes under quiet title actions. Whaddaya think? NancyO
Min–Right. HOmes for the homeless. Or cities and other settled places could set up community housing corporations and rent or sell the houses like condos retaining title to the underlying land. They do that in Britain, I think. NancyO
It depends on the state The San Luis Obispo county web site says that in CA the redemption period closes the day before the sale. After that, the county issues a deed there that cancels all private liens, essentially only easements and government liens of various types are left.
In Texas the property might go back but the person redeming the tax lien pays a 25% penalty (on top of the bid at the sale) for the priviledge, the first year and 50% the second. So an investor should buy the tax deed not a home owner. In addition the tax purchaser is entitled to any money spent on repairs or upkeep. Since one can not inspect the place only an investor can really play this game. The worst case is the investor gets quite a good interest rate on his loan to the bank, but after 2 years if homesteaded for the owner and its not clear what the period might be for a bank possibly 180 days the sale becomes absolute or else 2 years. If your an investor 25% pa is a pretty good roi in this deal. (Plus any improvements made) Note that to cancel the mortage the mortgage company must be notified. All in all not a game to played without a comptent attorney but if played with one not a bad deal.
Note that this would be the last mortgage company listed in the county records.
So in at least 2 states if the proper proceedures are followed the scenario would not happen.
Right one can clear up via a tax sale, but as pointed out you have to follow a different set of rules in each state.
Tax sales will occur several years later but will occur. Note that if there is a Homeowners association it also can foreclose on upaid dues.
Note if there are unpaid taxes its not eminent domain (since that involves paying the owner the value of the property), but rather a tax sale following proceedures that differ by state. After following the proceedures and sufficient time, the previous note is extinguished, provided the mortgage holder of record is notified. Note that this does mean that investors hope the original mortgage holder forwards any notices, but no skin off the purchaser if they don’t as the recorded mortgage holder has been notified. (if need be by putting an add in a newspaper of general circulation (legal notice))
Ummm…yeah. The process of a city disappearing is a painful process. Rome went from a city of over a million and the center of the Western World in the first few centuries AD to a small agrarian population around 600AD, with people walking their cows around and wondering who the hell built this crazy, dilapidated thing some old fart keeps calling the Colloseum.
So, umm, just because you hate this faceless bank and they lent some fool some money, it’s their problem to save a sinking ship? Yeah…not so sure about that. The death spiral is a death spiral. Collapse is a part of nature. You want to arrest it? You better bring an army…and a community. You want to know whose problem it is? Stop searching the horizon and take a good look in the mirror.
Odds are the cities will eventually have to come up with the funds to demolish the houses under public nuisance laws. That part is not new. The volume of houses will be exceptional.
DEtroit, which has been on the down slide for 40 years, will soon have about 50 square miles of nothing, the talk is of urban farming.
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At Legal Fringe, Empty Houses Go to the Needy
I can’t figure how to leave the link, but NY Times on 8Nov covered some FL adverse possession cases, on front page with title “At legal fringe, empty houses go to the needy.” They should have added: “Or not.”