US Housing foreclosures, the continuing drama. There are so many legal implications in this one news story (in groovygirl’s humble opinion):
In reaction to a Florida’s judge declaring certain foreclosures (by JP Morgan in Florida) not only are not legal, but fraudulent, GMAC has sent a letter to all its law firms/foreclosure departments to halt all foreclosures until further notice.
(However, in a public statement, GMAC is denying this, but the letter is available on zerohedge for your review.)
The Florida judge declared those foreclosures illegal and fraudulent because the bank does not hold the original note (it is not in their name), only the mortgage servicer paperwork. The note is probably in the name of the original issuer of the mortgage, but it is not needed to bundle mortgages into securities to sell to Wall Street. However, the holder of the note is what determines who can foreclose in at least half of these United States.
It is a mess.
This FL judge just upped the stakes, claiming the lawyers representing JP Morgan, who were trying to foreclosure without proper legal authority, were commenting fraud.
That means that the homeowners’ can sue the lawyers and JP Morgan for fraud. (And probably GMAC, too, it sounds like this is why they halted all foreclosures in judicial states.) Lawyers don’t like the word fraud coming from a judge’s month directed toward them. That’s disbarment language.
This has all the makings of a class action lawsuit comprised of every homeowner who has been issued a foreclosure notice in all 29 judicial states.
There are several pieces of paper associated with a mortgage on a house, the note and the mortgage. Usually, those are in the name of the same company or bank. And then there is the servicer of the mortgage, this is where the bundling of mortgages to sell on Wall Street gets involved. However, when companies like Countrywide started getting a large amount of mortgages from American citizens, and sold them to Wall Street to be bundled in Real Estate Mortgage securities, and they forgot, or were just lazy, or didn’t care about transferring the name on the note.
Wall Street really didn’t care about that note paperwork, because in order to get the interest payments (cash flow) to the security for their investors, they just needed to be the servicer of the mortgage. Now they have a legal problem when they try to foreclose because the note gives them the right get the actual property in lieu of payment, and they don’t have the note.
Do you know what this means? Legally, the banks that are just servicers and not holders of the note, really only have billions and billions of dollars worth of unsecured debt, not secured debt. At the moment, they have no legal right to the underlying, tangible asset of the house/real estate. It is now an unsecured loan. They, of course, can sue for payment and put a lien on the house, just as a credit card company can, but not foreclose in court. Credit card debt is considered unsecured debt for this very reason. Unsecured debt is riskier and is priced that way in the market place.
This leads into the other big potential problem, investors claiming fraud (or another reason of many to claim fraud)….investors in the banks themselves and investors in the securities they sold. (Oh, and the brokers that sold them.) They sold these securities to investors as secured debt, when they really were and are (at the moment) unsecured debt. And this debt is represented on their balance sheets as an investment based on secured debt. That’s true fraud, aside from any market-to-myth accounting they might be doing.
As I said, this is a mess. And that’s why GMAC has halted all foreclosures and are getting their paperwork straight….to avoid being sued by delinquent homeowners and angry investors.
This paperwork challenge will also effect banks trying to sell foreclosed properties to new buyers. I wonder if any short sales have run into deed transfer trouble when the note is held by a company not even involved in the transaction. Or did the servicer just forge the signature? Click here. It would be nice if Big Media did some actually reporting on these problems.
The housing market is frozen and this is just the latest reason. Martin Armstrong’s outrageous prediction that real estate is in a 26-year decline (that began in 2007) is looking more plausible with each legal mess that comes to light.
Groovygirl thinks this is a short set back, just need to get some minor paperwork changed in all the under-manned, overworked, three-day-a-week county deed offices in 29 states. Listen, what’s that?…..the low roar of panic in every title company across these great United States.
Karma’s a bitch.
Side musing: make sure you take your lawyer to any housing transaction in the foreseeable future…buying, selling, or foreclosure. Protect yourself.
Our advice to any party caught in a foreclosure process is to immediately go to http://www.fnma.com and use the Lookup Tool to see if Fannie is still mortgage owner of record, if a foreclosure suit has been brought up by a plaintiff other than the GSE.
Update: gold reached a new high over night of $1296.10. And check out Matt Taibbi’s newest article on BP, out later this month in Rolling Stone.