New Danger in Buying US Foreclosure Sales

[Dave2]

There is an interesting article about a new risk in buying a US foreclosure.  Apparently some banks are so concerned about whether they hold proper title in a twist they are asking the buyer to assume risk of title just before closing.  There are also reports that US title insurance companies are now refusing to insure against this risk much like they do in Canada regarding indian land claims.  

A summary copy of the situation can be found here.   http://www.nakedcapitalism.com/2010/09/latest-real-estate-time-bomb-title-of-foreclosed-properties-clouded-wells-fargo-dumping-risk-on-hapless-buyers.html

I have been aware of the problem for some time which is why I have not invested in US foreclosure property.  I have heard that titles on up to 40,000,000 (forty million) mortgages and consequently properties could be affected.  

I guess I will have to stick to Canadian swampland   At least I have good advice from this forum on what I can do with it.  

PS an interesting comment from an opinion on the original article:

"Presumably down the road, some enterprising real estate investor could simply track down the people who were foreclosed on, buy the rights to their old home for, say $1,000, file that title claim in the county clerks office and then simply move to take the land back as the ?successor.? If his paperwork and recording history is better than the current ?owner? then he very well could win."

I am sure none of the investors on this board would like to buy a holywood mansion for $1,000.  I wonder if the starlets in skimpy bathing suits are considered a chatttel or a fixture.  One of our members already would fit in  

This is serious stuff BTW and over a year ago I ordered my RRSP holder not to have anything to do with US bonds period.

[Pfm1011]

That is interesting, About a year ago I heard about homeowners simply walking into the foreclosure hearing and demanding the bank to " produce the paper"

Turns out that in the frenzy of all the movers and shakers ( douchebags for short) flipping properties and selling mortgages to each other, apparently the actual original mortgages with the signatures are long gone and never had certified copies made.

No contract means..no mortgage

The minute the owner demands to see the paper, the foreclosure stops until the banks produce the paper. at a minimum it takes over a year to find and I'm betting in most cases it is never found so the homeowner gets the house for free . Of course the bank still gets 100 % from the taxpayers so they douchebags still get the bonuses  ( 50% of Lehman Brothers  REVENUE went to bonuses..)

Now according to this article, even if the bank produces the original paper, it has flipped thru 3 or 4 banks , and usually the first bank or mortgage holder has folded , there is no proof that the new bank has the right of foreclosure..

 If the banks have lost proof of the debt, the homeowners that lost their houses can come back and appeal the foreclosures . If US law is like Canada , The homeowners can sue up to 1 year after they LEARN about the" produce the paper" clause or title deficiency , so in theory , this can get ugly for many years..

Of course this could only be a problem if there was a pile of lawyers who will work for 25% of the take which we all know that there is a lawyer shortage in America and the few that are there never make frivolous claims

Also surely the title insurance company will payout and not use legal clauses to get out of the contract.. I'm sure they are as honest as the health insurers so you will have no worries.

Also the good thing with this is that if the original owner scoops the house back..you wont have to fix the Chinese drywall

Seriously , you have to love bankers , while taxpayers bail them out , they get bonuses for screwing taxpayers by knowingly dumping bad houses on people..   This bank bailout will go down as the biggest fraud in history and in any other country the bankers would have been put up against the wall and shot( and they should be)

[stillsleepy]

I thought I detected some sarcasm in your post pfm 

I'd like to know how/why we're insulated from this in Canada though. I would assume that our Canadian banks enjoy trading/selling/splitting our mortgages just as much as our friends down south - especially if it's profitable - and the possibility of an error or omission on a title should still be there, meaning that houses sold on foreclosure could still be subject to the same risk (albeit, on a much smaller scale).

[Dave2]

I thought I detected some sarcasm in your post pfm  

I'd like to know how/why we're insulated from this in Canada though. I would assume that our Canadian banks enjoy trading/selling/splitting our mortgages just as much as our friends down south - especially if it's profitable - and the possibility of an error or omission on a title should still be there, meaning that houses sold on foreclosure could still be subject to the same risk (albeit, on a much smaller scale).

What little I as a non lawyer understand is that most of the US problems revolve around an electronic US title registration system called MERS that some genius dreamed up to bypass the historic mortgage registration process on title which like Canada is mostly locally based. The idea was to save filing costs and also to allow for all of the US mortgage wheeling and dealing.  We do not have this system in Canada and frankly I don't know if we have something similar as the only mortgage I have is still with the original lender.  

It looks like some of the legal underpinning for this new system is not as sound as the financial instituitions thought or we had a case like the old parable of the Emperor's clothes in which everyone decided to ignore the legal problems in getting rich quick.  The intent for the last few years was to issue a mortgage and get rid of it as fast as possible in the United States.   Now that maybe coming back to haunt peole and I understand potentially is a problem in 45 out 50 US states.

[Dave2]

I thought I detected some sarcasm in your post pfm 

Interesting posts out of the United States about GMAC yesterday in which they have been stopping foreclosure because of improper foreclosure filing.:

http://www.nakedcapitalism.com/2010/09/gmac-stops-foreclosures-in-23-states.html

Of course they will blame their lawyer (look what law firm says) which is unfair because we all know there are no dishonest lawyers.   

[Dave2]

This issue is really starting to hit the US main stream press: I will try and summarize briefly a fast moving and complex situation.  Bottom line is STAY AWAY from US foreclosures and make certain your RRSP holdings do not have any bonds from US that maybe affected.

a) It appears that a large number of US property foreclosures are basically fraudulent transactions.   A number of US Mortgage holders GMAC, JP Morgan Chase and Bank of American have stopped foreclosures.  

b) US title Insurers are starting to say its not their problem. If not why do we buy it.

c) The next is extracted from Jim Sinclairs Mineset:

It is all because the banks have lost track of promissory notes signed by the homeowners.  I was the first mainstream media reporter to do a story on this problem in 2008.  (Click here for the 2008 ?Produce the Note? story from CNN.)    Back then, some big banks could not ?produce the note? that proved it had the right to take back a home.  The problem has gotten much bigger as more homeowners discover the banks do not have the original documents.  

After physical paperwork was filled out and signed by the borrower, the banks electronically filed the paperwork into a computerized system called the ?Mortgage Electronic Registry System? (MERS).   According to Congressman Grayson, 60%, or 60 million, mortgages are in MERS.  The banks lost track of the original paperwork, the note, signed by the borrower.  That is what actually proves the bank owns the property.  Grayson says, ?It appears that on a widespread and probably pervasive basis they (the banks) did not take the steps necessary to own the note . . . which means that in 45 out of the 50 states they lack the legal right to foreclose. . . .
Implicatons:

1) 60 million US homes that banks may not be able to foreclose in event of mortgage default.

2) Trillion's in mortgage backed securities now have effectively unsecured loans ( What has your RRSP pension fund advisor invested in.)

3) Original property owner wants his property back because of illegal foreclosure. Title insurers refuse to back title.
One doomsday forecast.
 ?We predict that within a week, all banks will halt every foreclosure currently in process. Within a month, all foreclosures executed within the past 2-3 years will be retried, and millions of existing home sales will be put in jeopardy.  And like that, mortgage fraud goes global.

Personally I am going to increase liquidity. We are going to get hit.  How bad I don't know.

[Pfm1011]

The best part of all this is that the taxpayers will get hit yet again and the movers and shakers will get bigger bonuses..oh and the home owners who actually pay bills ( the new buyers)  will lose their houses, the lawyers will get 30% of the recovered house values  and then the emotional damage suits will start

So now the bailout ( fraud) will be repeated but this time the lawyers will get some too..  Meanwhile, as the lawyers and bankers swim in pools of champagne and cocaine..the average hard working taxpayer takes it up the ass as yet again his 401K shitcans for the 3rd time in ten years.

Of course they eliminated the uptick rule in the us so the bankers can take short positions and reap a winfall. If you really want to know how evil the brokers and bankers are..Read up on the uptick rule. The rule was put in place after the crash and great depression  and eliminated 4 weeks before the subprime collapse started, The shorters made BILLIONS on the subprime collapse.

http://en.wikipedia.org/wiki/Uptick_rule  


I still cant figure out why someone who has been wiped out  for the 3rd time this decade hasn't simply shot a few of these assholes.  I can guarantee wall street scum might start to behave a tad bit better if a few lost their heads. literally 

Steal a purse 2 years in Jail. Steal the life savings ..its just business

[Dave2]

Whole title issue is all over US press.  Bottom line is do not do it.  

This is one of many references.   You cannot resell a property with an unclear title.  

http://globaleconomicanalysis.blogspot.com/2010/10/unclear-titles-will-sideline-buyers-of.html

I am aware of instances where people who have been foreclosed on, were kicked out and the property resold and have gone back and "reclaimed and taken repossession of their property".  

What a coming mess.  Only believable but terrifying comment I heard about this whole
situation was from a lawyer: "Its a great time to be a real estate lawyer. "

Note:  I do not think we in Canada will be immune as the risk premium with all mortgages will go up.  I am in the process of renewing my (only) mortgage early in spite of penalty. (I had 18 months to go, but do not want to risk waiting. )  

The key is like a surfer, be ahead of the wave not buried by it.

[stillsleepy]

I find the angle you guys are taking interesting: Stay away from buying U.S. Mortgage Foreclosures

While it's understandable given the whole theme of this forum, there are some other factors that may come as a consequence of these unfolding events. For one, if all current foreclosure processes and sales are halted and previous ones retried, it could (i.e. will) have a serious effect on housing prices, given that these homes make up a considerable amount of the supply to buyers. On the other hand, with the way things are in the states perhaps some climbing in the value of homes would be a good idea. It's a tricky situation, because if supply does drop considerably, then having some property what you can sell with a clean title could actually be a real source of quick income.

Another thing, and I think pfm touched on this, is that if this is big enough it'll probably mean another bailout, which will have implications on inflation, consumer confidence, and the economy as a whole (didn't this just happen? I'm sensing some deja vu ) which will affect.. well, everyone. In this case having some U.S. property to sell could be pointless, if the U.S. currency goes to shit and real estate values go on a roller coaster ride - and probably not the fun kind of roller coasters.

As a Canadian with very few hard assets but a reasonable sum of [very] liquid assets, I'd be interested to hear what you guys are doing with your cash... and I don't mean the equity in your home or the money in your RRSP's... What are/would you do with your assets that you can turn to currency in <24 hours? Run to gold? Stash it in a pillowcase and sit tight? Ignore the doomsday scenario's, go on with life, and leave it where it is? Every day I read a new article about how everything's about to hit rock bottom on this continent, and half the time I actually believe it...

[Dave2]

I find the angle you guys are taking interesting: Stay away from buying U.S. Mortgage Foreclosures

Another thing, and I think pfm touched on this, is that if this is big enough it'll probably mean another bailout, which will have implications on inflation, consumer confidence, and the economy as a whole (didn't this just happen? I'm sensing some deja vu ) which will affect.. well, everyone. In this case having some U.S. property to sell could be pointless, if the U.S. currency goes to shit and real estate values go on a roller coaster ride - and probably not the fun kind of roller coasters.

As the original guy who posted it I think no one knows the FULL implications of this.  I think they will be a lot broader then we expect especially indirect.  Some recent posts (Not mainstream) make me think. No bailout is going to help this problem.   What we are talking about is some fundamental issues with the US property registration system and that is a very big issue.

On this forum the one thing we learn is get the deed.  Why because then we own the property? We now find there are major problems with the UNITED STATES systems for deed registration.  

http://kunstler.com/blog/2010/10/bank-shot.html?This why I pulled out of US bonds a year ago.

source=patrick.nethttp://www.gonzalolira.blogspot.com/2010/10/coming-middle-class-anarchy.html?source=patrick.net#navbar-iframe

http://action.seiu.org/page/speakout/wheresthenote?source=patrick.net#hd

My general suggestion is stay liquid as I think there will be opportunities coming up because a lot of people in the US may decide to let their Canaian vacation property go.  Also organize your debt so that it is locked in for a "Practical" period of time.

. 

[stillsleepy]

The issue with staying liquid is that if the currency fails, you're in a bigger risk position then if you're holding onto goods or real estate... Since at the end you actually own something with goods or real estate, whereas with currency you just own a bunch of paper.

That said, Canada is an interesting country because of our immense natural resources - combined with technological and manufacturing industries. Perhaps our currency is a little more robust than that of the U.S. on a global scale.

On another note, I'm curious what your (everyones) thoughts are on the Canadian real estate market. Over the last few years things have climbed sharply, whith prices or sales volumes or both declining over the last few months - or listings increasing (at least, in the hotspots). I've been doing some poking around and it appears that the CMHC, the corp insuring most of the 5% down 30+ yr mortgages, has liabilities nearly 100 times it's assets... Not such a big deal if those liabilities aren't called on, but come renewal time (or real estate price decline time) the banks will want someone to pay - the mortgage holder, or the mortgage insurer...

[Dave2]

On another note, I'm curious what your (everyones) thoughts are on the Canadian real estate market. Over the last few years things have climbed sharply, whith prices or sales volumes or both declining over the last few months - or listings increasing (at least, in the hotspots). I've been doing some poking around and it appears that the CMHC, the corp insuring most of the 5% down 30+ yr mortgages, has liabilities nearly 100 times it's assets... Not such a big deal if those liabilities aren't called on, but come renewal time (or real estate price decline time) the banks will want someone to pay - the mortgage holder, or the mortgage insurer...

I am not an expert on the Canadian mortgage market but My plan is to put myself in a position so I don't care.  If all works out Monday I will not have to worry for another 5 years and after that I will be down to low low 6 figures on debt.  The reason I said earlier to stay liquid is I think that the "good" tax sale buys are coming.  Why take a look at the the headlines from one US blog I follow:

September house foreclosures top 100,000 for first time (news.yahoo.com)
Israel unlikely champ in global real estate (news.yahoo.com)
Is David J. Stern the poster boy for the foreclosure mess? (news.yahoo.com)
How a gang of predatory lenders fleeced America (carolynbaker.net)
How deadbeat borrowers and shady banks siphon wallets of prudent Americans (doctorhousingbubble.com)
How two civilian sleuths brought foreclosure problems to light (mcclatchydc.com)
Bankers Ignored Signs of Trouble on Foreclosures (nytimes.com)
Foreclosure doomsday scenario? (laobserved.com)
Don't blame the government for mortgage lies (salon.com)
What Angelides Should Have Learned From Pecora (dealbook.blogs.nytimes.com)Gallup Poll Shows Discretionary Spending at All Time Low (Mish)
Desperate Fed adds more cheese to the mortgage trap: rates hit decades-low of 4.19% (sfgate.com)
Hurry! Hurry! Because Mortgage Rates are Going... (patrick.net)
Fannie and Freddie in a Mess (theatlantic.com)
Lack of proper mortgage paper trail could leave big banks reeling again (washingtonpost.com)
Title has been clouded (moneydaily.blogspot.com)
Mortgages Lost in the Cloud (businessweek.com)

Based on an interesting experience I believe that US owners of Canadian property may dump part of it.  Why would I say that?  Lets say I have personal experience.   IF they want to throw out the baby with the bath water I may get a very big net to catch the baby (ies).

Actually sometimes I wonder if my problem is that I am too conservative.  How about all of us on this board get together and make an interesting offer.  How about we buy all of the United States. Any takers???  I am not certain which bankruptcy court we will get it from?

[Dave2]

Interesting observation from this site:

http://www.oftwominds.com/blogoct10/poisoned-well10-10.html

Someone once said (I forget who) "It takes 25 years to make a reputation and 15 minutes to lose it"

Also actions speak loader then words.  If this is no big deal why would the biggest US title insurer be doing the following.  

http://www.bloomberg.com/news/2010-10-20/fidelity-national-to-require-banks-to-sign-warranty-for-foreclosure-sales.html

I wonder.  Last comment is interesting.  

"Even if a court sets aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return all funds obtained from our insureds, resulting in no loss under the title insurance policy,? Foley said."  

"Except if the lender becomes bankrupt"

[Dave2]

It is an ill wind that does no one good says an old saying.  Wonder why the banks are hiring lawyers in the United States

http://voices.washingtonpost.com/political-economy/2010/10/bank_of_america_hires_former_d.html