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Who holds the deed to your house?

You have probably heard of the moratorium on home foreclosures due to sloppy paperwork in the mortgage industry. But there is potentially a far bigger problem, one that may affect your own paid-up mortgage. A court in Kansas has ruled that the old practice of registering titles to property in the local courthouse is, in fact, the law of the land. This was largely ignored during the mortgage book, with its high-tech mortgage repackaging and speculating. Let’s let the New York Times explain it:

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.

Cost savings to members who joined the registry were meaningful. In 2007, the organization calculated that it had saved the industry $1 billion during the previous decade. Some 60 million loans are registered in the name of MERS.

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.

“MERS is basically an electronic phone book for mortgages,” said Kevin Byers, an expert on mortgage securities and a principal at Parkside Associates, a consulting firm in Atlanta. “To call this electronic registry a creditor in foreclosure and bankruptcy actions is legal pretzel logic, nothing more than an artifice constructed to save time, money and paperwork.”

The system also led to confusion. When MERS was involved, borrowers who hoped to work out their loans couldn’t identify who they should turn to.

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.

via Fair Game – The Mortgage Machine Backfires – NYTimes.com.

Now factor in this from the Washington Post:

The federal government’s pressure on lenders Wednesday to fix the paperwork problems plaguing foreclosures left unaddressed a far greater potential threat facing the financial system and the U.S. economy.

Financial and legal analysts are divided over how the ownership questions will be resolved and the scope of the potential damage. Lenders and investigators are in the midst of a painstaking process of unraveling the complex chain of loans that were sold from one party to another, a process that some analysts say could take years.

Of the nearly $11 trillion in mortgages in the United States, about two-thirds was turned into securities that were traded around the globe.

After a home buyer gets a mortgage, the lender typically pools that loan with hundreds of others to create a security that can be traded like a stock. This process is commonly called securitization and has been the preferred method of financing debt in America for more than a decade.

Wall Street firms would set up partnerships called “trusts” and would raise money from pension funds, university endowments, hedge funds and other investors to buy these mortgage securities. The investors would then share the cash flow from the payments made by homeowners every month.

However, local laws in most states dictate that each time a mortgage changes hands, the transaction needs to be recorded in courts or county offices. But the speed with which the loans were being generated during the housing boom and then pooled together and passed around Wall Street meant that big financial firms took shortcuts, consumer lawyers said.

Often the proper paperwork got lost or was passed along without being filled out, lawyers say. Some documents have been found retroactively signed or even forged.

“It now appears that in many cases: 1. the paperwork was not properly transferred and 2. it is unclear in many cases where the actual paperwork actually rests today,” Citigroup Global Markets analyst Josh Levin wrote in a note to investors this week.

Some think this can be fixed easily; others think it might paralyze the housing industry and bring down banks, investors, and the financial system.

Titles are a legal bulwark of private property. What we often dismissed as “mere paperwork” can be profoundly important. Or do you think physical titles and the like are obsolete in the age of internet transactions? But even if we need to adjust the system to the new technology, how do we get from here to there without going through an economic mess? And, in the meantime, who holds the deed to your house?

HT:  FWS

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

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  • http://www.thirduse.com fws

    Deregulation can be a codeword for lawlessness. Not always, but it can be.

    Is the problem over-regulation or regulation that is based on flawed principals?

    Where do the conservatives here feel regulation crosses the line and becomes an enemy of the free market?

    Is there a sense where regulation is necessary to and a friend of a free market? Where and how? What are the general principals here that would guide someone legislating regulations?

    What is the difference between regulations and laws?

  • http://www.thirduse.com fws

    Deregulation can be a codeword for lawlessness. Not always, but it can be.

    Is the problem over-regulation or regulation that is based on flawed principals?

    Where do the conservatives here feel regulation crosses the line and becomes an enemy of the free market?

    Is there a sense where regulation is necessary to and a friend of a free market? Where and how? What are the general principals here that would guide someone legislating regulations?

    What is the difference between regulations and laws?

  • http://www.homemortgageinformation.org/ mortgage refinancing

    If you simply cannot afford your home, you have options outside of foreclosure as well. Consider selling the house quickly. Discount the price enough that it will sell quickly, but you can still pay back what you owe after deducting your real estate agent’s commissions. If this is not possible because you owe too much, ask your lender if you can simply hand over the deed in lieu of foreclosure. This saves them money, because foreclosure is expensive, so they may accept. If they don’t, try to negotiate a short sale, which is a scenario where you sell the home for less than you owe in order to give the bank something and avoid foreclosure. Make sure the lender agrees to the short sale before you start the process, but keep in mind that short sales do affect your credit score.

  • http://www.homemortgageinformation.org/ mortgage refinancing

    If you simply cannot afford your home, you have options outside of foreclosure as well. Consider selling the house quickly. Discount the price enough that it will sell quickly, but you can still pay back what you owe after deducting your real estate agent’s commissions. If this is not possible because you owe too much, ask your lender if you can simply hand over the deed in lieu of foreclosure. This saves them money, because foreclosure is expensive, so they may accept. If they don’t, try to negotiate a short sale, which is a scenario where you sell the home for less than you owe in order to give the bank something and avoid foreclosure. Make sure the lender agrees to the short sale before you start the process, but keep in mind that short sales do affect your credit score.

  • Jerry

    This is just another example of “the rules don’t apply to us because we know better.” Even if the changes in the market outpaced the regulations and rules, they are not a defense for fraud and forgery.

  • Jerry

    This is just another example of “the rules don’t apply to us because we know better.” Even if the changes in the market outpaced the regulations and rules, they are not a defense for fraud and forgery.

  • http://www.newreformationpress.com Patrick Kyle

    Frank,
    It has nothing to do with deregulation.

    ‘Shortcuts’ were taken in the interest of saving money. These shortcuts were illegal, breaking state and Federal Law. No amount of ‘regulation,’ rules or laws prevented ‘robosigning’ , backdating, forgery, and the misrepresentation of the quality of the securities sold to investors, (fraud). They do however allow us to prosecute and hold responsible those who perpetrated these crimes, and in many cases, like my sister who was a mortgage banker for over 20 years, encourage running an honest and fair business, complying with all the laws. (After the company my sister worked for was bought by a ‘less reputable’ firm, my sister would refuse to sign loan documents several times a week. In her words she ‘didn’t want her name on those s**t loans.’ The company had no trouble getting other employees to sign off on them.)

  • http://www.newreformationpress.com Patrick Kyle

    Frank,
    It has nothing to do with deregulation.

    ‘Shortcuts’ were taken in the interest of saving money. These shortcuts were illegal, breaking state and Federal Law. No amount of ‘regulation,’ rules or laws prevented ‘robosigning’ , backdating, forgery, and the misrepresentation of the quality of the securities sold to investors, (fraud). They do however allow us to prosecute and hold responsible those who perpetrated these crimes, and in many cases, like my sister who was a mortgage banker for over 20 years, encourage running an honest and fair business, complying with all the laws. (After the company my sister worked for was bought by a ‘less reputable’ firm, my sister would refuse to sign loan documents several times a week. In her words she ‘didn’t want her name on those s**t loans.’ The company had no trouble getting other employees to sign off on them.)

  • http://www.geneveith.com Gene Veith

    The title laws are not in the nature of new “regulations.” They are just centuries-old laws that were not being obeyed or enforced. We watched “The Man Who Shot Liberty Valence” last night in my film class. The lawless “state of nature” does NOT promote private property or free enterprise. Rather, in that movie, the lawless cattle ranchers, with their power and gunslingers, were taking the property of the small farmers so they could have an “open range.” Only until law came to Shinbone and the people voted for statehood was private property protected.

    (What a great movie, by the way! Jimmy Stewart AND John Wayne AND Lee Marvin AND Lee Van Cleef, not to mention great supporting actors such as Andy Devine. And the incomparable direction of John Ford.)

  • http://www.geneveith.com Gene Veith

    The title laws are not in the nature of new “regulations.” They are just centuries-old laws that were not being obeyed or enforced. We watched “The Man Who Shot Liberty Valence” last night in my film class. The lawless “state of nature” does NOT promote private property or free enterprise. Rather, in that movie, the lawless cattle ranchers, with their power and gunslingers, were taking the property of the small farmers so they could have an “open range.” Only until law came to Shinbone and the people voted for statehood was private property protected.

    (What a great movie, by the way! Jimmy Stewart AND John Wayne AND Lee Marvin AND Lee Van Cleef, not to mention great supporting actors such as Andy Devine. And the incomparable direction of John Ford.)

  • http://www.thirduse.com fws

    patrick and gene @ 3 & 4

    What I am suggesting is for us to step back a bit and consider the basic form and purpose of all good business law. What is that? It is really about enforcing just one thing. That thing is transparency.

    Business law is basically contract law. A clean contract has 4 parts: offer, acceptance of the offer, consideration and contractual capacity.

    The uniform commercial code(UCC) is all about defining and mandating what each one of those elements of a contract is.

    What is an offer? How specific does it need to be? what are those specifics? what constitutes acceptance of the offer? a signature? on what? a digital signature? proof of receipt? consideration. what is it of value or substance is changing hands?

    So now… “regulations that make credit card companies state on their statements what the total bill would be if someone only made the minimum payment, not be able to change the rules as to payment due dates and interest rates at whim, etc are all about that. Modern technology can enhance this valuable transparency and have very little cost. Yet credit card companies resist these regulations for rather obvious reasons. Does the average consumer have “contractual capacity” to enter into even credit card contracts? I am a cpa and I am challenged by the fine print… Rules that favor consumers and reassure the public that someone knew exactly what he was getting into our could reasonably have known is all good stuff. I think this is all like mom and apple pie. no one serious should object to this sort of stuff…

    Now there is a second layer of regulation that is less clear. Usury laws are a good example. Should they exist? are they a good thing? They are not “free market”. I think I would argue in their favor. Someone like Patrick might take the opposite side. cool. Is this legislating morality in the wrong way? dunno. Just because there were usury laws and debt forgiveness laws in the ot does not mean we need to do the same…..

    Then there are rules that are monopolistic and create trade barriers. these are almost always bad. I cant think of a “good ” example.

    so the task is to see what category the laws fall into… smoot hawley and the bank regulations of the 30´s that said banks could be either commercial or investment. was it good to repeal those? is it good to have regulations to prevent banks from becoming “too big to fail”? dunno.

    Penny for your thoughts.

  • http://www.thirduse.com fws

    patrick and gene @ 3 & 4

    What I am suggesting is for us to step back a bit and consider the basic form and purpose of all good business law. What is that? It is really about enforcing just one thing. That thing is transparency.

    Business law is basically contract law. A clean contract has 4 parts: offer, acceptance of the offer, consideration and contractual capacity.

    The uniform commercial code(UCC) is all about defining and mandating what each one of those elements of a contract is.

    What is an offer? How specific does it need to be? what are those specifics? what constitutes acceptance of the offer? a signature? on what? a digital signature? proof of receipt? consideration. what is it of value or substance is changing hands?

    So now… “regulations that make credit card companies state on their statements what the total bill would be if someone only made the minimum payment, not be able to change the rules as to payment due dates and interest rates at whim, etc are all about that. Modern technology can enhance this valuable transparency and have very little cost. Yet credit card companies resist these regulations for rather obvious reasons. Does the average consumer have “contractual capacity” to enter into even credit card contracts? I am a cpa and I am challenged by the fine print… Rules that favor consumers and reassure the public that someone knew exactly what he was getting into our could reasonably have known is all good stuff. I think this is all like mom and apple pie. no one serious should object to this sort of stuff…

    Now there is a second layer of regulation that is less clear. Usury laws are a good example. Should they exist? are they a good thing? They are not “free market”. I think I would argue in their favor. Someone like Patrick might take the opposite side. cool. Is this legislating morality in the wrong way? dunno. Just because there were usury laws and debt forgiveness laws in the ot does not mean we need to do the same…..

    Then there are rules that are monopolistic and create trade barriers. these are almost always bad. I cant think of a “good ” example.

    so the task is to see what category the laws fall into… smoot hawley and the bank regulations of the 30´s that said banks could be either commercial or investment. was it good to repeal those? is it good to have regulations to prevent banks from becoming “too big to fail”? dunno.

    Penny for your thoughts.

  • Joe

    Frank – that is one heck of a tangent. There. Sorry, its Friday, my daughters birthday and I’m low on coffee. Maybe next time, my friend.

    By the way, Dr. Vieth – that is one of the greatest films of all time. This is not opinion; its fact. :)

  • Joe

    Frank – that is one heck of a tangent. There. Sorry, its Friday, my daughters birthday and I’m low on coffee. Maybe next time, my friend.

    By the way, Dr. Vieth – that is one of the greatest films of all time. This is not opinion; its fact. :)

  • C. Randal

    Keep in mind that title/recording/ownership statues vary state by state. For example, Colorado is one of the few Public Trustee states. Here, the Public Trustee (an government appointment) holds title of the property in trust. Thus when you buy your home, your deed is actually a Deed of Trust, this is tied directly to a Security Agreement granting collateral rights to the property to the lienholder. When the debt is paid, you are then issued your “real” deed (usually a Warranty Deed) that is then recorded to evidence your ownership of the property. By the way, this differs from state to state, but in some states you don’t “own” the property until the deed is recorded, in others it occurs upon “notice” to others that you hold the deed.

  • C. Randal

    Keep in mind that title/recording/ownership statues vary state by state. For example, Colorado is one of the few Public Trustee states. Here, the Public Trustee (an government appointment) holds title of the property in trust. Thus when you buy your home, your deed is actually a Deed of Trust, this is tied directly to a Security Agreement granting collateral rights to the property to the lienholder. When the debt is paid, you are then issued your “real” deed (usually a Warranty Deed) that is then recorded to evidence your ownership of the property. By the way, this differs from state to state, but in some states you don’t “own” the property until the deed is recorded, in others it occurs upon “notice” to others that you hold the deed.

  • Joe

    sorry about the typo on your name – the whole i before e things gets me every time. :(

  • Joe

    sorry about the typo on your name – the whole i before e things gets me every time. :(

  • http://www.toddstadler.com/ tODD

    Joe (@8), “The whole I before E things gets me every time.” Hmm, that’s weird. It’s not exactly rocket science. I before E, except after C. And except in Dr. Veith’s name. And maybe a few other words you can think of.

    Sorry, I have little to nothing to say about deeds. I’m all about creeds, myself — this is legalism talk. :)

  • http://www.toddstadler.com/ tODD

    Joe (@8), “The whole I before E things gets me every time.” Hmm, that’s weird. It’s not exactly rocket science. I before E, except after C. And except in Dr. Veith’s name. And maybe a few other words you can think of.

    Sorry, I have little to nothing to say about deeds. I’m all about creeds, myself — this is legalism talk. :)

  • http://www.thirduse.com fws

    I feel for the banks actually. in a way. the old system is cumbersome and slows the process alot. the whole system of needing an actual written signature , which is notarized is probably going to have to change in the internet age. It is just a way for fedex to get richer.

    now on the other hand…. i have yet to see a proposal that can successfully replace the old system requiring a physical signature….. whoever comes up with that way will be a genius.

    it seems that in some ways there is no replacement for paper. people who do archiving for a living are really challenged by the digital age. easy to lose data, and every time there is a software or format or physical change to the way stuff is stored electronically, there is a risk of losing access to old data,

    and imagine someway when a dictator takes over. don´t like recorded history. snap. poof. gone. problem solved.

  • http://www.thirduse.com fws

    I feel for the banks actually. in a way. the old system is cumbersome and slows the process alot. the whole system of needing an actual written signature , which is notarized is probably going to have to change in the internet age. It is just a way for fedex to get richer.

    now on the other hand…. i have yet to see a proposal that can successfully replace the old system requiring a physical signature….. whoever comes up with that way will be a genius.

    it seems that in some ways there is no replacement for paper. people who do archiving for a living are really challenged by the digital age. easy to lose data, and every time there is a software or format or physical change to the way stuff is stored electronically, there is a risk of losing access to old data,

    and imagine someway when a dictator takes over. don´t like recorded history. snap. poof. gone. problem solved.

  • Joe

    Well played tODD, well played.

  • Joe

    Well played tODD, well played.

  • SAL

    While small businesses cower before bureaucrats, it’s clear the financial titans and the large corporations have a symbiotic relationship with the Government.

    This troubles me about the Tea Party movement and its reaction to the stale Statist policies of the current Democrat Party.

    By taking the genuine frustration of Americans and aiming it mostly at government (along typically Republican lines) we ignore the other robber-baron tyrants who rule not in DC but in Wall Street and the large urban metropolises.

    I’m not certain it will do much good to reign in DC if we don’t simultaneously reign in the lawless and growing power of financial institutions over Americans.

  • SAL

    While small businesses cower before bureaucrats, it’s clear the financial titans and the large corporations have a symbiotic relationship with the Government.

    This troubles me about the Tea Party movement and its reaction to the stale Statist policies of the current Democrat Party.

    By taking the genuine frustration of Americans and aiming it mostly at government (along typically Republican lines) we ignore the other robber-baron tyrants who rule not in DC but in Wall Street and the large urban metropolises.

    I’m not certain it will do much good to reign in DC if we don’t simultaneously reign in the lawless and growing power of financial institutions over Americans.

  • WebMonk

    “Sorry, I have little to nothing to say about deeds. I’m all about creeds, myself — this is legalism talk.”

    tODD, you’re my hero! Epic!

  • WebMonk

    “Sorry, I have little to nothing to say about deeds. I’m all about creeds, myself — this is legalism talk.”

    tODD, you’re my hero! Epic!

  • http://www.facebook.com/profile.php?id=100003407214828 Edmon

    I would definitely never do such a thing for pesrnoal property, such as my house, however I can see the benefits from a business perspective. For instance, if you had a mortgage for a business property, you might choose to do something along these lines to help your business grow a little faster in infancy. For instance, I know a guy who has $2 mil invested in a blueberry farm. Blueberries don’t even produce anything for seven years. Year seven rolls around, he starts making money. Anything he can do in the meantime to minimize payments or push them off till later would probably make sense. But to reiterate I would never, ever ever consider doing something like this for pesrnoal property.

  • http://www.facebook.com/profile.php?id=100003407214828 Edmon

    I would definitely never do such a thing for pesrnoal property, such as my house, however I can see the benefits from a business perspective. For instance, if you had a mortgage for a business property, you might choose to do something along these lines to help your business grow a little faster in infancy. For instance, I know a guy who has $2 mil invested in a blueberry farm. Blueberries don’t even produce anything for seven years. Year seven rolls around, he starts making money. Anything he can do in the meantime to minimize payments or push them off till later would probably make sense. But to reiterate I would never, ever ever consider doing something like this for pesrnoal property.


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