Mortgage Legal Miasma

Everyone by now is aware that several of the largest mortgage providers are holding up on their foreclosure proceedings because they have not offered legitimate proof that they own the mortgages and that they are in default.  We don’t get to toot our own horn very often about things but this is a situation that I discussed over a year ago when the home mortgage rescue was being pushed by the politicians in Washington.  Then there was discussion of the way the mortgages were bundled into packages and sold and re-sold several times with serious questions as to who was the real owner. 

There was concern expressed that many of the home owners were being foreclosed on wrongfully and that they had been tricked into taking the loan n the first place.  I pointed out then that anyone who thought they had been defrauded or were being foreclosed on wrongfully already had a perfectly adequate remedy by using the court system.    The lender has to have two things to proceed with a foreclosure.  They must be the owner of the mortgage itself and the debt.  The law has for centuries recognized that real estate transactions are very special and that they must be handled correctly–in writing and filed of record in the appropriate county office for land records.  The mortgage can be sold as can the debt to another person.  There is nothing inherently wrong with that transaction but it must also comply with the laws regarding real estate rights.  That means the owner of the mortgage at any point in time must be in writing and filed of record to have effect against third parties. 

Because these lenders were doing so many of these and bundling them like so many carloads of corn they got sloppy and careless with their paperwork.  I predicted that.  I predicted that many of those “lenders” would not be able to prove they were the legal owner of the mortgage they sought to foreclose on.  The current scandal is that they cannot produce definite ownership but that they in the hurry have been signing false affidavits for foreclosure proceedings.  There must be a proper chain of title to that mortgage and the signers of those affidavits obviously were not checking the records to determine the truth of the facts they were swearing to.  If the lender can’t prove a proper chain of title then they are not allowed to foreclose under the law.  The are in the eyes of the law a stranger to the original transaction and have no standing.  It is not complicated to transfer such an interest in a mortgage but it must be done correctly.  They got too fancy for their own good and were processing way too many of these transfers and now they are paying the price for their mistakes which is as it should be not only under the law but as a matter of morality.  

Also there is the issue of the debt.  A mortgage is meaningless unless there is a corresponding debt to go with it.  That is another reason it is so important that the chain of title be correct–so that the mortgagor who has been making payments is given the correct credit and that some stranger he did not deal with cannot foreclose on his property.  When the mortgage was sold to another investor the note supporting the mortgage should have been sold with it.  This would normally be done with one document and one transaction but again you have to be the owner of a debt from the homeowner to foreclose.  If you hold a mortgage against A but if fact you have no proof that A owes you any money you can’t foreclose against him which again is as it should be.   It generally is the burden  of proof on the mortgage and note holder to proof the legitimacy of their instruments, the debt and the mortgage.  The homeowner typically can just say “prove it”. 

These mortgage holders who got many of these dubious mortgages can probably in most instances correct the paperwork.  There is nothing legally wrong with a correction deed or deed of trust or mortgage.  For example if everything was correct in the original mortgage but the land description was wrong it can be corrected later and the corrected instrument filed of record.  But with the tens of thousands or hundreds of thousands of these mortgage out there in these bundles it will take a long time to go back through them one by one to verify the chain of title and then properly record them. 

Again the government jumped in where it was unnecessary.  Politicians wanted to win points.  The legal system already had the mechanism in place to deal with these issues and we would be so much further along in restoring the housing market.  Those that were defrauded would be protected and those lenders who didn’t have proper paperwork would have to correct it or lose.  I said long ago that there can’t be a mystery owner of a mortgage who gets to foreclose on you.  You are entitled to know who holds your debt and mortgage and that was true then and now.

We don’t need a federal remedy for every perceived problem.  This can be straightened out and will be.  I don’t feel sorry for those who took out loans that couldn’t afford in the first place with federally subsidized money nor do I cry tears for the lenders who gambled on those loan packages sold like a commodity on the market.

“A slack hand causes poverty, but the hand of the diligent makes rich” Proverbs 10-4.  www.olcranky.wordpress.com

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