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Isn't chain of title the elephant in the room on the lender fraud and the foreclosure mess?

David Dayen concludes this fine post on lender fraud and the administration's on-going effort to cover it up with this sentence:

The broken nature of the land title system in the United States is a can of worms I think [regulators] aren’t legitimately interested in opening.

[I can't make sense of "legitimately" in context; needs a copy edit?] However, understanding that the land title system -- through MERS -- is broken is a key piece of the puzzle, I think.

How could you have had HOLC if the chains of title for the homes aren't clear?

How could you have cram-downs?

There's no answer from the administration, except to kick the can down the road, presumably until the statute of limitations runs out or the entire economy -- except for the banksters' gated communities -- collapses into rubble, whichever comes first.

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Submitted by Hugh on

The bigger story is that the chain has been broken at numerous points. The original paperwork for the mortgage was lost or incomplete at the point of the mortgage companies. Title was either not conveyed or improperly conveyed to the bank. The banks failed to convey the mortgages with title to the trusts which served as the basis for CDO creation. CDOs effectively created a scission between the title and the promissory note. The slicing and dicing of CDOs into further instruments made it that much more difficult to identify a legitimate claimant against a specific note. But even if they could, there is no way for a note holder to get back to the title since that party never was its owner, besides which the trust probably didn't get the title before it closed. So if it is with the bank or the originator, we have the classic Catch-22 which lies at the heart of all of this. The title holder doesn't own the promissory note so has no standing at law to make a claim on the note. And the note holder has no standing at law against the title although they may have one against the note (essentially as a non-recourse loan).

MERS is a complication on top of all this in that all conveyances made through MERS but not locally recorded should be treated as illegal.

albrt's picture
Submitted by albrt on

The chain of title eventually fixes itself through adverse possession. Title may not end up where you think it should be, but it will end up somewhere.

I'm not sure how the country's ability to mobilize private capital can fix itself, as more and more people understand the financial markets are a scam.

Bryan's picture
Submitted by Bryan on

There are properties available in my area that have dropped to the right price for people with the money, including a friend of mine, but no one will go near them because the title can't be cleared.

The real estate laws are state-based, and each state is slightly different. Some may allowed a determination of title, but others don't. No one is writing title insurance policies in my area, because MERS made title searches impossible. Without the transfers, no one knows who owns a number of properties.

The problem was exacerbated by flipping during the boom in Florida. Too many transfers in too short of time combined with bad record keeping by the banks et al. and the title system is hosed.

The people with money aren't going to risk it on something that they can't be sure they will own, so prices keep dropping.

Even if they 'heal' the system with court orders, people don't want to face going to court multiple times to prove the title was cleared.

Submitted by Hugh on

The problem with adverse possession is that in the present mortgage mess there is no party who can claim possession under any recognizable terms of adverse possession. In the securitization process, the focus was on the money flows embodied in the promissory note. The title was split off from it and most mortgages written over the last 10-12 years exist in a legal limbo. All parties involved renounced their ownership rights except the trusts. But the trusts had strict laws governing their formation. The mortages, title plus note, had to be properly conveyed to them within a fairly brief timeframe after which the trusts closed and became unmodifiable. But the titles were not properly conveyed and the trusts cannot be reopened to accept them.

I don't see how adverse possession enters into this except at the margins.