Title problems may interfere with foreclosure actions.

By
Real Estate Agent with RE/MAX Properties SW, Inc.

A recent court case in Florida signifies problems for banks wanting to foreclose. A bank filed for foreclosure and submitted an assignment of mortgage as basis for the case. The court found that the mortgage was carried on the books of Fannie Mae and, thus, didn't belong to the servicing bank. Apparently only Fannie Mae, the owner of the mortgage, had the right to foreclose, yet the servicing bank filed the case. The judge found that the servicing bank's actions amount to a knowing deception and are therefore fraud. How often does this type of fraud occur? Are there a large number of these types of cases currently in process? This could possibly impact a large percentage of the foreclosures we're seeing nationwide.

In short the problem is this: Banks used to hold the loan for its entire life, but then they started selling and reselling the loans. The loans were pooled with other loans and these pools (or tranches) were sold. Because of the cost of recording the individual title transfers with the relevant counties, the banks didn't bother to register the transactions. So, because of this practice, for a bank to claim title to a particular house is almost like claiming title to an individual shingle on the roof of a condominium. The roof is common property and owned by all.

This is a potential problem for not only the loan servicer, but also for anyone who purchases an REO property. Will the title company defend your title to a house you bought in the event of a lawsuit showing that the foreclosing bank did not hold appropriate title? This is an interesting possibility.

For the time being, investors or anyone contemplating purchasing a foreclosed property, at the minimum, should make an effort to trace and understand the prior chain of title.

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Re-Bloggged 2 times:

Re-Blogged By Re-Blogged At
  1. J. Philip Faranda 09/22/2010 05:59 PM
  2. Carla Muss-Jacobs, Principal Broker/Owner 10/06/2010 04:26 PM
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Rainmaker
603,652
Pamela Seley, REALTOR®
Menifee Lakes California Real Estate
REALTY EXECUTIVES OTF

This could be a huge problem.  I will be interested to learn more and look forward to reading more on this topic. 

September 23, 2010 04:59 AM
Ambassador
1,516,895
Christine Donovan
Broker/Attorney 800-610-7253 DRE01267479 - Costa M
Donovan Blatt Realty

This is a very interestng topic.  What I am unclear on is how could the title companies choose not to cover this?  They're the ones doing the chain of title and reviewing it before close.

September 24, 2010 12:49 AM
Rainmaker
91,017
CHARLENE PERRY
Crown Title Corporation

I am a Maryland title agent specializing in REO transfers. I have written many blogs about this issue and have been following the class action law suits in Florida and other states. I have transferred more than 5000 REO properties in the recent past, most out of Fannie Mae. I can tell you that there have been many many cases where there were assignments recorded in the wrong order, dated incorrectly, and on and on.  The case that involves MERS is of particular interest to me because there are literally millions of mortgages that named MERS as a "servicing entity" or words to that effect. 

In cases where the foreclosure mills are beig assigned the file and being told to handle it from "cradle to grave" there is absolutely NO OVERSIGHT.  The poor consumer who purchases the property after foreclosure is the potential LOSER here. In a "cradle to grave" environment the foreclosure attorney is tasked with conducting the foreclosure, operating as a foreclosure mill, then they are tasked with transferring property to the new owner.  Well, if they created the problem in the foreclosure, and if they never did an actual full title search on the property, AND they are then being paid again to transfer this property to the new buyer, do you think they are going to go backwards to look for any inconsistency in the foreclosure process or defects in title? NO!!!

Please protect your clients by insisting that they use their own independent title agent for any property they are buying out of foreclosure, and please make sure that the independent title agent is very well versed in transferring REO property, 

Charlene Perry

The Preferred Title Group, Inc.

410-663-7444

September 24, 2010 08:03 PM
Rainmaker
253,513
Eric Martell
Ph.D. Eric Martell
RE/MAX Properties SW, Inc.

Charlene,

Thanks for your post explaining the potential problem for purchasers of REOs.  At this point, I've spoken to quite a few of our fellow agents and most have no idea that this is an issue.  Most of them just shrug it off when I explain.  IMHO, this isn't going to turn out well for a lot of people.

September 24, 2010 10:36 PM
Rainmaker
1,203,203
Carla Muss-Jacobs, Principal Broker/Owner
Buyer Focused ~ Buyer Results
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time

Just re-blogged.  Great post!

October 06, 2010 04:27 PM
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Eric Martell

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