Country wide trouble for Bank of America

[The Man]

Country wide trouble for Bank of America

http://www.dailyfinance.com/story/credit/bank-of-america-mortgage-document-errors-trouble-countrywide/19728402/?icid=maing%7Cmain5%7C3%7Clink6%7C27442


If true I find it highly unlikely that such corner cutting was limited only to Countrywide. So if this was an industry wide practice what are we looking at?

Mortgages that are actually unsecured loans and products that were sold to investors that weren’t actually collateralized, not to mention a portion of the housing market now without clear titles? What a mess. Any comments on the implications or how we resolve potential issues?

[commandlinegamer]

Country wide trouble for Bank of America

http://www.dailyfinance.com/story/credit/bank-of-america-mortgage-document-errors-trouble-countrywide/19728402/?icid=maing%7Cmain5%7C3%7Clink6%7C27442


If true I find it highly unlikely that such corner cutting was limited only to Countrywide. So if this was an industry wide practice what are we looking at?

Mortgages that are actually unsecured loans and products that were sold to investors that weren’t actually collateralized, not to mention a portion of the housing market now without clear titles? What a mess. Any comments on the implications or how we resolve potential issues?

They took possession of mortgage documents, but without actually having them physically transferred to their own premises, if I have read the article right, to avoid the risk of said papers going missing in transit. There is some logic there, but if you don't have physical control over said papers, isn't that a greater risk?

[UWdude]

torches and pitchforks.

[The Man]

They took possession of mortgage documents, but without actually having them physically transferred to their own premises, if I have read the article right, to avoid the risk of said papers going missing in transit. There is some logic there, but if you don't have physical control over said papers, isn't that a greater risk?


A much greater risk particularly if the law requires such physical control over said papers in order to legally take possession of the mortgage documents and secure the mortgage, if I have read the article right.

[The Man]

torches and pitchforks.


Wouldn't using such transfer tools actually damage the documents during transfer?

[UWdude]

Wouldn't using such transfer tools actually damage the documents during transfer?

bah, you're right. Huge Paper stack cutters and baskets. (http://www.blastmilk.com/decollete/gallery/guillotine/guillotine19.jpg)

[The Man]

Well I guess that’s one way of cutting overhead.

[Puppycow]

This is bad news for taxpayers.

[CriticalThanking]

This will be very interesting. IANAL and I hope to never play one on TV, but does the failure of both sides to transfer the docs only affect the trust, or does it affect the borrower? Could the docs be transferred now and the borrower still be foreclosed upon?

The other question is that since both sides signed that the documents were transferred and received, what does that do to the trust agreement? Is there language that such failure voids the entire trust, or is the trust still in force since the agreement was made in good faith between both sides? I've seen arguments both ways, but I don't know the language of the original agreement.

CT

[drkitten]

This will be very interesting. IANAL and I hope to never play one on TV, but does the failure of both sides to transfer the docs only affect the trust, or does it affect the borrower?

It shouldn't affect the borrower; the borrower still owes the mortgage payments to someone; the question is simply who. And if the borrower defaults on the mortgage, someone has the right to foreclose; the question is who.

[quixotecoyote]

It shouldn't affect the borrower; the borrower still owes the mortgage payments to someone; the question is simply who. And if the borrower defaults on the mortgage, someone has the right to foreclose; the question is who.

Having read the article, the revelations seem based on a court case where Kemp claims that while he owes the money, no one has the right to foreclose because:

Assuming the case follows the normal course going forward, that will mean that neither bank will be able to foreclose on Kemp's house, and his mortgage debt will become unsecured debt -- the banks will have to stand in line with the credit card issuers and get paid only a portion of the principal.

If it's true the securitization trusts routinely didn't get notes delivered from Countrywide, then all those properties -- millions of properties -- could have clouded titles. That hurts many people outside of the bank, because clouded title makes selling those properties much harder, and leaves the current owners in a kind of legal limbo.
See full article from DailyFinance: http://srph.it/h28N6y

[drkitten]

Having read the article, the revelations seem based on a court case where Kemp claims that while he owes the money, no one has the right to foreclose because:

I'm not seeing it. The bank ^&%ing up shouldn't affect the title for subsequent buyers.

I mean, okay, let's say that there's a mortgage on the property, but no one knows who actually holds it,.... but everyone involved stipulates that there's still, say $100,000 owed on it.

Well, if the seller turns around and sells it for $150,000, $100,000 of the money at closing goes to the same holding company that has been collecting mortgage payments for the past six months. Regardless of what the holding company does with the money, the mortgage has been paid off and the title passed on is clear.

Similarly, if the guy is bankrupt, then anyone who buys from the wreckage gets a title cleared by court order.

I can see problem if the guy is involved in a short sale -- the mortgage holder needs to sign off on it, and there's no one to do the signing. But to suggest that "all those properties" could have clouded titles seems over the top to me.

[Toke]

It shouldn't affect the borrower; the borrower still owes the mortgage payments to someone; the question is simply who. And if the borrower defaults on the mortgage, someone has the right to foreclose; the question is who.

There could be a translation error, but in Danish the world mortgage refers to pantebrev, which is a public/tinglyst document stating that the holder/bank have first rights to the property mentioned in the paper to the amount specified.

It makes little difference to a broke home owner who get to divide the leftovers of ones bankruptcy/default.

[quixotecoyote]

I'm not seeing it. The bank ^&%ing up shouldn't affect the title for subsequent buyers.

I mean, okay, let's say that there's a mortgage on the property, but no one knows who actually holds it,.... but everyone involved stipulates that there's still, say $100,000 owed on it.

Well, if the seller turns around and sells it for $150,000, $100,000 of the money at closing goes to the same holding company that has been collecting mortgage payments for the past six months. Regardless of what the holding company does with the money, the mortgage has been paid off and the title passed on is clear.

Similarly, if the guy is bankrupt, then anyone who buys from the wreckage gets a title cleared by court order.

I can see problem if the guy is involved in a short sale -- the mortgage holder needs to sign off on it, and there's no one to do the signing. But to suggest that "all those properties" could have clouded titles seems over the top to me.

Well it's not that anyone is disagreeing that the money is owed, but rather that because of some arcane lawyertastic mumbo-jumbo, the secured loans have become unsecured, with the collateral detaching as that aspect fell into a legal void during the loan transfer..

[drkitten]

Well it's not that anyone is disagreeing that the money is owed, but rather that because of some arcane lawyertastic mumbo-jumbo, the secured loans have become unsecured, with the collateral detaching as that aspect fell into a legal void during the loan transfer..

... which wouldn't cloud the title. If it's no longer collateral, then it's no longer subject to any liens or other constraints. If anything, the title is now held more clearly and completely, since the borrower now owns the property outright and without encumbrance.

[quixotecoyote]

... which wouldn't cloud the title. If it's no longer collateral, then it's no longer subject to any liens or other constraints. If anything, the title is now held more clearly and completely, since the borrower now owns the property outright and without encumbrance.
That's true, and I'll admit that I don't fully understand what's going on here.

It may be that one of the banks actually has the title to the mortgage, but can't legally prove it to the extent required to either initiate foreclosure proceedings or sell it to another entity, which would fit what the article is talking about as well.

[The Man]

Sorry I’ve haven’t been active on this thread lately.


Well it's not that anyone is disagreeing that the money is owed, but rather that because of some arcane lawyertastic mumbo-jumbo, the secured loans have become unsecured, with the collateral detaching as that aspect fell into a legal void during the loan transfer..

That was my take on it as well.



... which wouldn't cloud the title. If it's no longer collateral, then it's no longer subject to any liens or other constraints. If anything, the title is now held more clearly and completely, since the borrower now owns the property outright and without encumbrance.


I know that my car title records a lien from the bank on it and I’m fairly certain my house title does as well. So without a lien release from the bank or lender ownership can remain to some degree encumbered. Though with the courts decision the bank may be forced to provide that lien release for the title if the loan is now unsecured. However with a subsequent judgment against the barrower for the unsecured loan they can place a lien on the real property of the barrower including the home. Although I do not think they can force a sale of the home as they may be able to do with other real property. Fortunately my experience with such matters is rather limited.


That's true, and I'll admit that I don't fully understand what's going on here.

You and me both, which is why I started this thread.


It may be that one of the banks actually has the title to the mortgage, but can't legally prove it to the extent required to either initiate foreclosure proceedings or sell it to another entity, which would fit what the article is talking about as well.

I think that is still up in the air with the court decision which will of course set some precedence on the matter. Should the loan now be unsecured I think it depends on the redress a lender has for repayment of unsecured loans, which probably varies by state (judgment, garnishing wages, sheriff’s sale, lien on real property, ect), and in this case the bankruptcy of the borrower specifically the liquidation of assets to which I think a residence may be exempt. Once again, fortunately, my experience with such matters is rather limited.

[CriticalThanking]

There could be a translation error, but in Danish the world mortgage refers to pantebrev, which is a public/tinglyst document stating that the holder/bank have first rights to the property mentioned in the paper to the amount specified.

It makes little difference to a broke home owner who get to divide the leftovers of ones bankruptcy/default.If the lender cannot prove he owns the mortgage, he does not have the right to foreclose and kick out the tenant in order to fix it up and try to sell it. The homeowner could probably stop paying and drag the court battle out for years before having to move on.

CT

[drkitten]

I know that my car title records a lien from the bank on it and I’m fairly certain my house title does as well. So without a lien release from the bank or lender ownership can remain to some degree encumbered. Though with the courts decision the bank may be forced to provide that lien release for the title if the loan is now unsecured.

It's simpler than that. If the court finds that the mortgage is invalid, then the title will be cleared by court order; the bank will not be "forced" to provide a lien release and instead the title records will simply be updated to note that there is no lien. (I actually had something like this happen to the first car that I tried to buy; the DMV had recorded a lien on the title in error.)

[The Man]

It's simpler than that. If the court finds that the mortgage is invalid, then the title will be cleared by court order; the bank will not be "forced" to provide a lien release and instead the title records will simply be updated to note that there is no lien. (I actually had something like this happen to the first car that I tried to buy; the DMV had recorded a lien on the title in error.)

OK, then the bank would have to seek redress of the unsecured loan by means other than foreclosure, which still could include a lien against the sale of the house (or other property)? Could they force a sale of the house (not the bankruptcy itself forcing the liquidation of assets)?

[The Man]

If the lender cannot prove he owns the mortgage, he does not have the right to foreclose and kick out the tenant in order to fix it up and try to sell it. The homeowner could probably stop paying and drag the court battle out for years before having to move on.

CT

Or perhaps even keep making just token payments and stay until they die when the estate needs to be settled?

[drkitten]

OK, then the bank would have to seek redress of the unsecured loan by means other than foreclosure, which still could include a lien against the sale of the house (or other property)?

To the extent local laws permit; I don't think that most states allow liens against housing for unsecured debt. Indeed, I believe that most states disallow liens in general for unsecured debt except in the specific case of a mechanic's lien for work done on the object on which the lien is sought, or in the case where a court orders the lien as part of a judgement.

Basically, if you've got an unsecured debt, you get in line with all the other unsecured debtors.


Could they force a sale of the house (not the bankruptcy itself forcing the liquidation of assets)?

Again, not typically. No more than a credit card company could.

[The Man]

OK, thanks for the input.


How about the other aspect of this thread?

From the article.



If the mortgage-backed securities aren't in fact "mortgage-backed," investors who bought them could be able to force BofA to buy the securities back. A significant number of buybacks could on its own destroy BofA's balance sheet. Nor could BofA stave off either outcome retroactively by delivering those notes today. First, the contracts that created the trusts would typically forbid transferring the loans into the trusts now. Second, even if somehow that could happen, such a transfer would destroy the special tax status the mortgage backed securities enjoy and give the investors a different reason to put back the securities or sue over them.

If in fact investors were sold something other than what they intended to purchase and what the investments were sold as (mortgage-backed securities) can they actually force or sue for a “buy back” of those investments? Basically selling all their losses back to BofA.

[drkitten]

[QUOTE=The Man;6603293
If in fact investors were sold something other than what they intended to purchase and what the investments were sold as (mortgage-backed securities) can they actually force or sue for a “buy back” of those investments? Basically selling all their losses back to BofA.[/QUOTE]

Yes. If I sell you a piece of quartz that I (fraudulently) claim is a diamond, you can sue me for damages. If you win -- that is, if you can prove fraud or misfeasance on my part -- I will have to make you whole, either by giving you back all the money you paid, or at least by giving you back the difference between what you paid and the ten cent quartz crystal.

Same principle. If BoA knew (fraud) or should have known (misfeasance) that the mortgages weren't valid without the paper notes, then they're selling quartz as diamonds and defrauding the buyers.

[The Man]

Well a propensity and general policy for not transferring documentation as required by law in the, at that time, ‘churn and burn’ atmosphere of making risky mortgages and then selling them off without actually consummating the transaction to ensure at least the continued collateralization of said loans while being transferred, might certainly be construed as almost a production line, if not an industry wide standard, of at least negligence if not actual misfeasance.


At least that would be my angle if I had to argue the case. Including how the non-transfer of documentation probably was more due to currier and insurance costs rather than the fear of damage or loss during transfer.


So potentially mortgages the current loan owners can not foreclose upon and the possibility of those debts reverting back to the original lenders or those companies that have purchased the original lenders. Now the question comes if I have to take the loan back because I didn’t do my due diligence in the sale (by transferring the documentation) can I now foreclose as the holder of the documentation and essentially the holder of the mortgage that I technically never legally transferred?

[drkitten]

Well a propensity and general policy for not transferring documentation as required by law in the, at that time, ‘churn and burn’ atmosphere of making risky mortgages and then selling them off without actually consummating the transaction to ensure at least the continued collateralization of said loans while being transferred, might certainly be construed as almost a production line, if not an industry wide standard, of at least negligence if not actual misfeasance.

That's almost certainly the line the people who bought mortgage-backed securities from BoA are going to take. Or one of the lines, anyay.


So potentially mortgages the current loan owners can not foreclose upon and the possibility of those debts reverting back to the original lenders or those companies that have purchased the original lenders.

That depends on how far back the misfeasance extends. The doctrine of in pari delicto or "equity must come with clean hands" would apply; the judge would be within his rights and authority simply to make the mortgage evaporate and have the homeowner own the house free and clear.

Now the question comes if I have to take the loan back because I didn’t do my due diligence in the sale (by transferring the documentation) can I now foreclose as the holder of the documentation and essentially the holder of the mortgage that I technically never legally transferred?

Not if the mortgagee's lawyer is smart enough to point out that "equity must come with clean hands."

[The Man]

That's almost certainly the line the people who bought mortgage-backed securities from BoA are going to take. Or one of the lines, anyay.



That depends on how far back the misfeasance extends. The doctrine of in pari delicto or "equity must come with clean hands" would apply; the judge would be within his rights and authority simply to make the mortgage evaporate and have the homeowner own the house free and clear.



Not if the mortgagee's lawyer is smart enough to point out that "equity must come with clean hands."


Good point, if the loans became unsecured by a failure on my part even to the extent of my having to buy them from those I sold them too as secured loans. It would be difficult if not impossible to successfully argue that the loans some how remained or returned to being secured in spite of my failed diligence just because they returned to me and specifically as a result of my failed diligence.