Do you believe homeowners with a securitized mortgage will one day receive a valid Deed and clear

[ms.smiler]

Do you believe homeowners with a securitized mortgage will one day receive a valid Deed and clear Title to their properties?

[Vincardog]

1. Who would sign off on the fractional deed?

[brooklynite]

8. Some agent is holding the actual mortgage and distributing the mortgage payments...

[customerserviceguy]

14. In states that securitize home loans with an instrument called a "Deed of Trust"

The trustee named in that instrument (nominally a title insurance company) would issue a document called a "Full Reconveyance" that reconveys the power to sell the property in the event of a default that the trustee holds for the life of the loan.

Worked 25 years in the title business in WA state, I've seen this happen perhaps a hundred thousand times.

[ms.smiler]

15. Customerserviceguy - suppose the banks or MERS or even mortgage servicing

companies had somehow been irresponsible, even negligent. I’d like you to imagine a situation where one or more of the parties I mentioned had been careless, even reckless in the operation of their business. Now imagine that such carelessness had actually created a cloud upon the Titles of millions of properties.

I think I would actually not only feel badly for homeowners but also Title companies. Do you think though that Title companies would be more likely or less likely to pay claims involving those properties? Would they be at all responsible in such a situation?

In business transactions I believe that parties are responsible for their own actions, but I’m hoping you can help me better understand the role of Title companies given possible bad actors in the mortgage industry.

[customerserviceguy]

16. Well, I wouldn't lose a minute of sleep over the title companies

Here's the sure test as to whether a title is tainted or not: Will a title company write a policy insuring a subsequent purchaser, or a new mortgagee? If they will, then be sure they've checked every facet of any foreclosure process that took place on a property. And that's based on the way they did it from 1976-2005, when I worked in the industry, on and off (mostly on). I expect that with the revelations of the past couple of years, they've gotten even more vigilant.

If they screw up, they pay up, it's as simple as that. The only exception is if the insured knew of a title flaw that they wanted to palm off on a title company. If you have a bona fide purchaser for value, or a brand-new lender doing a refinance, then there's no provable case that there was any sort of collusion.

Here's where the negligence is: With the banking collapse of 2008-2009, you have had multiple mergers and acquistions, especially of institutions that have been shut down by the Federal and state insuring agencies. Often, the books are in lousy shape, and the new company doesn't bother to keep enough people who used to work for the old company, who know where the bones are buried. MERS has also been sloppy in its bookkeeping, and some of the foreclosures have had a spotty paper trail along the way. There are attorneys out there looking to take advantage of the situation, and make some nuisance suits, just to see if they can cloud title temporarily to get a few bucks to make them and their clients go away. It's cheaper than fully litigating that title really is clear from claims of a foreclosed owner.

This confusion has spread to the mortgage servicing industry, which seems to have lost the ability to account properly for payments, when you see the story of the homeowners who HAVE made their payments getting foreclosed on, it is invariably this sort of situation. Nobody takes any responsibility until there's bad press.

Are title insurance companies responsible for any part of this mess? I'm inclined to think not, being as in any sort of screw-up, they're the deep pockets that everybody goes for, and they reflexively know how to cover their asses. Frankly, they're paying through the nose right now, if any title flaws show up in foreclosed properties (existing before the loan that was foreclosed), they're writing big checks for mortgage insurance that resulted in "unmarketable" titles, when the foreclosed properties are really not worth the loans made on them.

When times are good, and properties change hands frequently, liability under the paid-off mortgagee's policies goes away, and very, very few claims are paid. In bad times, when lenders are stuck with properties that they cannot unload, they start looking to that coverage to "sell" the property to the title company, which then has to either clear up the title, or sell it with the title flaw as an exception from coverage.

Is there incompetence in the mortgage servicing industry, or the MERS process? Sure, but it does not change the fact that there was a bubble, it got too full, and it popped, leaving homes with mortgages that were 'worth' far more than the properties securing them, being lived in by people unable to pay the payments on them. It's difficult to excuse sloppiness, but as soon as we get through the backlog of foreclosed properties, the market does not begin to touch bottom. Until that happens, we're still in recession/depression.

[flvegan]

17. This is a pretty damn good response.

And yes we are much more vigilant.

Only one thing I want to clear up from your response: the deep pockets aren't really the title "companies" (which I see as the agents that close the transactions, etc) but rather the title underwriter who ultimately writes the checks on bad title that's been insured (E&O policies being after the fact).

[customerserviceguy]

18. Yes, you are right

I always worked for companies that were owned by the underwriters, I did forget about the independent companies that use underwriters to keep them from being absolutely killed with the occasional claim, that was my focus in writing my answer. To the bankers and the realtors, that's a distinction without a difference.

I really am glad that I'm not in that business anymore, and my heart goes out to the folks who work in that business, it's gotta be tough. I remember having to sign a loss claim form involving a builder who had absolutely NO liens on any of his properties on the day we recorded the deed from him to the purchaser, and two liens showed up within the six months allowable. By this point, dozens of other ones appeared on other houses, and he just filed for bankruptcy, making the indemnity I had insisted on from him absolutely worthless.

[ms.smiler]

19. Customerserviceguy, thank you very much for your informative and thoughtful answer.

As a homeowner, I know I purchased Title insurance and I imagine most homeowners expect that in the unlikely event a Title problem arises, the insurance will make them whole.

I have no clue how much work is involved in insuring Title. When I refinanced, I know I was comforted that someone experienced and with something at stake, had reviewed my Title and was willing to insure that Title. I’m hoping of course it was a thorough examination.

I suspect though that at some point Title companies might deny claims because there was something unreasonable or perhaps fraudulent or somehow beyond their examination and unknown to them so they might believe some other party is actually responsible to the homeowner.

As a homeowner, I can go to our local land records and find the original mortgage filed with MERS as Nominee for the loan originator. With a securitized mortgage, the balance of the life of my loan is tracked within the private MERS database. Even though I can’t check the Title history in the MERS system, can Title companies check both the public and private records? Is that now a necessary step in insuring Title?

Given that mortgages are now turned into securities on Wall Street, are Title companies obligated to examine those securities as they've now become part of the Title history?

I know that MERS doesn’t require banks or servicers to update the data and it also doesn’t guarantee or warranty the information in their database. It appears to me that Title companies are disadvantaged and at possibly greater risk than they were with only our public land records system.

Also, do you have any idea or explanation for why the Title history in the MERS database is private and not public like our local land records?

[customerserviceguy]

20. Your're most welcome

Calling it "title insurance" is a bit of a misnomer, what it really is, is research, and a guarantee on that research. There are some title threats that cannot easily be ferretted out by a title search, such as forgeries and improper notary seals, for instance, and you do get coverage for those unseen and unseeable events, which are exceedingly rare.

But every title policy has a list of exclusions pre-printed into the jacket, and they often relate to things that an observable. Let's say that your neighbor has a driveway as the only visible access to his house, that is across your property, but the title search did not disclose that there was one of record. If there was one of record, you'd be barred from a claim, because you can easily see that he drives across the south 20 feet of your property (or whatever), and if there is not one of record, perhaps it's been going on for less time than it takes to perfect an easement right in your state, and there will still be no paid claim, because again, this was observable.

In the case of faulty foreclosures, the paperwork snafus would indeed not be known by either a buyer, a seller, or a brand-new lender. It would behoove a title company to get hold of a court case that foreclosed on a property, and examine it closely for errors. I can imagine that there are some lenders who simply cannot pass muster, and unless they are willing to put up a very expensive surety bond, most (or all) title companies in an area will not re-insure anything that Bank XYZ has ever foreclosed on. That's your assurance that somebody's not going to come back to try to take your home away.

As far as I know, title companies cannot track within MERS. However, my last title job ended about six years ago, and I have no idea what has happened since that time in that area. When MERS was first presented to us, it was touted as a boon to our industry, as it can be challenging to track all the assignments of a mortgage, especially with banks changing names due to mergers and acquistions. It was sold as "Trust us, we've got this stuff covered," and I'm sure that the level of trust that originally existed has become seriously strained. I've seen where mortgage assignments were for all kinds of fractional interests, in incomprehendable numbers of divisions, after trying to track all of that during a title examination, MERS must have seemed like a blessing.

Its like so very many things, when they work right, and the markets are "normal", they're wonderful, but when the doo-doo hits the fan, then they fall apart spectacularly. I know how quickly the title insurance industry reacts to economic threats (I recall all the "aboriginal claims" exclusions being shoved into title policies when Native American tribes started winning lawsuits over treaty interpretations), and I suppose they've come up with a way to deal with the MERS mess. I just don't know what that is.

[Liberal_in_LA]

2. I hope so as I'm making mortgage payments.

[bluestateguy]

3. Anything that doesn't make sense in plain English can't be good

which would include credit default swaps and securitized mortgages.

[LeftyMom]

4. Oh Jesus, first a pit bull thread and now this.

[NYC_SKP]

5. If I'm making my last payment in the very near future, sure, why wouldn't I?

:shrug:

[NNN0LHI]

22. Better ask your lender about that because you may be in for a surprise?

See my post down below.

Don

[NutmegYankee]

6. I know that those with Fannie Mae or Freddie Mac do get the deed.

Those are technically securitized mortgages.

[dixiegrrrrl]

7. Until the forgeries of all the mortgage paperwork has stopped,

I have little faith in the validity of my mortgage, which was securitized.

What was really scary was the news report that President Obama's mortgage was signed by a robo-signer and recorded by MERS!

[dmallind]

9. What do you think the difference is from the borrowers POV?

It's not like the deeds are torn into thousands of pieces and distributed amongst MBS investors. The originator/servicer still handles that part.

[dixiegrrrrl]

10. Once the note and the deed have been separated, it breaks the chain of title.

Which is what happened with securitization and happened again with the MERS system.

"At closing, a borrower signs a promissory note and a deed that secures the debt (security deed or deed of trust). When the Note is sold to another entity, the security deed must travel with it because its role is to "secure the debt".


We know that the mortgages were sold into tranches of MBS and sold off, so the question is:
who owns MY mortgage?
"the Borrower promises to pay the Note Holder. There can only be one (1) Note Holder entitled to receive payments."

And why should I pay someone who does not own the mortgage and therefore cannot mark it as paid off?

From the MBS investor's point of view,it turns out that many of the MBS funds had NO mortgages in them at all, in violation of the law.

Good primer here:
http://www.operationrest.org/WrongfulForeclosure

[RB TexLa]

11. They do everyday from the company that services their loan.

[jmowreader]

12. You know mortgage securitization started in 1968, right?

I went with "I have my doubts" because some of the mortgages issued in the Bush II era were designed specifically to be foreclosed on--in Bizarro World, a mortgage that failed triggered a credit default swap payout, plus all sorts of fees for lawyers and other hangers-on, and you got to sell the house again!

Because securitization is not new, and at its root it is not really evil (how it was used made it evil), mortgages made with proper diligence on the part of the lender to someone who doesn't lose his job and is therefore able to make all 360 contracted payments will be properly retired and the homeowner will receive Deed and Title. Mortgages on $500,000 houses made to Walmart shelf stockers because someone needed one more loan to complete an RMBS are a different matter.

[ms.smiler]

13. Thank you very much to the people who are taking time to participate in this poll.

In the coming weeks and months they’ll be information and court documents that I expect to share with my fellow DU members.

This poll will help me determine how best to present the information.

[NNN0LHI]

21. Not sure about what all the big words and phrases mean but I have already asked my bank ...

... if I would receive back the same deed for this house that I had to give to them when I took a mortgage out on it about ten years ago when I finish paying on it in a couple of years.

I was told no I would not. I was told I would receive some sort of proof that the note was paid off and I owned the home free and clear again but no, I will not be getting back the same papers as I handed over to them to get the loan.

I think that is what you are asking?

Is it?

Don

[ms.smiler]

24. Don, please let me know what you might like defined for you.

You used the expression “same Deed” and I’m wondering if you meant the same valuable Promissory Note that you signed. If so, then yes it is doubtful that you will ever again see that original document, only a copy.

You mentioned “some sort of proof that the note was paid off.” I recognize that to be a document called Satisfaction of Mortgage.

Without a full and complete explanation, a traditional mortgage is owned and held by a lender and possibly sold to some other lender during the life of the loan.

A securitized mortgage is a loan that is eventually converted into a security by the banks on Wall Street and sold to investors.

So, on the other side of your mortgage loan beyond your view, may be only one party with your Promissory Note subject only to state law or possibly numerous parties including a Trust and your Promissory Note would be subject to both state law and securities law.

If your loan was securitized, it would not have been disclosed to you.

You likely recall the Financial Crisis and perhaps reading about failed mortgage backed securities, or Credit Default Swaps, or “toxic assets.” Those are all things that may have transpired on the opposite side of your mortgage loan.

If the agreement you signed names MERS as Nominee for the loan originator that is an easy way to determine that your loan was turned into a security on Wall Street.

If there is no mention of MERS, your loan could still possibly have been securitized.

When securities, mortgage lending and servicing are responsibly, legally and properly managed there is little room for Title problems to arise.

View the poll and you can gauge DU members assessment of securitized mortgages.

[closeupready]

23. The laws will be rewritten to favor the banks and/or the holders of CDO's, NOT homeowners.

So, the last option.