Not long ago, we read about a judge throwing out a foreclosure case, resulting in a mortgage being de-facto-cancelled, due to the plaintiff not being able to produce documented ownership of the mortgage.
What is being done on the secondary market is not overseen and may well be rife with shenanigans.
Pay attention to this issue- You know who services your mortgage. Who is the actual investor? That is a much harder question to answer.
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.