U.S. Bank Foreclosures – Nightmare On Elm Street
Posted By thestatedtruth.com on October 8, 2010
Recently J.P. Morgan Chase, Bank of America and Ally Financial have temporarily halted foreclosures in 23 states due to flawed affidavits used in legal proceedings. Now Bank of America has expanded this halt to all 50 states, while PNC Financial Services said it was stopping foreclosures in 23 states for a month.
Banks insist the problems are administrative and can be cleared up in a short period of time, maybe a few weeks or months. But should investors be concerned?
The affidavit problems may yet point to more serious issues with the documentation and the legal basis for mortgages that were securitized, or sold to investors. “Is there a question about who owns things?” said Christopher Peterson, a law professor at the University of Utah who has studied securitization and mortgage-title issues. “If you don’t think so, you’re kidding yourself.”
So, banks may face higher-than-expected legal expenses, a further slowdown in the foreclosure process and that adds to the housing-price pressure, and creates potential new actions from investors trying to force them to repurchase previously bad or improperly documented mortgages.
What is the foreclosure problem? In some cases, as part of foreclosure proceedings, banks submitted affidavits that were flawed. That might be an administrative issue. But consider that the affidavit’s often were submitted in place of promissory notes that cover the actual debt. It is possible the promissory notes actually were mislaid or destroyed as lenders tried to keep pace with the frenzied housing boom.
While that wouldn’t in itself negate a mortgage claim, it could mean the bank needs more documentation to proceed with a foreclosure and this takes time. Given the haphazard record keeping, it’s not a strech to see a mushroom cloud here.  At the least such problems give attorneys representing homeowners more opportunity to contest and lengthen foreclosure proceedings and they can freeze some of them altogether.
Meanwhile, legal issues are swirling around the role of a company known as Mortgage Electronic Registration Systems, or MERS. It played a key role in the mortgage boom, helping firms package and sell mortgages without having to record each transaction with county offices.
This was done by showing MERS as the holder of the mortgage, something that confers the right to foreclose and seize the underlying property, even as the promissory note was transferred to third-party investors. The trouble is that MERS’s legal standing has been questioned because it doesn’t also own the actual debt; traditionally, the mortgage and note weren’t split between different parties. Top courts in four states have said MERS can’t foreclose. If more state courts adopt this position, it could throw further doubt on foreclosure proceedings.
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