Diana Olick, writing for CNBC, has an article entitled Foreclosure Fraud: It’s Worse Than You Think. I’ve touched on this a little bit before, but the problem faced by big time mortgage holders is that they cut corners and didn’t get their paperwork right.
The issues are securitization, modernization and a whole lot of cut corners. Real estate law requires real paper transfer of documents and titles, and a lot of the system went electronic without much regard to that persnickety rule. Mortgages and property titles are transferred several times in the process of a home purchase from originators to securitization sponsors to depositors to trusts. Trustees hold the note (which is the IOU on the mortgage), the mortgage (the security that says the house is collateral) and the assignment of the note and security instrument.
As a creditor’s rights attorney, I’m not terribly excited by the prospect of debtors skipping out on their obligations; but creditors have to realize that, if they can’t prove that they, in fact, own the debt in question, they’re in a whole lot of trouble.
I’m not a scholar of legal history, but what reading I’ve done suggests that real estate law is really the fountainhead of the common law. The crown needed a system to resolve land disputes between his nobles (or, at times, a fig leaf for taking that land). The result has been something like 800 years of real estate law. My sense is this means that real estate jurisprudence tends not to be as forgiving when your “i”s aren’t dotted and your “t”s aren’t crossed. Clouding the chain of title by zipping electronic assertions of ownership here and there is going to come back to bite mortgage holders.