…Big Shitpile is looking more and more shitty. Last week, I wrote about how the dissolution of the bond between lenders and borrowers could lead to a home owner debtors’ revolt. One of the key issues is that, when mortgages are bundled and sold to other parties, such as investment banks, the mortgage assignments are often made illegally–or perhaps more accurately, extralegally, since they are often not registered with the appropriate government authorities.
This makes a recent decision from the Massachusetts Land Court very interesting:
The blank mortgage assignments they possessed transferred nothing…in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form…The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature. To accept the plaintiffs’ arguments is to allow them to take someone’s home without any demonstrable right to do so, based upon the assumption that they ultimately will be able to show that they have that right and the further assumption that potential bidders will be undeterred by the lack of a demonstrable legal foundation for the sale and will nonetheless bid full value in the expectation that that foundation will ultimately be produced, even if it takes a year or more. The law recognizes the troubling nature of these assumptions, the harm caused if those assumptions prove erroneous, and commands otherwise. [Italic emphasis in original.] (U.S. Bank National Association v. Ibanez/Wells Fargo v. Larace)
In Ohio, a related decision reveals that, at least some members of the judiciary view these improper foreclosures and the ‘shadow’ mortgage assignment system that enables them as a threat to government authority:
Plaintiff’s ‘Judge, you just don’t understand how things work,’ argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process…There is no doubt every decision made by a financial institution in the foreclosure is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit – to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers… (In Re Foreclosure Cases)
While this might seem a bit esoteric, this is not a small problem: most mortgages which have been bundled have very shoddy paper trails. Here’s the frightening scenario. First, desperate people, in danger of losing their homes, attempt to hold on to them by requiring the paper trail. As this proves successful (and there really isn’t a reason to think it won’t be), other people, figuring that they don’t have to pay their mortgages either, will also demand to see the paper trail. At that point, Big Shitpile becomes the Mother of All Meltdowns.
Much of what has already happened probably wouldn’t have occurred if there had been serious cramdown legislation (forcing mortgages to lower values). Wages of sin and all of that, I suppose….
Somebody might want to do something about this.