"I am writing you to express my concern for Florida's economic future and the credibility of Florida's judicial foreclosure system as a result of the actions of your company -- actions that have affected the integrity of title to real property for Florida's homeowners as well as the foreclosure process in Florida,''
At the same time, CitiGroup announced it was dropping its Florida foreclosure law firm due to an investigation by the Florida AG's office.
Now all 50 states attorneys general have joined into a probe of the legal concerns of the $11 trillion mortgage market in the United States.
Shoddy Procedures Haunt Lenders
Robo-signing entered the national vocabulary in a big way on September 22 when the Washington Post described the work of a Pennsylvania contractor who "attest(ed) to the accuracy of thousands of home foreclosure documents across the country." The attestations are a huge misrepresentation since the robo-signers often vouches for the accuracy of the mortgage information and states that the signing was done in the presence of a notary public.
Robo-signers have been at work across the country for years fueling the efficiency of the real estate bubble. While underpaid, they're a critical link in the movement of individual mortgages into the Wall Street creation called mortgage backed securities (MBS). These are the $2 plus trillion dollar investments Wall Street sold to the world. With a shady legal basis, perhaps none at all, the robo-signing process threatens to invalidate the mortgages processed and collapse the value of the investments made in MBS. Not only has the value of the mortgages collapsed, any remaining value may vanish as well.
Mike at Rortybomb outlined the legal problems with foreclosures in simple terms on Oct 8. MBS trusts, investors owning the mortgages, begin the foreclosure process, often times without proper documentation (just the robo-signer version). They employ mortgage servicers who use faulty or fraudulent documentation to initiate foreclosures in state courts. The courts then begin the foreclosure process against the homeowner in default. As Mike or Rortybomb explains, this process is fraught with legal problems.
Law, what law, we don't need no stinking law
The foreclosure process hit the wall after enough people followed Rep. Kaptur's suggestion and said, "They don't have the paper."
As it turns out, there was often no real note to produce. Lenders decided to bypass the process of filing papers with county governments in the mid 1990's. It saved them filing fees and allowed them to speed the process of pooling mortgages and selling the pools as MBS.
Utah University law professor Christopher L. Peterson described the process in a law review article published on September 29:
To avoid paying county recording fees, mortgage bankers formed a plan to create one shell company that would pretend to own all the mortgages in the country -- that way, the mortgage bankers would never have to record assignments since the same company would always "own" all the mortgages. They incorporated the shell company in Delaware and called it Mortgage Electronic Registration Systems, Inc. mortgages.
Even though not a single state legislature or appellate court had authorized this change in the real property recording, investors interested in subprime and exotic mortgage backed securities were still willing to buy mortgages recorded through this new proxy system. Christopher L. Peterson
The Mortgage Electronic Registration System (MERS) is ground zero for the current crisis. The very entity that was to bypass state and county laws and regulations and assume universal ownership apparently has a very limited or nonexistent basis in law.
If that's the case, then the MBS investors have no recourse to recover their investment in the mortgage investments. In addition, all mortgages written using these procedures are at risk if homeowners decide to walk away from upside down, under water notes by challenging the legality of their mortgages.
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