Land records, foreclosures and the benefits of federalism

The ongoing battle over the foreclosure crisis is complicated in large part by the gulf between the entirely local costs and impact of foreclosures and the remote nature of the bulk of mortgage servicers, many of whom have been swallowed up in a series of transactions into the usual mega-bank suspects. This disparity is reflected in the struggle over regulatory power, with the local state attorneys general (with some damaging exceptions, as Yves Smith has documented extensively) generally pushing for greater servicer penalties while the federal organizations formally charged with oversight of the mega banks that own the largest servicers (the OCC and – in the case of GMAC/Ally – the Fed) have by and large put forward much more lenient proposals.

The resulting paralysis has left the door open to more local action by the one group that has been largely ignored since the beginning of the crisis – county recorders, or Registers of Deeds, who are ultimately responsible to for the integrity of the local land records that underlie property rights in the U.S. (integrity that has been shredded by MERS). The decisions of two local recorders Registers of Deeds today to refuse to accept robo-signed documents (O’Brien in Massachusetts and Thigpen in North Carolina) point to the benefits of the dispersion of land records across counties, rather than at the federal level, in that lax federal oversight is not a constraint.

It will be worth watching to see how successful they are, as precedent is not on their side. When MERS was first introduced in the mid-1990s, with its “innovation” of using a single placeholder entity in land records rather than registering each beneficial owner of the debt, there was only scattered dissent from county clerks, at least as far I could find. The only instance I came across was in a 1996 article in National Mortgage News (not available online, unfortunately), which noted in passing that county recorders Registers in Illinois had pressured Senator Carole Mosley Braun to introduce federal legislation reaffirming the need to use traditional methods of land recording. Senator Mosley Braun agreed to do so, but eliminated the provision at the last minute before bringing the affordable housing bill to which it had been appended to the floor. More recently, a recorder Register of Deeds on Long Island in 2001 refused to take MERS mortgages, but was ultimately ruled against by the NY Supreme Court (for more on this, and MERS in general, Christopher Peterson is invaluable).

With that said, the tide does appear to be turning. Too late for an awful lot of people, but here’s hoping that these actions throw at least a little sand in the gears of the foreclosure machine.

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4 Responses to Land records, foreclosures and the benefits of federalism

  1. rogerglewis says:

    I believe the Foreclosure process in the US is even more draconian than the process of Repossession in the UK.
    The Banks have a massive conflict of interest as they are selling Mortgage books at 45 cents on the dollar and still making a big profit as they only have as little as 2.5% reserves probably less in most cases when the derivatives are taken into account. The real Interest received on these aggregated mortgage books are therefore very high and more than cover the risk profile on a large number of Homes. The Sub Prime side of the American story I think has deflected this important issue.

    When The original Bank Forecloses they could easily make arrangements for easy payment terms a state lifeboat would be a fairer way of dealing with home owners in trouble with Payments through no fault of their own, There is a crashed Housing Market , no finance for prospective purchasers and so on.

    I believe the British Banks are embarking on another round of aggressive foreclosures to keep to spoils of sales going forward when the weak are driven over the edge with rates increases.

    I apologise for not being more prepared with chapter and verse on This I am just getting my Formal Facts and figures together, the concept is easily grasped in ones head with mental arithmetic though. Banks foreclosing on property is between 90 ton 97.5% Theft.

  2. Anchard says:

    Nothing to apologize for – this is quite interesting. It would be fascinating to know more about how the process works in the U.K. – we tend to hear very little about housing markets in other countries, other than the outrageous boom stories of places like Spain.

    And to the extent that it’s even possible to know who the original bank is, you’re right, it should be straightforward to set up some kind of repayment plan. We even had an alleged $50 billion government program called HAMP which was supposed to provide incentives for that. The problem was that it was designed by a government captured by the finance-first mindset, which means there were no enforcement mechanisms, and the program has been a complete failure.

    Perhaps the biggest problem has been the packaging and repackaging of rights that go with mortgages. Notes (the loan, meaning the cash flow) can be and often were sold several times before they were sliced and diced into securities, which means identifying the actual lender (in the absence of proper land records) is generally impossible. This structure has necessitated the growth of yet another layer of opacity between the borrower and the “lender” – the servicer. Complicating the matter still further, servicing rights are also sold, often multiple times. These organizations have “bare legal” right to act as agents for the mysterious owners of the note, which in practice they have interpreted broadly as having substantially most of the rights of lenders, particularly in initiating foreclosure. The fact that servicers make more in fees from foreclosing than they do from solvent lenders (they are paid transactionally) completes the picture.

    It is, in short, an unholy mess.

  3. This part of the unholy mess has kind of become eclipsed in my reading of the soveriegn debt crisis which of course is its first cousin if not sibling.

    My own focus on these matters has 3 interesting and conflicting drivers.
    1. Extracting capital from my old home in the UK, ( a large Country Estate ) now with a complex geography of Debt and potential litigation ( having been sold short by one of my Banking partners).
    2. Pursuing my future business ideas that were not encourage by restrictive Planning regimes in the UK against alternative self provisioning\ self sufficiency ecologically based business. I am presently researching setting up a Hemp Farming cooperative here in Sweden. Encouraged by models such as Sequential Bio Fuels of Oregan.( See my Way forward Blog.)

    3. Pursuing my true Academic and Artistic Passion for Music and the Electric Guitar. Signal Processing and Guitar Electronics and amplification strangely my muse of the 6 strings and now Hexaphonic Pickup and Digital Signal processing capabilities tie in with my alternative energies interests particularly turbine technology and electromagnetism.

    The financial Crisis is stopping my entrepreneurial endeavors I am sure this is an age old problem and one that exists for many others at the current time. I am a creative and inventive person and this crisis is preventing me from Creating wealth for the community ( my endeavors used to be purely motivated by personal profit, I now take inspiration from the example of Robert Owen, my fellow Welsh man.) . Banking and its greed has a lot to be held accountable for.

  4. Anchard says:

    I’m not sure what family metaphor I would use for the sovereign crisis, other than to say that I think your focus is entirely appropriate. The mechanics of the mortgage crisis here in the US are abstruse and of no relevance to anyone anywhere else, whereas sovereign default is hugely important. We may even have one here, though I imagine that to be vanishingly unlikely.

    You’ve probably read this already, but in case you haven’t, Polanyi’s “The Great Transformation” discusses Owen and the Owenites (sounds like an excellent 60s band, no?) at length. It’s a great book.

    I followed your link to your site – nicely done. And I agree, that story about the MST in Brazil was inspiring. I tried to look up more about them but couldn’t find much, though I did find quite a bit about the area they’re in. These appear to be three sections of a pamphlet developed to sell the idea of the “energy forest”:

    Haven’t read them all, but they looked like they might be relevant.

    And I am very sorry to hear of your troubles with real estate, and business partners. I don’t know many people who have tangled with either and not had at least some trouble, though I’m sure that’s of little consolation. But that said, it does look from your blog (and from your comments above) as though you have some significant interests and are pursuing them actively, which is a lot more than most people can say.

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