foreclosure listings

We pointed last week to an analysis by Lynn Syzmoniak that showed that foreclosures across a number of different servicers were way down in January 2011 versus the same period in January 2010. This was admittedly a tally in only two Florida counties, but she indicated that a quick look at other counties in Florida showed a similar pattern.

So the question then becomes: is this a Florida only development, due perhaps in part the fact that all the big foreclosure mills in the state are under investigation by the state AG and are imploding (as in losing clients and shedding staff)? Or is this a broader trend due to the robo signing scandal leading judges being more receptive to arguments about chain of title and validity of transfers? Before, the assumption was “bank right, borrower trying to abuse the law to stay in house”. Now more judges, seeing that banks have run roughshod over legal requirements, are prepared to give borrower arguments a hearing. That forces banks to up their game, which in turn may be the real driver for this apparent slowdown in foreclosure actions. If that was the main driver in Florida, we’d expect to see similar patterns in other states.

We are seeing analogous developments, but the drivers appear to be state specific, as judges give adverse rulings on common practices in foreclosure land. Reader wc4d pointed to a report in the Portland Oregonian, that lenders are withdrawing cases because five court decisions have found that lenders that used MERS violated state recording laws.

This is a vivid illustration of a point made in an article on MERS yesterday by Gretchen Morgenson:

MERS was flawed at conception, those critics say. The bankers who midwifed its birth hired Covington & Burling, a prominent Washington law firm, to research their proposal. Covington produced a memo that offered assurances that MERS could operate legally nationwide. No one, however, conducted a state-by-state study of real estate laws.

“They didn’t do the deep homework,” said an official involved in those discussions who spoke on condition of anonymity because he has clients involved with MERS. “So as far as anyone can tell their real theory was: ‘If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans.’ ”

As we’ve also noted, recording clerks in single counties in Massachusetts and North Carolina are looking into how to recover recording fees from MERS, but the cost of litigation means they’d need other counties in the same states to join or the state attorney general to take up the matter. By contrast, the Oregon decisions don’t hit small fry MERS; they are a big problem for the banks themselves. As the Oregonian reports:

Sales of hundreds of foreclosed homes in Oregon have been halted or withdrawn in recent weeks after federal judges repeatedly questioned their legality, according to a number of real estate attorneys in the state.

Lenders have withdrawn more than 300 foreclosure sales since February in Deschutes County alone, one of the Oregon area’s hardest hit by the housing collapse. About 130 of those notices were filed in the past week, attorneys say.

Dozens of foreclosure listings by ReconTrust Co., the foreclosure arm of Bank of America Corp., have disappeared from its website, attorneys say…

Since October, federal judges in five separate Oregon cases have halted foreclosures involving MERS, saying its participation caused lenders to violate the state’s recording law. Three of those decisions came last month, the key one in U.S. Bankruptcy Court in Eugene.

Attorneys say it’s not clear whether lenders in Oregon will simply start over or head to court to foreclose, steps that could prolong the crisis for months and drive up costs, attorneys say. Some suggest lenders might not have access to the documents they need to comply with state law.

“A lot of us are questioning whether there is a solution,” said David Ambrose, a Portland attorney who represents lenders in mortgage transactions. “It’s pretty amazing. There are a lot of unanswered questions.” ….

In Oregon, lenders can foreclose without going to court. But state law also requires that the loan’s ownership history, or assignments, be recorded with local county governments before proceeding with a nonjudicial foreclosure.

In the Eugene court case, Donald E. McCoy III filed for bankruptcy protection in part to block U.S. Bank from foreclosing on his Central Point home. He then sued the bank and MERS, along with his original lender BNC Mortgage Inc., claiming they had not properly recorded BNC’s subsequent sale of the loan to investors.

Chief Bankruptcy Judge Frank R. Alley III found McCoy’s allegation persuasive and refused to grant the bank’s request for a dismissal.

“Oregon law permits foreclosure without the benefit of judicial proceeding only when the interest of the beneficiary (lender) is clearly documented in a public record,” Alley wrote. “When the public record is lacking, the foreclosing beneficiary must prove its interest in a judicial proceeding.”

This looks like an epic fail for the banks, at least in Oregon. To save maybe $50 on recording fees, they are now going to have to go to court to foreclose. And worse for them will be cases where the records don’t pass muster. Recall that servicers advance principal and interest to investors when borrowers become delinquent. They then reimburse themselves out of the foreclosure proceeds. No foreclosure and they are out a lot of dough.

As Morgenson’s source indicated, the banks brazenly assumed that the courts would simply roll over rather than block the extra-legal imposition of a new system. But there is enough of a semblance of rule of law in the US to undermine all the cost savings and corners-cutting they engaged in. Recall this recent New York decision:

This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.

The courts are delivering the banks an unrelenting series of deserved unkind cuts. This is getting to be interesting, and for a change, in a good way.

The rich are out of touch with the people. I’m trying to develop some analogies to explain why. Please tell me if this works, the math is right and how to harden the analogy. I’ve got links for my “averages”

Today Hannity was discussing gas prices with some guy and it occured to me how out of touch Hannity is with his “Great Americans” so I did a little math and thought I could make this call:

“Sean The reason you can’t relate to the rest of Americans is because, like Charlie Sheen, you don’t live on the same planet as the rest of us. You are extremely rich, live in a $6.5 million dollar mansion on a private island surrounded by TV moguls, Wall Street multimillionaires and movie stars, THEY are your peer group and neighbors. Not your gardener. 

The average Joe makes 36K a year and drives 12,000 miles a year at 20 miles to the gallon (like the Cadillac Hybrid Escalade you drive) at $3.50 a gallon that’s $2,100 per year or about 6% of his income in gas. Are you with me so far?

Now Sean, for you to feel the equivalent economic bite of your income in gas, 6% of your 40 million a year income, you would have to spend $2,400,000 a year in gas. For 6% of your income to be spent on gas it would take $4,000 per gallon and at 26 gallons per tank it should cost you just under $105,000 each time you fill up. But you don’t pay that, do you? No, because at the current prices gas only costs you .00005 of your income. If Average Joe only had to pay that much of his income it would take .08 to fill his tank. It wouldn’t hurt him much either and he could easily “pay the freight” for his gas consumption. You just don’t feel what most Americans feel anymore Sean. You are more like those Wall Street guys than your Average American.”

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