Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

56 responses to “Weekend Open Thread (2010-10-22)”

  1. Cheap South

    Just got this from a friend:

    “In 1950, the average house in the U.S. was about 1,100 square feet, while there were about 3.4 people per household, according data compiled for a 1999 article in Environmental Building News. The U.S. Census Bureau reports that in 2009 the average new house in the U.S. was 2,438 square feet (down slightly from 2,518 square feet in 2008), while the average household size was 2.6 people. In the past sixty years, house size has increased 120%, while family size has dropped 24%, so square footage per family member has nearly tripled (from 324 to 938 square feet).”

    Gee, we really got fatter!!

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  2. Fran Tarkenton

    The Czech sky makes another appearance: http://www.redfin.com/WA/Seattle/5800-Princeton-Ave-NE-98105/home/320483

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  3. Kary L. Krismer

    RE: Cheap South @ 1 – Our house, built in 1969, is almost exactly that size. We’re now down to only two people living here, and it seems much too big, but it seemed too big even with four people living here. I call the formal living room “the cats’ room” because we only use it for one or two holidays a year.

    BTW, our house was one of the first built in the neighborhood. The ones built in the 70s on the same street are generally much larger.

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  4. Brainiak

    RE: Cheap South @ 1

    Maybe it is just odd demographics of my age or something, but I know of tons of single people that live alone in 3 bedroom 2 bathroom (or bigger) homes. Lots of them bought it because it was a good investment, including one of friend lost his place to foreclosure. He was counting on the home as his big asset for retirement and has lost everything. He was living in a condo that he liked and was in a good location and sold it to get a houses. It was very sad he got caught up in the hype. I wonder home much of impact singles buying houses has had on creating demand and driving up prices.

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  5. softwarengineer

    Big Houses

    Another joke regarding large glueboard homes lately is energy use….everyone pretends that separating their plastics from their metals will save the world….LOL, Hades the energy these bigger homes eat makes recycling look like moot point. “But I use flourescent bulbs they lament”….LOL

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  6. Kary L. Krismer

    RE: Brainiak @ 4 – If you wanted to buy a house, and wanted something newer, it would be almost impossible to buy something that wasn’t at least 3 bedrooms, 1 3/4 bath.

    That said, while I’m not a fan of newer houses, I’m also not a fan of buying something with less than 1 3/4 bathrooms, unless maybe you’re a retired couple. The chance of having your living situation change such that more than 1.5 baths would be useful is typically fairly significant. It’s also very helpful for resale (which is why there are so few new construction that are less than 1 3/4 bath).

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  7. S. Marty Pantz

    “There’s a half-off sale in the world’s tallest building.”
    http://news.yahoo.com/s/time/20101022/wl_time/08599202693400

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  8. Kary L. Krismer

    RE: softwarengineer @ 5 – I really don’t think the buyer of a 5000 square foot house really gives a golly what it costs to heat it.

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  9. softwarengineer

    RE: Kary L. Krismer @ 8

    Yeah, Like Al Gore?

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  10. patient

    By softwarengineer @ 9:

    RE: Kary L. Krismer @ 8

    Yeah, Like Al Gore?

    Touche’

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  11. Kary L. Krismer

    Don’t you know Al Gore can use as much energy as he wants without affecting the planet at all, because he buys carbon offsets? ;-)

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  12. Sniglet

    I know we’ve beaten the whole robo-signing/foreclosure gate topic to death, but at the risk of bringing up the controversy again, I would like to ask a very pointed question: what happens in the case where the paperwork on mortgages, and the official “notes”, denoting ownership of the mortgage have truly been lost?

    For example, there are documented cases where the lender admits that the original note for the mortgage was destroyed, and simply doesn’t exist. Does this mean that the lender in such a case would NEVER be able to foreclose? Does this mean that the home-owner will NEVER be able to get a clear title because the lender will be unable to sign the note back to the borrower when the loan is repaid?

    If the mortgage note is lost does the property go into some permanent state of limbo from which clear ownership will never be determined?

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  13. Kary L. Krismer

    RE: Sniglet @ 12 – It would go to the “best evidence” rule, which would allow a copy in.

    The holding of the note is more an issue for perfection of the security interest, and not as big of an issue as it used to be. I’m not sure every state has made similar changes to their UCC as what Washington did, but I would guess that most or all have. And even that wouldn’t get to the owner of the house walking from the debt, it would just change who they had to pay.

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  14. johnnybigspenda

    New article just popped up on Calculated Risk… something we have all been expecting:

    Clear Capital: “Sudden and Dramatic Drop in U.S. Home Prices”

    http://www.calculatedriskblog.com/2010/10/clear-capital-sudden-and-dramatic-drop.html

    Here is the link to the reports at Clear Capital:

    http://www.clearcapital.com/company/market.cfm

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  15. Cheap South

    RE: Kary L. Krismer @ 6

    My wife’s grandparents raised 5 children in less than 800sq.ft. (Northeast Oregon ~ 1950s). My wife’s mom (only girl) slept in the second bedroom; the four boys slept in the attic (I can’t even imagine how cold that place was). And to add insult, bathroom was an outhouse. Grandpa did not add the bathroom until the late 60s, early 70s. The house is still standing, and being rented; leaky as hell.

    I am sure my current 1800sq.ft. home will be the largest I ever own. I don’t like the cleaning, maintenance (“there is always something”), or utilities’ bill. I can only see myself in a bigger place if we inherit a house (waiting for a missing uncle; since there is no chance from the immediate family); or I end up in a mental institution (hey, I wouldn’t be doing the cleaning or maintenance).

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  16. Sniglet

    RE: Kary L. Krismer @ 13

    The holding of the note is more an issue for perfection of the security interest, and not as big of an issue as it used to be

    How does a lender “prove” they have rights to a mortgage? What does a lender need to show to prove they have the right to foreclose on a property? Clearly SOME form of proof for the right to foreclose must be provided even in non-judicial states like Washington. Otherwise anyone could just arbitrarily claim they are owed money by a home-owner and foreclose on them.

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  17. Kary L. Krismer

    RE: Sniglet @ 16 – Those would be whatever assignment documents they have, so it would be some type of assignment of the deed of trust. Again you’re dealing with two separate instruments, the note and the deed of trust. From memory, most cases say that the note follows the deed of trust automatically if it’s not assigned/negotiated. That doesn’t mean though that the transfer was properly perfected if the note was not properly transferred too, but that shouldn’t affect the original borrower (absent unusual facts).

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  18. Sniglet

    RE: Kary L. Krismer @ 17

    you’re dealing with two separate instruments, the note and the deed of trust

    What happens if both the note and deed of trust are irretrievably lost? Does the lender lose their right to foreclose? Does it become impossible for a home-owner to get a free title when they pay off the mortgage?

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  19. Kary L. Krismer

    RE: Sniglet @ 18 – I’m not whether you need the original deed of trust in any non-judicial state. If you did, then you’d probably need to go judicial and use the best evidence rule.

    Remember though, I usually represented debtors in bankruptcy, or trustees in bankruptcy, or banks just to get relief from stay. I wasn’t involved in the heavy mechanics of foreclosures, and I don’t remember having ever participated in a judicial foreclosure. Those are very rare in residential.

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  20. Sniglet

    RE: Kary L. Krismer @ 19

    I’m not whether you need the original deed of trust in any non-judicial state.

    Do lenders have to produce any information at all to prove they have sufficient standing before initiating a foreclosure in Washington State? Is there anything to prevent a lender in Washington from initiating foreclosure proceedings on a property that was NOT mortgaged through them?

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  21. Kary L. Krismer

    RE: Sniglet @ 20 – Probably only whatever the individual trustee requires. As I recall there is an affidavit or declaration required, but I assume you’re thinking what if they falsify that.

    I would guess though that if a trustee is dealing with a small private lender they would require a lot more than if they are dealing with Bank of America.

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  22. Everett_Tom

    Seattle time FAIL.

    http://seattletimes.nwsource.com/html/realestate/2013204386_realdiscounted24.html

    as of right now, the side bar of “facts” reads:

    One-bedroom, one- bathroom, 589-square-foot condo, 5300 Harbour Pointe Blvd., 303 B, Mukilteo, originally priced at $155,000, marked down to $65,000. Home is a short sale.

    Three-bedroom, three and a half bathroom, 3,160-square-foot home, 20710 61st St. E., Bonney Lake, originally listed at $599,000, marked down to $252,000. Home is a foreclosure.

    Source: ZipRealty

    facthead
    factsub

    ALL CAPS LEADIN text (optional)

    Bold: Text here.

    Bold: Text here.

    factsub

    Bold: Text here.

    Source: Xxxxx

    Tagline

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  23. David Losh

    RE: Sniglet @ 20RE: Kary L. Krismer @ 21

    I think the issue is the recording. The documents need to be recorded. At your closing you get a recording number which in theory can be traced back to your documents, even if they are lost.

    I have two file drawers of Real Estate documents. Every one should have Real Estate documents, even if they are only the copies given to you at escrow.

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  24. Kary L. Krismer

    RE: David Losh @ 23 – Recording and notarization are two advantages that deeds of trust have that notes don’t have.

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  25. One Eyed Man

    RE: Sniglet @ 20

    Pursuant to RCW 64.24.030(5) before the trustee can record or serve the Notice of Trustee’s Sale, the Deed of Trust has to be recorded. I believe the recorders office will likely (unless they make a mistake) reject a deed of trust that doesn’t have the notarized signature of the mortgagor (borrower). If the lender used a forged deed of trust, they would risk criminal liability.

    Before the Notice of Trustee’s Sale is recorded for residential property, pursuant to RCW 61.24.030(7) the trustee must get a declaration under penalty of perjury from the holder of the note stating that they are the holder.

    Although not required by law, for the trustee’s own protection, and to be sure the trustee gets all the names and addresses of those entitled to notice of the foreclosure, the trustee will get a Trustee’s Sale Guarantee from a title company. The Trustee’s Sale Guarantee insures the trustee and the beneficiary of the deed of trust that the people listed therein are all the names and addresses of the holders of recorded encumbrances on the property who are entitled to receive notice of the trustee’s sale.

    The trustee has to send the Notice of Trustee’s Sale by both certified and first class mail to the borrower and post it on the property as well sending it in the same manner to all junior encumbrance holders.

    The borrower can bring suit to restrain the sale but they must normally tender the amount claimed past due into court (or perhaps post a bond for the amount). If they can’t restrain the sale, they can can bring an action for damages against the mortgagee who wrongfully foreclosed on the property. If the wrongful acting mortgagee has the property, the borrower can probably get the property back. But if it was sold to a BFP, the BFP keeps the property and the borrower can only sue the lender for the damages caused by the wrongful foreclosure.

    The bottom line is that Washington is a non-judicial state. That means that the borrower won’t have the same level of “due process” before their property is foreclosed that they might have in a judical foreclosure. But that’s part of the risk that a borrower takes when they take out a mortgage in a “non-judicial” state.

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  26. karl

    Even in the end though if the borrower was in default won’t the judge rule in favor of the bank? I guess if the lawyer representing the bank was being an arrogant ass the judge might rule in favor of the borrower.

    The bank might get spanked for not keeping the paper work in order,but the facts will prevail. (I would hope).

    I have no love for the system that created this mess, there is plenty of blame to go around.

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  27. Sniglet

    RE: One Eyed Man @ 25

    the recorders office will likely (unless they make a mistake) reject a deed of trust that doesn’t have the notarized signature of the mortgagor (borrower).

    So what happens if the lender openly admits that the deed of trust is irretrievably lost? Will trustees in Washington still recognize them as having rights to initiate foreclosure?

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  28. Kary L. Krismer

    RE: Sniglet @ 27 – The deed of trust is recorded right away, usually immediately after the deed where the owner takes title in the case of a purchase. Recording doesn’t wait for the borrower to default because the lender wants to secure their position through recording. And typically I don’t think escrow would actually release the funds they’re holding until they get the recording number.

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  29. David Losh

    RE: Kary L. Krismer @ 28

    I’m not a lawyer, and we are in a real gray area here, but a borrower could claim payments made, and prove that there should be a release of title, or quite title.

    The problem is that most mortgages today are hundreds of thousands of dollars so one bank is promising to pay another bank for a title release. The borrower is just the man in the middle.

    If you owned a home that you owed $300K on it’s very unlikely you could go to court and prove you made $300K of payments. It would also be hard for you to pay the $300K to satisfy the lender. Most people are asking another bank to satisfy the debt through a refinance.

    It would be very hard for any one to prove they have a right to the property. Banks are in control of the passage of documentation.

    It may be that foreclosure becomes normal, but buying a property back would be at cash prices, I mean true cash prices that any one can afford.

    The way the foreclosure market has been working these past few years is that hard money lenders, like at Vestus, will lend money at 14% for six months. If the deal makes sense, and the property can be resold, then they make the loan, and get paid at the end of six months with a refinance, or the secondary sale of the property.

    Refinance has gotten to be very hard to get, and the market place is saturated with resales. I think this next year will be ten times worse, and that hard money will dry up. I have heard that it has dried up a couple of times, and that investment groups, like Ray, are dwindling because there are better places to put money.

    So in terms of the documentation, it is, or has been a moot point. Banks are only passing paper around. Until more people have a clear title of no debt the documentation will continue to be a he said, she said matter.

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  30. Kary L. Krismer

    By David Losh @ 29:

    RE: Kary L. Krismer @ 28 – If you owned a home that you owed $300K on it’s very unlikely you could go to court and prove you made $300K of payments.

    Huh? Maybe if you regularly shred everything that comes from your mortgage creditor and bank, and the records both entities have regarding you are all somehow magically destroyed.

    Almost everyone gets a statement once a year, if not monthly. And banks send 1099 statements annually.

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  31. Sniglet

    RE: Kary L. Krismer @ 28

    The deed of trust is recorded right away

    Does this mean that the only thing the lender has to do in order to initiate foreclosure proceedings is to give the recording number for the deed of trust to a trustee? If I happen to know the recording number of the deed of trust on your home am I able to initiate foreclosure proceedings? Does the trustee ever go and actually check the deed of trust to ensure that the party initiating the foreclosure actually has the right to do so?

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  32. Kary L. Krismer

    RE: Sniglet @ 31 – As I indicate before, I don’t know what a trustee does to investigate the lender, but they probably do a lot more when it’s a small time private party than when it’s BOA. I do suspect though that the trustee always gets a copy of the deed of trust.

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  33. David Losh

    RE: Kary L. Krismer @ 30

    The actual point is, you are very unlikely, in our life time, to make $300K of payments. More than likely another bank will be retiring the debt.

    It’s a small thing, but in the foreclosure process, or when people have missed payments, or there are fees, a bank can collect much more than is owed.

    The video earlier in the week had a couple who were $100K behind on thier payments. They caught up the $100K, but were foreclosed upon because of $40K in penalties, interest, and fees. How are you going to prove you made up those penalties, interest, and fees?

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  34. David Losh

    RE: Kary L. Krismer @ 32

    Though I don’t see the difference to the person who is losing the home. We are just talking about who gets the money.

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  35. Kary L. Krismer

    RE: David Losh @ 33 – That would be a much more recent transaction, and unless they took $40,000 in cash to the lender (which would be stupid) and didn’t ask for a receipt (ditto on stupid), it should be very easy to prove.

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  36. Macro Investor

    By Kary L. Krismer @ 28:

    RE: Sniglet @ 27 – The deed of trust is recorded right away, usually immediately after the deed where the owner takes title in the case of a purchase. Recording doesn’t wait for the borrower to default because the lender wants to secure their position through recording. And typically I don’t think escrow would actually release the funds they’re holding until they get the recording number.

    Isn’t that is the problem with MERS? The banks didn’t record at the local level. They thought they could save on the fees. Then they shredded the original docs, or sent them to an offshore tax haven. Then they used blank endorsements to assign it to various trusts. This was intentional. They are trying to force the elimination of local recording and what they view as cumbersome assignment rules.

    This was designed to change the laws making them uniform nationally. And IMO it’ll happen, too. After the election watch out for legislation that “fixes” this — i. e. saves the banks. Remember, the large banks have been fighting interstate banking restrictions for decades.

    Denninger did an interesting post where a judge stepped through these issues in a bankruptcy case. Bottom line — foreclosure cases move so quickly, it’s really a slam dunk for the creditor. Depending on the local rules, bankruptcy puts the burden of proof much more in the debtor’s favor.

    http://market-ticker.org/akcs-www?post=169972

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  37. Kary L. Krismer

    RE: Macro Investor @ 36 – They don’t forgo the original recording of the deed of trust, just the assignments of the deed of trust. And I doubt they shred anything immediately.

    And again, that assignment would only need to be recorded at the local level to protect the assignee from the assignor (original bank). It shouldn’t really have any effect as to the home owner.

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  38. Kary L. Krismer

    RE: David Losh @ 33 – BTW, one thing that can get a debtor into trouble is constantly making payments late.

    If you had a thirty year loan that amortized, but you made every payment 30 days late, at the end of 30 years you’d probably owe the original amount or more. Late payments do make calculating the amount difficult, especially with a variable rate loan, but an accountant should have an excel sheet that can manage that.

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  39. One Eyed Man

    RE: Sniglet @ 31

    The Deed of Trust Act as of a year ago also requires you to give the trustee a declaration under penalty of perjury that you are the holder of the note. The trustee is also going to get a Trustee’s Sale Guarantee from a title company. The Trustee’s Sale Guarantee is basically a title report that insures the trustee that the trustee is sending the foreclosure notices to all the right parties at the address in the recorded documents. If the Trustee’s Sale Guarantee doesn’t show the foreclosing party as the beneficiary on the deed of trust, the trustee will likely ask you for an explanation because the documents don’t match up.

    If the lender is an individual as opposed to a financial institution, the trustee probably requires them to deliver the original note and deed of trust with all the appropriate original endorsements and assignments, if any, showing the person demanding foreclosure as the holder of the note and the beneficiary on the deed of trust. The lender would also normally have delivered a printout showing the loan history with all the accrued interest and all the payments, the current balance due and all the amounts in arrears.

    If the lender is a financial institution, the trustee probably has a higher degree of trust in their representations that they are the holder of the note. Chances are the trustee has a working relationship with the people from the financial institution and may be willing to go forward with the foreclosure without asking for anything more than the minimum items required by law.

    If the lender isn’t a financial institution, chances are the trustee would probably want the originals of the note and deed of trust even though its not required by law. That was common practice for the attorneys I knew in the “old days.” If the originals were lost or destroyed the trustee would require copies and an explanation of what happened that the lender no longer had the originals available so that the trustee could determine whether the lender could prove they were legally entitled to repayment of the debt without the original. If the lender couldn’t meet the requirements under the UCC to prove the right to repayment on a lost negotiable instrument, the trustee probably would resign. In Washington, the trustee only has to get the declaration under penalty of perjury that the party requesting the foreclosure is the holder of the note so they aren’t required by law to do the above. But the trustee is probably an attorney or a foreclosure service with a going concern business. They don’t want to risk the expense of litigation and potential damage to their business and reputation by getting involved in fraud for the princely fee they receive to do a single foreclosure.

    If somebody starts a foreclosure against your property using forged documents, they are risking criminal liability. Assuming that the property owner is capable of responding to the foreclosure notices they will start legal proceedings to restrain the foreclosure. The “criminal” using forged documents would have to be pretty stupid to proceed unless they perhaps were victums who had bought the note and deed of trust from the real forger. Other than a very few examples in the last year or so, I’ve never heard of anybody going thru the lengthy foreclosure process based upon a completely fake set of loan documents. And the vast majority of the robo-signing claims don’t involve a claim that the facts set forth in the declaration or affidavit are false, other than the statement that the signatory has personal knowledge, and perhaps that the signature was forged by another bank employee rather that by the person who was supposed to sign the “thousands” of declarations each month. That doesn’t make what the bank and its employees did right or legal, but it does mean the person whose house was foreclosed upon wasn’t defrauded, in an equitable sense.

    I do know of 2 examples (one in WA and one in CA) where someone set up a Ponzi scheme by generating fake loan documents and selling interests in them to investors. Neither scheme involved trying to do a foreclosure using fake docs. Both were Ponzi schemes to sell interests in the loans to investors. The forger would sell more fake loans to make the interest payments to the previous investors. One scheme involved a man in Issaquah who sold interests in approx 12 million in fake deeds of trusts to investors over a number of year. He generated fake notes, fake deeds of trust and fake title insurance policies. When it looked like the scheme might fall apart about 10 years ago, he killed himself. The people who got swindled were sophisticated people with large sums to invest. A real estate lawyer at a large downtown firm had invested his entire retirement balance (rumored at about 1 mil) and lost it all. An ER doc I went to high school with told me he lost 100K and his father lost a couple of mil in retirement money.

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  40. David Losh

    RE: Kary L. Krismer @ 38

    This is exactly what is going on now. We had a major economic catastrophe. A lot has happened, a lot has gone unpaid, and banks can make any claims they chose.

    The documentation is in a foreclosure action, but once again the amounts due to the bank can vary greatly.

    The foreclosure doesn’t bother me. Clear title after a foreclosure doesn’t bother me. Free money to the bank, judgments, or losses claimed by the bank bothers me.

    Ultimately banks are in control of this whole thing, this whole process, and they make profits, and losses based on documentation only they need to have. Once the home owner is out of the picture, or still owes money in a deficiency, that is where it all gets murky.

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  41. Kary L. Krismer

    By David Losh @ 40:

    RE: Kary L. Krismer @ 38 – This is exactly what is going on now. We had a major economic catastrophe. A lot has happened, a lot has gone unpaid, and banks can make any claims they chose.

    As a practical matter the bank is likely to be right, because their computers are able to accurately reflect the timing of the payments, etc. When problems arise it would most likely be because of them possibly holding a payment that was a partial payment, or a partial cure, etc.

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  42. Sniglet

    Let’s look at this from a different angle. How can a home-owner get a clear title once they have paid off their mortgage if the lender no longer has any records? There could very easily be a situation where the mortgage had been re-sold so many times that the final lender isn’t listed on any of the record filings, and may not have any records themselves.

    I suppose the home owner could go to the lender recorded in the original filings and ask them to clear the title, but you could have a situation where that lender no longer exists, or that they are unwilling to clear any title since they have no clue if you have really been making payments and they also can’t vouch for the authority of the lender you had actually been making payments to since the person the first lender of record sold the note to was several chains removed.

    What can a home-owner who has finished making payments do in a case like this (i.e. where the lender they have been paying has no records and they are not the lender of record in recorded documents)?

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  43. David Losh

    RE: Sniglet @ 42

    I’ve been waiting all day to pontificate on this question. I do have two Real Estate blogs at http://www.FixerFixer.com and http://www.BuyingSeattle.com which I’ve been working on today so it’s not like I was just looking at this site only. I’m just saying that this is the basis of the entire mortgage mess. How does the home owner, the person paying the loan, clear the title?

    What I propose is that banks will need to negotiate a settlement. Kary is right the servicer of the loan will come in with full computer generated documentation, but it will be incorrect. I’ve personally paid off three loans in my life time, and each pay off is a surprise. Two have been for less than I thought, and one for more.

    It’s up to the lender to clear the title. It’s up to the lender, or servicer to give you a release. If they can’t you would all need to quite the title through a court action.

    My pontification is that banks have left themselves open to a negotiation of a pay off. Will you walk away, or will your lender take what ever you offer? What alternatives does the lender have?

    I know I owe you this much, but I’m not going to pay you that. You can call me a dead beat all you want, your alternative is to see what you can get at auction. In my opinion banks should be extremely grateful to any one who gives them money. It’s a gift. These people collapsed the global economy, and now expect business to be like usual, well it’s not.

    People should be negotiating themselves out of debt much more than paying it off. There again, I think this credit score thing won’t mean much in the next few years.

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  44. One Eyed Man

    RE: Sniglet @ 42

    There are theoretically at least 2 ways the owner can clear their title of the deed of trust securing the paid note:

    1. In Washington pursuant to RCW 62,24,110, the person entitled to the reconveyance can request the trustee to issue the reconveyance. That section states: “The trustee shall reconvey all or any part of the property encumbered by the deed of trust to the person entitled thereto on written request of the beneficiary, or upon satisfaction of the obligation secured and written request for reconveyance made by the beneficiary or the person entitled thereto.” I’ve never seen that done. The average beneficiary probably wouldn’t have the records, but they might be able to come up with them. In all likelihood, the trustee would resign before issuing the reconveyance.

    2. The owner can bring an action to quiet title. That costs money and takes time (probably several months to serve unlocated parties by publication, get a default judgment, and wait for the time period for the defaulting parties to file an appeal to run.

    If the owner can locate the last beneficiary of the deed of trust, or the party they were making payments to, they might be able to recoup their damages for the failure of the beneficiary to request and the trustee to record a reconveyance.

    RCW 61.16.020 provides:

    “Whenever the amount due on any mortgage is paid, the mortgagee or the mortgagee’s legal representatives or assigns shall, at the request of any person interested in the property mortgaged, execute an instrument in writing referring to the mortgage by the volume and page of the record or otherwise sufficiently describing it and acknowledging satisfaction in full thereof. Said instrument shall be duly acknowledged, and upon request shall be recorded in the county wherein the mortgaged property is situated. Every instrument of writing heretofore recorded and purporting to be a satisfaction of mortgage, which sufficiently describes the mortgage which it purports to satisfy so that the same may be readily identified, and which has been duly acknowledged before an officer authorized by law to take acknowledgments or oaths, is hereby declared legal and valid, and a certified copy of the record thereof is hereby constituted prima facie evidence of such satisfaction.”

    And RCW 61.16.030 provides:

    “If the mortgagee fails to acknowledge satisfaction of the mortgage as provided in RCW 61.16.020 sixty days from the date of such request or demand, the mortgagee shall forfeit and pay to the mortgagor damages and a reasonable attorneys’ fee, to be recovered in any court having competent jurisdiction, and said court, when convinced that said mortgage has been fully satisfied, shall issue an order in writing, directing the auditor to immediately record the order.”

    Failure to record a reconveyance of a deed of trust happens fairly often with mortgagee is a private party rather than a financial institution because theyeither forget or don’t know they are required to issue a request for fulI reconveyance to the trustee when they get paid in full. It never comes up until years later when the owner goes to sell or refi. I had that happen to a client who had played one of the characters on the TV show MASH. The note was to secure a real estate commission to a broker who was to get paid something like a year after the closing once some condition was satisfied. The payment was made but no reconveyance was recorded and the escrow, the brokerage and the agent had all disappeared. The actor was trying to close a sale and it was about to be held up by this 5K deed of trust. We were going to post a bond with the title company to bond around it and bring a Quiet Title action after closing, but we located the broker/beneficiary in another state just before closing and got the reconveyance.

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  45. S-Crow

    RE: One Eyed Man @ 44

    We see lost note and DOT affidavits sometimes. One of the problems I’m seeing today is reconveyances that are not completed by a lender (some may not exist anymore) or in numerous situations are recorded incorrectly. We’ve had a few refinances delayed because of DOT’s showing on title that we can’t clear right away. Like you say, tracking these items down takes time and frankly is a PITA.

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  46. Kary L. Krismer

    David Losh wrote:

    “I’ve personally paid off three loans in my life time, and each pay off is a surprise. Two have been for less than I thought, and one for more.”

    Unless you paid every payment on the exact due date, the amount will be different than what an amortization table would say.

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  47. Kary L. Krismer

    RE: S-Crow @ 45 – I consider getting the reconveyance recorded to be part of the duty of an escrow agent. When they pay the funds pursuant to a payoff, they should check to make sure the bank follows through and reconveys. In the situation you describe, the escrow agent on a transaction prior to the one you’re working on.

    Some escrows charge a fee for monitoring the reconveyance, which IMHO is simply adding a charge for the escrow doing their job.

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  48. Sniglet

    RE: S-Crow @ 45

    One of the problems I’m seeing today is reconveyances that are not completed by a lender (some may not exist anymore) or in numerous situations are recorded incorrectly

    How do you fix problems where the reconveyance wasn’t completed, the records don’t exist anywhere and you can’t locate any of the parties involved with the previous owner of the note (or worse, the original owners have no knowledge or records to indicate they used to own the note and no one works there who remembers)? Do you have to initiate a judicial proceeding?

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  49. One Eyed Man

    RE: Sniglet @ 48

    ” Do you have to initiate a judicial proceeding?”

    The answer to that question is maybe. As I mentioned before, I nearly had to start a “quiet title action” because we couldn’t locate anybody. But when you’re talking about institutional lenders, the likelihood is that all of the “what if’s” you listed aren’t going to happen. The deed of trust is a recorded document and the recorded copy will live on as long as the storage medium and any successor medium it is converted to, lives on. Most financial institutions are smart enough to know they have to do a reconveyance and that they should retain the originals and electronic copies of notes and payment records for a significant period.

    When an entity goes out of business, there is commonly a successor in interest to its assets. The successor in interest (like the FDIC or the entity who bought the assets from the FDIC) will have the statutory obligation to issue a reconveyance. If the borrower goes to the insitution and demands a reconveyance from the entity listed as the “beneficiary,” pursuant to RCW 61.16.030 the text of which is quoted in a comment above, the beneficiary (lender) has 60 days to reconvey the deed of trust or they will be liable for damages and attorney’s fees.

    If none of the above work, and the trustee resigns rather than issuing a reconveyance when requested by the borrower, the borrower’s only remaining remedy will probably be to do a quiet title action. They might be able to get a title company to insure against the encumbrance so a sale or refi can close by posting a bond pending completion of the action. But most bonding companies require collateral for for something like 150% of the face amount of the promissory note so getting a bond isn’t always that simple.

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  50. Kary L. Krismer

    RE: One Eyed Man @ 49 – There’s legislation in some states that forces the trustee to reconvey upon a request and a certain amount of time passing. It’s been proposed in Washington. I think it’s really a bad idea, and just recently I was reading a case where the reconveyance was issued under such a statute where the debt was still owing.

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  51. One Eyed Man

    RE: Kary L. Krismer @ 50

    It seems like they should just let the grantor of the deed of trust record a document called something like “Proof of Service of Notice of Pending Reconveyance by Grantor” effective something like 60 days after the later of service of the notice on the beneficiary and recording of the notice unless the beneficiary files an action to stop the reconveyance and records a lis pendens within 60 days.

    In WA, the quiet title provisions in RCW Chapt 7 et seq (which are mostly about adverse possession), currently state that you can get a quiet title judgment after the 6 yr statute of limitations runs. But that just seems to state what should be obvious.

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  52. S-Crow

    RE: Kary L. Krismer @ 47 – Duty of the lender, but escrow or title makes sure it is completed because we are the one’s writing the checks and guaranteeing clear title to the owner/borrower. In many of the cases, it is not completed or recorded incorrectly (wrong county, wrong recording # of the DOT, wrongly archived by the county itself.).

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  53. S-Crow

    RE: Sniglet @ 48 – What to do? You are welcome to come to my office for a Seattle Bubble “field trip day,” and I’ll put you to work. LOL. Actually, you have to contact the lender and try to talk to a human with some intelligence, preferably in their release dept and tell them to get busy. Normally, I do it also in writing, providing the title report showing the lien, the copy of the check with my signature on it or wire confirmation of our payoff etc…

    Our instructions to the lenders are explicit: they cannot accept our wire or payoff funds without full reconveyance/lien release. But, alas, those that work at the banks that receipt in payoffs and wires could care less what our instructions say.

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  54. Sniglet

    What I find fascinating about all this concern over mortgage paperwork is how all these little details actually matter. We just take all these transaction fees and processes as a “tax”, and typically few consumers ever really investigate whether all these finicky details are being handled appropriately. If nothing else all the recent scandals are educating us that these trivial details are truly important and must be understood.

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  55. Sniglet

    It looks like we now have a definitive answer to the question of how banks handle foreclosures on their books. They are NOT required to book a loss until the foreclosed home is actually sold. We had some discussions about this earlier, but now the issue seems to be cleared up. This would seem to give banks huge incentive to just sit on foreclosed properties to avoid having to take a loss on them.

    an April 2009 regulatory change in an obscure federal accounting law. The change, in effect, allowed banks to foreclose on a home without having to write down a loss until that home was sold. By contrast, if a bank agrees to a short sale, it must mark the loss immediately.

    http://www.nytimes.com/2010/10/25/business/25short.html?_r=1

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  56. David Losh

    RE: Sniglet @ 55

    OK, let’s talk about deflation.You said we would have deflation which now seems to be what the Fed, and banks are fighting. What we actually have is moderated inflation with interest rates as the ultimate weapon to fight inflation if it gets out of control.

    Next let’s say that inflation on housing is the most moderate, with a complete understanding that pricing has declined 20% to 30% from the 2007 peak.

    In the three years since the peak pricing, with inflation at 2% to 3% these foreclosure might, just might only take a 10% loss, maybe 20%.

    There is actually more, because penalties, and fees, with interest payments, could recapture a little bit more of the loss. Then again Notes are bought, sold, and traded for a discount anyway.

    Bank Owned Properties are assets to the bank. If they can hold for a few more years, and dole the properties out, we may never see a shadow inventory glut.

    Next, and the best part, have you noticed the number of property management companies that have sprung up lately? My contention early on was that banks would simply rent out these properties over the course of time. The people here jumped all over me for that statement, but these years later I think that’s where we’ll see the shadow inventory show up.

    All in all we may be seeing price stability in a gradual decline of the price of housing. This accounting rule just seems to confirm that.

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