Weekend Open Thread (2012-11-23)

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Here is your open thread for the weekend beginning Friday November 23rd, 2012. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

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About 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.

15 comments:

  1. 1
    Blurtman says:

    Kill the bankers.

    “They take aggressive positions, and they figure that if enough of them take an aggressive position, and there’s billions of dollars at stake, then the IRS is kind of estopped from arguing with them because so much would blow up. And that is called the Wall Street Rule. That is literally the nickname for it.”

    http://newsandinsight.thomsonreuters.com/New_York/Insight/2012/09_-_September/Wall_Street_Rules_Applied_to_REMIC_Classification/

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  2. 2
    Pegasus says:

    RE: Blurtman @ 1 – They are just “helping people that need help, not hurting people”………….

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  3. 3

    [From mid-week thread]RE: whatsmyname @ 16 – What? I don’t think you’re understanding what I’m saying.

    In an ordinary DOT transaction there are three parties. The creditor, the debtor and the DOT trustee. With a MERS DOT you add a 4th party, MERS, who is a “nominee” of the creditor. The purpose of the nominee was to provide a more modern way of dealing with assignments of the creditors’ interests than the grantor/grantee recording index of the typical county auditor. The problem was, they tried to design the system to work in every county in every state, rather than introducing legislation in every state to allow their system. They also tried to do some things they probably shouldn’t have been doing, like processing foreclosures for the creditor/trustee. But there was nothing inherently bad in what they were trying to do, and if they had created a better interface for searching ownership of notes/DOTS, it would have been far superior to the grantor/grantee system.

    Now let’s deal with the “bottom feeders” you mention. I don’t have a problem with debtors making creditors jump through all the right hoops to accomplish a task. That’s part of what I did when I was practicing law. But when you’re doing that sort of thing, you have to be thinking of the adverse consequences, and that’s what my problem is here. Throwing out the pie in the sky theory that the people would own the property free and clear of the lien (about the only issue the Washington Supreme Court actually answered in Bain v. Mers), all that was being gained was delay. That’s worth the rental value of the property, times the months of delay, less attorney fees. In contrast, what’s risked is a deficiency judgment and/or currently a tax liability which might not otherwise exist. Not a good trade-off IMHO.

    Realize that the people pursuing these issues for debtors suffer from a rather narrow short-sighted vision. We saw this before with the distressed property law, where they cut off the option of people in financial distress selling their property shortly prior to a foreclosure, even though for many that might have been their best option (even ignoring the declines in property value which were about to occur).

    But there’s plenty of blame to go around. Once MERS was aware of these types of claims, they shouldn’t have dug their heels into the sand claiming everything was okay. For example, clearly their system doesn’t work in Oregon, where recordings are clearly required by statute. What MERS should have done is introduce legislation in the various states–that would have likely been relatively easy to get passed, if other legislatures are like ours.

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  4. 4
    whatsmyname says:

    RE: Kary L. Krismer @ 3 -RE: Kary L. Krismer @ 17 – No, I get what you are saying. But when you remove the fiduciaries, the persons with a financial interest are the borrower and lender.

    SWE’s stated concern is for the random buyer looking to pick up some RE on the cheap. Be it specifically via distressed property or generally through low prices in an overall distressed market, that person is entirely without standing in this matter.

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  5. 5
  6. 6

    RE: Blurtman @ 1 – I think that article starts a bit too strong, but eventually does get around to pointing out that there is a lot of uncertainty in the law. I’d like to address the highlighted portion of this:

    A ‘qualified mortgage’ is an obligation that is principally secured by an interest in real property.13 The trust must acquire the obligation by contribution on the startup date or by purchase within three months after the startup date. Thus, to be a qualified mortgage, an asset must satisfy both a definitional requirement (be an obligation principally secured by an interest in real property) and a timing requirement (be acquired within three months after the startup date).

    What they are trying to claim is that the note endorsements and recordings of the assignment may need to occur within three months. While that is possible, I think that’s unlikely (except perhaps for Oregon interests). Of the two, the note endorsement is more likely to be an issue, IMHO. I would think though that most likely the transfer of ownership would be determined to occur when the entity actually bought the interest, not when the formalities occur.

    As the article notes, the IRS will look to state law, but isn’t controlled by state law. They can look to the substance. Thus, for example, if back in 1979 you had made a $100,000 loan to a child for 2% interest, the IRS could possible have attributed maybe $6,000 a year of income to the child, because the interest rate was artificially low at the time.

    Let’s assume a different scenario. Favorite son buys a $500,000 FSBO house with a loan from father. Trying to save money, the parties create the deed and deed of trust themselves. Neither contains a legal description or a notary signature, and neither is recorded. Fortunate son moves into the house and pays father $20,000 interest the first year, which father reports to the IRS. Fortunate son claims the $20,000 as a tax deduction. Can the IRS contest that because the deed wasn’t properly executed and unrecorded? Very doubtful. Fortunate son is the owner of the house notwithstanding the unrecorded defective deed, and entitled to the tax deduction, IMHO.

    I would think the same thing would be true of these entities dealing in the MBS, as to the timing issue. They would be deemed to own the interest when they bought it. Possession of the note and recording only go to perfection, not ownership.

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  7. 7

    By whatsmyname @ 4:

    <SWE�s stated concern is for the random buyer looking to pick up some RE on the cheap. Be it specifically via distressed property or generally through low prices in an overall distressed market, that person is entirely without standing in this matter.

    Yes, but SWE was responding to my post responding to Pegasus. I was never addressing SWE’s point.

    If I were to address that point, I would say this MERS mess is bad for the person wanting to pick up property on the cheap. Recently I knew someone with an interest in a house they were familiar with that was being foreclosed. I checked and it was a MERS DOT being foreclosed. I consider bidding at MERS sales to be more risky in light of the Bain v. MERS decision, and advised the person to consult an attorney about that if they were going to bid.

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  8. 8
    whatsmyname says:

    By Kary L. Krismer @ 7:

    I was never addressing SWE’s point.

    Precisely.

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  9. 9
    Blurtman says:

    RE: Kary L. Krismer @ 6 – Let’s try this a different way. Let’s say you sell your house to Joe Smith, who promptly moves in and makes payments on the home’s mortgage. After the sale, you continue to pledge the home as collateral to obtain money to invest in the stock market. Have you committed fraud?

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  10. 10

    RE: Blurtman @ 9 – That has absolutely nothing to do with what I discussed in post 6. You’re not looking at whether the transaction was valid, but whether the seller could commit fraud by dealing in a non-recorded transaction. MERS is an alternative form of recording, although not legal “notice.” I’m not terribly familiar with the MERS system, but I assume that they have some method for buyers to search for prior transfers and/or notifying buyers if their transaction wasn’t the first recorded in the MERS system. In any case, I’ve said that MERS should have a better system for letting ordinary people know the status of assignments, sort of like how with the county auditor system you no longer have to go through the grantor/grantee index, but instead can access the information over the web.

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  11. 11

    Those of you opposed to what I’m saying about MERS should really try to formulate some words as to why. MERS is not pure evil, nor is it going to be a cure all for any problems. IMHO it’s a good idea that was poorly implemented. If you disagree, say why.

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  12. 12
    ChrisM says:

    RE: Kary L. Krismer @ 11 – I’m not sure I’m addressing your point, Kary, but IMO any institution that relies on, or endorses (either explicitly or implicitly) perjury via bogus notarized signatures, deserves to be severely punished.

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  13. 13
    ChrisM says:

    A heartwarming tale of the fundamental kindness of Man, or PT Barnum-like stupidity? You make the call!

    http://www.oregonlive.com/pacific-northwest-news/index.ssf/2012/11/landlord_lets_medford_homeless.html#incart_river

    “After researching tax records to identify the out-of-town owner, they made a pitch to live in the empty house rent-free while they fixed it up.
    [snip]
    Because Osborne hasn’t had time to write up a formal lease, as the landowner requested, all the couple has is a hand-shake agreement promising this: 12 months in the three-bedroom, one-bath home at the get-back-on-your-feet rent of $0 per month”

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  14. 14
    ChrisM says:

    RE: Blurtman @ 1 – Hmm, I’m surprised you didn’t pick up Yves’ blogs:

    http://www.nakedcapitalism.com/2012/11/yes-virginia-the-irs-does-not-treat-the-connected-like-the-rest-of-us-remic-edition.html

    “Apparently the noise has been made about the failure to pursue REMIC violations, the latest by two law professors in a journal article, has roused the IRS from its official somnolence (we posted on the piece when it was made public). ”

    As well as this one:
    http://www.nakedcapitalism.com/2012/11/justice-in-america-systematic-document-forgery-and-fabrication-yields-one-criminal-plea-bargain.html

    “The Department of Justice and the state of Missouri have each announced criminal plea bargains with one Lorraine Brown, former chief executive of DocX, the Lender Processing subsidiary best known for its price sheet for fabricating the mortgage documents a servicer, or frankly, anyone would need to claim they had standing to foreclose on your home. Funny how that particular DocX product was mentioned no where in the plea deals.”

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  15. 15

    By ChrisM @ 12:

    RE: Kary L. Krismer @ 11 – I’m not sure I’m addressing your point, Kary, but IMO any institution that relies on, or endorses (either explicitly or implicitly) perjury via bogus notarized signatures, deserves to be severely punished.

    I’m pretty sure that’s not something they deal with. That would be like complaining that the county recorder allowed a forged deed to be recorded.

    That may be different where they’re actually involved in the foreclosure process, but there I would question whether they act any differently than any other trustee entity. In any case, their being involved in foreclosures isn’t something I support, as noted in one of these two threads.

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