Mortgage mess ... long term questions...

[lannypoffo]

So if you've read the news about the mortgage foreclosure mess, there have been several issues that have come to light which are causing problems for banks trying to foreclose. One of the many issues involves either misplacement, or losing track of title for the underlying asset, the property against which the mortgage was originally written.

So this leads to a couple of questions longer term. Lets say I paid off my mortgage? At this point I would expect to receive the deed or title for the asset, but what happens if the document can't be produced at that point?

Also, what if I want to purchase a short-sale or foreclosure property with an all-cash transaction and the deed or title can't be produced?

I haven't seen these questions raised in the MSM, are the above questions just non-issues? Or are these questions just not being addressed due to the more time-sensitive nature surrounding the foreclosure crisis?

Lanny

[Robroy]

I think there is a serious risk as you have pointed out. The MSM is not mentioning this, but then, I heard a couple of years ago (maybe lurking here) that a couple of foreclosure attempts had failed somewhere in the northeast for the reasons you mentioned in your post. There was plenty of speculation on the internet that this may be just the beginning of things to come, but the MSM was completely silent – until it hit with a vengeance this year.

The same may be true of this, and the ramifications are frightening, for this reason:
Western civilization exploded over the last few centuries because it was based on the rule of law: If you invented something, you got paid for it. If you bought something, you got a receipt ensuring you could prove in a court of law that it was yours. It freed people up to work hard, be creative, and enjoy the fruits of their labor, with high confidence that their rights to that fruit would be protected.

But what happens if that confidence is violated? Imagine going to a grocery store and being afraid to give the clerk the money for the food you just purchased because they may deny you gave it to them. Or you are afraid if you give a $50 bill they will give you change for a $10 bill? Our society continues to progress and "flourish", oiled by the rule of law and the relative trust that gives. Take that away and it all grinds to a stop, or at least slows down considerably.

I think that is exactly what is happening before our eyes. The biggest and most obvious example would be the total and illegal screwing of the GM bondholders by none other than the US government – the exact agency that exists to protect them.

I expect it to get much worse before it gets better, as I used to say a few years ago when I posted here more often. I think more and more people will be "scared" to buy a house as they hear horror stories of people that cannot get clear title even after paying their loan off, or being foreclosed on even though they have made their payments on time. They will just be afraid to take the risk.

I used to say we were living in interesting times. I guess the word is relative, because it was downright boring then compared to what is going on now – and what will happen over the next six to 12 months.

And regarding your initial point, yes, the MSM will eventually "get it" when they will look idiotic to ignore it. But it has to reach a certain level for that to happen – a level most of us would prefer it never reach.

[jillayne]

"Also, what if I want to purchase a short-sale or foreclosure property with an all-cash transaction and the deed or title can't be produced?"

Hi Lanny,

There is no document called "title" that's exchanged when real property is sold v. personal property like a car. Instead deeds create title interest.

When purchasing a short sale, title is transferred using a warranty deed and all existing liens are cleared prior to closing. You will receive a new owners title insurance policy at closing and your title company would defend your title should some claim an interest in it after closing.

There is no document called "title" that you receive when you pay off your mortgage loan. Instead the deed of trust is reconveyed and a title search would show that your lender no longer held title interest with their deed of trust.

When you purchase a foreclosed, REO home the bank became the owner/seller by following state foreclosure laws. The bank now holds title to the real property and conveys title to the new owner using a bargain and sale deed and the new owner receives an owners title insurance policy.

All title companies, to the best of my knowledge, continue to issue owners title policies on short sales and foreclosed REOs.

Let me know if you'd like a link out to a different site where you can read more about buying REOs and the difference between a warranty deed v. a bargain and sale deed.

[lannypoffo]

[jillayne]

Hi L....Here are some links to articles on buying bank owned homes:

From Seattle real estate attorney Craig Blackmon:
http://raincityguide.com/2010/06/10/ban ... our-peril/

This one was written by a NY attorney. I really like how he explains marketable title v. insurable title:
http://www.pitnickmargolin.com/reo%20marketable.pdf

and here's one from another local Seattle real estate attorney Dwight Bickel:

http://activerain.com/blogsview/1913893 ... ure-sales-

This is a very brief article that gives a short explanation of the difference between a bargain and sale deed and a statutory warranty deed. In WA State lenders might also select a "special warranty deed."