Thursday, October 14, 2010

Who's Holding the Foreclosure Bag?

Another day, another revelation regarding the utter clusterfuck that is the foreclosure crisis. Now we're learning that the original reason why the major banks were halting foreclosures was because they were using notaries to sign foreclosure documents without reading them or verifying that the documentation was complete.

One of the biggest issues with this is the entire idea of who actually has ownership of the title to a home. Usually, you go to the bank to buy a house. They give you a loan, and in return, they hold onto the documents that give them ownership of the home as verified by the local and state governments where the house resides. Once you pay off the mortgage, they transfer that paperwork over to you. If you sell the house, you transfer ownership of those papers to the new owner - or the new bank holding the mortgage.

Only the last decade saw mortgages traded between banks like they were Pokemon cards. They were sold off to major investment firms, slices up and sold into CDOs and other complex financial "instruments" - and it turns out that the important paperwork that actually defines who owns the home may have been lost in that process. And tracking it down can cost hundreds of man hours *per house* - if not thousands depending on the number of times it was traded about.

So when the banks went to foreclose on people, they submit paperwork to the courts saying "We own the house. This person has a mortgage with us, and they haven't been paying. So they must leave the house so we can take ownership of it and sell it to someone else instead. And here's the signature of the foreclosure agent in the bank who has reviewed this paperwork to verify it's all correct."

Two problems:

1. It turns out the foreclosure agents in the bank weren't reading the documents, because with 800 foreclosures to review a week, there was simply no time.

2. The banks in a growing number of instances are finding that they don't exactly know where the title of the house wound up, or if they were properly transferred ownership of the house. And in a time when so many companies have been going out of business - even financial ones - it may be impossible to find out who actually owns the house.


Now, here's where things get worse - turns out the banks have been drafting Wal-mart floor employees, line workers - anyone with a pulse who "review and sign foreclosure documents" without knowing what any of it means.

I get why they did it. The banks need an army of people who can just crank through documents, sign them, and then have them forwarded back to legal so they can kick people out of their houses as fast as they can.

Here's my question, though:

Who's legally obligated to pay the price for submitting fraudulent documents?

The second those documents hit the courts with the signature of "This has been properly reviewed and we own the house" and it's *not true*, that's fraud. So whom will the courts go after? The banks who hired people and submitted the documents?

My money is the banks are going to scapegoat the people they hired with the attitude of "Well, if you didn't understand it, you shouldn't have signed it. So now the judge is going to fine you for having submitted bad documents.

"Oh, and you're fired because you submitted fraudulent documents when we told you to."

I'm afraid we're going to see the latter more than the former. And I'd love to see our government prevent that from happening. It's amazing how when there's a financial collapse or toxic spill the CEO's and executives aren't under any criminal or financial blame - but I won't be surprised to see the grunt workers in this case get caught holding the bag for all the court fees when they come due.

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