Florida’s Foreclosures Nightmare

Given that the IMF and others believe a large part of the “structural unemployment” in our country is related to the struggling housing market and underwater and barely-hanging on homeowners, what is to be done? One option is to allow for options like lien-stripping in bankruptcy courts, reseting mortgages by zip code, etc. Another option is for courts to accelerate foreclosures by ignoring due process, proper documentation and legal process in order to kick people out of their homes and preserve the value of senior tranches of RMBS while giving mortgage servicers a nice kickback.

What option do you think our country is taking?

We should all be very concerned about the foreclosure situation in Florida. If you are a homeowner or potential homeowner, you should find it offensive that people’s property rights are being violated in such a flagrant way. If you are an investor, either as “bond vigilante” or someone with a generic 401(k), you should be worried that servicers have gone rogue and the incentive structure to maximize value instead of fees associated with foreclosures has broken down.

And if you care about basic Western liberalism–the classical kind, with a Lockean understanding of freedom to own property along with freedoms of speech and religion– you should be pissed off. This is a clear-cut instance of the rich and powerful decimating other people’s property rights, rights that are supposed to protect the weak from the strong, in order to preserve their wealth and autonomy. Unless you think property rights are mere placeholders for whatever the financial sector demands are, this should be resisted. This should be viewed as a problem an order of magnitude larger than Kelo v. City of New London.

The short problem is that banks are foreclosing without showing clear ownership of the property. In addition, “foreclosure mills” are processing 100,000s of foreclosures a month without doing any of the actual due diligence or legal legwork required for the state to justify the taking of property and putting people on the street. Even worse, many are faking documentation and committing other fraud in the process. The government is allowing this to happen both by not having courts block it from going forward, but also through purchasing the services of these mills. As Barney Frank noted: “Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes?”

And the worst part is the lack of conversation about this. Thanks to Yves Smith at naked capitalism for following this story from the get-go; her blog has become the place for anyone interested in this topic (that link is a catch-up post). The rest of the media is starting to catch up to where she was weeks ago.  Here’s the Washington Post with the story of an individual caught in one of these nets.

Also Dean Baker just wrote a good summary of the situation for the Guardian:

As a number of news reports have shown in recent weeks, banks have been carrying through foreclosures at a breakneck pace and freely ignoring the legal niceties required under the law, such as demonstrating clear ownership to the property being foreclosed.

The problem is that when mortgages got sliced and diced into various mortgage-backed securities, it became difficult to follow who actually held the title to the home. Often the bank that was servicing the mortgage did not actually have the title and may not even know where the title is. As a result, if a homeowner stopped paying their mortgage, the servicer may not be able to prove they actually have a claim to the property.

If the servicer followed the law on carrying through foreclosures then it would have to go through a costly and time-consuming process of getting its paperwork in order and ensuring that it actually did have possession of the title before going to a judge and getting a judgment that would allow them to take possession of the property. Instead, banks got in the habit of skirting the proper procedures and filling in forms inaccurately and improperly in order to take possession of properties.

And the situation in Florida is worse than most assume. The specially-created courts see it as their purpose to clear out the foreclosures, as Yves Smith covers here (must read). The most obvious takeaway is that homeowners aren’t being given the chance to have their documents properly viewed, have the challenges and proper legal hurdles to putting someone on the street vetted by the courts, and instead are being bribed with an additional month of house time if they don’t ask too many questions.

And the biggest fear is that the fraud uncovered at GMAC is the tip of the iceberg for what is going on nationwide.   Keep your eye on this situation.

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18 Responses to Florida’s Foreclosures Nightmare

  1. Fred Fnord says:

    And the biggest fear is that the fraud uncovered at GMAC is the tip of the iceberg for what is going on nationwide. Keep your eye on this situation.

    This is clearly inaccurate. ‘Fear’ implies that there is some doubt that this is the case.

  2. Pingback: Florida’s Foreclosures Nightmare | The Big Picture

  3. Dr. Squid says:

    Apparently fraud is legal in Florida, at least if you have money. Bounce a check on the other hand…

  4. Why would, e.g., reseting mortgages help the labor market?

    • Ted K says:

      Mr. Ambrosini, why don’t you try working from your car, sleeping in your car for 2 weeks and get back to us on how that went. Oh, I’m sorry, I forgot you have problems on things you can’t run regression analysis on. Nervermind.

  5. Captain Ned says:

    I’ve read Dune many times and I fully grok the shibboleth “The forms must be obeyed”.

    That said, when an underwater homeowner hasn’t made a payment in more than 12 months I have absolutely zero pity for said “homeowner”. Should the servicer get the paperwork right? No doubt. In the long run, though, it doesn’t matter. Those that bought too much house on too little income need to be foreclosed out so that the market housing price bubble is finally popped and housing prices finally retreat to historic levels compared to income. Games like this only prolong a process that anyone with half a brain knows needs to happen.

    Am I advocating changing procedure? No. I’ve been a banker in the scratch ‘n’ dent side of banking and am currently a regulator. Yes, the forms must be obeyed. However, compliance with the forms must not outweigh the borrower’s lack of performance.

    • kls says:

      I have a lot of pity for someone who lost their job and thereby is loosing their house, due to the recession, which is by all indicators the fault of the predatory lending practices and they henchmen in DC. They got their bail out, so if 10 people that over bought get to stay in a house for free, so that one guy that lost his job can stay in his home while he recovers, then I say let the bankers go fly a kite. I have no pity for them, they don’t need it, they got a bail out. Pining this on the homeowners, while maybe correct at the beginning of this whole mess is no longer the case. People who did the right thing, got caught up in this mess when it started to kill their jobs. As well, the bail out changed the game, they showed their hand, it is every man for himself as far as they are concerned.

  6. Laurence says:

    The question is whether it is “better” for people to stay in their homes (with their debt owed written down to current house price) or for people to get foreclosed. The reason most people (won’t / can’t) pay seems to be that they owe lots more than the house is worth. Debt moratoria can be efficiency enhancing (after all, we allow firms to write down their debt in bankruptcy – well except for derivatives carveouts but that doesn’t look to have been a great idea either). It’s not obvious that the wealth destruction from all these foreclosures is optimal. I agree moral hazard of borrowers might be a problem in the future, but we ignored those considerations in the other bailouts for efficiency reasons.

  7. George Harter says:

    On reader above assumes that the foreclosures are legitimate but that the paperwork is getting “fudged” occaissionaly.

    My question to this genius is, “If title ownership is not proven by the foreclosing entity, how does any institution have the RIGHT to take property away from occupants who are in possesion?” Is legality simply a mater of FORM? Wow, evidently we dont have a legal system, we have a FORM system. So, I guess it would only be bad FORM to do Hit&Runs on people like Capt Ned? hahahaha Who do you work for Ned? The crooked repo outfits? Don’t answer, I get tired of lies from crooks (I am a parole officer).

    I guess as a country maybe our last solution IS to simply default anyhow, since property title and rights no longer exist for individuals in the US. Maybe we have become a Banana Republic-Long Live the Vampire Squid! …and their lackeys.

  8. Pingback: More on the Florida Foreclosure Nightmare « Rortybomb

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  11. I’ve been following Home foreclosure fraud since I set up my Chase Bank protest blogs back in the summer of 2009 so please don’t credit one source with “discovering” something.

    Just because you may have never visited http://www.daily-protest.com, http://www.bloggersagainstchasebank.com, http://www.robotsagainstchase.com, http://www.thecatwhoatechasebank.com, http://www.parallelforeclosure.com and from this year http://www.swarmthebanks.com , does not mean that the people you quote did not use those blog resources when doing their research.

    Just sayin.

  12. I also meant to add that if you had visited http://www.swarmthebanks.com in the past few months, you would see how dozens of independent home foreclosure related blogging sites that are featured on http://www.swarmthebanks.com have played key roles in helping to explode the home foreclosure mess.

    Swarm the banks simply makes it easy to follow all of the banks in a faster, more efficient method.

  13. Random Blowhard says:

    Rule of Law. Meh, it’s over rated. Once the courts and congress have dispensed with it all Americans will share in the prosperity that has made Argentina, Venesuala, Zimbabwe and Somalia the economic superpowers they are today. Long live the glorious revolution…

  14. Pingback: Banks break laws, Congress changes laws « Petunias

  15. Pingback: Here Comes Tomorrow » It’s About the Rule of Law

  16. Pingback: Forged Documents, Fake Titles: Is The Florida Mortgage Mess Only The Tip of The Iceberg? « Scumbag judge

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