Tuesday, January 25, 2011

Foreclosure Robo-Blob Grows

Like a blob in a low-budget horror film that grows larger and larger until it smothers everything, the foreclosure robo mess is ballooning. We now learn that there are robo signing problems with notices of foreclosure in at least some states having nonjudicial foreclosure procedures. (See http://www.cnbc.com/id/41250862). In nonjudicial foreclosure states, where a creditor doesn't need to go to court to foreclose, the trustee bank handling the foreclosure has to give notice to the homeowner of the impending foreclosure, and file the notice in a public office. One of the tiresome requirements of the law is that the person signing the notice should ascertain that there is a valid legal reason for foreclosure. However, it may be that employees of trustees or their agents were robo-signing notices of foreclosure--i.e., affixing their John Hancocks without first bestirring themselves to review the facts of the case and ensure that a valid basis for foreclosure existed.

Nag, nag, nag, nag, nag. The law is such a pain in the . . . assssssk a lawyer what the effect of a defective notice might be and you'd probably be told that it means questions come up whether the bank can obtain clear title from the foreclosure. The bank may be unable to resell the property. Bad debts would remain on its books. The real estate market would linger in its current morass, with the Sword of Robo-Damocles dangling over foreclosed properties the banks have resold or try to resell.

The robo-mess revealed last fall, with robo-signers gone wild in judicial foreclosures, mucked up the foreclosure process in close to two dozen states. The kicker about the latest revelations is that if robo-signing permeated the nonjudicial foreclosure states, then the robo-mess will have reached every state. We've previously suggested the foreclosure crisis needs a national solution. (See http://blogger.uncleleosden.com/2010/10/foreclosure-crisis-time-to-put-mortgage.html.) This would be all the more so, now that robo-signers seem to lurk the length and breadth of the nation.

When you think about it, the robo problem is the problem in the real estate markets. We got to where we are today with mortgage lenders robo-lending to every Tom, Dick and Harry who had a signature and a pulse, without regard to income, employment, assets, past credit history, or anything else that might be relevant to a borrower's ability to repay. Then, the big banks on Wall Street bought up vast quantities of hinky mortgages that the robo-lenders churned out and robo-stuffed them into asset pools underlying mortgage-backed securities and derivatives, making financial sausages containing a lot of things you really wouldn't want if you knew about them. (Investors are now trying to regurgitate the bad mortgages by making underwriters buy them back.) Then, when things fell apart, the big banks tried robo-signing their way through the foreclosure process, disregarding the dreary requirements of the law that might interfere with the bottom line. Somehow, all this robo-banking has to stop. If it doesn't, only a matter of time separates us from the next financial robo-wreck.

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