State AG Settlement Proposal Won't Fix Crappy, Uninsurable Real Estate Titles Created By Mtg. Servicing Racket When Fraudulently Processing F'closures

In a recent story on AOL's Daily Finance, attorney Abigail Field discusses how the foreclosure settlement proposed by the state attorneys general won't come close to rectifying the problems relating to the clouded real estate titles that were created by the mortgage loan servicing racket through their use of fraudulent practices when processing foreclosure actions:

The Enormous Clouded Title Problem:

• But the settlement doesn't go nearly far enough to save the housing market. In fact, it can't go far enough, because it can't address one of the most confounding problems the banks have created: the millions of properties nationwide that now have "clouded" titles.
  
  To put it plainly: Because of these bad titles, property owners can't prove they own the properties they think they bought, and banks can't prove the had the right to sell them.
  
  Even though it's impossible to know how many properties are affected, I have confidence in saying millions nationally for the following reasons:
  
• More than 1 million foreclosures have been completed since 2005; nearly 200,000 were completed in the third quarter of 2010 alone.


• Foreclosures involving securitized mortgages seem to be flawed as a rule, not the exception.


• Even when foreclosures may have been otherwise valid, the practices of foreclosure attorneys have clouded titles.


• The problems are ongoing. More flawed foreclosures are completed every day.


• The clouded title problem extends well beyond foreclosures. Both MERS, the electronic database that holds more than half the mortgages nationally, and possible securitization failures could have damaged the titles of the properties even though the borrowers are current on their mortgages.

The Solid Effects of Clouded Titles:

• You can't sell real estate when you can't establish that you own it -- banks won't loan money for purchasers to buy the property. That's because the bank wants to be sure that if it forecloses, it will get good title to the property. (Yes, this issue practically oozes irony.) That's why banks won't approve a mortgage for a property if a title insurance company won't insure its title. And title insurance companies won't do that if they know the title is clouded.
  
  A few months ago, the Massachusetts Supreme Judicial Court issued its Ibanez decision, which made it clear that the banks' foreclosure practices -- and indeed, the standard securitization deal -- violated longstanding basic Massachusetts real estate law, and thus, many completed Massachusetts foreclosures were invalid. The foreclosing banks, which had either since sold the properties or still "owned" them, had no right to foreclose, and therefore had never owned those properties. So who owns them now? Well, the fact that it's a question is the very definition of "clouded title."
  
  Since it has been a couple of months since the Ibanez decision, I called a couple of large title insurance companies in the Boston area to see how title insurance for improperly foreclosed properties is being handled. To bypass talking points and smooth-talking spokespeople, I called insurance sales agents, representing myself as someone contemplating purchasing a Massachusetts foreclosure. Because I didn't say I was a member of the media, I'm not going to name the companies. But the conversations confirmed my thesis.
  
  One agent called improperly foreclosed homes in Massachusetts "uninsurable." Another explained that the problem underscored in the Ibanez case has been around for years, and that any title company would need to look at foreclosures dating at least until the late 1970s, when securitization became more common, to make sure no improper foreclosure had happened in all those years. And some properties, she noted, had been foreclosed on multiple times.
  
  That agent did note that the problem was worst for properties improperly foreclosed on in recent years that were still bank-owned. Those properties were truly uninsurable. That's because the bank couldn't make a claim on the title insurance policy it had purchased when making the original loan, since it was the entity that clouded the title. Indeed, honoring that policy would be like letting a arsonist collect on fire insurance. Thus much of the current bank-owned inventory in Massachusetts is largely uninsurable and thus unsellable. No settlement with the servicers is going to solve that problem. And it's a national problem, not a Massachusetts one.

For more, see Why the Foreclosure Mess Settlement Proposal Can't Fix the Damage.