Foreclosure Moratorium – How Deep Are The Answers?
The entire capitalist system is built on one thing: capital. Capital can be anything at all – literally – but all capital depends on one thing: ownership. If there is no ownership of the thing, it is not capital.
Esoteric? Yes. Vital? Oh, my.
The ownership of property in the US is dependent on a system developed (most proximately) by British clerks. Those same clerks are responsible for the entire western economic system. As long as the clerks do their job, ownership can transfer from one party to another and things can be bought and sold. If they don’t… You get something like Haiti. I am not exaggerating.
Think about it. I bought breakfast this morning at the hotel I’m staying at. The hotel exists because someone has a title to the land it sits on, and the building that sits there. Eliminate that, and no hotel. The bacon was produced by someone that owns some land and some hogs. “Owns”, because he has title to those things. He can buy them and sell them. Take that away, and no bacon, at least not for me. Everything I do, right down to the wi-fi that lets me write this while I’m not listening too closely to a conference session, is owned by someone and that ownership allows that person to sell that ownership to me.
The foreclosure moratorium – you could call it a “meltdown”, except that that word has already been applied to the industry too often to have any impact – goes directly back to this question: who owns the property?
And the answer is: um. We’ll get back to you on that.
The bank that originally loaned you the money took title to the property as a condition of the loan. No title, no loan. They then sold that interest in that title to someone else. And then, well, then the picture gets murky. Mortgage notes – property ownership – were bundled and bought and sold by the millions. The bundles themselves were apparently never really finalized. As incredible as this might seem, investors bought bundles of mortgages entirely based on the rating of the bundle, without having the actual mortgages IN the bundle specifically identified.
And then the loans began going bad. Now, someone has to go and foreclose, meaning “get back the interest in the property so that it can be re-sold.” But who is that someone? And the answer is: um. We’ll get back to you on that. In an alarming number of cases, it turns out, we’re not sure.
It will likely get sorted out. Eventually. But in the meantime:
- Courts are refusing to authorize foreclosure because the foreclosing entity has been so often perjuring itself in representing its ownership in the property.
- Lenders are delaying foreclosure – and thus exacerbating the collapse of the market – because they know the courts will no longer take their word for it.
- Title companies are refusing to insure title (guarantee ownership) on purchases of foreclosed properties because the chain of title cannot be definitely established.
- Now the states are looking at the Mortgage Electronic Registration System (MERS), which was supposed to maintain that chain of title (and which apparently did not), and starting to ask questions about how much state transfer tax is due (never paid) on every change of title, once that get established. How many billions of dollars will that be?
You’re not in a foreclosure position? Great. It still matters to you. There will be repercussions from this debacle that will affect every single person whether he or she owns a home or not. Ownership is the thing our economic system is built on. Take that away, and we will all suffer.
We’ll keep an eye on this, and let you know what we see. For now, all we can tell you is, it’s an epic mess. Nobody knows how deep and wide that mess really is.
Flickr Photo Credit:Irene2005