What Lawyers Are Being Taught in Current Seminars About Foreclosure

It might strike a note of dissonance when you realize that all the knowledge, facts and theories are well-known by title experts and they are teaching mostly correct things to lawyers. The problem is not whether the information is being disseminated. The problem is that the Lawyers are either not paying attention at these seminars or they are refusing or failing to follow what they have been taught. That includes lawyers who become Judges.

If you don’t know these things, you should be a member of this blog, participate in our twice monthly teleconferences, and attend any seminar you can lay your hands on. NBI has several although they shy away from the third rail of securitization.

In the end BOTH the Max Gardner of approaching the documents and the Neil Garfield method of following the money will be needed to drill the point home — i.e., that the mortgages, notes and obligations were faked from beginning to end and then covered up with false assignments, indorsements, “allonges” and other affidavits or instruments that make it look pretty but fail to meet the test of a proper foreclosure.

And you arrive at the same conclusion regardless of whether you start with first money exchanging hands with the investor or first funding with the borrower at the time of origination.

As the pace picks up on government, borrower and investor lawsuits that soon will be facing statute of limitations arguments from the banks, the realities are closing in on the banks and servicers. Any Bank will tell you that you can’t go in in with a gun, make a “withdrawal” and then settle the case with pennies on the dollar. ALL the money is seized, and the perpetrator goes to jail. I predict some nasty surprises for the megabanks next year and some of those will lead to break up of those banks into smaller banks that are more easily regulated. Glass Steagel might not come back completely but administratively we are headed in that direction.

The following is from my notes taken from many different seminars at which the presenters were title examiners, real estate lawyers, professors of law and even executives from the title insurance industry who articulated the situation quite clearly. Title is corrupt, but they fault the banks for misleading the title carriers as to the character and content of the closing. They understand the problems with “credit bids” and that is why they charge extra for a title guarantee — an instrument that is usually not even mentioned to ordinary people buying property.

Heads up to those on the fringe of real estate transactions. Title must be clear, not clouded or defective and must be insurable. In the case of transactions in which securitization and assignment claims are being made, the “economic interest” rule of thumb and industry standard is the sticking point. When you actually follow the money the documents don’t add up, which is layman’s way of saying what lawyers call an absence of a nexus between the transaction and the documents.

This is where the giants will fall. In fact, it was the the improper, illegal and fraudulent use of the money and the signatures of the parties that got them to appear so fat to begin with. When the dust clears, banks like BOA, (which is already executing on a contingency plan for a breakup by quietly dumping all contested foreclosures into third party hands), will not exist in their present form.

MAIN TAKEAWAY ITEMS:

1. Title insurance only applies if there is an insurable interest. It was universally
accepted by the conference (including those who were there to protect the interests of the banks and pretenders), that an insurable interest includes two elements: (a) a recorded instrument naming that party and (b) an economic interest in the property. Thus if we take the position that an insurable interest is based upon law and not just policy, it can be argued that in the absence of an insurable interest, the title company will not issue the policy and the Court should not and may not validate the interest, since it is ipso facto, uninsurable.
2. As the number of transfer of the “indebtedness” (the note) increases, the duty to inquire increases, and the more nervous the title examiner or transactional lawyer becomes.
3. Producing the note is universally accepted as law despite some court decisions to the contrary. In Florida and other states the forecloser must produce and tender the original note to the court in order to obtain an order from a Judge to sell the property, and without the note, the forecloser cannot submit a credit bid. So even if the Judge lets the case go through, the sale can be attacked as being no sale (Void, not voidable) because the forecloser did not comply with the requirements of law to establish itself as the creditor.
4. Title insurance policies universally have an exception for the rights of the parties in possession. Presumably that means at the time of the transaction. So if the transaction was are financing (which accounts for more than half of all mortgage transactions, the party in possession is the homeowner. The argument can be made that the title carrier made the exception — and that assuming they are experts in title — that exclusion should be used in any litigation of the parties regardless of whether the issue involves the title policy. Thus the homeownerʼs rights include multiple affirmative defenses, counterclaims and cross claims which need to be heard in a hearing in which actual evidence is heard which means that actual COMPETENT witnesses must be heard to authenticate any documents proffered into evidence.
5. Any situation in which the named insured on the title policy is different than the instrument on record identifying the mortgagee or beneficiary results in an uninsurable interest which can be translated as non-marketable title. Hence the originated loan documents prove that the transaction was a table-funded loan in which the true lender was not disclosed. This means the original documents are fatally defective and cannot be cured without the signature of the borrower or a Court order which would require a hearing in which actual evidence is heard which means that actual COMPETENT witnesses must be heard to authenticate any documents proffered into evidence.
6. Only a creditor may submit a credit bid. If anyone else bids, the Trustee or clerk usually has no discretion but to issue a certificate of title (deed) which gives clear title to the grantee, which can either be the borrower or someone standing in for the borrower.
7. Title insurance is not a magic bullet. It does not prove the status of title.
8. Generally unrecorded instruments are not covered by title insurance. In Arizona and other states there is general acceptance of the idea that based upon statute and ATLA standards successors in interest to the debt do not need a new title policy. By inference this would mean that they are giving credence to the idea that the mortgage follows the note, whether the transfer was recorded or not. But upon questioning the experts who delivered the presentation agreed that as the number of transfers increased the transaction becomes suspicious and that the rule regarding successors was probably meant for single transfers.
9. A transfer by a corporation not in good standing in the state or states in which it is required to be registered may not transact business nor bring any judicial proceeding. Mere ownership of property is not considered doing business. But a pattern of conduct of transactions is all that is needed. If the entities (any of them) that are involved in the chain of title are either defunct or in bankruptcy, any assignment, allonge or other instrument is invalid. It can be cured but there are time limits on how long they have before they cure, and it may be that reinstatement may require a name change. After 6 months in Arizona the name of the entity that should have registered is up for grabs which means you can incorporate under that name. What you can do with that name is an interesting proposition that was not discussed.
10.Conflicts of interests apparent on the face of the document or otherwise known to the title examiner create a duty to inquire. Therefore, since the usual pattern is that these documents are created after notice of default and usually after the matter is in litigation and sometimes not until hours or days before a hearing in which the documents need to be produced, the matter is a question of fact that needs to be decided after hearing evidence which requires competent witnesses testifying from personal knowledge.
11.BOARD RESOLUTION REQUIRED: No officer may sign a deed without board resolution. It is possible that estoppel, waiver or apparent authority might apply in the situation where the complaining party is a bona fide third party arms length purchaser for value.
12.In Arizona the knowledge of the Trustee is not imputed to the Lender, but there is no reference or prohibition against imputing the knowledge of the Lender to the Trustee. The practice of ALWAYS substituting trustees instead of using the old one is a cover for the fact that the old trustee would probably ask some questions rather than simply follow orders and send the notice of default, notice of sale etc.

Tags: ATLA standards, chain of title, economic interest, imputed knowledge, insurable interest, multiple transfers, title insurance
Posted in bubble, Corruption, Eviction, securities fraud |