Is the “It Takes Forever to Foreclose” Meme a Big Bank Flattering Exaggeration?

A story that has increasingly become a fixture in the mainstream media is “It takes X [surprisingly large seeming number] days to foreclose.” The implications of X being a really big sounding number is of course that it is taken to mean that Deadbeats Are Living Rent Free For An Ungodly Amount of Time. This in turn incenses the respectable sorts that are offended at the idea that irresponsible neighbors are getting a break to which they are not entitled.

The premise behind this reaction is wrong. The assumption is that a combination of overloaded courts plus Bad Borrowers Gaming the System is responsible for the length of the process. The reality is more complicated. First, in judicial foreclosure states, and even in a lot of non-judicial states, foreclosure is not a speedy process even in normal times. Second, the assumption is that borrowers are not paying while foreclosures are grinding forward. As many victims of HAMP mods can attest (see here for one example), borrowers in HAMP trial mods were almost without exception told to ignore foreclosure related notices. In fact, as the servicer was processing the trial mod, it was also moving ahead with the foreclosure (and remember, quite a few people were falsely told they had to be delinquent to qualify for a HAMP mod). Unbeknownst to most HAMP participants, if they did not get a “permanent” mod, their lowered trial mod payments would be deemed to be delinquent, and they would be expected to make up the shortfall plus late fees. Thus these borrowers would be treated as having defaulted when they had been making payments and got trapped by the program’s design. Similarly, Adam Levitin and Tara Twomey wrote:

….servicers are not incentivized to maximize the net present value of a loan, but are instead incentivized to drag out defaults until the point that the cost of advances exceeds the servicer‘s default income. In other words, servicers are incentivized to keep defaulted homeowners in a fee sweatbox, rather than moving to immediately foreclose on the loan.

What the popular press accounts miss (or choose not to include) is not just that a lot of the delays are driven by the servicers, who are not only out to maximize their fees, but also avoid showing losses on second liens and home equity lines of credit. Both considerations argue for delay. But on top of that, this discussion of “averages” misses that they are mixing apples and oranges. There are foreclosures that are moving forward (and remember, “normal” foreclosures timetables are often not fast, particularly in judicial foreclosure states) and ones that will probably never happen. What happens when you throw in delinquencies where the time to foreclosure is infinity because the servicer can’t prove the trust has standing to foreclose, and no one is willing to incur the risk that they get caught trying?

That concern is not theoretical in New York, New Jersey, and Nevada. Each state, via different mechanisms, now has measures in place that are effective deterrents to filing questionable or even unverified foreclosure documents. The result? Foreclosures have come to a near dead halt in those states. For instance, in New York, pre a certification requirement, state-wide foreclosures were almost always in the 100 to 200 a day range. Now the normal daily volume is five or fewer.

In a recent post, in Florida, a state which has not seen any toughening of legal procedures but is widely reported as having long foreclosure timetables, Michael Olenick describes a widespread pattern of servicer foot dragging:

• Foreclosure defense lawyers have clients who have not paid their mortgage in years, but face neither a foreclosure nor even a negative mark on their credit report. I recently received a call from a man who said he had not paid his $1.6 million mortgage in two years but his servicer has not foreclosed, and he faces no derogatory information on his credit report; he was frustrated because he is retired and just wants to move to a cottage. This phenomenon, which apparently isn’t rare, might explain why shadow inventory reports that rely on credit reports to extrapolate shadow inventory are often dramatically lower than these calculations.

• Every year the Republican dominated Florida legislature introduces legislation to speed along foreclosures, and every year the legislation fails. I personally believe this legislation to be both immoral and arguably illegal. However, it is impossible to believe this bank beholden governmental body is willing to repeatedly bite the hand that feeds them .. unless their master makes it quietly clear that they do not actually wish to accelerate liquidations but cannot publicly admit as much.

• It is common for foreclosure mill lawyers to argue for delays in selling a home when nobody is representing a borrower. Judges, who want to clear their dockets, will rail at bank lawyers about the age of the case even while bank lawyers argue for yet another delay, while the other table — where the borrower, the defendant, is supposed to sit — is empty.

• Bank-instituted delay tactics are not limited to Florida. Not long ago I spent the day with Sean O’Toole, CEO of foreclosureradar.com. Sean knows the foreclosure world and his data is, literally, the best in the Western states he covers. He noted the same effect in CA; lender-initiated delay after delay after delay selling a home. In CA, after three delays both parties must approve a further delay but Sean said banks routinely file stipulated delays when, in fact, borrowers just want to literally move on.

• There is the well-known tendency of servicers to “lose” paperwork, where borrowers beg for mortgage modifications, short-sales, or deeds-in-lieu. These delay tactics — rather than just answering “no” to a request — make sense in this context because leaving a house in foreclosure limbo, forever, is the only solution that delays the inevitable balance sheet busting write-offs.

Attorney Lynn Szymoniak in her Fraud Digest has done a small scale study in Florida that she intends to expand. Her initial results indicate that the “time to foreclosure” numbers used for Florida are exaggerated. Note that Palm Beach County is considered to be pretty typical for the state:

How many days does it take to foreclose in Florida?…

Realty Trac provides the statistics in most stories. Realty Trac reported in January, 2012, that in Florida it took an average of 806 days to complete a foreclosure, the third longest time in the nation. New York reportedly took the longest to foreclose – 1,019 days and New Jersey was second at 964 days.

An examination of actual foreclosure cases in Palm Beach County does not support the Realty Trac findings. In this study, all of the cases filed by a major forecloser, Deutsche Bank National Trust Company (“DBNTC”), in December, 2009, were examined. DBNTC filed 170 new cases in December 2009.

Of the 170 cases, 76 cases (43.5%) remained open as of January 15, 2012.

54 of the cases were closed with entry of a final judgment of foreclosure.

40 of the cases were voluntarily dismissed by DBNTC. In many cases, a voluntary dismissal indicates the parties have reached a settlement. In foreclosures, it is also common for a bank to dismiss when the file is being transferred to another firm, a very common occurrence.
Of the cases with voluntary dismissals, the average time from filing to dismissal was 342 days.

Of the cases closed with a final judgment of foreclosure, the average number of days from the initial filing to the closing of the case was 345 days. A few cases continue long after the entry of a final judgment of foreclosure, because of post-judgment motions to re-open or set aside the final judgment. In such cases, the actual sales date was used as the end date.
Of the 94 resolved cases, 58 (62%) were resolved in less than one year.

In many of the open cases, there had been very little effort by the banks to move the case to a final resolution. It was not unusual to find open cases where there had been no docketed activity for over six months, and there were numerous cases where there had been no docketed activity for over one year.

When a foreclosure is completed, and the home sold, it is often sold for less than half of the amount of the original loan. The median sales price for existing homes in Palm Beach County fell from $406,800 in June, 2005 to $183,700 in November, 2011. A trustee may actually benefit, in the short term, from prolonging the foreclosure process because the final realized loss does not have to be reported to investors until the sale, thus allowing the trustee to delay the inevitable bad news to the investors. The servicer certainly benefits as the average servicer fees for servicing a loan in foreclosure are often three to five times the fees for servicing a performing loan.

There were a few hard-fought cases, with discovery disputes appearing regularly on the docket. In such cases, these disputes often involved delays by the banks in responding to discovery requests by the homeowner/defendants, particularly where the banks were asked to produce trust-related documents such as the Pooling and Servicing Agreement from the trust or original loan documents. Many of the cases involved Affidavits of Lost Notes and Lost Mortgages. The delays were caused by the plaintiff/bank.

Her report sets forth all the loans in question if you’d like to have a look for yourself.

But consider the implications: homeowners fighting foreclosures is not a major source of delay. Instead it is the servicers’ lethargy, inability to prove standing, desire to maximize fees rather than do what is best for investors, and efforts to preserve the value of their second liens that are major contributors and in most cases the main drivers of “delays”. Yet the media has taken up the bank flattering line that the problem is really an overloaded court system and scheming borrowers. But urban legends die hard, and I suspect this one will prove to be frustratingly durable.

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62 comments

  1. DG

    If I’m following this posting correctly I believe it says that Michael Olenick previously posted saying “..In CA, after three delays both parties must approve a further delay..”. I’d like to see that authority, if I could, please. Is it whithin CA CCP 2924? Or is it elsewhere?

      1. Sean OToole

        Yes, it is in CA civil code 2924, and only applies to postponements due to lenders (beneficiary) request. As such we see a lot of postponements due to “mutual agreement” instead, to which there is no limit to the number of postponements (thought still limited to one year total) – we question whether or not the borrower actually agreed in many of these cases.

  2. Daren Blomquist

    Thanks for your insightful comments here. You make the great point that states like New York, New Jersey and Florida have intrinsically longer timelines to begin with. But we’ve also seen more dramatic increases in the time to foreclose in these states, as you can see in the historical line graph in our report at http://www.realtytrac.com/content/foreclosure-market-report/2011-year-end-foreclosure-market-report-6984.

    Nationwide our data shows the average time to foreclose has increased 119 percent from the fourth quarter of 2007 to the fourth quarter of 2011, but in Florida the average time to forclose is up 259 percent during that same time period; in New Jersey it’s up 183 percent; and in New York it’s also up 183 percent.

    I also wanted to clarify how we calculate the average time to foreclose. We look at properties that completed the process and were repossessed by lenders (REO) during the quarter and then look back at how long those took from the initial foreclosure filing (whereas this study started with a group of initial foreclosure filings during a certain time period and then tracked them forward). I could be misunderstanding here, but it sounds like the methodology used for the study of DBNTC foreclosure cases in Palm Beach County looked at the average time from the initial filing to the final judgment of foreclosure, which in my understanding would occur before the property is actually sold at the public foreclosure auction. The final judgment of foreclosure is basically authorizing the foreclosure auction to take place. These differences in methodology may explain part of the difference between our number and that number.

    Lastly, I believe the timelines are varying not just based on state but based on county and lender. Some initial analysis we’ve done shows that in fact nationwide the average time to foreclose for Deutsche Bank is in fact somewhat shorter than the average time to foreclose overall.

    The bottom line is that these timelines are increasing and the longer timelines are hobbling any housing recovery in the short term.

    1. Yves Smith Post author

      I’m impressed that someone from RealtyTrac has Google alerts and will respond to a post in the middle of the night so as to be early in the comments thread. And your rejoinder is a straw man. We never said that foreclosure timetables were not lengthening, but that the numbers bandied about, which are from RealtyTrac, are misleading. And we further argue that they delays are more due to bank action than most people realize.

      Your discussion does not undermine our argument. The period from the foreclosure judgment to the actual REO sale is more under the banks’ control than the period preceding it.

      1. MBR, f

        Despite the deliberate lack of transparency by the big banks with each day it’s clear there a million stories in the naked city, and all of them have at their root today’s signature incompetence of large institutions fitting all too neatly with a broader hide, extend & pray aim of the big banks. Another realm to watch this machinery to operate is in short sales. Our own recent and not-unusual experience is that, now seven weeks after making an ‘as is’ offer at the listed price, quite comparable to others and accepted by the unfortunate owners (who are ‘approved’ for SS) — BoA has yet to even respond to the offer despite almost daily dings by the sellers’ agent. It may take awhile, but there can be little doubt that this leaky dam will eventually break and there will be a national reckoning for all of this.

      2. Daren Blomquist

        Sorry for the delayed response :( Obviously I’m not checking my Google Alerts often enough.

        I certainly was not trying to undermine your argument that banks have a lot of control over how long the foreclosure process takes. Just wanted to clarify our methodology for arriving at our numbers and reiterate that, for whatever reasons, it is taking longer to foreclose these days then it was in the past.

        Interestingly, we did notice that the average time to foreclose in California trended downward slightly in the fourth quarter of 2011, after 12 straight quarters where that average time to foreclose has been increasing. You can see a chart displaying that on page 31 of this PowerPoint presentation: http://www.realtytrac.com/content/news-and-opinion/slideshow-2012-foreclosure-market-outlook-7021

        Maybe this is the beginning of a trend where we’ll start to see shorter foreclosure processes in other states as well.

    2. Michael Olenick

      Hi Daren,

      I suspect that you’re saying the same thing, though that you’re confusing the symptom and the cause.

      Think about this: what would cause Deutsche Bank foreclosures to proceed faster than other foreclosures? If I’m reading things right no matter where in the country those move faster. Every other factor is presumably the same; only one is different .. Deutsche Bank, the trustee.

      RealtyTrac’s it’s taking forever to foreclose meme implies that’s because of some type of external dysfunction with the foreclosure process. But you’ve missed that the cause of the slower times could be economic — more fees to servicers or delayed write-off’s to trustees, rather than political or legal. Especially in light of your observation that some trustees are able to consistently speed foreclosures along regardless of jurisdiction I call on my old friend Ocham to pull out his razor and slice to the genuine cause: foreclosure timelines are elongated because that’s what want.

      Co-mingling non-judicial and judicial timelines, while using time to REO doesn’t lead to accurate analysis. Once a plaintiff receives a final judgment in a judicial state, then the clock should begin to tick, as if they were in a non-judicial state. They can appeal their judgment but very few do. Judges can delay a sale, though I’ve never heard of that happening for more than 120 days, and I’ve never seen a bank oppose a 120-day extension. At that point, just like in non-judicial state’s, it’s up to the *bank* to move the process along; there’s really not much a borrower can do to stop them.

      There are over 10K Palm Beach County final judgments over a year old but haven’t been sold; in those cases there’s nothing at all a borrower can do to stop the bank.

      I don’t understand the faster foreclosures help the housing market argument. I have a law degree, not an econ degree, but it seems to me like more supply — in this case massive oversupply — pushes down prices and scares away buyers. There is so much shadow inventory that putting it on the market has the potential to start a chain-reaction of strategic defaults from underwater baby-boomers, eyeing retirement, who realize that the faster they get out the better they’ll be in retirement. That hardly sounds good for the housing market; it sounds like a disaster.

      Finally, a potential reason US banks may be delaying liquidations while foreign banks are not is that they must realize all this. Despite some serious ethical lapses, most bankers are very bright. Deutsche is unlikely to wade back into the US residential market anytime soon so they want to cut their losses and head back to the Motherland. Conversely BOA, assuming they make it through the upcoming economic storm alive, isn’t going anywhere.

      1. Daren Blomquist

        Michael,

        Great points. Sorry for the delay in responding. I think it’s very possible that lenders in some cases have a vested interest in prolonging the foreclosure process. I also think there are other, external reasons for the lengthening foreclosure process. But whatever the reasons, I think that longer foreclosure process is bad for the housing market because it creates a bigger pool of distressed properties in limbo, the so-called shadow inventory. This shadow inventory casts a pall over the market because it creates a lot of uncertainty. Buyers are reluctant to purchase when they think home prices may go down in the future when the shadow inventory eventually hits.

        In addition, the properties in this shadow inventory are often owned by homeowners who are either not occupying the property or not able to maintain the property or pay property taxes. Keep in mind, in some cases these homeowners are the banks who have foreclosed and are waiting to resell the property — for whatever reasons. So these vacant/rundown properties are already dragging down the values of the neighborhoods they’re in. Why not get them sold to a new homeowner who can afford to fix up the property and pay the property taxes?

        If I’m an underwater homeowner in a neighborhood full of these distressed properties in limbo, I think I would be more likely to stick it out and not resort to a strategic default if I saw new homeowners coming in and fixing up those properties. If those properties just sit there longer, falling further into disrepair I think I would be more likely to walk away from a neighborhood I see is declining.

        Even if the properties are not in disrepair, I think I would be more likely to stop making my mortgage payments if I know that many of my neighbors have not made their mortgage payments in more than a year without any consequence. Now I don’t think this means lenders should be given free reign to foreclose as quickly as they can with no accountability. But to the extent that they can go abide by agreed-upon procedures using agreed-upon documentation to foreclose, there should not be extra time artificially tacked onto the foreclosure process.

  3. jake chase

    I suppose your point is that mortgage servicers find it in their interest to delay foreclosure. What about mortgage investors? Do they find it in their interest to continue pretending the mortgages are not delinquent? Are the homeowners somehow being abused by foreclosure delays? It seems to me the ultimate problem is that servicer banks enjoy free money from the FED to support extend and pretend. Thus, we need a universal bailout to eliminate all these mortgages. Then housing prices could find a realistic level and activity could resume.

  4. Jack Straw

    “I don’t understand the faster foreclosures help the housing market argument.”

    I think I do understand the argument, but it’s ugly. The more fully the shadow inventory is acknowledged and put on the market, or deemed by the market to be “available,” the faster we’ll get to the “bottom,” assuming the bottom is greater than zero.

    In many places, we’re seven years into declining markets. Much of the personal financial loss I see has been caused by all the forces that concluded market correction avoidance was better than a collapse. In mid-2005, people were buying because prices were already down 10% from the peak. Well, they’re down 60% now in those places.

    It’s never been a better time to buy! I’m not the first to point this slogan out, but I truly does astonish me that a professional organization that makes a very big deal out its professionalism uses this manifestly BS marketing technique.

    – American College of Surgeons: It’s never been a better times to have surgery!

    – American Trial Lawyers Assoc.: It’s never been a better time to sue!

    – American Psychological Assoc.: It’s never been a better time for therapy!

    1. Michael Olenick

      I get that part of the argument but that assumes normal market conditions. It isn’t an exaggeration to say this problem is epic in scope; it’s the same problem that nearly finished the current banks in 2008.

      “Rip the band-aid off and let it heal” won’t work if the the band aid is barely holding together two halves of a severed artery.

      This problem requires the attention of the most skilled economic surgeons we have. Underestimating the complexity or severity of this problem is as dangerous as any national security threat the US has faced in a long time.

    2. mk

      “It’s never been a better time to buy! I’m not the first to point this slogan out, but I truly does astonish me that a professional organization that makes a very big deal out its professionalism uses this manifestly BS marketing technique.” – it’s the American Way.”
      ~~~~~~~~
      Every sales seminar I’ve ever attended, no matter what the product is, it’s always a great time to buy, period. I’ve never been to a sales seminar that taught people to consider whether or not someone really needed the product, or if it was even a good product to sell.

      NAR is a trade association, it’s job is to protect the interests of it’s members/industry. To expect anything else is unrealistic, especially with NAR’s track record. Also, the Citizens United decision has empowered them even more (and all other trade associations). This is America 2012, to expect any trade association to have a balanced view on any issue is again, very unrealistic.

  5. F. Beard

    This in turn incenses the respectable sorts that are offended at the idea that irresponsible neighbors are getting a break to which they are not entitled. Yves Smith

    Which is one reason why a universal bailout is preferable – no one could legitimately complain, particularly if the bailout was done in a non-inflationary manner.

    The Austrians focus exclusively on the poor abused savers and others focus on the poor abused debtors. Isn’t it obvious that the banks abuse everyone?

    Does anyone have the numbers on how much private debt is paid off each month including mortgage debt, credit card debt, student debt, and auto debt? That total is how much new fiat could be injected into the economy every month without increasing the total money supply IF the banks were forbidden to create any new credit during the bailout period.

  6. ericmcsquare

    Yves,

    Nice post, I agree that 80% of the delays are caused by the banks. When I was in the FC world we would get instructions from “clients” via LPS stating that client X did not want any more properties going to sheriff sale for 1-2 months.

    These were not the typical “holiday” (i.e. Thanksgiving through New Years) related delays. These notices would pop up around early to mid February and mid to late July. Furthermore, the delays would only relate to postponing all sheriff sales; the directive would state that all other properties were to continue moving to the sheriff sale phase.

    The post, however, did miss one key delay factor, inexperienced attorneys representing the banks. I worked right out of law school for a mill and instead of providing any training I was simply told I would be handling all BKY matters in PA/NJ along with FC matters in PA on my own and “good luck”.

    My view is the banks/LPS/mills get what they pay for. When you put an attorney right out of law school without any formal training making 40-50K per year in charge of a 1,000 case docket you are going to have situations where that attorney fails to move certain cases because they do not know how to move them. Conversely you are also exposed to situations where the young attorney moves cases incorrectly and gets smacked by the Judge. Either way there will be a significant delay.

  7. indio007

    This is about the balance sheet plain and simple. The only thing staving off mass (realized) insolvency for these banks is extend and pretend. They are carrying these mortgages at the values they where when mark to market ended. That means maximum bubble value. What must be recognized is that real estate mortgages are afaik tier one capital. That means maximum fractional reserve lending! Recognizing a 100 k loss means a million dollar pullback in lending power.

  8. Chris

    This is all a result of FASB 157, Banks are buying back the Foreclosed properties at auction and moving the assets to Level 3 on there books and keeping the asset at appreciated value. Corporations can do this thru 2022 (Volker Rule).

    Just look at the Florida Foreclosure Actions: Banks are taking back most all the properties despite the bids..they just don’t like the price.

  9. Fraud Guy- Also

    There is an incredibly important implication to this discussion of slow-walking foreclosures. Don’t you wonder why millions and millions of people who have been abused by the banks’ shady lending and servicing practices aren’t in the streets protesting and throwing rocks through bank branch windows? Clearly, a big part of the answer is that the banks have succeeded in creating such an uncertain situation in terms of actually following through with foreclosures that many, if not most, delinquent borrows have a rational reason for hope. They figure that if they just keep their heads down and don’t call attention to themselves, then maybe the Angel of Foreclosure Death will pass right over their houses without stopping.

    1. JCC

      Either that, or they know darn well that the Angel will land on their home and don’t care.

      Although slightly off-topic, I have a friend in Daytona who was served with a foreclosure notice over 30 months ago, hasn’t paid a dime since (other than utilities and gas for the lawnmower) He’s single, doesn’t need to care one way or the other, and will ride it out until the sheriff shows up at his doorstep.

  10. Bridget

    Wow! This wins the Red Herring Non Sequiur Prize for sure. Blame whoever you will for the delay, and quibble over the data to your heart’s content, the fact remains that “Deadbeats Are Living Rent Free For An Ungodly Amount Of Time”. No down payment, then months or years of living rent free translates into a situation that warrants the ire of the neighbors.

    Which is not to say that I disagree that the lenders and servicers have behaved egregiously as well. But those homeowners are not the victims. Investors and taxpayers are.

    1. Foppe

      That warrants the ire of neighbors? Damn, that really is a strong argument. If only it were not the case that neigborhoods become blighted once too many houses are empty after having been foreclosed upon.
      Anyway, if you want to argue something, please present substantive arguments; I do not find your gut feeling ‘that we really ought to place the majority of the blame on deadbeats’ particularly compelling.

    2. masaccio

      Whining about people living free is just ignorant. If the liars and cheats at IndyMac, New Century and so on can’t do their paperwork, they have no legal right to the property. Neither do their successors in interest.

      And if they purposefully lie to courts about the situation, file false affidavits, create paperwork and add false notaries, they should be in jail, right next to the crooks.

      Bless your little troll heart.

    3. JCC

      Only the single homeowners, like my friend above (other than the $40K he lost in downpayment and mortgage payments on his $45K/yr pre-tax salary) are “victimless”. Those with children are living under a very dark cloud 24/7 that affects EVERYTHING they do now and ALL their plans for the future.

      I’m extremely grateful I don’t live under that cloud at the mid-point of my life and the beginning of my childrens’ lives.

    4. Michael Olenick

      Some made down-payments but, more to the point, foreclosures reduce the value of the neighborhood, not just the foreclosed property.

      So .. would you rather that your home value declines more to punish your neighbor or decline less if your neighbor ends up with a windfall? Assume that windfall would be a cheaper home, not a free one.

      That is, are you willing to pay to punish your neighbor and, if so, then how much?

      1. Bridget

        “Whining about people living free is just ignorant. If the liars and cheats at IndyMac, New Century and so on can’t do their paperwork, they have no legal right to the property. Neither do their successors in interest.”

        Neither do the deadbeats living in them for free.

        “And if they purposefully lie to courts about the situation, file false affidavits, create paperwork and add false notaries, they should be in jail, right next to the crooks.”

        You’ll get no argument from me on that score.

        “So .. would you rather that your home value declines more to punish your neighbor or decline less if your neighbor ends up with a windfall? Assume that windfall would be a cheaper home, not a free one.”

        Massachio would apparently vow in favor of a free home. Me, I don’t this this market is going to clear and prices stabilize until the foreclosures ar all worked through. In the meantime, sending some rent to the lender in return for staying in the house would resolve several issues, including the ire of the neighbors.

        1. masaccio

          Well, Bridget, the owners have title. That gives them the absolute right to live in the home. You can call them deadbeats or smart, but either way, the law is on their side, not the side of the incompetent lender or its stupid successor in interest.

          1. Bridget

            Actually, no, they do not. What they have is conditional title, the condition being fulfilling the terms of their mortgage, including the payment of principal and interest on their loans. Good luck with asserting a claim to title if the mortgage is unpaid.

          2. Yves Smith Post author

            No, Bridget, there is no such thing as “conditional title.”

            The owner (in lien theory states) owns the house. The lender has a lien against the house. If the borrower fails to pay the mortgage, the lender can accelerate the debt (demand payment in full now, under the terms of the loan) and use the lien to get the title transferred.

            If the lender did not take the steps to perfect his secured interest he might have trouble enforcing his lien.

            Bridget, what about this don’t you understand? Lenders are in the business of making loans. If they are so incompetent that hundreds of thousands, probably more like millions, of home loans might not be secured by the house, they are incompetent and deserve to go out of business. That’s capitalism. You don’t seem to like our system working the way it is supposed to work.

    5. ebear

      “Deadbeats Are Living Rent Free For An Ungodly Amount Of Time”.

      Good on them! If I were in their shoes I’d not only stop paying, I’d fly the Jolly Roger over MY home so that everyone knows.

      As for the “investors” – if they were practicing Due Diligence they wouldn’t have bought this Toxic Waste in the first place. Professionals my ass. Any true professional would have said “i can’t do this, the numbers don’t work, I resign.”

      1. Bridget

        Bear, if you are a member of the taxpaying public, you have the privilege of being an investor, thanks to Fannie Mae and Freddie Mac.

        1. Lambert Strether

          So they’re all thieves, whether they work for the government or the corps (and thanks to the revolving door, the government and the corps are the same anyhow). It reminds me of Yossarian in Catch 22:

          “When I look up, I see people cashing in. I don’t see heaven, or saints or angels. I see people cashing in on every decent impulse and human tragedy. From now on I’m thinking only of me.”

          Major Danby replied indulgently with a superior smile: “But, Yossarian, suppose everyone felt that way.”

          “Then,” said Yossarian, “I’d certainly be a damned fool to feel any other way, wouldn’t I?”

          Who said it was the home-owner’s duty to be the last person who isn’t a thief?

        2. ebear

          “Bear, if you are a member of the taxpaying public, you have the privilege of being an investor, thanks to Fannie Mae and Freddie Mac.”

          On pain of imprisonment my money is taken from me and spent, I know not where. That’s a pretty strange definition of “investment” don’t you think?

    6. Damian

      Nonsense – people would not have purchased houses nor taken out a mortgage if they knew the banks were engaged in massive systemic fraud that would destroy the value of ALL property – this is not a cyclical decline it is systemic – no one would have bought unless they were crazy – if they knew 95% of the mortgages were not supported by real documents / real valid signatures /lack of standard filing practices in the court house (not MERS), cut and paste mortgage apps, etc etc etc

      almost the entire country including those without a mortgage has a valid RICO claim for treble damages against all the banks – due to criminal fraud

      the borrowers and owners have nothing to do with the present conditions

    7. bob

      The spite argument.

      What do you know about your neighbors anyway? If you feel so strongly about their “freeloading” go over and speak with them about it. Don’t make national policy decisions.

      This argument is getting very tired. The whole reason the issue can’t be solved is because “someone might get something that they don’t deserve”. It is that simple.

      Your neighbors in thought, and their underlying motives, are the ones you should be paying attention to.

    8. F. Beard

      the fact remains that “Deadbeats Are Living Rent Free For An Ungodly Amount Of Time”. Bridget

      Then stop paying your own mortgage (consult your lawyer first).

      People build and buy their homes by borrowing their own stolen purchasing power from the counterfeiting cartel, the banking system. Morally, the banks aren’t owed anything.

      A better solution than self-service Jubilee however, would be a universal bailout of the entire population, including non-debtors.

  11. Bridget

    Well actually, Yves, I come from a title state, and the lender does hold title. And, while the buyer holds title in a title state, there’s a big cloud on that title…the mortgage. Good luck to the buyer, even in a lien state, if he tries to sell his house without a release of that lien. If he wants to default on his mortgage and squat for a bit while the lender is figuring out what to do with him, so be it. But the house ain’t his until he pays off his mortgage. Which he will find out the minute he tries to do anything other than free ride for a bit. Catch 22 again.

    “Bridget, what about this don’t you understand? Lenders are in the business of making loans. If they are so incompetent that hundreds of thousands, probably more like millions, of home loans might not be secured by the house, they are incompetent and deserve to go out of business. That’s capitalism. You don’t seem to like our system working the way it is supposed to work.”

    Umm, what part of “the lenders have been egregious” do you not understand? The lenders deserve to go out of business. They should never have been bailed out. But handing over the collateral lock stock and barrel to buyers who have nowhere near the value of the asset invested? Come on. Even though you are to the left of the spectrum, you are a very bright and analytical woman. That dog ain’t gonna hunt.

    1. skippy

      GDay Bridget,

      “But handing over the collateral lock stock and barrel to buyers who have nowhere near the value of the asset invested?”

      skippy here… That’s a mouth full…eh.

      1. “But handing over*… Projection on your part, over spicing the meal… methinks.

      2. “collateral”… Well, 60ish% clouded title, valuation vagary’s, consumable asset[?] thingy, over supply, mathematical failure of derivatives – CR-RE-MBS – CDO – CDS, bathtub gin pored as top self scam, endemic epic fraud is transferable as collateral?

      3. “Buyers”… Manufactured desire sheeple or rodents in a Scotts Box aka Prepulse Inhibition ( automated “startle chambers” ) stuff.

      4. “who have nowhere near the value of the asset invested”… *Value* is time influenced ( injected ) see tulips or trips to prostitutes, assets are beliefs shared by a majority or the influential influence within a market. Influential market makers have more $ votes, so there’s that.

      Skippy… sister did you not get the memo? Its all about virtual profit now. No more icky people, no more friction, laws of thermodynamics, diminishing returns, just electrons of choice.

      PS. Investors… dumb people seeking – certainty – when… the universe says there is none.

    2. skippy

      To simplify… whom attacked or diminished the premise of capitalism aka land ownership – ownership? The seller or the buyer? Today the buyers do what their told… *buy the sellers…duh.

      Skippy… “Even though you are to the left of the spectrum, you are a very bright and analytical woman. That dog ain’t gonna hunt.”… BTW I take exceeding exception to your paltry quasi back handed ending… pidgin holing. Susan for the life of her, has never played that game, increasingly as her knowledge builds. Too play the gender card and then end it in a dismissal… well is neither bright or intelligent… maybe analytical, but, in a stuffie way.

      PS. humanity is not a liner scale ( left – right ), simple tools for simple people, I guess.

    3. Lambert Strether

      Bridget, your schtick reminds me of Algernon’s remark in The Importance of Being Earnest:

      Really, if the lower orders don’t set us a good example, what on earth is the use of them? They seem, as a class, to have absolutely no sense of moral responsibility.

      Seriously, the banksters aren’t “incompetent.” They’re thieves. And they don’t deserve to “go out of business.” They deserve to be in jail. Why is that so hard for you to understand?

      When I see a little more pearl clutching from you about rentier racketeer executives who get away clean with millions, I’ll grant you more time on the fainting couch about some unemployed proles grabbing a little “free rent” based on exactly the same morality as the accounting control fraudsters who crashed the entire economy.

      And all that’s before we get to the clouded title issues. The banksters, through MERS, for greed, are the ones who made it impossible for millions of homeowners, “free renters” or not, to know whether their titles are clear. Finders keepers, losers weepers, say I. I wouldn’t be saying this if we had the rule of law, but clearly, we don’t, which is why Bridget’s forced to “pound the table” in her defense of the banksters.

      1. Bridget

        What part of “the lenders deserve to go out of business, and to jail” (my post of 8:42) do you not understand?

        1. bob

          In that post, you argue for another, bigger bailout, and tell me “this time is different”.

          How is it different, please explain?

  12. Bridget

    That should read the buyer holds title in a lien state.

    And even though the lenders deserve to go out of business, and to jail, there are shareholders, bondholders, and most of all, thanks to government bailouts, taxpayers, pension funds, and 401ks left holding the bag for the dreck. Handing title to squatters, most of whom put little or nothing down and by now have been more than compensated thru free rent for their fees and expenses, would be unjust and would certainly raise the ire of the neighbors.

    1. bob

      “and most of all, thanks to government bailouts, taxpayers, pension funds, and 401ks left holding the bag for the dreck.”

      This argument was trotted out as a reason for passing TARP in the first place. It’s continued use is frivolous.

        1. bob

          In that post, you argue for another, bigger bailout, and tell me “this time is different”.

          How is it different, please explain?

          1. Bridget

            Maybe You’ll get a clue if you read this morning’s post about the Obama Administration settlement with the AGs, and how the pension funds are gonna get screwed.

          2. bob

            The “settlement” isn’t going to happen, as noted here.

            And the pension funds, just like everyone else, lost the money when they bought the stuff. What is being fought over is when they have to realize that loss.

            Did you lose the money when you paid 200k for used car, or did you lose the money when you went to sell it?

    2. Lambert Strether

      So, Bridget, if the ire of the neighbors wasn’t raised, that would be a mitigating circumstance? I thought we were talking morality and justice here, but never mind that. In any case, the solution is quite simple: Don’t tell the neighbors. Problem solved! (And seriously, who’s going to tell the neighbors? The Department of Scarlet Letters? Repurposed sex offender registries?)

      Anyhow, given the choice between a house with a squatter, and a darkened and deteriorating property taken over by vermin or meth freaks, I think most rational beings would opt for the squatter — safer, and keeps up the property values. Most normal humans are pretty pragmatic.

      1. Bridget

        Since the whole premise of the article is that the ire of the respectable sorts at their irresponsible neighbors is a false premise because its really all the banks’ fault, I suggest that you reread the article and take up your points with the author.

        1. skippy

          Hay… wheres my rebuttal? Value – Collateral – Mathematics – labeling human beings on a sliding within a market construct scale of worth, with out rule of law applied equably?

          Skippy… BTW when countered, your ability to expand on thought, contracts, providing less exposure to counter arguments. You regress.

  13. Jack Straw

    “To simplify… whom attacked or diminished the premise of capitalism aka land ownership – ownership? The seller or the buyer? Today the buyers do what their told… *buy the sellers…duh.”

    Ya know, I’m not so sure land ownership is THE premise of capitalism. I think I agree more with the Richard Belzer character in Homicide who say something like “capitalism is nothing but technicalities.” I mean, I get what you’re saying Skippy, how could we justify “Manifest Destiny II,” eradicating native populations – whose main defect seems their inability to understand real estate markets – without making land ownership pretty central? Come on Sitting Bull, if you don’t get “location, location, location,” we’ll find a location for you! You’ll have plenty of time to figure this out, and when you do, call us. We’ll do lunch and talk [about those casinos].

    For lack of anything better to do, here’s an off-hand Marxian analysis of President Obama and the 4 Republican candidates:

    1) Rep. Paul honestly has false consciousness;

    2) Gov. Romney doesn’t know that he knows that he has false consciousness;

    3) Sen. Santorum believes that false consciousness is actually the Truth – he is pure super-structure. Ironically, he genuinely doubts the structure;

    4) Speaker Gingrich knows that he has false consciousness, but doesn’t believe there is any truth, or that if there is, he knows that his voters will never know it, or care. Speaker G is a synthesis of “not the other guys.” He’s not genuinely free market. Not even remotely mistaken for a competent executive. Not credibly a moralist. And although he is an academic, he is not a UChi academic like the President. His “nots” are pretty significant, and the synthesis of their non-being fascinates me. Skippy, can non-being be synthesized? Help a brother out.

    5) President Obama is inscrutable to me. Is it really true that he’s a secret Moslem? I mean, I voted for a community organizer who understood how far along the Great American Screw Job had progressed. Unlike the Republicans who blather on about the constitution (usually the “constitution of 1787” as if the Civil Rights Amendments don’t exist, which to them, DON’T or SHOULDN’T), President Obama actually taught Constitutional Law – at THE UNIVERSITY OF CHICAGO, for God’s sake. If there is a mothership for American thinking over the past few decades, it is at the UChi. My preacher told me that Moslems are allowed to lie about stuff if it furthers their takeover of America.

    I’m so confused.

  14. Martskers

    I’m having a hard time mustering crocodile tears
    for foreclosure delays in judicial foreclosure
    states, when, in non-judicial states, a homeowner
    can be kicked out of her house in as little as
    60 days with absolutely no due process (remember
    that quaint concept?).

    When the revolution comes (and let me assure you,
    it’s coming, the only question being, how soon),
    there will be no such thing as “non-judicial”
    foreclosure. The fact that it exists now is
    testament to the fact that we’ve allowed the
    ruling class to have us by the balls and squeeze
    whenever it suits them.

  15. mindymac

    Hey, just a little side peek here, a view of a different truth…y’all swallowed the bankster lies that nobody in foreclosure has any equity.

    That may have been truth when the first wave of exploding ARMs reset, but since then, more and more people in foreclosure have some to a lot of equity in their houses, put money down, paid every month, lost their jobs or got terribly ill or whatever. And when they tried and tried to get the banks to help with their mortgages, the banks stonewalled and lied and committed fraud and didn’t bother to credit payments on time and contradicted themselves time and time again, then said, whoops, we take back that modification, or never give one that isn’t full of illegal fees.

    I played that game a long time, making payments that then got late fees on top of late fees added, when they kicked me out of the HAMP Trial Period after a year of making on-time payments because I dared question what they were capitalizing. And paid those same HAMP-level payments for another 9 or 10 months while they went in and changed account records and took out system notes from the “Executive Customer Advocates” who had worked with me each for a few months before they were moved off my case on to somebody else’s.

    They wanted to start the whole thing over, but this time with HAMP “off the table.” I said screw that, they filed a false foreclosure in 2009 that I got dismissed, go ahead and do it again, I have all kinds of documentation on the fraud and abuse and bullying. AND I refuse to give back the keys, deed-in-lieu, etc., because I put down more in cash than I took out in a loan, and then I put more cash into renovations before the latest round. And I have suffered mightly from what the stress has done to my stress-triggered or stress-increased illnesses that got me on social security disability as my only income now. And I am not the only one like that, by far.

    Besides, the nice neighbors know what is going on and think it is wrong, wrong, wrong, even the ones who generally follow the hard-core right illogic on stuff. The ones who take whatever they can, who are chiropactors getting no-interest renovation loans from the city that the rest of us don’t qualify for, and attorneys who work foreclosures for the lenders, who gives a flying double-back-flip f**k about what they think, they don’t give half a rat’s butt hair about the rest of us, except to slip their hands in our pockets one way or another!

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