FORECLOSURE DEFENSE AND TITLE ISSUES: NEW ENTRIES TO GLOSSARY

CHAIN OF TITLE
An analysis of the transfers of title to a piece of property over the years. IT IS THIS ANALYSIS THAT PRESENTS THE CONCLUSION OF A LEGAL EXPERT IN TITLE EXAMINATION AS TO WHETHER CLEAR TITLE IS BEING OFFERED OR PASSED. The significance of this in the context of the Mortgage Meltdown is that in most cases, a proper analysis of the title records and the transactions that are actually known by at least some of the parties would disclose a possible claim by third parties to the property, the mortgage or the note.

CLEAR TITLE
A title that is free of liens or legal questions as to ownership of the property. THIS IS AN IMPORTANT ISSUE IN ANY PROPOSED SALE OF RESIDENTIAL PROPERTY ENCUMBERED BY A SECURITIZED MORTGAGE. THE SALE OF THE PROPERTY IN A TRADITIONAL TRANSACTION OR BY SHORT-SALE OR FORECLOSURE AUCTION SALE PROBABLY INCLUDES A CLOUD ON TITLE. In fact, it is likely that if you sold property anytime in the past few years you paid off the old mortgage and received a Satisfaction of Mortgage from the “lender.” However, if the Lender does not have clear title to the mortgage instruments, the execution of the Satisfaction of Mortgage, and even the Recording, may have dubious or no meaning inasmuch as the loan was transmitted up line and pledged to Buyers of Derivative Securities. The various instruments of transmittal combined with the “security” pledged to those investors probably conveys an interest in the mortgage and note to the investor, the investment banking firm, the SPV, the SIV, the mortgage aggregator or some other third party(ies). Hence clear title could not be conveyed in any sale. If the “lender” accepted the full payment at a closing or partial payment (short-sale) and did not pass on the proceeds to the third parties that have an interest in the note and mortgage, the Buyer and the Seller of the property are exposed to potential litigation over title, liability on the note, and right to possession. See Cloud on Title.

CLOSING
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands. It is important to distinguish between the two “closing” that occur at the time of each transaction in which real property is transferred from a Seller to a Buyer and money passes from the Buyer’s Lender to the Seller, the appraiser, the mortgage broker, the sales agents, the title company etc. Failure to make this distinction has resulted in confusion in understanding the consequences of rescission. Title to the property changed hands only in the closing between Buyer and Seller. Rescission of the loan closing does NOT mean return of the property. Only a rescission of the real estate property closing between the Buyer and the Seller would mean a return of the property.

CLOSING COSTS
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate (GFE) which they must issue to the borrower within three days of receiving a home loan application. IN THE CONTEXT OF THE THE MORTGAGE MELTDOWN, THE GFE IS EXTREMELY IMPORTANT. Under the Truth in Lending Act all parties to the loan closing must be disclosed along with their compensation. In virtually every closing, there is no disclosure of the premium (usually 2.5% of the loan) paid to the “lender” for posing as the lender in place of an unregulated lending source, the rebates, bonuses, yield spread premiums, commission and kickbacks on the loans.
closing statement. While the rescission remedy under TILA says it does not apply to residential mortgages, it DOES apply to HELOC’s and the right of rescission or cancellation resulting from fraud and non-disclosure is NOT limited to TILA and RESPA.

CLOUD ON TITLE
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action. IT IS FOR THIS REASON THAT ANY BUYER OF RESIDENTIAL REAL PROPERTY IN WHICH A SECURITIZED MORTGAGE WAS INVOLVED IS NOW PROBABLY REQUIRED TO FILE A QUIET TITLE ACTION IN COURT TO RESOLVE ALL ISSUES. IF YOU RECEIVED TITLE INSURANCE, THEN A CLAIM SHOULD BE MADE TO THE TITLE INSURANCE POLICY ISSUER REQUIRING THEM TO CLEAR TITLE. SEE CLEAR TITLE.

COLLATERAL
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust. The issue raised in this Treatise is whether a securitized loan can EVER be paid or repaid to the proper party and therefore whether the loan can EVER be satisfied and therefore whether ANY party has the right or authority to foreclose, give notice of default, post a notice of sale, get a judgment ordering the sale, conduct an auction sale, issue a certificate of title, or evict the homeowner based upon the “default” in a loan that has already been paid and repaid to the nominal lender at closing as well as to other parties upstream, some of whom added to the revenue stream and the payments on the same mortgage that is alleged to be in default. In fact, the issue is whether the “loan closing” was in substance a mortgage transaction at all but rather, an undisclosed deception to issue negotiable instruments that would be sold to investors under additional pretenses.

COLLECTION
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property. The issue here of course is “who is the lender.” If the loan has been transmitted, transferred, assigned and or pledged to one or more parties, (or hundreds of parties in the case of securitized transactions) and if the obligation has been commingled with the obligations of other parties (which happens in the pooling of loans and the sale of ABSs), then it is highly probable that the loan servicer has no authority beyond accepting payments, and it is possible they do not actually have that authority inasmuch as they may  have received it from a party who had already sold the the loan to yet another party. In fact, collection by the mortgage servicer might have been improper especially if there was a failure to transmit the entire payment to the ultimate investor. Note that in TILA a mortgage servicer is expressly excluded from being considered a party in interest and is therefore NOT authorized to foreclose or in any way present itself as a creditor of the “borrower.” This is part of the reason this Treatise has repeatedly made the point that in any bankruptcy petition the alleged mortgage should be listed as a contingent liability with an unknown owner.

COMMISSION: SEE CLOSING COSTS
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.