Zombie Title Exposes The Real Deal in Foreclosures

Zombie Title Exposes The Real Deal in Foreclosures

by Neil Garfield


What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for enforcement of association liens or wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor's Analysis: This is not a new problem. For along time in Florida, the banks would delay the foreclosure sale until they thought they could sell the property fairly quickly. When I was representing several hundred associations we had different tactics we used to get the monthly maintenance and special assessments from the bank but that was when the mortgages were real and the foreclosures were honest.

The homeowner associations were stuck between a rock and hard place. Now they are foreclosing anyway and including the pretender lender as at best a junior lien holder. Practically every development in which an HOA or condo association is involved has the problem if they were built anytime after 1996. Even the ones built before that are having the problem.

The bank chases the homeowner out with threats of foreclosure, perhaps even initiates the foreclosure and then dismisses it leaving the ownership and liabilities of the home in limbo,. Florida addressed the problem by giving time limits to the bank before they were liable for the assessments.

In the worst cases, so many people are chased out of their homes that the remaining homeowners, sometimes as few as 5%-10% of the total homes must shoulder the burden of maintaining the entire complex.

In current circumstances the homeowner who left is dogged by a house he thought was gone, with cities suing them for liens and eyesores on stripped homes that are literally falling apart. In many cities tens of thousands of homes were actually bull dozed by the city for the zombie title homes that were abandoned by the pretender lender who chased people out of homes they would have stayed in, paid the taxes, paid the insurance and maintained the property.  The more homes that are hit with this phenomenon the more likely it is that more families are going to walk away from their homes as the neighborhood turns into crack houses and squatters.

This puts pressure on home values not only in those neighborhoods but in surrounding communities. So Wall Street as the articles are now trumpeting, is in the process of buying up as much property as it can and can't do it fast enough  because they are getting the property for pennies on the dollar.

The only good part about Wall Street's involvement in the purchase of these properties is that the same set of companies and investment banks who foreclosed knowing they were not creditors and were at least partially acting for their own selfish benefit are the people who end up holding the properties. That should make it easier to get the properties back into homeowner hands, because there is no bona fide purchaser for value without notice of claims. They fail on both value and notice.

When the day of reckoning comes and the titles are found to be void or voidable, the REITs will discover the same thing that the REMICs did --- they got a holographic image of an empty paper bag. In that sense, the investors in both the REMICs and the REITs will find themselves holding the bag, so to speak. as the unofficial seller of the properties to the REITs Wall Street will report record profits, just like when they said they "sold" mortgages to the REMICs, when in fact they had not.

If Wall Street follows the plan they used with the REMICs, they will issue undivided proportional interests in REITs and then later decide what properties to assign to the REIT. The ones likely to lose money they will bet against and receive the money on the interests they sold leaving the investors, once again, out in the cold.

This will undoubtedly take the fatal chunk out of our private pension systems and even several public pensions that end up investing in high rated "insured" REIT investments. If the rating agencies don't look under the hood to see what is happening and they take the information supplied by Wall Street as true, the securities will be high rated. The already underfunded pension funds will lose still more money while Wall Street continues to record record profits.

If you step back from the situation to get a broader view. you will see the pattern and the reality. The pretender lenders forced most of the foreclosures away from settlement, modifications and short-sales because they would expose themselves to huge liabilities for repayment of insurance proceeds and credit default swaps on derivative instruments that were called out as devalued.

The foreclosure had nothing to do with the need to foreclose or the realities of the situation. It is simply a device for the banks to cover their tracks leaving the title to properties, already corrupted beyond recognition, in doubt as to just about every property and every loan transaction between 2001 and the present.

Ever alert to profit opportunities the banks knew that they controlled the market prices by forcing foreclosures down the throat of all stakeholders, including city and county and state coffers depending upon property and related taxes. This only opened up the market to underwrite more municipal bonds. Wall Street wins again while everyone else loses.

Now that they don't seem to be able to drive prices down much further they are manipulating more and more regional markets bring prices up so they can sell the REIT the fake interest of the REMIC acquired in a fabricated foreclosure in which a deed was issued based upon a completely fabricated credit bid from a non-creditor. Wall Street wins again while everyone else loses.

There actually is a remedy to change Wall Street and reinstatement of the Glass-Steagal Act is only one of the things needed. The real problems started when (1) the accounting rules started to change into exotic formulas and allowances that made absolutely no sense and (2) when investment firms were allowed to shield themselves from liability by becoming corporations that offered their own stock to the public, Before that the partners were liable for every trade and everything else that went on in their firm.

If you think about it an "off-balance sheet" transaction is unicorn --- a mythological construct. In the case of current accounting standards the damage is deadly and pervasive. It allows companies hide what they are really doing and exposes both customers and shareholders in the investment bank to risks they know nothing about. It allows the firm to pay outlandish bonuses for results that are mostly hidden and riddled with liabilities that should bring the firm crashing down.

And if you think about it, taking the risk of loss away from management people and shifting it to shareholders was the single most disastrous invitation to moral hazard. Partners were suddenly transformed into having nothing to lose and everything to gain. Since they decided the compensation, the "profits" were taken largely by management before any distribution to shareholders and the value of the stock was heavily dependent upon the so-called profits. Most of the profits are now coming from "proprietary trading" which is the vehicle through which the investment firms are repatriating money siphoned out of the economy in the last crash. In reality they are trading with themselves and declaring a profit. It would be a joke if it were not true.

People in the Obama administration have taken the party line that we unfortunately made these activities legal and in many cases that is true. But the civil theft aspect, the fraud aspect, the market manipulation aspect are not legal.

The entire mortgage meltdown was a PONZI scheme that fell apart like all PONZI schemes, when investors stopped buying the bogus mortgage bonds issued by unfunded entities that violated the REMIC statute. These are crimes against humanity as we have seen events unfold around the world and they should be punished. But more than that the mega banks need to be broken up into entities that are not too big to regulate, with some of them failing altogether because of the money they owe the investors which would reduce the balance due from "borrowers."

We are lucky enough to have 7,000 depository institutions, most of which are healthy who can pick up the pieces without loss of any service now provided by the large banks. The electronic funds transfer backbone and the Check 21 rule changes allow the smallest bank to provide the same services as the large bank including inexpensive ATM transactions at the site of the smallest of merchants. Convenience and service would go up while bank fees would go down.

People say I'm a dreamer .... but I'm not the only one (John Lennon).


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