When our current byzantine system of home loans was created, nobody really expected this:

Representatives of Deutsche Bank told The Daily Caller via email that the bank’s involvement in the Jeffs case [wherein a guy named Jeffs was denied the opportunity to show up at a foreclosure trial -ed] was merely nominal, as it had to be named as the plaintiff in the case because it ultimately held the right to foreclose, not Chase, which originally made the loan and which was accepting Jeffs’ payments and forwarding them to the proper recipients. But Chase had tried to work out a loan modification with Jeffs, and he was current on his payments when Chase abruptly informed him that his modification was denied without explanation. Several days later, Jeffs found out that he supposedly no longer owned his home. He stopped making payments, and he hasn’t made them since. But no bank has been able to successfully repossess and sell the property. To the banking system, the asset backed by the house—the mortgage—has simply vanished into thin air.

Does that mean that Jeffs is finally in the clear? Not exactly. “Quite often, what happens in these cases is the bank creates new documents to fix the old documents,” said Goldman. “One of the most common things we see is a paper with a notary stamp that gives the bank the legal authority to foreclose. Well, anyone can buy those stamps. I can buy those stamps. A lot of what’s going on is law firms desperate to win a case are hired by banks who don’t know what those law firms are up to. Then the bank thinks it can foreclose, even though other banks also think they have that right, and those banks might not figure out what happened for a long time because the system is absolutely overloaded with foreclosures. And even if they do figure it out, suing to repossess a property that another bank already sold is a long and arduous process. So you wind up with a scenario in which the left hand doesn’t know what the right hand is doing.”

It’s easy to look at this situation and say “Oh, that’s all just a bunch of buck-passing. Of course they expected it and this is their way out of it!” or something to that effect. The problem is that the system they created is disadvantaging them more than anyone else. They have enough legitimate foreclosures that they don’t need to toss legitimate homeowners out of their house. And it’s not like once the homeowners are gone they’re going to make a killing in the re-selling. As the saying goes, never attribute to malice that which is adequately explained by incompetence (well, incompetence and reckless disregard). This isn’t to let the banks off the hook. Right now I am not sure how much they care about “false positive” evictions except insofar as it is an inconvenience to them. As such, of course, we need to make it as inconvenient to them as possible. Congress and the White House have been trying to meddle in the housing meltdown since the start (well, before the start, many will point out) with forcing re-negotiations and the like. It strikes me as a flypaper sort of thing where the more they try to do the more they mess things up.

However, if they wanted to set up a system wherein someone erroneously foreclosed on is guaranteed a reward, I wouldn’t object. You would have to be kind of careful, though, because it’s easy to find a goof-up in the paperwork of even legitimate foreclosures due to the system’s inadequacies. You might want to limit it so that the only ones who get compensation are those that are actually up to date on their mortgage or owe none. This is one of those cases where it’s really tempting to stick it to the banks, but I’m not sure it’s in our interest. It is in our interest, though, for a lot of the pending foreclosures to actually go through. We can’t recover until we know where we are. If the foreclosures are delayed and smattered over the next decade, it’s going to prevent any rebound or growth in the market. Of course, growth in the market helped start this whole mess, but that was in part because the growth was a bubble. Suggesting that we don’t want a robust housing economy because of the housing bubble is like suggesting that we want Dow Jones to stay as low as possible because of what happened in the early naughts.

Clancy and I were talking about our plans for our future living arrangements (now that we’ve signed a longer-term contract, do we want to consider buying?). I know that for my part, buying is the last thing I am interested in until we know what the actual value of a house is within a reasonable margin of error. We can’t know that until we know how many vacancies we have.

Category: Market

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8 Responses to The Race to Foreclosure

  1. Transplanted Lawyer says:

    Buying now makes good sense; prices in most markets have bottomed out and stayed flat for some time now so it’s a good bet they won’t decline further. If you have any access to credit at all, rates are really low.

    But in both good and bad phases of the market cycle, real estate moves much slower in a rural market than an urban one. If and when it comes time to sell, you’ll need to bear that in mind. Should a great opportunity elsewhere come along, you may have to rent out the house in Callie (possibly at an operating loss) for a period of time.

    The other variable is balancing your liquid income against your tax burden; as currently written, the tax code gives a massive deduction for home mortgage interest. If your liquid income is high, you almost can’t afford not to buy. While nothing is certain and economic times are not good, it’s a good bet that this facet of the law isn’t going to go away anytime soon.

    Overall, I would think buying makes economic sense. YMMV.

  2. Peter says:

    Sooner or later, probably sooner, there will be another housing bubble to be followed by a spectacular bust. People never learn.

  3. Mike Hunt says:

    now that we’ve signed a longer-term contract

    To what contract are you referring?

  4. trumwill says:

    TL, I fear that we are merely in a holding pattern while the banks get their foreclosure ducks in a row and get around to getting around to everyone else. I am also worried that there are a whole lot of loans still in their IO period.

    Nonetheless, I should probably talk to my father-in-law. He has a chart for these sorts of things.

  5. trumwill says:

    Peter, I think we’re a long, long ways off from another housing bubble. I think that we’re really a long ways off before any sort of housing recovery. There’s going to be quite a while of excess inventory and with that it’s going to be pretty hard to convince people that real estate is a good investment except at the margins (whereas in the lead-up to this it was nigh-universally accepted conventional wisdom). I’m sure it’ll happen at some point, but we’re a long ways off.

  6. trumwill says:

    Mike, we’ve signed on to stay in Arapaho for another three years. Technically, “we” didn’t sign the contract as much as she did, but it was a mutual decision. I told her I was ready to sign off on it pretty early on.

  7. Mike Hunt says:

    Sort of like when couples say that “we” are pregnant. I am rolling my eyes, but it is your blog, so I will have to live with it, much like I live with your triple posting. 😛

  8. Kirk says:

    Regarding the foreclosure paperwork stories: when a renter fails to pay rent, he’s evicted by the end of the month. When a “homeowner” fails to pay the mortgage, he remains in the house for over a year–rent free–then files a suit because the “wrong” bank is seizing the house.

    What bull… As for Jeffs in particular, he (like nearly everyone else) probably stopped making payments when his house lost value, and only started making them again because of a gov’t program designed to cut down on the number of foreclosures. Now, he’s getting screwed out of those few (reduced) payments that he actually made.


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