Title Search

From the mid-1980′s forward there were about 20 years where foreclosure investing was a hot area for entrepreneurs. Individuals looked toward foreclosure auctions and bank REO property to get properties at a discount to then resell in the traditional market. The industry was so popular that dubious training courses in the 80′s and flamboyant house flipping television programs in the 2000′s grew out of the trend.
For the most part the year 2007 halted most aggressive foreclosure buying. However, In the past year there has been some resurgence of foreclosure property and non-traditional real estate interest by investors. Some are targeting Fannie Mae and Freddie Mac auction events looking to purchase packages of properties. The investing appetite this time around  is a more organized and capitalized market. Instead of an individual who may buy a house or two at a time to fix up and resell, the 2012 foreclosure investors are corporations who have raised tens of millions in capital and are looking to purchase dozens of properties or even hundreds on speculation. More frequently than in the past, the intent is often to prepare the properties for a large scale rental program.
Title records offices in several key markets are seeing recorded deeds where corporations have been formed within the past 18 months and have already accumulated over 100 foreclosure properties at auction. Tax auctions and mortgage foreclosures are both being targeted.
From a title search point of view, we are seeing some other differences in the current foreclosure investing marketplace. The newer investor groups are doing more proper due diligence when putting together their property packages. Full title searches are being done, and the principals are inquiring into the laws and regulations where the house is located to understand legal aspects such as rental requirements, rights of redemption, zoning, lien priority, and judgment history. This is a significant change from the past where we often received calls from an investor looking to get a title search on a parcel after they had already purchased it. In some cases the results were disastrous, such as the scenario where a buyer purchased a property at what seemed like a bargain only to find that they had purchased a second mortgage, with a large first mortgage still outstanding.
It will be interesting to see how these new investors do with returns on these properties. On the one hand the prices are extremely low and cash flows from rentals might work. On the other hand the past 5 years has put a great deal of liens and judgments in the land records, and all it would take is one stubborn lien on a property to erase profits. The economic and employment picture has resulted in a large number of IRS tax liens outstanding, and these are often the ones which slip by inexperienced title searchers due to the way they are recorded in the land records.
Foreclosure investing has never been for overly cautious investors, but the profits may be worth the effort.

Is the previously uncommon quiet title action becoming a tool in foreclosure conflicts? In prior articles I wrote what we were seeing more instances of quiet title actions used by both lenders and borrowers to resolve difficult mortgage controversies. A few significant case decisions are starting to make their way into case law.
As reported this could be a serious development in property title activity. According to these decisions, entire mortgages have been wiped out by borrowers using quiet title actions. The court apparently did not receive sufficient documentation to support the fact that the loan was a valid claim against the property, and it was extinguished. Remember that this result only defeats the collateral claim against the property. The borrower is still technically liable for the separate mortgage note and loan amount, it is just no longer enforceable against the property.
There are a few reasons why a quiet title action may be more successful than other foreclosure defense strategies. In the first place, the venue may favor borrowers. In foreclosure court the judge sees hundreds of cases where the borrower is genuinely in default, and almost all cases result in decision against the property owner. This becomes a conditioned response where the presumption is that the lender is correct. A quiet title action generally is argued in civil court, where case outcomes are as much likely to go in favor of plaintiff or defendant.
Second, in a quiet title action the lender is on defense. The home owner initiates the case as plaintiff and the lender must respond. This is a subtle technical advantage for the borrower as he/she has the advantage of preparing the case which the lender is normally surprised.
Third, time favors the borrower in a quiet title action. All parties with a claim to the property must come forward with correct documentation with in a certain period of time specified by statute. If the lender has incomplete or erroneous documentation which is found defective, they may not have the ability to recreate the paperwork and resubmit it as they would in a foreclosure case.
Last, the results are final. If a lender fails in foreclosure court they can normally re-file. In a quiet title case a certificate of clear title is the end result, subject only to appeal which may be limited only to court errors, not subject to re-submitting new evidence.
Lenders have also used quiet title to clear up assignment chain gaps, MERS errors and robosigning problems especially when the homeowner is not contesting the foreclosure.

“In an opinion that will likely preserve the validity of hundreds, if not thousands, of mortgage foreclosures across the state, the Michigan Supreme Court recently confirmed the ability of Mortgage Electronic Registration System (MERS) to perform non-judicial foreclosures by advertisement (as opposed to a court-supervised foreclosure). In doing so, the Court reversed the contrary holding of the Michigan Court of Appeals.”

Pending CFPB rule could lead to flood of foreclosure challenges - If the Consumer Financial Protection Bureau wishes, it could allow borrowers to challenge future foreclosure actions by questioning whether the loan was a “qualified mortgage” in court.

Are Non-Traded REITs Finally Headed Toward Transparency For Investors? - Since the market for non-traded REITs is unlikely to disappear, the question is, will those who market and sell non-traded REITs learn from past mistakes and the resulting litigation? Also, will FINRA put in place the necessary regulations to ensure that the investment in non-traded REITs by future investors is as transparent as possible?

Realtors: We Overcounted Home Sales for Five Years - Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.

CA Court - Lis pendens of mechanics lien is not slander of title - The California Court of Appeal recently held that the recording of a lis pendens in connection with a mechanic’s lien foreclosure action is protected by the litigation privilege and cannot support a slander of title claim, even if the underlying lien claim lacked any evidentiary merit.

MERS

As the issue of the nominee trustee / MERS mortgage processing becomes more commonly known, many property owners are curious to discover if their mortgage is held by the electronic recording system. To figure out if you have a MERS mortgage the borrower can follow these steps.

First, don’t look for it on the deed to your home, MERS will not appear on the ownership record. Start by reviewing your mortgage documents. There will be two legal documents, a mortgage or deed of trust, and a mortgage note. The deed of trust / mortgage is the instrument which transfers rights to your property to the lender. The note is the loan itself, separate from property rights.

On the mortgage or deed of trust, you may discover that the lender is directly identified as “Mortgage Electronic Registration Systems.” This is MERS. Alternately, the mortgage/deed of trust might identify a traditional bank, such as Bank of America or Suntrust, but then list MERS as a trustee. Be sure to read all of the pages on the mortgage, as it might be mentioned farther in.

In some cases, MERS is not listed on the mortgage itself, in which case the loan might still be in MERS. If the loan was later transferred to MERS the original documentation would not reference that. In this case you would need to perform a mortgage assignment chain search in the official land records. What you would look for is a transfer from your original mortgage lender to “Mortgage Electronic Registration Systems.” The hard part of doing this is that in most counties, the land records are indexed by name (not address). This means you would have to do a name search for “Suntrust” or “Mortgage Electronic Registration Systems” and then find your mortgage in the list of resulting documents.

Depending upon the size of your county, there may be dozens or even hundreds of documents with those names as principle parties on other properties. One way to help narrow the list is to filter by date, and start the range after the time you executed the mortgage.

If you locate the mortgage assignment into MERS, you can then get the file number and inquire to the system as to the status of who holds your loan. Depending upon the nature of your inquiry, you may want to ask if they posses the actual note, and about the chain of assignments which has been completed and what banks have owned your mortgage.

2011 was an eventful year for AFX LLC, and AFX Search. The title document research business at AFX LLC included significant events such as providing expert witness testimony for the US Department of Justice. Two executives of the company, myself and Tiffanie Tedesco were qualified as National Certified Abstractors by the National Association of Land Title Examiners and Abstractors. This designation comes after years of documented experience and passing a rigorous exam testing the knowledge of complex title searching skills. There are only 54 title abstractors nationwide with this designation.

I was elected to an additional term on the board of directors for NALTEA and will continue to serve on the public relations committee for the organization. For the second year, I was a speaker at the NALTEA annual conference.
AFX and myself were featured and quoted in several important news articles, including The New York Times, Bloomberg News, and The Wall Street Journal. The issues of MERS assignment questions, foreclosure fraud, robo-signing and quiet title actions were hot topics in the past year. We were able to work with dozens of websites, blogs, newspapers, and trade associations to make sense of the turmoil in the property records industry. Our title course offered by the Title Training Institute was helpful to many abstractors in developing abstracting skills.

One of our favorite search projects this year was a complicated mineral rights search going back to the 1800′s. We had two seasoned abstractors poring over documents from handwritten deed books and indexes. There were legal descriptions using tree stumps as reference points, and bear traps as property markers. In the end, the client discovered that while mineral rights had been sold off from his property, the documentation for the transfer had information allowing him to reclaim those rights.

On the investigations side, 2011 was even more active. Early in the year, a landmark case was solved resulting in collection of a judgment of $1.2 million for our client. The client had won a lawsuit years ago, and the defendant in the suit had claimed to be insolvent and was hiding assets. The client had attempted locating assets for years with no success. WIthin weeks of taking the case, our investigative staff located a hidden bank account in another name with sufficient funds to cover the judgment. The client was paid within 30 days.
We credit our involvement in the International Association for Asset Recovery for helping developing the expertise to succeed in this case.

A case this summer had significant impact when an estranged ex-spouse was found to be gambling and drinking heavily during times dedicated to having visitation with their children. This case resulted in our client obtaining significant more security for their children, and the discovery of hidden income by the former spouse.

We were also featured on the nationwide podcast produced by acclaimed investigator Paul Jaeb. Paul is the former president of NALI and leads an audience of thousands of listeners to his show. AFX was featured for a third time, covering topics such as title document forensics, business development, and financial management.

We also began our involvement with ACEDS, the Association for Certified E-Discovery Specialists. Electronic records are becoming critical for investigations. Our involvement with the organization includes writing articles for members on techniques for using and analyzing Electronically Stored Information.

AFX Search was also issued an important “K” class firearms instructor license in FLorida, allowing us to train and qualify licensed security agents and bodyguards for them to obtain  special licenses to carry concealed and exposed handguns while on duty. Thanks to the superb coaching from David Aronow for helping obtain the high level skills to obtain this certification.

This week, I was honored to be elected as the Vice-President of the South Florida Investigators Association. This group is an elite group of investigators whose membership is carefully selected for quality professionals. Current and former Federal agents, high level investigators, and experts in specialized areas of investigations make up this association.
2011 was easily our most succesful year, and our new business development office just opened in California is on track to make 2012 even better. Offering high quality research and analysis, backed by the best customer support in the business makes AFX something we take pride in. We thank all of our valued long time clients for allowing us to assist you and solve your cases, and we are looking forward to showing you how we can impress you in the coming years.

In 2012 you will see development of enterprises in several fronts. Our asset recovery division will expand into new areas. Visibility in the investigations segment will help attorneys in corporate fraud and due diligence cases. David Mitchell in the business development office has strong title research growth tracking for ’12.  Our leadership teams in Florida, Georgia, Pennsylvania, and California have put together the best network of research professionals in all 50 states. We have extensive coverage in all 3800+ counties nationwide for fast and efficient turnaround of projects.

Keep an eye on this blog for regular articles on important industry events. We also request your input for subjects of interest for future posts, and feedback on published work. Our Twitter feeds are also featured on the sidebar of the blog.

Best wishes to all clients, colleagues, and readers for a very succesful 2012.

Dave Pelligrinelli

Robo-signing, MERS, and foreclosure defense are familiar terms to real estate professionals and the general public. News stories cover the missing assignment chain problem, borrowers using quiet title actions, and banks coming to foreclosure proceedings with missing MERS documents. While the housing market is in distress, the day-to-day market continues to be functional. So how serious is the problem and what will happen in future years?

The hard numbers and indications from analysts indicate he problem is critical. One financial analyst sees the mortgage documentation issue as a ticking time bomb lurking behind the scenes, which could destroy the financial system. According to Elizabeth Renuart,  the Ibanez ruling may have traction in other nonjudicial foreclosure states and the likelihood that clear title to foreclosed properties is jeopardized by shoddy handling of notes and mortgages. She notes that on one side of the contest are the integrity of the law and the related publicpolicy in favor of strict compliance with nonjudicial foreclosure procedures designed toensure that only the proper party ousts homeowners from their homes. Not only are defaulted borrowers at risk, but subsequent purchasers can inherit hidden title defects. “A purchaser who takes title without actual or constructive notice of adefect in the sale and pays value, nonetheless, may face challenges to title when theforeclosing party did not possess the authority to foreclose at the relevant time and couldnot grant the purchaser good title,” according to her research.

Some economists see the improper foreclosure activities as a crime scene. “Crime by mortgage servicers and their contractors is more than just the crime of these foreclosures themselves — it’s the residual tail end of a housing bubble based on fraud. The reason these bank servicers must now routinely employ notaries using false documentation is because they never established a clear chain of the property title upfront. In this environment, why bother getting your paperwork in order when the goal is to put someone into a predatory loan, reap fees and disappear tomorrow?”

Whether the consequences for the financial side of the issue will ever reach criminal levels is unknown. The financial consequences are not a matter of if, but a matter of when and who. The system has delayed the losses for half a decade already, and has attempted and somewhat succeeded in passing the losses to the public sector. Regardless, the wave of foreclosures and conflicts is not over.

A Nevada law now requires those foreclosing on a home to file an affidavit proving they have the right to bring the action — and it increases civil and criminal penalties for using fraudulent documents in a foreclosure. The Florida Supreme Court is ruling on a case involving fraudulent banking documents. At issue is whether the bank can still be held accountable for fraudulent documents if it voluntarily dismisses the foreclosure case when challenged.

There will be ups and downs in the rate of foreclosures as lenders deal with the effects of various laws and procedures. In the long run however there are still millions of homes who’s occupants are unable to maintain the contractual arrangement with lenders. All of these will be to be resolved somehow. ”Despite a seasonal slowdown similar to what we’ve seen in each of the past four years, November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs or short sales sometime early next year,” said James Saccacio, co-founder of RealtyTrac.

In the meantime many parties large and small are involved in disputes originated by the housing crash. The Federal Housing Finance Agency (FHFA) filed a lawsuit in federal court against the city of Chicago contesting a local ordinance that makes lenders liable for the upkeep of vacant homes before they take possession of the title. According to FHFA, Chicago’s new vacant property law would create additional risks and liabilities for the two mortgage financiers

The litigation, legal support, investigative analysis and research required for all of the conflicts will drag out for years.

No single section of the real estate industry has a monopoly on fraud. It seems that lenders, borrowers, agents, and attorneys are all represented in the long list of fraud schemes acted out in the market.

From the blatant to the complicated, the scams are numerous. One was simple; just make up fake deeds to houses. Two men from southern California pocketed more than $500,000 by filing grant deeds on vacant, foreclosed homes and sold the stolen homes to investors for cash. In Colorado, roving bands of squatters are using a similar scheme to take over homes from absentee owners. German Jasso, 42, and his wife Laura Guitierrez, 41, of Fraser, moved belongings into the home and conducted renovation work. According to assessor and trustee documents at the time, the home still belonged to someone else. The home, the finished construction of which had not been completed, was in pending foreclosure with Bank of America, according to the initial police report in court documents. In the course of a few months, Jasso conducted work on the home to try and obtain a certificate of occupancy, including installing a propane tank and changing locks on doors. He told police that he believed he had legal access to the home through a legal instrument called “adverse possession,” and said his real estate “consultant” was Carrillo.

Some of these schemes end up with serious consequences such as bribery, extortion, arson, and suicide. A group of fraudsters in Las Vegas manipulated their way onto a condo board so they could steer contracting work to an affiliated builder for kickbacks. The FBI is involved in this one. A Pennsylvania government official was arrested for using his ties with a title company to illegally profit, allegedly. The DA on the case said “His demeanor was one of a person who thought he was entitled to do whatever he wanted, that this was his government. It is not the chairman of the commissioners’ personal fiefdom to do with it what he pleases.”

And the winner is: Florida.

Florida retained its top ranking in the nation for mortgage fraud litigation through September as millions of dollars in bad boom-time loans continue to be discovered by law enforcement and lenders. A report released Tuesday by industry publication Mortgage Daily showed that Florida’s activity during the third quarter included more than $144 million in suspect loans that were questioned in court. Ken Thomas, a Miami-based independent banking analyst and economist, said mortgage fraud prosecutions will increase as defaulted loans undergo closer scrutiny. ”There is a lot of fraud in South Florida, and we will see heavy enforcement in the future,” Thomas said “It’s taking a lot of time to catch up, but there are paper trails for all of this and they will eventually get to most of it.”

Congratulations.

There are as many opinions on what caused the real estate crash as their are those with opinions. Depending upon who is asked, it could have been MERS, Wall Street banks, greedy Realtors, greedy home buyers, greedy home sellers, speculators, flippers, mortgage brokers, or Alan Greenspan.

For now, it matters less what caused the crash as it does what damage the crash is now causing. Besides higher unemployment for real estate agents, there are thousands of contractors our of business, and a difficult borrowing environment. Title search firms such as ours are seeing much more complex search files come in, especially on foreclosures where the prior history is complicated.

On a larger scale, the lower volume of real estate transactions and the reduced valuation of properties is creating a shortfall for government revenues in he billions. Most of the operating funds which local governments count on come from property taxes. These taxes are based on a percentage of value, which has declined. At the same time, distressed properties often have no revenue while the borrower is in default and paying no annual real estate tax.

The result is an extreme pressure on towns, cities, and counties to do more with less cash. Although the Wall Street Journal reported this week that city budgets were “about to be slammed”, this issue has been a concern for several years. Cuyahoga County, Ohio predicts Because Cleveland last appraised values in 2006, near the peak of the market, the coming adjustment in 2012 could mean that the county is in for a large correction likely a $1.1 billion reduction in valuation.

Los Angeles already has a $72 million deficit in their budget, with more cuts looming. The city manager called for reductions of $4 million to the Los Angeles Police Department, $1.7 million to the city attorney’s office and $1.3 million to the Bureau of Street Services, which is charged with maintaining the city’s 6,500-mile network of roads and highways. He also said he needs four more weeks to find an additional $20 million in potential cuts for this year’s budget, which covers the 12-month period ending June 30. The city attorney’s office described how cuts like these would affect their department by saying ”obviously, you can’t operate a prosecution and litigation office with part-time lawyers, and certainly not when our caseloads have stayed the same and in some cases, increased.”

Some municipalities may actually resort to bankruptcy. Several law firms are gearing up for a wave of government Chapter 9 bankruptcies. The article describes how several cities in California, Rhode Island, and Pennsylvania have used this provision, described as follows: “Chapter 9 of the Bankruptcy Code, a once obscure legal framework that allows an eligible municipality to “adjust” its debts by means of a “plan of adjustment” that is in many respects similar to the plan of reorganization which a debtor can devise in a chapter 11 case.”

Some economists are predicting the financial distress t expand beyond municipalities, and expand into what some call a “World Bankruptcy”  In housing, we haven’t seen the bottom in housing by a long shot. One report said they think the bottom won’t happen until 2020 here in the US. The banking system or the shallow banking system might have another ten or twenty trillion in bad debts they just found, they just discovered and they were back to a deflationary spiral again and this goes ad infinitum between pillar and post. The biggest bankruptcy in the world would be the loss of world reserve currency for the United States of America. The real problem is the debt and then beyond that the fraudulent debt, I mean correct the default swaps, you know, insurance, I mean the United States banks are exposed to this in a big way; some say more than a trillion dollars just with a few big US banks.

In the end the economic damage to municipalities may take on an appearance much like the depressing story of Livingston NJ. The mortgage crisis ravaged the housing market, which in turn destroyed the government budget, resulting in a damaged culture. In the story, local resident Rosa O’Neil watched as people she’s lived next to for decades, disappear one by one, until she lives nearly alone on her Irvington, New Jersey street.

As described in our prior article outlining the Top 6 Developments For The Title Industry in 2012, some news is already starting to appear on these issues.

I suspect that the MERS/ nominee trustee controversy will settle down, especially in he title records arena. A Supreme Court case in Connecticut demonstrates that trend, as they validated the right for MERS to foreclose. There still may be some legal and regulatory backlash for prior actions, but going forward most of this will follow this trend.

The fallout continues to hit municipal budgets, as seen in Los Angeles where they face a $72 million dollar deficit. The city is looking at for reductions of $4 million to the Los Angeles Police Department, $1.7 million to the city attorney’s office and $1.3 million to the Bureau of Street Services, which is charged with maintaining the city’s 6,500-mile network of roads and highways. The city attorney is worried about the cuts, ”Obviously, you can’t operate a prosecution and litigation office with part-time lawyers, and certainly not when our caseloads have stayed the same and in some cases, increased.”

The market is still in freefall, but some analysts are curiously bullish on the future. While Goldman Sachs sees a bottoming in the market and equilibrium in 2013, CNBC is skeptical, asking: “Are we just supposed to ignore the distressed market? What about the fact that in some cities more than half of the properties selling are distressed? And what about the fact that there are more distressed properties coming to market, as the banks ramp up the long-stalled foreclosure process? And how about appraisers using distressed properties as comps to non-distressed properties?