Investment Research Group
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That’s what some commentators are saying about problems that have arisen with America’s arcane mortgage processes.
In the US, homeowners can only be foreclosed and evicted from their homes by the person or institution that actually holds the loan documentation.
However, when the financial whiz kids on Wall Street came up with bundles of securitised mortgages and sold them all over the world, the ‘chain of title’ was broken.
Legally, therefore, most mortgage documentation may no longer be valid.
To put it another way: If the chain of title is broken, the borrower no longer owes any money on the loan.
Further complicating matters has been that the banks have tended to outsource foreclosure notices to specialist law firms.
Some of these firms have not filed the documentation properly and others are thought to have actually filed forged or fraudulent documents with the courts.
Now huge lenders like JP Morgan Chase and Bank of America have suspended all foreclosures. It is hard to imagine they have done this out of concern for the financially distressed home owners.
The banks have admitted that staff breached regulations by signing tens of thousands of legal applications without review the client’s folder, as they are required to do.
Attorneys general from all 50 US states have announced they are jointly investigating home foreclosure practices.
In one county, an initial look at paperwork found only 17 out of 350 foreclosures had complete paperwork.
“I can’t possibly be expected to evict people from their homes when the banks themselves can’t say for sure everything was done properly,’ said one legal official.
If the banks have foreclosing on people illegally, then people probably have the right to get their houses back. That means the people who bought those foreclosed houses might not actually own the houses they paid for.
This raises the spectre that all foreclosures – and maybe all mortgages in recent times - will come into question.
Fortunately, the system is different in New Zealand and local processes are a lot more electronic. However, that won’t stop our economies and markets taking a whack if America grinds to a halt, which they could well do if people can’t buy and sell houses while legal issues are sorted out.
