While trying to keep a stiff upper lip in the foreclosure mess now facing the entire industry and claiming that their processes were appropriate, it has come to light through the deposition of a loan document officer for Wells Fargo that as a person responsible for signing affidavits, the only fact confirmed was that her name and title on the affidavit were correct. Her sworn testimony stated that she was not aware of any of the salient facts, like principal and interest owned, in the affidavit. This, in light of the fact that Ms. Moua was signing up to 500 foreclosure papers a day.
Where is this all going to lead. Well, it is unlikely that the courts are going to unwind foreclosure sales. First and foremost, it appears that there are going to be a substantial percentage of these foreclosure issues that relate to document deficiencies/improprieties. That is probably not going to be a sufficient reason to return a property to a defaulting borrower. At best, it is a due process violation that will require a penalty to the servicer or service provider (the agent hired by the servicer to perform the foreclosure procedures on the servicer’s behalf). In addition, if the REO was already sold to a third party, you have a “bona-fide purchaser for value” styled arguement by the new owner. Even if the problems of the foreclosure were to rise to a standard of theft of the property, the subsequent purchase of the property would be protected. Finally, as it should be pretty clear, the borrower was ultimately in default. Therefore, such borrower should be subject to foreclosure, absent the servicers' obligation to provide alternatives to foreclosure under HAMP, HAFA, HALA and HopeNow.
That is the major issue with regard to the robo-foreclosure mess. In their rush to foreclosure, did the servicers attempt to avoid their requirement to assist in providing these alternatives?
With regard to foreclosures, there is a dichotomy in the interest of the securitization investor. A fast foreclosure process allows for cash to come back to the investor. The higher up on the waterfall the investor is (depending on the tranche), the better for the investor. However, this is offset by several factors. There is a depressed return on the property due to the distressed sale, as well as the dumping of excessive amounts of REO property, an issue highlighted in the battle between Carrington and American Home Servicing. There is also the issue that the Liquidation Proceeds for the sale of the REO property are treated differently in most securitization structures, allowing for even less money to go to the investor. Finally, the protection afforded to investors in servicing advances is lost at some time prior to initiation of a foreclosure action, as compared to a modification or refinance.
There was an article today in a local Southern California paper where a person who previously lost his house to foreclosure broke back into the home to retake possession of his home, claiming that the foreclosure was improper. Naturally, the person was arrested for trespassing. The article stated that the person claimed that he was no longer was able to afford the home after the mortgage rate adjusted. So, once again, we are facing this “entitlement” posture by people that think they can avoid their contractual obligations and should be protected, now by self-help. Previously, they were just taking the toilets and countertops. Now the attitude is that they are taking the entire house back (I guess if it was a manufactured home and the wheels were still on, he could have just hooked it up and moved on). It is sad for all involved. And it boils down to the failure of a concept that drove the entire mortgage industry – JUST BECAUSE A PERSON COULD QUALIFY FOR A MORTGAGE LOAN SHOULD NOT HAVE MEANT THAT SUCH PERSON SHOULD HAVE OWNED A HOME, especially in light of the ever-loosening underwriting standards prevalent in the latter part of the decade.. The American dream is a nice concept, but it does not entitle everyone to live it.
Well, it is football season and Halloween is soon upon us. At least the defaulting borrower will be able to watch the games (since he is probably still paying his cable bill before his mortgage). Though it appears that there is a new spin on “Trick or Treat” these days. The question is who is doing the tricking and who is getting the treat.
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