In reality the term “refinance” is incorrect. The existing mortgage was not refinanced or modified, what actually occurs is that a new mortgage is obtained, and the prior loan is paid off. Even when the new lender is the same bank the refinanced mortgage is actually a new loan. The new loan could be for a different amount either higher or lower than the old one which made cash-out refinances possible as property values rose, at least on paper.

So the mechanism for this process was that a new loan is created and the title agency or attorney which performs the closing takes the funds from the new loan and pays off the prior lender who receives the funds to credit the loan balance to zero. That is not enough however to clear the old mortgage off of the property title. The loan balance at the bank may show a zero balance, but unless the title documents in the official county land records show the loan being removed from the title that mortgage will continue to exist as a cloud on title. In many cases a property owner would receive the paid off loan papers from the bank but not be aware that the lien was not removed from the title.

In order to do this the lender would need to create and sign a legal document called a mortgage release, which is then presented to the county recorders office for recording on title. The process of preparing, transporting, and recording the document could cost upwards of $150 including county fees. Over the past decade we have seen that many mortgage releases were never filed especially when the lenders were overworked with new loans. In some cases the borrower had to ask for the release documents specifically. Whether it was a money saving technique or simply oversight many mortgage releases went without being executed.

When doing millions of title searches over the years we have found properties with multiple mortgages because of this phenomenon, as reported in 2007 and 2008. If this is detected early, the property owner can normally request a release from the lender and fix the problem. If an extensive period of time has elapsed it is often difficult to obtain the relase as the lender my have been acquired by another bank, or be out of business. Even when the lender is still around, an old loan might be difficult to track down and get the authorized signatures for. Now it seems that some property owners are discovering this from loans paid off years ago.

MSNBC reports that more and more homeowners say that mortgages they thought were dead and buried are springing back to life, sometimes haunting them all the way into foreclosure. “The problems grew from a lot of sloppy recordkeeping that began during the housing boom, when Wall Street built a quick-and-dirty back-office operation to process mortgages quickly so lenders could sell as many loans as possible. As the loans were later sold to investors, and then resold around the world, the back office system sidestepped crucial legal procedures” the article states. Diane Thompson, an attorney with the National Consumer Law Center, says she has defended hundreds of foreclosure cases, and in nearly all of them, the homeowner was not in default. “The record-keeping on the part of the mortgage servicers is not to be trusted.”

For property owners who have paid off or refinanced a mortgage in the past decade, it may be a good idea to check the property title to ensure that the old loans have been properly cleared and released from the title.

The US Department of Justice (a client of my company, AFX LLC) announced a sweeping investigation into the mortgage securitization process. “For the first time since the crisis, federal investigators will be joined by state law enforcement officials as part of a working group that, New York Attorney General Eric Schneiderman said, would launch the “broadest, deepest investigation into what blew up the economy” as reported by USA Today. “The U.S. government dispatched 55 prosecutors, FBI agents and analysts Friday to a new financial crimes enforcement unit focusing on home mortgage abuses that fueled the 2008 economic collapse.” US Attorney general Eric Holder said the new effort will involve a new collaboration of federal and state officials with collective authority to investigate abuses in all aspects of the financial services industry, including the packaging, selling and valuing of residential mortgage-backed securities.

At the other end of the spectrum is the foreclosure defense industry. Many legitimate firms and attorneys work with borrowers to help fight off overly zealous lenders. Some defenders prey upon desperate homeowners extracting fees for litle or no subsequent effort. A recent prosecution in Texas describes one alleged example. This scheme involved the use of unrelated bankruptcy cases to delay foreclosures. Since bankruptcy automatically puts a hold on any action against the debtor, properties in distress were signed over to an unrelated person already in bankruptcy to use that ongoing process to stay the foreclosure. In theory it is a creative idea. In reality it resulted in the person behind this idea Frederic Alan Gladle to plead guilty to felony fraud.

“From 2007 until his arrest in October, Gladle operated a business that helped distressed property owners delay foreclosure by paying a monthly fee — usually about $750 a month, according to prosecutors and charging documents. After clients signed up for his services, one of Gladle’s salespeople had them sign deeds transferring a fractional share — usually one one-hundredth — of their distressed property, the documents said. The shares were transferred to an unrelated person who had previously filed a bankruptcy petition in court, the documents said. Those people were unaware that Gladle was using their names, which were obtained from online court records, the documents said. Gladle, or “a co-schemer operating at his direction,” would then send a copy of the fractional deed and a copy of the unrelated person’s bankruptcy petition to the lender that was expected to foreclose, the documents said. Because bankruptcy proceedings automatically delay foreclosure actions, the lender would not be able to immediately foreclose on Gladle’s client’s property, the documents said.”

Forbes Magazine calls the housing market “dead” even though other segments of the economy appear to be improving. “Housing remains in the gutter, as the latest Case-Shiller Home Price Indices suggest.  Prices have barely moved off their crisis lows despite unprecedented support from the Federal Reserve. “

A separate Forbes article is titled “Why You Should Wait to Buy a House.” The article offers a bullet point list of reasons why staying on the sidelines would be prudent, including the following:

• Strategic defaults, foreclosures and short sales all force prices lower
• High levels of underwater mortgages
• A “shadow” inventory of unsold homes held by banks will put pressure on prices when these homes are marketed

Business Insider takes this idea a step further and calls the idea of home ownership itself a “fraud.” The article outlines how all of the intervention to promote mortgages, bail out banks, delay foreclosures, and force modifications have made the housing market dysfunctional and that the solution is to let “home prices drop low enough that investors will want to buy them.”

In a recent case, a court in California ruled on an appeal of a quiet title case where the lenders interests were canceled through a default judgment. The appeals court ruled that a default judgment cannot clear title, in effect requiring the parties to have a full hearing in court. “According to the Court, this language “is unequivocal,” and the “prohibition against default judgments in quiet title actions appears absolute.” The statute does not, however, prevent a quiet title plaintiff from taking a default. Instead, after taking a default, the court must hold an evidentiary hearing at which the parties (including the defaulted defendant) are entitled to present evidence regarding their conflicting claims to the property.”

In another important ruling which clarifies the current landscape for the foreclosure market, a bankruptcy court ruling casts doubt on the validity of titles where the property was previously part of a defective foreclosure action. In Arkansas where the ruling was sent down this has had the effect of causing title companies to refuse to issuing title insurance in those types of transfers until they can determine whether the homes were taken in compliance with state law.

In a related story, title insurer Old Republic announced that it would only be able to initially pay 50% of claims in some instances due to funding. The housing decline and clouded title issues appear to have hit this insurer harder than others. “The remainder of each claim will be paid “at a future date as and when necessary funds are available,” the company said in a statement Friday that announced the so-called Order of Supervision.”

Another firm announced a MERS-like system of handling mortgage assignments. Nationwide Title Clearing (NTC), a  services provider for residential mortgages provides a package of mortgage assignment processes for lenders. “We collaborated with the nation’s most respected mortgage lenders and servicers to revolutionize the way mortgage assignments are prepared,” stated John Hillman, chief executive officer of Nationwide Title Clearing. “Through our PerfectChain Assignment Verification Process, we have established best practices that set a new industry standard.”

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