OK, Time to Freak Out

A few days ago, Yves Smith noted that Wells Fargo has started to spring a last minute contract clause on its foreclosure sales that basically says if the property does not have a clear title, it's your tough sh%$:

Yves here. Some readers may take this all to be unduly alarmist. But confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.

Now why is this a big deal? Go reread the boldfaced sentence above. ["Technically, the foreclosing bank has no recorded title rights to foreclose in the first place"] If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own.

Let’s say you buy a vase from a store. You open the box when you get home and find out the box is empty. You’d clearly be within your rights to get your money back.

With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.

So the banks realize that they are selling properties at auction that they do not own or hold the note on.

They want to clear their balance sheets, and they are now more than willing to engage in outright fraud to do so.

Well, it looks like it's not just Wells Fargo who is freaking out about this, because GMAC has just suspended its foreclosures in 23 states based on similar concerns that the documentation was forged, though they claim that it will be resolved, "within the next few weeks".

There are also rumors of a criminal investigation, while GMAC has denied any moratorium.

It appears that much of this has to do with the foreclosure mills law firms, largely based in Florida, most notably Watson, Shapiro & Fishman, and David J. Stern. (MoJo has a good tour of their business practices here)

Note also that Congressman Alan Grayson has written a letter too the Florida Supreme Court asking for an immediate suspension of foreclosures, because these firm are doing the paperwork on about 80% of the foreclosures in the state and have already been cited by a judge for blatant fraud.

There are a couple of issues here, the first is that in the mortgage mixmaster, title for a lot of properties may have been lost, and the second is that the law firms doing the paperwork are simply defrauding homeowners and the courts.

Grayson's letter is after the break:

September 20, 2010

Chief Justice Charles T. Canady
Florida Supreme Court
500 South Duval Street
Tallahassee, FL 32399-1900

Dear Chief Justice Canady,

I am disturbed by the increasing reports of predatory ‘foreclosure mills’ in Florida. The New York Times and Mother Jones have both recently reported on the rampant and widespread practices of document fraud and forgery involved in mortgage assignments. My staff has spoken with multiple foreclosure specialists and attorneys in Florida who confirm these reports.

Three foreclosure mills – the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern – constitute roughly 80% of all foreclosure proceedings in the state of Florida. All are under investigation by Attorney General Bill McCollum. If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities. This is lawlessness.

I respectfully request that you abate all foreclosures involving these firms until the Attorney General of the state of Florida has finished his investigations of those firms for document fraud.

I have included a court order, in which Chase, WAMU, and Shapiro and Fishman are excoriated by a judge for document fraud on the court. In this case, Chase attempted to foreclose on a home, when the mortgage note was actually owned by Fannie Mae.

Taking someone’s home should not be done lightly. And it should certainly be done in accordance with the law.

Thank you for your consideration of this request.

Sincerely,

Alan Grayson
Member of Congress