Texas Attorney General Asks Lenders to Halt Foreclosures
Texas Attorney General Greg Abbott asked mortgage services to halt foreclosures while they investigate their foreclosure practices.
Many things combined to bring about the current crisis.
The growth of the mortgage secondary market created an environment where mortgage loans were treated as a commodity and bought and sold multiple times.
Normally, when a loan is sold the buyer records an assignment of the lien, assigning the lien from the seller to the buyer.
Lenders tried to save money by avoiding recording each and every assignment, instead creating MERS, an electronic registration system that exists for members only.
Servicers handle billions of dollars in mortgage loans. This requires new policies and procedures, staffing, call centers, etc. This placed a large strain on servicers.
Massive defaults added to the servicer work load.
Predatory loan modification companies did nothing to solve borrower defaults and instead gave them a false sense of security that their default was taken care of.
The Texas foreclosure process, set forth in Section 51.002 of the Texas Property Code is lender friendly and contains little resources for borrowers to contest foreclosure. Texas is a non-judicial foreclosure state which means that there is no supervision or oversight of the Texas foreclosure process. The only oversight happens after title is delivered, most of the time back to the lender, and the lender attempts to sell the property. At that time the lender usually provides a title policy and the title company becomes the defacto reviewer of how the foreclosure was conducted and if the lender satisfied the notice provisions of Section 51.002.
Keep in mind that contesting foreclosure in state district court is an expensive proposition and requires a bond. Some district judges will throw out applications for restraining orders on the basis that Bankruptcy Court is the proper forum for lenders seeking to protect their equity.
Lenders and servicers evidence their compliance with the notice provisions by signing affidavits. The affidavits require personal knowledge of the facts in the affidavit – that the notice was deposited in a mail receptacle; that the notice was posted at the courthouse. Now coming to light is the practice of “robosigning” – some one signing hundreds of affidavits put in front of them with out personal knowledge.
Texas courts are reluctant to take on the issue of lien ownership presented by MERS. Other state courts are beginning to challenge the practice and are allowing borrowers to present evidence that the servicer handling the foreclosure does not own the loan because there is no assignment to the lender. Significantly, courts are starting to question the use of MERS and how it impacts title.
Some counties are even thinking about suing servicers for millions in dollars in lost recording fees.
Huge questions exist as to what the Attorney General Abbott will ask of lenders and servicers to properties currently listed for foreclosure and those already foreclosed and whose former owners still occupy the property.
This is a huge issue that bears watching on multiple front as it has significant potential to alter the foreclosure process and impact the number of foreclosed properties available on the market.