Hat tip to Florida attorney Matt Weidner law blog. In Citigroup memo last month titled "Foreclosures Gone Wild,: Understanding the Legal Issues Surrounding the Recent Foreclosures Freezes and Investigations," Citigroup hosted a conference call with speaker Adam Levitin, an associate Professor of Law at Georgetown University. And here is the overview of legal issues to the foreclosure investigations:
Overview of the Key Legal Issues — The underlying issues which have recently
erupted involve the proper transfer of paperwork in the mortgage securitization
process. Real estate law is “arcane” and requires that paperwork be physically
transferred when mortgage ownership is transferred (“assigned”) from one party
to another party. It appears that in many instances during the mortgage
securitization process over the past few years, the paperwork was not properly
transferred. If the paperwork was not transferred in the legally required manner, it
raises questions not only about who owns the mortgages in question but also
about the validity and tax exempt status of the trusts in which the mortgages
reside. All of these issues also bear directly on the role played by the title
insurance industry.
And here is the conclusion in the memo:
What Happens Next?
Our speaker predicted that more and more lenders are likely to stop their
foreclosure processes in both judicial and non-judicial states. He also expects
more states’ attorney generals to get involved. At the federal level, it is possible
than banking regulators might step in as there is legal and reputational risk for
the banks involved.
Ultimately, if these issues do in fact escalate, the Administration may try to
broker some sort of settlement. If such deal brokering does take place, Levitin
believes that “some payment” will be exacted from the lenders and servicers.
The Administration could bargain for more mortgage principal write downs.
Read the entire Citi memo. Click here.
And the Associate Professor's prediction is correct. When GMAC halted foreclosures in 23 states in September, other banks started to follow suit afterwards which expanded to all 50 states. The lenders know that they are in trouble and don't know how to get out of it.
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