By Dave Krieger
The spin cycles are in motion and we haven’t even done the laundry yet. Reports are out that not only did Bank of America post third-quarter losses of $7.65-billion; the soothsayers are countering with “exposure scenarios”, showing $50-billion worth of risk (representing only 3% of the $2.1-trillion total) as good enough reason for Bank of America to seek Chapter 11 protection. It also appears that in this election season, a bailout or some other government “deal” is highly unlikely and would certainly exacerbate Bank of America’s problems.
I thought I was dreaming until I saw Chris Whalen’s posting and thought … gee, Bank of America certainly does have a liquidity problem to be forced to start up foreclosures again. One would certainly have to ask why the Obama administration just now announced intentions to launch a criminal investigation into all of this mess. Does someone in DC have a conscience? Or is this just another “CYA” as a cave to public pressure? With these kinds of pictures, the day traders would be “shorting” Bank of America stock and making a killing doing it.
One would have to wonder about the liquidity factor with all of this missing paperwork and the investors and insurance companies that certainly will be lining up to file fraud suits against the banking giant will certainly force some sort of decision. For BofA, it is significant. General Motors went into Chapter 11 after all and within three months they emerged stronger than ever. But then again, GM wasn’t proprietarily trading residential mortgage-backed securities on Wall Street either. This is a different animal.
My take? Bank of America’s decision to absorb Countrywide and Merrill-Lynch probably wasn’t one of their smartest moves. The paperwork issue that forced the moratorium of some of these foreclosures has forced Bank of America to go after over 100,000 more homes … and then comes the fun part.
All of the bloggers that have any care in the world besides what’s on the boob tube have surmised that they may just have a chance fighting Bank of America’s missing and fraudulent paperwork filings under quiet title and other adversarial proceedings. Unfortunately, what most of America doesn’t understand is what would happen if BofA took the low road and sought reorganization in the Delaware bankruptcy court.
If you have a clouded title … ooops! Your home just became tied up in bankruptcy. If Bank of America claims it owns your note, it becomes part of the bankruptcy and you won’t be able to sell your home until the court trustee and the judge decide its okay for you to do so. Quiet title action, you say? That will put the brakes on your state lawsuit, but for the court trustee handling this affair, his problems are far from over. As a homeowner, I’d be pretty perturbed. I’d probably file a notice to the bankruptcy court, claiming I instituted suit but that BofA was hiding behind this Chapter 11 filing just to avoid having to answer to investors. I need to sell my house NOW, not three years from now after the dust settles. And as the wheels of justice grind slowly, BofA foreclosures would also be on terminal hold until the court can figure out who owns what.
Meanwhile, the states attorneys general are bucking up to the table and are seriously looking into all of the fraud claims and I expect to see some legislative action before all of this is over. Even the Obama White House is now saying that all of this is “a state problem”. True. As a states’ rights advocate, I certainly applaud the stance. My only hope is that this doesn’t turn into a political move on the part of those currently in office as a means to stay in office.
On the back side of a Chapter 11 filing, those homeowners who are seriously in default will be in limbo and will be given a chance to regroup before finding out whether or not they’ll be officially tossed out of their homes or given further reprieve due to BofA’s failure to prove agency. After all, this is what quiet title is really about. Agency first … then the note argument. If you can’t prove agency, you don’t get to argue the note. If you argue the note, in light of the securitization of all of these RMBS’s, then you get to prove its value. Pardon me if I digress here, but isn’t the burden of proof on the plaintiff here? If the note never made the pool, then where is it? Who owns it … and why is it listed in the pool when in fact it never was?
I keep reverting back to the “Box” case in the Western District of Missouri and the Hon. Arthur Federman’s invitation to Bank of America to prove agency (especially when title has been slandered). Now a federal judge in Oregon has added his two cents to the opinion pool.
No doubt, U.S. District Court Judge Garr M. King’s ruling under Oregon law does not bode well for Mortgage Electronic Registration Systems, Inc. (MERS), that a lender’s use of MERS had invalidated the mortgage. The question still remains however, as to whether a bankruptcy court could really sift through all of the paperwork of a banking giant and recognize fraudulent or missing paperwork and disconnect borrowers who have filed quiet title actions from the Chapter 11 because BofA can’t prove agency vis a vie Box.
True, all of this is cutting edge and attorneys are going to have to get themselves up to speed, understanding that when a legal battle ensues, they’d better understand the law of agency as well as how to unravel a securitized loan … if in fact the note even made it into the pool of mortgages in question that BofA claims to have repurchased … if in fact, this is even so. I’m still running into attorneys that think “note” … and if there’s suspected fraud involved or the notes have no value, then why on earth would a homeowner be getting his home free and clear? Don’t even get me started on that argument! Agency has nothing to do with a “free and clear” home. Prove you connected all the dots at the county courthouse, Mr. Lender! MERS won’t save your assets now!
Meanwhile, back at the county courthouses, county recorders are still trying to figure out how their departments got shortchanged. Duh! The title companies are denying homeowners indemnity policies on potential-issue properties that are either contested in quiet title actions or have already been foreclosed on wherein a former homeowner, realizing he’s been duped, hires an attorney and sues his way all the way back up the chain of title, with the title company and the E&O carriers shelling out settlements. Sadly, the insurance companies are going to become victims here; not because of their ignorance either. The author would then pose that what you’re seeing now (with Old Republic denying coverage to Ally Financial’s foreclosed homes and Stewart Title erring on the side of caution) is the start of the real crux of the struggle to maintain wealth in home ownership. The fact these county recorders and title agents bought into the MERS argument doesn’t hold water with uninformed property owners.
The title companies have every right to deny coverage. This is why when it comes to any legal premise, as a homeowner, I should be able to liquidate my property with peace of mind, knowing some bank or MERS didn’t cause past or future problems with my title. Realtors selling these homes now have a whole new meaning for CAVEAT EMPTOR … it’s now going to mean, beware of the buyer … or should I say … the buyer-turned-litigant who’s now looking at your E&O coverage as a means to “cash out”. Let’s also not forget the aggrieved homeowner who’s been foreclosed on … hired an attorney who’s well-versed on this stuff … and commenced an action back up the chain of title. If I were a title company, I’d be freaking out too.
With the latest reports of the New York Fed leading a consortium of investors seeking to force Bank of America to buyback $47-billion worth of its “poop” … the ball will start rolling and one has to start planning ahead (like a homeowner with 50 creditors calling at all hours of the day and night threatening legal action) and decide when to “cut its losses”. American homeowners with homes loans tied to Bank of America in any way, shape or form have much to worry about.