Tuesday, November 16, 2010

COP on Foreclosure Crisis and Bank Solvency: "Severe Threats Remain"

The TARP Congressional Oversight Panel (COP) today released "Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation." The above video is a very helpful summary of the full report.

The findings of the COP on this issue now represent the most comprehensive and detailed analysis of the foreclosure crisis I have seen to date. I whole-heartedly agree with the report, and I was pleased to see the COP call for further stress tests of the banks to find-out the depths of the the threat the foreclsoure crisis is likely to present to our financial system.

Yet, I am troubled by one loose end raised by the report. The TARP COP has vastly more resources than any blogger to drill down and find out whether the banks have the notes or not for the millions of mortgage loans packaged during the real estate bubble. I am baffled that weeks are flying by and we still have no authoritative guidance on how big the missing note problem is.

That seems antithetical to a well-functiong system of capitalism backed by the rule of law. Is it really the case that virtually the entire global financial system must fly blind on this rather crucial issue? Can someone please tell us if the bankers have the notes?


  1. Even when the note is lost, the bank may still provide an affidavit of lost note to move forward with a foreclosure action. Without such affidavit, the case will not be able to proceed to judgment in which case the action can possibly be dismissed. The bank, however, can re-file the action once it finds the note, which happens. As to the affidavit provided by the banks, it is subject to the checks and balances provided for in the rules of evidence and objections by the Defendant/borrower and/or his attorney.

    The main problem, however, would be the accuracy of the figures provided in the bank’s affidavit stating the amount the Defendant/borrower owes to the bank near the time of judgment. This is what I would really be worried about. Imagine there is a judgment against you with an inaccurate amount?

  2. Even with affidavits from the banks stating the value of the note, I was under the impression that only the original promissory note was enforceable? If 41% of all notes are lost, this means the courts and essentially the entire country will be subjected to must higher hearing costs, the burden of more proof, and now the balancing of the individual homeowners right and those of the bank who lost the note due to sloppy work. It is sickening how banks are bailed out for even the most basic proper business practices such as proper documentation. If society will be required to bail out the banking industry, then we should be able to appoint qualified and responsible leadership so that issues like missing notes will never happen again…

  3. I just tried to research if you need an original note to foreclose on a property. It appears that, when you lose a promissory note, the entity seeking to foreclose must include a count within their civil complaint seeking to reestablish the lost promissory note and/or mortgage pursuant to Florida Statutes Section 71.011 and specifically section 673.3091. Then, all you need is the affidavit of lost note accompanied by a certified copy of the promissory note. A certified copy of the note should be recorded in public records.
    Does anyone know if this is how it works?

  4. Having been a Summer Associate at one of these "foreclosure mills" I witnessed first hand the abuses that the banks and even their legal representation partake in. Recently in South Florida one of the largest plaintiff foreclosure firms was subpoenaed by the Florida Attorney General after numerous complaints for improper filing of documents. Banks have lost track of the mortgages they own, and are unsure of even exactly what bank owns what note. Can all the blame be put on the banks though? With the TARP relief funds buying up rotten mortgages, bundling them up, and reselling them for pennies on the dollars it should not be surprising that such a "fire sale" led to this confusion. I think that with the current scrutiny put on the banks to produce the proper note, and the recently mandated need for a verified complaint for foreclosures, the fraud should be lessening and the focus can be shifted to actually taking care of this horrid problem.

  5. Most of our current fiscal deficit problems stem from the Federal Government’s
    idea that they can/should solve anything. This approached cannot be more far
    from the truth in a market economy, the basis: businesses take risk and if they
    do good, they reap the rewards, if they do bad, they go bankrupt. No bailout
    should have been given to any of the big companies for doing bad business.
    Instead, the federal government should have limited their role to protecting the
    stockholders from insider trading and preventing the CEO’s of those companies
    from getting the so called “golden parachutes” when their companies (and their
    stocks with it) were going belly up.

  6. I found it interesting that in his November Oversight Report, Senator Kaufman was able to point to a worse and a best case scenario. The irony of it is that regardless of whichever scenario culminates we are in what some would call a “hot mess.” It feels as if we are in a bad dream within a bad dream, there is no waking up from this. Even if Senator Kaufman’s best case scenario comes to pass, the fact of the matter is that our economy is still being plagued by a rogue banking system. If the banks are unwilling to take the appropriate steps in covering their own gluteus maximus’, why in the world should I be naive enough to believe that there is a best case scenario?