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December 14, 2009 05:52 PM UTC

Breaking News - Mortgage Crisis - Loans Sold to more than One Buyer

  • 13 Comments
  • by: Sharon Hanson

According to an article in the NYT which can be found here http://www.nytimes.com/2009/12… transparency in the way the mortgage crisis is playing out is being revealed in a suit brought against Bank of America by BNP and Deutsche Bank investors in Ocala the back office operations of Bank of America.

Apparently the company writing the mortgages funneling through Ocala was Taylor Bean & Whitaker who filed for bankruptcy last August.  “Taylor Bean was shut down by the FHA citing possible mortgage fraud.” And Colonial Bank that was used by Taylor Bean and Whitaker to fund their mortgages was taken over by the Federal Deposit Insurance Corporation.  The article states that the practice was industrywide so no one is safe who obtained a loan during the 2005 – 2008 timeframe from the possibility that your mortgage is owned by two lenders.  So what does this all mean for the borrower or the mortgagee? My guess is that:

If you have a loan you are paying on and you decide to sell your property say due to a job change and you need to move you won’t be able to sell your property because you won’t be able to get a clear title.  

If you have paid off your loan and plan to stay in the property and will it your heirs when you die they won’t be able to get a clear title to your hard earned bought and paid for property.

If you would like to get a loan modification because you either have unforeseen medical expenses or you are now underemployed it won’t happened because no one knows who owns your loan.

If the owner of the note wishes to foreclose on your property because of non-payment due to the mortgagee being unemployed or bankrupted by medical bills by all means insist that they provide you the note as they most likely will not be able to do so.  

Here’s an excerpt from the article. And I think it shows the ominous need of regulating these banks for a couple of reasons – investors are not safe and neither are the homeowners.

But there were a couple of problems with the set-up: the company writing the mortgages funneling through Ocala was Taylor Bean & Whitaker, a lender that filed for bankruptcy last August. And to make its loans, Taylor Bean used money from Colonial Bank, a Montgomery, Ala., institution that also went belly-up. The Federal Deposit Insurance Corporation took over Colonial in August.

Sorting through the wreckage of those related failures has generated more questions than answers so far. Taylor Bean was shut down by the Federal Housing Administration, citing possible mortgage fraud. According to people briefed by those winding down Taylor Bean’s operations, who requested anonymity in order to preserve professional relationships, there are signs that the company sold some of its loans to more than one buyer. Lawyers representing Taylor Bean did not return phone calls seeking comment.

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13 thoughts on “Breaking News – Mortgage Crisis – Loans Sold to more than One Buyer”

  1. But here’s a leap

    The article states that the practice was industrywide so no one is safe who obtained a loan during the 2005 – 2008 timeframe from the possibility that your mortgage is owned by two lenders.

    Consumer originates a loan from Lender A.

    Lender A sells the loan to investor B.

    Lender A then commits fraud and sells the loan to investor C.

    Consumer may check with the county recorder to determine what liens are filed against their property.  They are safe.

    But it’s hard to see how investors B & C are both going to make a valid claim against the property in any event.   They are not safe.

    Investor C”s claim is to Lender A for the fraud.

    Of course the lenders and investors should be regulated. Of course the county recorder should be on the lookout for fraud.

    And how would this work?

    Lender A originates the loan. Consumer starts making monthly payments.

    Lender A sells the loan to investor B. Consumer continues making payments- which are then redirected to Investor B.

    Lender A then fraudulently sells the loan again to Investor C.

    When Consumer makes the next payment – who pays B & C? One loan payment- two investors.

    It wouldn’t take but one or at most two missed payments for the either investor to be on the phone (lawyers at the ready) to Lender A asking wtf.

    In any event – it would appear the fraud is on the Lender, and so is the claim from either investor. Consumer is safe.

    By all means homeowners should demand to see the note  if foreclosed.  I wouldn’t expect it to stop many foreclosures for long; 3-6 months is typical.  There were cases in Denver metro last summer (08) that got some local press attention.   And the “demand to see the note” and other documents tactic was an effective delay. But I’m unaware of any foreclosure being rescued that way.  Likewise, I’m unaware of any lien holders making multiple conflicting claims on a foreclosed property that resulted in loss to the homeowner.

    BTW- Mortgagor is homeowner/borrower.

    “mortgagee”is the lender.

    see : http://realtytimes.com/rtpages…

    or

    http://www.lectlaw.com/def2/m1…

    or:

    http://loans.qandas.com/mortga…

    2. If Lenders Say ‘The Dog Ate Your Mortgage’

      By GRETCHEN MORGENSON

      Published: October 24, 2009

      Here’s an excerpt from an article by the same author regarding a mortgage that was thrown out and he didn’t have the problems some will have regarding a loan being sold to two different buyers.

      Even so, banks and borrowers still do battle over foreclosures on an unlevel playing field that exists in far too many courtrooms. But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.

      One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.

      So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.

      http://www.nytimes.com/2009/10…

      And even if you are right that most will result in foreclosure anyway many homeowners are going to walk away because their house is not worth what they owe.  

      1. By all means homeowners should demand to see the note  if foreclosed.

        Someone said that. Oh yeah- me.

        Yes, lenders, servicers, and investors in the secondary market should be held to the rules. And the rules should be strictly enforced against lenders, servicers and investors.

        Yes- many homeowners will walk away because they are underwater or upside down. Many will also attempt to short sell (short pay).

        I have family that own houses in suburban Detroit they are wondering why they should pay just to save their credit when the collapse wipes out the value anyway.  And they are right to wonder.  Their is an economic decision that must be made. Posner wrote a great book about the economic incentive to breach.

        And I am contractually bound to not comment further.

  2. due to “smoke and mirrors” lending practices, I’m just absolutely shocked to learn there was fraud going on !!  

    Of course the county recorder should be on the lookout for fraud.     MADCO

    In a perfect world, that would be great, but in reality that’s not the case. Recording a document is done solely to give public constructive notice to a transaction or legal event. The recorder has no way of knowing if a document about to be recorded is fraudulent or not.

    It is a criminal misdemeanor in the State of Colorado to knowingly record a false or fraudulent document, but I can bet you I can count on one hand the number of people who have been prosecuted for doing so.  

    1. Guy buys a rental property for approx $500,000, with a first mortgage of about $300k.

      About 15 months later he applies for a cash out refi – approx $150k.  His credit is good, his documents are clean, the appraisal should easily be 550k.

      But he applies to at least 22 different lenders and sets up 22 different closings over a two day period near the end of a month. Day 1 he closes 14 different loans with 14 lenders through 14 different closers.  He is scheduled for 8 more the next morning- and by accident one of the closing companies notices something weird at the end of the biz day. A few phone calls later- instead of closing the next morning, he is arrested by the FBI.  If not caught, he would have closed the next 8- and been on a plane headed for a South American country that doesn’t extradite for non-violent financial crimes.

      No the county recorder isn’t going to catch all fraud. But in the hypothetical that Sharon set up, the second investor who attempted to record a lien would (could, should) find out they aren’t in first place.  Except that’s not how it works anyway. Investors in the secondary market don’t refile the lien- they buy all the rights and obligations of the original lien holder.

    2. How do lenders know that the buyer owns the property?  They hire title companies to review clerk and recorder records and guarantee their interpretation of those records.  But, this isn’t a title fraud situation, this is really a securities fraud.

      What about the investors who buy the loans?  At least one of them has been defrauded.  These are very well documented transactions (often all of the documents are put into a bound book when it is all over) and a simple review of the date of sale in each deal should be sufficient to see which buyer had a simple sale and which was defrauded.  

      Usually, the second buyer’s best recourse will be the due diligence opinions provided by lawyers and certified public accountants in connection with the sale, and the warranty of loan ownership provided by all sellers in the chain of title to the loan (in this case Bank of America appears to be the successor to one of the sellers).  Those are all reasonably deep pockets, and the lawyers and certified public accountants will have professional malpractice insurance providing additional liquidity.

      Also, the money probably went somewhere and some of that may be recoverable from the actual participants in the fraud (probably by someone else who was indirectly responsible and made to pay up).

      In any case, a fraud like this can’t work for more than a couple of months unless you have a common loan servicer for both lenders, or one of the loan services is a fake with no communication with the borrower.  When there is no dispute who the loan servicer is, there typically isn’t going to be a problem paying off the loan.

      The fraud will hurt somebody, in this particular fraud usually the second buyer, but it is unlikely to be the borrower.

  3. This TBW – Bank of America – Ocala – Freddie Mac debacle has been going on for awhile and it is hurting homeowners right now.  Because TBW is in bankruptcy right now escrow payments for taxes and homeowners insurance collected by them that should have been paid on behalf of the borrowers are not being paid as well as payments on the principle and interest for their loans are not being applied to their accounts.  Right now that figure is estimated at about a billion dollars.  The funds are frozen until the courts can sort through the mess.  These borrowers are being told that they won’t be reported to credit agencies and they keep extending the date of when that will happen.  In the mean time liens are being put on these properties for taxes owed and homeowners insurance is not being paid.  If you were in modification negotiations it has stopped and if you are trying to refinance right now and you have one of these loans you can’t.  It’s a mess but it is just the tip of the iceberg and it will take years to sort out.  So although you are right legally and everything will eventually be resolved in favor of the borrower these homeowners are stuck in mortgage limbo and it is uncertain when and how this will be resolved legally.  

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