Saturday, January 05, 2008

Jingle Liens

by Tanta on 1/05/2008 07:45:00 AM

Hat tip to Disempowered Paper Pusher (the backbone of our industry!) for this excellent BusinessWeek piece on homes abandoned by both borrower and lender, "Dirty Deeds."

An anecdote with all the right motifs:

In 1998, Elizabeth M. Manuel obtained a $34,500 mortgage on the property from IMC Mortgage (since acquired by Citibank). By 2002, the loan had been sold into a securitization trust administered by Chase Manhattan (now JPMorgan Chase) as trustee. It also went into default, and Chase began foreclosure proceedings. In a court filing, Manuel (who could not be located for comment) said she left the home while the foreclosure action was pending. More than five years later, though, the title remains in her name. The house, although still standing, has become a fire-gutted wreck.

In May 2007, Nowak issued a default judgment against Chase for $9,000. But these cases can be notoriously difficult to untangle. Thomas A. Kelly, a spokesman for the bank, notes that Chase sold its trustee business to the Bank of New York Mellon (BK) in October, 2006, and couldn't locate anyone at Chase able to comment. But he reiterates the industry view that Chase can't be held responsible for maintaining a property it never owned. He acknowledges that if a home didn't seem worth taking as collateral, the bank may have made a decision to "just walk away."
Besides amusing myself by trying to figure out just what documents I'd have to give Judge Boyko to prove standing to foreclose in this case, I am of course deeply impressed by the social acceptability of "just walking away."

My guess is that Chase never completed the foreclosure precisely because it never wanted to held accountable for taxes, insurance, and maintenance on a nearly worthless property; the "tangle" of securitization and trustee swaps and so on undoubtedly contributes to the mess but at some level that's smoke. So the city of Buffalo is working out a new process to tie those properties around the lenders' necks precisely to forestall this game. It will certainly be interesting to see whether it catches on elsewhere.

Reading things like this also always makes me think of the endless complaining you get over FHA appraisal and property inspection practices. Every time you're tempted to think those are silly and bureaucratic--delaying closing for another 30 days while an attic window pane is repaired--and in need of "modernization," remember these properties that were decrepit at the time they were first mortgaged by those modernized conventional subprime lenders, nearly worthless at the point the borrower could no longer carry the payments, and then nothing more than urban blight after years of the lender refusing to take title. FHA, for all its flaws, never walks away from title.