I may not understand all the legal issues, but my readers have some interesting thoughts:
Reader BladeDoc tries a "Shorter McMegan":
If I may shorten McMegan's post (and please correct me if I misrepresent). The libertarian answer is the same as for any property dispute - figure out in court who owns the property based on contract law. If there is grey area in the law, judges have discretion and legislatures can fix the law if they want. Why is this a question? And what the hell is the "Democratic" solution? Give everyone that has a mortgage their house free and clear? Let me know so I can stop my next payment. And for that matter what do they think the "Republican" solution is?Our own "KindaSorta" offers a libertarian solution:
Lyman's a lot more conversant with this than I am, and his comments on earlier posts involving this subject have done a good job with explaining the law and policy of recording title with a county or parish.Meanwhile, reader Xenos66 gets personal:
As succinctly as I can put it: banks can fix this issue under existing law. They can hire the lawyers and title examiners necessary to find the last recorded interest on properties they believe to be theirs. They can work it out with the holder of the last recorded interest, or go to court and prove by other evidence that they own the right to payment from the homeowner as well as the right to foreclose.
They just want the federal government to swoop in one more time. They want to be saved from the state governments who have no interest in abridging their entirely adequate system for recording title solely to benefit banks who ignored their laws because their cost-benefit analysis didn't imagine so many homeowners in default. They want another bailout.
The libertarian solution is the correct one: do nothing and let the banks, who made this problem, fix things with their own money.
I actually took a case to the MA Court of Appeals where I argued, inter alia, that the recording statutes for MA meant that there could be no such thing as a bona fide purchaser for value where there is an open flaw in the chain of title. In support of my argument I cited the fact that there are no cases in the entirety of MA case law where a court has extended BFP status to a buyer who bought property with an open flaw in the title.Which reader Brenda Johnson clarifies:
The judges were absolutely appalled and rather eagerly dismissed the case on a jurisdictional issue (the property had been assigned in bankruptcy at one point, so there was a decent argument that the bankruptcy courts should have retained jurisdiction). But there was no way that the judges wanted to touch the issue of undermining BFP status for residential property owners, even if such status has never been recognized in a recorded case in MA history
Reader Airish wonders what this means for the mortgage market:
Un-knitting it a bit, here' s what Zenos66's saying. A bona fide purchaser for value is someone who buys a property with no notice of any defect in the title (or, in other words, with no notice that the seller didn't actually have a right to convey the property interest at issue). The recording statutes in any state exist in order to put everyone on notice as to the status of title to properties within the recorder's jurisdiction. The whole point of recording title is to put potential purchasers on notice as to who has an interest in that property. Therefore, and I think this is a very sensible (indeed, obvious) argument, if the official record shows a flaw in the chain of title, the purchaser cannot claim that he/she/it was not on notice of the defect. Easy enough, I would hope. And it's a sad state of affairs if the recording of transfers of interests in residential real estate have gotten so slipshod that the MA Court of Appeals is afraid that recognizing the obvious will upset the entire apple cart.
When I took a course on mortgages in law school - about which I don't remember a great deal at this point - I recall that most of the course content seemed to be a litany of the many, many things that could potentially go wrong with mortgages (drafting, recordation, etc., etc.) when and if someone screwed up. What the Levitin note inadvertently highlights is that in order to maximize the profitability of the lending and securitization business, there was an effort made to create a system that would be operated by unsophisticated, poorly paid, poorly supervised clerical workers. Apparently, as predicted by my law school course, it didn't work all that well in practice.
The foreseeable result of all this is that mortgages may go back to what they were in the 50s - complex transaction reserved for the most creditworthy, locked in the bank vault and tying up the bank's capital for years. If that's the case, it can't help but limiting the market for real estate purchasers severely. The problems in mortgage securitization, combined with the threats to the mortgage interest deduction, may put us back where we were in the early part of the 20th Century, where most people were tenants with no hope of becoming owners.Reader Jeff84 notes that the problem is not "deregulation" so much as "bad regulation":
You'll have a hard time finding any market as highly regulated as mortgages and finance. The idea that a LACK of regulations are a major problem here is laughable. It also comes from this bizarre idea that a lot of people have that there is some "Regulation Knob" that government has control of, and they can turn the knob to the right to "increase regulation" and turn it to the left to "decrease regulation". This just is not the case at all - there is bad regulation and good regulation. The idea that some people think the solution to all of our problems is simply more rules and more employees at regulatory agencies is bizarre.And Cruxius sums up . . . er, the internet:
"I don't understand this issue, but I know it's the fault of people I don't like."