In a Congressional hearing today entitled "Failure to Recover: The State of Housing Markets, Mortgage Servicing Practices, and Foreclosures", a New York state judge recommended passage of a law that would require all mortgage assignments used in foreclosure to be recorded.
"To alleviate problems in determining who owns mortgages and notes, reduce mortgage frauds and to improve the finances of counties or other recording localities, I propose that legislation is enacted requiring that all mortgages and assignments, to be enforceable in foreclosure, must be recorded with the appropriate local recording authority. Mandatory recording of mortgage assignments will go a long way to determine the actual ownership of mortgages and notes, reduce fraud and improve local treasuries with the payment of recording fees," Kings County, New York Supreme Court Justice Arthur J. Schack wrote in his written testimony.
Schack, frequently critical of MERS in his decisions in foreclosure cases, said in his testimony that the MERS system "lends itself to fraud with respect to home ownership, because, in New York State, for mortgages and assignments to be enforceable, they do not have to be recorded."
Schack ticked off the defective documentation in foreclosures he had seen as a judge, including defective notarizations, defective or missing powers of attorney to mortgage servicers who submit affidavits on behalf of alleged plaintiffs, retroactive assignments of mortgage falsely attempting to establish that a plaintiff owned a mortgage and note when they commenced a foreclosure, and failure to produce to Pooling and Servicing Agreements from which mortgage servicers derive their authority to act on behalf of the owners of the debt. He including robosigning as well, including foreclosures where the same robosigner had acted on behalf of multiple parties, representing a conflict of interest.
In 2010 the New York judiciary had responded to these abuses with an administrative order, requiring counsel in foreclosure cases to attest via a sworn affidavit that they had reviewed the documentation in their case contain no false statements. Schack noted that this response, while well intentioned, had caused a logjam in the foreclosure process, because bank lawyers are reluctant to file the sworn affidavits because it exposes them to charges of perjury.
It takes longer on average to foreclose in New York from start to finish than in any other state in the country-- over 1,000 days, according to recent data from foreclosure data provider RealtyTrac.
However, there is not universal agreement that such logjams are necessarily a bad thing for the housing markets they affect. "Is there a right or a wrong way to do this? I don't know," Mark Fleming, chief economist of CoreLogic, recently told National Public Radio. "You ask your child, how do you want your Band-Aid ripped off? Fast or slow? Some like it slow; some like it fast. It all depends on your preferences, right?" Fleming offered the opinion that the slow process may actually be helping certain housing markets recover.
Judge Schack's written testimony, and the written statement of other panelists at the hearing, can be found here.