Source of Title Blogs Feed

At what point do you file a formal complaint and if you do who are you hurting?

CHARLENE PERRY — Wed, 16 May 2012 15:23:33 EST

Day in and day out I read and review REO contracts of sale and the counter offer addenda attached. As is always the case, the counter offer addendums control the transaction. Most of the larger default management companies use the same, or same variation of the same addendum, BUT, you have to read each and every on in it's entirety to insure that you have not missed any critical item.

A recent REO transaction included a standard contract of sale and the asset management company's counter offer addendum. For the most part the counter offer addendum was pretty straight forward except that there was an additional page to the counter offer addendum titled "REO Escrow/Closing Disclosure for Buyer's Choice" which reads as follows:

Seller hereby agrees and acknoweldges Buyer has the right to select the Settlement/Closing Company and Title Insurance Company. In this regard the Buyer has selected its own Settlement/Closing and Title Insurance Company other than Seller's designated closing service providers therefore Buyer agrees as follows:

Buyer will pay ALL title insurance and settlement/closing fees, including those customarily paid by the Seller.

OK, makes sense, buyer elects to use our services, buyer pays for all of OUR services to them. And then I receive the seller's title agent's closing instructions to me. Again, very ordinary, EXCEPT that in the closing instructions to me there is this little blurb...

The buyer elected to use your company, please see REO/Escrow closing disclosure for Buyer's Choice. You must collect a seller settlement closing fee of $700 payable to [Seller's Title Agent]. This fee is paid by BUYER.

SAY WHAT!! Now remember that this requested collection of funds from the buyer to pay the seller's title agent is NOT part of the contract, It's part of the instructions to me for preparation of the final HUD for review and approval by seller.

The way I intrepret the REO/Escrow Closing Disclosure is that if WE customarily charged a seller settlement fee then the buyer would pay that fee. In no way did I, nor could I have, intrepreted this to mean that any fees to be paid by seller to others became the responsibility of the buyer.

So, in my preparation of the final HUD I omitted the requested $700 fee. And guess what?? No one balked at that. The seller's title agent sent me a fee sheet with fees to be paid by SELLER unto seller's title agent from the proceeds of sale.

The question then is this. What if I had not omitted the fee but had instead gone ahead and arbitrarily charged that fee to the buyer? You can be sure that the seller's title agent would not have asked that I remove that fee. Thus, the seller's title agent would have gotten paid twice for "services rendered" to seller.

I represent sellers in REO every day. I have NEVER asked that a buyer pay a fee to me that should have or will be paid to me by the seller. And, as a point in fact, I don't think I can ask that a buyer pay a fee to me simply because they elected to use the services of their own title agent, as is their RIGHT in Maryland.

I am sure that this title agent has been paid in the past by unsuspecting buyers; or those who's title agents were not familier with the workings of REO transactions. I am equally sure that this request for payment is a violation of some rule, law, mandate, but I am not certain which rule, law, mandate has been violated. I am also sure that this behavior has to be reported to a regulatory agency within this state, for the protection of future buyers, but I am not sure to whom I would send a complaint.

And too, I am not sure that it would do a lick of good to file a complaint. Who would it help? Me, NO, My buyer? NO, my buyer was not harmed, other buyers? Probably but who are they? How many are there? How do I find them?

And, too, with business being what it is and given that I operate in a very small arena (REO) for the most part, would I end up actually causing myself harm by filing a complaint? There are a handful of firms who operate in the REO arena in my area and we all know one another, and for the most part we all work well together. Do I want to take a chance of losing business because I took the high road?

Sometimes doing the right thing is the wrong thing to do. This may be one of those cases. Nevertheless, I will be ever mindful of this new attempt by this seller's representative to "double dip" and will keep doing all I can to save at least some people from having to pay this extortionist fee.

My Mother, The Meanie

bossman@jbizinfo.com — Sun, 13 May 2012 19:52:57 EST

Did you have a mean mother? Well, if you were to ask me or any of my siblings, we had the meanest mother who ever lived. If you don't believe me, just read on...

Was your Mom mean? I know ours was. Other kids got to eat junk food for breakfast; we had to eat “balanced meals”. Other kids got soda and junk food for lunch, but we got a sandwich and an apple. And for supper? We got stuff like fried chicken, green beans, mashed potatoes with gravy and homemade biscuits. And to top it all off…she’d make us wash it all down a big old glass of milk! Can you imagine such a thing?

That woman was always up in our business. You'd have thought we were prisoners in a gulag! She had to know who our friends were, where we were going and what we’d be doing. She even insisted on knowing what time we’d be home! Talk about cruel and unusual punishment!

She also made us do hard labor. We had to set the table for supper, wash the dishes, clean our own rooms, feed the dogs, take out the trash and all manner of other dirty jobs. You know, sometimes, I think she took some sort of neurotic pleasure in making our lives miserable.

She even had the unmitigated audacity to insist that we tell the truth...the whole truth, and nothing but the truth. We swore that the woman was a mind reader with eyes in the back of her head. I mean, she really knew how to make life miserable for us! And on Sundays, when other kids got to sleep in and watch cartoons on TV, Mom got us out of bed and made us go to Sunday School. She was always telling us those boring stories out of the Bible and even made us read it and learn memory verses from it!

Because of our mother, we missed out on lots of things other kids experienced. None of us ever got caught shoplifting, doing drugs or ever wound up in jail…and it was all her fault. I can tell you, we had some real battles with this woman. And you know something? I'm glad she won. We ended up being the winners…and not in the "Charlie Sheen" sense of the word. We grew up to be educated, honest, God-fearing adults…and it was all her fault.

So to my mom and to all you other moms reading this…thanks for always loving your babies by being a "mean" to them. Happy Mother's Day!

Inverse Foreclsoure?

rfranco@sourceoftitle.com — Wed, 09 May 2012 15:50:09 EST

I have seen two very odd situations recently... where the lenders didn't complete foreclosures. Both owners are stuck with properties, still subject to the liens, and they can't sell them. It seems like the homeowners should have some remedy. Perhaps what they need is a right to force a foreclosure - an inverse foreclosure where the homeowner initiates the process.

In the first situation, the homeowner inherited the property from her deceased father in 2008. The property was conveyed to her and the estate was closed. She contacted a Realtor to list it for sale and a buyer was found. The title company discovered that there were two open mortgages of record. No payments have been made in over 4 years, but neither lender attempted to foreclose.

The first mortgage was a business loan to the decedent's wife. The decedent offered his home as additional collateral for the loan. Sometime before his death, the wife's business failed and the lender foreclosed on the business property, but not this one. The two divorced and the ex-wife is out of the picture now.

When the title company called for a payoff, the lender indicated that they had charged-off the remaining balance. However, they didn't release the lien. They are currently investigating the matter.

The second mortgagee has never attempted foreclosure, either; probably because they appear to be in second place and wouldn't get paid from the proceeds.

Most likely, if this property is going to be sold, both will want to be paid something and it will probably be more than the property is worth at this point. This one is stuck in limbo, waiting for the first lender to provide a payoff, or release their lien. This may turn into a short sale, if everyone can agree.

In the second situation, the homeowner filed for bankruptcy. The lender filed a foreclosure and got a default judgment. They took it all the way to sheriff's sale. Unfortunately, it didn't sell for "lack of bidders." Rather than try again, the lender simply dismissed the case. This was also in 2008.

The home had been vandalized and is practically worthless. After re-establishing her credit, this homeowner tried to buy another house. The new lender turned her down - not because her credit was not good enough, but because she still owns this house. They informed her that they won't be able to loan her money until at least 3 years after this house is sold.

She was shocked to learn that she still owned it. She was served with a copy of the decree of foreclosure, and assumed it was all over with, 4 years ago. Nobody told her that the home didn't sell, or that the case had simply been dismissed, leaving her with title to the house that she thought she lost a long time ago.

When she called the lender, they told her to sell it... but, of course, they didn't release their lien, either.

In both of these cases, the homeowners do not want the houses. And, they cannot sell them. What is the owner to do when the lenders do not foreclose... even after several years of no payments?

I think there should be an inverse foreclosure process that would allow the owners to initiate the foreclosure. I envision a statutory inverse foreclosure statute that would allow the owner to recover the costs incurred in bringing the foreclosure, including their attorney fees, from the proceeds of the sale before the lenders are paid on their liens.

It is strange to think that a homeowner would want to foreclose on themselves. However, these properties both need to be sold free and clear of liens. A foreclosure is the best way to do it. Unfortunately, if the lenders won't foreclose the owners don't have many options to get rid of the properties and move on with their lives.

I can think of a couple of other ways to handle the situation. But the alternatives seem to have other drawbacks. I thought I would open this up for discussion. There is more than one way to skin a cat... as they say. Anyone have any ideas, while I wait for the legislature to pass new laws allowing the homeowner to foreclose on their own property?

The foreclosure costs you don't hear about

CHARLENE PERRY — Mon, 07 May 2012 15:32:26 EST

We have all heard and read about the high cost of foreclosure vs. perhaps short sales or deeds in lieu, but do you ever stop to consider the other costs involved that no one is talking about?

In most every foreclosure outsale case that I have been involved in there have been past due bills which need to be paid by the seller at or in advance of closing. Some of these bills are moderate, less than say $100.00 and then we have the other end of the spectrum, bills in the severals of thousands of dollars.

All of the bills in question should have been paid by the servicing lender as part of their servicing agreement, but more and more often I am finding that NO BILLS are being paid in advance of the property being sold to a third party, other than those that may be necessary to enable the recording of the Trustee's Deed.

A particularly frequent occurance of late is the failure of the servicing lender to pay open water bills (liens on property in Maryland) front foot benefits, real estate taxes, HOA bills and ground rent bills.

In one particularly stunning example of the added cost to the public which was not recouped by the seller in their out sale was a bill for front foot benefits which bill started out at $700.00 when the property first fell into default. For those unfamiliar with this term a front foot benefit is a fee that is charged to the homeowner for “construction & installation of water & sewer systems” that are connected to the home. These fees are not part of the annual real property tax bill but rather are paid annually to a third party collection agent for a term of usually 30 years from date of installation. These fees run with the land.

Had the servicing lender paid the bills annually throughout the long and drawn out pre and post foreclosure process they would have paid at most $1400.00, but, because they ignored the bills when the time came to actually convey the property to the third party purchaser, the bill, which now included the cost of filing suit to collect, attorney's fees, late fees, interest etc. totaled in excess of $10,000.00

As is almost always the case these days I was working through a default management company who was representing the seller. This default management firm is tasked with getting the property sold on the open market. Their job includes marketing (through Realtor assignments), management of the property and review and acceptance of offers to purchase. The default management company has no information relating to what, if any, open bills need to be paid by the seller at the time of the conveyance to the third party purchaser. So, the default management firm accepted a contract of sale, based, I assume, on a figure the seller had defined as their minimum gross.

It would seem reasonable to assume that the seller had tasked their closing agent with determining, in advance of marketing, which, if any, bills would need to paid as part of the outsale thus allowing the seller to determine an acceptable minimum gross sales price to cover their total cost of carrying the property, including open taxes, water bills, etc. Evidently, we should not make such assumptions.

In more and more instances I find that neither the seller nor their assigned title/closing agent have taken the steps to determine, in advance, whether or not there are miscellaneous bills that need to be paid as part of the sale transaction. They wait instead until a contract of sale is accepted and THEN they learn what open bills must be paid. In the case at hand I was handling the transfer on behalf of the buyer and the seller's title agent had no idea that this bill was outstanding until I brought it to their attention. At the time of the actual closing this seller had to PAY $3700.00 at closing to enable the transaction to proceed.

The note holder on this property was a "too big to fail" Bank. Is it any wonder, given this failure to properly service the property that these banks needed a hand out in the first place.

Would it not make better sense to pay the fees when due this eliminating late fees, interest penalties, litigation costs, attorney's fees etc.? Do you think that those who are footing these bills; ie: the taxpayers, have any idea how the bail out funds are being used?

I for one am becoming increasingly frustrated with the way in which these servicing lenders are spending money on fees that should never have been allowed to be assessed IF the servicing lenders had actually serviced the loans by paying the taxes, etc. when due rather than waiting for the property to go to sale on the open market.

So, the next time you hear that a "Too Big to Fail" or a GSE is looking for more money from the Federal Government remember that at least some of those monies were spent to cover fees that never should have been allowed to accrue.

A Look at Foreclosure Post-MERS' Consent Order

john gault — Sat, 05 May 2012 20:23:21 EST

Since MERS entered the Consent Order with the U.S. Dept of the Treasury in April of 2011, its members may no longer foreclose in MERS' name. This material looks at how the members are dealing with this situation.

"Let's start at the very beginning. A very good place to start."

"The language in the dot appears to grant MERS the right to foreclose; Millions
of foreclosures were done up until mid 2011 in MERS' name. In April
of 2011, MERS entered into a Consent Order with the Dept of the Treasury.
Thereafter, MERS issued a mandate to its members for no more foreclosures in
its name.
MERS is named the beneficiary as nominee of the lender in the deed of trust.
What is not seen in that document, but is controlling nonetheless, is other
language in another document: the MERS' membership agreement. In that
agreement, MERS and the member agree that a member may foreclose on the
deed of trust in MERS' name if the member has possession of the note.
Note that's two things, not one. In all the foreclosures done in MERS'
name pre-MERS' Consent Order, the member tacitly implied to MERS that
it had possession of the note. That's it.
End of the story as to written documentation concerning MERS which defines
foreclosure rights.

So what's wrong with this picture?

1) The member had agreed in the membership agreement
that it would only foreclose in MERS' name if the member is in possession
of the note. The right to enforce the note is the most dispositive issue
in a foreclosure action. How does / did MERS know a member had a note?
How did MERS know to whom it was payable? Based on my understanding of
their operation, MERS didn't. Apparently it was an 'honor system', just
as entries by members of sales of notes into MERS' database is an honor
system.

2) MERS is named the nominal beneficiary in the dot. MERS' members
have (post-Consent Order) alleged that that status is a de facto agency.
It's my understanding there is no such thing as a de facto agency when it
comes to real property. The expression and intent of real property agency
may not be implied; it must be clearly articulated. But even so, if MERS
is an agent, than the member is the principal. The plan was to allow
the principal / member to act in the name of the agent / MERS, rather
like, well, a club. Principals don't act in the name of the agent
(agents act in the name of the principal). I am at a loss to see how
this relationship can be legally justified and I'm also at a loss to
understand why it has stood for so long.

This is (one of) the largest flaws imo of the MERS model: the
principal is acting in the name of its alleged agent. Agents act
in the name of the principal and not the other way around. This legal
tenet is not peculiar to MERS - it's Agency 101. A duly appointed agent
may bind its principal; principals do not bind agents. If the true
beneficiary were first named as such in the deed of trust, with MERS
then being appointed the agent of the beneficiary, and if MERS actually
had employees to execute documents (which would remove the straw man
issue raised below), the relationship between MERS and its members
wouldn't strike such a dissonant chord.

3) Did the members have possession of the notes? Who's to say? The
problem with that question is its answer, which is that no one would
know. MERS had no way to assure compliance. Based on the rash of
'missing note' affidavits filed in subsequent litigation when possession
was actually challenged, it isn't unreasonable to question whether or
not those foreclosing parties actually had possession of the notes in
prior actions.

In 2011, MERS entered the Consent Order and thereafter issued its
mandate to its members: no more foreclosures in
its name. Problem is, in addition to providing relief from the time
and expense of recording assignments in county land records, the MERS'
operation was structured around foreclosing in MERS' name. In my
opinion, it's really necessary to understand this, the basic,
original m.o., that is, the MERS' foreclosure function and what
unforeseen changes the Consent Order has has occassioned.

"NOW WHAT TO DO?" If the paperwork weren't done, including
the assignments of the deeds of trust and the endorsements on the
notes on their way to securitization, who is going to foreclose now
that foreclosures may not be done in MERS' name?
Further complicating the matter is the fact that many of the entities
whose assignments and endorsements were neglected are out of business.

The "what to do" answer has been to have the members assign the dots
in MERS' name by way of the members' or even non-member MERS' officers. Some of the
members have argued that the dot follows the note, for which they assert possession, and maintain that the assignment of the deed of trust is superfluous. A deed of trust, however, unlike a note which is generally regulated by the UCC, is regulated by the statute of frauds which requires real property interests to be in writing.
A note without a proper assignment of its collateral deed of trust is an unsecured one. Unfortunately some investors who thought they were purchasing mortgage-backed securities find themselves with no collateral, and this unfortunate fact can only
be the result of other parties' complacency and dereliction. The
homeowner, likewise, had nothing to do with this business plan.

Which brings me to legitimate question 1, one which begs an answer,
and which answer is long overdue. Is a member' employee a
MERS' officer? MERS has appointed over 20,000 of these officers at
its members and elsewhere. These appointees execute the assignments of the deeds of
trust from MERS to members, generally to the appointee's actual employer or to the party who has hired them in the case of a law firm employee-appointment.

Many of those active in foreclosure defense refer to these appointees by
the common parlance "straw officers". A straw man is generally defined
as "a front for somebody, someone who acts for another for the other's
questionable and even illegal activities". Is this an unfair
description of the 20,000+ officers appointed by MERS at its
members? In this particular instance, it's difficult to separate the
appointment from the reason for and the gravity of the appointment.
MERS has no employees to execute the millions of documents executed
in its name. Are member' employees the proper people to do so? Are
they MERS' Officers?
They don't work for MERS, they're not paid by MERS, they don't show
up at MERS' offices to report for work or attend meetings. Their
sole "MERS" function is to execute assignments and other documents
in MERS' name at the behest of their true employers. Does this arrangment
actually comport with the law? Whether or not it should be influential,
it can't be forgotten that we are talking about the largest and most
significant asset most of us will ever have - our homes.

Is an assignment of a deed of trust to one's employer in the name of
MERS a legitimate assignment? Most courts are not apprised that these
assignments are self-instigated and self-executed assignments.

Since "MERS" foreclosure mandate, apparently the members have decided
it's the only thing they can do to try to establish rights under the
deeds of trust: the assignments are going right from the alleged nominal
beneficiary to the trust or loan servicer by way of servicer-employee
or law firm executions. I don't believe these assignments are legitimate. Even if
the assignments were actually, literally, executed by MERS, there's
still plenty of room for doubt that anything would be conveyed.
First of all, MERS has no authority to execute an assignment. Secondly,
MERS is at best a nominal beneficiary for public record and nominal
anythings have nothing to assign, having no real interest. MERS
itself has made it perfectly clear it has no real interest; MERS says
it merely holds legal title to the interest of another.
MERS might appropriately relinquish its nominee status by quit claim,
but the true beneficiary is the only one who may assign its interest.
That it isn't done strikes me as fatal to the enforcement of these
collateral instruments, a fact courts of equity grapple with daily.
However, the bottom line is that the mandates of the statute of frauds,
which regulate interests in real property, are not open to equitable
considerations, which is generally implemented only in the absence of
existing, controlling law.
MERS' nominal status in public record didn't change the need for
assignments by the true, not nominal, beneficiary, even if
the assignments were to remain unrecorded pending the need for
enforcement or the time to get them recorded.

But, since foreclosures may not be done in MERS' name any longer,
which schematic was at the very heart of the MERS' m.o.,
and that which had to be done appears to not have been done, what
else are the members to do?

The original plan was to enforce the deed of trust by MERS' members
in its name. Now that that is no longer available, another schematic
has taken its place: the self-assignment of the collateral instrument,
the deed of trust, by members in MERS' name.

MERS' members now wish to rely on the very same legal tenets, those
found in the UCC, which they eschewed for one reason or another in their
rush to the big bucks. The provisions of the UCC, not to mention
Trust Law, which would define the real owners of these notes appear to
have been of no moment to them when dealing with loans on the way to
securitization. Was this as rampant as now reported? Hard to say, but
many, many instances of noncompliance have certainly come to light and are the topic of many lawsuits. .
These actors nonetheless rely on the UCC now, specifically
possession of bearer notes, when it allows them to take collateral.
Even if the law provides for enforcement by one in possession of a
bearer note, that possessor, in the absence of (all the) legitimate
assignments of the dot, has no more than an unsecured note. No where
in the history of this country has one party's right to affirmative
defenses been so negated and sadly, for many homeowners, overlooked.

The real facts surrounding this securitization scheme, and I believe
that's an appropriate description, has lead to an unprecedented
economic and moral morass in our country's history. If my assessment
of this situation is accurate, the good men and women of our judiciary
have a lot of work to do. They appear to be the last bastion, charged
with the task of sorting out and dealing with this horrendous maelstrom,
a task none of us can envy.

I don't believe the assignments currently being executed in MERS'
name are legitimate, and certainly not when they purport to assign the
promissory note, as well. Is there another way? I don't know.
Maybe there is. Financial obligations have to be taken seriously.
No one would argue otherwise, but it's very difficult to have sympathy
for an industry which willfully operated with its eyes wide-shut
and which continues to spurn the implementation of the billions of
HAMP and other program dollars intended to help Americans retain
their homes after getting its own trillion dollar bail-out.

Rockwell P. Ludden has written a more lengthy and detailed missive
regarding MERS, and while I don't agree with everything he opines, I
think it's worth a read. It can be found here:

http://www.scribd.com/doc/92536900/Mers-Shell-Game-1-by-R-P-Ludden

Hypothetical: Life Estates

rfranco@sourceoftitle.com — Sat, 05 May 2012 15:01:31 EST

This site is dedicated to title issues, and particularly title searching. Because I believe it is important to discuss issues that come up in the course of a title search, I have posted some hypothetical questions in the past that were inspired by actual searches. We have discussed recording statutes and survivorship tenancy. Most recently, I posted a hypothetical on life estates in the forums.

This hypothetical is based on a fact pattern from an actual title search. My first thought was "the client will certainly call me with questions on this one," so I thought it would make for a good discussion here.

Here is what the title search showed:

Alan owns a parcel of real estate. He conveys it to Betty and Carla reserving a life estate for himself. Betty, as duly appointed attorney-in-fact for Alan, conveys his life estate to the Family Trust.

The question, then, is how is title to the real estate vested? Obviously a trust does not have a "life," so can a trust even hold a life estate interest? And, why would anyone convey a life estate to a trust?

It is helpful to break this down to understand it better. Alan initially held title in severalty. After the first conveyance, Betty and Carla held title as tenants in common, subject to the life estate of Alan. Alan has a present possessory interest, the life estate, and Betty and Carla have a future interest, the remainder.

After the conveyance of the life estate to the trust, Betty and Carla still hold title as tenants in common. But now it is subject to the life estate pur autre vie of the Family Trust for the life of Alan. Betty and Carla's future interest remains unchanged; their right to possession is still subject to the life of Alan. The only difference is that the right of possession is now held by the Trust, also measured by the life of Alan.

A life estate pur autre vie is a life estate that is measured by the life of another, rather than life of the person entitled to possession.

So, why would anyone convey a life estate to a trust? We can only speculate why this happened in this particular instance, but there could have been a good reason for it.

Assume that several years ago, Alan did some Medicaid planning. His purpose was to get assets out of his name so he may qualify for Medicaid in the future without losing everything he acquired during his lifetime. He deeded his real estate to his two daughters, but reserved a life estate so he could live in his home for the rest of his life.

Years later, after the look back period, assume that Alan needed to apply for Medicaid to provide care. He would have most likely have been denied because he still owns a substantial asset, the life estate. Medicaid would likely require Alan to sell his life estate interest and use those funds for his care before they would begin paying benefits. The obvious problem is - who would buy a life estate that is only good for Alan's life, knowing he could pass away at any time? Medicaid would value the life estate based on actuarial tables using his life expectancy, but in the real world such an interest is practically impossible to sell.

Fortunately, the Family Trust has substantial assets. Assuming that the trust is exempt from Medicaid, perhaps it is an irrevocable trust created by Alan's very wealthy late wife, the trust could buy the life estate from Alan for fair market value. Alan can use the money to pay for his care, and after the appropriate spend-down, Medicaid will provide benefits. And, the trust has the right of possession, so it can rent the home to recoup some of the cost of purchasing the life estate.

Or, maybe the life estate was conveyed to the trust before Alan needed Medicaid benefits. If he makes it through the look back period without requiring benefits, the life estate will not be a counted resource. This can be risky, however, because if Alan doesn't make it through the look back period he will face a period of ineligibility for the improper transfer.

The point is that we aren't always privy to the facts that motivated the real estate transactions we find on our searches. Sometimes they make us scratch our heads and wonder "why would anyone do this?" But, regardless of the reason we must determine what affect these conveyances have on title.

Fannie and Freddie and unpaid transfer taxes

CHARLENE PERRY — Wed, 18 Apr 2012 13:32:19 EST

A recent article shared here on SOT and reported in The Berkshire Eagle relating to the payment of transfer taxes and stamps paid to the Clerks of the Courts by Fannie and Freddie on conveyance deeds got me to thinking......

The Fannie Mae Real Estate Purchase Addendum has a specific parargaph Section 10 (c) wherein they claim an exemption under Title 12 for the payment of transfer taxes.

Prior to February 2010 that particular paragraph was interpreted to mean that if the transfer taxes were collectable (exemption not recognized by the jurisdiction) then the buyer would be responsible for the payment of these fees as part of their closing costs. Many jurisdictions, including some in Maryland, have never recognized this exemption. As a result of that interpretation many consumers have paid over to the Clerks of the Court many thousands of dollars that perhaps should have been paid by Fannie and Freddie.

In January, 2010 Fannie started using a revised Real Estate Purchase Addendum and in February, 2010 they issued an explanatory document relating to that new addednum. A review of that document specifically as it relates to Section 10(c) says that the seller (Fannie Mae) will pay their portion of those fees IF it is usual and customary for a seller to pay and IF the exemption is not recognized. So, beginning in February, 2010 we have been able to "split" those fees in Maryland between seller and buyer.

So, then the question that comes to my mind is this; If it is determined, either jurisdictionally or nationally, that Fannie and Freddie were erroneously claiming an exemption and if, as a result of that error, consumers were made to pay monies on behalf of Fannie and/or Freddie does the consumer have a right to persue repayment of those monies from Fannie or Freddie?

I wonder how many other states are looking at this exact same issue in an effort to get more funds into their budgets? In the Berkshire article it states that the losses to the Southern Essex Registry alone could amount to 4.2 million dollars owed for fees not paid.

One can only wonder how much money was paid over nation wide by consumers on behalf of Fannie and Freddie in those jurisdictions where the exemption was not recognized.

I don't think it would be unreasonable to expect class action suits against Fannie and Freddie by consumers for the reimbursement of these fees.

How the major home price indexes could be completely misleading

Slade Smith — Mon, 09 Apr 2012 15:33:06 EST

Releases such as the Case-Shiller home price index and the CoreLogic Home Price Index, which both report data on average sales prices for residential properties, provide some insights into the strength and direction of the housing market. But there's something unique about the nature of the current housing market that could cause the headline numbers reported by the major house price indexes to be distinctly misleading.

The residential housing market is at present a distinctly two-tiered market-- the two tiers being the distressed market (REO sales, short sales, etc.) and the non-distressed market (voluntary sales by private property owners). The average sales price for distressed sales is a steep discount to the average sales price for non-distressed sales... in some markets, the average discount is or has been 50% or more at times!

While the major home price indexes often break down the numbers into both distressed sales and non-distressed sales, the headline numbers they report are based on averages across all sales. In a two tiered market, this creates a possibility that the house price index can decline, seemingly showing weakness in the housing market, even when average prices in both the distressed and non-distressed markets are increasing.

Let me demonstrate with a hypothetical example. Suppose in May we had the following data:

100,000 non-distressed sales at an average sales price of $250,000
100,000 distressed sales at an average sales price of $150,000

Crunching the numbers, 200,000 total homes would have sold in May for a total of $40 billion dollars. The average sales price for May would be $200,000.

Then, suppose that in June, average house prices for both distressed and non-distressed properties rose 2%. And since the non-distressed market was strengthening, banks decided to release and sell significantly more of their foreclosure inventory. We have the following data for June:

100,000 non-distressed sales at $255,000 (up 2% from May)
130,000 distressed sales at an average sales price of $153,000 (up 2% from May)

230,000 total homes would have sold in June for a total of $45.39 billion dollars. The average sales price for June would be $197,348. That's would be down over 1% from May. In other words, in this scenario the headline numbers reported by the house price indexes would show that home prices had fallen in June despite the fact that the average sales price in all areas of the market had increased in June.

This seeming paradox can happen because the overall home price indexes represent the average selling price of apples and oranges, and the mix of what is sold can change. When the ratio of distressed to non-distressed sales changes, month to month comparisons of overall average selling prices are quite literally a comparison of apples to oranges.

This seemingly far-fetched scenario is not far-fetched at all; in fact is it likely to occur. Banks have significant discretion over when they release their inventory to market and are likely to quickly take advantage of any strength in the market to sell more of their property.

By the way, just the reverse of this hypothetical scenario can happen-- the housing market can weaken, causing banks to sell less of their foreclosure inventory, shifting the overall mix away from lower priced distressed sales, which will tend to boost overall average sales prices even when both distressed and non-distressed markets are weakening.

So, if you follow the trends and read the reports the monthly house price indexes, be sure to pay close attention the movement in average sales prices of distressed properties and non-distressed properties, rather than just the overall average.

SAFE Act of 2008 - Feds Are Coming to a State Near You!

Wyatt Bell — Thu, 05 Apr 2012 11:43:50 EST

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), was passed on July 30, 2008. The federal law provided states a one year window to pass legislation requiring the licensing of mortgage loan originators according to national standards. State agencies would hook into the Nationwide Mortgage Licensing System and Registry (NMLS).

The federal government is on the march and it appears from recent developments that licensing, testing and a number of former state level functions are beginning to give way to a giant federal net that will cover most all commerce.

This was highlighted by a headline, "NMLS is Being Outfitted for Non-Mortgage Industries". This article states the purpose is to "enhance the use of the NMLS to accommodate state use of the System for non-mortgage, non-depository financial services industries. This will give states the ability to use NMLS to license or register entities in a number of financial services industries, including consumer lending, money services businesses and debt collection. A dozen states are scheduled to start transitioning existing licenses and registrations onto NMLS as soon as this April, with more to follow in 2013".

Two entities of which I've never heard popped out - the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators - who are responsible for the Nationwide Mortgage Licensing System & Registry (NMLS).

If NMLS&R doesn't do its job Sec. 1509 states this:

Backup authority to establish a nationwide mortgage licensing and registry system. If HUD determines that the NMLSR is failing to meet the requirements of the legislation, HUD will develop and maintain system for registration and regulation of mortgage originators.

Also, those falling under its (SAFE) jurisdiction must pass a written test developed by the NMLSR (at least 75% correct answers out of minimum 100 questions) and administered by an NMLSR approved test provider. I would imagine the test development would apply to all commerce which would eventually come under SAFE.

But the larger issue is how this federal creep is bringing federal registries into dominance over state systems. Inasmuch as this articles refers to "non-depository and non-mortgage financial services industries" I can only assume it is a matter of time before title insurance licensing and regulation move to the federal level, especially with the fiduciary responsibilities regarding trust accounts.

The SAFE act is to establish a minimum net worth or surety bonding requirement that reflects the dollar amount of loans originated by a residential mortgage loan originator, or has established a recovery fund paid into by the loan originators

I'm curious how Closing Protection Letters will develop as these implementations unfold. Do you suppose the SAFE legislation could be expanded by agency interpretation to include a fund for title company defalcations?

SAFE Mortgage Licensing Act of 2008

Is your's the last deed that will be ever be needed on that property?

CHARLENE PERRY — Wed, 04 Apr 2012 15:45:42 EST

Probably not. So, why then would you record a supposed "Deed in Lieu of Foreclosure" that is so vague as to be dang near useless to those of us who come behind you?

Trolling through the morass of documents involved in a "simple" transfer these days is like walking through a mine field with blinders on. So when your transaction is not so "cookie cutter" why would you file a "cookie cutter" deed? And why, when asked to do a simple confirmatory Deed would you put your arrogance in front of your good sense and absolutely refuse to help a fellow title agent?

The case at hand involves a transaction in which there are THREE (3) OPEN MORTGAGES/DEEDS OF TRUST on the property, one of which gave rise to a Deed in Lieu of Foreclosure. The Deed of record from record owners back to bank is a simple Special Warranty Deed that makes no reference at all to the fact that the bank took the property back in lieu of foreclosure, it does not make reference to which of the three open mortgages/deeds of trust the bank held except for a vague reference as to the actual consideration paid, which consideration "sorta" matched on the original loan amounts shown on the open security instruments.

A call to the title agent who prepared and filed the Deed in Lieu on behalf of the bank netted absolutely no help at all. When I asked the title agent to prepare a confirmatory deed that at least referred to which of the 3 open security instruments the bank held I was told that the deed of record was perfectly sufficient to effectuate the transfer of the property and that a confirmatory deed would not be necessary. Now, I never said it was not sufficient to effectuate the transfer, I simply said that it was too vague for those of us who are not mind readers to try to figure out.

After some back and forth between myself and the actual seller (the Bank) I determined which instrument gave rise to the deed in lieu and which instruments I need to get releases for. I was able to have the deed from Bank to my purchaser prepared in such a way as to clarify how the bank came to be in title, etc.specifically referring to the Deed of Trust that had been defaulted upon Now at least when the next abstractor/title agent has to review the chain of title there will be a recorded document that actually explains the back title.

Has everyone suddenly decided that their's is the last deed that will ever be needed to be recorded for that particular property and that no clarity is necessary? I ask because this was one of two files on my desk last week that required clarity and clean up to correct/clarify the chain in order for others to be able to make sense of it in the future.

I'm sure that over the years I have probably filed a deed or two that was drafted in a less than stellar way, but you can be sure that if anyone were to call me to ask for help with clarification I would not respond by suggesting that they were being nit-picky, nor would I absolutely refuse to assist.

Well, in the instant cases the sellers ended paying a fee for title clearance and document preparation which could have been avoided had their title agent simply agreed to assist. Both balked initially until I explained the issues and then both were more than willing to pay the fee.

Try to remember that others are/will be relying upon your work product in the future. Let's not make it harder and more expensive for everyone by insisting on taking the easy way out. Sometimes form deeds just don't work.

Are you inadvertently committng a crime?

CHARLENE PERRY — Thu, 22 Mar 2012 16:14:23 EST

With the large influx of short sale transactions coming across our desks, we are reminded to be careful in just how far we go to get the deal to the table.

I learned just last week that Maryland has a specific provision in its Credit Services Business Act that mandates licensing for those who are negotiating a short sale on behalf of seller.

The specific provison speaks in broad terms, but I have been advised that it definately covers short sale negotiators. I am also advised that there are no exemptions in the Act for title agents or real estate agents. Part of the act states as follows:

Applicability
Businesses which provide loss mitigation consulting, foreclosure prevention, mortgage loan modification, and/or similar services likely will be subject to the MCSBA. As the services provided by these businesses typically include the possibility of deferral of payment on consumers' mortgage loans, these businesses often will come under the definition of "credit services businesses" under the MCSBA. As such, they are required to be licensed as credit services businesses ("CSBs"), and they are subject to various investigatory, enforcement, and penalty provisions as licensees.

I have never knowingly violated this act, but because it is so broad, I wonder just what the limitations are.

This Act seeks to protect consumers from those who may want to take advantage of others by requiring licensing for those who are seeking to assist consumers in their efforts to stave off foreclosure.

I don't know exactly what the requirements are for obtaining the license, but this broad language certainly makes you realize that you may have inadvertenly been acting as a defined foreclosure consultant without even realizing it.

Who is a "Foreclosure Consultant"?

If a person offers the services described below to a mortgage borrower who is at least sixty days in default, it is likely that the person will be a "foreclosure consultant" under PHIFA.⁶ Thus a homeowner need not be in foreclosure for PHIFA to apply.

"Foreclosure consultant" is defined under PHIFA as a person who:

Solicits or contacts a homeowner in writing, in person, or through any electronic or telecommunications medium and directly or indirectly makes a representation or offer to perform any service involving any of the following:

Stopping, enjoining, delaying, voiding setting aside, annulling, staying, or postponing a foreclosure sale;
Obtaining forbearance from any servicer, beneficiary, or mortgagee;
Assisting the homeowner in exercising a right of reinstatement provided in the loan documents, or in refinancing a loan in foreclosure and for which notice of foreclosure proceedings has been published;
Obtaining an extension of the period within which the homeowner may reinstate the homeowner's obligation or extend the deadline to object to the ratification;
Obtaining waiver of an acceleration clause contained in the mortgage on a residence in default or in any promissory note or contract secured by the mortgage;
Assisting the homeowner to obtain a loan or advance of funds;
Avoiding or ameliorating the impairment of the homeowner's credit resulting from certain events related to the foreclosure;
Saving the homeowner's residence from foreclosure;
Purchasing or obtaining an option to purchase the homeowner's residence within 20 days of an advertised or docketed foreclosure sale; or
Arranging for the homeowner to become a lessee or renter entitled to continue to reside in the homeowner's residence after a sale or transfer; or
Systematically contacts owners of residences in default to offer foreclosure consulting services

Foreclosure consulting service" includes any of the following:

Receiving money for the purpose of distributing it to creditors in payment or partial payment of any obligation secured by a lien on a residence in default;
Contacting creditors on behalf of a homeowner;
Arranging or attempting to arrange for an extension of the period within which a homeowner may cure the homeowner's default and reinstate the homeowner's obligation;
Arranging or attempting to arrange for any delay or postponement of the sale of a residence in default;
Arranging or facilitating the purchase of a homeowner's equity of redemption or legal or equitable title.
Arranging or facilitation the sale of a homeowner's resident or the transfer of legal title, in any form, to another party as an alternative to foreclosure; or
Arranging for or facilitating a homeowner remaining in the homeowner's residence after a sale or transfer as a tenant, renter, or lessee under terms provided in a written lease.

You can be sure that I will be taking special care not to violate any provisions of this act, and, I will also be asking for the license number of the person(s) who are acting as short sale negotiators in my Maryland transactions from here out.

There is a push to have real estate agents exempted from this rule, but for now, real esate agents are not exempt and thus cannot, without seperate licensing, be a party to the actual negotiations between seller and short sale lender.

This is an ever changing arena and we all need to make sure that we are current and up to date on those rules that may affect us and our clients. While this rule has been in place for quite some time, I truly did not know about it until last week. I do all I can to keep up on all matters that may affect my office and my clients but somehow this one just got past me.

You may want to check with your State Licensing Bureau to insure that you are not inadvertenly violating any licensing provisions that my have been mandated by your individual state.

When your cable goes out, you start a title agency

Slade Smith — Wed, 14 Mar 2012 02:49:26 EST

When your cable goes out*, you start a title agency.

in early 2001, Lisa Rotolo got her title agent's license and opened her own firm.

When you start a title agency, you help close shady deals for free.

[Rotolo], the title agent key to Southwest Florida's expansive flipping fraud scheme acknowledged Monday that she helped close millions of dollars in fraudulent deals, though unlike others in the conspiracy only for her standard fees.

When you close shady deals for free, you leave a paper trail in the hands of scumbags.

Rotolo assisted in [fraudulent] transactions by allegedly preparing dual sets of HUD-1 settlement statements, sending falsified versions of those settlement statements to lenders, and disbursing money to co-conspirators.

When you leave a paper trail in the hands of scumbags, scumbags snitch on you.

Craig Adams fulfilled his four-year-old bargain with government prosecutors on Monday, testifying against the remaining defendants accused of taking part in the flipping fraud conspiracy that he masterminded.

When scumbags snitch on you, you lose your legitimate business and go to prison.

Rotolo told jurors that 90 percent of the deals her firm Diamond Title closed at that time were legitimate.

Despite her cooperation and her guilty plea, Rotolo will serve at least some prison time for her crimes-- the judge made it clear to her at her plea hearing that probation was not an option for her because of the seriousness of the crimes to which she admitted.

When you lose your legitimate business and go to prison, you make a hot mess of your life.

...Rotolo — a sharp contrast to the cerebral and collected Craig Adams, the mastermind of the scheme — took time to compose herself before she was able to describe her role to a panel of jurors.

Looking pale and exhausted in a red sweater and black slacks, the 48-year-old Rotolo told the jury how she helped doctor closing statements so that Adams, his lieutenant Rich Bobka and their associates could defraud lenders by inflating sales prices and misrepresenting the source of their downpayments.

Don't make a hot mess of your life... get DirecTV**!

*I have no idea whether Lisa Rotolo's current mess occurred because her cable went out... but it's probably as good an explanation as any for committing a crime for which you 1.) get next to nothing, and 2.) are nearly certain to get caught.

**or, better yet, don't close shady deals for free-- or for a cut of the "profits", for that matter!

Bank logic: logical, but maybe not so ethical

Slade Smith — Mon, 05 Mar 2012 16:36:16 EST

How do you "change perceptions" of yourself if you're a bank? Apparently, by hiding the fact that you're a bank!

In an article yesterday in the Palm Beach (Florida) Post, "Agents advised to keep 'bank-owned' quiet" , it was reported that Wells Fargo's REO division, Premier Asset Services, which sells REO properties owned by Wells Fargo and other banks, specifically instructs real estate agents not to disclose in listings that its properties are bank-owned. Other banks have apparently adopted similar policies. Apparently, under this policy, even when there is a category in the Multiple Listing Service for bank owned property, the agent will choose another category, and the owner is listed as "Owner of Record", rather than the name of the bank.

When asked about the policy, a Premier Asset Services vice president-- a real VP, not a robosigner pretending to be VP-- acknowledged that this was indeed the company's listing policy in jurisdictions where such a disclosure is not specifically required by rule. If a local MLS requires the disclosure that the property is bank-owned, they abide by the rule, according to the VP. Otherwise, they prefer not to disclose.

The VP said that bank-owned properties suffer from a "negative connotation" and that Wells Fargo "want[s] to change the perception" that bank-owned properties are always damaged goods. He says that they want people to come out and see the properties without these pre-conceived notions. They want to be seen as "no different than the neighbor who is selling their home," according to the VP.

I bet they do! Distressed properties sell at a 29% discount to non-distressed properties, according to the latest data from RealtyTrac. That probably makes Wells Fargo very sad!

The thing is this, though: this negative perception did not just magically appear out of thin air and fall unfairly on the banks. It's not just the houses that have a bad reputation; it's the banks themselves, thanks to the corner cutting in foreclosure and the uncertainty in title out of foreclosure which results from it. There is the perception, based firmly in reality, that you're safer buying a property from a regular homeowner.

Banks hiding information from potential buyers to benefit themselves is not going to fix that perception. Concealing that a property is bank-owned from potential buyers just furthers the banks' bad reputation that contributes to the steep discount that bank-owned properties already suffer compared to what the non-distressed market commands.

Wells Fargo says that they have recently instituted an aggressive policy of fixing up their properties before selling them. All fine and good, and maybe over time they can fix the perception that their properties are run down and have maintenance problems. But banks need to recognize that they need to repair their own reputations as well. This will require time and a sustained commitment to doing the right things.

Oh, and by the way-- to the credit of regional MLS that serves the Palm Beach area, this little strategy has been put to a halt. As of Tuesday (tomorrow), agents in the Palm Beach area will now be specifically required to disclose that a property is bank-owned. Hopefully, other MLSs around the country who do not require this will follow suit.

As a side note, this reminds me of the fairly recent California court case in which the real estate agent failed to disclose to the buyer that the sale would actually be a short sale, subject to rejection by the seller's lenders. [See Realtors' Duty to Disclose in a Short Sale, Source of Title Blog, 11/27/2010] The court ruled that the agent had a duty to disclose the short sale. It's not quite the same issue as here-- in fact, failing to disclose a short sale is probably far more serious on an individual basis than what happened here-- but there are some similarities, in that it seems that a lot of people in the real estate industry have the mentality that it is fair to hide material information from buyers unless there is a black-letter rule somewhere that specifically requires it to be disclosed.

More on the Vieiras-- would their case have been a winner in Arizona?

Slade Smith — Wed, 29 Feb 2012 13:51:28 EST

In a blog yesterday, I wrote about the Vieiras, a family which appears to be on a legal crusade against Wells Fargo over a mortgage made on their second home in Nevada which the Vieiras say was fraudulent because the appraiser hired by Wells Fargo inflated the appraisal. (If you haven't read my blog from yesterday, this blog will probably make more sense if you read that one first.)

I've since looked into the Vieiras' case a little more. I learned that the Vieira's case has already been decided against them (I should have thought that the courts might have acted since the writeup I linked to was published-- duh! Certainly, no definitive adverse outcome in the courts would deter these single-minded crusaders!) As it turned out, the Vieiras took their case all the way to the Nevada Supreme Court, and lost every step of the way on summary judgment-- the decision against the Vieiras was clear to the courts based on the facts alleged by the Vieiras, without the necessity of a trial.

In its short and sweet decision, the Nevada Supreme Court said:

[The Vieiras] failed to provide sufficient evidence to support their claims. As
the district court properly noted in its order, appellants failed to show any basis for reliance or causation based on respondents' conduct, as was necessary, because appellants entered into the contract to purchase the home well before the appraisal occurred and nothing in the contract provided for cancellation of the contract based on failure to obtain financing or for an appraisal value lower than the sale price.

I read through the Vieiras' brief to the Supreme Court. [You can find that document and other documents the Vieiras have posted on their website, wellsfargomortgagefraud.com.] Though the Vieiras' argument is still not convincing to me by a long shot, I did find it interesting that they did find a similar case in another state (Arizona) where a court ruled in favor of the homeowner-- against the appraiser, not the bank-- that the lender's appraiser owed a duty of care to a homeowner, and to the extent that an appraiser inflated an appraisal, they would have failed to deliver on that duty.

The framework of the case was similar to the Vieiras. Shari Sage signed a contract to purchase a home in Scottsdale, Arizona for $605,000. Sage's purchase contract was a standard form Arizona Association of Realtors "Residential Resale Real Estate Purchase Contract", which states that the buyer's obligation to complete their purchase is "contingent upon an appraisal of the Premises by an appraiser acceptable to the lender for at least the sales price".

She applied for a loan with Security Mortgage. On the advice of the seller, Sage asked Security Mortgage to use Blagg Appraisal Company as the appraiser and they agreed. Sage signed a form requesting that Security provide her with a copy of the appraisal. Blagg came in with a value of $620,000 based on a finding that the home was 2,440 square feet. The loan was made, and the sale closed.

In fact, the square footage of the home was only 1,871 feet-- a fact revealed when Sage tried to refinance a year and a half later. Sage sued Blagg for negligent misrepresentation over the flawed appraisal.

The trial court that heard the case ruled against Sage. Sage could not show that she had relied on the appraisal in purchasing the property, and further, could not show that the appraiser owed them a duty, the court ruled. The trial court relied heavily on the appraisal itself, which stated that the appraisal was "for use by [the lender] for a mortgage finance transaction only". The appraisal was a short form appraisal, "a quick estimate for lending purposes", according to the words on the appraisal.

But the appeals court reversed the ruling that a bank appraiser owes not duty of care to the borrower. In its 2009 decision, the court said in part:

We reject Blagg's argument that an appraiser owes no duty to the buyer/borrower ... because the loan transaction by which the buyer/borrower acquires the funds to purchase the home is distinct from the purchase transaction... [T]he appraisal the lender orders typically is the foundation of the home purchase transaction. Although Blagg argues that, as the appraiser, he served only the mortgage/lending transaction and not the separate transaction by which Sage purchased her home, we believe that distinction is without difference. A lender in Security's position will not finance the buyer's purchase if its appraiser concludes the home is not worth the financed amount. Likewise, in many cases, as here, a form residential purchase contract empowers the buyer to cancel the contract if the appraisal falls short. Whether the purchase will be made undisputedly hinges on the appraisal; we would blink at reality to conclude otherwise.

There's definitely some differences in the facts of the Vieira case and the Sage case-- most notably, the language in the purchase contracts. As was noted above, in the Vieira case in Nevada, the Supreme Court found "nothing in the contract provided for cancellation of the contract based on failure to obtain financing or for an appraisal value lower than the sale price." The Vieira's contract, which was apparently also a standard contract, apparently contained no language that the contract was "contingent on an appraisal", as the Sage contract did. I am not familiar with all the state contracts, so maybe that clause is just an Arizona thing that is not common elsewhere-- I have not investigated.

Even that being the case, I don't know that I agree with the Sage decision in Arizona. To repeat, the clause in the contract says that the contract is "contingent upon an appraisal of the Premises by an appraiser acceptable to the lender for at least the sales price." In the case of the Sages, this clause seems to have at least arguably been satisfied. An appraisal by someone acceptable to the lender made an appraisal, and it was for at least the sales price. If the buyer is supposed to be protected by the appraiser, shouldn't the appraiser have to be acceptable to the buyer also?

Nevertheless, the conception that I had that the bank appraisal was there to protect the bank and not the buyer seems to not apply in at least one state.

Occupy Protester Almost Makes Bank CEO Look Sympathetic

Slade Smith — Tue, 28 Feb 2012 15:38:06 EST

I saw a story that Occupy protesters were picketing outside the home of the CEO of Wells Fargo today. Little did I know that after I read the story, I'd actually almost think that the CEO ought to be picketing one of the protesters!

What caught my eye was the fact that the protester interviewed for a story in the San Francisco Business Times was protesting because she had been foreclosed on her second home:

San Leandro residents Donna and Nuno Vieira and their 7-year-old son Leonardo each carried a placard discussing an element of their story about losing a second home in Reno, Nev., through a Wells Fargo foreclosure.

Donna Vieira says a fraudulent appraisal meant her Reno house was $243,000 under water on the day she took out her Wells Fargo mortgage. The Vieira family later lost the home to foreclosure after pouring $350,000 into a down payment and monthly mortgage payments.

That sounded like an awful lot of coin for a typical 99 percenter to plunk down for a second home! So I was intrigued by the fact that someone who was apparently living the lifestyle of a rich person just a few years ago was picketing amongst the Occupy protesters.

After researching the matter, I found a writeup on the Vieira's story, entitled Profiles: Family Won't Give Up. I found out that this was a purchase mortgage-- the Vieiras are claiming they bought a home for $243,000 more than it was worth, and blame a fraudulent appraisal by the bank who made their mortgage, instead of blaming themselves for overpaying.

The thing is, when the bank gets an appraisal, that's for the benefit of the bank-- to make sure that the value of the collateral covers the amount of money they are lending. It's the bank that is damaged by an inflated appraisal-- if the borrower defaults, as happened in this case, the collateral is not worth as much as it was purported to be, and the bank will have a larger writeoff. The borrower saw the property and knew what the price was. If they had paid cash, there wouldn't have been a bank appraisal.

Should they have known all this? Well, there's the fact that the Vieiras were appraisers themselves, owning a "successful real estate appraisal business"! I find it hard to believe that the Vieiras were ignorant of the fact that some appraisers would work with the numbers to ensure that an appraisal would conform to a desired purchase price.

But anyway, the Vieiras stopped paying on their mortgage-- not for any financial hardship or inability to pay, but because the appraisal was allegedly inflated:

"Knowing the mortgage was fraudulent, we just couldn't keep on paying," Nuno said, adding that they stopped making mortgage payments in September of 2009.

This is what a classic strategic default looks like:

"Despite the foreclosure, both of us still maintain near perfect credit scores," Vieira said, "but due to something that is completely not our fault, we can't take advantage of the low mortgage rates now and switch to a 30-year fixed. It just creates so much uncertainty in our life."

They can still send their son to private school-- bet that isn't cheap!

They send Leo — a first-grader with a fourth-grade reading ability — to a private school, despite the good public schools in the area. "We can't send Leo [to the public school], because I don't have the time to help him with his homework or to track his progress in school," she said.

And why doesn't she have time for her son, you ask?

Now Vieira spends an average of five hours a day, seven days a week, in a legal fight with Wells Fargo over the mortgage fraud issue.

If the Vieiras' story were presented in a story to highlight strategic default and contrast it with foreclosure out of true hardship, it would not be that remarkable. But that is not the case. The site on which the article appears is entitled "What went wrong: The Betrayal of the American Dream". The article that tells their story is presented as a profile of "those hardest hit by the foreclosure crisis". This is being presented as if I am supposed to feel sorry for the Vieiras!

If folks strategic default, that is their decision-- I wish that people would feel a strong obligation to pay their debts if they can reasonably do so, but if the law allows for it, and it is to their advantage, I can't say that I blame a person for a strategic default. The banks screwed up badly during the housing bubble-- including in their appraisal process-- and I see strategic defaults as chickens coming home to roost in a sense. But when someone overpays for a second home, strategically defaults on their mortgage, and then not only has the audacity to blame the bank for the fact that they can't refinance because of a mark on their credit report, but makes a full time job out of pursuing the bank over a loss that they have already stuck the bank with, I end up almost feeling sorry for the bank CEO. Almost.