Buyers of foreclosed homes from Wells Fargo may not have a clear title to the property

[Amerigo Vespucci]

September 20, 2010 10:30 AM
In Ticking Time Bomb, Wells Fargo Dumps Risk Onto Unsuspecting Buyers of Foreclosed Properties
By Susie Madrak

http://crooksandliars.com/susie-madrak/ticking-time-bomb-wells-fargo-dumps-0



Guess what? When you buy a foreclosed property from Wells Fargo, you may not have a clear title to the property. Go read the whole sorry mess, as spelled out by Yves from Naked Capitalism:

Now specifically, the potential problem with the deal is the bank in many states will at best be giving the buyer a “quitclaim” deed (the addendum finesses this in paragraph 18, that the buyer only gets a “special/limited warranty deed. As the lawyer who took a dim view of this addendum put it, “This is like the ‘Special Olympics,’ not like ‘You are my special someone’.” That means the bank is merely transferring whatever it interest it has.)

But per the AFX article above, the bank may own nothing .It may have foreclosed without having a clear enforceable right to the property (this is the basis of the burgeoning number of cases where borrowers are successfully challenging the bank/servicer’s right to foreclose, because it cannot prove it actually owns the note, which is the IOU between the borrower and the lender; if you don’t own the note, in 45 states, you have no right to enforce the lien on the property).

Now this little problem can be solved by title insurance, right? Well, guess what, some title insurers have exited the business, some others are starting to write policies with meaningful exceptions when they can’t go to the courthouse and find a clear chain of title. Oh, and Wells is trying to steer you towards their title insurer. What do you think the odds are that their title insurance policy doesn’t have exceptions?

So what is the risk? The lawyer explains:

The typical (unsophisticated) buyer thinks that because they have a lawyer at closing (no matter whose lawyer it is), a title policy, etc…….that they are all safe and sound. They struggle through one of these REO transactions for a month or two, finally get in the house, something bad goes wrong, and they find out that 1) the title policy won’t cover them and 2) the land isn’t unique (see the nasty provision in paragraph 27 on “specific performance”), so a refund is all you get – and you are out on your ear. Hopefully, with a refund – and that may be the best outcome. But if somebody comes in, and voids a foreclosure, your title policy doesn’t pay – Wells Fargo has clearly disclosed that this was a foreclosure, so you only got what they had (nothing), and you have no recourse, no insurance, and guess what, an unsecured loan for half a million bucks.

Given how many sales will be done out of REO, and the rising number of problems surfacing with making sure that mortgage securitizations took all the steps to become the real party of interest in a particular property, it is only a matter of time before we see some blowups of the sort the attorney was worried about, of a buyer shelling out hard dollars for a house, or taking a big mortgage, and winding up with nothing. And a few incidents like that getting the press they deserve will put a pall on REO sales.

Think the risk isn’t real? Then why has Wells bothered to insist that REO buyers sign a new type of addendum, when it has been selling REO for decades? This effort to shift all title risks on to the buyer is a tacit admission of problems. And look at the document itself. The buyer has to initial it in eight places as well as sign it. That’s a clear statement of Wells’ intent to shift the risk to the buyer.

[pnwmom]

1. I wonder why this only applies to Wells Fargo.

Lots of banks have been messing around buying and selling mortgages.

[Gaedel]

4. Wells Fargo inherited a lot of the problems

They took over the failing Wachovia Bank which was torpedoed by the very unwise decision to acquire an outfit called Golden West Financial which was the poster child for shaky mortgages originated just to earn the origination fee. I wonder what percent of Wells Fargo problems trace back to Golden West and their subsidiary World Savings Bank. Wells Fargo/Wachovia also inherited (and has to honor) a bunch of long term, high rate CD issued by World Savings to get money in to keep the scheme afloat. Wachovia failed in their due diligence in acquiring Golden West. Wells Fargo got presswured into taking over Wachovia.

[pnwmom]

6. Thanks, Gaedel. n/t

[Gaedel]

10. You are welcome.

My wife got a bunch of those World Savings Bank CDs for a long term and a high rate of interest. Wachovia is still pissing and moaning about having to honor them. They are still keeping the Wachovia name on the banks around here even though Wells Fargo has taken over.

[KamaAina]

9. That's exactly how they ended up with my neighborhood branch

it was originally World Savings, then Wachovia (when I moved in), and now Wells Fargo.

[Warpy]

2. Until this mess is straightened out, complete with the shadow inventory

being put on the market and prices allowed to sort themselves back into affordable territory, home ownership is the worst deal it's been since the 1920s.

The only reason to buy now is as a hedge against rising rent in markets that have rapidly rising rents. The buyer also needs to steer clear of foreclosure "bargains," since nobody knows who owns the title to most of them, the mortgages having been snipped apart and sold to dozens of institutional buyers within the last 20 years.

[KamaAina]

3. I devoutly wish they had not hoovered up the only bank branch in my neighborhood

Now I'm stuck with them unless I want to go through the hassle of opening an account at the nearby credit union. :(

[damntexdem]

5. Go to the credit union!

Certainly don't have anything to do with Wealths Forego.

[pnwmom]

7. There's really no hassle at the credit union. n/t

[KamaAina]

8. Merely going into the branch and filling out the paperwork is a hassle

particularly since it would likely have to happen on a Saturday.