Cloudy Days Ahead

Clouded title is epidemic to this, er, epidemic. It’s not as though we have not been warning the servicers, judges, and title insurers.

 On Credit Slips:

Wrongful Foreclosures and Clouded Title

posted by Adam Levitin

I think there’s a much bigger problem lurking in the shadows behind the GMAC/JPMChase foreclosures freezes due to concerns about faulty foreclosures:  clouded title.  

There’s a lot of wonderful technical stuff involved with wrongful foreclosure claims, but the basic problem is pretty easy to understand:  you have to own a mortgage in order to bring a foreclosure action.  If you don’t own the mortgage, you don’t have any right to kick someone out of his/her house, even if that person has defaulted on his/her mortgage.  And GMAC/JPMChase are sufficiently worried that the trusts they service might not own the mortgages they are foreclosing on that they have put a halt to their foreclosure actions.  

Consider, though, what it means if there have been widescale wrongful foreclosures.  If these foreclosures were nonjudicial foreclosures (and maybe even for judicial foreclosures), it means that the foreclosure sale purchasers have clouded title.  The homeowner still has claim to the property and there might still be a valid mortgage on it.  And as many foreclosure sales end up with the lender buying the property and reselling it, what does that mean for the eventual end-buyer?

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