Carol H Tucker Passionate about knowledge management and organizational development, expert in loan servicing, virtual world denizen and community facilitator, and a DISNEY fan
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One of the byproducts of the mortgage debacle has been the problem with foreclosing. In a previous blog post, I talked about what happens when you don't make your mortgage payment -- foreclosure is the last resort the lender has to recoup their losses.
Foreclosure means that the lender comes and takes your house away -- they gave you the money to buy the house and you didn't pay it back under the terms and conditions of the note, so you have defaulted and the lender has the right to take back the property. It is an action of last resort for the lender and a lose/lose proposition. You have lost your house and all the payments that you have made to date and the lender will probably not ever get back the principal that was owed, much less the interest and legal fees. But it does come to this eventually.
There are as many different proceedures for foreclosure as there are states and territories, but it all hinges on the Deed of Trust or Mortgage. Remember all those papers you signed at settlement? There are three documents that are key: First there is the Note [AKA the Promissory Note] that establishes the terms and conditions of repayment. Then there is the Deed that conveys ownership of the property from the seller to the buyer, And last, the document that actually places the lien on the property you are buying, and that is the Deed of Trust or Mortgage. There is a difference
"The basic difference between the mortgage as a security instrument and a Deed of Trust is that in a Deed of Trust there are three parties involved, the borrower, the lender, and a trustee, whereas in a mortgage document there are only two parties involved, the borrower and the lender. In a Deed of Trust, the borrower conveys title to a trustee who will hold title to the property for the benefit of the lender. The title remains in trust until the loan is paid.
Often a title company, escrow company or bank, is listed as the trustee on the Deed of Trust. When the loan has been paid, the trustee will issue a release deed or trustee's reconveyance deed. This deed of reconveyance should be recorded at the county recorder's office, to make public notice that the loan has been paid and that the lender's interest in the property has ended."
Most lenders use a Deed of Trust [DOT] these days so that the servicing of your loan can be moved around. Now the Deed and the DOT are two documents that have to be recorded in the municipality where the property is located, usually in the Land Records of the Clerk of the Circut Court. If the DOT is bundled up and sold, there is another document that has to be recorded called an Assignment -- that transfers the DOT from one lender to another. And here is where the problems start.
The Clerk of the Circuit Court is not a big huge government office; in most counties it is one-three people working in the middle of a lot of file cabinets. Many places have not automated and recordation means a person physcially recording a Liber and Folio number in a book, then stamping the Deed and the DOT with the same number so that anyone can find the item in a title search. It isn't a high profile office with lots of funding and most residents would baulk at being asked to pay large amounts of tax revenue to upgrade the Land Records. After all, the system worked for years....
And so it did. It was creaking, but it worked. The first real problem happened courtesy of Ronald Regan -- remember when the tax deductions for interest paid on consumer items went away? The only allowable deduction was interest paid on your home, and so the HELOC [home equity line of credit] was born and second mortgages took off through the roof. Clerks were flooded with new DOT to record, not just purchase money but 2nd or even 3rd liens. And then the payoffs of those new liens and the establishment of new liens had to be recorded -- all of this on top of the purchase money DOTs and the Assignments....
Let's take a very standard case and count the recorded documents. New purchse money DOT. Six months later, change in servicing Assignment. Two years later, HELOC. Another year, a change in servicing Assignment. Five years after opening the account, the HELOC gets paid off and closed -- a Lien Release -- because the borrower found a better deal elsewhere, new HELOC. Another change in servicing Agreement. In the course of eight years, there have been eight documents submitted to the Clerk of the Circuit Court for recordation -- on ONE property.
What we have is a paper jam
Now part of my job is to track when recorded documents are returned. Some counties are really quick because they are fully automated and even online. But most? It is an average wait of six to nine months before a recorded DOT or Assignment makes it way back to me, the lender. I track the pending documents on an excpetions list. After six months I start bugging the settlement company and the attorneys, but until that Clerk of the Circuit Court has the time to stamp that document and record it in the Land Records, that is all that I can do.
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