Bloomberg reports that real estate titles might be detrimentally impacted by all these foreclosure problems that are cropping up, quoting a Florida attorney that researched the problems:
U.S. courts are clogged with a record number of foreclosures. Next, they may be jammed with suits contesting property rights as procedural mistakes in those cases cloud titles establishing ownership.
“Defective documentation has created millions of blighted titles that will plague the nation for the next decade,” said Richard Kessler, an attorney in Sarasota, Florida, who conducted a study that found errors in about three-fourths of court filings related to home repossessions.
First, it may come as a surprise to Mr. Kessler, but you can’t really extrapolate the problems of your home county in Florida to the rest of the nation. I know this is hard, but listen carefully: Florida’s real estate property law and the foreclosure system arising from it are not the same as any other state’s. Most states don’t require judicial foreclosures, so the issues presented in these cases from Florida and other locales that do simply never arise. And this: Just because a foreclosure gets screwed up does not mean the title to the property gets confused. But if it does, and you have done your real estate attorney job properly, then the only one that needs to worry is the title company. Not the mortgage company. Not the putative property owners. The title company, and them alone. Don’t worry. They’re probably too big to fail if push comes to shove.
But he goes further:
Such mistakes may allow former owners to challenge the repossession of homes long after the properties are resold, according to Kessler. Ownership questions may not arise until a home is under contract and the potential purchaser applies for title insurance or even decades later as one deed researcher catches errors overlooked by another.
Did you really say “decades” later? You claim to be in the real estate law business, but have you never heard the axiom that time cures all title defects? So it does. Ten years is usually enough. Unless Florida has no statute of repose, like most other common law states. Maybe it doesn’t, but don’t extrapolate Florida’s silliness to the rest of the country. Florida also has an unlimited homestead allowance in bankruptcy. Which may be the source of a few of its other problems, including its inability to process foreclosures.
This is a non-problem. Mortgage companies don’t do foreclosures well. Neither did they do originations all that well. If local judges use the power of the bench to punish mortgage companies for not crossing the i’s and dotting the t’s properly, in the end it will only be all the rest of us that pay when a home is awarded to people that never really owned it, but just owed it.
This little imbroglio caught the attention of Gretchen Morgenson of the New York Times in her column yesterday (not available free until next week). She, of course, pointed out the multifarious problems with the foreclosure process as seen from the point of view of the ones losing their homes. But there is no question the people living in the house owe the money. Should they get off on a technicality? Not wise. In equity, they shouldn’t and wouldn’t. But these indeed are strange times.