Nevada NODs grind to a halt

A few weeks back we mentioned an article in the RGJ that purported one reason behind the then sudden spike in Washoe County notices of default. [See RGJ Special Report: Spike in Washoe County default notices raises eyebrows]

The theory presented in the report was that banks were attempting to beat stricter foreclosure laws that were to take effect on October 1st. Namely, these new laws, part of AB284, require lenders to show documented proof of ownership before performing foreclosure sales.

Well, AB284 became effective statewide October 1st. What has been the effect? No less than astounding. Take a look at the daily number of NODs filed in Washoe and Clark Counties for the month of September compared to the number of NODs filed thus far in October.

Click on the charts to enlarge*


As of October 21, only eight NODs had been filed in Washoe County for the month. Compare that to the 394 NODs filed during September. That is a 98 percent decrease!
And the same decrease can be observed in Clark County.

How long will it take the banks to meet the new requirements? Will they ever be able to meet the new requirements? In the meantime, what effect will these new requirements have on shadow inventory? And if the foreclosure properties stop hitting the market will sale prices begin to rise?

Would love to hear your thoughts on this.

*Thank you to our friends at Ticor Title for providing the data in the charts above.

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About Guy Johnson

I am a licensed Nevada REALTOR® living and working in Reno, Nevada. Give me a call at 775-722-4011. My team and I will be happy to assist you with your real estate needs.
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42 Responses to Nevada NODs grind to a halt

  1. Avatar Sully says:

    “How long will it take the banks to meet the new requirements? Will they ever be able to meet the new requirements? In the meantime, what effect will these new requirements have on shadow inventory? And if the foreclosure properties stop hitting the market will sale prices begin to rise?”

    I can’t help but compare these questions with the 5 stages of grief. What are we on now the 4th – depression?

  2. Avatar Darla says:

    I have not paid my mortgage in 13 months. I have never received a default notice from the bank. So does this mean I am now home free? Do I get to live in my house forever without ever having to make a payment? Has Christmas arrived early for me?

  3. Avatar MarsBar says:

    AB 284 is a lawyer’s financial relief act. A lot of lawyers will make a lot of money figuring out what it means, and what is lawful and unlawful under this act. In the meantime, while the lawyers take 3 or 4 years to litigate all the issues, the housing market will suffer because of it. It only injects a lot of uncertainty into the market. Does it really mean the lenders cannot foreclose? If so, it also means the house becomes essentially unmarketable. How can anybody get clean title to a house that is encumbered with a deed of trust that cannot be foreclosed? Find me any title company on earth that will insure such a title.
    Anybody who thinks this is a good for the housing market recovery is mistaken. Once again, we see governmental intervention that will do no more than postpone the inevitable for a few more years. Very unfortunate.

  4. Avatar Walter says:

    Yep, just what every homeowner wants. To live next door to an abandoned house, with the dead lawn and broken windows, that cannot be foreclosed upon by the bank. Or a house with squatters who know that they can live “mortgage free” because they know the bank cannot foreclose. And who won’t spend a dollar to maintain the place.
    What a wonderful thing for the values in the neighborhood. Let’s have a big round of applause for the members of the Nevada Legislature who passed this and the Governor who signed it into law.

  5. Avatar Melissa says:

    Nothing about the new NOD law is all that difficult. If the Banks come to a grind because they have to cross their t’s and dot their i’s when taking people’s homes we should all be grateful For well over 200 years there was a chain of title on properties. Then the Banks came along and created Mortgage Electronic Registration Systems (MERS) and poof! things got sloppy. Because things go so sloppy the chain of title can be a bit challenging for the Banks. With that being said, it shouldn’t be impossible to foreclose, and if it is – whose fault is that exactly? The homeowners? The sad part is I work in the business of seeing exactly how sloppy the trustee services are at conducting non-judicial foreclosures. Rarely are they able to follow the simplistic laws that are in place, the level of incompetence is disheartening. Again, it just isn’t difficult to follow the law, read it, follow the steps, and you will be able to proceed to foreclosure just fine. Any crying on the part of the Banks/Trustees over this new law is simply pathetic, they need to get their acts together and take the business of taking one’s home more serious.

  6. Avatar E.Edward says:

    …….Just another futile effort to slow the hemorrhaging, Like the moratoriums-Basically assures future buyers more discounts from built-up inventories!

    Why buy today what can be bought tomorrow for less!

  7. Avatar Horatio says:

    How many verifiable cases have there been here in Washoe County where this broken down MERS system resulted in somebody who was in fact current on their mortgage being foreclosed upon?
    None?
    What exactly is the problem we need to fix here? What is the great injustice that needs to be remedied? Are people who have not defaulted on their mortgage having their homes erroneously taken away from them?

  8. Avatar MikeZ says:

    Good. “Trust me, Your Honor, we hold the mortgage” is no longer good enough.

  9. Avatar Beckett says:

    So what if the bank, because of sloppiness and poor business practices, cannot provide the original documents? But there is absolutely no question that the defaulting borrower got the loan, and is not paying it back, like he promised to do. This borrower should now be allowed to live in the house, mortgage free, apparently forever, because the bank blundered?
    What an extraordinary windfall to a person who breaks his contract to pay back what he borrowed. That seems to be a very warped sense of equity.

  10. Avatar Marie says:

    Can someone with knowledge about this new law please explain to me what it really means. I have always paid my bills, including my mortgage, on time. I have never incurred a late penalty in my life. My FICO score is excellent. I have read on this blog and elsewhere about all the people who lied to get a mortgage, and then when they stop paying, the banks take years to foreclose. All the while they live mortgage free. Now do I understand that the banks may not even be able to foreclose because of some defect in their record keeping?
    You know, it seems that every day brings more and more reasons for me to wonder if it’s me who is the Fool by continuing to live up to my obligations.

  11. Avatar Anonymous Coward says:

    I understand it’s upsetting to think about the unfairness of a borrower continuing to live in a house while not repaying a loan, but my understanding of the new law was that it required banks (or whomever it is who claims to own the mortgage) to prove that they do own the mortgage before foreclosing. Which seems not only entirely reasonable, but it seems like it would be ridiculous to not require that.

    Of course, I’m no lawyer, so I can’t make heads or tails of AB284. Is there something I’m not getting here?

  12. Avatar Melissa says:

    Anonymous Coward summed it up perfectly, and no, there is nothing you are missing with the law. It is a very easy law, I don’t understand all the whining about it. Unfortunately, due to sercurtization issues, etc. the wrong bank does foreclose – all the time. There are examples in Court’s in every single state in the US of 2 or 3 banks trying to foreclose on the same note as it was sold numerous times. The judges are on to the problem – which is part of the reason why we are here today. This law is in place to protect the sanctity of chains of title. Given the recent ruling in MA wherein the Court ruled that the buyer of a foreclosure sale property didn’t have clear title because of the Banks sloppiness, I am grateful we have Legislators and a Governor intelligent enough to realize that to force them to cross their t’s and dot their i’s will create a stable future property system, for the benefit of the people of our state. Really folks, don’t you want the same? As a homeowner, and a gainfully (and gratefully) full-time employed tax payer, I do. Frankly it seems to be a common sense issue, in my humble opinion. But common sense seems to be an almost unheard of thing these days.

  13. Avatar inclinejj says:

    Yet another law passed with good intentions, but not properly thought out.

    Election of 2012 is coming up in about a year so you will see all these tricks being tried to prop up markets.

    The scary words you can ever hear are:

    Hello, we are from your government and we are here to help!!!

  14. Avatar GratefulD_420 says:

    people who don’t pay their mortgage should be foreclosed on. They should not be ridiculed and they should not be drug through the mud. They either bought more than they could afford to begin with or maybe it’s just no longer financially worth it (since the housing crash) OR maybe their life circumstances have changed (jobs, divorce, health). Not paying the mortgage and turning over the house is a legal option from the beginning of the contract. No big deal.

    Just really unfortunate to see politicians get involved to give undeserving people something they have not earned nor is theirs.

    I think Darla is probably just being sarcastic… such satisfaction at the expense of other just couldn’t be real?

    I think people like Melissa are just trying to justify themselves cause they know they are wrong. There was ABSOLUTELY no need for a new law. Besides the few absurd sensationalized times it happened in the entire country… the banks have not been taking peoples homes. Besides I am certain that anyone it has happened to will be more than compensated for the banks mistake (either by the bank or through the civil courts). sure Melissa… nothing to complicated… you are correct…..except the people writing the law new knew very well the banks would have a problem producing the actual notes due to mortgage packaging and selling to investment firms were repackaged. Yes, they were greedy….but so were you and anyone else who purchased something they could not afford.

    Guess what guys… I have a good job (that I worked very, very HARD for) and my but family would like to borrow some money from the bank to make a home purchase. Glad to see you are so happy that you are making it more expensive for someone responsible. Go pat yourselves on the back.

  15. Avatar MikeZ says:

    Guess what guys… I have a good job (that I worked very, very HARD for) and my family would like to borrow some money from the bank to make a home purchase. Glad to see you are so happy that you are making it more expensive for someone responsible. Go pat yourselves on the back.

    How much does it cost a lender to supply the reqiured paperwork?

  16. Avatar bob_c says:

    Just creates a huge layer of red tape. I hope no-one thinks they will be getting their home for free from this ….(unjust enrichment).

  17. Avatar earned it says:

    If you just read what Melissa says, I just don’t see how anyone could possibly disagree with a single word.

    “This law is in place to protect the sanctity of chains of title.”

    Only teabaggers on the RRB, who really advocate anarchy, not a reduction in regulation, could possibly disagree with that. Guess what, some regulations actually are good — like the ones that keep the air clean, the water clean, and to keep some jackass from opening a refinery next door to my house. But the teabaggers got this religion that states any regulation is bad. They unwittingly fight for the corporations that own the politicians that screw them.

    As for this allegation that the injured party is the innocent potential homeowner, who now must pay more because of these rules — hogwash. Just bought a beautiful place for less than half its bubble value. Total cost to move in was less than 2.5% of purchase cost, with 100% financing (VA Loan, suck it). Then, 6 months later, I refinanced for a 50 basis points cheaper loan for a total cost of less than a grand. I’m laughing, because the bank was stupid enough to give me a 30yr fixed for 4.25%

    Easy, cheap credit is everywhere for qualified buyers. Grateful is over there crying in his soup about his poor, unfortunate kin that can’t get a loan. In the same paragraph he rails against a law that supports homeowners and helps keep the TBTF bank in check. Yet, he doesn’t see the contradiction. Now I understand the 420 part of his alias. Quit whining. You’re full of crap if you think its hard or expensive to buy a place in this environment. What world do you live in? Give me a break.

  18. Avatar Comeback Kid says:

    Earned it,

    wow. good rant. Write back more often. I don’t agree with the broad brush you seem to paint everyone with, but it’s great topic. But note: Tea baggers don’t advocate anarchy, just getting government out of their pants. One of the biggest misconceptions is that if your a tea party member your by default against government.

    I’ll put it this way, is there anyone out there that thinks government is doing a great job overall? If not, that doesn’t make you a tea bagger. It makes you a concerned citizen.

  19. Avatar Guy Johnson says:

    From Saturday’s RGJl: “[October could see] the lowest number of default notices filed in the area since the county recorder started providing NOD data electronically. ” See Notices of default could hit record low due to new Nevada law

  20. Avatar Melissa says:

    This is for GratefulD_420 – It is better to remain silent and be thought a fool than to open one’s mouth and remove all doubt — Abraham Lincoln. To presume that I purchased more house than I could afford, or am someone who is being foreclosed on, was foolish of you. Indeed, I am one who didn’t purchase more than I can afford, and who has been in a low interest, fixed rate, 15 year loan since 2003 and actually have an unheard of thing, equity. And I also have another thing, a brain. I believe that the Banks got sloppy, greedy, lazy and disrespectful of our history in chains of title. So, Mr. 420, I don’t want to assume that your name means you are a pothead, because I know potheads who are much more intelligent than your words have portrayed you to be, but I will say this to you – how would you feel if you bought a foreclosed on house that the bank illegally foreclosed, and you could then not clear title due to the banks error. Would you then think this law was stupid? Think it through, no I mean really, think it through. Be intelligent. Don’t be a sheep.

  21. Avatar skeptical says:

    Melissa,
    Please, please continue to post at the RRB. Your reasoned, logical, gramatically correct arguments are a breath of fresh air.

  22. Avatar Sliced Rye says:

    Melissa, I have a question for you, if I may.

    What do you think should be the result in a case where the bank, because of poor recordkeeping and perhaps even just plain downright carelessness on its part, cannot provide the necessary documentation to support a foreclosure on a house wherein there is absolutely no question whatsoever that the borrower got the loan and is in default?

    It seems to me that in such a case the borrower would be clearly unjustly enriched if the bank is never allowed to foreclose on its collateral. In such a case, do you think that the bank should be allowed to bring a judicial foreclosure action in order to prevent the unjust enrichment of the borrower? Would not a judicial foreclosure remove any defects in the chain of title?

    I don’t think that people object to the notion that banks ought to be requiredto do it right, but I do think most people would find it objectionable that a defaulting borrower might be allowed to live free of his lawful obligations because the bank blundered in maintaining the proper paperwork.

    I have apreciated your comments above, and look forward to your response.
    Thanks.

  23. Avatar Sully says:

    Ineptocracy (in-ept-o-cra-cy) – a system of government where the least
    capable to lead are elected by the least capable of producing, and where
    the members of society least likely to sustain themselves or succeed, are
    rewarded with goods and services paid for by the confiscated wealth of a
    diminishing number of producers. 🙂

  24. Avatar Melissa says:

    @ Sliced Rye – There is a statute in Nevada, in either chapter 106 or 107 of the NRS where if the entity has a lost note or deed of trust they can seek declaratory judgment from the court to enforce same. There is language regarding this approach within the Nevada Foreclosure Mediation Rules as well., so while that solution is most likely not favored for obvious cost analysis reasons, it does exist. For those naysayers on this blog that think this statute is not necessary, please take some time to copy the below link and read this Court Order. I believe you will find it educational on what we face, and exactly why sanctity of title should be important to all of us. And @ Skeptical, thank you very much!
    http://www.unitedtrustees.com/pdf/renslow_order.pdf

  25. Avatar Melissa says:

    One thing I failed to mention, I positively do not think a defaulting homeowner should be unjustly enriched. That being said, the level of incompetence I see on a daily basis in the foreclosure processing is frankly, disturbing. They literally cannot get it right 2 to 3 times of recording a notice of default, thus the NODs often get rescinded due to sometimes what becomes a blatant lack of statutory compliance other times for unknown reasons. So how unjust can it be when it is through no fault of the homeowner that the banks just don’t seem to be competent in this crisis. There is no doubt in my mind there are 1,000’s of jobs that should be filled to properly handle the foreclosures in compliance with the law. Just because a homeowner is in default does not mean the bank has carte blanch to take the home, by whatever method they want, particularly when it is governed by laws that must be followed.

  26. Avatar Reno Ignoramus says:

    The Renslow decision is in fact a more simple version of the tangled web of unintended consequences that have resulted from the securitization of residential mortgage loans that occured during the Great Bubble. In Renslow, at least the identity of the ultimate transferee of the note was identified as a GSE, the FHLB. Which particular FHLB was unknown, but at least it is known to be one of the FHLBanks. That is actually a pretty clean situation.
    Now imagine a mortgage note that was originated by a subprime originator that does not exist anymore. That originator sold the note to a corporate shell created by a Wall Street Investment Bank for the sole purpose of buying up mortgage notes. The note was then packaged into a MBS, which was “sliced” into tranches, and then pieces of the tranches were then sold to various investors around the world. Some of these investors may have further transferred portions of the portion of the tranch they purchased.
    The reality is that there is no way anybody today can identify who holds the beneficial interest in that note. No way. The web cannot be uncreated. No doubt of the 40,000 or so NODs that have been recorded in Washoe County over the past 5 years, a very substantial percentage of them were initiated by an entity with not a clue of who really held the beneficial interest in the note. No doubt many thousands of these foreclosures went forward anyway, and a title company has insured the title to the ultimate purchaser at the foreclosure sale. Perhaps these will be sleeping dogs that will never be awoken.
    The Renslow case does not even involve a securitized note. It was a fairly simple case of sloppy practice by the the originating lender and the transferee of the note.
    Perhaps the good news is that most of the worst loans, the total garbage that was originated in 2005-2008, has worked its way out of the system. Most of it escaped undetected under the radar in foreclosure sales that occured between 2006-2009.

  27. Avatar Guy Johnson says:

    For those of you following along in this thread check out the video I linked to in today’s blog post: Washoe County Foreclosure-related Recordings – October 2011

  28. Avatar Free Falling says:

    With the new hurdles to cross in foreclosing on a property, the banks would be well advised to improve their short sale processing. How many properties have we seen listed as short sales before returning as REOs? With REOs disappearing from the market for a few months while the banks figure out the new rules, it will be interesting to see the impact on short sales.

  29. Avatar Melissa says:

    @ Reno Ignoramus – excellent post. While I am, unfortunately, aware of how messy it really is as you explain so well in your post, I was afraid to go into much detail and thought Renslow was a very simple example that the average person could read and understand. You are 150% correct in your post, and it is nice to see someone able to explain in a way that is easy to grasp. And @Free Falling, you are sooo right, short sales, modifications, all that stuff should be a little easier to come by with the Banks in light of the new requirements, however, that would mean there was some display of logic within the banking industry. Thus far, I have seen zero, and I mean zero, logic. Maybe this will bring it, one can only hope.

  30. Avatar Gadfly says:

    I have to agree with Melissa. And to expand just a bit, I want to emphasize that AB284, to a large degree, provides teeth to existing requirements for non-judicial “foreclosures” in Nevada. The non-judicial trustee’s sale process has always required that the trustee only proceed if the trustee is the proper trustee and the beneficiary of the trust has proper claim as beneficiary. However, because recording of transfers of interest and change of trustee was encouraged, not required, the non-judicial process could proceed even in the absence of an adequate record attesting to the right of the trustee to proceed. After AB284, to proceed with the non-judicial procedure, the identity of the trustee and the beneficiary must be a matter of record (that is, recorded in the county where the property is located).

    On a philosophical level, it is astounding to me that so many of you are willing to allow a non-judicial procedure that leads to a forfeiture of property interest to be accomplished without an adequate record as to the right of the party proceeding to benefit by such process. Or put another way, a non-judicial foreclosure process is an extraordinary remedy as it bypasses the judicial process (here, extraordinary is used in the legal sense, not the normative sense, as non-judicial foreclosures in deed of trust states have become the norm). Typically, we hold such extraordinary remedies to higher standards of proof than required by judicial remedies. If the beneficiary under the deed of trust wishes to avail himself/herself/itself of the extraordinary remedy of taking back property without judicial process, then it is reasonable we make sure that such can only be done with a clear record. AB284 ensures that the extraordinary remedy is only available if the record is clear. If the record is not clear, then the purported beneficiary must use the judicial process.

    As for unjust enrichment claims, that is indeed a remedy available to creditors through the judicial system. However, I believe the note holders would be better off to proceed with a judicial foreclosure and seek damages under the terms of the note as this would result, presuming a valid claim, with both taking back the property and an award of damages.

    Finally, even though I agree with Melissa as to the benefits of AB284, I am concerned about how it will be used by those trying to game the system. Personally, I would have made AB284 only apply going forward with newly issued deeds of trust, new transfers of interest under the deed of trust, and new assignations of trustees, and I would have created a temporary right of judicial review (a review on the documents, not a full hearing) in NV District Court for non-judicial foreclosures carried out over the next three years. The review process would catch truly improper cases, and within those three years most of the pre-AB284 matters likely would be resolved.

  31. Avatar Romano says:

    The house across the street from me has been vacant for 6 months because the owners decided to “strategically default” and just move out. They could have afforded to continue to make the mortgage payments but they decided to default instead because they considered themselves hopelessly upside down. (And also because one of the them got a job out of Nevada). Now here’s the thing. A NOD has never been recorded against the property. Does AB 284 mean that now a NOD may not ever be recorded if the bank cannot provide the necessary affidavit to support the foreclosure?
    I understand the arguments on favor of AB 284. But here is a case where the borrowers have intentionally defaulted and don’t even want to continue to own the house. They are gone.
    So now this house is now going to sit empty and abandoned and will experience the inevitable decay that occurs in an abandoned propoerty for…….years?
    How many times might this same situation occur all over Nevada?
    This cannot be sound public policy.
    Any thoughts?

  32. Avatar Gadfly says:

    Romano,

    The most relevant requirements under AB284 are that changes to the beneficiary under the deed of trust and changes to the trustee must be recorded with the county recorder in the county where the property is located, and that the trustee must produce an affidavit that the beneficiary holds the note or is a proper agent of the note holder, and thus has standing to proceed.

    In a situation where the beneficiary under the deed of trust and the trustee have remained the same (unlikely given the reasons stated above), the NOD can move forward if the proper parties so desire. If any changes in the beneficiary or the trustee have occurred, those changes will have to be recorded before an NOD can be properly filed and enforced, and the history of those changes, including names and addresses of the people or entities involved, will have to be supplied to the trustor (the debtor).

    The substitution of trustee issue is fairly easy. The proper beneficiary under the deed of trust merely needs to record a substitution of trustee prior to the NOD and then provide the trustee with the proper information. The change of beneficiary issue may be much more complicated as the current beneficiary may be the most recent in a long chain of beneficiaries, and all those prior changes must be documented and disclosed in order for the current beneficiary to proceed with an NOD.

    The note holder on the property across the street from you could proceed with a judicial action for foreclosure. Or the note holder could bring all the paperwork current (if such is even possible). Bothwill take time and money. So, if it is less costly to let the property sit than to try to recover it, then likely it will sit. As you say, this is horrible public policy for already existing default situations in which an NOD has not yet been filed and for strategic defaults in the near future. I believe that AB284 is sound policy for the future, but I fear it will be a disaster for the next few years because of how the legislature chose to apply it.

  33. Avatar Grand Wazoo says:

    Worse case scenario is many neighborhoods like Romano’s become full of abandoned homes that no one wants and no one can legally foreclose on. Imagine thousands of “Kings Inn” type residential properties scattered throughout Reno residential neighborhoods.

  34. Avatar gadflys interesting comments says:

    Who knew Prof Gadfly became a part time real estate attorney?

    Either its a small course load this year, or its time to moonlight due to the state’s ever diminishing support of education….

  35. Avatar GratefulD_420 says:

    Why thanks Melissa! what a sweet-hart. U R so “edumicated,” at name calling. My sincere apology for offending you so much that you felt the need to belittle me.

    Sorry, but I have been and will be called much worse for speaking my mind. p.s. I’ve never been called a sheep before!

    To Mike Z and Earned it: of course there is no additional costs… yet. But in the end… if banks (investors) get stuck with the bill… by not being allowed to foreclose on DELINQUENT homeowners in NV (without the official note, which RI explains how impossible we all know it will be) who do you think will end up paying the costs? Upcoming mortgage holders. This was the point of the posts.

    For my proof, to the additional upcoming mortgage costs in NV…. I call none other than my primary expert witness on the subject….. Melissa

    “There is no doubt in my mind there are 1,000?s of jobs that should be filled to properly handle the foreclosures in compliance with the law. Just because a homeowner is in default does not mean the bank has carte blanch to take the home, by whatever method they want…” – Melissa

    So Melissa, can you please tell me why you think the best solution to a DELINQUENT home owner is to tie red tape around the mortgage holders ability to reclaim their greatly depreciated asset? We all know the law sounds simple and just; however we all know they cannot produce the clear title and it will stop them dead in their tracks (e.g. see current month NOD’s.)

    p.s. – This is a question to your statement…
    “how would you feel if you bought a foreclosed on house that the bank illegally foreclosed, and you could then not clear title due to the banks error.” -Melissa

    Isn’t a clear title a process that is done prior to purchase? Wasn’t this what was happening on every REO sale prior to this bill?

    Also you posted the Renslow case as your prime example? These are people that were claiming they COULD NOT pay their mortgage. Again, please understand that I have much empathy for people in difficult life circumstances, however I don’t understand why these people just don’t sell (with equity), short-sale or foreclose and move on to something now affordable for their life circumstances. Maybe it’s just because I come from poor where everyone paid for everything they had. I don’t believe in this “loosing the house” heartbreak scenario. No big deal. Can’t pay the bill… give it up and move on with life. DON”T ASK OTHERS TO PAY FOR YOU AND YOUR COMFORTS.

    TO GUY: “And if the foreclosure properties stop hitting the market will sale prices begin to rise?”

    I agree with Melissa that if the banks can’t figure out how to originate a NOD under the new law that Short Sales will increase. Therefore, with plenty of distressed supply (via Short Sale) the market will stay depressed to declining until the other important factors change [demand, employment, income].

    – GratefulD_420

  36. Avatar GratefulD_420 says:

    “gadflys interesting comments”

    My best guess is we now have a few of them.

  37. Avatar Gadfly says:

    Only one true Gadfly, GratefulD_420. And I loved the first paragraph of your post on October 27:

    “people who don’t pay their mortgage should be foreclosed on. They should not be ridiculed and they should not be drug through the mud. They either bought more than they could afford to begin with or maybe it’s just no longer financially worth it (since the housing crash) OR maybe their life circumstances have changed (jobs, divorce, health). Not paying the mortgage and turning over the house is a legal option from the beginning of the contract. No big deal.”

    Well put! That is one of the best comments on foreclosures I have ever read.

    As for the issue posed by the poster known as “gadflys interesting comments”, I did mention on a post a while back that I have a JD but do not practice law. One occupation does not preclude training in the other. I like reading new legislation, and I thought I would give some thoughts on AB284. I would love to hear if any actual real estate attorneys agree or disagree with my take on it.

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  40. Avatar Matthew says:

    Hi Melissa, I’ll just copy+paste my RGJ reply (to, I presume, you) here 😀

    You made the accusation that the 98% decrease in the issuance of NODs was because they were now being forced to “follow the law.” So does that mean you believe that 98% of foreclosures were illegal or unwarranted?

    As highlighted by the RGJ and other professionals in the industry, two significant ramifications of AB284 are that, under significant penalty:

    1) [Sec. 6: 2,5] Nobody may act as trustee to another party to which they have a fiduciary duty nor can they, themselves be the grantor. The result of this is that banks cannot use their own subsidiaries as trustees nor anybody else with a duty. So no we have only third party trustees… This would be a fine (although still cumbersome) approach to prevent conflicts of interests except that….

    2) [Sec. 9: 4,6] The grantor must demonstrate they are the holder of the note, and/or provide all documentation of the distribution of beneficiaries and instrumentation of the secured asset.

    You are asking a services, which is a *custodian* of a note, to document and obtain consent from all beneficiaries and to outline all the instrumentation.
    So that could mean that BofA, who is only the servicer of your note, needs to obtain information from Fannie Mae for how the note was securitized… then they might both have to get in touch with Vanguard who included some of the note in its real estate portfolio… Vanguard might have written a swap with another fund, who may have have it in tranches with some endowment… then all the trustees of the endowment are beneficiaries…
    Do you see how this web becomes nearly impossible to unravel? It is not the fault of the web, the securitization and tranching is effective so long as the custodian is capable of servicing the asset.

    So, now you’re asking BofA to get all that documentation (if it’s even possible) and then compensate an unconnected third party to certify as a trustee to the documentation under legal penalty.

    The result is that nearly all the custodians of traditional mortgages stop issuing NODs. You will see *a few* NODs issued if they had unique notes or had not yet been securitized but this is clearly not the majority of delinquent borrowers.
    The data speaks for itself.

    Now, the near-term reality will be that a judge will qualify that the law is not to be interpreted in this way… Or the legislature will change the law. As it currently stands, and with tremendous legal ambiguity, it completely breaks the flow of the foreclosure process…. not because people are suddenly timely on their debt, but because we have made it incredibly painful for the authorized custodians to service these mortgages.

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