As it turns out, nobody has bothered to maintain the chain of custody for a lot of mortgage documents. Now, if you’ve ever gone through the mortgage process, you know that it’s an hour or two of signing huge numbers of papers. You’d think those papers were important or something.
Well, the “mortgage-backed securities” that were at the heart of our current economic crisis are not actually backed by those papers. In fact, many of them seem to have disappeared.
In my central-city neighborhood, there are a few houses where there are anti-foreclosure signs. There are people being seriously hurt because their mortgages are being foreclosed after they’ve lost jobs to a depression caused by … Mortgage speculators!
Would it be appropriate justice for a property owner to demand that someone foreclosing on a mortgage produce the papers? Would it be legitimate to refuse to pay in the case that those papers cannot be produced? Would an appropriate sanction for proven mortgage fraud be the forfeiture of the mortgage?
I mean, you’d think that if a packet of papers was such a big deal to sign, it might be worth a few hundred thousand dollars. Maybe people ought to take care of it?
What would YOU do if you had a lot of paper worth a couple hundred thousand dollars? Or if you were buying a mortgage for $200,000 would you insist on maybe having legitimate ownership of the papers?
As an analogy, consider art fraud. If a person buys a painting they are likely to pay millions more if they think it is a Monet. Well, it may be a very nice painting, but if it’s not actually a Monet, but a Bob Johnson knockoff, it probably wouldn’t be worth millions. Furthermore, Bob Johnson might be in deep doo-doo for signing Monet’s name to a non-Monet painting. The buyer loses out because she thought she was getting something valuable.
But a mortgage investment firm gets away with a slap on the wrist. I’d love for people to start fighting for closures by demanding production of the original paperwork. And I’d love even more for a judge to throw out a foreclosure action – and grant nullification of the mortgage – as a penalty for fraudulent robo-signing.
When will caveat emptor apply to those who profit from others’ misfortune?
DISCLAIMER: I am fortunate enough to have only a modest mortgage and I’m not in trouble with it. In fact, based on my investments in mutual funds, I probably stand to lose something if mortgage-backed securities were held to reasonable standards of proof. But I stand to gain so much more, psychically, if the bastards who got us into this mess get screwed that I’d happily take the hit.