Title Defects and the Ticking, Title Time Bomb

Richard F. Kessler
The two Florida Appellate Court decisions requiring trial court judges to read,
inspect and verify documents in each case prior to adjudicating foreclosure only
identify the tip of the iceberg.

Today, millions of American families are losing their homes due to mortgage
foreclosure. Tomorrow millions of American families may lose their homes
because they bought a home that was once foreclosed.

The incomplete foreclosure judgments routinely being handed down by courts in

all 50 states will result in a massive title problem which will make foreclosed
homes impossible to sell or finance and unable to obtain title insurance. The two
Florida Appellate Court decisions ruling that judges are responsible for rendering
judgments based upon complete and correct documentation only identify the tip
of the iceberg. By allowing properties to go to foreclosure based upon defective,
deficient and spurious documents, the judges are inadvertently creating a
ticking, title time bomb which will cause millions of homes being foreclosed to
have a cloud on title.

Almost three million homes were in foreclosure in 2009. More than 3 million
homes will be in foreclosure in 2010. It is estimated that one out of seven home
mortgages is currently in default. The sheer volume of foreclosure has
overwhelmed judges and our judicial system. The reaction has been to clear
dockets by judges failing to read the pleadings and motions or check the
information submitted by the foreclosing creditor instead rubber stamping
foreclosure orders in rocket docket proceedings. By treating foreclosure
proceedings like an assembly line manufacturing foreclosure judgments judges
have created millions of homes as ticking, title time bombs set to detonate at
some future yet undetermined date.

The volume of foreclosure has become so great that China, a large player as an
investor in securitized mortgage certificates, has acquired a major share in the
ownership of Florida’s largest foreclosure mill whose stock is traded on NASDAQ.
This company has been named over and over again as a principal source of
incomplete, incorrect and spurious documentation. The CEO stated that he
looked forwards to increasing foreclosures in the United States and the
economies of outsourcing preparation of legal documents to the Philippines.

The cloud on title is created by the failure of the foreclosing court to address the
following matters:

1
 1. To make certain that all parties in interest who are of record have been
named and joined in the foreclosure action;
2. Verify the chain of title of the mortgage; and
3. Fail to adjudicate and determine the following matters:
(a) Whether the party bringing the foreclosure is legally entitled to foreclose;
(b) Whether the mortgage payments alleged to have been unpaid were in fact
paid; and
(c) Whether securitization of the mortgage required the prior, written consent
of the borrower.

Each of these matters can be used to bring a suit brought subsequent to

foreclosure, among other things, for wrongful foreclosure and seek not only
monetary damages but a reconveyance of the home to the original borrower.
Recent developments in the title insurance industry already are responding to title
problems resulting from incomplete foreclosure, The title companies all offered
additional title insurance coverage to protect against the claims of third party
creditors who has not been named or joined to the foreclosure industry. For
example, a plumber may have field a lien against the property but not included in
the foreclosure proceedings or foreclosure judgment. Accordingly, the plumber’s
lien is still of record and remains unpaid. The additional insurance agreed to deal
with this problem and get the lien removed. In the past, failure to join a party in
interest was rare. Today, it has become so common that the leading title insurers,
First American and Fidelity, have discontinued the coverage. It is but a question of
time until the other shoe drops with respect to the other title defects.

As a result of judicial misconduct, incomplete judgments also will create enormous

liability for the county or other unit of local government conducting the foreclosure
auction or the trustee in a deed of trust jurisdiction. In Sarasota and many other
places throughout the county, the party conducting the auction sale does not
disclose title defects which are known or of public record and therefore deemed to
be known. In these jurisdictions, the duty to disclose such defects is
unacknowledged and, accordingly, undischarged. Millions of purchasers at auction
of foreclosed property with a known title defect will have a potential cause of action
against the unit of local government or the trustee for breach of the duty to disclose
known defects at a foreclosure auction.

“Haste makes waste” as an idiom was first recorded in 1575. Based upon recent
evidence, America’s judicial foreclosure has yet to learn this lesson while the rest of
us will be expected to foot the bill for their tuition.