Please refer to Bloomberg news for article about the Goldman Sachs/Fannie Mae non-performing loan purchases at:
By the Lending Lies Staff
Just last year Goldman Sachs entered into settlements with state and federal governments over the sale of toxic mortgage backed securities to investors while subsequently shorting the very same securities they were selling. Goldman would agree to provide $1.8 billion in debt relief to delinquent borrowers. However, since Goldman (and likely no other identifiable party) doesn’t owns the debt, Goldman cuts its losses by repackaging the toxic debt, assigning it an AAA rating and selling it to unsuspecting investors and pension funds for a fee, thus off-loading any liability. Goldman knows the feds won’t do anything to stop its crimes spree- so why not sell mortgage backed securities you know are toxic?
Goldman has once again successfully masterminded a new strategy to satisfy the $1.8 billion settlement without having to fund a dollar of that outstanding obligation, and while also profiting on this RICO scheme.
Goldman’s plan includes buying up billions of dollars of non-performing and defective loans at massive discounts. Goldman just announced they were purchasing 4.5 billion dollars in non-performing loans from Fannie Mae. It would be interesting to research if Fannie Mae discloses that these loans have material defects that cannot be remedied.
Goldman then contacts the homeowners and negotiates loan modifications by incentivizing the homeowner to participate by reducing their principle balance. Most desperate and unsuspecting homeowners have no idea that Goldman is acting as a debt collector and there is no underlying party that owns the debt or has a right to modify the mortgage contract in the first place. Once the modification is signed, in theory, a “new” loan is issued that rectifies all past endorsement, assignment and trust issues, while whitewashing all prior fraud.
The homeowner is now making payments on a new loan that is less than Goldman’s initial discount on the original purchase. Goldman than credits the principle forgiveness against its $1.8 billion dollar mortgage relief obligation while making money! Goldman is able to skirt the punishment and the fine costs them nothing because the debt was acquired at an even larger discount.
Finally, the true ingenuity of this plan emerges. Once the loan is modified and performing, the loans can be repackaged and resold as Triple-A paper once again to unsuspecting buyers.
The Wall Street Journal reports that the debt scavengers at Goldman Sachs are the largest buyer of Fannie Mae’s non-performing loans, having purchased $5.7 billion worth of unpaid loans over the past several months. Goldman Sachs should have been barred from ever participating in mortgage backed securities transactions after its last criminal enterprise.
Over the past year-and-a-half, Goldman Sachs has become the largest buyer of severely delinquent home loans from Fannie Mae. In fact, Goldman has acquired nearly two-thirds of $9.6 billion in loans the agency has auctioned off, representing unpaid loan balances in excess of $5.7 billion, according to the Wall Street Journal’s review of government records.
In all, Goldman has spent roughly $4.5 billion on some 26,000 Fannie-owned loans, according to government records. It has also been buying mortgages, from private sellers and Freddie Mac. Apparently while everyone is unloading zombie mortgage loans, Goldman Sachs is buying as much toxic sludge that is available.
According to the government-sponsored enterprise, the portfolio was split into four pools of loans and auctioned off.
The winning bidder of the smallest of the four pools is Igloo Series II Trust (Balbec Capital). That pool contained 1,465 loans that carry an aggregate unpaid principal balance of $246,748,844.
The pool has an average loan size of $168,429; a weighted average note rate of 4.51%; a weighted average delinquency of 29 months; and a weighted average broker’s price opinion loan-to-value ratio of 78.75%.
The remaining $1.43 billion in unpaid principal balance went to MTGLQ Investors, a “significant subsidiary” of Goldman Sachs.
MTGLQ Investors is now a fixture among the NPL sales from both Fannie Mae and Freddie Mac.
In this latest sale, MTGLQ Investors bought the remaining three pools of NPLs.
The first pool contained 3,062 loans that carry an aggregate unpaid principal balance of $496,205,215.
Goldman has an excellent business plan. By renegotiating and repackaging worthless mortgage loans it can polish high-risk loans into grade-A paper. The pension funds take on all of the risk if the homeowners default, and Goldman will have kicked the can down the road to the newest suckers in the scheme.
On Tuesday Goldman won the majority of defective loans at Fannie Mae’s latest auction, its largest to date. The bank bought about 8,000 loans with unpaid balances of $1.4 billion.
Goldman has paid between 50 and 90 cents on the dollar for the loans, according to Fannie Mae, however, some (if not all) of these loans are likely not worth a dime until fraudulently modified.
Meanwhile, because Goldman is getting credit toward fulfilling the terms of its settlement, it can afford to pay more for the delinquent loans than other competing bidders, which essentially means they’ve not only created but they have cornered an entire market.
“It’s a little too early for me to announce what our response will be other than to say what these breach of contract claims were always the central claims in this case,” said Hamish Hume, a Washington-based attorney with Boies Schiller Flexner LLP, who represented some of the prevailing shareholders.
In place since January 2013, the controversial net worth sweep allowed the U.S. to recapture all of the $187 billion in taxpayer money it spent to stave off the companies’ collapse during the global fiscal crisis and as of 2016, at least $56 billion more. All of that without reducing Treasury’s liquidation stake in either firm.
As Bloomberg adds, the court, which included two judges selected by Republican presidents and one picked by a Democrat, heard arguments on April 15. It later allowed additional friend-of-the-court briefs to be filed by allies on each side, solicited still more submissions concerning a jurisdictional question and permitted the investors’ filing of evidence produced in sweep-related cases pending before other courts. Their ruling may yet be subject to U.S. Supreme Court review.
The U.S. Treasury Department press office did not immediately reply to an e-mailed request for comment. David Thompson, an attorney for the suing Fairholme Funds Inc. did not immediately respond to a voice-mail message seeking comment.
The appellate decision follows Fannie Mae’s Nov. 3 report in which it said it made a $3.2 billion profit in the third quarter of 2016, the company’s 19th straight quarterly profit. Those profits were more than the $1.96 billion earned in the same quarter a year earlier. The company had said it would send $3 billion to the Treasury in December, bringing its total payments to $154.4 billion.
Two days earlier, the smaller Freddie Mac said it made a $2.3 billion profit during the third quarter of this year and would send the same amount to the U.S.
Sweep terms let the companies retain an annually diminishing capital buffer that phases out in 2018, meaning any losses later sustained will require one or both to draw on taxpayer funds.
Meanwhile, some prominent hedge funds investors – most notably Bill Ackman and Richard Perry – have been actively pushing the government to revert to the GSE status quo, as existed prior to the 2008 bailouts, convinced it would unlock substantial stakeholder value. Today, however, that won’t be the case.
By the Lending Lies Team
Fannie Mae and Freddie Mac have launched a new loan modification program for troubled mortgages known as “Flex Modification.” The GSE’s have an issue with rising defaults and questionable paperwork and the Flex Modification allows them to modify the underlying defective “loan” and gloss over the false endorsements, assignments and chain of title issues. Brilliant!
The new flexible loss mitigation tool is a combination of the impotent HAMP, the Standard Modification, and the Streamlined Modification, and will replace the trio as early as March 2017.
Loan servicers are beginning to implement the Flex Modification at that time, but will be required to participate starting October 1st, 2017.
The Home Affordable Modification Program (HAMP) expired at the end of December.
It is obvious that Fannie and Freddie are attempting to lure as many homeowners in or near default inot the Flex Modification program. Unlike the original HAMP modifications that required burdensome amounts of paperwork (that was intentionally lost), the required borrower documentation needed to get a loan modification under this new program is surprisingly minimal.
A major problem with HAMP was the complicated paperwork and long, drawn out processes. Not to mention that loan servicers who had little incentive to modify a loan when they could foreclose, typically threw the homeowner’s application into the trash.
HAMP has been revised to make it easier for borrowers to get relief, and it appears those lessons have been applied to the new Flex Modification, at least in theory. However, the reality is that a servicer who illegally forecloses on a home receives a financial windfall, compared to a paltry fee for modifying.
Those who are less than 90 days behind on their mortgage must submit a Borrower Response Package (BRP) in order to be evaluated for a Flex Modification, which will target a 20% monthly payment reduction and a 40% Housing Expense-to-Income (HTI) Ratio. Why such aggressive measures when the previous HAMP program would rarely reduce principal or monthly payments? The GSE’s have always been hostile to homeowners wishing to modify preferring to foreclose. Less than 40% of all applicants were given loan modifications.
Freddie Mac noted that a “high percentage” of those at least 60 days delinquent would be eligible, and in some cases it could also be an option for those who are current on the mortgage or less than 60 days late.
However, that latter group would need to occupy their homes in order to get relief.
For those more than 90+ days delinquent, the program targets the same 20% payment reduction, but requires no “borrower documentation.”
Likely this program will be used to grease the runways, as Timothy Geitner of the Fed admitted back in 2008 when HAMP was devised. It appears that the GSEs know they have MAJOR issues with the underlying loans they guarantee and they are resorting to issuing modifications to wipe the slate clean. I predict that there is language in the agreement that states the homeowner will not sue their servicer or the GSE’s once the loan is modified. The GSEs, Fed and OCC are not benevolent entities- they are cold, calculating bankers where profit is all that matters.
In other words, they realize you’re in imminent danger of foreclosure and that they have major legal liabilities so they’re going to make it easy for you to get assistance. Without knowing more about the program I can already tell it doesn’t pass the sniff test.
Perhaps this program will actually provide relief by lowering monthly mortgage payments. It is likely that borrowers will be incentivized to hit the 90 day plus delinquent status to take advantage of the easier modification option also. Not that it matters because the entire program appears to be created to “fix” loans that are damaged beyond repair.
It is interesting that many loan servicers are exiting the market while the GSEs are attempting to paper over their fraudulent history. There are unseen forces in the background that are influencing change. It appears that servicers and faux lenders are running scared or do they know something we don’t?
In any case, the program will also allow for principal forbearance to an 80% mark-to-market loan-to-value ratio (MTMLTV), but this amount must not exceed 30% of the unpaid principal balance.
Some key changes from the Standard Modification include:
• Housing-to-income ratio for borrowers less than 90 days delinquent changed from less than/equal to 55% to 40%
• No amortization choice for borrowers with an MTMLTV ratio of less than 80%
• Must now forbear principal down to a 100% MTMLTV ratio rather than the prior 115%
– Mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac (GSEs do not own loans)
– Must be 60 or more days delinquent unless owner-occupied and in imminent default
– Must submit a Borrower Response Package (will the servicer actually process the package when they have more incentive to foreclose than modify?)
– Must have an eligible hardship
– Must verify income
– Must have been originated 12 months prior to evaluation date
– Must target a 20% principal and interest payment reduction and 40% front-end DTI
*If 90 days+ delinquent, a Borrower Response Package is not required, and servicer is not required to confirm a borrower’s hardship or income.
– FHA, VA, and USDA loans
– Mortgages subject to recourse
– Mortgages secured by second homes or investment properties less than 60 days late
– Mortgages that have been modified three or more times previously
– Mortgages approved for a short sale or deed-in-lieu
– Mortgages under a different modification program
– Mortgages that don’t make it through the trial period or aren’t brought current
We all know that the banks committed wholesale fraud on the government, on investors, on the the court system and on borrowers. They fabricated documents, forged them, altered them, and even paid off employees of Government agencies to do things that in normal circumstances would never be tolerated.
The question is why did the banks go so far off the rails doing what they have done for millennia — making loans and documenting them? The answer is that they lied about the origination and the alleged “transfers” of servicing rights, of trustee rights, and of course the rights of their self proclaimed entities to own or enforce the “closing documents.”
The answer is that they didn’t just fabricate the paper; they also fabricated the illusion of transactions that never took place in the real world. In the real world the history of transactions was much different than what is set forth in the PR releases, government filings and pleadings in court. Every lie became another opportunity for those “support” companies that fabricated notes, mortgages, assignments, signatures, payment schedules etc.
Get a consult! 202-838-6345
Here is Bill Paatalo’s follow up article on the Visionet system for fabricating signatures and entire documents.
Remember Harvey Keitel’s “fixer” character in Pulp Fiction? “I’m Winston Wolf. I solve problems.” He is a no-nonsense, hard character who treats his subjects with no emotion, lives for work, and prescribes a solution to an issue that most would see as self-evident.
In my recent article involving the document reproduction mill “Visionet Systems, Inc.” (See: http://bpinvestigativeagency.com/automated-affidavit-verifications-and-lost-note-reproductions-for-bank-vendors-its-standard-business-practice/), I investigate an assignment produced by Visionet in which MERS, as nominee for defunct Greenpoint, purports to transfer the mortgage directly to the “New Residential Mortgage Loan Trust 2015-1.”
During my investigation, I located Moody’s rating for this trust from June 2015 which announced, “New Residential Mortgage Loan Trust 2015-1 (NRMLT 2015-1) is a securitization of seasoned performing residential mortgage loans which the seller, NRZ Sponsor V LLC, will purchase on the closing date, in connection with the termination of various securitization trusts.” (See: https://www.moodys.com/research/Moodys-assigns-provisional-ratings-to-New-Residential-Mortgage-Loan-Trust–PR_327931).
So, here we have an admission (I’ll start by calling it “admission number one”) that loans going into this trust were previously securitized in “various securitization trusts” even though there is no documentation of any previous securitization transactions per the Visionet assignment, the Note, nor the county records for this particular property.
Here are some additional admissions within Moody’s announcement:
“Third-party Review and Reps & Warranties
American Mortgage Consultants (AMC), conducted a compliance and data integrity review on a random sample of 367 loans from the pool. The regulatory compliance review consisted of a review of compliance with Section 32/HOEPA, Federal Truth in Lending Act/Regulation Z (TILA), the Real Estate Settlement Protection Act/Regulation X (TILA), and federal, state and local anti-predatory regulations. AMC ordered HDI values on all loans in the securitization in addition to an updated broker price opinions (BPOs) on 336 properties, from Clear Capital.
Upon the review of 367 loans, AMC found that 202 loans have exceptions. The majority of these exceptions were due to missing HUD and/or TIL documents, under disclosed finance charge, or missing right to cancel disclosures. 19 loans had missing original loan files. For the loans where the HUD documents, TIL documents and/or the original loan files are missing, AMC was unable to complete the testing. Although the TPR report indicated that the statute of limitations for many of these issues already passed, borrowers can still raise these legal claims in defense against foreclosure as a set off or recoupment and win damages that can reduce the amount of the foreclosure proceeds. In addition, some of these missing documents could prevent or materially delay activities such as foreclosure, loss mitigation and processing title claim under the related title insurance policy.
The seller, NRZ Sponsor V LLC, is providing a representation and warranty for mortgage files. In this R&W, and to the extent that the indenture trustee, the master servicer, the servicer, the depositor or the custodian has actual knowledge of a defective or missing mortgage loan document or a breach of a representation or warranty regarding the completeness of the mortgage file or the accuracy of the Mortgage Loan documents, and such missing document, defect or breach is preventing or materially delaying the (a) realization against the related mortgaged property through foreclosure or similar loss mitigation activity or (b) processing of any title claim under the related title insurance policy, the party with such actual knowledge will give written notice of such breach, defect or missing document, as applicable, to the seller, the indenture trustee, the depositor, the master servicer, the servicer and the custodian. Upon notification of a missing or defective mortgage loan file, the seller will have 120 days from the date it receives such notification to deliver such missing document or otherwise cure such defect or breach. If it is unable to do so, it will be obligated to replace or repurchase the mortgage loan. In our analysis we assumed that 10% of the projected default will have missing documents’ breaches that will not be remedied and result in higher than expected loss severity.”
Admission number two reveals that a compliance review exposed that nearly 55% of the loans being re-securitized had regulatory and compliance issues, including missing loan files. Moody’s seems to downplay these issues due to its belief that the statute of limitations for all this chicanery has likely run its course. But then we have admission number three – “10% of the projected default will have missing documents’ breaches that will not be remedied and result in higher than expected loss severity.”
“Will not be remedied?” Time to call in the “fixer.”
So, I looked to see who is behind “NRZ Sponsor V, LLC;” the entity providing the representations and warranties for the files. Lo and behold, it’s none other than “New Residential Investment Corp.” and its CEO/President – Michael Neirenberg. (See 10-Q: https://www.sec.gov/Archives/edgar/data/1556593/000155659315000011/nrz-2015630x10xq.htm#s262E0972E7E05C46ADEB9296D5C183F9).
From this Deadly Clear article,
“Four of the executives, Thomas Marano, Jeffrey Verschleiser, Michael Nierenberg and Jeffrey Mayer, have been accused of making false statements in disclosures to federal regulators in a lawsuit brought by the Federal Housing Finance Agency, which oversees government-owned mortgage giants Fannie Mae and Freddie Mac. They are among dozens of people and companies named in the lawsuit. [Click here for Complaint]
All four denied all the allegations in a 179-page response to the lawsuit.
The four “deny that the offering documents referenced contained material misstatements of fact or omissions of material facts,” according to the answer jointly filed by the Bear Stearns companies and the individual defendants from Bear.”
This is the guy who is going to vouch for the loan files? Yes, because his disclosures in the 10-Q state he is required to make these reps and warranties to appease his financing facilities, even though ultimately, the reps and warranties could be deemed inaccurate.
Per the 10-Q:
“Our borrowings collateralized by loans require that we make certain representations and warranties that, if determined to be inaccurate, could require us to repurchase loans or cover losses.
Our financing facilities require us to make certain representations and warranties regarding the loans that collateralize the borrowings. Although we perform due diligence on the loans that we acquire, certain representations and warranties that we make in respect of such loans may ultimately be determined to be inaccurate. In the event of a breach of a representation or warranty, we may be required to repurchase affected loans, make indemnification payments to certain indemnified parties or address any claims associated with such breach. Further, we may have limited or no recourse against the seller from whom we purchased the loans. Such recourse may be limited due to a variety of factors, including the absence of a representation or warranty from the seller corresponding to the representation provided by us or the contractual expiration thereof.”
Does anyone really believe that NRZ would repurchase these “hot potatoes” or cover losses on them? Time to call in the “fixer.”
So, here we have admission number five. NRZ will be making representations and warranties regarding loans it purchased from Sellers, who may not have had any documentation of the loans it was selling to NRZ.
This sounds like a “Fencing Operation.”
“A fence or receiver is an individual who knowingly buys stolen property for later resale, sometimes in a legitimate market. The fence thus acts as a middleman between thieves and the eventual buyers of stolen goods who may not be aware that the goods are stolen.”
So, where did NRZ buy this assigned loan, as well as all the others? Again, per the 10-Q:
“Representations and warranties made by us in our loan sale agreements may subject us to liability.
In March 2015, HLSS sold reperforming loans to an unrelated third party and transferred mortgages into a trust in exchange for cash. [THIRD-PARTY WHO? WHAT TRUST?] We may be liable to purchasers under the related sale agreement for any breaches of representations and warranties made by HLSS at the time the applicable loans are sold. Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxes or other liens; the loans compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien. If the purchaser is successful in asserting their claim for recourse, it could adversely affect the availability of financing under loan financing facilities or otherwise adversely impact our results of operations and liquidity. From time to time we sell residential mortgage loans pursuant to loan sale agreements. The risks describe in this paragraph relate to any such sale as well.”
Ah yes, HLSS and Bill Erbey. Need I say more?
“HLSS struck the deal under severe pressure from regulators, lenders, investors, and ratings agencies. A Dec. 19 settlement between Ocwen and the New York Department of Financial Services (NYDFS) had upset a delicate ecosystem of five interrelated companies including Ocwen, HLSS, Altisource Portfolio Solutions (ASPS), Altisource Residential (RESI) and Altisource Asset Management (AAMC) Bill Erbey, Chairman and de facto leader of all five companies, was forced to resign from those positions. The California Department of Business Oversight was threatening to suspend Ocwen’s license in that state. That put pressure on HLSS because its business and Ocwen’s were so closely interrelated.”
This is a cesspool. When it comes to chain of title, it all sounds like a line from SpongeBob Squarepants:
“I knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy’s COUSIN….”
One thing is crystal clear from all of this. The chain of title is so corrupted and fatally defective for these loans that it would be virtually impossible to legally prove ownership in a foreclosure action without first calling in a “fixer” such as Visionet Systems, Inc. to create the illusionary paper trail.
It is also crystal clear that at least 1 out of every 10 foreclosures being brought by the servicer for “New Residential Mortgage Loan Trust 2015-1” will contain counterfeit documents, to which there will be a servicer witness raising his/her right hand, and swearing that this trust owns the loan and holds the “Original Note.”
Bill Paatalo – Private Investigator – OR PSID#49411
Filed under: foreclosure | Tagged: American Mortgage Consultants, Fannie MAe, Federal Housing Finance Agency, Federal Truth in Lending Act/Regulation Z (TILA), Freddie Mac, HOEPA, Jeffrey Mayer, Jeffrey Verschleiser, Michael Nierenberg, Moody's, New Residential Investment Corp., NRMLT 2015-1, NRZ Sponsor V, Thomas Marano, Visionet Systems | 5 Comments »
Mnuchin was and remains “the guy between the guys.” Billed as the organizer of OneWest his role was to provide a layer between the founders and the rest of the world. His prospective appointment As Secretary of the US Treasury means that the TBTF banks would have a lackey to do what the banks wanted the US Treasury to do.
Get a consult! 202-838-6345
Danny Shedd’s nightmare began with some cows.
When Shedd, a 12-year veteran with combat experience in Iraq and Afghanistan, finished up his military service at Fort Benning, Georgia, he and his wife, Jacinda, wanted to move to the prairie. The house they settled on in Big Cabin, Oklahoma, was perfect: a 5,400 square-foot, four-bedroom spot built in 2006, which mortgage giant Fannie Mae purchased in a foreclosure auction and was selling for one-third of its appraised value.
After inspections and appraisals, the Shedds closed on the house in June 2015, paying $172,425 cash—the product of years of saving. “They said congratulations on your new home,” Shedd told me.
The vet’s honorable Army discharge didn’t come through until that August, so Shedd settled his wife and kids in the new digs before returning to Fort Benning. But Jacinda soon began complaining about the neighbors’ cows lurking around the place at all hours. They would pass through a broken fence and eat the backyard grass, according to Shedd, with cow shit littering the space where his kids wanted to play. Shedd decided to rebuild the fence himself, enlisting a surveyor so he knew exactly where to place it.
The surveyor came back with bad news: According to the deed, the property Shedd paid for was actually ten wooded acres to the north, in a flood plain. The house his family was living in wasn’t even on the property they had the rights to.
Worst of all, the neighbors are now saying the house belongs to them and are trying to get the Shedds evicted.
The bizarre situation speaks to a potential time bomb lurking behind an untold number of US residential mortgages. During the housing bubble that went bust in 2007 and 2008, mortgage companies routinely ignored longstanding property records laws. So defects—whether due to inaccurate deeds or fraudulent transfer documents—have sown chaos in county recording offices and foreclosure courts. These defects create ruptures in the “chain of title,” confusing who holds true ownership over properties.
Shedd’s plight shows the potential consequences for unsuspecting homeowners, who can become innocent victims of a housing market assembled on a mountain of fraud. The only question is how far the ruptures have spread.
In Shedd’s case, the defect dates back to the original construction: The Careys, his neighbors, deeded the land to their daughter and her husband, James Stampes, to build a home, and Stampes took out a mortgage to pay for construction. But the legal description in the deed always reflected the wrong parcel—not the land the house was actually built on.
Stampes and his wife slipped into foreclosure in 2008, a protracted process eventually finalized six years later. Fannie Mae picked up the house at auction and sold it to Shedd. But for years, no one seemed to notice that the deed was inaccurate, and the wrong legal description of the property carried through. “Nobody put boots on the ground and figured out where the home is,” Shedd told me.
When he got the bad news, and on advice from a real estate attorney, Shedd asked the Careys for a swap. The Careys would get the ten wooded acres, and Shedd would get the acreage under and around his new home. And initially, according to Shedd, the Careys agreed, only to change their minds a few days later. “The wife says we’re not deeding you this land,” Shedd told me. “This is a windfall for us.”
The vet figured his title insurance company would resolve the matter, because title insurers are supposed to protect policyholders from defects in their titles. But when he appealed to American Eagle Title Insurance Company, the insurer retained an outside lawyer, Mark Kuehling, to review the claim. “The mistaken possession of the wrong parcel does not constitute a defect to the insured land,” Kuehling wrote to the Shedds.
In other words, Shedd buying ten wooded acres instead of the house he thought he was getting wasn’t the title insurer’s problem.
Kuehling also pointed to an exception in the title-insurance policy, which said that the insurer does not have to pay claims if there are “any encroachments, overlaps, discrepancies, or conflicts in boundary lines, shortages in area, or other matters which would be disclosed by an accurate and complete survey or inspection of the premises.”
In Shedd’s closing documents, he did sign a “hold harmless” form certifying that he did not conduct a survey on the property, and that the title insurer would not be liable for “any damages due to any such discrepancies.” But he appealed anyway, arguing he did have an inspection done, as per the title-insurance policy. In addition, all the marketing materials referred to an actual home, and the purchase contract was a residential contract—not a vacant lot contract with no residence. The improper contract constituted a title defect, Shedd argued.
But Kuehling insisted there was no title defect to the property described in the policy—a.k.a. the ten wooded acres. “I am sorry that this problem has affected your use and enjoyment of your home,” he wrote. (Kuehling did not return a request for comment. Eric Offen, president of American Eagle Title Insurance Company, declined to comment.)
James Surane, a foreclosure defense attorney in North Carolina, is bewildered by the title-insurance company’s decision. “The closing attorney and the title company are supposed to ensure the legal description is accurate, not the surveyor,” he told me. “A survey would have disclosed the problem, but that doesn’t shift responsibility to the homeowner.”
Meanwhile, the Careys hired attorney Mark Reents and posted a notice to vacate on Shedd’s door on January 6 of this year. “Be advised that you are a trespasser upon the Property,” the notice read. The Careys gave the Shedds until February 15 to leave. When the Shedds refused, the Careys filed suit in May, seeking $20,000 in punitive damages in addition to the home. (Reents, the Carey family lawyer, did not respond to a request for comment.)
Through a caseworker in his local congressman’s office, Shedd reached out to Fannie Mae, the quasi-governmental company that sold him the home. Fannie offered to intervene in the case against Shedd, and rescind the purchase contract: Shedd would get back his $174,425, plus additional expenses and up to $2,500 in legal fees, and Fannie Mae would get back the home. The intervention officially took place on May 31.
But when Fannie Mae sent out the settlement agreement to the Shedds in July, the company had changed the terms. The Shedds would have to continue to fight the case against the Careys and pay their own legal fees. Other parties involved in the case—the title insurer and the closing agent—would also be released from liability under the settlement. Plus, the agreement would be confidential, with a non-disparagement clause that would block the Shedds from saying anything negative about Fannie Mae in public.
“I said I will not sign that,” Shedd told me. “Other people need my story.” The veteran’s then-lawyer subsequently tried to get all parties to go to mediation, but Fannie Mae refused, saying they would only take back the house and give Shedd his money.
Brent Rodine, current counsel for Fannie Mae, did not return a request for comment. Rosemary Clinton, an attorney with the closing company, known as Buffalo Land & Title, told me, “I can’t answer any questions,” citing pending litigation.
Shedd says he can no longer afford an attorney, and the family officially owns only an empty lot, with nowhere to live if and when they are evicted. Increasingly desperate, Shedd released a video on YouTube describing the entire story in detail, asking viewers to share his ordeal. “How many people are living in a home that they don’t own?” he asked.
It’s impossible to determine how many other residential properties have significant defects like this—but it would be a mistake to assume Shedd is the last homebuyer who’s going to experience this kind of disaster. “From doing foreclosure defense work, 50 percent of the time I’ll find defects in title, maybe more,” said Surane, the foreclosure lawyer. “Lenders and underwriters were overburdened and made mistakes.”
Central to Shedd’s dilemma, it seems, was the cash purchase. “If this were financed, the bank would have done a minimal survey to draw the lot lines,” according to Tara Twomey, an attorney with the National Consumer Law Center. “The fact that he paid in cash meant that he didn’t have a second person doing due diligence.”
American Eagle’s insistence that they exclude a bad property description from claims raises the question of how bad this could get the further we get from the foreclosure crisis. While the survey exclusion is standard, could title insurers similarly refuse to pay out for all the mistakes that clouded properties throughout the 2000s? “Insurance agencies only make money if they don’t have to pay out,” Twomey said. “My guess is most people have no idea that this is excluded in their policy.”
Shedd says he’s working with state legislators in Oklahoma to require mortgage holders to conduct a survey prior to foreclosure, and to file that survey with the county land records office. That would have prevented his own nightmare.
“This consumes our conversation,” Shedd said of his current life in the place he calls home. “Every time I mow the yard, I feel like I’m mowing the neighbor’s yard.”
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