LOSING OUR HOMES, LOSING OUR WAY, OR BOTH? FORECLOSURE, COUNTY PROPERTY RECORDS, AND
THE MORTGAGE ELECTRONIC REGISTRATION SYSTEM
CHRISTOPHER L. PETERSON*
I would like to begin by echoing some thank yous, the first to Professor Myron Grauer for his fine hospitality. He has taken such good care of Steven and I while we have been in town. I would also like to thank Dean Simpson for his kind hospitality, and I would also like to thank Capital University Law Review, as they have been great to work with, particularly Rachel Gagnon, the Editor in Chief. As we were chatting this morning, I learned that she does not have a job yet and she has been a consummate professional, so I would like to place a sort of help wanted brokerage kind of thing here—if any of you are looking for an associate I think you could do significantly worse. With that, thank you for the honor of appearing today. It is a real pleasure to be here.
Goldman Sachs is projecting twelve million foreclosures on all types of loans over the next five years.1That is twelve million foreclosures. The number comes out easily, but let’s think about what that number actually means. If we just assume for a moment that there is one person living in each of those houses (obviously average families are about 2.5 people and keep in mind some of these homes are investment properties—so we’ll
Copyright © 2012, Christopher L. Peterson.
* Associate Dean for Academic Affairs and Professor of Law, University of Utah, S.J. Quinney College of Law. This article is based on a transcript of Dean Peterson’s speech delivered on October 28, 2011 at the Capital University Law School’s Symposium entitled The Foreclosure Crisis: New Strategies for Addressing the National and Local Calamity. The Capital University Law Review has included light citations and editorial revisions to the transcript for purposes of documentation and clarity. The subject matter of this presentation draws, in part, upon: Christopher L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, 53 WM. & MARY L. REV.
111 (2011) and Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. CIN. L. REV. 1359 (2010). The views and opinions expressed herein are solely Dean Peterson’s.
1Jan Hatzius & Michael A. Marschoun, Home Prices and Credit Losses: Projections and Policy Options 16 (Goldman Sachs, Global Economics Paper No. 177, 2009) (predicting “13 million defaults beginning in 2008Q4 until the end of 2014 . . . .”).
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take the conservative assumption of one person per home), the demographic group of individuals facing the loss of their homes exceeds the total combined populations of twelve states: Wyoming, Vermont, North Dakota, Alaska, South Dakota, Delaware, Montana, Rhode Island, Hawaii, Maine, New Hampshire, and Idaho.2Imagine for a moment that you tried to ask everyone in Vermont to get up and move to New Hampshire, and everyone in New Hampshire to get up and move to Vermont. This is the kind of forced dislocation that one would expect with a small civil war or a catastrophic natural disaster. It is probably the largest forced dislocation of Americans since the Civil War, or maybe the Great Depression.3It is a huge impact.
Fitch ratings estimates that about 50% of sub-prime mortgages originated since 2006 are going to end in foreclosure.4Half of sub-prime mortgages are going to result in foreclosure. Sixty-one percent of 2006 sub-prime loans also went to people who could not qualify for prime loans with better terms.5It is not just that there were risky borrowers making
2See Population Estimates; Annual Population Estimates, U.S. CENSUS BUREAU, http:// www.census.gov/popest/data/state/totals/2009/tables/NST-EST2009-01.xls (last visited Mar. 19, 2012).
3More than 2.75 million soldiers fought during the civil war. See Soldiers and Camp Life, LIBRARY OF VA., http://www.lva.virginia.gov/public/guides/Civil-War/Soldiers.htm (last visited Mar. 19, 2012). Estimates of the number of confederate civilians displaced by the war exceed 400,000. See Unhappiness Abroad-Civil War Refugees, CITY OF
ALEXANDRIA VA. (Mar. 29, 2011, 11:00 PM), http://alexandriava.gov/historic/fortward/ default.aspx?id=40306. The “Dust Bowl” condition that coincided with the economic disruptions during the Great Depression era “resulted in a mass migration of millions of people from the Great Plains to the Western U.S. in search of jobs and better living conditions.” North American Drought: A Paleo Perspective, NAT’L OCEANIC AND
ATMOSPHERIC ADMIN. (Nov. 12, 2003), http://www.ncdc.noaa.gov/paleo/drought/
drght_home.html. Ironically, California, which was the destination for many Dust Bowl famers in the 1930s, is now experiencing its own “wave of displacement.” See Anne J. Martin, After Foreclosure: The Displacement Crisis and the Social and Spatial Reproduction of Inequality 1 (Inst. for the Study of Soc. Change, Working Paper No. 2009-2010.48, 2009).
4Grant Bailey, Vincent Barberio & Glenn Costello, Revised Loss Expectations for 2006 and 2007 Subprime Vintage Collateral (Fitch Ratings, 2006) (“[L]oss severity expectations are 58% for 2006 loans and 64% for 2007.”).
5Rick Brooks and Ruth Simon, Subprime Debacle Traps Even Very Credit-Worthy, WALL STREET J., Dec. 3, 2007, at A1.
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loans, there were risky loans that were being sold to borrowers who qualified for better loans.
Add to these twelve million families—I want to point out the real and meaningful human impact on individuals—individuals such as Vincenza Garcia who owned her home since 1996.6She lived in Milford, Connecticut.7She won the Freedom Lawn Contest for her yard landscaping.8She agreed to a hybrid ARM loan, and when the price was re-cast, she could not afford the interest rates and she could not afford her payments.9The night before the police came to evict her, she wrote an eleven-page note to her family, locked her cats in the bathroom, and shot herself in the head.10Addie Polk was from Ohio.11She was a ninety-one year old widow in Akron and a Deaconess at her church.12Addie could not make her payments on her loan that she probably never should have taken out, and when they came to foreclose, she shot herself in the chest.13
Betty Lipply was a seventy-two year old woman from East Palestine, Ohio, who hung herself when the police came to take her house.14Greg Bellows was from Philadelphia—he shot himself.15Carlene Balderrama was a mom in Taunton, Massachusetts—she shot herself ninety minutes before
6Frank Juliano, Foreclosure Notice Leads to Suicide of ‘Nice Lady’, CTPOST.COM (Jan. 3, 2010, 12:57 AM), http://www.ctpost.com/local/article/Foreclosure-notice-leads-to-suicide-of-nice-lady-307253.php.
11Craig Johnson, Homeowner Who Shot Herself Amid Eviction Dies, CNN (Mar. 31, 2009), http://articles.cnn.com/2009-03-31/us/eviction.suicide.death_1_eviction-notices-fannie-mae-joyce-smith?_s=PM:US.
14Family Says Suicide Caused by Foreclosure Action, VINDY.COM (Feb. 12, 2009), http://www.vindy.com/news/2009/feb/12/family-files-suit-after-suicide/.
15Foreclosure Threat Drives Some to Suicide, CBS NEWS (Mar. 24, 2010, 4:57 PM), http://www.cbsnews.com/stories/2010/03/24/national/main6329383.shtml (“[O]wner Gregory Bellows shot and killed himself shortly before deputies arrived to evict him from his Roxborough home.”).
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the police showed up to do the foreclosure and evict her from her home.16
Carlene left a note for her family, telling them to take the life insurance proceeds and use that to pay off the house so that they could continue to live there.17Of course, in addition to not understanding her loan, she also did not understand her insurance policy, which had an exemption that allowed the insurance company not to pay out on the life insurance because she had killed herself.18When they were taking the body out, investors that were looking to buy the home in the foreclosure sale showed up and tried to go through the house while her family was taking her body to the morgue.19Those stories have been told by a lot of people—a lot of chilling statistics. I try to be funny, but this is not funny. I want us to remember these kinds of families.
Here is one more statistic that has received much less coverage, although increasingly there has been more debate about it in the press and Washington: About 60% of American residential mortgages are now nominally owned by a company called the Mortgage Electronic Registration System, Inc. (MERS).20Many of you are familiar with MERS; however, some of you may have never heard of MERS before. What is interesting about this company is that this company has affected or has been involved in more mortgage loans than any other institution in our country, including Fannie Mae or Freddie Mac.21In terms of the absolute number of contracts, it is the most involved company in the entire
16Michael Levenson, Facing Foreclosure, Taunton Woman Commits Suicide, BOSTON.COM (July 23...