Mortgage Crisis's Effect on Registry of Deeds


Earlier in the week, the Wall Street Journal ran an editorial criticizing the Massachusetts Attorney General's lawsuit against banks that did not follow the law on foreclosure procedures. The essence of the editorial is that "processing errors don't necessarily rise to the level of deception and fraud." Martha Coakley, the Massachusetts AG, responded today with a letter to the editor in the WSJ. Her main argument: "The large banks fraudulently signed foreclosure documents, made deceptive and false promises to provide loan modifications and unlawfully foreclosed on homeowners without even holding the mortgages."

I am not posting to argue the merits of the editorial or the AG's case. It was the next letter that I found interesting, as a propery professor. As part of first year property, I always cover the real estate filing system in some detail. The idea is that by creating a public system for recording instruments relating to title to property, ownership to such property is made transparent and the process for transfering property is made more efficient. However, for the system to work effectively, it is necessary for the parties that utilize the system to file timely and accurate documents. Which leads me to the letter written by John L. O'Brien, Southern Essex District Register of Deeds:

Sloppy paperwork? No, fraudulent paperwork, and let's not blame Massachusetts Attorney General Martha Coakley for prolonging the pain for homeowners. Let's blame the real culprits who have filed to date 31,897 fraudulent documents in my Registry of Deeds alone. I challenge anyone who comes to see these stacks of documents to honestly say that this crime scene is merely "sloppy" paperwork. The real pain for homeowners is the havoc that these lenders have wreaked on the chains of title and property rights.

The solution is not to allow the lenders that created a "cyber" registry for their own self-profit to be slapped on the wrist for using fraudulent documents and for failing to record assignments of mortgages. I have been fighting for the "little guy" and I am very happy that the Massachusetts's AG has chosen to do the same.

John L. O'Brien, Letter to the Editor, Wall Street Journal, 7-8 Jan. 2102: A14. Print.

As my students (hopefully) will recall, anything filed in the registry that causes confusion as to who actually has rights to the property is a "cloud on title," making title unmarketable. Since most buyers will only accept marketable title, such clouds make selling property difficult. If the banks' failure to accurately record mortgage assignments and to follow foreclosure procedures causes homeowners to have diffculty in selling their homes, this is in fact a terrible result which will dramatically interfere with the operation of the real estate market that has up until now been efficient and effective. While the banks' actions can be dismissed as merely sloppy paperwork, shouldn't such banks be held to account when that same sloppy paperwork dramatically depreciates the single most valuable asset owned by most people?