Foreclosure abuse rampant across U.S., experts say - Reuters

[FedUp_Queer]

25. Here's the deal.

I didn't want to get too technical because this stuff can't get really hairy. Now, it depends upon the state, but technically, no, a transferee** does not have to record a mortgage to make a transfer (the term is "assignment&quot valid (I should have been more nuanced in how I wrote what I wrote). Now, you're probably asking: "WTF?"

As I said above, there are two reasons banks record a mortgage. First, banks do it to put the world on notice they have the right to "encumber" aka "prevent" transfer in order to protect their asset (the property). Second, so that the borrower can know who owns the mortgage. Now, again, this begs the question: If recording is not a requirement for a valid assignment, why do it? Here is why. I will explain by example.

Suppose person X goes to buy a house and seeks to obtain financing from the Bank. X borrows the money from the Bank and signs the promissory note. X then executes a mortgage in favor of the Bank as security, giving the bank the right to take the house back if the borrower defaults. The bank then records the mortgage. In most states, when someone records, the law imputes knowledge of the bank's mortgage onto everyone in the world. Now, suppose X wants to sell the house to Y. Y's "people" go down to the county clerk's office and see the mortgage there. Now Y knows that it either has to pay off the remaining loan that X took out (to satisfy the lien) or assume the loan (if the bank finds Y sufficiently credit-worthy). This is how it's supposed to work.

However, here is where the utility of the recording system comes in. Suppose the above (X purchases the house and X's bank records), but X finds sucker Z to buy the house. Sucker Z buys the house, his bank does not check to see if there's a mortgage and "buys" the house from X. Z executes a mortgage and Z records. Of course, X stops paying after moving out. The bank comes after X and says it is going to take the house. The thing is, Z is living there and paying another bank. X's bank sues and says "wait a minute, we recorded first, we have priority." So, X's bank says: someone still owes us the money we lent X. Because X's bank recorded the mortgage, X's bank's mortgage/lien is superior to Z's bank's mortgage/lien.

Now, suppose X buys the house, but X's bank does not record the mortgage. Now, X sells the house to Y in an "arms-length transaction" (meaning no fraud or they aren't in cahoots.) Y records his mortgage. Now X stops paying. X's bank brings a foreclosure suit to take the house, but Y is living there. Now, because Y recorded (and X didn't), Y is known as a "bona fide purchase for value." Y is the innocent party here. X's bank has lost the possibility of foreclosure because it didn't record and Y did. This is where recording has value.

As I said, there other nuances regarding these scenarios, but this gives the gist of how the recording statutes work and what their usefulness is. I hope nobody's brain is hurting too much. If you want to know more, there are good articles on Wikipedia. Among the types of states are race jurisdictions, notice jurisdictions or race-notice jurisdictions.


**Let me define the terms: 1) transferor - the who transfers; 2) transferee - the one to whom the transferor transfers; 3) promissory note - the contract where the bank agrees to lend and the borrower agrees to repay the money; 4) mortgage - the lien (let's say "conditional entitlement to property&quot that the bank has to take back the property if the borrower defaults; 5) mortgagor - the borrower. I know this can sound backwards. However, it is the borrower who has just purchased the property so is its owner. The borrower executes the mortgage in favor of the bank which is the mortgagee