Will 50 State AGs Create A "Total War" In The Housing Market?

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Photo: National Library of Scotland via Flickr

Earlier we mentioned that 49 state AGs had signed on to do a joint investigation into foreclosure-gate.Well, now it’s 50. The Alabama AG is in.

On this topic, John Carney has unearthed a great old post from the late Tanta at Calculated Risk, which perfectly describes the impending crisis:

A financial institution in the business of making mortgage loans has no business routinely losing or damaging original promissory notes, and any institution that does so should be shut down by the federal regulators and I mean that.

But if consumer attorneys want to create a situation in which the simple fact of loss of or irreparable damage to an original note vacates the debt, I can promise you you will not like the consequences of that. If it turns into Total War here, don’t ever lose an original cancelled check. You should know that there is actually one fairly respectable reason for doing FC filings with note copies, besides servicer laziness or loan sale screw-ups: taking your original note out of the custodian’s vault to send to some local attorney to attach to a court filing creates several more opportunities for it to get lost. If it becomes a requirement that FC can proceed only with the original note in the courtroom, and the presence of an LNA always means dismissal, then the things are going to have to be handled and shipped and received with the same level of security as a million-dollar bearer bond. Like, a Brink’s truck and a bonded courier carrying a briefcase handcuffed to his wrist. You want to pay the cost of that? No. You don’t. But you will.

The problem for banks is that even if the underlying issues favour them — which is to say that most foreclosures are legitimately the result of homeowners not paying their bills — politicians are in no mood to side with them.

And while the public may not much like the idea of bailing out their neighbour, which was of course the core issue behind the initial Rick Santelli rant that really got the Tea Party going, they like the idea of giving a free pass to the banks even less.

And so we might get Total War over missing paperwork.

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