A House in Limbo – Who Owns the Deed, the Mortgage and the Note? Does the Lender Even Know?

Vacant for 7 years, this Palm Coast home doesn’t seem to be on anybody’s radar. The foreclosure case, originally filed in 2007, was closed last month without a foreclosure sale. What happens next?

Palm Coast, FL – June 5, 2014 – This home in one of Palm Coast’s gated communities is in limbo. It went into foreclosure seven years ago and has been vacant since. The water was turned off in 2007, but a mortgage processing company faithfully pays the property taxes each year. And somebody is keeping up with the exterior landscaping maintenance.

The chronology:

• January 2005 – A young couple bought the home from the original owner for $265,000, funded in part by a mortgage from Peoples Choice Home Loan Inc. with MERS (Mortgage Electronic Registration Systems Inc) as nominee.
• July 2005 – The couple obtains a $75,000 home equity loan from SunTrust.
• January 2007 – SunTrust initiates a foreclosure
• Spring 2007 – The couple moves out of the house into a rental. The Palm Coast Utility Department shuts off the water service.
• November 2005 – HSBC Bank, as successor to People’s initiated a foreclosure.
• August 2007 – Property taxes for 2005 and 2006 were paid by FIS Tax Services.
• January 2008 – Property taxes for 2007 are paid by Popular Mortgage Servicing Inc.
• March 2009 – Property taxes for 2008 are paid by Litton Loan Servicing.
• May 2009 – A judgment in excess of $15,000 is filed against the couple for the unpaid balance on a lease at a nearby home they had rented. According to public records, the couple now live on Florida’s west coast.
• November 2009 – Property taxes for 2009 are paid by Litton Loan Servicing.
• November 2010 – Property taxes for 2010 are paid by Litton Loan Servicing.
• November 2011 – Property taxes for 2011 are paid by Ocwen Loan Servicing.
• May 2012 – The primary mortgage is assigned from People’s to HSBC Bank (apparently belatedly as it was HSBC that initiated the 2005 foreclosure). The mortgage amount was incorrectly stated to be $215,000.
• November 2012 – The mortgage is again assigned to HSBC but with the correct mortgage amount of $212,000.
• November 2012 – Property taxes for 2012 are paid by Ocwen Loan Servicing.
• November 2013 – Property taxes for 2013 are paid by Ocwen Loan Servicing.
• May 2014 – The HSBC foreclosure, after being reopened to note a change of attorney, is closed.

So what the “H” is going on? We can only surmise. Mortgage Electronic Registration System (MERS) was created by lenders to squeeze the cost out of the paperwork-intense mortgage transfer process. It bypasses the legal requirement to document and record all mortgage transfers allowing thousands of transfers to be bundled and sold, leaving only an electronic audit trail.

This process worked fine as long as nobody needed to examine the transfer trail. But when the housing bubble burst and the number of foreclosures exploded, MERS was incapable of efficiently recreating the paper work that had been skipped. That is the reason lenders resorted to robo-signing (forgery), to create false paper documents “proving” that they owned the note and mortgage, giving them standing to foreclose.

Public records show that the couple still owns the house although they apparently abandoned it in 2007. The SunTrust foreclosure was closed with the bank accepting the loss. The HSBC foreclosure was recently closed but there was no foreclosure auction. Nor is there a title transfer pending at the Clerk of Court. Paid 2013 property taxes totaled $4958.87. The servicing company tacks on its administrative fees.

In this case, I wonder if the lender is aware of the potential value of the property. Why are they not foreclosing? Could the mortgage processing company be acting out of ignorance or even worse, deceit? With the volume of mortgages serviced, this house could simply be lost in the system. The servicing company simply bills the lender for the taxes due plus the servicing company’s fees. And the lender simply pays, without scrutinizing the charges.

I suspect that the servicing company does not have a vested interest in a foreclosure. Until, if ever, the lender wakes up and examines their portfolio properties individually and moves to foreclose, the gravy train rolls on.

This property is not an isolated example. There is at least one other in the same gated community and others spread throughout the area. In one such case, the Homeowners Association foreclosed to collect unpaid association assessments. The Association took title. The property is still subject to the mortgage lien (for which the Association is not liable), but untill the lender forecloses, the Association is free to use the property or rent it.

I wonder what would happen if the Association initiated a Quiet Title action. Would the bank be awake enough to step in and protect its interest by forclosing its mortgage or might they be caught sleeping. If so, the Association might be able to gain clear title. We are entering the twilight zone.