Category Archives: Econ & Money: Mortgage Mess

Oh boy. This one will run and run.

A “mortgage” consists of two instruments: a promissory note, which is a IOU, and a lien against the property, which is referred to as a mortgage (in non-judicial foreclosure states, they are typically called a deed of trust and confer somewhat different rights, but we’ll put that aside for purposes of this discussion).

What appears to be happening on all too often in Florida is that when borrowers signed warranty deeds in lieu of foreclosure when they can no longer keep these homes, they often get only a satisfaction of mortgage, not a cancelled note. This is not what is supposed to happen. When a borrower deeds his property to the bank, the objective of the exercise is to cancel the debt.

There’s a lot more where that came from. Anyone involved in a foreclosure who doesn’t already know exactly what this is about should read it.

25 years ago, an attorney who did not demand the cancelled note in satisfaction of a mortgage would have been considered grossly negligent. And the risk is not theoretical. Professor Williams described how people were defrauded in the wake of the S&L crisis when notes that should have been cancelled got into the wrong hands. April Charney had just seen a case on a 2008 foreclosure where the ex parte order returned the original note to the plaintiff/servicer. The hapless borrower is now being sued by the private mortgage insurer.

— naked capitalism, Yet Another Mortgage Scam: Homeowners Not Getting Cancelled Notes After Foreclosures, Hit by Later Claims

I admit I haven’t been paying close attention recently, but I’m sort of shocked at this order from the Flordia Supreme Court terminating the mandatory mediation program for residential foreclosure cases.

To be sure, I had not been hearing that the program was anywhere near the success its proponents had hoped it would be. But this still seems very sudden. The reason given is this: “The Court has reviewed the reports on the program and determined it cannot justify continuation of the program. Accordingly, upon issuance of this administrative order, the statewide managed mediation program is terminated.”

Here’s the full text of the order:

IN RE: MANAGED MEDIATION PROGRAM FOR RESIDENTIAL MORTGAGE FORECLOSURE CASES

A statewide managed mediation program for residential mortgage foreclosure cases was established in 2009 by In re: Final Report and Recommendations on Residential Mortgage Foreclosure Cases, AOSC09-54, (Dec. 28, 2009). Program requirements were clarified in 20 I 0 by In Re: Guidance Concerning Managed Mediation Programs for Residential Mortgage Foreclosure Cases, AOSCIO-57 (Nov. 5,2010). The program was established as a means for the court system to address the overwhelming number of mortgage foreclosure cases coming into the system. The Court has reviewed the reports on the program and determined it cannot justify continuation of the program. Accordingly, upon issuance of this administrative order, the statewide managed mediation program is terminated.

Cases already referred to and pending in a mediation program on the date of this order pursuant to the statewide managed mediation program will remain in the program through completion of mediation. After the date of this order; no new cases may be referred to mediation pursuant to the statewide managed mediation program.

Circuit chief judges are vested under article V, section 2(d), Florida Constitution, with responsibility for the administrative supervision of their circuits. Section 43.26, Florida Statutes, authorizes circuit chief judges “to do everything necessary to promote the prompt and efficient administration of justice.” These authorities empower the circuit chief judges to adopt or employ any measures permitted by statute or court rule to manage pending and new residential mortgage foreclosure cases, including referral of cases to mediation on a case-by-case basis pursuant to section 44.102, Florida Statues, and Florida Rule of Civil Procedure 1.700(a).

DONE AND ORDERED at Tallahassee, Florida, on December 19, 2011.

As the order makes clear, judges can still order mediation on a case-by-case basis.

Anyone know the background to this?