Anyone about to put a contract on a house today, particularly those in foreclosure, should check with a title company to see if there is any problem getting title insurance on the proposed property. During the process of packaging and repackaging mortgages into securities called mortgage backed securities (MBS), some banks and mortgage servicers may have lost the paperwork that proves that they have a claim on the property.
In a recent NY Times article veteran business reporter Gretchen Morgenson relates the recent legal challenges to some bank foreclosures in bankruptcy courts. In some cases the trustee judges who oversee bankruptcies have concurred that the bank trying to foreclose does not have a proper “chain of title.”
Some in the banking industry dismiss these claims as isolated instances but there are whispers that the “chain of title” issue could grow enormously if courts reverse their long standing partiality toward banks and use the same burden of proof standard that they have long taken with homeowners.