Risk Of Loan Collateral: Is The Industry Creating Its Own Demise?

National Mortgage News has published an article discussing the risks to loan collateral:  Read this to mean things which are tangible such as fires and hurricanes.  George Mehok, Safeguard Property’s Chief Information Officer discusses some of the items facing the Industry and the fact that this is the “…cornerstone …” of Safeguard’s business.

While it would appear to be common sense to identify tangible risks, what is most troubling are the intangible risks which none of the providers, Safeguard Properties included, want to discuss.  Learned Counsels will substantiate the fact that issues such as falsified documents, elevated pass through bids and failure to reimburse Contractors eventually lead to both litigation and the specter of liens being levied against Client’s collateral.

George Mehok, chief information officer at Safeguard Properties, said identifying what properties a client has in areas affected by a disaster and assessing the damage for them is a cornerstone of Safeguard’s business. In many cases, borrowers are still current on their mortgage in the immediate aftermath of a disaster, but the servicer still wants to know what the condition of the collateral is.

Recently, we profiled a substantial amount of Contractor’s claims in the 1a HUD 3.6 Region (6a under HUD 3.0) which were so prolific that they justified a HUD OIG Investigation.  We believe, based upon extrapolation of the evidence we possess from Contractors, that the liabilities will far exceed $100,000!  It is quite obvious that this is just the tip of the iceberg on the HUD side.  As a Client, do you want to appear on Capital Hill because some pin head stretched the limits to get his yacht?!

Addressing what is commonly referred to as “pre conveyance” or bank end side, we believe the potential for liability will far exceed the TENS OF MILLIONS OF DOLLARS!  This number is not fluffed.  The ultimate outcome, which bottom feeders are not understanding is this:  If the American Public becomes worried that each and every property for sale within the foreclosure portfolio comes with the possibility of a Pandora’s Box of litigation, the sales will cease.  This, in turn, will spook the Markets by and through which the Securitized Instruments will plummet.  When these tank, the Global Markets will respond accordingly and will probably over compensate.  Folks, this has the potential to be a National Security issue as tangible real estate is one of the last pillars supporting the already battered economy!

Recently, Safeguard Properties wrote Foreclosurepedia and stated that Foreclosurepedia’s bids were excessive and “…they [had] been reduced … and submitted to the client.”  The question posits whether or not Safeguard passed the reduced number on to the “client” whom in this case was FannieMae or whether it remained the same.  Additionally, to deny the ability of a Contractor to submit a bid is not discretionary.  To alter financial documents, without the consent of the primary party, is tantamount to Wire Fraud in my opinion.

Where the rubber meets the road is this:  If, during the process of Discovery, it is revealed that this practice has ever happened wherein a Contractor’s bid was altered and the original price passed through to the Client, both Contractor and Client are being defrauded.  What happens then?  Well, make absolutely no mistake that Industry wide this practice happens on a daily basis.  Accordingly, each and every home sold by and through the Industry is suspect and ripe for Lien.

This is the first article, in a series, which will appear in the Industry Insider section.  The background of such will lay the roadmap for both Class Action Litigation and hopefully bring federal regulation and oversight to an Industry which seems to have no ability to regulate itself and huddle under the umbrella of an Association which remains silent on all attempts for communication.

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