I'm from the Government, And I'm Here to Help: Screw Up Edition MMDLXVII

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So much for "Justice for All"

When will bureaucrats and politicians ever understand that their meddling in markets always produces unintended consequences which most of the time harm more people than their intended actions help? The Washington Post today has another sad example of this type of government "help." As the Post reports

A District effort to help distressed homeowners threatens to bring a halt to the sale of foreclosed properties in the city, depress home prices and cast new uncertainty on the local housing market.

The District implemented regulations in May requiring lenders to enter into mediation with a homeowner before foreclosing on a home. But now, two large title insurers, which have about 80 percent of the D.C. market share, have stopped insuring the sale of foreclosed properties, saying the law makes it too risky.

Without title insurance, obtaining a home loan is extremely difficult. The policy protects mortgage lenders from challenges to the title of a property. The problems could move beyond the foreclosure market to all home sales if lenders decide that any District home that could potentially fall into delinquency would face a similar problem down the road, according to industry officials and local lawyers. If these foreclosed properties linger on the market, unable to be sold, they could bring down neighborhood prices, they said.

These laws "are in cred ibly destructive economically. They're really creating a dead zone in the housing market," said Kurt Pfotenhauer, chief executive of the American Land Title Association, an industry group.

The D.C. Department of Insurance, Securities and Banking, which wrote the regulations, proposed an amendment this week to the D.C. Council legislation on which they're based. But the issue is not likely to be addressed before fall, said council member Muriel Bowser (D-Ward 4), who co-sponsored the legislation.

"This is one way that the business tries to get its way — with threats of calamity. This is how the little guy gets [hurt]," Bowser said.

I personally think that title insurance is something of racket, but still skittish lenders require it. Now for the pièce de résistance

The District has been shielded from the worst of the housing crisis but still faced an increase in foreclosures during the recession. That, along with widespread problems in mortgage documentation uncovered last fall, prompted the D.C. Council to pass foreclosure mediation legislation in November aimed at helping struggling homeowners come to terms with their mortgage lenders.

During the rule-making process, members of the title industry asked for a certification asserting that a foreclosure had complied with the legislation, said Christopher Weaver, the D.C. associate commissioner for banking. But that would have shifted the liability for any mistakes to the city, he said.

"I personally think that's just too much risk for the District of Columbia," Weaver. 

That's right. Standing behind its own regulation is too risky for the city government that is trying to impose it on private businesses. Really!

Disclosure: My wife and I own a condo in DC. Good thing we're not planning to sell it any time soon. 

NEXT: The Price of Big Government

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  1. Without title insurance, obtaining a home loan is extremely difficult.

    Without title insurance, you’d have to be out of your mind to buy property.

    I personally think that title insurance is something of racket,

    Given what you have at risk if there is a cloud on your title, I respectfully disagree.

    1. It shouldn’t be so difficult to determine the clear title to property and title insurance shouldn’t have to be so expensive. However, given how bad the system for recording property is, I agree, people would be crazy not to get it.

      What’s annoying is the cost of getting the insurance reissued (even at a discount) when refinancing. They can sell the mortgages back and forth, but not transfer the insurance?

      1. (The lender’s title insurance when refinancing, of course. Owner’s you don’t need again.)

        1. Buying property is one of the most arcane activities on the whole fucking planet.

          Liberals must love that.

    2. No shit! There’s nothing like paying on a mortgage for 20 years and then finding out you don’t really own the place or you have to come up with 20 grand to buy off some deadbeat heir of the guy you thought you bought it from.

      1. How often do you think this happens? 1%, 5%? But you would pay $1,000 for owner’s title insurance up front?

        1. A 1% probablity of a catestrophic outcome cannot be ignored. So you mititgate the risk by bying insurance.

  2. I personally think that title insurance is something of racket, but still skittish lenders require it.

    The racket is that the system for ascribing titles is so bad that title insurance is so expensive and costs so much. There’s no reason that the process should be so inefficient.

    1. OTOH, the title insurance companies usually take the lead in fighting against states adopting the highly efficient Torrens system of land title registration, where it is possible to quickly and easily determine what charges, liens, actions or other encumbrances exist.

      1. Oh, I totally agree. (Not sure what the OTOH is there for, actually.) Given the system, title insurance is needed. However, it’s a crime that it is needed. The system ought to be more efficient.

        1. I think “On the other hand.”

          1. I believe John knew that, I merely inserted it because I didn’t understand that John viewed the title companies as complicit in the racket.

      2. The Torrens System requires the state, so it’s un-libertarian.

        1. The existing system also requires the state, of course, and is designed to prevent against claims using the state.

          The system for tracing who services a loan, MERS, may have its problems, but it still seems far ahead of what we have for titles.

  3. RCD: It is my understanding that vast majority of titles in the U.S. are pretty easy to trace securely back for a century or so. That being said, if a bank wanted to offer a loan on a property without title insurance it could charge more interest. Since very few (or none) do this, perhaps you are right. Or the perhaps the banking industry is ridiculously over-regulated. In any case, what DC did does not help the housing market.

    1. RCD: It is my understanding that vast majority of titles in the U.S. are pretty easy to trace securely back for a century or so.

      This is called an “abstract of title”. You used to see them (and maybe still do if there is no financing), but now you are paying a lawyer to determine whether you have clean title. Whether that’s cheaper or not, I couldn’t say.

      I did a few abstracts, way back in the day in Virginia. One, we took all the way back to the original land grant from the King. Fascinating stuff.

      1. I spent an afternoon reading my abstract shortly after I closed on my house. It traced all the way back to the federal government giving some dude title to 40 acres in the mid-1800’s. The interesting part was two brothers and two sisters fighting over the family homestead for about 15 years in the early 1900’s.

      2. I think the title search cost me $500.

      3. True fact: All real estate titles can be traced back to a grant from a sovereign.

        1. Absolutely. Here in Iowa, it was all part of the Louisiana purchase. So the feds bought it fair and square from the French.

          1. Too bad there were all those natives living there, getting in the way.

            1. What natives

            2. Were you referring to those squatters from Siberia? They never held the title to the land.

              1. Adverse possession!

                1. Is that like adverse cowgirl?

    2. Ron, isn’t that only true on clean titles? It’s when you have multiple liens where it gets hard, which is probably around 33% of titles.

      I’m out of my depth here of course, but all I can say is my life was turned upside-down for about 6 months when a real estate transaction turned sour when the title company was closed down for fraud. And I had a decent amount of cash reserves and a second property – those who didn’t have reserve assets were broke for a few years.

  4. When will bureaucrats and politicians ever understand that their meddling in markets always produces unintended consequences which most of the time harm more people than their intended actions help?
    Never.

    1. Actually, the Torrens system is a government, bureaucratic system that works very well:

      1) A single registry exists for all land titles within a jurisdiction (usually at the state or county level).
      2) Ownership or other rights in the property must be registered at the office to be enforceable.
      3) To be a valid charge on a property, a charge must be registered at the registry office.
      4) Any interest or charge has priority in the order in which it is registered.
      5) A lien or charge can only be registered against an interest in the property. [i.e. You can’t put a charge against Joe Doe’s property for a claim against Richard Roe.]
      6) Unregistered interests are not enforceable.

      A small fee is charged for registering a charge or change of ownership.

      The registry guarantees the title and will reimburse the chargeholder or owner if the title is improperly registered. (It does not guarantee a lender against identity thieves. Lenders are responsible for their own due diligence.)

      It is much cheaper than the deed system and actually quite profitable for the government, despite occassional payouts. It is also much easier to use.

      Title insurance companies hate it because it makes their business mostly redundant.

      1. I don’t see how that helps in the case of spousal interests in property, or properties that improperly clear probate. Basically that seems to be saying that if someone fucks you out of a property interest that’s legally yours and you don’t know about it at the time that the property is sold, you lose because you didn’t actively register the interest you didn’t know about or that was actively hidden from you.

        1. Probate companies hate the system, too, because a quick, easy, and inexpensive search at a single registry can determine all interests that have an enforceable claim. The probate companies therefore become unnecessary. (Like all true rent-seekers, they fund massive disinformation campaigns whereever a state moves to adopt a Torrens registry.)

          The only way to “fuck you out of a property interest that’s legally yours” is if you don’t register your interest when you obtain it. [There have been cases where people have leased their homes to fraudsters who have sold the property as soon as the true owners are out of sight. The registry reinstates the true owners’ interest and compensates any good faith buyer for their loss if they cannot recover from the fraudsters.]

          As for spousal claims, they can only go against the interest that the other party has at the time they are registered.

  5. The solution is obvious. Force title insurers to insure the properties at a government dictated rate. We already know that’s not unconstitutional because of the commerce clause. Duh. Winning.

    1. That makes me wet just reading it.

    2. no not government dictated, that is too limiting. Government must just find it reasonable and not excessive at arbitrary time points in the future when it conducts surprise reviews.

    3. The solution is obvious. Force

      The mantra of the politician.

  6. This is one way that the business tries to get its way ? with threats of calamity.

    Yep, it’s business that does that. And only business.

  7. Mr. Bailey,

    Next time, can you please include the “how”?:

    At issue is one sentence in the council’s legislation: “Each foreclosure sale in violation of this act shall be void.”

    That means a foreclosure sale could be challenged for a variety of issues, including because “somebody used a wrong-size envelope,” said Roy Kaufmann, a real estate lawyer in the District and a lobbyist for the D.C. Land Title Association.

    First American Title Insurance and Fidelity National Title Group argue that the new regulations make it more likely that someone could challenge the validity of a foreclosure sale, forcing them to pay or defend claims in court.

    To quote Coming to America, “A-ha!”

  8. But we all know that the problems in DC are caused by monocle and tophat wearing libertarians, who also don’t have realistic ways of solving them.

    http://www.balloon-juice.com/2…..rian-mind/

  9. “I personally think that title insurance is something of racket, but still skittish lenders require it.”

    We’ve made recoveries when easements didn’t show up on the title report in the past, so…

    I don’t think it’s a racket at all.

    Why would a lender make a loan against collateral that isn’t clearly owned by the borrower? What about liens on the property–who’s responsible for them if the property is repossessed?

    Those are rhetorical questions by the way.

  10. The D.C. Department of Insurance, Securities and Banking, which wrote the regulations

    Please make it stop.

    1. Damn your speedy fingers!

  11. Why on earth would a city need a “Department of Insurance, Securities and Banking?”

    And why are they writing regulations that have the force of law?

    I find it comical that in the capital city of a nation that considers itself the “leader of the free world,” we are ruled by fiat. Oops, did I say comical? I meant it’s a fucking tragedy.

    1. Why on earth would a city need a “Department of Insurance, Securities and Banking?”

      The city is not within a state?

      And why are they writing regulations that have the force of law?

      Welcome to America.

      1. Ok. Why on earth would a city or a state need a Dept such as this?

        The SEC covers securities and trumps any state or municipal law, so that part is out. Banking regulations are more or less handles at the federal level since interstate banking was allowed a while back. That’s out, too. As far as insurance goes, it is still handled by each state, so I can see it applying in DC as it would a state.

        That said, it’s still inexcusable that an agency can regulate with the force of law with zero oversight.

  12. Salon is running an article on the possibility of Obama being a one-term president based upon the latest job numbers.

    I have to admit that it cheers my heart to read the comments where the far-left liberals are throwing Obama under the bus.

  13. Disclosure: My wife and I own a condo in DC.

    There’s your first mistake, right there. If you’re going to live in a Third World hellhole, pick one with a better climate.

    1. I do like that in his disclaimer, he notes that they’re not planning to move any time soon. It’s refreshing to see someone buy a property for it’s intended purpose of actually fucking living in it, and not bitching about it’s investment value.

      1. Nowhere does he say he wants to live in it. He may be so far underwater that he can’t afford to move.

        Intentions don’t count as much as capabilities.

    2. There’s your first mistake, right there. If you’re going to live in a Third World hellhole, pick one with a better climate.

      True, and I hear Charlie Rangel has some property he’s trying to move in the Dominican Republic at the moment. Cheap.

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