Most homeowners, with todays’ mortgage crisis, have felt the ramifications of a declining economy, whether through a pending foreclosure, a cut in credit lines, etc. What is less understood are the tremendous title issues that have been created by all this foreclosure activity throughout the country. Its actual ramifications may take years to truly access.
Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.
MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the foreclosing party must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”—an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. As recently as July, MERS announced that it would no longer foreclose in its own name on behalf of noteholders. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.
That means hordes of victims of predatory lending could end up owning their homes free and clear—while the financial industry could end up skewered on its own sword.
The Massachusetts Supreme Judicial Court issued a court decision , which made it clear that the banks' foreclosure practices -- and indeed, the standard securitization deal -- violated longstanding basic Massachusetts real estate law, and thus, many completed Massachusetts foreclosures were invalid (US Bank National v. Ibanez) . The foreclosing banks, which had either since sold the properties or still "owned" them, had no right to foreclose, and therefore had never owned those properties. So who owns them now? Well, the fact that it's a question is the very definition of "clouded title."
Many title insurance agents and companies have declared these properties as uninsurable, meaning the owner could not deliver clear, insurable title to a property buyer. This could make the property unsalable. The problem is worst for properties improperly foreclosed on that were still bank-owned. Those properties were truly uninsurable. That's because the bank couldn't make a claim on the title insurance policy it had purchased when making the original loan, since it was the entity that clouded the title. Indeed, honoring that policy would be like letting an arsonist collect on fire insurance. Thus much of the current bank-owned inventory in Massachusetts is largely uninsurable and thus unsellable.
When it comes to the clouded title problem, one group is wholly innocent: the borrowers -- "deadbeat" or not. The title issues have been created by the banks themselves. And since the mortgage industry's robo-signing scandal first broke, people have been aware that banks have been illegally foreclosing on homes.
Here’s the problem, simply: Because of these bad titles, property owners can't prove they own the properties they think they bought, and banks can't prove they had the right to sell them.
Even though it's impossible to know how many properties are affected, estimates range between 60 and 70 million. And now that many foreclosures are being carefully scrutinized, flawed processes and paperwork seems to be the normal, not the exception.
You can't sell real estate when you can't establish that you own it -- banks won't loan money for purchasers to buy the property. That's because the bank wants to be sure that if it forecloses, it will get good title to the property. That, of course, kind of got lost in the frenzy and drive to make as much money as possible. That's why banks won't approve a mortgage for a property if a title insurance company won't insure its title. And title insurance companies won't do that if they know the title is clouded.
While there is plenty of blame to go around include our government regulators and elected officials, the largest share of the blame still must go to banks and their lawyers. Because without them, the clouded title mess wouldn't exist. Here's how all of them created the crisis.
First, banks across the nation have used fraudulent documents to "prove" they have the right to foreclose. This is the classic robo-signing situation.
While the issue is clearest in judicial foreclosure states like New Jersey -- where the documents are getting more scrutiny -- the problem exists everywhere. In nonjudicial foreclosure states, the problem frequently surfaces first in federal bankruptcy courts when banks ask for permission to foreclose on debtors in bankruptcy. The problem also shows up in state courts as homeowners try to fight the foreclosures.
For this title clouding problem, blame should be placed on the mortgage servicers, who generally are the big banks.
Second, as both the Ibanez case and Kemp v. Countrywide Home Loans out of New Jersey illustrate, banks' standard securitization procedures may have failed to properly assign the promised mortgages to the pooled trusts, which means those securities aren't really mortgage-backed after all. It also means that the ownership of those mortgages (and in some states, title to the properties) remains with different banks that were part of the securitization processes -- banks that may or may not still exist today.
For this problem, blame the securitizers, who include the big banks, Wall Street, and their big law firm attorneys.
Third, foreclosure attorneys have processed their filings in illegal ways. For example, in Pennsylvania, the attorneys have done foreclosures with papers no lawyer reviewed, bearing signatures forged with the firms' named partners' permission. Those foreclosures, which were done via the illegal practice of law, appear to be void -- and there are many. Or consider that several Maryland firms have also had underlings forge lawyers' names on foreclosure documents, including on more than 1,000 deeds.
Considering that speed over substance has replaced good lawyering and following of state-mandated procedures, it's impossible to believe that these problems are limited to only a handful of states.
For this problem, blame both the foreclosing banks and their foreclosure lawyers. Blame the banks, because it was their relentless cost cutting that got us the current foreclosure business model. Blame the lawyers, because they knew what they were doing was illegal and let their greed get the better of them.
Fourth, and perhaps most problematic, is the MERS debacle.
MERS mortgages have questionable validity. Whether or not the MERS model is legal seems now to depend on which judge is making the decision. Cases in different states, and even within the same state, are coming out differently. Where the MERS model is illegal, foreclosures done by MERS or by the people it assigns the mortgage to have clouded titles. Even where the MERS model is legal, the system's incredibly sloppy record keeping could leave multiple banks believing they have the right to foreclose on a given property.
For the MERS problem, blame the following, in no particular order: Fannie Mae and Freddy Mac, who were instrumental in creating it; Covington and Burling, the law firm that blessed it; Moody's, for blessing it as well; and the big banks who ran with the flawed system and made it what it is today.
If you are facing mortgage problems and difficulty with your lender, please contact our office for a free consultation. If you would like to learn more about clouded titles, visit www.cloudedtitles.com.
This article was compiled from research and opinions of Mitchell C. Beinhaker, Esq. For comments or more information, email mcb@beinlaw.com.
August 23, 2011
May 20, 2011
ERISA (The Employee Retirement Income Security Act) - A Trap for the Unwary
ERISA, the Employee Retirement Income Security Act, is an oxymoron, at least with respect to employer-funded health insurance plans. By looking at the title of the Act, one would think that it was enacted to protect employees. In practice, however, with respect to health insurance benefits, it protects only insurance companies and employers.
In theory, the insured employees are supposed to select a doctor of their choice whereby they pay their co-pay plus a deductible (if any). The employee and the doctor both expect that the balance, or at least a specified portion of the balance (typically 80%), will be paid by the health insurance company. The insurance company has pre-contracted individual doctors or “participating providers” (providers) in their network who have agreed to accept a predetermined rate for specific services provided. In the case of such “in-network” providers, the system usually works just as intended.
The situation where ERISA hurts the unsuspecting employee and the doctor is when the employee chooses a “non-participating” or “out-of-network” provider for services. In practice, the employee typically does not have, and has not been given, a fully copy of his or her health insurance plan. The law only requires that the employer deliver a “summary of benefits.” The out-of-network doctor also has no access to the plan document.
Before treatment begins, the nonparticipating doctor’s office secures preauthorization from (or at a minimum confirms coverage with) the health insurance company for the required procedure. However, preauthorization does not assure the nonparticipant doctor that he or she will be paid for their work. In an effort to protect itself, the nonparticipating doctor will typically have the patient sign an “assignment of benefits.” This authorizes (i) the insurance company to pay the nonparticipating provider directly, (ii) the nonparticipating doctor, on behalf of the employee, to appeal any payment decisions of the insurance company, and (iii) the release of confidential medical records of the patient needed to appeal the case. The assignment of benefits form usually obligates the patient personally for any monies that the provider cannot collect from the patient’s health insurance company.
After the services are performed, the nonparticipating provider then bills the insurance company the usual and customary fee for any such procedures for the geographic area in which such services or procedures were performed. Standard operating procedure on the part of many health insurance companies is to pay an out-of-network provider a small percentage of the usual and customary fee. The provider, relying on the assignment of benefits, then institutes a “provider appeal.” After putting the appeal on the shelf for many months (or losing it once or twice), the insurance company may tell the provider that it has no appeal rights and all appeals must be instituted by the patient. Or, in the alternate, the insurance company may write to the patient (who no longer has contact with the provider) denying the appeal and sending him or her one or two pages from the plan which sets forth the patient’s appeal rights.
The patient may not communicate with the provider in time for a first level appeal to be instituted, or the plan may require a series of appeals (typically two in-house and another by an independent authority) before any legal action may be taken: the filing of a lawsuit in federal court under ERISA to enforce the health insurer’s payment obligations.
It is only after such a lawsuit is filed by the provider, that the provider is informed (for the first time) that the insured’s plan prohibits the assigning of benefits to a provider, and, thus, the provider does not have standing to bring the suit. Even if the provider enlists the patient as an additional plaintiff, curing the standing issue, the insurance company then claims that the patient did not exhaust his or her administrative remedies (2 timely internal and 1 external appeal) before filing a lawsuit. Very few patients or providers have the time or energy (or even can cooperate and coordinate with each other) to jump through these hoops. Unfortunately, case in and case out, the complaint can be dismissed on summary judgment on this basis. When faced with such a motion, the plaintiff (provider and patient) must allege and provide proofs that even had they appealed through all levels, their appeal would have been futile. This is not an easy burden to overcome. And only after a plaintiff survives this motion practice, can the case be heard on its merits. Unfortunately, few patients or providers can afford extensive and expensive litigation in federal court even if they can get past the “procedural” hurdles of nonassignment and nonexhaustion. Most of these cases die on the vine, a victim of attrition.
The State of New Jersey, Department of Insurance and Banking (“DOBI”) has recognized this inequity and has set up an arbitration procedure for providers against in-state insurance companies which gives the provider its own rights and the ability to dispute allowed fees. Unfortunately, DOBI does not make this program available against out-of-state insurance companies. This leaves the provider and the patient with the ERISA system in which the cards are stacked against them. The end result is that the out-of-network provider is usually left to accept ridiculously low reimbursement amounts and/or having to sue their patients for unpaid balances.
Neither option is attractive or particularly good for business. If the provider sues their patient, the patient may be saddled with a huge judgment (for 20 years or more) that he or she cannot afford to pay or, if they have assets, their assets may be attached and can deplete their life savings.
New patients and providers dealing with out-of-state insurance companies would be wise to learn the pitfalls in the system which can potentially expose each to great, sometimes catastrophic, loss.
If you are a medical professional (especially a specialist) who does not participate in many (or any) networks, have your office manager or billing professional contact our office for a free, in-house consultation. We’d be happy to review your files and help you better navigate these treacherous waters. If you are a patient facing a legal battle from a provider trying to collect, also give us a call for a free consultation.
In theory, the insured employees are supposed to select a doctor of their choice whereby they pay their co-pay plus a deductible (if any). The employee and the doctor both expect that the balance, or at least a specified portion of the balance (typically 80%), will be paid by the health insurance company. The insurance company has pre-contracted individual doctors or “participating providers” (providers) in their network who have agreed to accept a predetermined rate for specific services provided. In the case of such “in-network” providers, the system usually works just as intended.
The situation where ERISA hurts the unsuspecting employee and the doctor is when the employee chooses a “non-participating” or “out-of-network” provider for services. In practice, the employee typically does not have, and has not been given, a fully copy of his or her health insurance plan. The law only requires that the employer deliver a “summary of benefits.” The out-of-network doctor also has no access to the plan document.
Before treatment begins, the nonparticipating doctor’s office secures preauthorization from (or at a minimum confirms coverage with) the health insurance company for the required procedure. However, preauthorization does not assure the nonparticipant doctor that he or she will be paid for their work. In an effort to protect itself, the nonparticipating doctor will typically have the patient sign an “assignment of benefits.” This authorizes (i) the insurance company to pay the nonparticipating provider directly, (ii) the nonparticipating doctor, on behalf of the employee, to appeal any payment decisions of the insurance company, and (iii) the release of confidential medical records of the patient needed to appeal the case. The assignment of benefits form usually obligates the patient personally for any monies that the provider cannot collect from the patient’s health insurance company.
After the services are performed, the nonparticipating provider then bills the insurance company the usual and customary fee for any such procedures for the geographic area in which such services or procedures were performed. Standard operating procedure on the part of many health insurance companies is to pay an out-of-network provider a small percentage of the usual and customary fee. The provider, relying on the assignment of benefits, then institutes a “provider appeal.” After putting the appeal on the shelf for many months (or losing it once or twice), the insurance company may tell the provider that it has no appeal rights and all appeals must be instituted by the patient. Or, in the alternate, the insurance company may write to the patient (who no longer has contact with the provider) denying the appeal and sending him or her one or two pages from the plan which sets forth the patient’s appeal rights.
The patient may not communicate with the provider in time for a first level appeal to be instituted, or the plan may require a series of appeals (typically two in-house and another by an independent authority) before any legal action may be taken: the filing of a lawsuit in federal court under ERISA to enforce the health insurer’s payment obligations.
It is only after such a lawsuit is filed by the provider, that the provider is informed (for the first time) that the insured’s plan prohibits the assigning of benefits to a provider, and, thus, the provider does not have standing to bring the suit. Even if the provider enlists the patient as an additional plaintiff, curing the standing issue, the insurance company then claims that the patient did not exhaust his or her administrative remedies (2 timely internal and 1 external appeal) before filing a lawsuit. Very few patients or providers have the time or energy (or even can cooperate and coordinate with each other) to jump through these hoops. Unfortunately, case in and case out, the complaint can be dismissed on summary judgment on this basis. When faced with such a motion, the plaintiff (provider and patient) must allege and provide proofs that even had they appealed through all levels, their appeal would have been futile. This is not an easy burden to overcome. And only after a plaintiff survives this motion practice, can the case be heard on its merits. Unfortunately, few patients or providers can afford extensive and expensive litigation in federal court even if they can get past the “procedural” hurdles of nonassignment and nonexhaustion. Most of these cases die on the vine, a victim of attrition.
The State of New Jersey, Department of Insurance and Banking (“DOBI”) has recognized this inequity and has set up an arbitration procedure for providers against in-state insurance companies which gives the provider its own rights and the ability to dispute allowed fees. Unfortunately, DOBI does not make this program available against out-of-state insurance companies. This leaves the provider and the patient with the ERISA system in which the cards are stacked against them. The end result is that the out-of-network provider is usually left to accept ridiculously low reimbursement amounts and/or having to sue their patients for unpaid balances.
Neither option is attractive or particularly good for business. If the provider sues their patient, the patient may be saddled with a huge judgment (for 20 years or more) that he or she cannot afford to pay or, if they have assets, their assets may be attached and can deplete their life savings.
New patients and providers dealing with out-of-state insurance companies would be wise to learn the pitfalls in the system which can potentially expose each to great, sometimes catastrophic, loss.
If you are a medical professional (especially a specialist) who does not participate in many (or any) networks, have your office manager or billing professional contact our office for a free, in-house consultation. We’d be happy to review your files and help you better navigate these treacherous waters. If you are a patient facing a legal battle from a provider trying to collect, also give us a call for a free consultation.
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