Many civil relationships are based on law. If you go to MacDonalds for a snack, a legal relationship underlies your visit. When you buy the snack you form a contract. When you enter the premises you get the benefit of law on occupierâs liability.
The relationship between a mortgagee and a mortgagor is replete with law to regulate the rights and obligations of the parties.
It was a strange idea, therefore, to think of divorcing a mortgage from the right to receive the mortgage repayments. This was the net effect of âpoolingâ? home mortgages and selling them as, essentially, investments.
That wheeze, as we now know, also meant the âinvestorsâ? no longer knew the details of the mortgagor and whether he/she could make the repayments. That meant that very bad credit risks could be, and were, passed on as âinvestmentsâ?, resulting in the US sub-prime mortgage crash.
The investors are now discovering that they cannot prove they âownâ? the mortgage, not being the original mortgagee and not having a legal chain of title to the mortgage.
In short, they lack the evidence showing their right to seize the secured property.
In Ireland, until relatively recently, a mortgagee would receive the title deeds and the executed mortgage in exchange for the mortgage money. It would register the mortgage and schedule the title deeds and place them in a strongroom of some kind.
Now, the practice is to have the solicitor for the mortgagor also act for the mortgagee. That solicitor will be obliged to register the mortgage and schedule the title deeds and, in due course, send them to the mortgagee.
As we now know (and always knew from experience elsewhere) what ought to happen and what actually happens are not necessarily the same thing.
That is and was foreseeable. Even the effect of Murphyâs Law would ensure a deviation from the desired outcome. There are therefore, good grounds for asking if any âinvestmentâ? managers have lost their jobs for arranging (with the assistance of solicitorsâ representatives) this unwise relationship with solicitors?
You can read some of the story of mortgage bonds in the book ‘Liar’s Poker’ which is well worth a read if you have a few hours.