WHO SUFFERS FROM THE FORECLOSURE MESS? Just about everyone.

Already, it’s apparently impossible to sell a foreclosure–and people who have bought foreclosed homes are starting to sweat, wondering if they’re going to get embroiled in a lawsuit. But what about short sales? Again, if a company doesn’t have the authority to foreclose, it doesn’t have the authority to authorize you to sell it for less than the value of the mortgage. Things seem cleaner with ordinary sales, but what if some other company comes out of the woodwork to claim that the note wasn’t properly registered, and you paid the wrong guy? Does the lien go back on the house? Who owes the money?

This is why people are worried that the title-insurance system will break down. We finally closed on our house last Friday, and though it was a straight sale, I have been comforted all week with the knowledge that if something goes desperately wrong with the old mortgage, at least the title insurance will make us whole. But if I were a title insurer, that would make me kind of reluctant to write new policies. . . .

All this uncertainty is ultimately going to be terrible for both the housing market, and the broader economy. We’d better work hard at crafting legislative and judicial remedies–more about which later.

Indeed. The mess is bigger, and deeper, than it seemed in 2008.