Sunday, October 10, 2010

Bankers May be Hoist with their Own Petard

Ellen Brown, my beloved angel of mercy to the indebted, herald and, hopefully, harbinger of doom to the banking industry, explains the bankers' current woes in, "Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?". This spells D-I-S-A-S-T-E-R for the boys in pin-striped suits, and I say it couldn't happen to a nicer bunch of guys.

"Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles — and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof."

Speculation in Mortgage-Backed Securities (MBS), which were bundles of mortgages, was the main cause of the financial crash of 2008. MBSs changed hands frequently, and the companies who profited from mortgage payments were often not the same parties that negotiated the loans. The Mortgage Electronic Registration System (MERS), a company that serves as the mortgagee of record for many lenders, allowed properties to change hands without the necessity of recording each transfer.

MERS was convenient for the mortgage industry, but lawyers are now questioning the legality of its operations, and courts are beginning to rule that its operations were illegal with respect to mortgage ownership. The test of its legality is taking place in the current home foreclosure industry. To foreclose on real property, the plaintiff must be able to establish the chain of title. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”, not the true owner. Recent court opinions stress that this is not just a technicality; it is a substantive failure, a failure that is fatal to the plaintiff’s ability to foreclose.

The latest of these court decisions ocurred in California on May 20, 2010, in the case, In re Walker, Case no. 10-21656-E–11. The court ruled that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank (C) could not collect on its claim. The judge ruled:

"Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law."

Lawyers elsewhere are becoming energized by such rulings. In an ongoing Nevada class action, Lopez vs. Executive Trustee Services, et al., the plaintiffs' lawyer alleges:

"Before MERS, it would not have been possible for mortgages with no market value ... to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG (AIG) to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder’s office where documents reflecting any ownership interest in real property are kept...

After MERS, the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible... The servicer was interested in only one thing – making a profit from the foreclosure of the borrower’s residence – so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the "beneficiary" under millions of deeds of trust in Nevada and other states."

For today, at least, I take back every nasty, lawyer joke I've ever told. For more information, read:;jsessionid=25F530EF82FA3C4CD242627CD300347F?diaryId=2794