The Real Problem Behind the Foreclosure Crisis

The foreclosure scandal surrounding the US financial industry is being portrayed by the banks as a technical problem which requires that some documentation errors be fixed. The White House has rejected the calls of many in the Congress for a nationwide moratorium on foreclosures on the grounds that there are quite a lot of them that are legitimate and should be processed. Government officials say it is going to take just a little bit of time to sort out these from the flawed foreclosures.

Terms like ”œtechnicalities” and ”œdocument flaws” are meant to sound innocent and minor, when the truth is that the foreclosure problem is just one part of a much bigger crisis that is still out of sight for the media, and apparently being downplayed by the industry and its political apologists. This crisis at its core revolves around an attempt by banks, mortgage brokers and other financial institutions to privatize and usurp the government-run county record system that for over 200 years has guaranteed the property rights of American citizens. The long term question is whether this private usurpation, which was implemented without review or approval from any elected representatives of the people, should be allowed to stand. The short term question is whether use of this private records system has irrevocably corrupted the unbroken chain of title to property that existed in government records, and in so doing fatally undermined American confidence in private property rights (rights which are guaranteed to Americans under the Fifth Amendment to the Constitution). The following series of initiatives by the banking industry will explain what transpired, and it will be seen that these initiatives from the start were plagued by false legal assumptions, misrepresentations, shoddy record keeping, and loss or deliberate destruction of critical original real estate documents such as deeds, titles, and notes.

How a Private Record Keeping System for Real Estate Transactions Was Created

1) The creation of a mortgage backed bond securitization process in the 1990s led to the establishment of a financial industry clearing house for mortgage documents, called MERS. The industry assumed and asserted that MERS replaced the traditional, time-tested legal process for recording with county officials all property titles, mortgages and liens, and notes evidencing indebtedness. The intent of the banks which established MERS was to circumvent the government property record system and privatize it with a system they owned, and which they intended eventually to own all mortgages in the US. This helped the banks avoid billions of dollars in fees and taxes which traditionally had been paid to local governments each time a change was made to a property’s chain of title. Under this system, MERS has claimed that it is the owner of a mortgage in default (it is the mortgagee), but at the same time the member banks which own MERS and must go to court in a foreclosure have also claimed to be the mortgagee.

2) This dual, simultaneous claim to mortgagee rights by MERS and its bank members has caused endless confusion in courts dealing with foreclosures. Increasingly, courts are ruling that MERS has no legal standing in these mortgages and cannot be the mortgagee. MERS does not lend any homeowner any money, MERS has too few employees to even process foreclosures, and MERS deliberately allows member bank employees to download foreclosure documents, and use the corporate seal of MERS, as ”œvice presidents” of MERS when in court. This last point is a transparent ruse to deputize thousands of bankers around the US pretending to be MERS officers, when it is obvious they are not paid by MERS and know nothing of the company. On these and related grounds, state Supreme Courts in Arkansas, Kansas, and Maine have ruled that MERS cannot foreclose on and sell property because it has no legal standing as mortgagee. Courts in many other states have come to the same conclusion.

3) When banks have in turn shown up in court to enforce their rights as mortgagee, they often fail to produce the original note from the borrower, written record of any assignment of the note to other lenders, the original deed or beneficial trust to the property, and affidavits from the bank asserting that they are the proper holders of these documents. Consequently, foreclosures have been denied because the purported mortgagee cannot even prove they have legal standing to pursue a foreclosure.

4) While MERS seemed to do an adequate job of recording electronically on its books the transfer of ownership of a property or any creditor claim to that property, it did not follow through on the necessary recording of titles, notes, and related mortgage documents with the appropriate county officials. For one thing, this avoided paying hefty fees and taxes to these local governments for each transfer of a mortgage or related change to the chain of title for a property. Secondly, this allowed MERS to claim its records alone were sufficient to record property rights, even though its records were restricted to its members and kept hidden from the homeowners involved.

5) If a county records department does not have original documentation, then under state laws property title and mortgage claims against that property are not legally valid. This is especially so if it is not clear in the record who the mortgagee is, and also if the mortgagee is not the same party listed as the party of interest in a note evidencing indebtedness. This latter point has been an incontrovertible element of constitutional law in the US, and much earlier in England, from the 19th century on. What MERS has effectively claimed is the ability to overturn and undermine both the tradition and US Supreme Court rulings which have time and again made clear that property cannot change hands if it is not clearly stated who has ownership rights, who is buying the property, who has a mortgage on the property, and what the financial interest of all these parties is in the transaction.

6) Once MERS was in place, banks bundled thousands of mortgages together into a single security that offered investors different cash flows depending on how much risk they wanted. Investors could buy Aaa rated bonds backed by the highest rated mortgages, down to junk bonds backed by subprime mortgages. The rating agencies predicated their ratings on the assertion from the banks that a trust was being set up with complete legal standing to the collateral represented by the homes, and that the necessary emendations were being made to county records for these and any future changes, so that the title chain remained unbroken. Similarly, investors were assured that the trust was collateralized by the property, and that the banks had legal standing as mortgagee to enforce investor rights through foreclosure on defaulting properties (this despite the fact that the courts were being told MERS was the mortgagee).

7) We are now discovering that MERS offered no such protection legally, and that the financial industry was deliberately lax in transferring the proper original documents to county recording offices. In what seems now to be a majority of all mortgages that were securitized, which were over the past 15 years millions of mortgages totaling many trillions of dollars in value, the original documentation has been lost or deliberately destroyed. The chain of title has been broken and the banks may be unable to recreate it, since so many mortgage brokers, law firms and other players in the housing bubble have gone out of business.

8) These mortgaged backed securities were often guaranteed by the financial housing behemoths Fannie Mae and Freddie Mac, who collectively own or guarantee several trillion dollars worth of such paper. Both of these entities collapsed in 2008 and are now wards of the federal government. They have begun in the past year to put back to the banks billions of dollars of securities that are flawed by virtue of fraudulent statements regarding the borrower’s income or assets, or overstated appraisals. The possibility that trillions of dollars worth of additional securities may be corrupted by lack of complete legal rights to the collateral is only now beginning to be comprehended.

9) In 2004, Fannie Mae and Freddie Mac were forced to shut down their mortgage business for several years due to accounting irregularities on their own books. Wall Street took up the slack and began issuing securities based solely on the Aaa ratings from Moody’s or Standard & Poor’s, and based of course on the collateral behind the mortgages. These securities were much poorer quality than what would have been accepted by Fannie or Freddie, and they were sold around the world to pension plans, mutual funds, endowments, other banks, and governments. These securities ”“ already seriously impaired by the collapse of the housing market ”“ are now further suspect because of flaws in the collateral rights.

10) Once the housing bubble burst and defaults began accelerating, the financial industry was in a bind over how to establish its right to declare a default, evict a property owner, and sell the house when the banks did not have original documentation, which was also not properly recorded with county officials. To get around this problem, law firms cropped up promising to recreate the record trails and find the missing documents. Since the banks were not about to hire tens of thousands of people to do this work, they relied on these subcontractors instead. What courts have discovered is that the legal work being submitted since 2007 when defaults became a problem is corrupted by false signatures, dates which don’t match the purported events, fictitious notarizations, and altogether phony claims that a proper legal right to foreclose, evict, and sell the property exists.

11) To complicate this, the banks submitting these foreclosure claims have been themselves guilty of false assertions. The officers attesting to the accuracy of the documentation have been known to sign hundreds of foreclosure claims a day, which they themselves admit they have not personally verified for accuracy, as required by law.

12) Far too many judges in the US hastened this process along by approving hundreds of foreclosures a day without checking the documentation submitted. A simple review would have revealed inconsistencies and errors on a majority of these foreclosure cases.

13) The banks were motivated to process as many foreclosures as possible to ”œclean up their books” quickly, and because of this a cottage industry of private investors called ”œfloppers” arose to take advantage of the firesale prices offered by the banks. Bank-foreclosed properties have typically sold at an average discount of 30% to other property sales in the residential market, so this represents instant profit to floppers who could resell properties in a matter of months, especially after the Obama administration removed restrictions on such resales that previously required much longer holding periods. Some evidence is emerging that these investors might have ”œmotivated” bank officers or legal firms with kickbacks so that more and more foreclosures could take place. One thing is clear: in many banks and law firms involved with foreclosures, staff were paid bonuses for processing high volumes of foreclosures.

14) The foreclosure process took on a frenzy in recent years not unlike the frenzy that led up to the housing bubble. Homeowners were sent foreclosure notices by mail, and had difficulty reaching bank staff to work out accommodations on the mortgage terms, which were rarely granted. The legal requirement for a bank to meet face-to-face with the homeowner was usually ignored. Homeowners across the nation weren’t simply deprived of due process as required by the law, they were often deprived of any process other than being told to leave their home by a set date. Because of the flaws in the documentation, many homeowners could have challenged their eviction and loss of their home had they known of the problems with documentation, but they had no access to the documentation to discover this unless they were willing and interested in forcing the bank to provide this material. Multiple banks have foreclosed on the same home, since even the banks are confused about which of them has true legal rights to foreclosure. There have been cases where homeowners who paid off their mortgage were served with foreclosure notices.

15) In a very large number of these foreclosures, however flawed the documentation or however limited the process, there is no doubt that the homeowner is in default on the loan. There should be no room in this process for any homeowner to be rewarded for defaulting on a loan with a free home just because the legal title and note and lien are all compromised. The real issue here is that from the beginning of the securitization process, it appears as if the banks have subverted the private property rights guaranteed to US citizens under the 5th Amendment to the Constitution. Once the banks realized their claims were weak, they began to finesse this problem by submitting phony assertions that they had all the proper legal documents in order. This has compounded the situation grievously, to the point where the average person has a reason to distrust the sanctity of property rights in the US.

How Much of This is Fraud?

There is no simple answer to the question of whether all or part of this process is fraudulent. Lawsuits have been filed which claim that RICO standards for racketeering apply because from the very start of MERS banks knew that they were making false claims regarding their mortgagee rights and the similar right they assumed was vested in MERS. These charges of large-scale fraud also rest on the assertion that the fraud was part of a deliberate program to strip homeowners of the equity value they had built up in their property. These claims will be very hard to prove in court, lacking a bank memo from the 1990s specifically stating these intentions, or other such hard evidence. Similarly, no CEO is going to jail if there is no hard evidence that person was informed of the fraudulent nature of their business practices, and went ahead anyway in pursuit of these practices.

One of the other difficulties in proving this type of systemic fraud is that the bank executives can claim that everything was sanctioned by the regulators. Throughout the housing boom, regulatory forbearance in the face of egregious and risky practices by the bankers was the norm. The Federal Reserve under the direction of Alan Greenspan believed that the market was a far better regulator than Washington officials ever could be. When MERS was established during the Clinton era, it did not seem to occur to the regulators that a private system of recording property titles was going to be in any way flawed, even though there was nothing wrong with, and much to commend, the existing local government recording practices.

Lower level fraud may be easier to prove. Already the Justice Department is investigating multiple cases of fraud by mortgage companies in the processing of loans, especially the ”œLiar Loans” that asked for no information on income or assets. There seem to be plenty of cases of loan officers altering applications to improve an income amount in order to get approval for the mortgage.

Up to 40 state attorneys general have combined resources to investigate fraud in the foreclosure process. Whether this entails the bigger questions of MERS, mortgagee rights, and the separation of notes from the mortgage, remains to be seen. The scandal so far has focused on ”œrobo-signing” by bank managers who attested to the courts that the documents submitted in a foreclosure were in order, when it was impossible for the manager to know this given the number of cases reviewed and approved each day. There is also reasonable evidence that law firms working for the banks falsified documents, forged signatures, and violated notarization standards. Any lawyer who knowingly participates in such a process has in the past been disbarred. These offenses should be readily provable if the evidence is there, and as of this week President Obama has endorsed these investigations and promises to provide federal help.

Given the history of federal government involvement with the housing crisis, it does not appear as if fraud charges will be leveled against executives in the banking industry. At the state level, however, attorneys general have been much more aggressive and may be able to collectively bring some of these executives to trial for nationwide offenses.

Longer Term Solutions

I’ve seen no better prescription for fixing these problems long term than the eight point list provided by Karl Denninger in his Market Ticker blog. Here is a summary provided by Mr. Denninger:

Ӣ Halt all foreclosures and sales Рstand-still Рuntil this process is completed. Those who currently have possession will continue to have it for the time being.

Ӣ Halt all mortgage payments where the servicer (the entity to whom the payment is made) is not the original lender, or where the loan was securitized. Instead, such payments are made to suspense accounts held by the Clerks of the Court in each county where titles are maintained and recorded. This is necessary in order to provide the essential motive of cooperation by those who allege they are owed the money.

Ӣ For each parcel with mortgage(s), those who claim interest must then come to court and prove it up with an unbroken chain of assignments. Provide a reasonable amount of time (one year?) for them to do so. If there are multiple claimants then the court must resolve who actually has standing and who does not. This will resolve with either one valid claimant or none at all.

Ӣ If there is one valid claimant, then that chain of assignments is recorded, the impounded funds are released, and the homeowner now knows who pay. If there are no valid claimants within the time provided then the title is quieted and a judicial release of liens is recorded. Either way, we resolve the land title problem and the entity entitled to receive the payment stream has proven their case and obtained a release of their funds.

”¢ The lack of a valid claimant under state law does not extinguish the debt – only the security instrument. Those who think they’re going to get a “Free House” are likely to be sadly mistaken. The creditor still has a claim for the money owed (if he can prove it up in court) and can enforce it via lawsuit as with any other unsecured debt but he can’t seize the property in a foreclosure action. As with any claim of a debt in a court, the creditor still has to prove standing – which means he needs to prove the obligation was taken by the borrower and he has acquired sole and lawful ownership of that obligation. Note that this is similar to the above process but not identical – in many states it is entirely possible to irrevocably sever a security interest on real property, but that does not extinguish the debt – only the lien on the title.

”¢ We MUST compel Trustees to audit all MBS files. If investors are holding an empty box they certainly have a cause of action. So far we have seen few of these actions, and no evidence that these audits were ever done – including at inception of the Trust. It was and is a legal duty of the securitizing parties to insure compliance with both the representations and warranties provided to investors regarding loan quality and IRS regulations. The proper “hammer” to wield here is via the IRS – these trusts must meet specific legal requirements in order to have and keep their “pass-through” status. Most of the scams and frauds, if they occurred in a given trust, would cause it to violate those requirements. We have a serious budget problem in the United States, and this is one way to help address it.
”¢ We must enjoin by permanent legal process future subversion of land titles. This includes entities such as “MERS”. If MERS wishes to “track” mortgages for people’s convenience that’s fine and well but that cannot be allowed to stand in for recordation of transfers of security and ownership interests. MERS cannot be allowed to replace, subvert or supplant the land title system in The United States. This is a State Law function – not a federal one and is well-supported in State Law. It is historically, and with good cause, vested at the level of the county government, where ad-valorem taxes are levied as well for local government support. As such any claim made by an entity such as MERS must have no legal standing whatsoever – recorded county records control, period.

”¢ Where criminal conduct is found – whether it be securities fraud, control fraud, borrower fraud or any other sort of fraud, the case must be referred for prosecution. We must start with the “heads of the snakes” but we must not stop there. There are plenty of people who were involved in this and knew what they were doing was illegal – but didn’t care. Most of the offenses involved are felonies, and we are well-beyond where we should be seeing indictments by the hundreds with civil forfeiture actions attached.

Some Final Observations

The banking industry is anxious to get foreclosures on track again and quickly. There are reports that bank executives are meeting with executives from the title insurance companies to get them to lift their freeze on title insurance. According to these reports, the deal being discussed will involve the big banks providing guarantees to the insurance companies that any documentation problems in foreclosures going forward will be the responsibility of the banks, who will indemnify the insurers for losses they may suffer from such problems. This will apparently ease the concerns of the title insurers and it is estimated by the end of this week a deal will be done to lift the ban. Note first of all that this only covers future foreclosures; problems from past foreclosures will have to be resolved with other means. Second, two of these big banks, Bank of America and Citigroup, are still partial wards of the state, which means their guarantee being offered comes in part from you the taxpayer. It does not appear that these banks are asking the US Treasury whether it is okay for them to offer such an open-ended guarantee.

The Congress and the courts are faced with two fundamental paths to follow. One is to allow MERS claims to prevail, and thus upend almost two centuries of legal and business practice that not only safeguarded ownership rights, it worked well with nearly complete transparency. MERS would replace this with a chaotic system badly in need of reform. This decision would also permanently deprive local governments of the tax revenue they had earned from acting as public ministers working for the public trust.

The alternative path would be to turn down MERS and various bank solutions, and therefore declare invalid hundreds of thousands of foreclosures, and potentially millions of mortgages that have been tainted by being securitized through MERS. Mr. Denninger feels strongly that this is the only practical option for the government, especially if the rule of law is to prevail when it comes to property rights. There is no room in his view for a private system like MERS, and because trillions of dollars of mortgage backed securities will be considered invalid, the banks which sold these bonds will have to disgorge all the billions of revenue they earned from securitization. This will bankrupt most if not all of them.

A possible half-way solution for the banks would be to deny them the legal mortgage they are seeking as mortgagee, which gives them the right to foreclosure, and instead provide them with what is known as a “beneficial mortgage”, which gives them the possibility of foreclosure under certain conditions. This is better than having nothing at all, and on balance declaring that the banks own beneficial mortgages may net them a smaller amount than full foreclosure, but certainly something better than zero. This may also give the banks greater incentive to work with homeowners on modifications, thereby keeping more people in their homes.

When people like Mr. Denninger make such proposals, it is often the case that banks or their supporters fight back by saying ”œyou will destroy the banking system if you do that,” or ”œyou will throw the economy into a depression.” Mr. Denninger will not be responsible for any such things, and the courts and the governments involved need to remember one basic fact: the banks caused this problem by subverting the existing government-managed title recording system, and then covered it up by resorting to phony if not fraudulent practices in foreclosing on millions of homes. When discussing whether to throw this problem back squarely on to the banks, it must be remembered that this is a national problem, and a national disgrace, of their own making. They alone are responsible for the consequences. Their demise is a small price for them to pay if their executives manage to avoid prosecution and jail terms.

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Numerian is a devoted author and poster on The Agonist, specializing in business, finance, the global economy, and politics. In real life he goes by the non-nom de plume of Garrett Glass and hides out in Oak Park, IL, where he spends time writing novels on early Christianity (and an occasional tract on God and religion). You can follow his writing career on his website,

57 CommentsLeave a comment

  • You make a complicated situation understandable and I appreciate the education. (I used to think double-entry bookkeeping meant you kept one set of books for the IRS and another for yourself, so you know where I’m coming from – but I’m learning).

  • What I want to know is if I am holding a CDS on one of these securities which now has only the recourse of a beneficial mortgage, how do I get paid out of this mess? The CDS is still not priced to offset what I own of the original security. Since there is no market to price the security, there is none to price the CDS.

    So if I am a pension fund in Finland, I’m still in the proverbial cold.

  • Excellent job numerian, what a great explanation. I suspect though that the banksters will once again survive to reap again record bonuses.

  • You point out:

    This crisis at its core revolves around an attempt by banks, mortgage brokers and other financial institutions to privatize and usurp the government-run county record system that for over 200 years has guaranteed the property rights of American citizens.

    The usurpation of long established law and customs by the financial class and war profiteers is simply out of control. This is an excellent summary and analysis. I’m not sufficiently versed in real estate finance, etc. to judge the solution summarized. However, I do feel comfortable pointing out the people who brought us to this point, revolutionaries in every sense, are still in charge and will attempt to mold solutions to further their current aims. Given this dynamic, we need an entirely new system with the current players, for the most part, benched permanently.

  • On the security for the note (my home) and the note being severed.

    Per my BK lawyer client:

    1. File voluntary BK

    2. Demand all creditors prove their ownership of the debts. There is a valid note (debt), but the ownership is unclear.

    3. Propose the court set up an escrow account and pay the monthly hit to the court.

    4. Sell the house and then bring an action to say their is no owner of the court escrow account, and I should get the proceeds of the sale.

  • If you’re so disposed and the very best to you in this effort. We’re supposed to follow the established laws. Why shouldn’t the bankers. After all, they knew exactly what laws they were breaking.

  • Theoretically the mortgage backed securities which underlie the CDS might all still be performing if they are high enough quality. In this case the CDS would retain a value close to par if there were a public market to ascertain the instrument’s value on a mark to market basis.

    If on the other hand mortgage defaults are corrupting the statistics of the RMBS, the CDS value will change to be more expensive since it is now more likely to be exercised.

  • Criminal deviants destroying the land title system — are there more resources on all of this? That’s what’s seemed to be lacking, I’d been hearing about MERS and this insanity for a long time and now it finally comes out. Where is the reference? I have never seen hardly any infographics even, to explain these chains of custody & chaos. is funny but…


    This is a law school student’s paper to be published about MERS. Christopher Lewis Peterson of the University of Utah. I used some of his factual descriptions in my opening five points. In terms of blogs, the big three researchers are Tyler Durden, Karl Denninger, and Yves Smith.

    The factual accuracy of blog posts should always be questioned rather than just accepted blindly. In the case of these three bloggers, so far their reporting has been proven correct. Attacks on their credibility just aren’t sticking, and their interpretation of events is holding up very well. The major media are paying attention now, and television talk shows are beginning to invite them to make their case. This is helping to spread an alternative interpretation from what the banks are saying. I’ve noticed even Larry Kudlow on CNBC is willing to discuss the dark side to all of this, and Congressmen Grayson in Florida is taking the Denninger position that this is massive fraud going back over a decade.

    A second level of reporting can be had from legal briefs and depositions, because this is where the banks have been attacked in court by aggressive lawyers suspecting fraud has occurred. This has helped quite a few judges take a fresh look at the foreclosures put before them and start rejecting those with obvious flaws and discrepancies.

    When I first delved seriously into this issue it was like looking through the fog. Shapes of things could be seen only dimly and didn’t make much sense. That has changed a lot, and the recent work on MERS and the US land title system has created an aha! moment for me that explains so much. I still can’t quite get into Denninger’s argument of massive fraud, but I can readily see that going back into the 90s the banks, perhaps with the intention only of avoiding taxes and fees, created MERS to supplant the land title system. Finally, finally, even from someone yesterday at Citibank, we are getting recognition that this system failed to create a complete and legal registry of all changes to property titles in the US, having circumvented the county record system that did so. Consequently, we are in a terrific mess and the damage is just beginning to be appreciated. Even if the title insurance companies get back into business tomorrow (they obviously don’t want to hurt their income stream either), so many property titles are corrupted that the market at best will limp along until someone comes up with a comprehensive solution.

  • I paid off my first mortgage around 2002, and only have a home equity line encumbering the property. That’s not entirely true – there is another party on the county records supposedly borrowing against my home. I’ve never heard of these people and there are discrepancies in the record that would make a reasonable person say this is obviously a clerical mistake. I had a lawyer check it out and he said don’t worry about it unless you want to sell the home. After this fiasco, I think I have to troop down to the Recorder of Deeds and get this removed from my record.

    Even if I pay off the HELOC and have an absolutely clean title, there are known cases where criminals create your identity and borrow against your home. You have to be vigilant in checking the county records for fraud against your property. Also, I have all the original documents now on the paid off first mortgage and never went through a “mortgage burning” ceremony just in case I ever needed them to prove it was all paid off.

    Getting directly to your question, it is the role of the banks to submit to the Recorder of Deeds in your county all changes to the chain of title so that it remains unbroken. This would include any assignment of the mortgage to another lender, which happened frequently under securitization. This is what we now think did not happen all across the country. But if you did pay off your first mortgage, the bank should have returned the note signed paid in full back to you. Why didn’t this happen? I could say that whenever this didn’t occur, you as the homeowner should have been right on top of it. However, most homeowners wouldn’t know to pursue the note itself. Therefore, what paperwork do you have to prove you paid off the mortgage? What about a computer print out of your remaining payment schedule, showing they are all now zero? You must have some written evidence that a court would ultimately accept if no lender showed up to contest your claim you own the home free and clear.

  • 1. Check if the paid off first recorded a reconveyance deed or other instrument releasing the lien on you property. Just as ownership and mortgages are recorded, so are payoffs and termination of liens.

    2. That spurious lien? Get a full copy of the recorded lien. If it’s on the wrong property the county recorder can fix the problem. If it is recorded on the correct property, contact the recorded lender and get them to file a reconveyance deed.

    3. All this information is available to you from a Title Company, TICOR and First American are two of the larger ones and will email you the documents. Call them up and ask for customer service.

  • perhaps with the intention only of avoiding taxes and fees

    Another interpretation:

    perhaps with the intention of evading taxes and fees

    Which is massive fraud.

    The difference between avoiding and evading is complex and goes to intent and law. However in this case the intent appear as evasion of fees, because of a desire to circumvent (breach) the law.

  • Record a reconveyance deed releasing the lien.

    Frequently they do not. They rely on a zero demand response to escrow during the sales process. I’d not recommend the zero demand mechanism.

  • You know, it’s situations like these that make me think we should just give it all back to the Indians.

    We are showing ourselves unworthy of our Republic and unworthy of the land. So now our leaders have blown up the 5th amendment. Christ, without civil rights and title to the land, what’s left?

    Note: It would not be “cost-free living” if loan and title confusion leads to a free house. You still have property taxes to pay every year and if you can show those have been paid, what difference is the status of the debt to the government? I understand Denninger’s and your point about the difference between a lack of valid claimant and the debt. But if the ones striving to make a claim are not serious about their duties and obligations, then why should I be about my responsibilities to the mortgage?

  • Mortgage Electronic Registration System (MERS)
    Reston, VA
    About MERS

    “MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Our mission is to register every mortgage loan in the United States on the MERS® System.

    “Beneficiaries of MERS include mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders and consumers.

    “MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS® System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded. MERS as original mortgagee (MOM) is approved by Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA, California and Utah Housing Finance Agencies, as well as all of the major Wall Street rating agencies.”

  • Especially because your thinking is so logical. There are about 30% of all homeowners, mostly retired people, who have paid off their mortgage and will feel foolish/disadvantaged if there is a general movement by borrowers to stop payments on their mortgage.

  • You write:

    In a very large number of these foreclosures, however flawed the documentation or however limited the process, there is no doubt that the homeowner is in default on the loan. There should be no room in this process for any homeowner to be rewarded for defaulting on a loan with a free home just because the legal title and note and lien are all compromised.

    How is it that institutions, with self-valued “assets,” propped up by what is essentially the full force and faith of the United States government through the Federal Reserve Bank and Treasury Department, should dictate anything to anybody, when these financial institutions are themselves bankrupt, and committing felony fraud on every court in the nation?

    Property rights are not the only thing at stake, but also equal protection under the law. If I am bankrupt, I become homeless. If I commit perjury, I go to jail. Is there nothing No Thing that the banks do that crosses the line? What if they raised a private army and sacked Washington? Would Obama be able to find a compromise with that? It brings to question the very legitimacy of our government–under Bush, under Obama, under future President Chris Christie. No part of our government is not tainted by corruption, through and through, and no one in the government is willing to do what is necessary, fast enough, to fix these problems. We can make all the checklists here and elsewhere that we want, but nobody is going to implement them.

  • Even when there is clear encroachment, a covered condition under a title policy, they have to be kicked to take action.

    Clearing title? Bwhahahahahaha….

  • The banks are continuing to originate mortgages with the MERS language in them. I signed one last month, thinking “If what I read is true, this is no mortgage.”

    On the other hand, this error is not attributable to me, as the person who drew up the documents, the lender, has the presumption of the courts of a greater burden of proof.

  • If you file bankruptcy you can choose to retain some of your debt obligations. Most typically your mortgage and you are not homeless.

    Commit perjury and you do not necessarily go to jail, the severity of the offense is considered. Perjury without intent is generally overlooked if corrected when found.

    There is a human overlay to all these things. Hence a compromised title with no intent to cause harm will be assessed and corrected. This is an area the system must tread very lightly. Becoming too strict with this, and it is the homeowners (who are far more likely to fail to retain clear title) who could be equally abused in such a system.

    The cornerstone of law is intent. A compromised title would not be felony fraud. Felony fraud requires intent to defraud. Most of the folks at the banks are there putting in 40 hour work weeks for a paycheck and hence the court system identifies no intent to defraud, particularly the back office folk processing loans. Likewise there are no CEOs at banks sitting down and clearing titles.

    A broker who lies to get a loan and collect a commission has intent, and that would be felony fraud.

  • I would make the point that not all homeowners with mortgages will find that the bank can’t establish the proper paperwork and would be taking a serious risk by operating on the assumption that if they default on their mortgage they will end up with a free house. My guess is that there will, and has to be to in order for the mortgage lending business to survive, an equitable fix.

  • This is the best and clearest description of what’s really behind the crisis that I’ve seen. Numerian, could you please submit it to Zero Hedge for a “guest post” ? Perhaps to “Automatic Earth” and Chris Martenson, as well?

    I think I have heard that Canada did not suffer the same assault on property rights. Anyone know?

  • You can’t have a functioning real estate market if a portion of homebuyers by chance are given a free home because of a mistake or fraud by the lending bank.

    It makes sense to me that mortgagors should pay in to a sequestered account managed by the county government if there is a question as to whether the mortgagee has a proper lien against the property. Once the court settles the legal problems the money can be turned over to the correct mortgagor. Remember that this is still no great deal for the homeowner; they are trapped in their home until these issues are resolved.

    It should also be remembered that a corrupted mortgage may result in the lender losing the right to foreclosure, but it doesn’t automatically mean the lender has no recourse in a default. The lender might still have an unsecured claim against the borrower that can be pursued in the courts. Any homeowner contemplating defaulting on their mortgage needs to talk to an informed lawyer first.

  • Thanks BC Nurse for your vote of support.

    While we do get regular circulation on our interested blogs, Zero Hedge would not be a selection in this case. They have been leading the blogging community for a long time on this story.

    I haven’t heard there are similar problems in Canada, but the Canadian housing market hasn’t as of yet suffered the price declines that we have seen in the US. I hope they avoid this, but there has been something bubbly about property values in some Canadian markets, especially Vancouver, so that market still bears watching.

  • of registering mortgages and lenders against property was never short cut in Canada. Almost always when Canadian property ownership changes, a lawyer is hired and paid to ensure that the buyer has clear title. Banks are compelled to properly discharge mortgages with the owner being billed for the discharge (fees for which vary by province.) Anyone in Canada can do a title search to ensure unethical people didn’t steal an identity to get loans. Mortgage fraud in Canada is relatively straight forward:

    Canadian banks aren’t as free to set their own rules and make up their own procedures which seems to have served us well. I have been hearing stories of snowbirds who bought homes in southern climes having title difficulties.

    What a scary place the United States has become when a property owner can’t easily track who holds the title to a property.

    Numerian…what an excellent essay you’ve written uncovering the depth of the foreclosure crisis! True that some markets are dropping, but at least Canadians know whether or not they have clear title. Canadians to the best of the my knowledge cannot walk away from their mortgages and debts!

  • Canada has the Liberal Government to thank for saving it form the financial debacle the US is experiencing right now.

    …..Some of the fundamentals credited with keeping Canada’s banks in the safe zone were put in place nearly a decade ago by the former Liberal government of Jean Chretien, including a refusal to approve any merger of Canada’s big banks.

    About a decade ago, former finance minister Paul Martin rejected planned mergers by Royal Bank and Bank of Montreal and TD with CIBC, saying such transactions would hurt financial services choices for consumers and businesses across the country. Source

    In short, the current Conservative government is reaping the benefits of former Liberal financial policies.

    Tolerating prostitution is tolerating abuse and torture of women and children.

  • Housing prices in Canada are going down, led by the Vancouver and Toronto markets. The thing that will hurt Canada the most is when the U.S. stops buying our lumber, tar-sand-oil, and water. BC might still be protected by our trade with China. In my town, tonnes and tonnes of the finest coking coal go past in open rail cars every day from Fording Coal, Ltd. in the Elk Valley of the Kootenays, enroute to the Tawwassen Terminal south of Vancouver to be uploaded onto ships bound for China. NAFTA requires that we send power, water and oil to the U.S. even if it means we short ourselves.

  • especially in one of their brochures or other promotional literature says they did, for sure the holder has recourse to sue the pants off the seller. And the seller, if even a small portion of that which is presented as very good is, well, very illegally handled? The seller must buy back the bad paper.

    Gonna be a lawyers’ bonanza.

    Oh, yeah, banksters will luuuuuv buying back that toxic sh*t!

    Found in Felix Salmon post.

    Now, I am not financially savvy and all I know about finance I read on the econo blogs. I may be wrong, so please read the post and comment.

  • Wednesday, October 13th, 2010 — 7:04 pm

    Banks hired hair stylists, teens to process foreclosure documents, workers’ testimony shows

    In an effort to rush through thousands of home foreclosures since 2007, financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in “foreclosure expert” jobs with no formal training, a Florida lawyer says.

    In depositions released Tuesday, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits and that they agreed with the defense lawyers’ accusations about document fraud.

    “The mortgage servicers hired people who would never question authority,” said Peter Ticktin, a Deerfield Beach, Fla., lawyer who is defending 3,000 homeowners in foreclosure cases. As part of his work, Ticktin gathered 150 depositions from bank employees who say they signed foreclosure affidavits without reviewing the documents or ever laying eyes on them — earning them the name “robo-signers.”


  • The underwriter for mortgage-backed bonds hires a third party to review a random sample of the mortgages in the pool. About 40% are rejected, so the underwriter negotiates a reduced price for themselves, but the only thing revealed to the investors is that this review was undertaken. No one bothers with the rest of the sample, which presumably has 40% credit-impaired mortgages. These are allowed to remain in the pool/trust.

    Had the investors known, they would have demanded a lower price/higher yield for the bond.

    This is different from the foreclosure crisis, where it is unclear which of the mortgages were properly registered in the trust, which have a clear lien on the property, etc. In both cases, there is a potential claim of fraud by the bank.

  • currently there is a rebound although not in Vancouver.

    OTTAWA (Reuters) – New home prices in Canada resumed their upward crawl in August, gaining 0.1 percent after declining by the same amount in July, reflecting a slowdown in the housing market after robust growth for much of the past year.

    Statistics Canada said on Wednesday prices rose in seven of the 21 cities in the index, were unchanged in 10 and edged down in four.

    Analysts in a Reuters poll had forecast, on average, a 0.1 percent decline in the August index.

    The top contributors to the increase were three cities in the province of Ontario — Toronto, Oshawa and Hamilton — as well as Montreal, Quebec.

    Compared with August 2009, prices climbed 2.9 percent.

    The housing only component of the new housing price index climbed 0.1 percent on a monthly basis and 4.5 percent on the year. The land only component was flat in August and slipped 0.2 percent on the year. Source

    Tolerating prostitution is tolerating abuse and torture of women and children.

  • Buffett’s Pet Bank Joins The Fraudclosure Circus: Wells Caught Lying About Affidavit Practices After Clerk Admits She RoboSigned

    Zero Hedge, By Tyler Durden, October 13

    The last bank, and arguably the one that has the most to lose, Wells Fargo, which up until now has fervently denied it engaged in robosigning and thus refused to halt foreclosures, has just been caught red-handed by the FT. In a sworn deposition, which will certainly lead to a foreclosure halt by Warren Buffett’s pet bank, and confirmation that WFC was merely lying like everyone else on Wall Street, the Financial Times has obtained legal documents that prove Wells was merely one of many. Per the FT: “Legal documents obtained by the Financial Times suggest that Wells Fargo, the second-largest US mortgage servicer, also used a “robo signer”. Unlike its rivals, Wells Fargo has not halted foreclosures. The San Francisco-based bank said on Tuesday it was reviewing some pending cases, but it has maintained that it has checks and balances designed to prevent serious procedural lapses.” Now that Wells’ checks and balances end up neither checking nor balancing, perhaps it is time for Charlie Munger to tell the shareholders of Wells to “suck it in”, as the bank is about to be faced with a rather simple dilemma: beg for TARP 2 (and confirm that Munger, and his partner, are nothing but a bunch of pathetic senile hypocrites) and thus more taxpayer bailouts, or see a huge portion of its shareholder value (and thus Charlie Munger’s precious, precious money) about to be wiped out.

    In a sworn deposition on March 9 seen by the FT, Xee Moua, identified in court documents as a vice-president of loan documentation for Wells, said she signed as many as 500 foreclosure-related papers a day on behalf of the bank.

    Ms Moua, who was deposed as part of a foreclosure lawsuit in Palm Beach County, Florida, said that the only information she verified was whether her name and title appeared correctly, according to the document.

    Asked whether she checked the accuracy of the principal and interest that Wells claimed the borrower owed – a crucial step in banks’ legal actions to repossess homes – Ms Moua said: “I do not.”

    Ms Moua nevertheless signed affidavits that said she had “personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo”. The affidavits were used by the bank in foreclosure proceedings.

    One owes respect to the living. To the dead, one owes only the truth.

  • “This was an industrywide scheme designed to defraud homeowners,” Ticktin said.

    The depositions paint a surreal picture of foreclosure experts who didn’t understand even the most elementary aspects of the mortgage or foreclosure process — even though they were entrusted as the records custodians of homeowners’ loans. In one deposition taken in Houston, a foreclosure supervisor with Litton Loan couldn’t define basic terms like promissory note, mortgagee, lien, receiver, jurisdiction, circuit court, plaintiff’s assignor or defendant. She testified that she didn’t know why a spouse might claim interest in a property, what the required conditions were for a bank to foreclose or who the holder of the mortgage note was. “I don’t know the ins and outs of the loan, I just sign documents,” she said at one point.

    One owes respect to the living. To the dead, one owes only the truth.

  • Canada still has manageable ballot size and still, for the most part, hand counts paper ballots which are retained through a proper chain of custody. That’s vastly superior to computer counted ballots by third rate tech firms that refuse access to the operations of the voting machines employed, to a large degree.

  • He exposed himself when he helped place Arnie in as governor of California. It’ was an awful choice but Buffett had his reasons, no doubt. Buffett railed against derivatives, “weapons of mass financial destruction,” then got right in with GS and others on Wall Street. Now those instruments aren’t so bad. He has a well managed image that covers up a typical member of the elite taking all he can.

  • for Mafiosi and their organizational structure. The bosses are not pulling triggers; the goons are just dispassionately following instructions. So there’s no special wrongdoing there, right?

    We are ruled by gangsters, and the gloves need to come off when we deal with them.

  • interesting that you mention indians. in reading this excellent article, one of my first thoughts was to wonder how this situation will affect indian country. the land title system is a keystone of the federal government’s trust relationship with indian tribes and critical to the maintenance of certain treaty obligations. if records in various counties have been expunged, well, it’s a big mess.

  • We Americans will soon be handing you loads of paper dollars for oil and wood, course about the only thing they will be good for is toilet paper. We will need all the wood you have to print trillion of trillions of worthless currency.

  • A few years ago the county almost sold my parcel for taxes not paid by my lender, Wells Fargo, through my escrow account. For three years I received no notification that the taxes weren’t being paid, while my escrow statement showed that the taxes had been paid, when in actuality they hadn’t. And none of it would have come to light if not for the fact that I was re-financing at the time. Needless to say I got rid of the escrow account.

  • I ask this question because I’ve not heard of this problem. If an escrow account was set up at what must be presumably a local bank when the mortgage was first approved, why would this account move just because the mortgage itself was reassigned into a trust for securitization?

    I suspect the original bank kept up with this responsibility, but I don’t really know, other than to say I haven’t heard of a problem with escrow account tax payments over the years.

  • To the extent the county recorder of deeds is handling title issues for Indian tribes, or on behalf of local reservation governments, then yes Indians would be affected and tangentially so would treaty obligations. The treaties may give Indians a different type of claim against the mortgagee for any errors and omissions, and this claim may be superior to most others. This would be interesting work for a lawyer to handle.

  • only heard of a few individuals like DK who’ve discovered that the tax wasn’t paid. One would assume that the accounts were set up, but if much else was messed up that itself would be noteworthy.

    I did have a friend who lost her house back in 2008 because her servicer had diverted her double mortgage payments to his own account. Her first lawyer and the court threw her under the train and she lost the house, but eventually got most, not all, of her money back with a lawsuit. I think I remember that the property tax hadn’t been paid either. If I see her, I’ll ask.

  • one mortgage, 2 property index numbers, only one paid for.
    I think it was probably an innocent oversight, but I would have hated losing my garden on the extra lot. IIRC, someone had purchased it, but was waiting for the grace period to end. It was a lucky fluke to have caught it, though.

    I probably should have looked into it deeper at the time, but it came up at closing for the re-fi, and I just made my broker front the money to release the tax lien, since lord knows, I wasn’t going to pay for it twice. It was 2005, so I’m sure it was easier for the bank to move funds around then, but I don’t remember what exactly happened when the remaining escrow funds were released. I’m pretty sure I got everything owed to me.

  • Bloomberg, By Jonathan Weil, October 13

    What were banking regulators doing while some of the biggest U.S. lenders routinely filed false foreclosure documents in local courthouses around the country? In the case of IndyMac Federal Bank, it turns out the Federal Deposit Insurance Corp. was running the joint.

    This may help explain why the mortgage-servicing industry got away with such misbehavior for so long. The government, in one form or another, was doing it, too.

    The facts are there for anyone to see in the records of a circuit-court lawsuit against Israel and Neena Machado, a West Palm Beach, Florida, couple who last year beat back IndyMac’s attempts to foreclose on their home mortgage. They even won a judgment ordering IndyMac to pay $38,117 in legal fees.

    IndyMac sued the Machados in November 2008, four months after the government closed its predecessor, Pasadena, California-based IndyMac Bank, which had $32 billion in assets when it was seized. The FDIC formed IndyMac Federal in July 2008 as the successor to the failed bank, and continued operating it in conservatorship before selling it in March 2009.

    Among the sworn statements IndyMac filed with the court was a December 2008 affidavit by an IndyMac vice president, Erica Johnson-Seck, who said she had personal knowledge of the amount of money the Machados owed on the mortgage. That wasn’t true, she later testified in a deposition. To be fair, there’s every reason to believe the old IndyMac was engaged in this sort of conduct already, before it was shut down.

    Via Naked Capitalism: Not to be outdone, FDIC joins the robo-signing club, too

    One owes respect to the living. To the dead, one owes only the truth.

  • My mortgage has been principal and interest only; I got the real estate tax bills and pay them. No escrow.

    If there were escrow, this might differ.

  • Full Deposition of Xee Moua – Wells Fargo Robosigner Extraordinaire 500 Documents a Day

    Foreclosure Fraud, October 19

    In a sworn deposition on March 9 seen by the FT, Xee Moua, identified in court documents as a vice-president of loan documentation for Wells, said she signed as many as 500 foreclosure-related papers a day on behalf of the bank.

    Ms Moua, who was deposed as part of a foreclosure lawsuit in Palm Beach County, Florida, said that the only information she verified was whether her name and title appeared correctly, according to the document.

    Asked whether she checked the accuracy of the principal and interest that Wells claimed the borrower owed – a crucial step in banks’ legal actions to repossess homes – Ms Moua said: “I do not.”

    One owes respect to the living. To the dead, one owes only the truth.

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