06 October 2010 By Ellen Brown
"Maybe this is like shock therapy. Maybe this will
actually get the lenders to the table and encourage
them to work out deals that are to the benefit of
everybody."
--Economist Karl E. Case, quoted in the New York
Times
The hits are coming fast and furiously. Major Wall
Street mortgage lenders could soon be falling like
dominos – and looking again for handouts.
On September 20th, Ally Financial Inc., which owns
GMAC Mortgage, the nation's 4th largest lender, halted
evictions and resale of repossessed homes in 23
states. This was after a document processor for the
company admitted that he had signed off on 10,000
pieces of foreclosure paperwork a month without
reading them. The 23 states were all those where
foreclosures must be approved by a court, including
New York, New Jersey, Connecticut, Florida and
Illinois.
The paperwork problems
range from potentially forged documents to bank
employees who never read borrowers' files before
signing off on an eviction. . . .
"While we don't expect our
review to find that consumers were harmed, we will
take appropriate action if we find any impact," JP
Morgan spokesman Tom Kelly said. No harm perhaps except
the illegal taking of thousands of homes without due
process . . . . On September 30,
Rep. Alan Grayson posted a devastating seven-minute
video, in which he gave four real-world examples of
such travesties of justice, including a man who was
foreclosed on when he didn't have a mortgage and paid
cash for the home; a home that had two foreclosure
suits against it because both servicers claimed
ownership of the title; and a couple foreclosed on
over a contested $75 late fee. Grayson blamed the
massive foreclosure problems largely on the electronic
shortcut called MERS. "The banks simply digitized
mortgage titles into a privatized system, called the
Mortgage Electronic Registry System (or MERS)," he
said. "And it did the transfers by trading Excel
spreadsheets among the banks and trusts, rather than
endorsing the notes as required by their own
contracts, by state real estate law and by IRS
rules." He stated that 60 million properties are
recorded in the name of MERS -- 60% of the mortgages
in the USA, and 97% of the loans made between 2005 and
2008.
All of this is a major headache for the banks, but according to the New York Times, "The companies say they are reviewing their procedures to take care of any violations." They seem to think they can correct the problem by redoing some paperwork. But if the holdings in recent court decisions are upheld, it will not be just a question of hiring extra staff to clean up some files. For all those mortgages filed in the name of MERS, say these courts, the chain of title has been irretrievably broken. Humpty Dumpty has had a great fall and cannot be put together again. MERS is simply an electronic data base. On its website and in assorted court pleadings, it declares that it owns nothing. It was set up that way intentionally so that it would be "bankruptcy-remote," something required by the credit rating agencies in order to turn the mortgages passing through it into highly rated securities that could be sold to investors. MERS not only has no assets; it has no employees. The thousands of people enlisted to sign affidavits on its behalf are merely conduits. The arrangement satisfied the ratings agencies, but it has not satisfied the courts. Increasingly, judges are holding that if MERS owns nothing, it cannot foreclose, and it cannot convey title by assignment so that the trustee for the investors can foreclose. MERS breaks the chain of title so that no one has standing to foreclose. The homes are effectively owned free and clear. That does not mean the homeowners don't owe money to someone. They do. But the claim for relief is not in "law" (by virtue of an enforceable contract or rule) but in "equity" (a remedy provided just because it is fair), and MERS is not the proper plaintiff. Every MERS case involves a securitization, which means the real parties in interest are a group of investors somewhere; and before the homeowners can be made to pay, the investors have to come forward and prove not only that they are the parties owed the money, but the actual sums they are owed. In some cases they might already have been paid; for example, by insurers on credit default swaps held by the investment pool. The investors are entitled to recover in equity only so much as they are actually out of pocket, not the full amount of the original promissory notes, since they were not parties to those notes and there is no way to re-establish the chain of title. What About the Non-judicial Foreclosure States? Foreclosures have been
suspended by JPMorgan, GMAC and BOA in 23 states, but
what about the rest? The others are non-judicial
foreclosure states, which means they allow foreclosure
through a power of sale clause in a deed of trust
without going to court. The presumption is that if
the lender doesn't have to prove his standing to sue
before a judge, he can proceed. State laws in
non-judicial states allow the sale of a property to
satisfy a foreclosure as long as the trustee follows
the regulations concerning notice. That would seem to
violate Constitutional due process, but the United
States Supreme Court has held that due process
protections apply only when the government is involved
in the taking of property. When a deed of trust and
promissory note are executed between two private
parties (homeowners and lenders), there is no
automatic due process protection. The homeowners
agreed to it in writing; case closed. There will be a head-slapping moment when title carriers, attorneys, judges and administrative agencies and clerks suddenly realize that the monster created on Wall Street has its equivalent in the public records of counties across the nation. I doubt if more than 6-7% of all the foreclosures in the past 10 years have resulted in clear title delivered to anyone. And the only corrective instrument can come from the original owner. That homeowner is sitting in the catbird seat and doesn't know it. Millions of people who THINK they have lost their homes still own them and if anyone wants a signature from those people to clear title, they are going to be required to pay dearly, which is at it should be. Eventually the purse gets returned to the victim from whom it was snatched. To Subsidize or Nationalize?
Where does
that leave JPMorgan, GMAC, Bank of America, and the
other major lenders? Investors have massive claims
against these banks, and so do homeowners. A major
title insurance company has already said it will not
insure title to properties foreclosed upon by GMAC
until further notice. Moody's has placed the servicer
ratings of GMAC and JPMorgan Chase on review for
possible downgrade, and the Treasury is asking
regulators for an investigation.
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