Skip to comments.WAKING UP TO DISCOVER THE MORTGAGE MARKET WAS A GIANT CRIMINAL ENTERPRISE!
Posted on 09/26/2009 9:18:45 PM PDT by thouworm
A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS.
Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.
via Landmark Decision: Massive Relief for Homeowners and Trouble for the Banks. [link below]
This is a potentially gigantic story. It seems that a court has ruled that about half of the mortgage market has been run as a criminal enterprise for years, which would invalidate any potential forelosure proceedings for about, oh, 60 million mortgages. The court ruled that the electronic transfer system used by the private company MERS a clearing system for mortgages, similar to a depository, that is used for about half the mortgage market is fundamentally unreliable, and any mortgage sold and/or transferred through MERS cant be foreclosed upon, at least not in Kansas.
Coincidentally Id been working on something related to this all day yesterday. All over the country, lawyers are contesting foreclosures because of similar chain-of-custody issues. I have some material about this coming out in my next Rolling Stone story, so I cant get into this too much, but suffice to say the lenders and the banks were extremely sloppy about their paperwork (at best there is a fraud angle as well) and jammed up the system with missing and/or mismarked mortgage notes. Since a sale isnt legal unless theres full transfer of the physical note, a lot of the sales of mortgage-backed securities were not entirely legal, since the actual notes were often not transferred.
Nothing like waking up in the morning and finding out a whole sector of the economy is completely screwed. Are these good times or what?
Although this particular case pertains to MERS, non-MERS mortgages were often even worse. Anyway I have more on this coming next week. Thanks again to Eric at MonkeyBusiness for the heads-up.
Must Read: http://www.globalresearch.ca/index.php?context=va&aid=15324
The banks arranging these mortgage-backed securities have typically served as trustees for the investors. When the trustees could not present timely written proof of ownership entitling them to foreclose, they would in the past file lost-note affidavits with the court; and judges usually let these foreclosures proceed without objection.
But in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess as trustee. Judges in many other states then came out with similar rulings.
Following the Boyko decision, in December 2007 attorney Sean Olender suggested in an article in The San Francisco Chronicle that the real reason for the bailout schemes being proposed by then-Treasury Secretary Henry Paulson was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. Olender wrote:
The sole goal of the [bailout schemes] is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
. . . The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC . . . .
What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.
Needless to say, however, the banks did not buy back their toxic waste, and no bank officials went to jail. As Olender predicted, in the fall of 2008, massive taxpayer-funded bailouts of Fannie and Freddie were pushed through by Henry Paulson, whose former firm Goldman Sachs was an active player in creating CDOs when he was at its helm as CEO.
Paulson also hastily engineered the $85 billion bailout of insurer American International Group (AIG), a major counterparty to Goldmans massive holdings of CDOs. The insolvency of AIG was a huge crisis for Goldman, a principal beneficiary of the AIG bailout.
In a December 2007 New York Times article titled The Long and Short of It at Goldman Sachs, Ben Stein wrote:
For decades now, . . . I have been receiving letters [warning] me about the dangers of a secret government running the world . . . . [T]he closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries, high advisers to presidents, and occasionally a governor or United States senator.
The pirates seem to have captured the ship, and until now there has been no one to stop them. But 60 million mortgages with fatal defects in title could give aggrieved homeowners and securities holders the crowbar they need to exert some serious leverage on Congress serious enough perhaps even to pry the legislature loose from the powerful banking lobbies that now hold it in thrall.
Thank you for the heads up on this. Here’s a link to the Court’s decision: http://www.kscourts.org/Cases-and-Opinions/opinions/supct/2009/20090828/98489.htm .
Please re-post manana when most normal people are awake and sober, better yet do it again Monday.
Another instance of a judge declaring that contracts, willingly entered into by both parties, are invalid.
Why don't the aggrieved parties just give the money back?
So if I get a foreclosure notice because I could not pay due to unemployment, how would this help me? Just asking as I am not sure I fully understand all of this. I am not in Kansas.
It’s worth noting that the author of this piece, Mike Taibbi, is a hard-left radical anti-capitalist. His byline usually graces Rolling Stone, which tells you everything you need to know when reading this...
The problem, I think, is that to foreclose one must present to the court physical evidence in the form of the recorded instrument. That is what has been thrown out, in willful disregard of the foreclosure statues. It’s hard to believe that stupidity can exist on so grand a scale, but evidently it can.
I think this might relate with the Ourobouros thread
Rolling Stone another dying publication. Great idea - take out a mortgage - can’t pay or don’t want to pay - not your fault.
Unreal. I feel sorry for people who are unemployed and adjustable rate mortgages need to be ended. If you took out a debt - pay it back.
Check out the Global Research link; This isn’t Taibbi’s research; apparently that is forthcoming. He is blurbing about the Global Research story on the court decision.
The criminal part was when the Freddie Mac and Fannie May were giving away federal guarantees for loans. That was a promise to engage in theft to further fraud.
Won’t the mods pull it?
The original Promissory Note (agreement to repay) is what is sometimes difficult to produce.
That's actually not the case.
In the old days, a bank that made a mortgage loan was loaning its own money. They made sure that the people they loaned money to could pay it back, because it was their money. The bank would service the loan over the life of the mortgage. They kept the original paperwork with all the signatures and supporting documents in a physical file on site. Twenty years after the loan was made they could produce all the paperwork to prove the money was owed to them.
Nowadays, with the securitization of most mortgages, the originating bank sells loans to Wall Street firms that bundle thousands of mortgages together into bonds and sell them to investors.
Along the way, the original mortgage documents are destroyed and replaced with a few entries in an electronic database.
The bonds are not traceable to source mortgage documents because the source mortgage documents no longer exist.
If somebody gives you a signed, notarized IOU, what would you do with it? Would you make a few entries on a computer file and destroy the IOU, or would you hang on to the IOU to prove that the money was owed to you?
Good luck getting somebody to pay you back without the physical IOU. For one thing, even if you pay them, they can't return the IOU to you for you to destroy. You could pay them, then a year later they might "find" the old IOU and demand you pay them again.
From what I read so far, it is the inability to present the entire chain of title in court as a series of physical, original documents, that creates a problem for foreclosure.
Nah, they’re asleep. Anyway we’ll see.
Well, at least now we know where some of the bailout money is going.
Sixty million free houses.
What a jerk I was!! I probably could have lied my way into a seven figure loan! And then just skated!
“WHY DO PEOPLE POST HEADLINES IN ALL CAPS?”
Silly, they do that so people who post in all caps will know where to be. ; )
Not really. When your bank sold your mortgage to someone else, were you a party to that contract?
That’s what I thought about; the $500 trillion derivative market that can’t be unwound. All these mortgages cut up & sold over & over again.
Well, let’s see here. The banks messed up on their paperwork letting a bunch of mortgages go so Obama will have to bail them out. Finally, some of the American people will get something out of the Great Treasury Bankster Heist. Just kidding; but there is always a silver lining to every cloud.
That was my take on this also. The original note has either been destroyed or is in some file at the originator maked PAID IN FULL. Tough to produce some other document that you signed promising to pay when that original one, the only one you did sign, is either gone forever or satisfied.
IIRC didn’t this all start because a single mortgage was bundled into several packages that were sold to investors? Your mortgage and its dollar amount due belonged to several entities, any one of whom could demand payment from you. By law it could only belong to a single entity so nobody could know who got the house in foreclosure.
Thanks for posting this! All this info never ceases to amaze me.
Thanks; I just linked over there; Researching for that thread was how I found this story
None of that nonsense should allow a mortgagee who has defaulted on the mortgage to foregoe a foreclosure.
This removes all accountability.
It is wrong from a moral standpoint.
In case you had never noticed, legality and morality have absolutely nothing whatsoever to do with one another.
The fact of the matter is the mortgage industry decided to make bad loans, bundle them up and get rid of them. The refinance industry was a money-churn, and they could care less what happened with the loans after they got rid of them and got their money.
But they made a mistake. They did not maintain the legal documentation required to prove their loans.
In the process of churning faulty loans, these companies participated in inflating the value of houses far beyond their actual value because money was artificially cheap.
We need to get back to the old mortgage model, where banks actually have a stake in making good loans.
Having the crooked companies that bundled bad loans together lose their asses is a good start.
Odd how your all-so-concerned about the mortgagees enforcing their legal rights, but you are not the least bit concerned about the immoral practices of the banks that got us into this mess.
Why is that?
Is shoddy paperwork fraud, though? That might be the escape hatch for some of this, anyway.
This in an interesting thought. For the first part, legally, there is the question of whom does the mortgagee pay? Legally? The 'No tickee, no shirtee' clause would seem to apply.
Morally, most would agree with you. I do. Someone should not benefit with our taxpayer dollars. This dichotomy is going to take a while to work out and be the topic of many cover stations.
ITS THE RULE !
My only question is how can I make a killing in all this stuff now?
In posting this story, my mind was not on who may or may not get out of paying on a foreclosed home, but on the vastness of the corruption that has set our whole American financial house on fire.
As Subprime Lending Crisis Unfolded, Watchdog Fed Didn’t Bother Barking
Bumped, bookmarked and glad to see others are figuring this out.
I have no desire to offend you with triviality, as I appreciate the seriousness of your exposition and I learned a lot from it, but I certainly free-associated to the Obama birth certificate/ COLB controversy when I read this.
I’m not attempting to debate you on a level playing field, acknowledge your expertise/understanding of this subject far exceeds mine; but from what little I know, this is not history’s first real estate bubble and crash, even though it may be the first hyper-driven by computerized financial transactions. Why wouldn’t it then be more like past fiascos than different? Further, I can’t see that these mortgages are all that anonymous, there are papers on file at county court houses for every parcel and no doubt someone is managing an escrow account and paying property taxes on them.
Centurion: Have you seen this thread?
The Chicago Ouroboros: Obama, Ayers, Oughton, Dohrn, Minow, Taibbi, Koch, and DARK POOL TRADING
You seem very intelligent so let me ask a hypothetical
Lets say I get a home loan and I sign a promissory note and a deed of trust with bank A.
Not wanting to hold my note for twenty years Bank A then sells the loan to bank B.
Bank A marks the promissory note in their records as PAID IN FULL, and then transfers the deed of trust to bank B.
I run into hard times, cant continue paying my mortgage, and bank B decides to foreclose.
I was not a party to any transaction after I signed my original note, which is now marked in bank A as PAID IN FULL, and since bank B doesnt own any other promissory note signed by me, what legal duty do I have to pay bank B? None as I see it. In fact Id consider the payoff of my original loan with bank A as a gift to me from bank B.
Now, can I go after bank A for collecting mortgage payments on a loan their records indicate is already paid in full? I get a free house and all prior mortgage payments returned. Not a bad deal.
Your accounting transactions are straw-men that you made up out of whole cloth that have nothing to do with the real accounting transactions in the real world. In the real world, the original loan documents remain intact and in effect.
What you fail to realize is that the banking practices that gave us the first foreclosure bubble are still operative. The Fed is STILL forcing banks to make loans under the Community Reinvestment Act. They are still bundling these bad loans together and selling these fraudulent instruments to investors.
We have no control over our Washington elite. They do as they please. We can only defeat them in the legal arena.
If we can destroy the value of their fraudulent financial instruments, we force them to stop forcing banks to make bad loans in the name of racial fairness, because nobody will buy them.
Tell me the specific "past fiascos" you are referring to, and I will answer your question on specifics.
That might be a bit of an over-simplification...
In the 2-hour "signing exercise" you had to go through when you closed on your house, how sure are you that you didn't sign/initial a clause that authorizes your first lender to sell or otherwise transfer your mortgage to another holder? That has been a standard clause in each of the three mortgages I have had in my lifetime (so far) over the past 25 years. That's with three different lenders.
I'm not sure how those clauses would affect the use-cases offered as examples so far, but I would think it would show you had *some* liability to repay the loan in the event it was transferred/sold.
However, if it is the case where the original documents are well and truly destroyed, eliminating any and all instances bearing your signature/initials, then I can see where you would have an argument of "prove I signed it." But, if you are the home-owner of record (property tax rolls), I would hope for a very tolerant judge before I tried that argument.
Of course, I will readily admit I'm not a SME. I'm just trying to apply a bit of common sense to the issue.
Looking it over myself, I’d have to conclude they were relatively local ( I was thinking of western land specuation in colonial days in particular)http://www.google.com/search?q=real+estate+bubbles+history&hl=en&rls=com.microsoft:en-us&tbs=tl:1&tbo=u&ei=qau_StXfLsTR8Aay9PWdAQ&sa=X&oi=timeline_result&ct=title&resnum=11
Land speculation caused the inflation in real estate prices you refer to.
The current real estate bubble was caused by lending money to people who were not qualified for loans. The more buyers you have, the higher the price of the commodity is driven - simple supply and demand.
But part of the demand was not real - it was demand from people who could not afford to make the payments and who ultimately defaulted.
When they defaulted, prices plummeted to more realistic levels that were supportable by real demand, not fraudulent demand stimulated by fraudulent government policies.
Thanks for helping me out.
Bank 'A' would not mark your note as paid in full, they would assign the mortgage, and endorse the Note over to the new Investor/servicer.
Please excuse my impatience with this thread as I have 25 years in the mortgage banking business and thost that think borrowers have no obligation to repay because thier loas were sold are sadly misinformed.
That sounds more like my experiences and it sounds like the prudent way to transfer a mortgage to a new lender/investor. I'm thinking there's more to the story behind the KS court ruling...
It seems that...
MERS was set up by the mortgage industry in an effort to streamline transferring mortgages. The case in Kansas involved a home with two mortgages on it. The property buyer went bankrupt and the first lien-holder foreclosed. The home was sold and the proceeds paid off the first lien-holder and any remainder went to the buyer.
The second lien-holder used MERS as the nominee to record their interest (instead of recording the lien with the county clerk) and was subsequently not notified about the foreclosure. They found out about the forclosure & sale after the fact and wanted to get a cut of the foreclosure proceeds. For reasons I'm not clear on, the second lien-holder had MERS go to the court and try to assert it's rights to the proceeds.
Since MERS didn't have a note or deed *and* since there was no record with the county-clerk, the court told them to get lost.
So if I'm reading it right, it appears that had the second lien-holder simply recorded their lien/deed/note/whatever with the county clerk, then the court would have allowed their claim. But, with no proof of ownership or claim properly recorded with the county clerk, it was disallowed.
So MERS was set-up to facilitate electronic transfers of mortgages and one of the ways it facilitates those transfers appears to be avoiding having to record the liens/deeds with the county clerks. It would seem that the court has ruled that their business process has a gaping hole in it. So the remedy is to... hire an army of folks to run around the country and properly record all the liens/deeds that MERS holds?
Sounds like a bunch of lawyers somewhere are about to make a killing and everyone else will take it in the shorts.
Here’s how I now see this story ,, maybe I’m wrong..
1.) Joe Blow gets a mortgage from bank “A” on a house.
2.) Bank “A” sells Joes mortgage along with 499 others to Goldman for 95% face value. Mortgage notes are cancelled/paid in full.
3.) Goldman/Lehman whoever ,, repackages the mortgages into a NON-MORTGAGE (but mortgage related) product where people buy “income streams” from the now now-existant mortgage.
4.) Housing bubble pops ,, things start going bad.
5.) The original lender , “bank A” , was retained to collect and distribute payments BUT they no longer have an actual interest in the mortgage as they have been paid in full by GS for the note and they have no rights to foreclose if payment is not made.
6.) Similarly the buyers of the CDO/CMO “security” do not and never did own a piece of a mortgage, just a promise from Goldman, they cannot foreclose. Besides that one mortgage of Joe Blows was divided into 10 “tranches” that went into 4 different CDO’s each having 250 end buyers ,,, even if the CDO purchaser had the right to foreclose you would need to assemble 1000 fractional owners and get parallel paperwork from them..
Am I seeing this the right way now?
OOps! There needs to be a “2A”
2A) Goldman has the mortgages they bought in bulk registered/recorded at MERS , MERS does not follow various state guidelines! The electronic only copies on file have no signatures.
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