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Archive for the ‘Foreclosures’ Category

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.

Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee” — an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.

That means hordes of victims of predatory lending could end up owning their homes free and clear — while the financial industry could end up skewered on its own sword.

California Precedent

The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E–11. The court held 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 opined:

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.

In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:

Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.

The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:

This opinion … serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

What Could This Mean for Homeowners?

Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS’ technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.

An August 2010 article in Mother Jones titled “Fannie and Freddie’s Foreclosure Barons” exposes a widespread practice of “foreclosure mills” in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.

In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders’ case in 2004. Five years later, she says, some of the homeowners she’s helped are still in their homes. According to a Huffington Post article titled “‘Produce the Note’ Movement Helps Stall Foreclosures”:

Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action ‘quiets’ all other claims). Charney says she’s helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.

Criminal Charges?

Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used “the artifice of MERS to sabotage the judicial process to the detriment of borrowers;” that “to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;” that the scheme depended on “the MERS artifice and the ability to generate any necessary ‘assignment’ which flowed from it;” and that “by engaging in a pattern of racketeering activity, specifically ‘mail or wire fraud,’ the Defendants … participated in a criminal enterprise affecting interstate commerce.”

Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC), for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note … ; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.

By Their Own Sword: MERS’ Role in the Financial Crisis

MERS is, according to its website:

… an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

Or as Karl Denninger puts it:

MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!

MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide (CFC), Fannie Mae (FNMA.OB), and Freddie Mac (FMCC.OB), allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:

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.

Axing the Bankers’ Money Tree

If courts overwhelmed with foreclosures decide to take up the cause, the result could be millions of struggling homeowners with the banks off their backs, and millions of homes no longer on the books of some too-big-to-fail banks. Without those assets, the banks could again be looking at bankruptcy. As was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko [pdf] decision:

The ticking time bomb in the US 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 loans at issue dwarf the capital available at the largest US banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest US banks to fail…

Nationalization of these giant banks might be the next logical step — a step that some commentators said should have been taken in the first place. When the banking system of Sweden collapsed following a housing bubble in the 1990s, nationalization of the banks worked out very well for that country.

The Swedish banks were largely privatized again when they got back on their feet, but it might be a good idea to keep some banks as publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century it served as a “people’s bank,” making low interest loans to consumers and businesses through branches all over the country.

With the strengthened position of Wall Street following the 2008 bailout and the tepid 2010 banking reform bill, the US is far from nationalizing its mega-banks now. But a committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.

Disclosure: No positions

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money… More

Seeking Alpha

Banks will get the biggest benefit from an Obama administration housing program designed to help unemployed homeowners escape foreclosure.

Housing experts expressed concern that banks, not homeowners, will be helped by the White House’s $3 billion funding infusion — $2 billion from the Treasury Department and another $1 billion from the Housing and Urban Development Department — going to those states hit hardest by the housing market crash and unemployment.

“Giving money to the banks isn’t what the government should be doing right now,” said Dean Baker, co-founder of the Center for Economic and Policy Research.

“I’m not a big fan; it’s ill-conceived,” he said.

The basic principle is to help struggling homeowners but with so many people underwater on their mortgages the new funding is unlikely to do much good, Baker said.

“You need to make sure that someone benefits from the program other than banks,” he said.

Baker suggested that if the government is going to provide up to $50,000 in loans over the course of two years to those struggling homeowners that the money should be used for any of their needs, not just to pay the mortgage.

He said banks could offer a program that would allow homeowners to rent their home back from the bank at a lower monthly rate than their mortgage payment for up to five years, providing some security for those struggling to make monthly payments.

The arrangement would provide lenders with a real incentive to negotiate with homeowners because they don’t want to be landlords.

If the recently announced program is expected to work there has to be a reasonable expectation that at the end of the two-year program homeowners will have some equity in their property.

“If that’s not the case, then it’s not worth it,” he said.

He said he’d be “very surprised” if the vast majority of those who take advantage of the program don’t eventually lose their homes.

Foreclosures were up 4 percent in July with 325,229 filings, a nearly 10 percent increase over the same month in 2009, according to a report from RealtyTrac, a group that tracks foreclosure filings.

David Abromowitz, senior fellow at the Center for American Progress, said the main problem with the funding is that lenders will benefit without requiring any concessions or matching of the federal aid.

“My concern is what are we asking from lenders who are going to get the benefits source to pay those loans for 24 months,” he said.

Under the program, lenders don’t have to make principle reductions on loans or major modifications, he said. Lenders should also be required to make concessions and possibly even match funding.
“Banks also should be required to share in the burden being faced by homeowners,” he said.

Despite his reservations with the funding, he emphasized that with millions facing foreclosure, the fragile economy and a slowing economic recovery, “anything that slows or stops foreclosures is good.”

“It’s targeted well toward people facing a temporary situation when they can’t pay their mortgage because of unemployment,” he said.

Still, the challenge is difficult as federal officials try to find ways to get the economy to turn the corner and pick up pace.

“No one piece is going to turn the tide,” Abromowitz said. “But this certainly could help in the housing market.”

Under the federal program, Treasury will direct the $2 billion to the “Hardest Hit Fund” created earlier this year, while HUD will create a new “Emergency Homeowners Loan Program” that will provide zero-interest loans of up to $50,000 for two years. The funding will be divided up among 17 states and the District of Columbia.

The funding allocation announced last week is the third payout for the housing program, pushing the cost of the program to $4.1 billion.

Nevada, Arizona and Florida posted the worst foreclosure rates in July, with Nevada reporting the nation’s highest foreclosure rate for the 43rd straight month.

Five states accounted for more than 50 percent of national total — California, Florida, Illinois, Michigan and Arizona.

Four of those states will get part of $3 billion from the Treasury and Housing and Urban Development Department to help unemployed homeowners stave off foreclosure.

At $476 million, California gets the largest share while Florida will receive about $239 million, Illinois gets $166 million, Michigan $129 million and Nevada is set to receive $34 million under the program.

John Weicher, director of the Center for Housing and Financial Markets at the Hudson Institute, said “the most important thing is the strengthening of the economy overall.”

“What’s happened so far hasn’t been very helpful,” he said about the administration’s past efforts.
The Obama administration had tried several different avenues to stem foreclosures but hasn’t made much headway.   About 530,000 homeowners, or more than 40 percent, have dropped out of the Making Home Affordable program.

“There’s an open question of whether this will work particularly well,” Weicher said.

He said maybe just getting money to people to help them make their mortgage payments may be more successful than other programs.

Republicans have argued that it puts taxpayer money at risk, and the special inspector general for the $700 billion Troubled Asset Relief Program is auditing the program.

“It’s troubling that just weeks after the SIGTARP assailed the administration for its lack of success and transparency in managing their signature mortgage-relief program, they have ignored the IG’s warnings and are committing even more money in a failed program that ultimately isn’t helping those who need it the most,” Rep. Darrell Issa (R-Calif.) told The Hill.

Issa, ranking member on the House Oversight and Government Reform Committee, said “if the administration were serious about helping the jobless keep their homes, they would be advancing policies that would create jobs and address the root causes of the housing crisis – Fannie Mae and Freddie Mac.”

The Hill

Financial giants have figured out yet another way to profit from fraud. After devastating communities across the country with shady subprime loans, the mortgage industry has launched a new assault on America’s neighborhoods. Big banks are now outsourcing their foreclosure processing to shady law firms with a history of breaking the law for a quick buck. These foreclosure scammers forge documents, backdate signatures, slap families with thousands of dollars in illegal fees and even foreclosure on borrowers who haven’t missed a payment.

Andy Kroll lays out the insanity in a terrific piece for Mother Jones. “Foreclosure mills,” as they are known, have been around for years, but they’ve become a much bigger problem as the mortgage crisis has deepened. Fannie Mae and Freddie Mac spurred the creation of these social beasts decades ago to help them process large volumes of foreclosures quickly and cheaply. Pretty soon big banks wanted in on the action, and bailout barons at Wells Fargo, Citigroup and Bank of America starting sending foreclosures to these scummy law firms by the thousands.

Banks opt to outsource dirty work like this for a reason. It takes weeks to process the legal work necessary to kick somebody out of their home, since cops and judges don’t want to give borrowers the boot without proof. If you can cut down that processing time, you can save a lot of money on legal bills. Foreclosure mills cut costs for banks by cutting corners—when they can’t compile the documentation needed to push families out of their homes right now, they simply fabricate the documents. Still worse, these guys illegally withhold documentation from borrowers seeking to negotiate loan modifications with their banks—effectively forcing borrowers out of their homes instead of allowing them to cut a deal with the bank. When borrowers actually do straighten things out with foreclosure mills, the scumbags slap them with huge illegal fees. Kroll details a foreclosure mill that erroneously tried to evict a Florida couple who had been paying their mortgage on time. When it became clear that the couple could not be kicked out of their home, the foreclosure mill tried to charge them $18,500 in fees for mistakes committed by the foreclosure mill and the bank. The foreclosure mill even invented two new people who it said lived in the home in order to demand four sets of legal processing fees instead of two.

If nobody holds you accountable, then lying, cheating and stealing are very profitable business models. That’s one reason why banks love sending this kind of work to foreclosure mills. While the foreclosure mills and their lawyers have been bombarded with lawsuits for their trickery, the banks are not directly involved in the funny business. So Citi, BofA, Fannie and Freddie get to cut their costs with shady practices, but they don’t have to shoulder the legal liability for them, even though they must surely know what goes on (if they don’t know, they’re being astonishingly negligent, and should be held responsible).

The foreclosure mill scandal is very similar to a game the banks played in the craziest days of the housing bubble. A few years back, banks outsourced much of the work that goes into issuing mortgages to third-party mortgage brokers. Banks knew that many of these brokers were up to no good, and routinely trained brokers how to steer borrowers into unaffordable subprime loans. Banks also lobbied regulators aggressively for the right to look the other way when brokers abused borrowers or committed fraud. For a few years, banks made big bucks as mortgage brokers turned out fraudulent loans by the truckload. When those loans started defaulting, the banks pleaded innocence and blamed the brokers for the social and economic fallout.

So now that pumping out subprime loans is no longer a profitable endeavor, banks are resorting to similar tricks in order to cut their losses on those same loans.

Much of the housing bust is a story of inadequate regulations allowing banks to swindle society and get away with it. But much of the story is simple, straightforward fraud that has gone unpunished. Financial giants paid other firms to issue fraudulent loans, issued fraudulent loans themselves, packaged fraudulent loans into securities and sold them to investors, lied about their subprime mortgage holdings, invented new financial gimmicks to hide billions of dollars in debt, and even laundered hundreds of billions of dollars in drug money. But nobody is going to jail, or even receiving meaningful fines. Banks broke the law and hired other people to break the law for them, scoring big profits without being punished. Is it any wonder that they’re still at it?

Zach Carter is AlterNet‘s economics editor. He is a fellow at Campaign for America’s Future, and a frequent contributor to The Nation magazine.

Is the title to your property held by MERS (Mortgage Electronic Registration Systems)?  It’s in your best interest to find out.

March Foreclosures Surge To Absolute Record, At 369,491, 19% Jump from February

Submitted by Tyler Durden

RealtyTrac reports the next catalyst that will surely take the Dow to 12,000 by 9:31 am tomorrow. “Foreclosure filings were reported on 367,056 properties in March, an increase of nearly 19 percent from the previous month, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.” And people were wondering where consumers get all their money from. Of course, those foreclosed upon have likely figured out ways to continue squatting in their house so they dont have to pay mortgage and rent. Nothing beats living for free in America, especially in a 2,000 sq. foot average home. We can’t wait to hear Jamie Dimon’s rebuttal on how this data massively misrepresents the optimism that JP Morgan is seeing everywhere, and how the JP Morgan unicorn ranch is about to issue a royal smackdown on those speculative traitors over at RealtyTrac who, unlike JPM, dare to speak the truth.

“Foreclosure activity in the first quarter of 2010 followed a very similar pattern to what we saw in the first quarter of 2009: a shallow trough in January and February followed by a substantial spike in March,” said James J. Saccacio, chief executive officer of RealtyTrac. “One difference, however, is that the increases were more tilted toward the final stage of foreclosure, with REOs increasing 9 percent on a quarterly basis in the first quarter of 2010 compared to a 13 percent quarterly decrease in REOs in the first quarter of 2009.
This subtle shift in the numbers pushed REOs to the highest quarterly total we’ve ever seen in our report and may be further evidence that lenders are starting to make a dent in the backlog of distressed inventory that has built up over the last year as foreclosure prevention programs and processing delays slowed down the normal foreclosure timeline.”

More on REOs:

Bank repossessions (REOs) also hit a record high for the report in the first quarter, with a total of 257,944 properties repossessed by the lender during the quarter — an increase of 9 percent from the previous quarter and an increase of 35 percent from the first quarter of 2009.

We await to find out just how the bottom having finally fallen out of the US ho(u)sing market is a definitive victory for the bulls.

And what state has the most foreclosures if not that one what is first and last out of and into every single bubble there is:

California alone accounted for 23 percent of the nation’s total foreclosure activity in the first quarter, with 216,263 properties receiving a foreclosure notice — the nation’s highest foreclosure activity total.

Florida’s total was second highest, with 153,540 properties receiving a foreclosure filing during the quarter, and Arizona’s total was third highest, with 55,686 properties receiving a foreclosure filing during the quarter.

Despite a nearly 5 percent decrease in foreclosure activity from the previous quarter, Illinois documented the fourth highest foreclosure activity total, with 45,780 properties receiving a foreclosure filing — still a 17 percent increase from the first quarter of 2009.

A total of 45,732 Michigan properties received a foreclosure filing during the quarter, the fifth highest state total. Michigan foreclosure activity increased nearly 11 percent from the previous quarter and was up nearly 38 percent from the first quarter of 2009.

Other states with foreclosure activity totals among the nation’s 10 highest were Georgia (39,911), Texas (37,354), Nevada (34,557), Ohio (33,221) and Colorado (16,023).

The only beneficiary out of all this seems to be the cable (GBPUSD), which is now back to mid-February levels. Good thing that whole housing/Greek thing is contained.