t r u t h o u t | = Recent Rulings Could Shield 62 Million Homes From Foreclosure

Homeowners' Rebellion: Recent Rulings Could Shield 62 Million Homes = From=20 Foreclosure

Thursday 19 August 2010

by: Ellen Brown, t r u t h o u t | News = Analysis

3Dphoto=20
(Photo: bossco;=20 Edited: Jared=20 Rodriguez / t r u t h o u = t)=20

Over 62 million mortgages are now held in = the name=20 of MERS, an electronic recording system devised by and for the = convenience of=20 the mortgage industry. A California bankruptcy court, following landmark = cases=20 in other jurisdictions, recently held that this electronic shortcut = breaks the=20 chain of title, voiding foreclosure. The logical result could be 62 = million=20 homes that are foreclosure proof.

In a Newsweek article a year ago called "Too Big to = Jail: Why=20 Prosecutors Won't Hit Wall Street Hard in the Subprime Scandal," Michael Hirsch wrote that we were unlikely to see = trials and=20 convictions like those in the savings and loan scandals of the 1980s, = because=20 fraud and blame have been so widespread that there is no one to single = out and=20 jail. Said Hirsch:

"The sad irony is that in pleading collective = guilt, most of=20 Wall Street will escape whipping for a scheme that makes Bernie = Madoff's=20 shenanigans look like pickpocketing. At the crest of the real-estate = bubble,=20 fraud was systemic and Wall Street had essentially gone into the = loan-sharking=20 business."

"Unfortunately," he added, "prosecution of fraud is = the only=20 way you're going to get reform on Wall Street."

Sure enough, a year later we got a banking reform = bill that was=20 so watered down that Wall Street got nearly everything it wanted. The=20 too-big-to-fails, rather than being whittled down to size, have grown = even=20 bigger, circumventing antitrust laws; and they are being allowed to = carry on=20 pretty much as before. The Federal Reserve, rather than being called on = the=20 carpet, has been given even more power; and the Consumer Protection = Agency - the=20 main part of the bill with teeth - has been put under the Fed's watchful = eye.=20 Congress and the Justice Department seem to have bowed out, leaving no = one to=20 hold the finance industry to account.

But the best laid plans even of Wall Street can = sometimes go=20 awry. In an ironic twist, the industry may wind up tripping over its own = Achilles heel, the Mortgage Electronic Registration Systems or MERS. An online computer software program for = tracking=20 mortgage ownership and rights, MERS is, according to its web site, "an=20 innovative process that simplifies the way mortgage ownership and = servicing=20 rights are originated, sold and tracked. Created by the real estate = finance=20 industry, MERS eliminates the need to prepare and record assignments = when=20 trading residential and commercial mortgage loans." Or as Karl Denninger puts it, "MERS own website claims = that it=20 exists for the purpose of circumventing assignments and documenting=20 ownership!"

MERS was developed in the early 1990s by a number of = financial=20 entities, including Bank of America, Countrywide, Fannie Mae, and = Freddie Mac,=20 allegedly to allow consumers to pay less for mortgage loans. That did = not=20 actually happen, but what MERS did allow was the securitization and = shuffling=20 around of mortgages behind a veil of anonymity. The result was not only = to cheat=20 local governments out of their recording fees, but to defeat the purpose = of the=20 recording laws, which was to guarantee purchasers clean title. Worse, = MERS=20 facilitated an explosion of predatory lending in which lenders could not = be held=20 to account because they could not be identified, either by the = preyed-upon=20 borrowers or by the investors seduced into buying bundles of worthless=20 mortgages. As alleged in a Nevada class action called Lopez v. Executive = Trustee=20 Services, et al.:

"Before MERS, it would not have been possible for = mortgages=20 with no market value ... to be sold at a profit or collateralized and = sold as=20 mortgage-backed securities. Before MERS, it would not have been = possible for=20 the Defendant banks and AIG to conceal from government regulators the = extent=20 of risk of financial losses those entities faced from the predatory=20 origination of residential loans and the fraudulent re-sale and = securitization=20 of those otherwise non-marketable loans. Before MERS, the actual = beneficiary=20 of every Deed of Trust on every parcel in the United States and the = State of=20 Nevada could be readily ascertained by merely reviewing the public = records at=20 the local recorder's office where documents reflecting any ownership = interest=20 in real property are kept.=E2=80=A6

"After MERS, ... the servicing rights were = transferred after=20 the origination of the loan to an entity so large that communication = with the=20 servicer became difficult if not impossible... . The servicer was = interested=20 in only one thing - making a profit from the foreclosure of the = borrower's=20 residence - so that the entire predatory cycle of fraudulent = origination,=20 resale and securitization of yet another predatory loan could occur = again.=20 This is the legacy of MERS and the entire scheme was predicated upon = the=20 fraudulent designation of MERS as the 'beneficiary' under millions of = deeds of=20 trust in Nevada and other states."

MERS now holds over 62 million mortgages in its name, including over half of all = new US=20 residential mortgage loans. But courts are increasingly ruling that MERS = is=20 merely a nominee, without standing to foreclose on the collateral that = makes up=20 a major portion of the portfolios of some very large banks. It seems the = banks=20 claiming to be the real parties in interest may have short circuited = themselves=20 out of the chain of title entitling them to the collateral.

Many of our contributors have become unemployed or are = struggling.=20 Please help keep Truthout afloat if you can - click here to donate what = you can=20 afford.

Technicality or Fatal Flaw?

To foreclose on real property, the plaintiff must be = able to=20 produce a promissory note or assignment establishing title. Early cases = focused=20 on MERS' inability to produce such a note, but most courts continued to = consider=20 the note a mere technicality and ignored it. Landmark newer opinions, = however,=20 stress that this defect is not just a procedural. but a substantive = failure, one=20 that is fatal to the plaintiff's case.

The latest of these decisions came down in California = on May=20 20, 2010, in a bankruptcy case called In re Walker, Case no. = 10-21656-E-11. The=20 court held that MERS could not foreclose because it was a mere = nominee and=20 that as a result plaintiff Citibank could not collect on its claim. The = judge=20 opined:

"Since no evidence of MERS' ownership of the = underlying note=20 has been offered and other courts have concluded that MERS does not = own the=20 underlying notes, this court is convinced that MERS had no interest it = could=20 transfer to Citibank. Since MERS did not own the underlying note, it = could not=20 transfer the beneficial interest of the Deed of Trust to another. Any = attempt=20 to transfer the beneficial interest of a trust deed without ownership = of the=20 underlying note is void under California law."

In support, the judge cited In re Vargas (California = Bankruptcy=20 Court), Landmark v. Kesler (Kansas Supreme Court), LaSalle Bank v. Lamy = (a New=20 York case) and In re Foreclosure Cases (the "Boyko" decision from Ohio = Federal=20 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=20 the owner of the promissory note secured by the trust deed, Citibank = is unable=20 to assert a claim for payment in this case."

The broad impact the case could have on California = foreclosures=20 is suggested by attorney Jeff=20 Barnes, who writes:

"This opinion ... serves as a legal basis to = challenge any=20 foreclosure in California based on a MERS assignment; to seek to void = any MERS=20 assignment of the Deed of Trust or the note to a third party for = purposes of=20 foreclosure; and should be sufficient for a borrower to not only = obtain a TRO=20 [temporary restraining order] against a Trustee's Sale, but also a = Preliminary=20 Injunction barring any sale pending any litigation filed by the = borrower=20 challenging a foreclosure based on a MERS = assignment."

While not binding on courts in other jurisdictions, = the ruling=20 could serve as persuasive precedent there as well, because the court = cited=20 nonbankruptcy cases related to the lack of authority of MERS, and = because the=20 opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy = courts=20 on the same issue.

RICO and Fraud Charges

Other suits go beyond merely challenging title to = alleging=20 criminal activity. On July 26, 2010, a class action was filed in Florida = seeking=20 relief against MERS and an associated legal firm for racketeering and = mail=20 fraud. It alleges that the defendants used "the artifice of MERS to = sabotage the=20 judicial process to the detriment of borrowers"; that "to perpetuate the = scheme,=20 MERS was and is used in a way so that the average consumer, or even = legal=20 professional, can never determine who or what was or is ultimately = receiving the=20 benefits of any mortgage payments"; that the scheme depended on "the = MERS=20 artifice and the ability to generate any necessary 'assignment' which = flowed=20 from it"; and that "by engaging in a pattern of racketeering activity,=20 specifically 'mail or wire fraud,' the Defendants ... participated in a = criminal=20 enterprise affecting interstate commerce."

Local governments deprived of filing fees may also be = getting=20 into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or = "whistle blower"=20 to bring suit on behalf of the government for a past or present fraud on = it. In=20 State of California ex rel. Barrett R. Bates, filed = May 10,=20 2010, the plaintiff qui tam sued on behalf of a long list of local = governments=20 in California against MERS and a number of lenders, including Bank of = America,=20 JPMorgan Chase and Wells Fargo, for "wrongfully bypass[ing] the = counties'=20 recording requirements; divest[ing] the borrowers of the right to know = who owned=20 the promissory note ...; and record[ing] false documents to initiate and = pursue=20 non-judicial foreclosures and to otherwise decrease or avoid payment of = fees to=20 the Counties and the Cities where the real estate is located." The = complaint=20 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=20 otherwise accruing to local governments. The plaintiff sues for treble = damages=20 for all recording fees not paid during the past ten years and for civil=20 penalties of between $5,000 and $10,000 for each unpaid or underpaid = recording=20 fee and each false document recorded during that period, potentially a = hefty=20 sum. Similar suits have been filed by the same plaintiff qui tam in = Nevada and=20 Tennessee.

Axing the Bankers' Money Tree

Most courts continue to look the other way on MERS' = lack of=20 standing to sue, but the argument has picked up enough steam to consider = the=20 rather stunning implications. If MERS is not the title holder of = properties held=20 in its name, the chain of title has been broken and no one may have = standing to=20 sue. In MERS v. Nebraska Department of Banking and Finance, = MERS=20 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"=20 exposes a widespread practice of "foreclosure mills" in backdating = assignments=20 after foreclosures have been filed. Not only is this perjury, a = prosecutable=20 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 Florida, Jacksonville Area Legal Aid attorney = April Charney=20 has been using the missing-note argument ever since she first identified = that=20 weakness in the lenders' case in 2004. Five years later, she says, some = of those=20 homeowners are still in their homes. According to a Huffington Post article titled "'Produce the Note' Movement Helps = Stall=20 Foreclosures":

"Because of the missing ownership documentation, = Charney is=20 now starting to file quiet title actions, hoping to get her homeowner = clients=20 full title to their homes (a quiet title action 'quiets' all other = claims).=20 Charney says she's helped thousands of homeowners delay or prevent = foreclosure=20 and trained thousands of lawyers across the country on how to protect=20 homeowners and battle in court."

If courts overwhelmed with foreclosures decide to = take up the=20 cause, the result could be millions of struggling homeowners with the = banks off=20 their backs and millions of homes no longer on the books of some = too-big-to-fail=20 banks. Without those assets, the banks could again be looking at = bankruptcy, as=20 was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko = decision:

"The ticking time bomb in the US banking system is = not=20 resetting subprime mortgage rates. The real problem is the contractual = ability=20 of investors in mortgage bonds to require banks to buy back the loans = at face=20 value if there was fraud in the origination process.

"... The loans at issue dwarf the capital available = at the=20 largest US banks combined and investor lawsuits would raise stunning = liability=20 sufficient to cause even the largest US banks to = fail...."

Nationalization of these giant banks might be the = next logical=20 step - a step that some commentators said should have been taken in the = first=20 place. When the banking system of Sweden collapsed following a housing bubble in the = 1990s,=20 nationalization of the banks worked out very well for that country.

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

With the strengthened position of Wall Street = following the=20 2008 bailout and the tepid 2010 banking reform bill, the US is far from=20 nationalizing its mega-banks now. But a committed homeowner movement to = tear off=20 the predatory mask called MERS could yet turn the tide. While courts are = not=20 likely to let 62 million homeowners off scot-free, the defect in title = created=20 by MERS could give them significant new leverage at the bargaining = table.

Thi= s work by=20 Truthout is licensed = under a Creative=20 Commons Attribution-Noncommercial 3.0 United States License. =

Support = Truthout's work=20 with a $10/month tax-deductible donation today! =

Share Tweet

=C2=BB

Ellen Brown developed her research = skills as=20 an attorney practicing civil litigation in Los Angeles. In "Web of = Debt," her=20 latest book, she turns those skills to an analysis of the Federal = Reserve and=20 =E2=80=9Cthe money trust.=E2=80=9D She shows how this private cartel has = usurped the power to=20 create money from the people themselves, and how we the people can get = it back.=20 Her eleven books include Forbidden Medicine, Nature=E2=80=99s Pharmacy = (co-authored with=20 Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. = Richard=20 Hansen). Her websites are http://www.webofdebt.com/, http://www.ellenbrown.com/,=20 and http://www.public-banking.com/.

Comments

This forum is moderated by software. Please = allow up to=20 15 minutes for your comments to go live and avoid posting the same = comment=20 multiple times.

What=20 wonderful

Thu, 08/19/2010 - 17:37 = =E2=80=94=20 BillyDoc (not verified)=20

What wonderful news!

Unfortunately, we have a Supreme Court that doesn't seem to be overly = bothered by what's legal or not. They will rule in favor of the banks = that keep=20 them warm and cozy in their Bankster pockets.

Bet on it.

Here=20 is another case to add

Thu, = 08/19/2010 -=20 17:40 =E2=80=94 Ellen Brown (not verified)=20

Here is another case to add to the list, in Maine=20 --
http://4closurefraud.org/2010/08/13/judgment-reversed-mers-is-not-i= n-fact-a-mortgagee-mortgage-electronic-registration-systems-inc-v-jon-e-s= aunders-et-al/

I=20 have a question? Couldn't

Thu, = 08/19/2010 -=20 18:56 =E2=80=94 Anonymous (not verified)=20

I have a question? Couldn't any homeowner who mortgage was handled = through=20 MERS then move to to Quiet the Title on their home on the basis of the = lack of a=20 promissory note. I don't see why the court's ruling would apply only to=20 defaulters. Thoughts?

Usually=20 a "defaulter" is the

Thu, = 08/19/2010 -=20 19:26 =E2=80=94 Anonymous (not verified)=20

Usually a "defaulter" is the one who will be in court in front of a = judge.=20 These cases usually are with people who presumably purchased bubble = inflated=20 housing, are deeply underwater and are having serious financial = problems. The=20 motivation for placing blame on the borrowers is an amusing combination = of=20 ignorance and typical puritanism. The typical blather is as follows: = "You signed=20 something under seal! Na-na-na boo boo!" Of course, once someone = understands=20 that they've been lied to, understands they were given a loan designed = to fail,=20 and realizes that house prices were fixed..well, the plantiff should = have their=20 stuff together before they throw that someone onto the street.

Many people made huge money during the bubble: Brokers, realtors, and = so on.=20 These same monied interests have a lot more pull on local politicians, = the=20 courts and the media. Already, trying to save your home sounds like an = exercise=20 in beating a dead horse.
The truth reamins that many of these = borrowers are=20 victims of massive financial predation, regardless of what someone like = Rick=20 Santelli has said.
Many were folks who have *always* been desperate = to own=20 housing were pushed by a dishonest media and Government that said home = ownership=20 was critically important. Many
were sold housing in appalling states = of=20 disrepair, without inspections, at abhorrent prices, simply because of=20 outrageous criminal activity on Wall Street.

Many thought that as long as the economy was doing fine they too = would have=20 access to modest shelter.
Many also were buying, flipping, committing = fraud=20 and simply gambling on the rise of the bubble, this has nothing to do = with the=20 right to shelter. Why did our Government allow this stuff to happen? Why = did we=20 allow ratings agencies to lie, commit fraud, damage investors, put = smaller banks=20 out of business? Why are we allowing organized crime to destroy = livelihoods and=20 now throw people out onto the street?

Excellent= =20 article....clearly

Thu, = 08/19/2010 - 21:57=20 =E2=80=94 bobberesford.com (not verified)=20

Excellent article....clearly it's time for a movement and word of = mouth - or=20 mass publicity - because the MERS mortgages are plainly illegal and USA=20 mortgages should always have been kept linked to a local bank and = state/local=20 registration . Why not more court cases aimed at bankrupting = MERS....then surely=20 all its mortgages will be invalid and Freehold will prevail ? A huge=20 breakthrough for the country....and America badly needs it.
Also, the = article=20 about Australia's Commonwealth bank is good and check Sean Olender's=20 article....it was written in late 2007 !

Thank=20 you Ellen! Excellent

Fri, = 08/20/2010 -=20 03:09 =E2=80=94 Suzanne O'Keeffe (not verified)=20

Thank you Ellen! Excellent article, as always. Huge news! Achilles = heel is=20 perfect metaphor. May it lead to their undoing.

Does=20 anyone know whether or

Sat, = 08/21/2010 -=20 14:26 =E2=80=94 Anonymous (not verified)=20

Does anyone know whether or not similar cases have come to trial in=20 Minnesota? TIA

Foreclosu= re=20 mill fraud is

Sat, 08/21/2010 - = 16:39 =E2=80=94=20 Anonymous (not verified)=20

Foreclosure mill fraud is exploitive, as appalling collection abuses = have=20 resulted in mill lawyers (or their affiliates) obtaining ownership of=20 fraudulently foreclosed properties via purported bids at = =E2=80=9Csimulated=E2=80=9D auctions.=20 Certain fraudulently auctioned properties become = =E2=80=9Cflipped=E2=80=9D illegally to Freddie=20 Mac. False Bankruptcy Court pleadings help some lawyers to wrongfully, = illegally=20 impede homeowners=E2=80=99 restructuring debts, and discovery of the = actual owners of=20 mortgage notes. Such lawyers file falsified bankruptcy =E2=80=9CLift = Stay=E2=80=9D motions in=20 names of either defunct lenders or lenders with no ownership of property = notes.=20 False bankruptcy pleadings not only help illegal property repossessions, = any=20 other creditors whom debtors owe, becomes deprived wrongfully of = entitled shares=20 of proceeds from those auction frauds; and ILLEGITIMATE = =E2=80=9Cdeficiency judgments=E2=80=9D ;=20 and third party debt-buyers seeking money after unfairly low bids = resulted in=20 large debt balances are also problems.

Plus, foreclosure mills work in concert with Wells Fargo. Among other = things,=20 Wells Fargo has tax advantage from fraudulent foreclosure proceedings = after=20 placing distressed homeowners=E2=80=99 names / social security numbers = on false IRS=20 (acquisition) form 1099-A=E2=80=99s, even when no lawful = =E2=80=9Cacquisition=E2=80=9D of properties=20 occurred; such homeowners wrongfully become forced to explain these turn = of=20 events to the IRS after surprise receipts of tax bills... . .**SEE this = entire @=20 http://www.lawgrace.org/2010/08/14/foreclosure-mills-judicial-fraud-consu= mer-exploitation-government-shams/

Have=20 you any information on

Sun, = 08/22/2010 -=20 19:32 =E2=80=94 Anonymous (not verified)=20

Have you any information on MERS, actions/ legal right for home owner = in=20 trouble in the state of MARYLAND, we need help here, any information to = help us=20 here in MARYLAND would be very welcomed, thank.

Have=20 you any information on

Sun, = 08/22/2010 -=20 20:45 =E2=80=94 Anonymous (not verified)=20

Hi,=20 I don't know the answer

Tue, = 08/24/2010 -=20 02:04 =E2=80=94 Ellen Brown (not verified)=20

Hi, I don't know the answer to that but I've got a section called=20 "foreclosure relief" on my blog that is a good place to start = researching it.=20 (The truthout site doesn't allow URLs but look up my book Web of Debt.) =

Good luck!

<= IMG=20 alt=3D"" src=3D"http://www.truth-out.org/files/hartmanbanner.jpg">=20

FB.init("ca9c36326dff593df4bc701c183e9414");

<= /DIV>

BUZZFLASH DAILY HEADLINES
=C2=BB Axelrod Walks Back That WH Will Give in on Tax Cuts = to=20 Wealthy. Only Problem is That He Was the Original Source - = National=20 Journal
=C2=BB Sen. = Bernie=20 Sanders Denounces Proposed Cuts on Social Security and Medicare -=20 BuzzFlash
=C2=BB West Point Should Offer a Curriculum That Keeps Its = Founders=E2=80=99=20 Belief That the Soldier=E2=80=99s Role Was to Build, Not Just to = Destroy -=20 New York Times
=C2=BB Pessimism Pervades as G20 Leaders Show Sharp Split - = AP
=C2=BB Hillary Clinton: US "Disappointed" With Israel's = Settlement=20 Decision - CNN
=C2=BB The State We're in: Estimated California State = Budget Deficit=20 Reaches $25.4 Billion - Los Angeles Times
=C2=BB Isaiah J. Poole: Hands off of Social Security -=20 Campaign for America's Future

MORE BUZZFLASH HEADLINES=20 =C2=BB
What is=20 BuzzFlash?

LATEST STORIES

Dean=20 Baker | Deficit Commission Co-Chairs Ignore Economic = Reality
Camilo = "Mac" Bica |=20 No Cause for Parades
Spotlight=20 G-20: We Need Global Keynesianism
Global=20 Temperature to Rise 3.5 Degrees C. by 2035: International Energy=20 Agency
Few=20 Big Fish Land in Immigration Dragnet
News=20 in Brief: Pentagon Study Shows Repealing "Don't Ask, Don't Tell" Is = Not=20 Dangerous, and More ...
Joe=20 Conason | A Note on Health Care Reform
Philadelphia=20 "Freedom": Voter Forced to Swear on Bible Before Casting Vote in = Mid-Term=20 Election

=C2=A9 2010 truthout

Homeowners' Rebellion: Recent Rulings Could Shield 62 Million Homes = From=20 Foreclosure

Share Tweet

Comments

What=20 wonderful

Here=20 is another case to add

I=20 have a question? Couldn't

Usually=20 a "defaulter" is the

Excellent= =20 article....clearly

Thank=20 you Ellen! Excellent

Does=20 anyone know whether or

Foreclosu= re=20 mill fraud is

Have=20 you any information on

Have=20 you any information on

Hi,=20 I don't know the answer

Add a comment:

MOST POPULAR

LATEST STORIES

=C2=A9 2010 truthout

	Your name:=20 *=20
	E-mail:=20 *=20 =20 The content of this field is kept private = and will=20 not be shown publicly.
	Comment: * =20 Allowed HTML tags:=20 = <em></em><strong></strong><b></b> Lines and paragraphs break automatically. More = information about=20 formatting options

Homeowners' Rebellion: Recent Rulings Could Shield 62 Million Homes = From=20 Foreclosure

Share (function() { var s =3D document.createElement('SCRIPT'), s1 =3D = document.getElementsByTagName('SCRIPT')[0]; s.type =3D 'text/javascript'; s.async =3D true; s.src =3D 'http://widgets.digg.com/buttons.js'; s1.parentNode.insertBefore(s, s1); })(); Tweet

Comments

MOST POPULAR

LATEST STORIES

=C2=A9 2010 truthout

Share Tweet