Butter side down
"Memo to banks: You're toast". Randall Wray on MERS:
Courts continue to chip away at the justifications banks and their Frankenstein creation, MERS, have created for theft of homes. MERS was manufactured by the industry to evade proper recording of property sales in county recorder's offices. This will sound overly dramatic, but there is no other way to accurately state it: MERS was from inception a criminal conspiracy designed to cheat counties out of recording fees, the US Treasury out of taxes, and homeowners out of their homes. That conspiracy will have to be proven in the courts, but everyday and everywhere courts are ruling against MERS. The fiction perpetrated by MERS is that it is simultaneously a nominee of the true owner of the mortgage debt and at the same time it is the mortgagee of the security instrument. (You cannot simultaneously be the party of interest and the nominee, of course.) It also disclaims any financial interest in the mortgage and has no claim on the mortgage payments. But it claims that it can operate as the agent of unnamed owners of the mortgage instrument, unknown owners who—since they are unknown—have never designated MERS as agent. I won't repeat my earlier missives: you must have a clear chain of title, demonstrating proper assignment of the mortgage at every step. It looks like none of MERS's mortgages meet that [60% of all mortgages (!!)]—which is what the Massachusetts Supreme Court ruling was all about.
And that, children, is why "Produce the note!" works.
Judges are waking up to the multiple scams. In Utah, judges are allowing homeowners to pursue a “quiet title action”. The owner seeks clear title to property free of lien by lenders or others. Typically, in a home purchase, the homebuyer signs a promissory note (note) held by the lender and a deed of trust (mortgage) that is recorded at the county recorder's office. The holder of the note has the right to receive mortgage payments; the mortgage provides the right to foreclose. In US law, the “mortgage follows the note”—the note holder who has the mortgage can foreclose if the payments are not made. In a quiet title action, the owner takes advantage of the fact that MERS purposely separated notes and mortgages, listing itself on the trust deeds as the beneficiary of the note.
Utah courts have recognized that as a fraud. MERS—with no financial interest in the mortgage—cannot be beneficiary. It is just a data registry. It makes no loans. It has virtually no employees. It does not receive mortgage payments. It was designed to defraud counties and the IRS. Hence, homeowners can go to court without any notification to MERS, serving legal papers only to the legal owners of the title to the property. This is usually some title company, that is supposed to be the trustee of the trust deed (mortgage). In cases in Utah, these title companies either did not respond at all, or they simply said that they didn't “know who the beneficiary of the trust deed is” and denied any interest in the deed. The judges then handed the deeds over to the homeowners. While they can still be sued for the mortgage payments they owe, the homeowners got their homes free and clear. In other words, no one can foreclose on them. Their debts are unsecured.
Justice is full of win.
MERS has screwed up the records so badly that in many or most cases no one knows who holds the notes, who is entitled to receive mortgage payments, and who has got the deed. What we used to call “mortgage backed securities” are probably mostly unsecured. It is not clear that any of the securitizations of home mortgages were done properly. In that case, the securities are not mortgage backed. Mortgage servicers do not have the right to foreclose, and neither do the securities holders. Homeowners can follow the example in Utah because, apparently, all states have a similar provision to allow “quiet title action”. The mortgage debts are not secured by homes. The homeowners can keep their homes and tell the banks to take a flying leap.
And that makes the banks toast. Forget anything you read about their income, their profit rates, their recovery. They've got to take back the unbacked mortgage securities—they do not meet the “reps and warranties”. And there is no property behind them, so foreclosure is out of the question. They can pursue homeowners in court—but homeowners lost their jobs and in any case could not afford the houses the lender fraudsters put them into. Yet, they get to stay in the homes, can claim their titles, and can negotiate for better terms with banks that are failing.
The next several years will be fun. Bet on the lawyers.
Needless to say, this is all an excellent example of how the "free market" allocates capital more efficiently than any alternative system. For some definition of "efficient."