December 17, 2009

Mortgage Desperadoes

Filed under: Civil Disobedience, Land Reform, Law — Tags: — Russ @ 8:20 am


When the peasants finally take up the torches and pitckforks and drive out the wicked land baron, they rush to the courthouse to seize the registry and burn the deeds of ownership. That’s how it happens in the movies and sometimes even in real life. It’s practical and symbolic. It’s the obliteration of hated feudalism, the break with the oppressive past, the slate wiped clean and renewal of true human community with the land, where a man farms what he owns. This is real creative destruction.
It seems today that such things are impossible. If you assume both the power structure and the internet will exist forever (ironically both are extremely top-heavy, unresilient, vulnerable to system collapse), then you assume the paper trail, in both physical and digitized form, must be unassailable.
But at the very center of the financial system, out of its own logic and procedure, it has grown a tumor. This is the system’s failure to maintain its own registry, its own paper trail, its own legal basis. It’s as if they already burned many of the deeds for us.
The people are already outraged at the crimes of the banks. We can join to this moral and political outrage an understanding of the structural anarchy and illegality of the system in itself. According to its own premise it has no legal basis, even a phony one, because the land ownership premise is that whoever holds the note has the right, so if there’s no note, there’s no right.
This philosophical and moral combination could provide the basis for a real reform movement. The goal is not just to take back the country from the banksters, but to restore the rule of law and order itself.
So let’s be clear: To be a revolutionary today is to be the advocate of law, while to defend the status quo is to be a lawless rioter.
Property ownership, duly recorded and registered, is the foundation of this legal system. Anarchy at this point equals anarchy throughout. You sell a property, you transfer the written deed. The legal owner, the piece of paper in hand. This has allowed for the orderly ranking and disposal of any claims on the property. Adjudication is not supposed to get hopelessly entangled right at the outset, in even figuring out who holds the note.
But the housing bubble’s fuel was a vast supply of mortgage loans passed along a conveyor belt of entities – lender, sponsor, depositor, trust – while being sliced and diced into tranche layers to then be securitized. Apparently the paperwork and fees and taxes payable at each transfer were too much for the banks to deal with so they simply set up their own extralegal system where any of the shell firms along the way could at any time be what the bank’s computer would call the “owner” (meanwhile the piece of paper often simply disappeared).
The banks (Citi, BofA, JPM, Wells), the Mortgage Bankers Association (MBA), Fannie and Freddie, the street-level sleazy lenders and servicers and others set up the Mortgage Electronic Registration System (MERS) as a front to carry out foreclosures and serve as the respondent in any court case. MERS simply claims to own the mortgage if anyone asks. It doesn’t really even “exist” in the sense of having many employees, etc. Where action is necessary an employee of the underlying bank, servicer or whatnot doubles as the MERS cadre.
For convenience sake, and to cheat on fees and taxes, they simply blew off centuries of property law, the rule of law as such. The result of all this is a system of accounting fraud and avoidance of legal responsibility in general. Anyone who has to deal with them, especially who tries to fight back, has to play Whack-A-Mole with this crazy bureaucracy where no one in particular has any responsibility, authority, or ability to do anything. It takes faceless, bloodless limited liability, the zero responsibility-total rights ideology, to the extreme.
Most ridiculous, the note itself often disappears. Demands to produce it lead to MERS or some similar shell simply vouching for itself, “I own it”, with zero proof.
For too long, corporatist judges have enabled this flouting of the law. They’re trying to prop up corporate anarchy the same way the government is trying to prop up the insolvent bank system. But finally we’re seeing judges who refuse to accept this fraud on the court.
In October we had a state judge in Massachusetts and a federal court in New York rule that lenders who could not produce the title or prove they were the real owners could not foreclose. In the federal case the judge actually wiped out the debt itself in an attempt to punish the would-be defrauders.
An August ruling from the Kansas supreme court was even stronger, finding that because MERS wasn’t a properly registered owner of an underlying property, it had no legal interest. Writing for the court Judge Eric Rosen was acerbic:

The relationship that MERS has to Sovereign [Bank] is more akin to that of a straw man than to a party possessing all the rights given a buyer… What meaning is this court to attach to MERS’s designation as nominee for Millennia [Mortgage Corp.]? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant — their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage ‘in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not.’ (Landmark National Bank v. Boyd A. Kesler)

As the NYT’s Gretchen Morgenson analyzes:

By letting the sale stand and by rejecting Sovereign’s argument, the lower court, in essence, rejected MERS’s business model.

Although the Kansas court’s ruling applies only to cases in its jurisdiction, foreclosure experts said it could encourage judges elsewhere to question MERS’s standing in their cases.

“It’s as if there is this massive edifice of pretense with respect to how mortgage loans have been recorded all across the country and that edifice is creaking and groaning,” said Christopher L. Peterson, a law professor at the University of Utah. “If courts are willing to say MERS doesn’t have any ownership interest in mortgage loans, that may eventually call into question the priority of liens recorded in MERS’s name, and there are millions and millions of them.”

Or as Yves Smith writes at Naked Capitalism:

But it isn’t surprising that judges are plenty unsympathetic, and in cases, outraged. The law is all about sanctity of process, both the underlying law and court proceedings. Cases typically revolve around disputes of fact or grey areas of the law. This isn’t grey (whether a party has standing to file a suit is fundamental) and the law in this area is well established. Basically, the securitization industry tried creating rules outside any established legal framework and judges are having none of it….

And we have an even more interesting set of possibilities. Say servicers and MERS fail to clean up their act, and more judges start throwing out foreclosures. Kansas Supreme Court Judge Rosen didn’t just say he didn’t see an acceptable paper trail; elements of his ruling were a much more fundamental attack on MERS. If more judges start challenging MERS’s legitimacy, that could strike at the heart of foreclosures in securitizations. In other words, a few more of these rulings may accomplish what the folks in DC have been unwilling and unable to do: force banks to negotiate. The problem, of course, is the impact will be very inconsistent. Some jurisdictions and judges will no doubt be more sympathetic to this line of argument than others.

Stay tuned, this looks certain to get even more interesting.

All of this has met with the standard clueless arrogance from the crooks. One plaintiff’s attorney blithely argued that the scam was “standard operating procedure for many years” and should therefore be upheld. Rosen quoted the lawyer in the Kansas case as saying MERS holds the mortgage “in street name, if you will”. No, the court would not. Another federal judge in Ohio rejected the argument before his court, calling it the “Judge, you just don’t understand how things work” defense. (Reminds me of the teenage Henry Hill in Goodfellas trying to placate some police detectives who confront him, saying repeatedly in a soothing, patronizing voice “It’s okay.” As in, this is the way we do things. Don’t you understand?)
But as Judge Keith Long wrote in the Massachusetts Land Court case:

[T]he problem the [lenders] face (the present title defect) is entirely of their own making as a result of their failure to comply with the statute and the directives in their own securitization documents… What the plaintiffs truly seek is a change in the foreclosure sale statute (G.L. c. 244, § 14), which can only come from the legislature.

That’s it. They were scoffing at the law, disregarding, disrespecting. If they don’t pay the taxes and fees upon taking “ownership”, not only are they criminal thieves, but how can they be the real owners? Why should government uphold any alleged right they claim?
Morally, philosophically it’s the radical opposite of the real basis of any economic right. Responsibilities precede rights, and rights follow from responsibilities. Corporate sociopathy is an affront to and contradiction of the basis of the human contract. We have a right to resist this aggressive anarchy.
Education must always hammer it home: Demand to See the Note! 


  1. […] up privately.   This attempt to evade accountability is another feature of the MERS system I wrote about last week. The point of the nameless, faceless conveyor belt mortgage chop shop is to let only the cash […]

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  3. You do not know what you are talking about. MERS is similar to the DTC (Deposit Trust Company) for securities holding. It was merely set up to facilitate the holding of mortgages by lenders. It is not some evil foreclosure mechanism. While I agree with your concept that abuses occurred within the disintermediation of mortgages through the securitization process, but focusing on MERS as part of the problem is way off target.

    Comment by concerned — January 4, 2010 @ 8:21 pm

  4. My concept is not that abuses occured. My concept is that the entire system is a structural abuse.

    I didn’t make up this interpretation of MERS. Everyone whose paycheck doesn’t depend upon saying the opposite has said this.

    And if MERS is innocent, why is it the defendant everywhere? And why does it stonewall everywhere? Why don’t the real owners rush forward, paper deeds in hand, to take responsibility?

    The fact is, MERS exists only to facilitate unaccountable mortgage securitization.

    Mortgage securitization in itself should not exist. It serves no constructive social or economic purpose whatsoever. It should not be allowed to exist at all. So it follows that MERS has no legitimate reason to exist at all.

    By definition it is part of the problem.

    Comment by Russ — January 5, 2010 @ 9:37 am

  5. Mortgage is a serious issue, there are some creations over the mortgage to avoid and help owners

    Comment by Tony — January 28, 2010 @ 9:12 am

  6. […] (I interject, this sounds similar to the current disposition of mortgage notes, specifically that the MERS regime was set up to systematically hide and lose those notes while the mortgages themselves became discorporated […]

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  7. […] technical aspects of how the banks have even legally forfeit their alleged ownership of the land, see here.) I’ve written lots more on the Land Scandal and the redemption we must take.   This […]

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