Two landmark developments on Aug. 16 give momentum to the growing interest of cities and counties in addressing the mortgage crisis using eminent domain:
MERS is the electronic smokescreen that allowed banks to build their securitization Ponzi scheme without worrying about details like ownership and chain of title. According to property law attorney Neil Garfield, properties were sold to multiple investors or conveyed to empty trusts, subprime securities were endorsed as triple A, and banks earned up to 40 times what they could earn on a paying loan, using credit default swaps in which they bet the loan would go into default. As the dust settles from collapse of the scheme, homeowners are left with underwater mortgages with no legitimate owners to negotiate with. The solution now being considered is for municipalities to simply take ownership of the mortgages through eminent domain. This would allow them to clear title and start fresh, along with some other lucrative dividends.
A major snag in these proposals has been that to make them economically feasible, the mortgages would have to be purchased at less than fair market value, in violation of eminent domain laws. But for troubled properties with MERS in the title - -which now seems to be the majority of them -- this may no longer be a problem. If MERS is not a beneficiary entitled to foreclose, as held in Bain, it is not entitled to assign that right or to assign title. Title remains with the original note holder; and in the typical case, the note holder can no longer be located or established, since the property has been used as collateral for multiple investors. In these cases, counties or cities may be able to obtain the mortgages free and clear. The county or city would then be in a position to "do the fair thing," settling with stakeholders in proportion to their legitimate claims, and refinancing or reselling the properties, with proceeds accruing to the city or county.
Bain v. MERS: No Rights Without the Original Note
Although Bain is binding precedent only in Washington State, it is well reasoned and is expected to be followed elsewhere. The question, said the panel, was "whether MERS and its associated business partners and institutions can both replace the existing recording system established by Washington statutes and still take advantage of legal procedures established in those same statutes." The Court held that they could not have it both ways:
Simply put, if MERS does not hold the note, it is not a lawful beneficiary...MERS suggests that, if we find a violation of the act, "MERS should be required to assign its interest in any deed of trust to the holder of the promissory note, and have that assignment recorded in the land title records, before any non-judicial foreclosure could take place." But if MERS is not the beneficiary as contemplated by Washington law, it is unclear what rights, if any, it has to convey. Other courts have rejected similar suggestions. [Citations omitted.]
If MERS has no rights that it can assign, the parties are back to square one: The original holder of the promissory note must be found. The problem is that many of these mortgage companies are no longer in business, and even if they could be located, it is too late in most cases to assign the note to the trusts that are being tossed this hot potato.
Mortgage-backed securities are sold to investors in packages representing interests in trusts called REMICs (Real Estate Mortgage Investment Conduits), which are designed as tax shelters. To qualify for that status, however, they must be "static." Mortgages can't be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer after the closing date is invalid. Yet few, if any, properties in foreclosure seem to have been assigned to these REMICs before the closing date, in blatant disregard of legal requirements.
The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents. Legally, the latter defect may be even more fatal than filing in the name of MERS in establishing a break in the chain of title to securitized properties.
What This Means for Eminent Domain Plans: Focus on San Bernardino
Under the plans that the San Bernardino County board of supervisors voted to explore, the county would take underwater mortgages by eminent domain and then help the borrowers into mortgages with significantly lower monthly payments.
Objections voiced at the Aug. 16 hearing included suspicions concerning the role of Mortgage Resolution Partners, the private venture capital firm bringing the proposal (would it make off with the profits and leave the county footing the bills?), and where the county would get the money for the purchases.
A way around these objections might be to eliminate the private middleman and proceed through a county land bank of the sort set up in other states. If the land bank focused on properties with MERS in the chain of title (underwater, foreclosed or abandoned), it might obtain a significant inventory of properties free and clear.
The county would simply need to give notice in the local newspaper of intent to exercise its right of eminent domain. The burden of proof would then transfer to the claimant to establish title in a court proceeding. If the court followed Bain, title typically could not be proved and would pass free and clear to the county land bank, which could sell or rent the property and work out a fair settlement with the parties.
That would resolve not only the funding question but whether using eminent domain to cure mortgage problems constitutes an unconstitutional taking of private property. In these cases, there would be no one to take from, since no one would be able to prove title. The investors would take their place in line as unsecured creditors with claims in equity for actual damages. In most cases, they would be protected by credit default swaps and could recover from those arrangements.
The investors, banks and servicers all profited from the smokescreen of MERS, which shielded them from liability. As noted in Bain:
Critics of the MERS system point out that after bundling many loans together, it is difficult, if not impossible, to identify the current holder of any particular loan, or to negotiate with that holder... Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult.
Like MERS itself, the investors must deal with the consequences of an anonymity so remote that they removed themselves from the chain of title.
On Aug. 15, the Federal Housing Finance Agency threatened to take action against municipalities condemning federal property. But to establish its claim, the FHFA, too, would have to establish that the mortgages were federal property; and under the Bain ruling, this could be difficult.
Setting Things Right
While banks and investors were busy counting their profits behind the curtain of MERS, homeowners and counties have been made to bear the losses. The city of San Bernardino is in such dire straits that on Aug. 1, it filed for bankruptcy.
San Bernardino and other counties are drowning in debt from a crisis created when Wall Street's real estate securitization bubble burst. By using eminent domain, they can clean up the destruction of their land title records and 400 years of real property law. And by setting up their own banks, counties and other municipalities can use their own capital and revenues to generate credit for local purposes.
Homeowners who paid much more for a home than it was worth as a result of the securitization bubble have little chance of challenging the legitimacy of their underwater mortgages on their own. Insisting that their state and local governments follow the lead of Washington State and San Bernardino County may be their best shot at escaping debt peonage to their mortgage lenders.
Follow Ellen Brown on Twitter: www.twitter.com/ellenhbrown
How completely communist of you. Why doesn't this mean that the PEOPLE LIVING IN THE HOMES can obtain the mortgages free and clear and not then have to pay the government even more money? Why did you intentionally choose to not mention that possibility?
'Not always are people seeking to get a 'free' home; many are willing to pay rent. Why and how should property owners be blamed for refusing to cooperate with erroneous and fraudulent confiscation of their homes? Who can blame any reasonable person for not wanting to be homeless if there is a LAWFUL method to avoid it?'
*abstract from “FORECLOSURES -Keeping it real about: mortgage lenders, borrowers, attorneys” @ http://open.salon.com/blog/wwwlawgraceorg/2010/10/30/foreclosures_-keeping_it_real_about_mortgage_lenders_b
*Also see: http://open.salon.com/blog/wwwlawgraceorg/2010/08/18/case_in_point_foreclosure_mills_judicial_fraud_consumer
I thought Liberals didn't realize that by reversing Glass Steagall and forcing banks to make those risky loans the banks would then expand that to "A & B" paper loans as well. Creating huge profits for banks but also creating a "bubble". But you liberals knew exactly what would happen and that's what you wanted so you could get easy money out to voters and when the whole thing collapsed you would have someone to blame... the big bad banks!
Really it was the big bad government!
So homeowners (even the ones who were good credit risks), now blame the bank. The politicians have something to make them look like the good guys! And Americans are falling for it all over again, but not any more, the word is out.
(1) I am not an attorney. I do function as case consultant as needed, and I am certified through 703 hearings and am able to testify as Expert Witness in certain areas in the lending and foreclosure process.
(2) I do not chase ambulances since I am not a dog. Plus, I get sick at the sight of blood and guts.
(3) There is no way to simplify this. There are far too many laws and statutes that interact, and each state has differing laws to further compound the issue.
(4) Local banks do not have the resources to serve the entire community, especially if fractional banking is removed.
(5) Ellen's ideas may work at some level, but would not have the capability to meet all demand. Prior to the crash, 80% of all lending, whether GSE or private money came from Wall Street. These were the pension funds, mutual funds, stock and bond buyers, i.e. the money came from the little people. Eliminate this source of funds, then home values would completely plummet because there would be no money to fund the loans. Local banks would not be able to meet supply and interest rates would increase because of the demand for money.
(6) If you take through eminent domain, you will not be taking from the GSE's or the banks. You will be taking from the people who bought the bonds created from the MBS. In other words, you are taking from your neighbors.
http://itsrainmakingtime.com/2012/davekrieger/
Foreclosure and beneficiary laws are different in different states and Bain has no applicability in CA.
1. Gomes v Countrywide found that MERS was lawful, MERS had an agency relationship, and that MERS could make assignments or could foreclose. The case was appealed to the 4th District, CA Supreme Court, and to the US Supreme Court, each time denied. That means that Gomes is the law in CA, until otherwise overturned.
2. The concept of eminent domain by San Bernardino County serves no true public purpose under traditional eminent domain practices. It would be fought in the courts, and would be found to be unlawful.
3. Those like Garfield who make claims about empty trusts, etc, are not being honest. The loans went into the Trusts, and loan payments were paid. I have seen documents proving they are in the trusts.
4. In the Trust filing documents, there is clear and specific language about how the loans are transferred. When MERS is involved in CA, there is not a requirement for assignments. Non MERS loans require a blank assignment, but does not get recorded until absolutely necessary.
7. In CA, to transfer a loan, there is not a requirement for an Assignment to be executed and recorded. CA law has been specific about this since the late 1800's. Gomes and other cases have upheld this time and again.
I really suggest that you take the time to study foreclosure cases in CA.
Patrick
So here would be my response to that: the appellate court in Gomes said that CA is a non-judicial foreclosure state, and that to allow the defendant to haul the bank into court on the MERS issue would turn every foreclosure into a judicial foreclosure.
We're not talking about foreclosure here. We're talking about whether you can assign chain of title if you never had the requisites of title to convey -- the note and deed of trust. And we're talking about eminent domain, which will put the burden on the bank to go into court and prove title. What one law professor said of Gomes and bankruptcy court also pertains to eminent domain:
"By holding that the borrower could not even file suit in state court in order to determine whether the proper party had commenced the foreclosure, the court has sent a clear (and perhaps inadvertent) message to borrowers and their attorney’s: instead of filing suit in state court, file a bankruptcy petition. That shifts the burden to the creditor, who will have to file a motion for relief from stay in the bankruptcy court and will have to establish its right to foreclose as part of that motion."
The appellate court ruled in Gomes that California is a non-judicial foreclosure state, and that to allow defendants to haul the bank into court to prove its standing to foreclosure would turn every case into a judicial foreclosure, slowing up the process. Here we're not talking about a non-judicial foreclosure but about proving title in an eminent domain proceeding, which puts the burden on the bank to prove its claim. What was said by a law professor about Gomes and bankruptcy proceedings also applies to eminent domain proceedings:
"By holding that the borrower could not even file suit in state court in order to determine whether the proper party had commenced the foreclosure, the court has sent a clear (and perhaps inadvertent) message to borrowers and their attorney’s: instead of filing suit in state court, file a bankruptcy petition. That shifts the burden to the creditor, who will have to file a motion for relief from stay in the bankruptcy court and will have to establish its right to foreclose as part of that motion."
I have been involved in these type actions daily for the past five years, working on both sides of the issue. I have seen and reviewed discovery documents that most attorneys on either side have not seen. I have testified in both state and federal courts for homeowners, and I have worked lender v mortgage banker cases.
Yes, the Court did say what you wrote, but it also hold that MERS was an agent of the beneficiary. Acting as such, MERS could execute assignments and could foreclose.
(This 250 word limit is going to drive me nuts.)
I have read not only the MERS Membership Agreement, but I have also read and reviewed other MERS Agreements that went with the Mortgage Loan Purchase Agreements and the Notes between Warehouse Lenders and Mortgage Bankers who funded the loans off the Warehouse lines. There is conclusive proof that MERS is an agent. (I have no idea why this documents did not appear in Bains.)
Nest comment space:
The MERS agreements with originating lenders are very specific of what can and can't be done and how MERS conducts business. It identifies the relationship between MERS and the lender, and then it covers transfer of the Notes and Deeds. IMO, there is no doubt of the ability to transfer the Deed per the relationships established.
Even the Deed of Trust makes mention of "MERS successors and assigns", which can be further evidence of the borrower agreeing that MERS can assign the Deed, just like how in Gomes the court stated that MERS was given permission to foreclosure based upon the borrower signing the DOT.
That said, another argument simply is under Article 3 of the UCC. The Deed follows the Note. You transfer the Note, and the Deed is automatic. However, you cannot transfer the Deed, and have the Note follow. But since the Note has been transferred already, the act of MERS assigning the Note at a later date is not a problem.
AND YOU ARE SAYING THAT MORE THIEVES -- "EMINENT DOMAIN" SHOULD BE INVITED TO STEAL MY HOME?? MILLIONS OF HOMEOWNERS DID PAY CASH DOWN -- AND ARE NOT FREELOADING SUB-PRIME BORROWERS.... SO -- THE NEXT TIME YOU ASSUME THAT THE GOVT SHOULD EMINENT DOMAIN -- DO YOUR HOMEWORK FIRST AND DISCOVER THAT
YES -- MANY PEOPLE GAVE THEIR CASH TO CROOKS -- AND YOU ARE SAYING THAT MORE CROOKS SHOULD COME AND EMINENT DOMAIN THEIR INVESTMENTS?
WHAT ABOUT THE INJURY TO THE HOMEOWNERS -- WHO PUT MONEY DOWN -- ONLY TO FIND OUT THAT THEY COULD NEVER OWN THE HOME THEY PAID FOR??
WHERE ARE THE HANDCUFFS FOR THESE CROOKS AND WHERE ARE THE JOURNALISTS WHO ARE WILLING TO CALL STEALING AND ROBBERY DONE BY PEOPLE A CRIME --
AND STAND UP FOR THE HOMEOWNERS WHO * DID * PUT CASH DOWN ON THEIR HOME --
IN MY CASE -- MORE LIKE 40% CASH DOWN -- ???
I agree with getting the mortgage down to an affordable payment, but therein lies another problem. For most people, and I have seen far too many, there cannot be reasonable modification that will allow a person to successfully keep the home, but also create a reasonable scenario for the investor.
As to the blame on the banks, you are not factoring in all other events which influenced the situation. For a true understanding, you most go back at least to the Depression, if not the late 1800's, and then plot out all events that occurred affecting housing. Then you must factor in changing demographics, the political landscape, the changing economy, and a variety of other factors to reach a true conclusion of where the fault lies, and it is among all parties involved, from the lenders, government, Fed, failed economic policies, brokers, real estate agents, all the way down to the borrowers. No one was without fault, and no one was fully to blame.
I have an ongoing chart of events which covers over 40 pages in Excel, trying to keep track of things, and it is probably about 50% complete at this time.
For Credit Default Swaps, courts have ruled in other states, nothing yet in CA, that a Credit Default Swap is an event completely separate from the loan. Payment of the Swap is not "double payment", as Garfield has alleged. In fact, he ignores the VA case that set the standard.
HEY - WHAT ABOUT THE $85,000 CASH THAT WAS STOLEN FROM ME -- AND IN EXCHANGE ALL I GOT WAS A WORTHLESS TITLE ??? THAT IS CALLED ROBBERY. IF SOMEONE STOLE YOUR MONEY AND GAVE YOU A BAD BILL OF GOODS -- YOU ARE ASKING OTHERS TO COME HELP THE THIEVES KEEP STEALING??
WHAT IS WRONG WITH YOU? THERE ARE MILLIONS OF HOMEOWNERS LIKE ME WHO INVESTED IN THEIR HOMES -- AND ARE NOT SUBPRIME BORROWERS.
The banks screwed up the land records but no way is the person living in the house going to make out. Only the gov't or the banks. Screw the people!
The "investors" have gotten theirs brother, believe it.
I had also never considered the point that if investor's unsecured claims in equity are covered by credit default swaps they will have no claim of damages. And if those credit default swaps are cashed in, the right people get hurt. It was those very credit default swaps that allowed banks to make more selling the loans to investors than they could off of maturing the loan.
It will be interesting to watch Ed DeMarco at FHFA try to establish standing by trotting his pig-in-a-poke into court instead of a title.
But, if one county, San Bernadino, can pull this off, as Ms Brown has described it, banks in every county would be scrambling to refinance at lower principal (and properly title it) rather than lose all equity claim to the existing mortgages.
Plus, even if we have to do this in hundreds of counties, that's a plus. It would redefine counties as communities of people instead of killing fields for Wall Street. And that, in the long run may be more important than what happens to the mortgages.
the feds president attorney general congress
are hyper active
in the protection racket
they know exactly what they are doing just lieing publicly
they will protect every crook fraudster till the end