There is a gargantuan storm brewing. The conditions were set for it with Congress' repeal of the Glass-Steagall Act in 1998, loosening restrictions on banks to sell securities and still lend money for consumers to buy homes.
In just 12 years these pressure fronts are about to erupt because of something as simple as how documents are notarized. I am reminded of the fact Timothy McVey was apprehended, not because he robbed a bank, but because the tags on his car were expired. One thing leads to another, and what unfolds is the discovery of something so fundamentally wrong that it can't be ignored.
Ever wonder why President Obama brought into the White House financial advisors who seemed to have come from the thick of financial practices we were trying to shed? That's because our home mortgage financial transactions and what happens to the paperwork after we sign it have become so complicated, it took people who knew the system to clip the right wires so the bomb didn't detonate.
I'm from Ohio, where home mortgage foreclosure rates remain among the highest in the nation. My parents grew up in a rural Ohio town so small that the town residents today still go to the post office for their mail. What I learned from my parents was to be honest and work hard. We were taught, like many others, to respect authority, play by the rules, only take what is yours, be kind, treat others with respect and stand up for what is right.
That's not what American consumers have gotten from today's lending industry. Since the repeal of Glass Steagall, the creation and trading of mortgage-backed securities have become a norm, enjoying less regulatory oversight than for traditional securities trading. Mortgages now became parts of "tranches," a French word for "pieces," that back securities sold. Mortgage notes, which must to be recorded to become a lien on real estate are now, through a sleight of hand, secondary to the interests of the mortgage backed securities traders with the advent of Mortgage Electronic Registration Services, Inc. (MERS) which facilitates trading without recording the changing ownership interests in mortgages. Local governments lose revenue from recording those changing interests, and the original note often becomes lost in the brisk shuffle of trading and reassigning them to various tranches that back purchases of them from all over the world.
Most mortgages are sold by the original lender within weeks of a home closing. The lender gets funds for selling the mortgage (often selling to taxpayer backed Fannie Mae or Freddie Mac) and is flush to lend again. If you play it out in your mind, you can see why the housing "bubble" that developed finally burst and is slow to come back -- more and more people were told they could afford homes they couldn't, and more and more people made money at each step of the way from the appraisal to the sale of a home to the sale of the mortgage to open trading of the mortgage as backing for a myriad of securities configurations.
What happens when the homeowner can't pay the mortgage anymore -- because of job loss, medical expenses or excessive credit card and other debt? Foreclosure. But in Ohio a court has to grant it. In a lawsuit for foreclosure, documents are presented to a court to decide if the homeowner is in default and by how much. The lawsuit is supposed to be brought by the person or institution who holds the note for the mortgage being foreclosed. If ownership of the note has passed through many hands, a "chain of title" must be established to prove that the person who claims rights to foreclose on the home is the person actually owed money on the mortgage. Once the court grants foreclosure, the court can then order sale of the home and eviction of its owners.
Under today's financial schemes, foreclosure documents are routinely created to demonstrate the transfer of the interest in the note so the right person brings the foreclosure lawsuit. In the case of Chase Home Finance, LLC, its Columbus, Ohio employee, Beth Cottrell, testified in her deposition that she helps create foreclosure documents by signing on behalf of the banks and financial institutions (including MERS) that have been involved. Then, a small group of notaries at Chase notarize her and others' signatures on various foreclosure documents (about 18,000 documents a month at Chase Home Finance, LLC).
While serving as a Chase Home Finance, LLC employee, Beth Cottrell's name has appeared in foreclosure affidavits from 2008 through 2010 in the Florida court system on documents showing mortgage amounts owed on behalf of Wells Fargo, U.S. Bank, Federal National Mortgage Association, HSBC, Deutsche Bank, People's Choice Home Loan, Wachovia and Citi, even though she was an employee of Chase Home Finance, LLC in Columbus.
In Ohio, I read two depositions of Beth Cottrell taken in Columbus, Ohio in May of this year, about a Florida foreclosure. I was frankly chagrined to read her description of the notary activity to process the 18,000 documents a month by the company she works for alone--using just eight notaries. In her deposition, Ms. Cottrell's stated that: no oath is administered for the signing of each document; notaries (not signers) are filling in numbers in the affidavits used in court ordered foreclosures; notarized documents are not verified by the person signing them, but rather, signers are relying on verification by others, and notaries know this at the time they notarize documents; and large numbers of documents are signed in bulk and notarized in bulk separately.
As Secretary of State of Ohio, I license Ohio's notaries. My state's notary laws, like those of many states, don't give me the tools to address the notary problems found in the changing circumstances in mortgage financing. In Ohio, even though I grant notary commissions, I don't have the power to investigate or prosecute when there is suspected wrongdoing. That's why I asked the Department of Justice to review and investigate.
The seal, date and signature of a notary public are there to bolster the reliability and integrity of a document, especially one that allows a court to order the taking of someone's home. In the situations I have brought to the DOJ's attention, something is clearly amiss.
Corporations, like consumers, must follow the same rules for transferring property as we would if we sold our house to our child or neighbor. The notary process is necessary in preparing the documents required to foreclose. The notary process must not be abused or bypassed when convincing a court to foreclose on a mortgage, evict its inhabitants and sell their home so that someone can recover money at the end of a long transaction of securities trading.
This is beginning to look like a storm that blew right into Oz.
Just as it took a dog named "Toto" to pull back the curtain to see what was being perpetrated on Oz, maybe what some consider a minor detail, like notarizing documents as the law requires, will help the Dorothy's of this day and age have a home to go to.