By Mark L. Taylor
Daily Call (12/27/11)
First of all, I need to say I am no real estate law expert and I profess no greater knowledge about foreclosures and the intricacies of property law than I do about molecular biology. But I came across something that just seems too big to not pass along to Daily Call readers; especially those facing foreclosure, but, really, anyone with a mortgage.
The January 2012 issue of Harper’s Magazine features a cover story by Christopher Ketchum entitled “Stop Payment! A Homeowners’ Revolt Against the Banks” (pp. 28-36). Ketchum writes about what appears to be a fatal corporate depth charge that was planted deeply in the American real estate system back in 1995 to make the slicing, dicing, transfer and casino swap derivatives market that took the economy down possible. In the process, it appears, the basic system of trust, tradition and legal assurance tying property deeds and mortgages together may have been completely shattered.
You could diligently make house payments for 30 years only to find that because there is no clear legal tie between the mortgage and the deed that you have instead been paying rent for 30 years and do not own your home.
In other words, banks trying to foreclose may not be able to produce the paper needed to show they indeed own the deed (thus standing in court). There have been scattered examples of foreclosed homeowners beating back the banks, winning in court and being able to stay in their homes because of this. There may be many more that have accepted settlement with non-disclosure agreements that nobody knows about.
When your mortgage payment is nothing but rent
But here is another big boot in this mess just waiting to drop: there is a possibility you could diligently make house payments for 30 years only to find that because there is no clear legal tie between the mortgage and the deed that you have instead been paying rent for 30 years and do not own your home. In fact, another financial institution you never heard of could show up and claim they hold the deed and demand payment.
Unfortunately, the only way you can read Harper’s online is to have a subscription, thus, I am doing this summary. You need to read the original story to get the full picture of what the article is reporting.
Please forward this on to anyone you know going through foreclosure so they can check out the source article. And actually, if you have a mortgage – even if you have no trouble making the payments – I urge you to check out the original article at your local library.
If you know an attorney – especially a real estate attorney – please let them know about this as some lawyers are having real success suing the banks on this issue and saving families on the brink.
The cancer in the system
The nexus of this potential disaster is something called the Mortgage Electronic Registration Systems (MERS) which, Ketchum describes, is “a privately held venture of the major mortgage-finance operators”. Both the privately owned corporations and the federal Fannie Mae and Freddie Mac were central to the formation of MERS. While it is complicated, MERS was essentially designed as an electronic stand-in for financial institutions busy splitting up, repackaging and selling off mortgages multiple times; often to foreign banks.
“By the end of 2002, MERS was registering itself as the owner of 21,000 loans every day. Five years later, at the peak of the housing bubble, MERS registered some two thirds of all home loans in the United States,” Ketcham reports, noting, “Without the efficiencies of MERS there probably would never have been a mortgage-finance bubble.”
Instead of your bank or mortgage company, MERS was listed as the “mortgagee of record” – basically a cardboard front man for a legal entity that may or, often, may not exist. MERS made the overheated fraudulent real estate bubble possible by separating the mortgage from the deed. After the collapse MERS came under long-needed legal review.
Real estate law experts have described MERS colorfully, using such terms as “economic HIV”, “bank-eating cancer” and the “scam from hell”. Others have described it more simply as “fraud” and “fraudulent”.
Courts take a close look
In 2009, the Kansas Supreme Court ruled against MERS in Landmark National Bank v. Boyd A Kesler, ruling, essentially, that MERS was against state law because it broke mortgage contracts by splitting the deed of trust from the promissory note; it wasn’t okay, the court ruled, for MERS to be a paper front man after all.
Echoing an earlier California district court ruling, the Kansas justices noted: “There is no evidence of record that establishes that MERS either held the promissory note or was given the authority [to] assign the note.”
Similar cases are now in progress in Idaho, Massachusetts, Missouri, Nevada, New York, Utah, Delaware and other states as a growing number of attorneys are exploring the legal potential of MERS cases.
There have even been cases of homeowners who are having no problems paying their MERS mortgages but recognize the risk that they may well never be able to own the homes they have honestly paid for initiating action and earning quiet claims to their property free and clear.
Not only are homeowners at risk, but pension funds, insurance companies, municipal and state governments may have actually been duped into investing billions – perhaps trillions – into completely empty investment instruments.
To say the least, we are talking cold, calculated fraud and let’s once and for all bury that whole Rush Limbaugh Republican argument about poor people getting mortgages being the cause of the real estate collapse. The real estate market collapsed and families lost their wealth because of corporate deception and fraud.
Where to go & what to do
There is more to the Harper’s story and the long-range, inter-connecting lines of legal and economic risk of MERS are yet to be fully identified.
You can check out the National Homeowners Cooperative/Protect America’s Dream website for information and contacts. Note, you need to have a membership for a lot of their information: http://www.foreclosurehamlet.org/profiles/blogs/from-protect-americas-dream
Here are a few other things you can do:
- Read the full Harper’s 1/2012 article.
- Forward this Daily Call article to anyone you know facing foreclosure.
- Check your own mortgage to see if MERS is mentioned.
- Forward this article to any lawyers you know.
- If you are buying property check the paperwork for MERS and ask lots of questions. It would be a good idea to consult with a real estate attorney about any potential risk.
- Let the Daily Call know if you find out more about MERS and we’ll forward the information to our readers.