The financial juggling that helped cause the 2008 crisis may be coming back to haunt banks—and help homeowners.

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18 Responses

  1. Most (perhaps all) of my properties have mortgages where MERS is the “owner” of record. Yet I have never dealt with MERS – only with the mortgage company who originated the loan or the servicer or bank that has since taken on the servicing role or perhaps gained “ownership” of the note.

    What are the odds I could use this information to stop paying on the mortages yet defend myself from foreclosure in Minnesota?

  2. Not good odds, Zarepheth.

    Ellen has said often enough that securitization is an important part of the credit creation process because it allows banks to sell their old paper, free up their capital, and go write new loans. The contraction of credit has much to do with the collapse of the secondary mortgage market. Trust in MBS was betrayed by the thieves who wrote bad paper.

    The response to the crisis has been to try to restore trust in the secondary mortgage market. The powers that be have no plan to get rid of securitization, or scale back the derivative market in any way.. This is, after all, the new financial frontier, the brave new world of financial “innovation”.

    The MERS apparatus was designed to facilitate securitization. It was designed poorly, resulting in this huge loophole, this defect in title. If anyone thinks 62 million homeowners are going to escape through this loophole, or even 1 million, think again.

    Our financial masters, who own the legal system, as with everything else, will close this loophole as quickly as it has revealed itself. There will be no debt forgiveness because this would lead to bank insolvency. They can’t even write down their bad debt, so they pretend toxic paper is wholesome, if they can’t sell it to the Fed. They sure aren’t going to write down good debt.

    This legal blooper is just false hope. “While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.” It’s hard to say what this new leverage might be when the loophole is closed. As there has been no fundamental change in the brave new world of derivative finance that created this crisis, there will be no significant change in the MERS framework because no one is acknowledging that securitization, and derivative finance itself, is a failure, and should be abolished. Not even Ellen Brown. The real, “classical” rules of finance will be changed to accommodate the failed new finance. When Obama hired on the guys who created this mess, the message was clear.

  3. […] under: Ellen Brown Articles/Commentary WEB OF DEBT BLOGVirg Bernero, the mayor of Lansing, Michigan, just won the Democratic nomination for governor of his […]

  4. What can be done?

  5. As a technicality, if the lenders screwed up and do not have title, then who does: can it be the occupants, even though they did not yet pay the house in full? If so, that would be no less of a moral hazard than letting MERS and the banks get away with their shoddy handiwork.

    • In many states, the borrowers purchased the property with the money lent to them by the banks, through MERS. The borrowers are therefore the “owners” of record. The mortgages are nothing more than liens against the property. Any defect in the lien could make the lien invalid, allowing the owner to petition the courts for its removal. After the lien is removed, they banks would hold a non-secured note and if they can’t prove ownership of the note, they cannot even force the borrowers to pay anything.

      Note: The above is all theory and I am NOT a lawyer.

      As for moral hazard from letting the borrowers walk away, scot-free and still owning the land, it may seem “wrong”, but the flip side is that the banking industry setup our economy to drive people to debt and then committed fraud to create the debt. Personally, I could go for a year of “jubilee” like described in the Bible’s old testement — immediately forgive ALL debts!

      • Hear Hear!

        Apparently, that’s what ancient Athens did when the society had ground to a halt because everyone was in debt to the banks. Things got so bad that the bankers, fearing revolution, turned power over to a poet. The poet forgave all debt, which allowed the development of the Greek culture we all know of.

        Stimulus, ha! The Catholics were on to something, forgiving all debt every 50 years for… how long? Over a thousand years they enforced that. I wish they stuck to it, and the criminalization of charging interest. The Jubilee seems pretty hollow now – the last one reminded me of Disney Land in some weird way.

      • global jubilee—-I call it glubilee

  6. There are several things that may happen. There is the “greater fool” approach. Naive buyers may purchase properties with weak deeds or even quit claim deeds. I have been told that the banks and GSEs are conveying on special warranty deeds covering only their periods of ownership. The title policies provided are aligned with the limited warranties made in the deeds.

    Another possibility is that if an owner finds that a property is not readily marketable due to a clouded title, the property may be used as a rental, the maintenance may be neglected, and the property taxes may go unpaid until such time that the property is sold at a tax lien auction. That would cure the deed after whatever applicable redemption period. The defaulting owner would receive any proceeds in excess of the tax claim and fees and expenses. It is a strange way to market a legally blighted asset, but it may be the most reasonable and effective way out.

    • That’s an innovative approach to clear the title. However, the defaulting owner stands a good chance of getting nothing after the sale. In at least one Minnesota county, the county took over seven years to start the foreclosure process on a property whose taxes had not been paid. Now, this seven year period allowed the taxes, along with penalties and interest on the unpaid taxes to reach the value of the lot itself, approximately $67,000.

      The only reason I know this, is that I bought the land and had to have the title company pay the county for all the taxes before handing a token amount over to the prior owner.

      So, neglecting the property could impose enough expense that the defaulting owner walks away with nothing. On the other hand, other jurisdictions might act sooner, limiting the total expenses and the defaulting owner may actually get something after the tax sale.

  7. Once both note and mortgage are correctly assigned to MERS, then only MERS has the legal right to foreclose correct ? Then if MERS sells that interest via securitization, I believe only the purchasing investor would have legal standing to foreclose. It seems like that would be difficult without unwinding the mbs. I’ve heard about the need to unwind cdo’s but I don’t know all the details.

    Incidentally, here is a nice link to a search of legal blogs which post about MERS.


  8. I dont think we have seen nothin yet.

    The guy who was laughed at while all this was happening was right all along. He actually called the market crash and the big run up on gold. What he says now is very interesting.

    Here is his latest cheeky show http://www.youtube.com/watch?v=yMCuSLqd0Gg

  9. FOX NEWS reports on MERS

  10. Update on my case:

    Ellen as you know, about a year and a half ago I filed a suit to clear the clouds on my title created by MERS and the original lender. The trial court dismissed my claim. The trial court held that I did not have a claim to clear title despite the fact that I do not owe a dime to either MERS or my original lender, the entities named in my Deed of Trust.

    I claim these entities , who are the only entities in my chain of title, are wrongfully clouding my title because liens are for the purpose of giving a lender a means of recouping unpaid debt. But I don’t owe these entities a dime. I may owe some other entity, but not the ones who have my liens. MERS and the original lender are proxy entities holding the liens for some other entity. I call this lien by proxy, and there is no such concept in the law.

    Oral argument is set for October 14 in the Tennessee Court of Appeals. Depending on how the court addresses the issues involved, my case could be quite precedent setting. The court could confirm, or imply that the liens are not valid.

    If anyone wishes to have a copy of my brief, email me at davidgmillsatty@gmail.com.

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