An electronic database called MERS has created defects in the chain of title to over half the homes in America. Counties have been cheated out of millions of dollars in recording fees, and their title records are in hopeless disarray. Meanwhile, foreclosed and abandoned homes are blighting neighborhoods. Straightening out the records and restoring the homes to occupancy is clearly in the public interest, and the burden is on local government to do it. But how? New legal developments are presenting some innovative alternatives.
John O’Brien is Register of Deeds for Southern Essex County, Massachusetts. He calls his land registry a “crime scene.” He is mad as hell and he isn’t going to take it anymore. A formal forensic audit of the properties for which he is responsible found that:
• Only 16% of the mortgage assignments were valid.
• 27% of the invalid assignments were fraudulent, 35% were “robo-signed,” and 10% violated the Massachusetts Mortgage Fraud Statute.
• The identity of financial institutions that are current owners of the mortgages could be determined for only 287 out of 473 (60%).
• There were 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership could be traced.
At the root of the problem is that title has been recorded in the name of a private entity called Mortgage Electronic Registration Systems (MERS). MERS is a mere place holder for the true owners, a faceless, changing pool of investors owning indeterminate portions of sliced and diced, securitized properties. Their identities have been so well hidden that their claims to title are now in doubt. According to the auditor:
What this means is that . . . the institutions, including many pension funds, that purchased these mortgages don’t actually own them . . . .
The March of the AGs
When Massachusetts Attorney General Martha Coakley went to court in December against MERS and five major banks—Bank of America Corp., JPMorgan Chase, Wells Fargo, Citigroup, and GMAC—John O’Brien said he was thrilled. Coakley says the banks have “undermined our public land record system through the use of MERS.”
Other attorneys general are also bringing lawsuits. Delaware Attorney General Beau Biden is going after MERS in a suit seeking $10,000 per violation. “Since at least the 1600s,” he says, “real property rights have been a cornerstone of our society. MERS has raised serious questions about who owns what in America.”
Biden’s lawsuit alleges that MERS violated Delaware’s Deceptive Trade Practices Act by:
- Hiding the true mortgage owner and removing that information from the public land records.
- Creating a systemically important, yet inherently unreliable, mortgage database that created confusion and inappropriate assignments and foreclosures of mortgages.
- Operating MERS through its members’ employees, whom MERS confusingly appoints as its corporate officers so that they may act on MERS’ behalf.
- Failing to ensure the proper transfer of mortgage loan documentation to the securitization trusts, which may have resulted in the failure of securitizations to own the loans upon which they claimed to foreclose.
Legally, this last 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. Mortgage-backed securities are sold to investors in packages representing interests in trusts called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, 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.
Courts Are Taking Notice
The title issues are so complicated that judges themselves have been slow to catch on, but they are increasingly waking up and taking notice. In some cases, the judge is not even waiting for the borrowers to raise lack of standing as a defense. In two cases decided in New York in December, the banks lost although their motions were either unopposed or the homeowner did not show up, and in one there was actually a default. No matter, said the court; the bank simply did not have standing to foreclose.
Failure to comply with the terms of the loan documents can make an even stronger case for dismissal. In Horace vs. LaSalle, Circuit Court of Russell County, Alabama, 57-CV-2008-000362.00 (March 30, 2011), the court permanently enjoined the bank (now part of Bank of America) from foreclosing on the plaintiff’s home, stating:
[T]he court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with New York Law in attempting to obtain assignment of plaintiff Horace’s note and mortgage. . . .
[P]laintiff’s motion for summary judgment is granted to the extent that defendant trust . . . is permanently enjoined from foreclosing on the property . . . .
Relief for Counties: Land Banks and Eminent Domain
The legal tide is turning against MERS and the banks, giving rise to some interesting possibilities for relief at the county level. Local governments have the power of eminent domain: they can seize real or personal property if (a) they can show that doing so is in the public interest, and (b) the owner is compensated at fair market value.
The public interest part is obvious enough. In a 20-page booklet titled “Revitalizing Foreclosed Properties with Land Banks,” the U.S. Department of Housing and Urban Development (HUD) observes:
The volume of foreclosures has become a significant problem, not only to local economies, but also to the aesthetics of neighborhoods and property values therein. At the same time, middle- to low income families continue to be priced out of the housing market while suitable housing units remain vacant.
The booklet goes on to describe an alternative being pursued by some communities:
To ameliorate the negative effects of foreclosures, some communities are creating public entities — known as land banks — to return these properties to productive reuse while simultaneously addressing the need for affordable housing.
States named as adopting land bank legislation include Michigan, Ohio, Missouri, Georgia, Indiana, Texas, Kentucky, and Maryland. HUD notes that the federal government encourages and supports these efforts. But states can still face obstacles to acquiring and restoring the properties, including a lack of funds and difficulties clearing title.
Both of these obstacles might be overcome by focusing on abandoned and foreclosed properties for which the chain of title has been broken, either by MERS or by failure to transfer the promissory note according to the terms of the trust indenture. These homes could be acquired by eminent domain both free of cost and free of adverse claims to title. The county would simply need to give notice in the local newspaper of an intent to exercise its right of eminent domain. The burden of proof would then transfer to the bank or trust claiming title. If the claimant could not prove title, the county would take the property, clear title, and either work out a fair settlement with the occupants or restore the home for rent or sale.
Even if the properties are acquired without charge, however, counties might lack the funds to restore them. Additional funds could be had by establishing a public bank that serves more functions than just those of a land bank. In a series titled “A Solution to the Foreclosure Crisis,” Michael Sauvante of the National Commonwealth Group suggests that properties obtained by eminent domain can be used as part of the capital base for a chartered, publicly-owned bank, on the model of the state-owned Bank of North Dakota. The county could deposit its revenues into this bank and use its capital and deposits to generate credit, as all chartered banks are empowered to do. This credit could then be used not just to finance property redevelopment but for other county needs, again on the model of the Bank of North Dakota. For a fuller discussion of publicly-owned banks, see http://PublicBankingInstitute.org.
Sauvante adds that the use of eminent domain is often viewed negatively by homeowners. To overcome this prejudice, the county could exercise eminent domain on the mortgage contract rather than on title to the property. (The power of eminent domain applies both to real and to personal property rights.) Title would then remain with the homeowner. The county would just have a secured interest in the property, putting it in the shoes of the bank. It could then renegotiate reasonable terms with the homeowner, something banks have been either unwilling or unable to do. They have to get all the investor-owners to agree, a difficult task; and they have little incentive to negotiate when they can make more money on fees and credit default swaps on contracts that go into default.
Settling with the Investors
What about the rights of the investors who bought the securities allegedly backed by the foreclosed homes? The banks selling these collateralized debt obligations represented that they were protected with credit default swaps. The investors’ remedy is against the counterparties to those bets—or against the banks that sold them a bill of goods.
Foreclosure defense attorney Neil Garfield says the investors are unlikely to recover on abandoned and foreclosed properties in any case. Banks and servicers can earn more when the homes are bulldozed—something that is happening in some counties—than from a sale or workout at a loss. Not only is more earned on credit default swaps and fees, but bulldozed homes tell no tales. Garfield maintains that fully a third of the investors’ money has gone into middleman profits rather than into real estate purchases. “With a complete loss no one asks for an accounting.”
Not only homes and neighborhoods but 400 years of property law are being destroyed by banker and investor greed. As Barry Ritholtz observes, the ability of a property owner to confidently convey his property is a bedrock of our society. Bailing out reckless financiers and refusing to hold them accountable has led to a fundamental breakdown in the role of government and the court system. This can be righted only by holding the 1% to the same set of laws as are applied to the 99%. Those laws include that a contract for the sale of real estate must be in writing signed by seller and buyer; that an assignment must bear the signatures required by local law; and that forging signatures gives rise to an actionable claim for fraud.
The neoliberal model that says banks can govern themselves has failed. It is up to county governments to restore the rule of law and repair the economic distress wrought behind the smokescreen of MERS. New tools at the county’s disposal—including eminent domain, land banks, and publicly-owned banks—can facilitate this local rebirth.
_____________
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.
Filed under: Ellen Brown Articles/Commentary |
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Ellen Brown has shown in her books and articles several excellent reasons for creating public or state banks modeled on the Bank of North Dakota. The creation of state banks would help us solve many problems the economy and the health of this country are facing.
I am already convinced that the establishment of public banks could help our economy with creating jobs, infrastructure projects, paying back student loans, providing disaster relief funds, and now mortgage relief. What a blessing if each state or county had a bank like BND.
In this article, Ellen makes a good case for state banks helping to disentangle the foreclosure crisis. I did not know that “some communities are creating public entities — known as land banks — to return these properties to productive reuse while simultaneously addressing the need for affordable housing.” This is great news. A county just has to put a notice in the local newspaper of its intention to exercise its right of eminent domain! She goes on to say that “the burden of proof would then transfer to the bank or trust claiming title. If the claimant could not prove title, the county would take the property, clear title, and either work out a fair settlement with the occupants or restore the home for rent or sale…”
Here is where a state bank like BND would come in handy. Ellen quotes Michael Sauvante, who stated that “properties obtained by eminent domain can be used as part of the capital base for a chartered, publicly-owned bank, on the model of the state-owned Bank of North Dakota. The county could deposit its revenues into this bank and use its capital and deposits to generate credit, as all chartered banks are empowered to do. This credit could then be used not just to finance property redevelopment but for other county needs, again on the model of the Bank of North Dakota… see http://PublicBankingInstitute.org”
Ellen Brown is a wonderful writer, and she plants seeds of very useful and creative ideas for fixing this broken system. I am not a lawyer, nor an expert in banking, finance, or eminent domain, but I can see that we now have the tools to provide some competition for the banks that are now controlling everything
Here is what my friend says about these “land banks” and “land trusts”.
“This is a financing scam. This scheme represents the abolition of private property more thoroughly than I have yet seen. This is because:
A. The homeowner does not own the property;
B. The owner, a land trust, is a public private partner, (fascist operator)
1. Who can over time impose any kind of requirement on the occupant,
2. Who will enjoy massive, publicly paid benefits resulting from the construction of these units at non market conditions and,
3. The land trust is the owner of these houses, not the occupant. The owner will not obtain the economic benefits of real ownership. This system serves the interest of political powers working under a new system of property. Under affordable housing rules as the property’s sale value will be controlled by government.
The current financial meltdown has been attributed to the financing that accompanies this type of product. The fact that federal money is not involved is irrelevant. The loans are sold into the market and the defaults begin – then the feds bail out the big money interests. Exposure of the scam poses an opportunity to expose the land trust and the housing authority for the schemes they are perpetrating. This kind of financing is designed to serve a society where ordinary people are serfs willing do the bidding of a controlling elite. Further study of the specifics and generating public inquiry seems only reasonable. ”
I would say people ought to be extremely wary of signing on the dotted line on these schemes. It is not true private property ownership.
I posted I think on this article about a week ago and now I see where my posting is “missing in action.”
I don’t think your friend understands Ellen’s Land Banks and Eminent Domain argument at all or your friend is talking about something else entirely. If a county/land bank uses eminent domain on the mortgage itself, then upon acquiring the mortgage by eminent domain it now takes the mortgage rights not the title to the property.
The title remains in the homeowner’s name and the homeowner would have a new mortgage owner with the capability of reworking the loan.
To receive responses.
We finally have a constitutional grassroots means of fighting, through eminent domain and land banks, the bankster ochestrated theft of our property and infrastructure,
I know why the establishment left and right canidates aren’t discussing and promoting this solution but why isn’t Ron Paul? Apparently he doesn’t need to be on banker payroll to side with the them. For the austrian school, it a matter of principle that the crimes of the elite should be overwhelmingly born by the poor via deregulated free (rigged) markets. Instead of following Iceland’s example to renounce a fraudulent debt and banking system outright, he proposes: renewed tax breaks for the 1%, vicious cuts in life sustaining entitlement programs, a mere audit of the Fed, and to put the country on a gold standard. Of all the criticisms you hear hurled at Ron Paul by the 1% financed media, none are amongst the forgoing. The reason is clear, they want these things too.
It won’t be until the summer months when we find a true third party canidate. I don’t see anyone like Kucinch getting the nod on the left. Still2012.com
Ellen,
I have taken the liberty to post this idea at nycga.net
It would be good to have you comment and participate in the discussion
My house was country wide now bank of America and I tried to get mod with them directly they played games so I hired a attorney which is a joke. They responded to my foreclosure within the time Frame they requested foreclosure to be dismissed it was denied so they requested discovery but because BOA atty was sterns and they were under investigation in 2010 my arty never got it then new atty took over beginning in 2011 but still nothing and my atty didn’t file nothing as of 12-19-2011 the atty finally requested extended time to produce discovery but now I’m 36k past due and I don’t know what’s gonna happen. I don’t have the money to hire a different atty as it is KEL charges me every yr for renewal which is 2000 for the yr and every other atty I have looked into is 3500- 5500 a yr & some are 500-1000 a month! I can’t afford that when there is no guarantee I’ll get to keep my house! My little boys say mommy I don’t want to leave my house, they here us talking about what might happen. It makes me cry because I bought this house for them to grow up in and have roots here not to be bounced around. Does anyone out there have any suggestions for me?
I feel sorry for you. And I wish our nation’s economic and monetary systems change for the better so debt is no longer necessary. The best advice I can give (note: I am NOT a lawyer) is to put the banks on trail at your bankruptcy hearings. Demand proof that Bank of America rightfully holds your note and mortgage (both documents), double-check that all transfers were properly recorded at your county records department (this should be freely available to the public if you go in person). If there are any discrepancies between the public record of mortgage and note holdings versus what BofA is claiming in court – use it to demand dismissal of the foreclosure.
Read Ellen’s book “Web of Debt” and learn how our monetary system requires debt and they way things are run some portion of the population MUST default because there simply is not enough money for everyone to repay all their debts! Then use that argument in attacking the whole banking industry in court. Here are two links to an example that actually worked back in 1969.
Office documents: http://www.lawlibrary.state.mn.us/CreditRiver/CreditRiver.html
Easier to read summary from a debt resolution/credit repair firm: http://educationcenter2000.com/legal/credit_river_decision.htm
Ask your attorny to help you use these arguments.
It’s a good article, but in order for eminent domain to be really effective, there’s one other component that’s missing here: dedicated taxation.
Governments could tax enterprises and other assets precisely in order to exercise eminent domain with regards to bringing them over time into public ownership.
Ellen Brown is an attorney and the fact that she would propose such a plan leads me to believe that it will be workable under existing real estate and other pertinent law.
Understanding as I do the housing and economic crisis which has America in its grip, I offer my enthusiastic support for the concept of turning what appears to be total disaster into an opportunity for long needed reform.
This opportunity has been made possible in part because Wall Street Bankers in their haste to plunder the American Dream have set their own trap by trying to circumvent laws which govern real estate transactions. Not too smart I’d say and now it is time for them to pay the price of their greed and stupidity.
If a property has been foreclosed upon or abandoned, everybody in the community suffers. Because the County depends upon property taxes to provide essential services, wouldn’t it seem natural that the County has a duty to do something to remedy the situation? Then why not eminent domain and a workout which benefits the entire community?
People have been led to believe that government – all government- is going to be corrupt and cannot be trusted. Self-government means capable and honest people need to step up and participate or the system of it will assuredly be taken over by the incompetent and dishonest.
People who believe that no government can be trusted are lazy and are shirking personal responsibility. These slackers would abandon our fate to the rich elite who secretly support Ron Paul because he never talks about the need for public banking. Watch out for Ron Paul.
Ron Paul fans, desperate for an alternative to the obvious criminals now in charge, are buying into the phony Austrian School Libertarian philosophy which ultimately serves the rich elite at the expense of the other 99.99 percent . As the article points out: “The neoliberal model that says banks can govern themselves has failed.” Put the Federal Reserve on the gold standard as advocated by Mr. Paul and it is still the private Federal Reserve run by global criminals (flush with gold by the way) who have destroyed US sovereignty.
Somebody has commented about the rights of the property owners. Absolutely the rights of the rightful owners and the occupants must be protected. The goal after all is to save those 400 years of property law which are being destroyed!
Ellen Brown’s plan holds the promise of empowering regular Americans by giving them, through their representative local governments, the sovereign power of a money system which serves their interests instead of those of the private and corrupt globalist bankers.
After all, isn’t or shouldn’t the purpose of money be to allow people and businesses to prosper? Shouldn’t we expect our money system to work for the betterment of all- just like up there in North Dakota? A system of local public banks born out of the wreckage of private banks gone amuck and based upon the model of the successful Bank of North Dakota seems like a pretty good idea to me.
Hey. Read this and then shout I’m mad as hell and I won’t take it anymore! Then hold an Occupy neighborhood block party and invite the city and county heads to join in. Educate and motivate.
Let’s figure out something that works for we the people. Not the 1 percent.
[…] more from The Web of Debt Blog Tags: Housing | Innovation + Alternatives | Resource Ownership & Control […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
[…] Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.) […]
My home was sold at a foreclosure sale that I was never notified of even though my note specifically said I would get a notice of any sale via certified mail and the buyer was JP Morgan Chase the ones I was already making payments to for the home now it sits empty in the country grass as talk as 5 feet or more.
[…] Courts Are Taking Notice as outlined by Ellen Brown, Web of Debt in 2012: […]
[…] Courts Are Taking Notice as outlined by Ellen Brown, Web of Debt in 2012: […]