Fixing the Mortgage Mess: The Game-changing Implications of Bain v. MERS

Two landmark developments on August 16th give momentum to the growing interest of cities and counties in addressing the mortgage crisis using eminent domain:

(1) The Washington State Supreme Court held in Bain v. MERS, et al., that an electronic database called Mortgage Electronic Registration Systems (MERS) is not a “beneficiary” entitled to foreclose under a deed of trust; and

(2) San Bernardino County, California, passed a resolution to consider plans to use eminent domain to address the glut of underwater borrowers by purchasing and refinancing their loans. 

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 trial 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 August 16th 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 August 15th, 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 August 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.


Ellen Brown is an attorney and president of the Public Banking Institute,  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 and

20 Responses

  1. While banks and investors were busy counting their profits behind the curtain of MERS, homeowners and counties have been made to bear the losses.

    telling twitter folks

  2. However then the counties and government are emineint domaining homes owned out right by the homeowners that by laws own the house for free. This will cause litigation with the government. They are attempting to steal houses for free now.

  3. […] Read on. Share this:TwitterFacebookLike this:LikeBe the first to like this. This entry was posted in Uncategorized and tagged eminent domain, foreclosure, MERS. Bookmark the permalink. ← Bankster of the week: Capital One […]

  4. When the note is void, the debt is no longer against the house. As this artilce states their is no one to prove whom owns the note. With the note debt not secured to the house, the house being taken by eminent domaine looks to me that the property is being unlawfully seized by the the government when the property has no debt against it. No one taht can come after the homeowner for any part of the alleged debt. Therefore out right theft of the homeowners property the homeowner owns outright by the rule of law, by PSA void, by no fault of their own. Emenent domain due to the government does not want the homeowners to have a windfall. Unconstitutional law is what that is.

    • An interesting observation, and I’ve been wondering about this myself. Methinks that forgiving the debt entirely, would be too big of a windfall to the homeowners for “creditors” to swallow without tying up the courts for another 20 years. It may not be to the letter of the law, (although I’m no lawyer, so take my opinion as just that), but in some sense the solution Ellen suggests here may be the most fair, and may get the housing market back on some semblance of a track to recovery in a better time frame than anything else I’ve heard of so far.

      • Dont you think homeowners that have a house paid for will sell some of the homes after quiet title or start spending money to repair or up date it and start the economy rolling also. Once the homeowners know they have a house paid for they will start to spend money on the houses quiet title them for loans or selling. The smart ones will not do any other above. But a lot will. People with securitie and a roof above their heads will start to spend money.
        The courts quiet titling the houses will clear up the clouded titles. Beside by the rule of law the notes are void and the house and property has no debt against it It belongs to the homeowner that did not cause this mess. Our government has allowed this mess and deregualted banks. The banks have caused this mess. Homeowners and their familiies have suffered and committed suicide, Two people I know are living in their semi truck and a car with teenagers. These people have suffered violations of CPA law and FDCPA law and Deed of Trust law and income loss due to the bank crimes. The law should not be made up as the banks and government wish to steal. The laws are there to protec the homeowners. The government is trying to change the law to seize the houses. Or to get around the MERS and RECONTRUST decision. That is flat out wrong.

      • Shelley A. Erickson on August 22, 2012 at 4:51 pm said:

        This makes no sense. If the government wants to seize the mortgages, they need to seize the notes! There are no notes which means their are no mortgages. The house and property belongs to the homeowners harmed by all this fraud. What so you think a mortgage is? A piece of paper a note and deed of trust you are suppose to burn when paid off. Not the property and house. Let the government try to find those notes no one else has.
        It is less than fair to make plans to siez someones property their is no note found to prove a mortgage exhist. This is flat out stealing of property. This is noones choice to make. Washington people need to read the WA Castle law.

  5. Reblogged this on Deadly Clear and commented:
    “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.” This makes much more sense and would allow the lost state pension and trust funds to be replenished. Meanwhile, if the current administration were smart – they’d call a moratorium to foreclosures, evictions and deficiencies and investigate the massive amounts of bank frauds against the homeowners and enable the municipalities to get organized.

    • How can the government possible sieze mortgages that dont exhist? The government is admitting the notes are no good. Isn’t the note the mortgage? There is no provable mortgage. That is why the government says they can get the properties for free. I dont see that they can without seizing property that has no mortgage on it. This means the property is not under water. This means there is no provable note on the property. This means the homeowner has no debt against the house they can prove. I dont understand how the government can sieze it unless it is abandoned by the homeowner. Theln it still belongs to the homeowner unless they dont pay taxes on it for several years or abandoning the property is covered by some statute that allows the seizure.

  6. The banksters were attempting to steal the property claiming it was secured by the note. Since the note is null and void, there is no debt against the house. The house can not be taken as security for the note that is void. The cities should be going after the note not the house. They have no right either way. There is no proof of money owed. Where is the proof of the debt against the house? Emenient domain is seizure of property they have no right to sieze. The house is not underwater, the note is dead! The house has no proven debt secured by the house. The note that no one can find is unsecured. There is no alleged debt on the house. The house is above water!!!! Did they forget the note is missing? The houses belong to the homeowenr.

  7. Here is a legal argument for ED. If the title chain is broken and the actual owner of the property cannot be determined, then who pays the property taxes? If no property taxes are being paid then the state has a vested interest in seizing the property under ED and reissuing a mortgage on the house via a local public bank so that SOMEONE can pay property taxes on it.

    What kills me though is the giant mess the banks created with CDS’s and CDO’s in an attempt to abstract the risk away from the loan, They made their bed, let them lie in it. First these bankers want “bailouts” and now they want the houses too??? If they were “bailed out”, then were they not made whole Why should they be able to then keep the titles to properties the loans on which were paid via the bailouts? Wasn’t the whole idea of these “bailouts” to be a vehicle for clearing out the toxic debt so that the houses could be resold at some point?

    The whole thing IS “complicated”…and that is putting it in it’s mildest context. The truth is that most of the tactics of the finance industry should be crimes…but they aren’t because of our bought and paid for government officials, paid NOT to do their jobs! They kill Glass-Steagall, create fraudulent financial instruments as a result and trade them in the QUADRILLIONS, get trillions in bailouts after the financial collapse THEY caused, and now they want the properties after the bailout?

    It’s really insane what is going on.

    • It is my belief that any one can purchase the house and property if the taxes are not paid for three years. But not for a year. Property owners must keep their taxes up or at least not allow them to get more than two years behind.

  8. I think where the flaw in the observations lie with the property, land, versus the house itself. The land is leased by the person occupying the land through property tax, so in essence the City of SB would be taking back its land, and the house would simply come with it. The ED is about taking the land, not the house or building on it – you can take that with you if they ED it, so they’ll be free to do this anyway. The issue is what happens to the debt owed on it, can they take it back without compensation to the bank. They should be able to “lawfully” do that without issue, but….

    As for the note issues, real, magna carta law was eliminated 100 years ago, we live under mafia law now. While “no note = no contract,” is magna carta approved and even common sense, this isn’t possible anymore because there is no person to hold accountable, as “citi bank” owns the note not Mr. Jones. In fact, one cannot contract with a fictional entity by law, to prevent such nonsense from happening, but that too was replaced by mafia law. In reality it means all the bank contracts are void by common law common sense.

    We have a convergence of awfulness, unlawful contracts covered up by unlawful actions, that, in order to work for the companies that created them, they must not accept lawful covenants, instead they must rely on mafia tactics, obfuscation and congressional laws. common law fixes the problem over night, but this will take come mutation of mafia law that pleases everyone but the end user.

  9. I am not a lawyer just giving info to digest and take to your attorney, The land owners need to look at more law to protect their property rights. Not paying their taxes for three years is a problem for them. That needs to be kept under a two year window at least. The third year allows anyone that pays the taxes to take the house.
    look up

    The LIBOR scandal voids and breaches the contract at inception. The interest rate being rigged at inception of the contract.

    The void PSA never being transferred timely voids and breaches the contract at inception.

    The concealed fraud of the intentions of the contract without disclosure of the manufactured default, disclosure of the real lender and multiple disclosures not disclosed to the homeowner at inception breaches the contract at inception.

    Also look up the Castle law in your state and Adverse possession

    The homeowner has the right to protect their property from unlawful siezure and theives.

  10. freedom vrs enslavement to the people who printed up on average 38 debt dollars that competed equally with every dollar of savings and bid prices high enough to require enslavement…

  11. Very few people appear on TV news shows to discuss how to reform the banking system. The TBTF Banks have such a stranglehold on our economy, and limitless funds to stop people from presenting alternatives to their behemoth private banks. They have locked up the competition. These banks keep hoarding their money, and do not condescend to invest in their comunities. They are banks for the 1%, by the 1%, and of the 1%. We can break them up, fine them, and regulate them, but what’ a couple of million dollars to Goldman? That’s hardly incentive to not go back and continue business as usual – ripping people off.
    On the other hand, we could have public state, county, city, and municipal local banks set up for the 99%. They would probably work like the Bank of North Dakota. We could move our money from Wall Street banks into our own publicly owned banks, which could then generate credit for the local economy and public works. It could even generate jobs.
    Ellen Brown is a financial expert who can clearly articulate how this can be done to help find solutions for one of our biggest problems – the Vampire Squids that Matt Taibbi writes about, the mafia bank casinos that take our money and gamble with it here and there and overseas, instead of helping our economy, and the Banks behind the MERS debacle.
    We enjoy seeing real experts proposing their ideas on fixing the banking crisis, not with bandaid solutions, but with real reform.

  12. Justaluckyfool is neither lawyer,or economist,just a fool who believes that ..”***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC), Hindu Prince, founder of Buddhism
    How does a government fund, “a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”” at the same time reduce personal income taxes to zero ?
    How does a government terminate its contract with the for profit banks and start on the road to properity?
    If we were to take some advice from Frederick Soddy we might just perhaps find a solution.
    From Wikipedia, the free encyclopedia…..Frederick Soddy
    “…In four books written from 1921 to 1934, Soddy carried on a “quixotic campaign for a radical restructuring of global monetary relationships”, offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”. While most of his proposals – “to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”. Soddy wrote that financial debts grew exponentially at compound interest …

    Justaluckyfool asks “…while most of his proposals are now conventional practice…”, why is he ignored? Is the world really flat, does the Sun revolve around the world, are banks solvent ? ?

    Please,please read: “Don’t End The Fed, Amend the Fed” by “JUSTALUCKYFOOL” (Google-justaluckyfool)
    Read More:
    Read what William Black has to say about banks and Michael Hudson about compound interest (excerpts are in the article).
    An explanation of where we went wrong with a solution to how we can fix it.
    Challenge it.
    Improve it.

    Ellen Brown, you may find some answers to your questions.
    And THANK YOU for your attempts “after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”-

  13. A great way to solve the MERS and mortgage mess is suggested in this article by Ellen Brown: setting up county land banks.
    Using county land banks, we can eliminate the private middlemen (all the corrupt banks and companies now involved) and we can target “properties with MERS in the chain of title (underwater, foreclosed or abandoned)”…The next step: the county bank puts a notice in a local newspaper of it’s intent to exercise its right of eminent domain. That would resolve the funding problem, and use this powerful right to help people, instead of forcing people out of their homes.

  14. COUNTY LAND BANKS- another type of bank that the behemoth TBTF banks don’t want you to know about.

  15. As I remember right their was this thing called TARP where they looted our treasury for the banks if my mortgage is under mers and they can’t find an owner of especially after 3 years of begging the bank to get me off an interest only loan. Isn’t about time someone speak up for me. Note is void it’s my house. And let’s get back on fixing American jobs. Thx

Leave a Reply to Calvin Leman (@CalvinLeman) Cancel reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: