Goldman analysis: Thumbs Up for Health Insurance Companies

Maybe the fact that it came from Goldman will motivate some people to take a second look at where we are on health care. Goldman likes the two biggest health insurance companies because it says profits are going up due to lack of competition and lack of regulation. Like the foreclosure mess, the fact that this is further damaging what was once a healthy middle class doesn’t seem to enter the equation probably because Goldman has a proprietary interest in those companies.

The net result, if Goldman is right about the failure of health-care reform, is that premiums will continue to rise thus further reducing median income which in turn will further reduce housing prices. Fewer and fewer people will be able to afford anything close to reasonable coverage which now costs as much as $30,00 per year for a middle-aged couple. Bankruptcies resulting from medical bills — already at 50% of all bankruptcies — will continue to rise, as will defaults and foreclosures putting further pressure on housing prices. And, as we already know, a decrease in housing prices results in a failing economy. In the courtroom, we say that intent is determined by the result if it was reasonably foreseeable.

Don’t get me wrong. reasonable people can disagree on the issue. But the fact is that while companies in other countries have national health-care plans, some with private insurance companies that are strictly regulated, and some without any insurance companies, some with a mix of public and private, the U.S. has the worst of both worlds — unregulated insurance companies that do not provide a national system under which everyone is covered. The worst consequence is that we have the worst health outcomes and death rate compared to 36 other countries. So the cost factor of providing insurance keeps going up while the benefits are decreased here. Each U.S. company is subject either to lower profits because it does provide insurance to its workers or lower productivity because the good workers are going elsewhere. Only in America.

Between the insurance industry and banking flooding the state and national capitals with lobbyists there isn’t enough hotel space to put lobbyists for us ordinary folk.

March 6, 2010

Obama Wields Analysis of Insurers in Health Battle


WASHINGTON — To bolster the case for a far-reaching overhaul of the health care system, the Obama administration is seizing on a new analysis by Goldman Sachs, the New York investment bank, recommending that investors buy shares in two big insurance companies, the UnitedHealth Group and Cigna, because insurance rates are up sharply and competition is down.

White House officials on Saturday said that the Goldman Sachs analysis would be a “centerpiece” of their closing argument in the push for major health care legislation. The president and Democratic Congressional leaders are hoping to win passage of the legislation before the Easter recess. Republicans remain fiercely opposed to the bill.

The Goldman Sachs analysis shows that while insurers can be aggressive in raising prices, they also walk away from clients because competition in the industry is so weak, the White House said. And officials will point to a finding that rate increases ran as high as 50 percent, with most in “the low- to mid-teens” — far higher than overall inflation.

The analysis could be a powerful weapon for the White House because it offers evidence that an overhaul of the health care system is needed not only to help cover the millions of uninsured but to prevent soaring health care expenses from undermining the coverage that the majority of Americans already have through employers.

Republicans, however, could also point to the analysis as bolstering their contention that Democrats should be focused more on controlling costs and less on broadly expanding coverage to the uninsured.

The research brief is largely based on a recent conference call with Steve Lewis, an industry expert with Willis, a major insurance broker.

In the call, Mr. Lewis noted that “price competition is down from a year ago” and explained that his clients — mostly midsize employers seeking to buy health coverage for their employees — were facing a tough market, in which insurance carriers are increasingly willing to abandon existing customers to improve their profit margins.

“We feel this is the most challenging environment for us and our clients in my 20 years in the business,” Mr. Lewis said, according to a transcript included in the Goldman brief. “Not only is price competition down from a year ago,” he added, “but trend or (health care) inflation is also up and appears to be rising. The incumbent carriers seem more willing than ever to walk away from existing business resulting in some carrier changes.”

The report also indicated that employers are reducing benefit levels, in some cases by adding deductibles for prescription drug coverage in addition to co-payments, and raising other out-of-pocket costs for employees as a way of lowering the cost of insurance without increasing annual premiums and employee contributions to them.

Kathleen Sebelius, the secretary of health and human services, is expected to discuss the Goldman analysis on two Sunday television talk shows, “Meet the Press” on NBC and “This Week” on ABC.

In his call with Goldman, Mr. Lewis said beneficiaries were feeling the brunt of the changes to existing policies. “Visually to employees, they’re fairly significant,” he said.

But the report also sounded cautionary notes that the administration will probably not want to highlight.

Asked by Goldman analysts about the effort to pass major health care legislation, Mr. Lewis said many employers experiencing increases in their insurance costs were nonetheless apprehensive about the president’s proposal.

“They’re very mixed in their reaction, quite candidly consistent with what we’re seeing in the polling numbers by party lines,” Mr. Lewis said. “I think most people would acknowledge that there’s a need for health care reform; employers continue to be very frustrated. So when they look at what the Obama administration and the Democratic majority state as their goals to increase access and lower cost and rail at what may be termed oligopolistic behavior of carriers in certain markets, I think employers really buy in to that message and have much of that frustration and anger at our lack of solutions.”

And yet, he said, there is little enthusiastic support from employers for the Democrats’ proposals.

“Many of them still view the legislation and the partisanship coming out of Washington as possibly the medicine worse than the disease,” he said. “So many employer groups that we’re talking to feel like it would be a shame to lose an opportunity to do something with respect to health care reform. But many are starting to feel like maybe nothing is better than something in this current environment.”

9 Responses

  1. I am forever amazed that politician will often take a solution to a problem and make it as difficult to resolve as humanly possible. Case in point—UNIVERSAL HEALTHCARE,
    In 2009 I went to the town hall meeting on tje Democratic push for UNIVERSAL HEALTHCARE given by council women Dorothy Matsui. My very first meeting. I submitted my lottery ticket to speak and was suprised that I was picked. I spoke about Universal Healthcare and told her that I was not impressed by their cumbersome effort to create
    another program when we had a system already in place called MEDICARE. I then went on to give my solution which was simpler, and easier to pass using Medicare as the framework. She said she would raise the issue with her colleagues and that was the end of that. I received no feedback on my proposal. For what its worth, here is my solution that I proposed:

    I believe that Universal Healthcare can be the key to turning this economy around. I dont believe the way that they are doing it now is the pragmatic approach to solving the issue. I do not believe in the employer based funding method to pay for the program. I dont seE any productive outcome from creating a whole new program when we have medicare to use as a platform. Eliminate the age requirement in Medicare and fund it through a National Sales Tax(Consumption Tax). It is deficit neutral to the budget. It relieves the employer from a burden for which he divises methods to avoid providing healthcare such as having part time employees or outsourcing to another country. It would make business more competitive with business outside the country giving employers the incentive to employ in this country. Greater employment will support Social Security and Medicare. We could double the FICA deductions as well. 40% of the people in this country who have income do not pay income tax but they do pay sales tax. Drug dealers, prostitutes, illegal aliens and people on commission who under report their income would be paying for healthcare through a sales tax. This is simple and pragmatic.


    Reuben Nieves

  2. Drew

    Where do you find the Fannie Mae PSAs???? They are private entity – no luck so far.

  3. fwiw
    “Patrick Pulatie” of LFI –
    This is the group that did my forensic loan audit.
    They are worth checking out if you need an audit!

  4. PJ
    The Fannie Mae PSA differed with the terms of private securitization PSA’s. Since the PSA covered the transaction, those terms made significant differences across the board.

    Fannie Mae loans are easier to work with, if you understand the process and the HAMP guidelines.

  5. When dealing with these issues in litigation, watch out for the “phony affidavit.” What happens is that the attorneys for the pretender lenders (those bottom-feeders that are going around scooping up the “left-over Notes” after the credit-default swaps pay off the Notes) will need to set forth certain “facts,” or recitations, to the Court in order to advance their case. So their attorneys, sitting in your location, will generate an “affidavit” in blank, and put no one’s name on it, then ship it off for signing to the location of the servicer in some other State. You are tipped to this condition when the affidavit starts of with the first paragraph “I am over the age of 18 years and understand the obligations of an oath,” but there is no name attached to “I”.

    Then down at the end of the phony affidavit you have the signature line where it says: “signed by Select Portfolio Servicing, Inc, by: its vice president” and again there is no name on the document. And then scrawled on the signature line is somebody’s signature, but no lettering, so you never can establish who it really is.

    Now what has happened is that the attorneys have simply manufactured the affidavit, shipped it out to the outfit somewhere else, and said: “Go find someone in your organization who is dumb enough to sign it.” And, sure enough, somebody volunteers to be the “affiant.” But it is all a charade, as the affiant never sat down with the attorney to determine what would be averred; the signer is blindly signing what the atty wants.

    In a variation on this theme, the affidavit is shipped off to Select or their equivalent merely for the affixment of a notary stamp, and then the blank document comes back to New York for attachment of the signature. Either way, the whole thing is a fraud.

    Where you hit them for their full-frontal assault on the integrity of the Court is when the body of the affidavit contains blanks that have dates filled in by pen. Once you see that, be sure to check the dates against the signature date of the notary. I had an affidavit supposedly signed in Salt Lake City by Select that averred two dates in the body that were two and four days later than the date of the signing!!! So the “averrer” was swearing to events that had not yet taken place!!!

    If they are dumb enough to leave themselves wide open like that, then you have to really hammer the suckers on fraud on the court. The theory is “unclean hands.” The Supreme Court dealt with this in the landmark case in 1933, Keystone Driller Co. v. General Excavator Co., 290 U.S. 240. Get yourself a copy, make photocopies, and toss it at the judge.

    If you are in bankruptcy court, then two alternatives present: (1) vacating of the creditor claim under the principles of “the doors of the courthouse are barred in limine, and his claim shall not be heard”; (2) the Court does equitable subordination under USBC Code 510(c) and strips the claims from the mortgage, discharges the mortgage, and the claim goes to the bottom of the food chain, just ahead of debtor residual equity.

    With a little luck, you end up with the house and pay no more. the “pretender creditor” slinks away, no loss even to him, as he only paid $10 or less for the Note. the whole thing was just a casino exercise to see if some quick bucks could be scooped up.

    Incidentally that is why these scum outfits never do modifications. If you only aid $10 or less, then the profit is in the sale of the foreclosed house right now, not waiting for thirty years on some mod. And when the cops come snooping around (and they will, probably in four or five years) then the pretender lenders can say: “What are you talking about, fraud? We did all this pursuant to Court Order.” So now you know why these guys are all in foreclosure court (and BK Court). They need that veneer of an Order to stay out of jail. Who said they were stupid?

  6. Sorry but this is not encouraging at all, the triangulation once again of Goldman, Washington and a cadre of lobbiest’s looks like round two of another onslaught for the American working class and small business owners.

    Not to be sarcastic, but once the working middle class are stripped of their homes, savings and their job’s, mostly middle aged as pointed out, they will just have to use the emergancy rooms at local hospitals for their health care.

  7. Drew, thanks for the information, would you be kind enough to explain “especially if Fannie Mae bought the loan’s”, what are the consequences with that? Any insight is appreciated!

    (Note: This is a VERY simplified version of the process, but it gives the general idea. Depending upon the lender, it could change to some degree, especially if Fannie Mae bought the loans. The purpose of such a convoluted process was so that the entities selling the bonds could become a “bankruptcy remote” vehicle, protecting lenders and Wall Street from harm, and also creating a “Tax Favorable” investment entity known as an REIMC. An explanation of this process would be cumbersome at this time.)
    New Procedures

  8. Fantastic Explanation of MERS- More Judicial Cracks Appear! By Patrick Pulatie

    As a homeowner begins research into the lending and foreclosure crisis, there will be many unfamiliar terms, names and companies that come to their attention. Chief among these will be MERS.

    MERS is the acronym for Mortgage Electronic Registration Systems. It is a national electronic registration and tracking system that tracks the beneficial ownership interests and servicing rights in mortgage loans. The MERS website says:

    “MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans. “

    In simple language, MERS is an on-line computer software program for tracking ownership.

    MERS was conceived in the early 1990’s by numerous lenders and other entities. Chief among the entities were Bank of America, Countrywide, Fannie Mae, Freddie Mac, and a host of other such entities. The stated purpose was that the creation of MERS would lead to “consumers paying less” for mortgage loans. Obviously, that did not happen.

    This article will attempt to explain MERS in very general detail. It will cover a few issues related to MERS and foreclosure, in order to introduce the reader to the issues of MERS. It is not meant to be a complete discussion of MERS, nor of the legal complexities regarding the arguments for and against MERS. For a more in depth reading of MERS and findings coming out of courts, it is recommended that the reader look at Hawkins, Case No. BK-S-07-13593-LBR (Bankr. Nev. 3/31/2009) (Bankr. Nev., 2009) . It gives a good reading of the issues related to MERS, at least for that particular case. Though in Nevada, it is relevant for California.

    (Please note. I am not an attorney and am not giving legal advice. I am just reporting arguments being made against MERS, and also certain case law and applicable statutes in California.
    The MERS Process

    Traditionally, when a loan was executed, the beneficiary of the loan on the Deed of Trust was the lender. Once the loan was funded, the Deed of Trust and the Note would be recorded with the local County Recorder’s office. The recording of the Deed and the Note created a Public Record of the transaction. All future Assignments of the Notes and Deed of Trust were expected to be recorded as ownership changes occurred. The recording of the Assignments created a “Perfected Chain of Title” of ownership of the Note and the Deed of Trust. This allowed interested or affected parties to be able to view the lien holders and if necessary, be able to contact the parties. The recording of the document also set the “priority” of the lien. The priority of the lien would be dependent upon the date that the recording took place. For example, a lien recorded on Jan 1, 2007 for $20,000 would be the first mortgage, and a lien recorded on Jan 2, 2007, for $1,500,000 would be a second mortgage, even though it was a higher amount.

    Recordings of the document also determined who had the “beneficial interest” in the Note. An interested party simple looked at the Assignments, and knew who held the Note and who was the legal party of beneficial interest.

    (For traditional lending prior to Securitization, the original Deed recording was usually the only recorded document in the Chain of Title. That is because banks kept the loans, and did not sell the loan, hence, only the original recording being present in the banks name.

    The advent of Securitization, especially through “Private Investors” and not Fannie Mae or Freddie Mac, involved an entirely new process in mortgage lending. With Securitization, the Notes and Deeds were sold once, twice, three times or more. Using the traditional model would involve recording new Assignments of the Deed and Note as each transfer of the Note or Deed of Trust occurred. Obviously, this required time and money for each recording.

    (The selling or transferring of the Note is not to be confused with the selling of Servicing Rights, which is simply the right to collect payments on the Note, and keep a small portion of the payment for Servicing Fees. Usually, when a homeowner states that their loan was sold, they are referring to Servicing Rights.)

    The creation of MERS changed the process. Instead of the lender being the Beneficiary on the Deed of Trust, MERS was now named as either the “Beneficiary” or the “Nominee for the Beneficiary” on the Deed of Trust. The concept was that with MERS assuming this role, there would be no need for Assignments of the Deed of Trust, since MERS would be given the “power of sale” through the Deed of Trust.

    The naming of MERS as the Beneficiary meant that certain other procedures had to change. This was a result of the Note actually being made out to the lender, and not to MERS. Before explaining this change, it would be wise to explain the Securitization process.
    Securitizing a Loan

    Securitizing a loan is the process of selling a loan to Wall Street and private investors. It is a method with many issues to be considered, especially tax issues, which is beyond the purview of this article. The methodology of securitizing a loan generally followed these steps:

    * A Wall Street firm would approach other entities about issuing a “Series of Bonds” for sell to investors and would come to an agreement. In other words, the Wall Street firm “pre-sold” the bonds.
    * The Wall Street firm would approach a lender and usually offer them a Warehouse Line of Credit. This credit would be used to fund the loans. The Warehouse Line would include the initial Pooling & Servicing Agreement Guidelines and the Mortgage Loan Purchase Agreement. These documents outlined the procedures for creation of the loans and the administering of the loans prior to, and after, the sale of the loans to Wall Street.
    * The Lender, with the guidelines, essentially went out and found “buyers” for the loans, people who fit the general characteristics of the Purchase Agreement,. (Guidelines were very general and most people could qualify.” The Lender would execute the loan and fund it, collecting payments until there were enough loans funded to sell to the Wall Street firm who could then issue the bonds.
    * Once the necessary loans were funded, the lender would then sell the loans to the “Sponsor”, usually the Wall Street firm. At this point, the loans are separated into “tranches” of loans, where they are then turned into bonds. Then, they went to the “Depositor”, usually either the Wall Street firm or back to the lender through as separate entity, and then they would be sold to the “Issuing Entity” which would be the created entity for the selling of the bonds. Finally, the bonds would be sold, with a Trustee appointed to ensure that the bondholders received their monthly payments.

    As can be seen, each Securitized Loan has had the ownership of the loan transferred two to three times minimum, and without Assignments executed for each transfer.

    (Note: This is a VERY simplified version of the process, but it gives the general idea. Depending upon the lender, it could change to some degree, especially if Fannie Mae bought the loans. The purpose of such a convoluted process was so that the entities selling the bonds could become a “bankruptcy remote” vehicle, protecting lenders and Wall Street from harm, and also creating a “Tax Favorable” investment entity known as an REIMC. An explanation of this process would be cumbersome at this time.)
    New Procedures

    As mentioned previously, Securitization and MERS required many changes in established practices. These practices were not and have not been codified, so they are major points of contention today. I will only cover a few important issues which are being fought out in the courts today.

    One of the first issues to be addressed was how MERS might foreclose on a property. This was “solved” through an “unusual” practice.

    * MERS has only 44 employees. They are all “overhead”, administrative or legal personnel. How could they handle the load of foreclosures, Assignments, etc to be expected of a company with their duties and obligations?When a lender, title company, foreclosure company or other firm signed up to become a member of MERS, one or more of their people were designated as “Corporate Officers” of MERS and given the title of either Assistant Secretary or Vice President. These personnel were not employed by MERS, nor received income from MERS. They were been named “Officers” solely for the purpose of signing foreclosure and other legal documents in the name of MERS. (Apparently, there are some agreements which “authorize” these people to act in an Agency manner for MERS.)

    This “solved” the issue of not having enough personnel to conduct necessary actions. It would be the Servicers, Trustees and Title Companies conducting the day-to-day operations needed for MERS to function.

    As well, it was thought that this would provide MERS and their “Corporate Officers” with the “legal standing” to foreclose.

    However, this brought up another issue that now needed addressing:

    * When a Note is transferred, it must be endorsed and signed, in the manner of a person signing his paycheck over to another party. Customary procedure was to endorse it as “Pay to the Order of” and the name of the party taking the Note and then signed by the endorsing party. With a new party holding the Note, there would now need to be an Assignment of the Debt. This could not work if MERS was to be the foreclosing party.

    Once a name is placed into the endorsement of the Note, then that person has the beneficial interest in the Note. Any attempt by MERS to foreclose in the MERS name would result in a challenge to the foreclosure since the Note was owned by “ABC” and MERS was the “Beneficiary”. MERS would not have the legal standing to foreclose, since only the “person of interest” would have such authority. So, it was decided that the Note would be endorsed “in blank”, which effectively made the Note a “Bearer Bond”, and anyone holding the Note would have the “legal standing” to enforce the Note under Uniform Commercial Code. This would also suggest that Assignments would not be necessary.

    MERS has recognized the Note Endorsement problem and on their website, stated that they could be the foreclosing party only if the Note was endorsed in blank. If it was endorsed to another party, then that party would be the foreclosing party.

    As a result, most Notes are endorsed in blank, which purportedly allows MERS to be the foreclosing party. However, CA Civil Code 2932.5 has a completely different say in the matter. It requires that the Assignment of the Debt be executed.

    * CA Civil Code 2932.5 – Assignment“Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.”

    As is readily apparent, the above statute would suggest that Assignment is a requirement for enforcing foreclosure.

    The question now becomes as to whether a Note Endorsed in Blank and transferred to different entities as indicated previously does allow for foreclosure. If MERS is the foreclosing authority but has no entitlement to payment of the money, how could they foreclose? This is especially true if the true beneficiary is not known. Why do I raise the question of who the true beneficiary is? Again, from the MERS website……..

    * “On MERS loans, MERS will show as the beneficiary of record. Foreclosures should be commenced in the name of MERS. To effectuate this process, MERS has allowed each servicer to choose a select number of its own employees to act as officers for MERS. Through this process, appropriate documents may be executed at the servicer’s site on behalf of MERS by the same servicing employee that signs foreclosure documents for non-MERS loans.Until the time of sale, the foreclosure is handled in same manner as non-MERS foreclosures. At the time of sale, if the property reverts, the Trustee’s Deed Upon Sale will follow a different procedure. Since MERS acts as nominee for the true beneficiary, it is important that the Trustee’s Deed Upon Sale be made in the name of the true beneficiary and not MERS. Your title company or MERS officer can easily determine the true beneficiary. Title companies have indicated that they will insure subsequent title when these procedures are followed.”

    There, you have it. Direct from the MERS website. They admit that they name people to sign documents in the name of MERS. Often, these are Title Company employees or others that have no knowledge of the actual loan and whether it is in default or not.

    There, you have it. Direct from the MERS website. They admit that they name people to sign documents in the name of MERS. Often, these are Title Company employees or others that have no knowledge of the actual loan and whether it is in default or not.

    Even worse, MERS admits that they are not the true beneficiary of the loan. In fact, it is likely that MERS has no knowledge of the true beneficiary of the loan for whom they are representing in an “Agency” relationship. They admit to this when they say “Your title company or MERS officer can easily determine the true beneficiary.

    To further reinforce that MERS is not the true beneficiary of the loan, one need only look at the following Nevada Bankruptcy case, Hawkins, Case No. BK-S-07-13593-LBR (Bankr.Nev. 3/31/2009) (Bankr.Nev., 2009) – “A “beneficiary” is defined as “one designated to benefit from an appointment, disposition, or assignment . . . or to receive something as a result of a legal arrangement or instrument.” BLACK’S LAW DICTIONARY 165 (8th ed. 2004). But it is obvious from the MERS’ “Terms and Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans. To reverse an old adage, if it doesn’t walk like a duck, talk like a duck, and quack like a duck, then it’s not a duck.”

    If one accepts the above ruling, which MERS does not agree with, MERS would not have the ability to foreclose on a property for lack of being a true Beneficiary. This leads us back to the MERS as “Nominee for the Beneficiary” and foreclosing as Agent for the Beneficiary. There may be pitfalls with this argument.

    * When the initial Deed of Trust is made out in the name of MERS as Nominee for the Beneficiary and the Note is made to AB Lender, there should be no issues with MERS acting as an Agent for AB Lender. Hawkins even recognizes this as fact.
    * The issue does arise when the Note transfers possession. Though the Deed of Trust states “beneficiary and/or successors”, the question can arise as to who the successor is, and whether Agency is any longer in effect. MERS makes the argument that the successor Trustee is a MERS member and therefore Agency is still effective, and there does appear to be merit to the argument on the face of it.The original Note Holder, AB Lender, no longer holds the note, nor is entitled to payment. Therefore, that Agency relationship is terminated. However, the Note is endorsed in blank, and no Assignment has been made to any other entity, so who is the true beneficiary? And without the Assignment of the Note, is the Agency relationship intact?

    Uniform Commercial Code may address this issue, however, it can be argued in the negative:

    Uniform Commercial Code§ 3-301. PERSON ENTITLED TO ENFORCE INSTRUMENT.

    “Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a non-holder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

    Are you confused yet? I am. Most attorneys are. And most courts are…….
    Separation of the Note and the Deed

    There is one more issue that I will now address. That is the separation of the Note and the Deed of Trust. Again, case law is confused on this.

    In the case of MERS, the Note and the Deed of Trust are held by separate entities. This can pose a unique problem dependent upon the court. There are many court rulings based upon the following:

    “The Deed of Trust is a mere incident of the debt it secures and an assignment of the debt carries with it the security instrument. Therefore, a Deed Of Trust is inseparable from the debt and always abides with the debt. It has no market or ascertainable value apart from the obligation it secures.

    A Deed of Trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the Deed Of Trust without a transfer of the debt is without effect. “

    This very “simple” statement poses major issues. To easily understand, if the Deed of Trust and the Note are not together with the same entity, then there can be no enforcement of the Note. The Deed of Trust enforces the Note. It provides the capability for the lender to foreclose on a property. If the Deed is separate from the Note, then enforcement, i.e. foreclosure cannot occur. The following ruling summarizes this nicely.

    In Saxon vs Hillery, CA, Dec 2008, Contra Costa County Superior Court, an action by Saxon to foreclose on a property by lawsuit was dismissed due to lack of legal standing. This was because the Note and the Deed of Trust were “owned” by separate entities. The Court ruled that when the Note and Deed of Trust were separated, the enforceability of the Note was negated until rejoined. ( Note: LFI did the audit for this loan.)

    All Saxon could do on this loan would be to rescind the foreclosure, reunite the Deed and the Note by Assignment and then foreclose again.

    Other examples of this is that in the past month, LFI has done audits whereby it was determined that Notary Fraud was present with regard to the signing of the Deed of Trust. This immediately made the Deed of Trust void, and as a result, the Note was then “Unsecured Debt”, and the property was unable to be foreclosed upon. There is even question as to if the Note is void as well.

    As I have attempted to show, the whole concept of MERS is fraught with controversy and questions. Certainly, at the very least, MERS actions pose legal issues that are still being addressed each and every day. As to where these actions will ultimate lead, it is anybody’s guess. With some courts, the court sides with the lender, and others side with the homeowner. However, there does appear to be a trend developing that suggests, at least in Bankruptcy Courts, MERS is losing support.

    I would like to again make note of the fact that this is simply a basic primer on MERS and the issues surrounding it. To fully cover MERS, I could easily write 100 pages, quoting statutes, case law and legal theories regarding how to defend against MERS.. However, I will save that for the attorneys, and someday, when I have time to write a book on the battles occurring daily in the courts.

    As I wrote this article, a case pending on appeal in Kansas was finally decided. This case, Landmark vs Kesler, Milliennia, MERS, Sovereign Bank and others was finally decided. It offered some interesting conclusions, and reinforces what I had written about in the above article.

    I must stress that this case is a guide only. It was in Kansas, and draws from case law in many different states. What is important is that with any Court, case law within the jurisdiction of the Court must be considered first in arguments. If such case law for arguments does not exist, then case law from other jurisdictions can be used to support the arguments.

    What this case does do is provide guidelines for arguing in other venues. I do find the case very interesting in that it does highlight the general issues that I addressed above. It supports Haskins very nicely.

    It should be noted that various articles have already been written, some of which promote the idea that it will mean free homes for millions of people. This is not likely for various reasons. However, it does offer interesting possibilities regarding certain lawsuits that I am currently assisting with. Of course, LFI has anticipated this occurring and is currently assisting attorneys in refining the argument.

    This case is about a foreclosure that had occurred. The lender is trying to overturn a default judgement in favor of another lender. MERS has sided with that lender. As such, the differences in this case could weigh heavy in future rulings. I will just cite relevant portions without going into great detail, which would take a day to write. My comments follow each quote from the ruling.

    “While this is a matter of first impression in Kansas, other jurisdictions have issued opinions on similar and related issues, and, while we do not consider those opinions binding in the current litigation, we find them to be useful guideposts in our analysis of the issues before us.”

    This supports my contention that this is only useful in other jurisdictions to argue, but jurisdictional case law takes precedence in each area. Therefore, arguments must be made that can overturn such case law.

    “Black’s Law Dictionary defines a nominee as “[a] person designated to act in place of another, usu. in a very limited way” and as “[a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1076 (8th ed. 2004). This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves……..The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship.”

    This is the essence of the Agency Relationship that I presented above.

    “LaSalle Bank Nat. Ass’n v. Lamy, 2006 WL 2251721, at *2 (N.Y. Sup. 2006) (unpublished opinion) (”A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”)”

    This case, if used and upheld in California, could portend great consequences for all homeowners.

    The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is “[o]ne to whom property is mortgaged: the mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting “solely” as the nominee of the lender.

    Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable.

    “The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009).

    “MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force.” 284 S.W.3d at 624; see also In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (standard mortgage note language does not expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal. 2008) (”[I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner.”); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. 2008) (unpublished opinion) (”[F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned. . . . MERS purportedly assigned both the deed of trust and the promissory note. . . . However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority . . . to assign the note.”).

    This identifies the real issue, as I mentioned previously. The Note and the Deed were separated, so without Assignments uniting them, there can be no foreclosure.

    What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. See Sheridan, ___ B.R. at ___ (”MERS is not an economic ‘beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid.”). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right. See Vargas, 396 B.R. 517 (”[w]hile the note is ‘essential,’ the mortgage is only ‘an incident’ to the note” [quoting Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 275, 21 L. Ed 313 (1872)]).

    This reinforces the Hawkins argument that without a “Beneficial Interest”, there is no ability to enforce the note.

    This ruling in Kansas comes down to several basic issues. These are that:

    * MERS had no Beneficial Interest in the Note, therefore, they could not be a Party of Interest and had no authority in the case.
    * MERS and the Agency Relationship did not exist with the Assignment of the Note without a new Agency Agreement.
    * The Note and the Deed of Trust were separated, therefore, the Note could not be enforced by the Deed of Trust.
    * MERS did not have a power to assign the Note.

    This ruling, along with Hawkins, can offer the attorney a practical roadmap on how to attack MERS. It should not be taken for granted that this will apply in all states immediately, nor that this will be easy. Jurisdictional Case Law will certainly have to be fought out and overcome. Additionally, I do expect further appeals of this case, especially with other parties joining in to side with MERS because of the practical implications of this ruling.

  9. I don’t believe anything politicians do are for the benefit of the people…

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