The Price of Arrogance: Far-Reaching Order Sets Precedent that MERS Scheme is Unlawful

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SERVICE 520-405-1688 — My apologies. A draft of this article was accidentally published yesterday. Judge Grossman’s decision dates back one year. It is not a recent decision but it has huge significance right now in my opinion. The draft left the impression that Judge Grossman had just ruled. That is not correct.

“This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.” — Judge Grossman, 2/10/11

No Retroactive Effect Because of Rooker Feldman Doctrine

EDITOR’S NOTE: Five years ago, while thinking about the “business model” Wall Street invented I concluded that in the end the issue would be decided by title law — and its effect on the so-called debt, the promissory note containing false declarations of fact, and the mortgage or deed of trust that also contained false declarations of fact and which also explicitly did not travel with the note (which didn’t describe the real transaction anyway).

The rule was that the note generally traveled with the mortgage and that the note was equivalent to the obligation unless the parties intentionally acted to the contrary. Because Wall Street needed a colorable claim in order to purchase insurance and credit enhancements on loans it did not own, it intentionally split the note from the obligation and the mortgage from both the obligation and the note. Thus I concluded that at some point, unless 300 years of common law was going to be turned on its head, the obligation from borrower (homeowner) to lender (investor) existed but it was both unsecured and undocumented.

The answer to the entire housing problem was a lawsuit to quiet title.

From that conclusion the rest was easy. All the documents pouring into the foreclosure system had to be fabricated, falsified, forged and lack both authenticity and authorization. The Banks had stepped on a huge rake and it was eventually going to hit them square in the face. A courageous Judge dealing with a level of arrogance not usually seen in court has killed MERS and all that flows from MERS or anything else like it.

It took years for the likes of Judges Boyco in Ohio, Shack in New York, and other Judges around the country to start questioning the “dance.” Finally Judge Grossman last year, entered an order that made it clear that the MERS business model was not just flawed, it was illegal..His reasoning was impeccable and the Banks took notice and started the “negotiations” for a “settlement” right away. After all, if Grossman’s ruling was applied across the board, virtually every prospective foreclosure would be off the table and every fictitious asset relating to mortgages would be written off of the balance sheets of the banks claiming ownership. It is still a wonder to me how any auditing firm can look at those books, see that the funding came from the investors, understand that the loan receivable asset was owned by the creditor investor and still allow the bank to claim the asset and losses from devaluation of the asset.

The bottom line is that Judge Grossman’s 2011 ruling, especially in bankruptcy court means that the debt is unsecured and is therefore fully dischargeable unless the issue had already been litigated in that case in state court where a contrary decision was reached. It means that foreclosures cannot proceed without an explicit ruling from another Bench stating that Grossman was wrong.

It also means that at least half, probably closer to 85% of all the homes subject to foreclosure were stolen — a violation of the civil rights of each and every homeowner subject to foreclosure and eviction on a loan that was securitized, especially those that overtly used MERS. remember that just because MERS doesn’t show on the mortgage or deed of trust, doesn’t mean that MERS is not in use. In one form or another MERS or its equivalent was in use, using the layered or Laddered” (a Goldman Sachs term) shell game of entities, none of whom owned anything, none of whom were properly capitalized and none of whom could or would pay a judgment for damages no matter how large or how small.

Perhaps more importantly, the moment that the closing took place with the homeowner, there was no known party to whom payment should be made or from whom a valid satisfactions of mortgage could be received. MERS took on the dual role of nominee for the mortgagee and mortgagee, which was pointed out by Judge Grossman. The originator took on the triple role of originator, mortgage broker and nominee for the real lender, which is also ridiculous. The note described a transaction between the homeowner and the “lender” that never occurred. The mortgage purported to secure the transaction that never occurred.

What is missing form these explanations is why this was done because the answer satisfied the gnawing question of why should these paperwork anomalies be used to benefit borrowers. The reason it was done was to create the appearance of ownership of the loans in the banks and servicers; they created a convoluted argument using fabricated documents to declare that they were the “holder.”

In fact, there is nothing inherently wrong with securitization. It is a tool which in fact has been used for hundreds of years under various names.

What is wrong is that the brokers pretended to be owners so they could trade securities they did not own, foreclose or collect on debts they did not fund or buy, and claim losses on assets that were falsely inflated and induced the American taxpayer in a moment of panic to cough up tens of trillions of dollars — none of which was directed at the investors who actually put up the money, nor the homeowners whose debts were being reduced by these payments from taxpayers, insurers and counterparties.

The impact of this ploy was that only the investors and the homeowners had any interest in modifications but only the banks and servicers had control over the process. The only motivation the banks and servicers had was to kick every possible case into foreclosure because that is where the financial incentives arose — IMAGINE, you walk up to a rigged auction and submit by phone a “credit bid” even though you are neither the creditor nor do you know the identity of the creditor, knowing full well that the real creditor doesn’t know about the auction and probably would not bid even if they did (because they are seeking remedies elsewhere). By successfully submitting a false credit bid (see recent report from San Francisco County) you are able to get title to the house, evict the homeowner and either rent or sell the property.

Once you see it in that light it is impossible to arrive at any conclusion except that the narrative from the banks about a “free house” is a lie. The free house is going to the banks and servicers. The banks and servicers have nothing against a free house — in fact they pursue it every day and they get it. NO, this is not about a free house. This is about blaming the victims of fraud — the investors who put up the money and the homeowners who put up their property in a scheme where the banks would end up with all the money and all the property.

United States Bankruptcy Judge Robert Grossman has ruled that MERS’s business practices are unlawful. He explicitly acknowledged that this ruling sets a precedent that has far-reaching implications for half of the mortgages in this country. MERS is dead. The banks are in big trouble. And all foreclosures should be stopped immediately while the legislative branch comes up with a solution.

For some weeks I have been arguing that MERS is perpetrating foreclosure fraud all across the nation. Its business model makes it impossible to legally foreclose on any mortgaged property registered within its system — which includes half of the outstanding mortgages in the US. MERS was a fraud from day one, whose purpose was to evade property recording fees and to subvert five centuries of property law. Its chickens have come home to roost.

Wall Street wanted to transform America’s housing sector into the world’s biggest casino and needed to undermine property rights to make it easier to run the scam. The payoffs were bigger for lenders who could induce homeowners to take mortgages they could not possibly afford. The mortgages were packaged into securities sold-on to patsy investors who were defrauded by the “reps and warranties” falsely certifying the securities as backed by top grade loans. In fact the securities were not backed by mortgages, and in any case the mortgages were sure to go bad. Given that homeowners would default, the Wall Street banks that serviced the mortgages needed a foreclosure steamroller to quickly and cheaply throw families out of the homes so that they could be resold to serve as purported collateral for yet more gambling bets. MERS — the industry’s creation — stepped up to the plate to facilitate the fraud. The judge has ruled that its practices are illegal. MERS and the banks lose; investors and homeowners win.

Here’s MERS’s business model in brief. Real estate property sales and mortgages are supposed to be recorded in local recording offices, with fees paid. With the rise of securitization, each mortgage might be sold a dozen times before it came to rest as the collateral behind a mortgage backed security (MBS), and each of those sales would need to be recorded. MERS was created to bypass public recording; it would be listed in the county records as the “mortgagee of record” and the “nominee” of the holder of mortgage. Members of MERS could then transfer the mortgage from one to another without all the trouble of changing the local records, simply by (voluntarily) recording transactions on MERS’s registry.

A mortgage has two parts, the “note” and the “security” (not to be confused with the MBS) or “deed of trust” that is usually just called the “mortgage”. The idea behind MERS was that the “note” would be transferred from seller to purchaser, but the “mortgage” would be held by MERS. In fact, MERS recommended that the “note” be held by the mortgage servicer to facilitate foreclosures, but in practice it seems that the notes were often lost or destroyed (which is why all those Burger King Kids were hired to Robo-sign “lost note affidavits”).

At each transfer, the note and mortgage are supposed to be “assigned” to the new owner; MERS claimed that because it was the “mortgagee of record” and the “nominee” of both parties to every transaction, there was no need to assign the “mortgage” until foreclosure. And it argued that since the old adage is that the “mortgage follows the note” and that both parties intended to assign the notes (even if they did not get around to doing it), then the Bankruptcy Court should rule that the assignments did take place in some sort of “virtual reality” so that there is a clear chain of title that allows the servicers to foreclose.

The Judge rejected every aspect of MERS’s argument. The Court rejected the claim that MERS could be both holder of the mortgage as well as nominee of the “true” owner. It also found that “mortgagee of record” is a vague term that does not give one legal standing as mortgagee. Hence, at best, MERS is only a nominee. It rejected MERS’s claim that as nominee it can assign notes or mortgages — a nominee has limited rights and those most certainly do not include the right to transfer ownership unless there is specific written instruction to do so. In scarcely veiled anger, the Judge wrote:

“According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents.”

Judge Grossman rejected MERS’s arguments, saying that mere membership in MERS does not provide “agency” rights to MERS, and agreeing with the Supreme Court of Kansas that ruled “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant — their description depended on which part they were touching at any given time.”

He went on to disparage MERS’s claim that since in legal theory the “mortgage follows the note”, the Court should overlook the fact that MERS separated them. He stopped just short of saying that by separating them, MERS has irretrievably destroyed the clear chain of title, although he hinted that a future ruling could come to that conclusion:

“MERS argues that notes and mortgages processed through the MERS System are never “separated” because beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) (“[I]n 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”).”

That would mean not only the end of MERS, but also the end of the banks holding unenforceable mortgages because they were not, and cannot be, “perfected”. MERS and the banks screwed up big time, and there is no “do over” — there is no valid lien on the property, so owners have got their homes free and clear.

There have been numerous court rulings against MERS — including decisions made by state supreme courts. What is significant about the US Bankruptcy Court of New York’s ruling is that the judge specifically set out to examine the legality of MERS’s business model. As the judge argued in the decision, “The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court”. In the scathing opinion, Judge Grossman variously labeled MERS’s positions as “stunningly inconsistent” with the facts, “absurd, at best”, and “not supported by the law”. The ruling is a complete repudiation of every argument MERS has made about the legality of its procedures.

What is particularly ironic is that MERS actually forced the judge to undertake the examination of its business model. The case before the judge involved a foreclosed homeowner who had already lost in state court. The homeowner then approached the US Bankruptcy Court to argue that the foreclosing bank did not have legal standing because of MERS’s business practices. However, by the “Rooker-Feldman” doctrine (or res judicata), the US Bankruptcy Court is prohibited from “looking behind” the state court’s decision to determine the issue of legal standing. Hence, Judge Grossman ruled in the bank’s favor on that particular issue.

Yet, MERS’s high priced lawyers wanted to push the issue and asked for the Judge to rule in favor of MERS’s practices, too. So while MERS won the little battle over one foreclosed home, it lost the war against the nation’s homeowners. The Judge ruled against MERS on every single issue of importance. And it was MERS’s stupid arrogance that brought it down.

As I predicted two weeks ago, MERS would be dead within weeks. Judge Grossman has driven the final stake through its black heart. The half of America’s homeowners whose mortgages are registered at MERS have been handed a “get out of jail free” card. Wall Street has no right to foreclose on their property. The tide has turned. It won’t be easy, but homeowners in those states with judicial foreclosures now have Judge Grossman on their side. Those in the other states (just over half) will have a tougher time because they can lose their home before they ever get to court. But the law is still on their side — foreclosure by members of MERS is theft — so class action lawsuits may be the way to go.

MERS is dead, but can the banks survive? There are two separate issues. First, there are the “reps and warranties” given by the mortgage securitizers (Wall Street investment banks) to the investors (pension funds, GSEs, PIMCO, and so on). We now know that a quarter to a third of the mortgages bundled to serve as backing for the securities did not meet stated quality. Worse, we also know that the banks knew this — they hired third parties to undertake “due diligence” to check quality. This was not done to protect the investors, rather, the purpose was to strengthen the bargaining position of the securitizers, who were able to reduce the prices paid for the mortgages. Now, the investors are suing the banks for restitution–forcing them to cover the losses and buy-back the bad mortgages at original price. To add insult to injury, even the NYFed is suing them. That is a lot like having your parents sue you for their inadequate parental oversight of your behavior.

The second issue is that the mortgages backing the securities were supposed to be placed in Trusts (affiliates of the securitizing banks), with the Trustee certifying not only that the mortgages met the reps and warranties but also that the documents were up to snuff and safely locked away. We know they were not. As mentioned above, MERS told the servicers to hold the notes, and many or most of them were destroyed or lost. Further, the notes were separated from the mortgages — making them null and void. In any case, they are not at the Trusts. This means the MBSs are not backed by mortgages, meaning the MBSs are unsecured debt. MERS’s business model ensures that. So, again, the banks must take back the fraudulent securities — paying off the investors.

What can Wall Street do? Well, I suppose the “help wanted” signs are already up at MERS and Wall Street banks: “Needed: Burger King Kids to Robo-sign forged quasi-professional-looking docs”. The problem is that even with tens of thousands of Robo-Kids, Wall Street will not be able to pull off a vast criminal conspiracy on the necessary scale. Think about it: 60 million mortgages, each sold ten times, means 600 million transactions and assignments that have to be forged. MERS’s documentation was notoriously sloppy, relying on voluntary recording by members. The Robo-Kids would have to go back through a decade of records to manufacture a paper trail that would convince now-skeptical judges that there is a clear chain of title from the first recording in the public record through to the foreclosure. It ain’t going to happen.

The only other hope is that Wall Street can call in its campaign contribution chips and get Congress to retroactively legalize fraud. That is what they do in those dictatorships that protestors are now bringing down in the Middle East. Is Washington willing to take that risk, just to please its Wall Street benefactors?

The court document is available here. It is terrific reading.

This post originally appeared at Benzinga.

Michael Premo

c. 917.547.1292
http://www.michaelpremo.com

http://housingisahumanright.org

24 Responses

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  2. @Neil,

    Apologies accepted. We understand. 7 years of this insanity does a job on you, as everyone on this site would testify to…

  3. Pino v. Bank of New York- “many, many mortgage foreclosures appear tainted with suspect documents,”
    Author: Matthew D. Weidner, Esq.
    http://mattweidnerlaw.com/blog/2012/02/pino-v-bank-of-new-york-many-many-mortgage-foreclosures-appear-tainted-with-suspect-documents/

    Ah Pino. Pino v. Bank of New York. Remember that line from Florida’s 4th District Court of Appeals…
    “many, many mortgage foreclosures appear tainted with suspect documents,”

    We all know this remains true, even today but everyone, including judges and appellate courts and the legislature and attorneys general from all across the country want us all just to forget that statement. Ignore it all they say, it doesn’t matter. Get back to work people and stop with all your complaining. But really folks, think about the commentary on our judicial system, on our government on a theory of governance when this situation is allowed to persist. The banks of course are quite content to demand we all just forget about all this. They tell me in court, “even if you could prove fraud, it doesn’t matter”.

    That folks is what your nation has become. The bank asks the Florida Supreme Court to ignore fraud:

    A trial court does not have jurisdiction and authority under Rule 1.540(b) or under its inherent authority to grant relief from a voluntary dismissal where the motion alleges fraud on the court in the proceedings but no affirmative relief on behalf of the plaintiff has been obtained from the court.

    I find the following statement most laughable, if indeed things were not so serious, but it’s laughable because the rule they cite has first been routinely ignored by the banks and then never enforced…

    As to mortgage foreclosures, if there have been in the past “many, many” foreclosures “tainted with suspect documents” (Appendix A at 5), opening the door to relitigating voluntary dismissals which may have occurred in those cases (assuming that there have been both numerous “suspect documents” and voluntary dismissals) would cause more harm than benefit to the efficient operation of the courts. The Court amended Florida Rule of Civil Procedure 1.110(b) to require verification of “ownership of the note or right to enforce the note and ensure that the allegations in the complaint are accurate,” and the Court provided “greater authority to sanction plaintiffs who make false allegations.”

    and this:

    The Rule Amendments were more than aspirational, they bolstered the standard for responsible lawyering in future foreclosures. If there were problems with cases filed and voluntarily dismissed before the rule amendment, reopening those cases would not serve the interests of a judicial system that has sought to manage foreclosure litigation efficiently and effectively. Creating a new wave of review of previously dismissed mortgage voluntary dismissal cases would promote unnecessary unsettled expectations and be counterproductive for litigants and trial courts.

    The whole thing is a disgrace. The “thing” being our justice system as recreated by the banks. The banks have made a mockery of a judicial system that lasted for several hundred years. Can this system last any longer when The People rightly dispute its legitimacy? And can you really argue with any person who asserts they no longer respect the authority of any branch of the United States Government, state or federal given what we all see happening all around us every single day? Is this country, as recreated by the banks, any better than the most corrupt governments our world has ever known?

    Part of the answer to those questions will be answered when the Florida Supreme Court hears then decides the Pino case…..

    pihttp://mattweidnerlaw.com/blog/wp-content/uploads/2012/02/pinobony.pdfnobony

  4. Not that any of this matters to bought and sold politicos like U.S. Senator Kelly Ayotte, with $.5M in campaign contributions from investment firms and banks….

    http://www.youtube.com/watch?v=UJNPXJYSuMI

    http://mortgagemovies.blogspot.com/2012/02/mortgage-merchant-fraud-deutschebank.html

    WEDNESDAY, FEBRUARY 22, 2012

    Mortgage & Merchant fraud Deutschebank, Goldman Sachs, Kelly Ayotte, Northern Leasing, MBF & Vericomm, all in bed together and hurting Americans.

    Meanwhile I just helped a kid who might be in on the class action suit against MBF leasing with NYC lawyer Krishnan Chittur.

    Read these links for more info.
    One: Anderson v. Burson wrongly decided, the battle is not over.

    Two: Goldman Sachs booed at NYC Equal Rights Gala 2012.

    Three: Garbage in-Garbage out ripoff merchant leases = same as illegally securitized mortgages.

    Four: Mortgage help: Why Senator Kelly Ayotte and her Republican cohorts party line voted against Judge John J. McConnell’s appointment to the Federal bench: They gave it to me on a silver platter in my Free Press litigation (2010-CV-501 NH Dist) KingCast v. Senator Kelly Ayotte, NH GOP and Nashua PD when they moved to recuse him and failed. As implied in the video seen here I won my attempt to recuse Kelly Ayotte/McLane, Graf’s buddy and erstwhile co-worker Magistrate Landya B. McCafferty.
    video: http://www.youtube.com/watch?v=2vT7_uhnElQ

  5. http://www.bankerandtradesman.com/news148759.html MERS is not dead. A Federal Court just ruled in their favor. Check it out!

  6. MORTGAGE NOTES ARE NOT NEGOTIABLE, MORTGAGE NOTES ARE NOT NEGOTIABLE, MORTGAGE NOTES ARE NOT NEGOTIABLE!
    February 22nd, 2012 | Author: Matthew D. Weidner, Esq.
    http://mattweidnerlaw.com/blog/?utm_source=Matt+Weidner+Law+Blog&utm_campaign=4942ad814f-RSS_EMAIL_CAMPAIGN&utm_medium=email
    Maybe if I keep repeating this over and over people will start to get it. Or maybe if I start repeating it, then others repeat it, and if we all start making this argument, our courts will start to consider this argument.

    The lenders in mortgage foreclosure cases never intended mortgage notes to be negotiable.

    They intended the notes and indeed all the obligations to be transferred via the Pooling and Servicing Agreements!!! That’s why they drafted Pooling and Servicing Agreements! The problem is, when this whole stinking mess blew up, they left the notes and the trusts and the whole business model spread around on the ground like a blown up building. The servicers and plaintiffs picked up the promissory notes and now come waving them in court making reckless and absurd arguments that are not supported by case law or any legal analysis.

    Look at the promissory notes, look at the statute:

    HOW CAN ANYONE ARGUE THE NOTES IN FORECLOSURE CASES MEET THE DEFINITION IN STATUTE?

    My analysis and exploration of this CRUCIAL issue comes at a very important time for all of us….as Max Gardner is bringing his seminar on negotiability to Orlando in March.

    MAX GARDNER’S SEMINAR ON NEGOTIABIILTY
    http://www.maxbankruptcybootcamp.com/training-for-attorneys/the-abcs-and-ucc

    We all need to start prepping this argument, and we all need to start exploring and ripping this argument up among and between ourselves before we bring it live before judges. This argument and this critical discussion could represent a Titanic sea change in cases all across this state. I encourage everyone to get prepped on this issue make plans to attend Max Gardner’s Seminar.

    First, read this very detailed law review article:

    HOW NEGOTIABILITY FOULED UP THE SECONDARY MARKET
    http://www.scribd.com/doc/46298400/How-Negotiability-Has-Fouled-Up-the-Secondary-Mortgage-Market-and-What-to-Do-Abo

    And finally, here is a motion where I started to flush these issues out in my cases:

    Memo of Law Regarding Non-NegotiabilityPUBLISH
    http://mattweidnerlaw.com/blog/?utm_source=Matt+Weidner+Law+Blog&utm_campaign=4942ad814f-RSS_EMAIL_CAMPAIGN&utm_medium=email

    ShareScridb filter

  7. Now, for the real price of arrogance…

    http://mandelman.ml-implode.com/2012/02/wells-fargo-bank-and-patricia-martin-part-2-a-bank-that-cannot-be-trusted/

    How does the say go? Give someone enough rope and eventually, he will hang himself? Hanging time, people! Hanging time.

    2 more months before this whole thing starts blowing. Can’t wait to see it.

    http://www.the99declaration.org

    Come and join the party. It promises to be fun and lively!!!

  8. I’m confused? Can someone explain what cases set precedence? It looks like the article above specifically talks about protections under bankruptcy court. Does this case only set the standard for NY or does it apply to other states?

    Can someone please shed some light on this for me? My understanding was that federal court trumps state court rulings. Where does bankruptcy court rulings fit in?

    Also, when can you apply another states verdict to your own states? I thought you could only use other case law in Federal court or verdicts within your state.

    Can you apply this ruling in another state? If so would you have to be in bankruptcy court for it to be applicable.

  9. Gwen you are like the iron lady, do what ya gotta do, im glad you are still working it i hope you get through procedural hell…im there too and it is hell especially pro se with a full time job.

  10. Since Neil has nothing new to share, here is a little something from Abigail Field. We knew part of it (of course) but some of it is completely “new news”!

    The Foreclosure Fraud Iceberg

    By Abigail Caplovitz Field | February 20, 2012

    58
    ShareU.S. Housing Secretary Shaun Donovan is playing Julie the Cruise Director on the Titanic, telling everyone ‘Don’t worry, there’s no icebergs in these waters. Really, if you see any floating ice in front of us, it’s not the visible tenth of a catastrophe to come.’ Unfortunately ice is visible, it is an iceberg, and the leading edge of the submerged ice is already ripping into our democracy and our economy, leaving deep damage.

    The happy talk to distract attention from the iceberg comes from two camps and has two synergistic messages.

    Secretary Donovan is trying convince the American public that the what the Obama administration is doing is all that can be done to address our housing and foreclosure crisis. That’s farcically false. Other people are pushing the related message that fraud and forgery by foreclosing bankers isn’t important; the only thing that matters is whether homeowners are in default. Both groups want you to believe that the foreclosure fraud “settlement” is a good and just. Except the “settlement” isn’t. The “settlement” is just the latest in a long line of decisions not to enforce the law and further reinforces the idea that gold-collar criminals are above the law. (I put “settlement” in quotes because we’re now double digit days past the February 9 announcement, and still, there’s no deal submitted to a court for approval. And that means there’s no deal.)

    So let’s take a good look at the foreclosure fraud iceberg.

    The Visible Ice

    Picture a ragged pyramid, with only the top tenth visible above the water. The most visible ice, the jagged peaks on top of the dry tenth, are individual foreclosure cases. Court cases generally involve public records and public processes, which makes the foreclosing bankers’ pervasive forgery and evidence manufacturing so sharply visible. Look and you’ll see endorsements suddenly, inexplicably, appear on the note that is the borrower’s promise to pay back the loan. Those magically appearing endorsements further two goals: facilitating foreclosure, and minimizing securities fraud liability. And by magically appearing, I’m being euphemistic: improperly adding an endorsement to a note to prove the right to foreclose is obstruction of justice.

    A case involving precisely this issue is ongoing in Florida, in re Balderrama. In that case, the U.S. Bankruptcy Trustee is suing Deutsche Bank, demanding to know how and when the Balderrama’s note was endorsed to the securitization trust that allegedly owns it. See, in trying to prove it had the right to foreclose on the Balderramas, Deutsche Bank filed three versions of the Balderrama’s note, and two versions of allonges showing endorsements to the note.

    Deutsche Bank filed this version of the allonge first, in 2010. That allonge shows the note going from 1st National Bank of Arizona to 1st National Bank of Nevada, and then 1st National Bank of Nevada to bearer, because it is endorsed in blank. In 2011, this version was filed (see page 163) which shows the blank filled in, to Residential Funding Corporation, and then Residential endorsing it to “Deutsche Bank Trust Company of the Americas, as Trustee.”

    Deutsche Bank and Residential Funding both claim the version of the allonge specifically endorsing the note to Deutsche as Trusteee existed in 2007, but don’t really address why, then, in 2010 the wrong allonge was filed in court. The judge is quite suspicious, and will hold trial on how and when the three endorsement version (AZ to NV, NV to RFC, RFC to Deutsche) was created:

    “The Court cannot avoid suspecting that the second allonge indeed was created solely to rebut the trustee’s assertions in this litigation and did not previously exist. If so, the Court suggests Deutsche and Ms. Faber [who did the last endorsement] individually consider the possible consequences of propounding potentially false evidence and perjured testimony to the Court.” [opinion at p. 8]

    Note to people who think all that matters is that the homeowner is in default: our court system and rule of law cannot function if one side can make up evidence to ensure victory at trial. In bankruptcy cases such as Balderrama, a special person called the U.S. Trustee can act to defend the system as she has in that case. But in non-bankruptcy foreclosure proceedings, the only person who can defend the rule of law is the debtor. Imagine if people said no, Americans, you’re not guaranteed to know your Constitutional rights before ‘waiving’ them, because Ernesto Miranda was convicted of rape; no rapist has the right to talk about the rule of law. Luckily our U.S. Supreme Court didn’t see it that way, and gave us our Miranda warnings. If a rapist can defend the integrity of our legal system, why not a debtor in default?

    Our Corroded Land Records

    The foreclosing bankers’ evidence manufacture isn’t limited to note endorsements in foreclosure and bankruptcy cases. Our land records are rife with fraudulent documents of all types: assignments of mortgage, satisfactions of mortgage, substitutions of trustee, deeds. Just consider what John L. O’Brien, Register of Deeds for Salem, Massachusetts, did last month. O’Brien:

    “sent some 31,897 of what he says are fraudulent documents that have been recorded in the Salem Registry to Massachusetts Attorney General Martha Coakley, U.S. Attorney General Eric Holder and U.S. Attorney Carmen Ortiz.”

    Why? Well, O’Brien wants someone in law enforcement to impanel a Grand Jury to review his evidence and investigate further. O’Brien is “confident that these documents will show a pattern of fraud, uttering and forgery.” Guilford County, North Carolina Register of Deeds Jeff Thigpen is also outraged noting that he has ”two primary responsibilities in land records: a sworn duty to protect the chain of title and a fiduciary responsibility to collect recording fees” and that the mortgage industry has interfered with both. After explaining that

    “…Since the founding of America, counties in the United States have maintained public records of land, mortgages and deeds of trust, by maintaining indexes of grantors and grantees. Register of Deeds offices ensure transparency and an important check and balance in private property ownership. County recording practices have been in place for 300 years.”

    Register Thigpen added:

    “It is interesting that the first fundamental change in public land title recording systems was not initiated by publicly elected leaders, but a small group of mortgage industry insiders.”

    A recent San Francisco study of its land records noted that the “settlement” would not block enforcement of

    “California Penal Code §115, which states that any person who “knowingly procures or offers any false or forged instrument to be filed, registered, or recorded in any public office within this state, which instrument, if genuine, might be filed, registered, or recorded under any law of this state or of the United States, is guilty of a felony.””

    And then the study detailed documents which certainly appear to violate that provision. A gimmie example are the double assignments–the ones where MERS assigns the mortgage to one company and then later MERS assigns the mortgage to a different company. If the first assignment is true, then the second assignment is false; if the second assignment is true, the first is false. Another gimmie example involves securitized loans. Federal filings show that Trust ABC owns a loan, but the documents foreclosing bankers filed in the land records say somebody else does. These examples plus others in the report appear to be criminal.

    So far, two attorneys general have been brave enough to use the word criminal: Nevada’s Catherine Cortez Masto and Missouri’s Chris Koster. The rest of law enforcement has been AWOL.

    More Visible Ice: The Shadow inventory

    Below the clearly defined ice peaks that are the individual foreclosure cases and our land records, are the foreclosure fraud iceberg’s foothills–the massive inventory of foreclosed properties for sale and soon-to-be-for-sale. These properties convey the scale of the fraud and forgery already committed in our legal system. They also are a big dead weight on the housing market, driving down prices. And don’t you believe people who tell you that it’s deadbeat borrowers fighting foreclosure that have lead to such a massive backlog of properties.

    Michael Olenick has done the most defensible analysis of “shadow inventory” to date, and in addition to his scary inventory numbers and observation that most foreclosures are uncontested, he offers this detail: “in Palm Beach County there are 10,794 more final judgments of foreclosure that are at least a year old than there are certificates of title issued.” His post on the shadow inventory includes other anecdotes showing that foreclosing bankers, not self-defending homeowners, are slowing the foreclosure and resale process.

    Ice at the Water Line: the Coming Pension and Tax Crisis

    The ice beneath the shadow inventory, the partially concealed ice right at the water’s surface, is our coming pension and tax crisis. One glimpse of this crisis to come is public record information that takes some effort to find and skill to understand, like the reports bankers send investors allegedly detailing how a given mortgage-backed security is performing. Lisa Epstein, an anti-foreclosure fraud activist who runs the website Foreclosure Hamlet, has spent countless hours reviewing these reports. Epstein has found those reports inaccurate–they list houses as “in default” when in fact they’ve been foreclosed and sold off, for example. And the errors tend to make the securities look more valuable than they are, while helping the bankers charge investors unjustifiable fees. But even taking the information as accurate, Epstein finds that investors are getting hosed. Investors are losing as much as 100% of the loan balances.

    Why? Mortgage servicer (banker) mismanagement, through fee-larding, failing to modify loans when it would make investors more money, and failing to sell foreclosed properties. Note, I say “failing to sell” deliberately–in many cases, the foreclosing bankers (plaintiff’s representative in this example) will outbid the third party buyers, $100 at a time. In other cases, foreclosure auctions fail because the minimum bid is above market price. How do these investor reports relate to a pension and tax crisis? Well, pension funds, 401ks and the U.S. taxpayer, via Fannie and Freddie, are the biggest investors eating these losses. Taxes will need to be raised, diverted from other worthy expenditures and/or pension benefits cut to compensate for these losses.

    But there’s more data points showing the coming pension and tax crisis. Foreclosures wreck tax bases; consider this report by the Center on Policy Initiatives, which found that foreclosures have cost San Diego, CA $117 million in lost property tax and hundreds of millions more in increased costs like maintenance and policing. According to another story, foreclosures cost Minneapolis, MN $150 million in state funding for education. A New York fact sheet has each foreclosure costing nearly a quarter of a million dollars in direct and indirect costs. To understand the myriad dynamics set in motion by foreclosures, check out this 2010 report for the Connecticut Legislature.

    These dynamics and the tax base destruction they involve are one of the forces wrecking state budgets. Check out Mandelman‘s list of austerity measures states have already taken, with worse to come, given the remaining state budget shortfalls. The state budget crisis, in part fed by mass foreclosures, is going to continue damaging our economy for years to come.

    A more anecdotal but still common sense retirement impact of the foreclosure crisis is this: for many people, their home was their retirement plan, a big asset that could be sold when needed, supplemented by savings that they blew through trying to save their homes. With the savings gone and the house repossessed, these baby boomers are facing a financially insecure old age. Will we return to a time when our elderly eat cat food to get by?

    The Submerged Ice: Wealth Destruction, Crony Capitalism and the Untouchables

    Fraud, forgery and obstruction of justice in our courts; fraud and forgery in our land records; housing market destruction through mass oversupply of foreclosures (among other dynamics); the destruction of our tax base and retirement security–all these are plenty damaging to our economy and our democracy. But combined they do less damage than the parts of the foreclosure fraud iceberg people don’t focus on.

    Foreclosures destroy wealth with guillotine swiftness. Not just the foreclosed homeowners’ wealth, but that of their neighbors too, through reduced property values and shrunken tax base. Back in 2008 the Center for Responsible Lending found that foreclosures of only subprime loans originated in 2005 and 2006 would destroy $202 billion of property values and tax base. Of course, these days many foreclosures were prime loans, were people who had substantial equity before the bottom fell out of prices, so the true numbers are far worse. Indeed, our financial meltdown and the housing and foreclosure crisis it spawned has destroyed trillions of dollars of middle class wealth. Nearly everyone is losing money.

    But perhaps not the well-connected. For example, Phil Angelides, the ex-head of the Financial Crisis Inquiry Commission recently started and abandoned a venture to buy troubled loans and make 20% for investors by preventing foreclosures. Why is that crony capitalism? Well, Reuters reported:

    “The company, Mortgage Resolution Partners, claims its strategy of using “legal and political leverage” to acquire the loans could generate a 20 percent annual return for investors. …In the letter, the mortgage company refers to its political connections as its “secret formula.” Angelides, a former California state treasurer, Democratic politician and land developer, was head of the Financial Crisis Inquiry Commission until last February.”

    Reuters later reported that Angelides quit the company. Nonetheless, Congressman Patrick McHenry (R-NC) wrote to Housing Secretary Donovan asking about protections against crony capitalism affecting the use of “settlement” funds.

    The crony capitalism at the heart of our Bailed-Out Banker Nation goes far beyond companies like Mortgage Resolution Parnters or its gross cousin, PennyMac. Consider the meeting where Treasury Secretary Hank Paulson apparently tipped off Wall Street buddies about Fannie Mae and Freddie Mac’s coming government takeover. But the privatize profits, socialize losses mentality, the hey, don’t worry bankers, the taxpayer will make your risky bet a sure thing approach to ‘public’ policy long predates the current iteration. David Stockman, who was President Reagan’s budget director, recently explained on Bill Moyers’s show on crony capitalism:

    “DAVID STOCKMAN: I think it started with the bailout of the banks in 1994 during the Mexican Peso Crisis. […] That was allegedly designed to help Mexico. It was $20 billion with no approval from Congress that was used, I think inappropriately out of a Treasury fund. And why were we doing this? It’s because the big banks were too exposed to some bad loans that they had written in Mexico and elsewhere.

    BILL MOYERS: Wall Street banks. U.S. banks.

    DAVID STOCKMAN: Wall Street banks. Wall Street banks. The banks of the day, Citibank, Bankers Trust, the others that existed at that time. And so the idea got started that Washington would be there with a prop, with a bailout, with a helping hand. And then the balls start rolling down the hill.”

    The bold is mine, and it’s why this submerged ice is so big and deadly. The crony captialists, our Bailed-Out Bankers, have distorted the structure of our democracy to suit their needs. See, it’s not just the $20 billion from the peso days.

    It’s also the trillions that the Fed gave the banks without Congressional permission, Congressional knowledge, or even the vaguest awareness of the American people. The Bloomberg News article deserves a close read, in particular for the policy influencing impacts of the secrecy. The article quotes members of Congress who believe that more serious banking reform–much more serious than Dodd-Frank–could have passed if the scale of the bailout loans had been known, real time. While such remarks are surely at least a little self-serving, the public’s reaction to the $700 billion TARP bailout suggests those Congressional commentators are right.

    And it’s not just bailouts; Wall Street has the President’s ear. As Gawker explained, “Citigroup Replaces JPMorgan as White House Chief of Staff.” Not for nothing, Wall Street is among President Obama’s biggest funders.

    But massive destruction of middle-class wealth and serial banker bailouts are only two thirds of the massive submerged ice mass that is tearing through our nation. The final third is the untouchable status of the Bailed-Out Bankers. A must read article by Professor Mary Ramirez, an ex-prosecutor, describes how the failure to prosecute the obvious crimes committed by the Bailed-Out Bankers pathologically institutionalizes their above-the-law status and inspires more criminality. Failure to prosecute, Ramirez argues, affirms the bankers’ crimes.

    Yes, It’s Really a Foreclosure Fraud Iceberg

    Some might complain that institutionalized criminality by bailed out bankers, public policy commitments to bailing them out again, secretly if needed, and the trillions in wealth destroyed by housing’s collapse are a bit attenuated from foreclosure fraud, and that I’ve misnamed my metaphorical iceberg. But they are all really of a piece: the fraudulent documentation machine that obstructs justice in most foreclosure cases across the country is institutionalized criminality by bailed out bankers. The “settlement” that absolves the bankers of so much of the liability of their crimes, rewards them with tax dollars for deigning to “pay” their “penalty”, while wrongly protecting the bankers’ second lien portfolio is yet another semi-secret bailout.

    Foreclosure fraud is the very essence of everything going wrong right now. And that’s why it needs to be stopped, and bankers jailed for it. Too bad the “settlement” does neither. Too bad we’re still plowing full throttle into the iceberg.

  11. If ” QUIET TITLE” is the solution, why are we not seeing lawyers pushing this defense?

  12. I just figured out why Baum is purchasing hundreds of Burger Kings, to hush up the burger king kid, robo signers.

  13. Neil, I know the headline to this article reads “The Price Of Arrogance”, but it might work out better to entitle it “The Price Of Reading Glasses”, seeing as how it’s from a year ago this week.

    Best Birthday wishes!

  14. Now we just need Massachusetts to rule on the Eaton case and it will be another fine ruling for homeowners 2012 is looking better and better!

    http://www.bloomberg.com/news/2012-02-21/seizures-threatened-in-massachusetts-with-naked-loans-challenge-mortgages.html

  15. Neil….why was this article posted? we read it last year…has Judge Grossman ruled on another case?

  16. I’m not holding my breath about the demise of MERS

  17. OF COURSE QUIET TITLE IS THE SOLUTION WHY DO YOU THINK EVERYTIME WE GET CLOSE THEY FIND A WAY TO COVER IT UP.

    LIKE OOPS WE LOST THE NOTE
    LIKE OOPS THIS IS PROPIETARY INFORMATION.

    NEIL GARFIELD KEEP UP THE GOOD WORKING

  18. I got duped into posting this article on FB yesterday as if we could all fold up our tents and go home now. A friend pointed out this morning that the article was from LAST YEAR!

    Why doesn’t Wray write another article about how MERS is not dead and how the banks are NOT SCREWED? Jeeeze Louise.

    And Gwen: I read Dave’s first book in November of 2010 per your recommendation. (No, I did not distribute it on the web to anyone else.) And Dave recommended an attorney to work with me on the Quiet Title issue. But in the end, even though MERS is all over my DT, I was told that the case would be too expensive and too much trouble and would only “Quiet Title” for the current servicer. I am pretty NOT impressed with all the time, effort and money I spent on QT, only to be blown off and “fired” by my attorney and Dave. Before anyone gets out the Champagne over quiet title, be warned. Don’t count those chickens that supposedly have come home to roost!

  19. @E. Toile

    Got a better idea… Become a delegate and celebrate ahead your accomplishments!

    http://www.the99declaration.org/

  20. Yes, it’s from January 16, 2011. Should I take off this silly party hat and recork the bubbly?

  21. Thanks for the article Michael – In re Agard has been used to whip some butts quite a bit for a year now; it gets knocked down too, but holds up pretty well.

  22. Isn’t that a year old?

  23. Dave Krieger has been arguing this for several years now and no one would listen including the Editor who refuses to post many of dave’s articles. Quiet title is the issue and Dave was alone yelling about it. His second Clouded Titles book is almost 400 pages with numerous kudos from lawyers who have learned from dave the paralegal. Dave and I have been trying out theories with quiet title for almost two years now–for the most part with lawyers telling us we are nuts. Too bad people have not listened including the editor. Dave’s new book will only be in hardcover as too many people stole and distributed his on line version. He is now giving seminars with lawyers in Portland/Seattle and Sarasota. My case is stuck in procedural hell with a removal that is absurd and a Judge who hates my guts. But in two years they have yet to be able to contest title or show that MERS did not split the note from the DT per Carpenter and Bellistiri.

  24. This ruling is from last year…is there something new?

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