Livinglies's Weblog

Reno, Nevada. In 2009, 16 banks hired 16 highly prominent law firms to take deposition testimony from an expert on the process of securitizing debt. He had been named as an expert witness in a class-action lawsuit against MERS (Mortgage Electronic Registration Systems, Inc., MERSCorp etc — actually three distinct entities, one of which, the main one whose name used as a billboard in foreclosures, has no assets, no employees, and nothing to do).

The deposition lasted 5/1/2 days mostly 9 am to 5 pm. The witness was Neil Garfield (me). They never challenged me again and they never transcribed the testimony. As punishment and maybe an effort at deterrence, each law firm took a whack at me but I never wavered.

At one point I was asked whether it was my opinion that all of the million-plus MERS foreclosures thus far had been illegal and wrongful I said yes. And his follow-up question was just plain stupid. Isn’t that a little grandiose?” he asked. “Not as grandiose as what your clients are doing,” I replied.

The principal issue in the deposition was any opinion that I had regarding the use of the MERS name. My opinion had always been and still is that the use of that name is no better than the use of any fictional name of any fictional character, like Donald Duck.

I also had the opinion that the companies that have been named as “servicers” were not performing any functions normally associated with that of a servicer. But nobody asked me about that. sIt wasn’t actually the subject of the lawsuit in which I was testifying. And they certainly did not want to introduce another explanation of how the entire securitization infrastructure was an illusion. But if they had asked me, I would have replied that these companies could not possibly be acting of “servicers” because there was no loan account and they were not handling any money. I knew that from my contacts on Wall Street and from simple logic — no investment bank would have allowed any thinly capitalized company to ever possess or control the flow of funds. That just doesn’t happen.

They were all scared. All of them were already up to their kneecaps in more money than they would ever have otherwise seen in a lifetime. I was a threat. More than 3 years earlier I emerged from semi-retirement to issue a warning that a tsunami of illegal foreclosures was already beginning. I went on TV and radio, writing for newspapers, foreign and domestic proclaiming that the wave was a giant hallucination based on nonexistent debt, fabricated entities and false documentation. Very few people accepted the truth of that message.

I had conducted seminars demonstrating the proof that no case in foreclosure could be legally sustained because there simply was no unpaid debt. Some lawyers had become rich representing homeowners based on a simple premise: if you press the issue nobody would be able to even fake a loan account, much less produce the real one. Other lawyers had become super rich representing the interest of investment banks using intermediaries. Their premise was just as simple: if they could produce documentation that appeared to be facially valid they would win a foreclosure case 999 times out of 1000.

The successful Foreclosure Defense lawyers litigated aggressively on the issue of insufficient evidence: that neither a witness or any exhibit produced a copy of the loan account which was the only credible source that could identify the balance due. Foreclosure prosecution lawyers litigated aggressively against the relevance of those defenses.

It is true that they cannot produce the loan account because there is no loan account. But they could fake a payment history and then convince the judge to regard that report as sufficient to draw the conclusion that a balance was due to the company that the lawyer had named as a claimant. The absence of the loan account and the absence of any custodian of records employed by the named claimant was overlooked by many. Instead, most people accepted the testimony of a robo witness employed by the company named as servicer but who did not perform any functions relating to receiving, accounting or disbursing money to or from any account. The witness knew nothing.

The bottom line of my testimony was that MERS was a registered corporation playing the part of a fictional character in all foreclosures where it had been named as claimant, a beneficiary under the deed of trust, or a mortgagee under a mortgage deed. My testimony — literally —- was that naming MERS had no more descriptive or legal effect than inserting the name Donald Duck. Yes I said that. And when I attended Bar seminars on banking or securities, the area around me was always quickly emptied as soon as I selected a place to sit. Just being near me could get them fired.

The context is important. Most people forget this, although that phenomenon seems incredible to me. in the early 200s, the banks had all failed in their attempts to put forward a claimant who could arguably be the successor to the named “lender” in a transaction with homeowners. But none of that was relevant to the final result unless the homeowner contested foreclosure. Some law firms hosted seminars for bank lawyers to cover their behinds. They said that prosecuting foreclosures on the basis of false documents creates liability and that the banks if they proceeded, were acting at their own peril.

But everyone knew the money was just too much. Nobody walked away from a pile of money that was so high. Lawyers of dubious skill were literally riding high in multiple jets. They were the kings, they were the pawns, they were the knights and bishops. Everything took place under that layer of protection for lawyers that is necessary to make the system work.

So they invented a scheme where nearly everyone would be fooled into believing that an unpaid loan existed, and they were nearly completely successful in creating the illusion that there was a default declared because some Bank had suffered an economic loss. The rest was easy except for the tiny few who challenged them on the obvious. Those consumers won. But they were so few that it was a mere rounding error for the banks who had pulled off the greatest economic crime in human history.

Still, they could not possibly maintain the illusion of loan accounts unless there was someone who would claim to own a loan account. But nobody would do that because it turns out that even greedy arrogant people have a healthy respect for jail time and they all know the definition of perjury. But they were just greedy enough to rent out their names to others who would claim that the bank claimed that there was a loss. If this fraudulent practice had blown up, banks and servicers would’ve said that they never claimed that the loan account existed.

They would say that lawyers (protected by litigation immunity) and third party vendors had done all of that and if it was wrong it was their error. They would not be one shred of evidence or any agreement authorizing those parties to make the statements that are routinely made in fabricated documents and legal argument in court.

It took a while for the lawyers to iron out the obvious problems. The lawyers could not name the “originator” because the originator was either out of business or no longer had any arguable interest in the transaction.

They were also knocked down when they tried to name the company named as a “servicer” because by definition a servicer is a debt collector and only the actual creditor can foreclose as per 9-203 UCC. More on this below.

Forensic experts had been saying all along that something called a “REMIC trust” might be the owner but, when pressed, the lawyers vehemently denied that there were any such trusts involved. No trust, they said, had ever been party to any transaction in which the debt or obligation of homeowners had been purchased or conveyed by a trustor or settlor. The irony was that the banks were telling the truth. More on THAT later too.

With the originator alone strategy knocked out because the originator was neither a lender nor a successor lender and with the servicer strategy also knocked out because no servicer possessed a claim. A servicer was supposed to collect payments, account for them, and disburse them to the creditor.

As it stood, there was no reliable way to make a claim on homeowners to make payments regardless of whether they were scheduled or not — unless the banks found a way to sue for a judgment for money damages — something that would be quickly discharged in bankruptcy.

The banks had strongly implied but never stated to anyone that they would be funding enforceable residential mortgage loans. If the mortgages could not be enforced by anyone then the entire infrastructure of derivative securities, certificates, and hedge products would topple and fall flat. The market for those instruments would have disappeared.

There would be no more sales of derivatives thus choking off the bread and butter resource for most commissions, bonuses, and salaries for thousands of people whose entire income was completely dependent on receiving that money — even if it was dirty. The banks were entirely devoted and committed to finding a way to make those mortgages appear enforceable.

So they went back to the originator strategy and fabricated an agent for the originator and documents creating that agency. This was already at least halfway underway because MERS was originally intended to be a completely unnecessary central data repository for receipt and processing of data contained in applications for loans. The stated function was already being performed by the recording offices in every county in every US jurisdiction. The stated function was that it was keeping track of the owner of the mortgage liens. But that was not it’s real function.

The decision was made at the highest levels of banking, business, and government that MERS would be made to appear as the fictional creditor or at least the agent for a disclosed creditor (i.e., the originator whom you will remember had long since received its originator fee and was out fo the picture).

In short, the banks were dual tracking the purpose of MERS. First to continue acting as a central repository to keep track of who was claiming ownership of homeowner obligations (along with the tacit agreement that no such obligation existed). This quickly extinguished the errors made toward the beginning of the era of fake foreclosure actions when more than one claimant was named, certified, and recorded as the mortgagee of the homeowner, sometimes resulting in consecutive judgments and foreclosure sales of the same property within as little as a week.

Second it was to be named but not to participate as a claimant, plaintiff or beneficiary in foreclosure. MERS, replacing the New York Stock Exchange in an old joke, had become the world’s largest and greatest dry cleaning establishment supporting transfers of ill-gotten money. It became the perfect vehicle and device for laundering title to create the illusion of an underlying interest.  The obvious defect was that MERS was in an even worse legal position than the named servicer who at least could pretend that it was receiving, accounting, and disbursing homeowners payments. MERS disclaimed any role in that. It also disclaimed any economic interest in any note or mortgage.

So the upshot in several states, after my deposition, was that MERS was either banned or barred from being named as the claimant in foreclosures. Instead, the banks took one step back and had MERS, as nominee for the originator (who was not a lender) execute documents that transferred nonexistent ownership and control over the nonexistent debt or obligation of homeowners eventually to a brand name bank.

But the bank appeared as trustee and not on its own behalf — a caveat that the attorneys for the brand name bank insisted appear. And those same lawyers allowed their commercial bank clients to be named as trustee — as long as the brand name bank had no rights, duties, or obligations to act as a trustee for anyone and therefore no liabilities for any actions conducted under the name of the brand name bank. But Wall Street securities firms had what they wanted — the free use of the name of multiple billion-dollar commercial banks like U.S. Bank, Bank of New York Mellon, and Deutsch Bank National Trust Company.

Those securities firms had it right when they trusted that nobody would question the fake structure and the fake documents that came out of all that.

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