Op-Ed: 60 Million Mortgages May Have Fatal Flaws
Commentary by George W. Mantor Print Article
RISMEDIA, September 29, 2009—The latest chapter in the mortgage meltdown is being written in court, as one by one, judges are putting a halt to foreclosures. The latest was a recent Kansas Supreme Court case. In Landmark National Bank v. Kesler, the court held that a nominee company called MERS had no standing to bring a foreclosure action.
Nor was Kansas the first. In August 2008, Federal Judge for the U.S. Bankruptcy Court for the District of Nevada ruled MERS had no standing. ”Indeed, the evidence is to the contrary, the Note has been sold, and the named nominee no longer has any interest in the Note.”
In September of 2008, A California Judge ruling against MERS concluded, “There is no evidence before the court as to who is the present owner of the Note. The holder of the Note must join in the motion.”
On March 19, 2009, the Supreme Court of Arkansas determined that MERS was not the true beneficiary because the Note had been sold. Alabama and Florida have made similar rulings.
In each case, the reason stems from a fundamental misstep in the handling of Notes and Trust Deeds that runs contrary to established court policies which require that the real parties identify themselves to the court. Each of these cases involved MERS and, in each case, the courts’ rationales were almost identical.
First, a little background. Over the last 40 years, mortgage lending has evolved from a bank holding the mortgage to the mortgage being bundled and sold as part of an investment pool, usually in the form of a bond.
As a registered security, the Note is a negotiable instrument, like money or a cashier’s check, and under securities law that Note must be given to the investor. In this case, mortgage backed securities, (MBS) were bundled together in a pool and shipped to…well, we don’t really know.
One of the impediments to an MBS is the need to file assignments for the beneficiaries in each county each time the mortgage is resold. And apparently, no one holds them for very long because most have been passed around several times.
In order to avoid the logistical nightmare of trying to maintain a public chain of title, the biggest lenders joined MERS, Mortgage Electronic Registration Systems, Inc.
MERS was created with the sole intent of evading the recording fees due to the county in which the security is located.
In so doing, in my opinion, they also destroyed the age-old practice of making a public record of information concerning real property in general, and legal interest specifically. The chain of title is a vital record produced to resolve many a dispute.
Now, that’s gone. I believe, erased simply so they themselves, MERS, could siphon off the recording fees for themselves. They sold their business model to lenders as a better way to track mortgages that were being sold and resold all over the world.
But, as there often is with a BIG IDEA, there were also unintended consequences. Only now are they coming to light. Until MERS was challenged in a foreclosure proceeding, no one had taken a look at the law.
The law, according to a Nevada Judge, is that for purposes of foreclosure, both the Note and the Deed of Trust must be assigned. When the Note is split from the Deed of Trust, the Note becomes unsecured. A person holding only a Note lacks the power to foreclose because it lacks the security.
MERS lost track of the Notes. In some cases, according to my research, they deliberately destroyed them.
Every thing was fine until the economy contracted. MERS began foreclosing on delinquent home loans and then one day; someone said “show me the Note.”
In reviewing the judge’s rulings in the above matters, several key points have been determined:
• MERS is not the beneficiary of the Notes and has no skin in the game. It did not lend any money, collect any payments or do anything more than track the sale of the securities.
• Judicial procedure requires that parties identify themselves and prove their standing.
• Splitting the Note and Trust Deed leaves no party with standing to foreclose. The true holder of the Note, the security, paid the lender so the lender is covered. The true holder of the Note was insured by AIG so they are covered. AIG and the banks were bailed out by taxpayers. So, unless the American tax payer can produce a “blue-ink” original Note, no one has standing to foreclose.
• Allowing a foreclosure to proceed without the original Note places the homeowner in double jeopardy. If the original Note were to surface, the holder of the Note would be entitled to payment, but from whom? The borrower is still on the hook.
MERS currently holds 50 to 60 million loans so this is no small matter. And, just because they have lost repeatedly doesn’t mean they will give up. They will keep right on foreclosing in hopes that the homeowner won’t fight back and, in most cases, they won’t be stopped.
[Editor’s Note: RISMedia has been in touch with MERS for a response, which will be running in our Wednesday edition of the e-news.]
George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.
Mantor can be reached at GWMantor@aol.com.
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Jobless rate at 9.7 pct.; 216K jobs lost in Aug.
By CHRISTOPHER S. RUGABER
Friday, September 4, 2009
WASHINGTON -- The unemployment rate rose to 9.7 percent in August, the highest since June 1983, as employers eliminated a net total of 216,000 jobs.
Analysts expect businesses will be reluctant to hire until they are convinced the economy is on a firm path to recovery. Many private economists, and the Federal Reserve, expect the unemployment rate to top 10 percent by the end of this year.
While the jobless rate rose more than expected, the number of job cuts is less than July's upwardly revised total of 276,000 and the lowest in a year, according to Labor Department data released Friday. Economists expected the unemployment rate to rise to 9.5 percent from July's 9.4 percent and job reductions to total 225,000.
If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the so-called underemployment rate reached 16.8 percent, the highest on records dating from 1994.
The recession has eliminated a net total of 6.9 million jobs since it began in December 2007. There are now 14.9 million Americans unemployed.
Other economic data released this week has been positive. The Institute for Supply Management, a trade group, said Tuesday that the manufacturing sector grew in August for the first time in 19 months. On Thursday, the ISM said its service sector index rose to 48.4 last month, the highest level in nearly a year. Home sales, meanwhile, have increased for several months and prices are stabilizing.
Federal Reserve policymakers said in minutes from an August meeting that they expect the economy to recover in the second half of this year. But labor market conditions are still "poor," the Fed minutes released Wednesday said, and many companies are likely to be "cautious in hiring" even as the economy picks up.
Some economists credit the Obama administration's $787 billion economic stimulus package of tax cuts and spending increases, along with the Cash for Clunkers program, with contributing to a recovery. But they worry about what will happen when the impact of the stimulus efforts fades next year.
Vice President Joe Biden defended the stimulus package Thursday against Republican critics who say it is too costly.
"The recovery act has played a significant role in changing the trajectory of our economy, and changing the conversation in this country," Biden said. "Instead of talking about the beginning of a depression, we are talking about the end of a recession."
Republicans criticized Biden's speech. "The Democrats' rhetoric on their economic experiment doesn't match with the reality of millions of Americans remaining unemployed," said Republican Party chief Michael Steele. "The stimulus was an economic experiment that failed Americans."
