Foreclosuregate is rapidly spiraling out of control, and is going to get worse.
As I have repeatedly said since 2007, this is not about bad paperwork. It is about fatally-defective securities sold to investors for half a decade and the fraud up and down the line that enabled those sales.
In no particular order the biggest (but by no means the only) problems are:
- Borrowers overstated income, assets or both. In some cases they did so willingly and knowingly. In others loan officers changed numbers to “ram it through” the computer-operated approval systems, submitting files multiple times while doctoring figures. In the latter case perhaps the borrower knew, perhaps not – many people didn’t read the entire 100+ page stack of paper at closing. That’s dumb but it’s not criminal. Changing the figures or lying, on the other hand, is criminal.
- Lenders stuffed paper they either knew was bad or had the ability and legal duty to verify the provenance of but intentionally did not into securities sold to investors. This has been disclosed in FCIC hearings and is no longer speculative, although as I noted in 2007 it had to be the case because it was the only way the deals that were being done could have possibly been done. This was an act of deception and in my opinion (along with many others, including plenty of attorneys) meets the legal definition of fraud.
- The land title system in this nation was intentionally subverted and corrupted by both intentional act and intentional laziness, all driven by the motive of profit. Original paperwork was either shipped overseas or intentionally destroyed. In even more cases it was not conveyed as legally required by the trust documents. This has massively-corrupted the chain of title for perhaps as much as one third to one half of all residential housing units in this country and if not corrected will render these homes unmarketable in the future. This is the vastly unappreciated problem with what has been done to date.
There is a template for resolving this sort of problem, and The States can implement it right now. It was used in large part in Florida to resolve the “swampland” mess that arose during the 1920s, and with minor changes we can adapt it to what we face now.
The correct, just, and only way to resolve these problems is to force a clearance of the chain of title, which in turn forces proof of provenance of the indebtedness claimed to be owed by the homeowner.
This is no different than what is required in a bankruptcy or any other civil collection action where the person alleging that you owe a debt, and who wishes to obtain a judgment to collect it through garnishment or seizure, must first prove they are the actual beneficial holder of said debt.
Since there can only be one actual beneficial holder of said debt, this provides the necessary and appropriate judicial determination and forces recordation of the chain of title and security interest that should have been done all along.
To implement this we must do the following:
- Halt all foreclosures and sales – stand-still – until this process is completed. Those who currently have possession will continue to have it for the time being.
- Halt all mortgage payments where the servicer (the entity to whom the payment is made) is not the original lender, or where the loan was securitized. Instead, such payments are made to suspense accounts held by the Clerks of the Court in each county where titles are maintained and recorded. This is necessary in order to provide the essential motive of cooperation by those who allege they are owed the money.
- For each parcel with mortgage(s), those who claim interest must then come to court and prove it up with an unbroken chain of assignments. Provide a reasonable amount of time (one year?) for them to do so. If there are multiple claimants then the court must resolve who actually has standing and who does not. This will resolve with either one valid claimant or none at all.
- If there is one valid claimant, then that chain of assignments is recorded, the impounded funds are released, and the homeowner now knows who pay. If there are no valid claimants within the time provided then the title is quieted and a judicial release of liens is recorded. Either way, we resolve the land title problem and the entity entitled to receive the payment stream has proven their case and obtained a release of their funds.
- The lack of a valid claimant under state law does not extinguish the debt – only the security instrument. Those who think they’re going to get a “Free House” are likely to be sadly mistaken. The creditor still has a claim for the money owed (if he can prove it up in court) and can enforce it via lawsuit as with any other unsecured debt but he can’t seize the property in a foreclosure action. As with any claim of a debt in a court, the creditor still has to prove standing – which means he needs to prove the obligation was taken by the borrower and he has acquired sole and lawful ownership of that obligation. Note that this is similar to the above process but not identical – in many states it is entirely possible to irrevocably sever a security interest on real property, but that does not extinguish the debt – only the lien on the title.
- We MUST compel Trustees to audit all MBS files. If investors are holding an empty box they certainly have a cause of action. So far we have seen few of these actions, and no evidence that these audits were ever done – including at inception of the Trust. It was and is a legal duty of the securitizing parties to insure compliance with both the representations and warranties provided to investors regarding loan quality and IRS regulations. The proper “hammer” to wield here is via the IRS – these trusts must meet specific legal requirements in order to have and keep their “pass-through” status. Most of the scams and frauds, if they occurred in a given trust, would cause it to violate those requirements. We have a serious budget problem in the United States, and this is one way to help address it.
- We must enjoin by permanent legal process future subversion of land titles. This includes entities such as “MERS”. If MERS wishes to “track” mortgages for people’s convenience that’s fine and well but that cannot be allowed to stand in for recordation of transfers of security and ownership interests. MERS cannot be allowed to replace, subvert or supplant the land title system in The United States. This is a State Law function – not a federal one and is well-supported in State Law. It is historically, and with good cause, vested at the level of the county government, where ad-valorem taxes are levied as well for local government support. As such any claim made by an entity such as MERS must have no legal standing whatsoever – recorded county records control, period.
- Where criminal conduct is found – whether it be securities fraud, control fraud, borrower fraud or any other sort of fraud, the case must be referred for prosecution. We must start with the “heads of the snakes” but we must not stop there. There are plenty of people who were involved in this and knew what they were doing was illegal – but didn’t care. Most of the offenses involved are felonies, and we are well-beyond where we should be seeing indictments by the hundreds with civil forfeiture actions attached.
This process will inevitably cause the paper that was either not conveyed to the MBS Trusts at all or was conveyed in violation of the Representations and Warranties to be forced back up the chain. It will land on the large banking institutions who performed these securitizations. In some cases they will be able to force it further backward onto the originators, but in many cases the originator either was the bank or they’re out of business. In those circumstances they’re stuck with it.
This will further erase the arguments about servicers and investors over loan modifications, since now the Bank will hold the loan and have an undivided interest in it. As such there’s nothing to fight about – if it’s in the best interest of the Bank to modify the loan, they will. If it’s in their best interest to foreclose, they will. But in either case they will do so lawfully, within the confines of due process and land title law, rather than the outrageously lawless process we have going on now.
The nation is on the edge of anarchy with reports of homes being literally stolen, bank employees breaking into occupied dwellings to change the locks on houses they had not yet foreclosed on, multiple sales of the same property, improper foreclosures on houses where there was no mortgage at all, service of process that never happened and was attested to, literal forgery of court documents (e.g. process service filed that pre-dated the lawsuit itself) and other outrages.
If this is not stopped immediately there is every reason to believe that the people of this nation will come to the conclusion that the bedrock of society – private property ownership – has been intentionally destroyed by a band of brigands with the explicit cooperation and permission of the government. Should that conclusion be reached – that our government has conspired with private parties to expropriate the homes of the citizens – history says that the outcome is likely to be extremely unpleasant and irreversible.
We are running out of time to do the right thing.
If you care about this country and its future you will fax this to your Governor, your State Attorney General, to your Congresspeople (all three) and to The President, and you will demand that they act – not talk – on this before November 2nd.
Words no longer count.