THURSDAY 11 NOVEMBER 2010

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Homeowners' Rebellion: Recent Rulings Could Shield 62 Million Homes From
Foreclosure

Thursday 19 August 2010

by: Ellen Brown, t r u t h o u t | News Analysis

(Photo: bossco;
Edited: Jared
Rodriguez / t r u t h o u t)

Over 62 million mortgages are now held in the name
of MERS, an electronic recording system devised by and for the convenience of
the mortgage industry. A California bankruptcy court, following landmark cases
in other jurisdictions, recently held that this electronic shortcut breaks the
chain of title, voiding foreclosure. The logical result could be 62 million
homes that are foreclosure proof.

In a Newsweek article a year ago called "Too Big to Jail: Why
Prosecutors Won't Hit Wall Street Hard in the Subprime Scandal," Michael Hirsch wrote that we were unlikely to see trials and
convictions like those in the savings and loan scandals of the 1980s, because
fraud and blame have been so widespread that there is no one to single out and
jail. Said Hirsch:

"The sad irony is that in pleading collective guilt, most of
Wall Street will escape whipping for a scheme that makes Bernie Madoff's
shenanigans look like pickpocketing. At the crest of the real-estate bubble,
fraud was systemic and Wall Street had essentially gone into the loan-sharking
business."

"Unfortunately," he added, "prosecution of fraud is the only
way you're going to get reform on Wall Street."

Sure enough, a year later we got a banking reform bill that was
so watered down that Wall Street got nearly everything it wanted. The
too-big-to-fails, rather than being whittled down to size, have grown even
bigger, circumventing antitrust laws; and they are being allowed to carry on
pretty much as before. The Federal Reserve, rather than being called on the
carpet, has been given even more power; and the Consumer Protection Agency - the
main part of the bill with teeth - has been put under the Fed's watchful eye.
Congress and the Justice Department seem to have bowed out, leaving no one to
hold the finance industry to account.

But the best laid plans even of Wall Street can sometimes go
awry. In an ironic twist, the industry may wind up tripping over its own
Achilles heel, the Mortgage Electronic Registration Systems or MERS. An online computer software program for tracking
mortgage ownership and rights, MERS is, according to its web site, "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." Or as Karl Denninger puts it, "MERS own website claims that it
exists for the purpose of circumventing assignments and documenting
ownership!"

MERS was developed in the early 1990s by a number of financial
entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac,
allegedly to allow consumers to pay less for mortgage loans. That did not
actually happen, but what MERS did allow was the securitization and shuffling
around of mortgages behind a veil of anonymity. The result was not only to cheat
local governments out of their recording fees, but to defeat the purpose of the
recording laws, which was to guarantee purchasers clean title. Worse, MERS
facilitated an explosion of predatory lending in which lenders could not be held
to account because they could not be identified, either by the preyed-upon
borrowers or by the investors seduced into buying bundles of worthless
mortgages. As alleged in a Nevada class action called Lopez v. Executive Trustee
Services, et al.:

"Before MERS, it would not have been possible for mortgages
with no market value ... to be sold at a profit or collateralized and sold as
mortgage-backed securities. Before MERS, it would not have been possible for
the Defendant banks and AIG to conceal from government regulators the extent
of risk of financial losses those entities faced from the predatory
origination of residential loans and the fraudulent re-sale and securitization
of those otherwise non-marketable loans. Before MERS, the actual beneficiary
of every Deed of Trust on every parcel in the United States and the State of
Nevada could be readily ascertained by merely reviewing the public records at
the local recorder's office where documents reflecting any ownership interest
in real property are kept.…

"After MERS, ... the servicing rights were transferred after
the origination of the loan to an entity so large that communication with the
servicer became difficult if not impossible... . The servicer was interested
in only one thing - making a profit from the foreclosure of the borrower's
residence - so that the entire predatory cycle of fraudulent origination,
resale and securitization of yet another predatory loan could occur again.
This is the legacy of MERS and the entire scheme was predicated upon the
fraudulent designation of MERS as the 'beneficiary' under millions of deeds of
trust in Nevada and other states."

MERS now holds over 62 million mortgages in its name, including over half of all new US
residential mortgage loans. But courts are increasingly ruling that MERS is
merely a nominee, without standing to foreclose on the collateral that makes up
a major portion of the portfolios of some very large banks. It seems the banks
claiming to be the real parties in interest may have short circuited themselves
out of the chain of title entitling them to the collateral.

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Technicality or Fatal Flaw?

To foreclose on real property, the plaintiff must be able to
produce a promissory note or assignment establishing title. Early cases focused
on MERS' inability to produce such a note, but most courts continued to consider
the note a mere technicality and ignored it. Landmark newer opinions, however,
stress that this defect is not just a procedural. but a substantive failure, one
that is fatal to the plaintiff's case.

The latest of these decisions came down in California on May
20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E-11. The
court held that MERS could not foreclose because it was a mere nominee and
that as a result plaintiff Citibank could not collect on its claim. The judge
opined:

"Since no evidence of MERS' ownership of the underlying note
has been offered and other courts have concluded that MERS does not own the
underlying notes, this court is convinced that MERS had no interest it could
transfer to Citibank. Since MERS did not own the underlying note, it could not
transfer the beneficial interest of the Deed of Trust to another. Any attempt
to transfer the beneficial interest of a trust deed without ownership of the
underlying note is void under California law."

In support, the judge cited In re Vargas (California Bankruptcy
Court), Landmark v. Kesler (Kansas Supreme Court), LaSalle Bank v. Lamy (a New
York case) and In re Foreclosure Cases (the "Boyko" decision from Ohio Federal
Court). (For more on these earlier cases, see here, here and here.) The court concluded:

"Since the claimant, Citibank, has not established that it is
the owner of the promissory note secured by the trust deed, Citibank is unable
to assert a claim for payment in this case."

The broad impact the case could have on California foreclosures
is suggested by attorney Jeff
Barnes, who writes:

"This opinion ... serves as a legal basis to challenge any
foreclosure in California based on a MERS assignment; to seek to void any MERS
assignment of the Deed of Trust or the note to a third party for purposes of
foreclosure; and should be sufficient for a borrower to not only obtain a TRO
[temporary restraining order] against a Trustee's Sale, but also a Preliminary
Injunction barring any sale pending any litigation filed by the borrower
challenging a foreclosure based on a MERS assignment."

While not binding on courts in other jurisdictions, the ruling
could serve as persuasive precedent there as well, because the court cited
nonbankruptcy cases related to the lack of authority of MERS, and because the
opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts
on the same issue.

RICO and Fraud Charges

Other suits go beyond merely challenging title to alleging
criminal activity. On July 26, 2010, a class action was filed in Florida seeking
relief against MERS and an associated legal firm for racketeering and mail
fraud. It alleges that the defendants used "the artifice of MERS to sabotage the
judicial process to the detriment of borrowers"; that "to perpetuate the scheme,
MERS was and is used in a way so that the average consumer, or even legal
professional, can never determine who or what was or is ultimately receiving the
benefits of any mortgage payments"; that the scheme depended on "the MERS
artifice and the ability to generate any necessary 'assignment' which flowed
from it"; and that "by engaging in a pattern of racketeering activity,
specifically 'mail or wire fraud,' the Defendants ... participated in a criminal
enterprise affecting interstate commerce."

Local governments deprived of filing fees may also be getting
into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or "whistle blower"
to bring suit on behalf of the government for a past or present fraud on it. In
State of California ex rel. Barrett R. Bates, filed May 10,
2010, the plaintiff qui tam sued on behalf of a long list of local governments
in California against MERS and a number of lenders, including Bank of America,
JPMorgan Chase and Wells Fargo, for "wrongfully bypass[ing] the counties'
recording requirements; divest[ing] the borrowers of the right to know who owned
the promissory note ...; and record[ing] false documents to initiate and pursue
non-judicial foreclosures and to otherwise decrease or avoid payment of fees to
the Counties and the Cities where the real estate is located." The complaint
notes that "MERS claims to have 'saved' at least $2.4 billion dollars in
recording costs," meaning it has helped avoid billions of dollars in fees
otherwise accruing to local governments. The plaintiff sues for treble damages
for all recording fees not paid during the past ten years and for civil
penalties of between $5,000 and $10,000 for each unpaid or underpaid recording
fee and each false document recorded during that period, potentially a hefty
sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and
Tennessee.

Axing the Bankers' Money Tree

Most courts continue to look the other way on MERS' lack of
standing to sue, but the argument has picked up enough steam to consider the
rather stunning implications. If MERS is not the title holder of properties held
in its name, the chain of title has been broken and no one may have standing to
sue. In MERS v. Nebraska Department of Banking and Finance, MERS
insisted that it had no actionable interest in title, and the court agreed.

An August 2010 article in Mother Jones titled "Fannie and Freddie's Foreclosure Barons"
exposes a widespread practice of "foreclosure mills" in backdating assignments
after foreclosures have been filed. Not only is this perjury, a prosecutable
offense, but if MERS was never the title holder, there is nothing to
assign. The defaulting homeowners could wind up with free and clear
title.

In Florida, Jacksonville Area Legal Aid attorney April Charney
has been using the missing-note argument ever since she first identified that
weakness in the lenders' case in 2004. Five years later, she says, some of those
homeowners are still in their homes. According to a Huffington Post article titled "'Produce the Note' Movement Helps Stall
Foreclosures":

"Because of the missing ownership documentation, Charney is
now starting to file quiet title actions, hoping to get her homeowner clients
full title to their homes (a quiet title action 'quiets' all other claims).
Charney says she's helped thousands of homeowners delay or prevent foreclosure
and trained thousands of lawyers across the country on how to protect
homeowners and battle in court."

If courts overwhelmed with foreclosures decide to take up the
cause, the result could be millions of struggling homeowners with the banks off
their backs and millions of homes no longer on the books of some too-big-to-fail
banks. Without those assets, the banks could again be looking at bankruptcy, as
was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko decision:

"The ticking time bomb in the US banking system is not
resetting subprime mortgage rates. The real problem is the contractual ability
of investors in mortgage bonds to require banks to buy back the loans at face
value if there was fraud in the origination process.

"... The loans at issue dwarf the capital available at the
largest US banks combined and investor lawsuits would raise stunning liability
sufficient to cause even the largest US banks to fail...."

Nationalization of these giant banks might be the next logical
step - a step that some commentators said should have been taken in the first
place. When the banking system of Sweden collapsed following a housing bubble in the 1990s,
nationalization of the banks worked out very well for that country.

The Swedish banks were largely privatized again when they got
back on their feet, but it might be a good idea to keep some banks as
publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century,
it served as a "people's bank," making low interest loans to consumers and
businesses through branches all over the country.

With the strengthened position of Wall Street following the
2008 bailout and the tepid 2010 banking reform bill, the US is far from
nationalizing its mega-banks now. But a committed homeowner movement to tear off
the predatory mask called MERS could yet turn the tide. While courts are not
likely to let 62 million homeowners off scot-free, the defect in title created
by MERS could give them significant new leverage at the bargaining table.

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Ellen Brown developed her research skills as
an attorney practicing civil litigation in Los Angeles. In "Web of Debt," her
latest book, she turns those skills to an analysis of the Federal Reserve and
“the money trust.” She shows how this private cartel has usurped the power to
create money from the people themselves, and how we the people can get it back.
Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with
Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard
Hansen). Her websites are http://www.webofdebt.com/, http://www.ellenbrown.com/,
and http://www.public-banking.com/.

Comments

This forum is moderated by software. Please allow up to
15 minutes for your comments to go live and avoid posting the same comment
multiple times.

What
wonderful
Thu, 08/19/2010 - 17:37 —
BillyDoc (not verified)

What wonderful news!

Unfortunately, we have a Supreme Court that doesn't seem to be overly
bothered by what's legal or not. They will rule in favor of the banks that keep
them warm and cozy in their Bankster pockets.

Bet on it.

Here
is another case to add
Thu, 08/19/2010 -
17:40 — Ellen Brown (not verified)

Here is another case to add to the list, in Maine
--
http://4closurefraud.org/2010/08/13/judgment-reversed-mers-is-not-in-fact-a-mortgagee-mortgage-electronic-registration-systems-inc-v-jon-e-saunders-et-al/

I
have a question? Couldn't
Thu, 08/19/2010 -
18:56 — Anonymous (not verified)

I have a question? Couldn't any homeowner who mortgage was handled through
MERS then move to to Quiet the Title on their home on the basis of the lack of a
promissory note. I don't see why the court's ruling would apply only to
defaulters. Thoughts?

Usually
a "defaulter" is the
Thu, 08/19/2010 -
19:26 — Anonymous (not verified)

Usually a "defaulter" is the one who will be in court in front of a judge.
These cases usually are with people who presumably purchased bubble inflated
housing, are deeply underwater and are having serious financial problems. The
motivation for placing blame on the borrowers is an amusing combination of
ignorance and typical puritanism. The typical blather is as follows: "You signed
something under seal! Na-na-na boo boo!" Of course, once someone understands
that they've been lied to, understands they were given a loan designed to fail,
and realizes that house prices were fixed..well, the plantiff should have their
stuff together before they throw that someone onto the street.

Many people made huge money during the bubble: Brokers, realtors, and so on.
These same monied interests have a lot more pull on local politicians, the
courts and the media. Already, trying to save your home sounds like an exercise
in beating a dead horse.
The truth reamins that many of these borrowers are
victims of massive financial predation, regardless of what someone like Rick
Santelli has said.
Many were folks who have *always* been desperate to own
housing were pushed by a dishonest media and Government that said home ownership
was critically important. Many
were sold housing in appalling states of
disrepair, without inspections, at abhorrent prices, simply because of
outrageous criminal activity on Wall Street.

Many thought that as long as the economy was doing fine they too would have
access to modest shelter.
Many also were buying, flipping, committing fraud
and simply gambling on the rise of the bubble, this has nothing to do with the
right to shelter. Why did our Government allow this stuff to happen? Why did we
allow ratings agencies to lie, commit fraud, damage investors, put smaller banks
out of business? Why are we allowing organized crime to destroy livelihoods and
now throw people out onto the street?

Excellent
article....clearly
Thu, 08/19/2010 - 21:57
— bobberesford.com (not verified)

Excellent article....clearly it's time for a movement and word of mouth - or
mass publicity - because the MERS mortgages are plainly illegal and USA
mortgages should always have been kept linked to a local bank and state/local
registration . Why not more court cases aimed at bankrupting MERS....then surely
all its mortgages will be invalid and Freehold will prevail ? A huge
breakthrough for the country....and America badly needs it.
Also, the article
about Australia's Commonwealth bank is good and check Sean Olender's
article....it was written in late 2007 !

Thank
you Ellen! Excellent
Fri, 08/20/2010 -
03:09 — Suzanne O'Keeffe (not verified)

Thank you Ellen! Excellent article, as always. Huge news! Achilles heel is
perfect metaphor. May it lead to their undoing.

Does
anyone know whether or
Sat, 08/21/2010 -
14:26 — Anonymous (not verified)

Does anyone know whether or not similar cases have come to trial in
Minnesota? TIA

Foreclosure
mill fraud is
Sat, 08/21/2010 - 16:39 —
Anonymous (not verified)

Foreclosure mill fraud is exploitive, as appalling collection abuses have
resulted in mill lawyers (or their affiliates) obtaining ownership of
fraudulently foreclosed properties via purported bids at “simulated” auctions.
Certain fraudulently auctioned properties become “flipped” illegally to Freddie
Mac. False Bankruptcy Court pleadings help some lawyers to wrongfully, illegally
impede homeowners’ restructuring debts, and discovery of the actual owners of
mortgage notes. Such lawyers file falsified bankruptcy “Lift Stay” motions in
names of either defunct lenders or lenders with no ownership of property notes.
False bankruptcy pleadings not only help illegal property repossessions, any
other creditors whom debtors owe, becomes deprived wrongfully of entitled shares
of proceeds from those auction frauds; and ILLEGITIMATE “deficiency judgments” ;
and third party debt-buyers seeking money after unfairly low bids resulted in
large debt balances are also problems.

Plus, foreclosure mills work in concert with Wells Fargo. Among other things,
Wells Fargo has tax advantage from fraudulent foreclosure proceedings after
placing distressed homeowners’ names / social security numbers on false IRS
(acquisition) form 1099-A’s, even when no lawful “acquisition” of properties
occurred; such homeowners wrongfully become forced to explain these turn of
events to the IRS after surprise receipts of tax bills... . .**SEE this entire @
http://www.lawgrace.org/2010/08/14/foreclosure-mills-judicial-fraud-consumer-exploitation-government-shams/

Have
you any information on
Sun, 08/22/2010 -
19:32 — Anonymous (not verified)

Have you any information on MERS, actions/ legal right for home owner in
trouble in the state of MARYLAND, we need help here, any information to help us
here in MARYLAND would be very welcomed, thank.

Have
you any information on
Sun, 08/22/2010 -
20:45 — Anonymous (not verified)

Have you any information on MERS, actions/ legal right for home owner in
trouble in the state of MARYLAND, we need help here, any information to help us
here in MARYLAND would be very welcomed, thank.

Hi,
I don't know the answer
Tue, 08/24/2010 -
02:04 — Ellen Brown (not verified)

Hi, I don't know the answer to that but I've got a section called
"foreclosure relief" on my blog that is a good place to start researching it.
(The truthout site doesn't allow URLs but look up my book Web of Debt.)

Good luck!

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