The Bristol County Board of Commissioners received a letter from Attorney Garrett Bradley notifying them that a complaint against Mortgage Electronic Registration Systems (MERS) was filed in Suffolk County on March 29.
Previously, the commissioners voted on Feb. 14 to file a lawsuit to reclaim millions of dollars from MERS for allegedly skirting public recording laws at the expense of the county’s three property registries.
Bristol County is joining Norfolk and Plymouth counties in filing lawsuits against MERS.
Commissioners have previously said the county won’t know exactly how much money they are looking to collect until the discovery process of litigation.
Southern Essex District Register of Deeds John O’Brien today is asking the Massachusetts Department of Revenue to file legal action against mortgage giants Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddy Mac”) for their failure to pay deeds excise tax, on property transfers in Register O’Brien’s District. According to O’Brien his district alone is owed approximately $4.2 Million. O’Brien was notified late Friday that a United States District Judge in Michigan concluded that Fannie Mae and Freddy Mac were not entitled to an exemption from excise taxes in Michigan. The Michigan Court cited numerous cases; two of significant interests were a 2011 Nevada case involving Countrywide Home Loans and 1988 United States Supreme Court case involving Wells Fargo Bank. In Nevada, the Court concluded that Fannie Mae was essentially a privately owned mortgage banker and not a federal instrumentality for tax purposes. In the Wells Fargo Case, the United States Supreme Court concluded that a transfer tax is a form of excise tax and are not direct taxes. The Supreme Court decided that direct taxes were exempt, however transfer taxes were not.
According to O’Brien, since 1991 Fannie Mae and Freddy Mac have been involved in property transfers with total sales values of over $920 Million Dollars in his district. These transactions would have generated close to $4.2 Million Dollars in tax revenue to the Commonwealth for his district alone had Freddy Mac and Fannie Mae paid the excise tax rather then claiming exemptions. If a private citizen or corporation sells a piece of Massachusetts real estate, they are required to pay a deeds excise tax of $4.56 per thousand dollars of the purchase price, however Fannie Mae and Freddy Mac pay nothing. Certain tax exemptions are given to governmental entities, however O’Brien points out that Fannie Mae and Freddy Mac although originally created as government entities are now publicly traded companies owned by investors. O’Brien notes that these private corporate entities that have shareholders and are paying their top executives millions of dollars in salaries and bonuses are wrongfully claiming the excise tax exemptions. “This lost revenue goes a long way in providing key services for the people of Massachusetts. The message in our Commonwealth to all those that think that they can circumvent the system should be loud and clear; pay like everyone else, or deal with the consequences.”
John O’Brien is a national folk hero to anti-foreclosure activists. The Southern Essex Register of Deeds has garnered national attention by accusing big banks of acting like a “criminal enterprise.” After an audit revealed widespread flaws in banks’ handling of mortgage paperwork, O’Brien likened his Salem registry to a crime scene.
So when a New York law firm began soliciting local registries to join a class action lawsuit against an embattled mortgage clearinghouse, O’Brien should’ve been the first to sign on. He wasn’t. O’Brien was told he didn’t have the authority to join the effort. Deed registries in Norfolk, Bristol, and Plymouth counties are now pushing ahead with the case, while O’Brien is left standing on the sidelines.
O’Brien’s inability to sue over mortgage paperwork filed in his own registry highlights a quirk in Massachusetts state government. The state eliminated most of its county governments more than a decade ago, even as it retained some of the trappings of county government. District attorneys and sheriffs are still elected at the county level, for example, but they’re funded by the state. The consolidation of county governments also left the state’s 21 registries of deeds intact.
“It’s troubling to know that in each of our offices, are thousands — and I mean thousands — of fraudulent documents,” said Brown County Register of Deeds Cathy Williquette Lindsay
It used to be that if you wanted to find out who owned your mortgage, you could go to the office of your local register of deeds, the final authority on questions of property ownership.
But when banks set up their own private registration system to help them bundle and resell mortgages in a whirlwind of securities exchanges, the land offices of record had no hope of keeping up.
And when some banks later foreclosed on many of those properties, often cutting corners or worse — creating phony documents — it left register of deeds offices across Wisconsin awash in forged and fraudulent documents.
That’s a “serious problem” for registrars charged with maintaining property records, said Brown County Register of Deeds Cathy Williquette Lindsay, who heads a committee studying foreclosure fraud on behalf of the Wisconsin Register of Deeds Association.
“If you’re going to take someone’s home away, you’ve got to prove you have the right to do it, and you have to follow the law when you do it,” Atty Glenn Russell said.
The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.
The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.
“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
The Massachusetts Supreme Judicial Court justices signaled last month they may rule in favor of Eaton when they asked parties in the case to submit briefs arguing whether such a decision should be applied retroactively or only to future lending. If retroactive, it would cloud the titles of the 40,000 Massachusetts properties seized in the last five years and while the ruling only applies to the state, it could serve as a model for homeowners trying to overturn foreclosures in other states.
The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.
The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.
“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
The Bristol County Board of Commissioners moved on Tuesday to file a lawsuit to reclaim millions of dollars from Mortgage Electronic Registration Systems, commonly known as MERS, for allegedly skirting public recording laws at the expense of the county’s three property registries.
Commissioner John Mitchell said Bristol County is joining with Norfolk and Plymouth counties in filing lawsuits against MERS.
“MERS has hidden all the assignment of mortgages,” Mitchell said. “This (lawsuit) is to get fees back for the recording of assignments of mortgages. You don’t know how many times they did it. They did it privately. Supposedly, somewhere, this MERS has a registry of their own assignments of mortgages which show who is the true owner of a mortgage, except I guess in practice they don’t really have it. And that’s been a problem with foreclosures. When a bankruptcy court says, ‘Who owns the mortgage now?,’ they haven’t always been able to come up with it.”
Mitchell said it has been a “substantial” problem, but the county won’t be sure about how much money they are actually looking to collect until the discovery process of litigation — rough estimates put together by county registries last year indicate that the loss of revenue ranges well into the millions of dollars.
If you want to know where the bodies are buried, look no further. Here are a few snips from Marie’s brief:
In what has become common parlance among those investigating these securitization failures (including the Securities and Exchange Commission and the Department of Justice), we refer to this type of transfer as an “A to D” assignment because it skips over parties “B” and “C” and creates a “wild deed” (especially in title theory states such as Massachusetts).
The assignment of mortgage is the “breeder document” from which all other paperwork necessary to bring the foreclosure action; notice the sale; obtain judgment; and transfer title depends.
“The Eaton Defect” as described in our amicus brief occurs when an entity, such as Green Tree Servicing LLC takes the mortgage by assignment and prosecutes a foreclosure in itsown name when it neither owns nor holds the note.
“The Ibanez Defect” as described in this amicus brief occurs when an entity, such as OptionOne Mortgage Corporation, sells the loan for securitization purposes and later, after the loan has been sold multiple times, assigns the Note and Mortgage (or just the Mortgage) directlyto the Trustee of the Issuing Entity (securitized trust).
Supreme Judicial Court FOR THE COMMONWEALTH OF MASSACHUSETTS NO. SJC-11041 SUFFOLK COUNTY
HENRIETTA EATON, PLAINTIFF-APPELLEE,
FEDERAL NATIONAL MORTGAGE ASSOCIATION & ANOTHER, DEFENDANTS-APPELLANTS.
ON APPEAL FROM AN INTERLOCUTORY ORDER OF THE SUFFOLK SUPERIOR COURT
SUPPLEMENTAL BRIEF OF AMICUS CURIAE MARIE MCDONNELL, CFE
O’Brien calls for criminal action against the Big Banks
Says they acted like “criminal enterprise”
Saying that the time has come for a full scale criminal investigation, Southern Essex District Register of Deeds John O’Brien, today has 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. O’Brien said that he is asking these officials to impanel a Grand Jury to look into the evidence that he has presented. “I am confident that these documents will show a pattern of fraud, uttering and forgery. These documents are signed by known robo or surrogate signers, whose signatures were supposedly witnessed by notary publics. In addition, these documents may contain fraudulent information in the body of the documents. I believe that a criminal investigation is the next step to hold the perpetrators responsible.” O’Brien praised Attorney General Coakley for her aggressive pursuit of wrongdoing in her civil action but noted that other states such as California, Nevada, Illinois and Michigan have launched criminal investigations, and O’Brien is hopeful that Massachusetts will do the same. O’Brien strongly suggests that the Grand Jury should subpoena both the past and present Chief Executive Officers (CEOs) of the Mortgage Electronic Recording Systems, Inc. (“MERS”), Bank of America, JP Morgan Chase, Citibank, Wells Fargo, Countrywide, Washington Mutual among others. In addition, he is asking that the top officials of DOCX, Nationwide Title Clearing, Inc. and LPS also be subpoenaed. “These companies have been retained by MERS and its member-banks to produce the documents that I am alleging contain fraudulent information. It is one thing to go after these institutions with a civil action, but the only way to let them know that you are serious is to call them before a Grand Jury.” O’Brien said, “There is no question in my mind that the officers of these banks and loan processing servicers made a conscious decision to commit fraud and participate in a scheme to deprive the public from knowing the true holder of their mortgage while at the same time avoiding paying billions of dollars in recording fees. It is my opinion that they acted as a criminal enterprise, crossing state lines to commit their crimes and in most cases using the U.S. Postal Service to send these documents to registries of deeds, thereby committing mail fraud. We need to know what they knew and when they knew it. Until the CEOs who allowed these fraudulent activities to happen under their watch are sent to jail for what they did, these types of illegal behaviors will continue.” Just last week, O’Brien’s Registry received 3 documents from Bank of America, all signed by a known robo-signer, Linda Burton. O’Brien said, “If they are sending them to me, of all people, it is safe to assume that they are sending them to registries across the country.” O’Brien refuses to record any documents signed by a robo-signer on his list unless those documents are accompanied by an affidavit attesting to the signature. So far, he has not received one affidavit. “That clearly shows me that those documents were in fact fraudulent.” O’Brien said that if he or anyone else went into one of these major banks and forged a signature on a loan document they would be arrested and sent into jail. So it begs the question, why haven’t these CEO’S been held accountable? O’Brien cited the case of the individual who walked into a Walmart and tried to make a purchase using a fraudulent One Million Dollar bill. He was arrested and charged with attempting to obtain property by false pretence and uttering a forged instrument. O’Brien said, “As far as I am concerned, this is what these banks have been doing for years. Make no mistake, MERS and its member-banks are taking people’s homes using fraudulent documents and that is something we do not do in America.” In addition, O’Brien is zeroing in on the major foreclosure law firms that he believes have acted as a co-conspirator in flooding the registries of deeds with these fraudulent instruments. “These attorneys should know better. They have acted as co-conspirators in perpetrating this fraud. I am sending a letter to the Massachusetts Board of Bar Overseers asking that they conduct an independent investigation into the activities of these firms. Unlike our Massachusetts Attorney General Martha Coakley, I understand that there are other Attorneys General and other public officials across the country who would like nothing better than to sweep this matter under the rug and grant these lenders, loan servicing companies and their foreclosure-mill attorneys immunity for the damage that they have caused, not only to our economy but to people’s property rights. They would be willing to accept pennies on the dollar, a slap on the wrist, and a promise to never do it again. If that should happen, it would be the biggest sellout of the American People that I have ever seen. It would send the wrong message that the big boys can get away with anything. As I have been saying all along, they may think they are too big to fail, but as far as I am concerned, they are not to big to go to jail. The top officials at MERS, its member-banks, servicers and foreclosure-mill attorneys must be prosecuted and held accountable for their fraudulent schemes that brought profits to their institutions by cutting corners, circumventing land recordation systems through fraud, uttering and forgery.”
Congressman Barney Frank on Wednesday asked his colleagues to hold a hearing on alleged mortgage abuses at Ally Financial, a day after the attorney general from his home state of Massachusetts requested that lawmakers investigate.
“Given Ally’s significant role in the mortgage business and the federal government’s considerable financial investment,” Frank wrote to Spencer Bachus, the chairman of the House Financial Services Committee, “a prompt investigation of this matter by the Committee is warranted.”
The U.S. Treasury owns some 74 percent of Ally after a 2008 investment in the firm.
Last week Massachusetts sued Ally’s mortgage unit, GMAC Mortgage, and four other top banks for allegedly pursuing illegal foreclosures and deceiving homeowners whose loans they service.
THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE ATTORNEY GENERAL ONE ASHBURTON PLACE BOSTON, MASSACHUSETTS 02108 MARTHA COAKLEY ATTORNEY GENERAL (617) 727-2200 www.mass.gov/ago
December 6, 2011 The Honorable Tim Johnson Chairman
U.S. Senate Committee on Banking, Housing, and Urban Affairs 534 Dirksen Senate Office Building Washington, D.C. 20510
The Honorable Spencer Bachus Chairman U.S. House Committee on Financial Services 2129 Rayburn House Office Building Washington, DC 20515
Re: Ally Financial; GMAC Foreclosure Behavior
I am writing regarding what we believe is serious misconduct committed by Ally Financial, through its subsidiary GMAC Mortgage, against homeowners in Massachusetts.
Last week, our office filed a lawsuit against Ally and four national banks for pursuing illegal foreclosures and deceptive loan servicing. Ally and other banks charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law, which has exacerbated the nation’s foreclosure crisis. In light of Ally’s alleged deceptive and illegal actions against homeowners in Massachusetts and across the country, I respectfully request that your committees investigate Ally’s serious misconduct and consider what actions the federal government can take to ensure that Ally adheres to the law.
“The single most important thing we can do to return to a healthy economy is to address this foreclosure crisis,” said AG Coakley. “Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law. Our action today seeks real accountability for the banks illegal behavior and real relief for homeowners.”
Southern Essex District Register of Deeds John O’Brien said today that someone has to take the bull by the horns and stand up for homeowners, who through no fault of their own, have had their chain of title clouded by the actions of the Mortgage Electronic Registration Systems (“MERS”) and its major shareholder banks, such as Bank of America, J.P. Morgan Chase, Wells Fargo and others.
He is offering to provide homeowners in his district, who have a robo or surrogate signed document in their chain of title, an affidavit signed by him attesting to the fact that such a document exists in their title and that is recorded at his Registry. O’Brien estimates that there are over 36,000 homeowners in his district alone and suggests Southern Essex County Homeowner’s visit his website at, www.salemdeeds.com , where they can search to see if they have been a victim of this scheme, in what O’Brien calls “the largest scandal to affect the integrity of the land recordation system in this country since its inception.” O’Brien went on to say that “the affidavit will allow homeowners to reach out to their banks and ask them what they are going to do to repair their clouded chain of title and if the homeowner is being foreclosed upon, they can use this affidavit as proof that a document being used to take their home contains a fraudulent robo or surrogate signed document.”
O’Brien, who has been leading the national effort to hold banks accountable for their failure to pay recording fees and their deliberate attempt to record fraudulent documents in registries across the country, said he is hopeful that the Commonwealth of Massachusetts will be filing suit shortly to recoup the lost revenue that he estimates to be $250 million dollars. “Since I have raised these issues, other states and counties have filed suits to recover their lost revenue and I feel that Massachusetts needs to pursue this, sooner rather then later.”
In addition, O’Brien said he cannot understand why his Registry funds are still being deposited into Bank of America, even though he requested that they be moved last April and placed in a non-MERS member bank. “Since that time, my Registry has deposited over $15 million dollars in a bank that has snubbed its nose at property rights.” O’Brien said that the Elected Registers of Deeds have always had the authority to choose the institution in which to deposit their Registry’s revenue. In fact, he has moved his Registry’s funds 6 times during his tenure as the elected Register of Deeds for the Southern Essex District. “I am curious why at this time my efforts are being blocked. My constituents are not pleased that Bank of America continues to profit off registry funds and they want to know why these funds have not been moved. They deserve an answer and so do I” O’Brien commented. For well over 200 years, Registers of Deeds have had a “fiduciary chain of title” when it comes to registry revenue. Registers are responsible for these funds from the original acceptance of the fee, the deposit of the monies, and the transfer of those funds to the Commonwealth. “In my opinion, as Registries across the state have become crime scenes infected with thousands of fraudulent documents and the MERS banks failure to pay the same fees as everyone else, I would hope that all funds in every Registry of Deeds in the Commonwealth of Massachusetts currently being deposited in Bank of America be removed immediately.” O’Brien feels strongly that “We need to send these banks a message that we intend to hold them accountable for their actions and that fraudulent documents are not acceptable in The Commonwealth of Massachusetts land recordation system.”
Southern Essex District Register of Deeds John O’Brien today is calling for a temporary halt on all foreclosures on Massachusetts homeowners until there is time to sort through the complex issues, including the fraudulent documents that have been recorded in people’s chains of title. In addition, O’Brien has cautioned people that they should think twice before buying a foreclosed property in light of the recent Massachusetts Supreme Judicial Court Decision in Bevilacqua v. Rodriquez.
Although O’Brien commended the Supreme Court and Judge Long for its sound decision in the Bevilacqua Case, he recommends that any lender, servicer or foreclosure law firm be required to attest in an affidavit, under the pains and penalties of perjury, that all the paperwork involved in a foreclosure has been reviewed by someone in authority at the bank with knowledge of the transaction and that the paperwork is correct, truthful and valid. He believes that lenders should also have to prove, through a forensic audit, that they actually own the note and mortgage upon which they are foreclosing upon.
The Bevilacqua Decision makes it clear that a lender must own the mortgage before it may foreclose. “As I have said all along, had Bank of America, J.P. Morgan Chase, Wells Fargo and others followed the law and played by the same rules as everyone else, maybe our economy would not be in this crisis today. There is a good reason that we have registries of deeds in this country. It is so that every document that pertains to a parcel of real property is recorded in a public registry, so that anyone, at any time, may view their chain of title.”
“Since the property involved in the Bevilacqua Case is in Haverhill, which is a part of my district, I have reached out to our mortgage fraud and forensic analyst, Marie McDonnell of McDonnell Property Analytics. Ms. McDonnell has certified to me that there are at least three missing assignments in the Bevilacqua chain of title, and that the one assignment which was recorded on the property is fraudulent. This clearly demonstrates the damage to a chain of title when assignments are not timely filed or not filed at all.” said O’Brien.
In calling for a halt on foreclosures, O’Brien said, “This will send a clear message that Massachusetts will not tolerate the practice of using fraudulent documents to put someone out on the street. This is something that we do not do in America. We all have to remember that foreclosures are not good for anyone; they hurt families, neighborhoods, property values and therefore communities as a whole. These big banks have played fast and loose with peoples property rights, and now courts in Massachusetts and other states are standing up and saying that what they have done is wrong. Fraudulent documents are and always should be unacceptable and never be recorded in a registry of deeds. If the average person recorded a fraudulent document and then attempted to present it to a court of law as evidence, they would be prosecuted. So it begs the question, why are the captains of the bank industry and Wall Street being treated differently? Let me make it clear that this fraudulent activity is being done by major lenders, not our local community banks. I think that the lesson here is if anyone is currently looking for a mortgage, they should be dealing with their local hometown banks who have always played by the rules.” O’Brien continued, “Perhaps if people stop buying these foreclosed properties, which in most cases sell for less than what the original homeowner owed the lender, than maybe the banks will rethink their position and do the right thing, namely begin working with homeowners to create a new payment plan that will keep people in their homes.”
In an attempt to provide people with more assistance, O’Brien is now offering any homeowner in his district who has a document in their chain of title signed by a known robo-signer, an affidavit signed by him as Register of Deeds attesting to the presence of that signature which has been recorded at his Registry. For those homeowners that are currently being foreclosed upon, this affidavit may be presented to their attorney, the lender or the court to show that their chain of title has been corrupted. For those who are not in foreclosure, the affidavit may be presented to their current lender to show that a robo-signed document has in fact been recorded in their chain of title and be part of a request to investigate how this happened and what the lender is going to do to correct it.
Homeowners may check to see if there is a known robo-signer in their chain of title by visiting his website www.salemdeeds.com or by calling his Customer Service Department at 978-542-1704.
It is important to note that in Ibanez, the SJC was not willing to overturn long standing legal principles simply because of recent “innovation” in the way banks chose to record their security interest in real property (e.g. MERS), or because of the extraordinary liability such a ruling would have on what basically amounted to four years of mostly illegal foreclosure activity in the Commonwealth.
The Ibanez article published last January predated Eaton by some ten months, and since the SJC reviewed Eaton “sua sponte”, there was no way to know at the time, that Eaton would make it all the way to the SJC, so the following comments taken from the article are perhaps prescient:
” It is possible that from the banks perspective an invalid assignment of the note is the more serious concern for the following reasons:
1. Without first having proper ownership of the debt, the bank can not initiate any collection activity, let alone foreclosure.
2. Notes (ownership of the debt asset), may be subject to further contention in bankruptcy proceedings where many creditors have a vested interest in the assets of a defunct mortgage lender, particularly since these notes are often sold in bankruptcy for a fraction of their face value.
3. The trusts that are supposed to contain the validly conveyed notes will in fact, not actually contain them (because they are not bearer paper), thus violating the representations and warranties made to investors who purchase these securities. Therefore, it is unsecured debt, and potentially, no debt at all upon which to collect payments.
6. Even if the notes obtain a valid conveyance, or confirmation of conveyance at a later date, it is still may be impossible to place them into the MBS’s:
a. It will have been longer than 90 days (the typical expiry period to transfer assets into the trust)
b. If it is a foreclosure matter, the loan is in default (the PSA’s do not allow for the addition of defaulted loans)
c. Any effort on the part of the trust to insert old or defaulted loans would jeopardize the trusts favorable REMIC status – thus further harming already impaired returns.”
As pointed out in the Ibanez article, clear title to the property is important. If the assignment of the mortgage is invalid, then there is a “cloud on title”. The banks recognizing this, brought Ibanez before the land court of their own volition in order to clear this “cloud on title”. One of the key mistakes counsel for Eaton made, perhaps in their effort to establish the more serious problem of legitimate possession of the note, was overlooking the validity of the Mortgage assignment, (still incredibly important) which, as with most securitized loans, was so clearly fraudulent (see Amicus brief of Marie McDonnell). Incidentally, this was of particular interest to the court during oral arguments, however, because the issue was never raised by Eaton’s counsel in its complaint, it could not be addressed by the court. Thus the opportunity to cite the authority of Crowley v. Adams 22 Mass. 582 (1917) which concerned the fraudulent conveyance of a mortgage without a note, was lost. Within the context of discussing the assignees knowledge of the fraud, the court held:
“[the assignee] should be held to have known as to each transaction, the possession of the note was essential to an enforceable mortgage, without which neither mortgage could be effectively foreclosed.”Id. at 585.
This was a error on the part of counsel, and eliminated a potential fifth source of authority in Eaton, as we wrote in January:
“1. If there must be a perfected interest in the mortgage (according to MA law) at the time of foreclosure, then how many foreclosures have taken place in Massachusetts with the same profile as Ibanez, and are thus invalid?
2. Clear title is important – In the statement of the case, the banks actually brought the complaint before the land court as independent actions in order to “remove a cloud on the title” – thus the banks recognize that such defects are a problem for future conveyance. All MA homeowners should be worried about the same (discussed further below).
3. To foreclose on a mortgage securing property in the commonwealth, one must be the holder of the mortgage. To be the holder of the mortgage, the bank must:
a. Be the original mortgagee
b. Be an assignee under a valid assignment of the mortgage
c. It is not sufficient to possess the mortgagor’s promissory note (bearer paper). Apparently most if not all securitized mortgages were endorsed in “blank”, in other words to the bearer.
4. The notice requirements set forth in G.L.c. 244, ss 14 unequivocally requires that the foreclosure notice must identify the present holder of the mortgage. This likely was not the case in past foreclosures in MA. For future foreclosure actions the question is can the real mortgage holder be found and will they cooperate in assigning the security interest?
5. Assignees of a mortgage must hold a written statement conveying the mortgage that satisfied the statute of Frauds or even the most basic elements of contractual requirements.
AG Coakley acknowledges that “the securitization regime was required to conform to state law prior to foreclosing, to ensure simply that legal ownership ‘caught up’ in order that the creditor foreclose legally in MA. The lenders, trustees and servicers could have done this, but apparently elected not to, perhaps on a ‘Massive Scale’ ” Saying that they “could have done this” within the context of MA law is one thing, within the context of IRS tax code, or NY trust law, is another.”
Further the article points out that a holder of the mortgage without the note, really only holds the security instrument in trust for the debt holder (thus anticipating Eaton), as pointed out in the following taken from the Ibanez article:
“4. The holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. If the average MBS has 5,000 notes for example, then we have to assume 5000 separate actions would have to be filed in court to ensure they are truly “Mortgage Backed Securities”, and that is only if the REMIC status isn’t jeopardized by such a revelation or action.”
However, the impasse for banks is the fact, that even if the court recognizes the authority of MERS to assign the mortgage to the foreclosing entity (usually the servicer), the following conditions still must be met:
a) The assignment must still be a valid assignment (most are not)
b) There must also be a valid assignment of the note to establish who exactly owns the debt.
The vast majority of these loans were sold into securitization trusts and are merely endorsed “in blank” (if they can even be found in the trust at all). Most schedules attached to the trust documents include little or no information on the details of the particular loans (as was the case in Ibanez), or sometimes include the address of particular properties, but no information on the barrowers, or curiously the loan amounts. Other failures include post-dated or otherwise invalid notarizations, and fraudulent signatures etc., which are all suggestive of fraud.
Given this, to speak of Eaton merely as a question over the validity of MERS and its assignments is incorrect. Even if Eaton is not affirmed by the SJC, the issue of validly conveyed notes, remains of vital importance.
That having been said, we believe the Appellants chances of prevailing are precisely zero, or maybe less. Taken together with Ibanez, this means serious problems for the bond holders in these securitization trusts and their bank administrators. With all the nuance of every day speak we could muster, we think it is put best by saying just; some of the debt-servants might escape. That isn’t to say that all measures won’t be taken to try to prevent this outcome.
On contemporary Pheronic thinking and the Pyramids that debt-servants build
We believe that this situation lends itself to the possibility of violence, as tragic an outcome as that is and would be. On June 3rd, 2011 we published our follow up to the Ibanez article entitled simply “On the ethics of mortgage loan default“. Four days later, the Essex county registrar of deeds John O’Brian, who we quote in the article, stopped recording fraudulent mortgage assignments (which many if not most are). It seems logical that this would be a “wake-up” call to the average homeowner, particularly since other registrars are prepared to follow suit. With the registrar’s decision, it has become a fact that title may no longer be recordable and ownership is in question. As it turns out, the homeowner who faithfully sends in monthly mortgage payments for years or decades (in an effort to “do the right thing”), may have no more clear ownership rights in the related property than a perfect stranger.
As the article “On the ethics of mortgage loan default” spread throughout the Internet with countless links and references, we were surprised to find comments that included (not unlike the allegory of the cave) the desire that the author “be shot“. We were equally surprised when the Hacktivist group “Anonymous” (which was not our target audience either) featured the article prominently in several of their sites.
It has been said “the rich rules over the poor, and the borrower is servant to the lender”. Perhaps in our Naiveté, we did not understand the sensitivity around the suggestion that a servant might want to be free one day. Nor did we recognize that the powerful human inclination to denial might elicit more than just a passive reaction. Like the prisoner who is freed from the cave and comes to understand that the shadows on the wall do not make up reality at all – later puts their life in danger from those who remain in the cave. Yet, the source of the light is truth and intelligence and those who would act prudently must see it.
These implications give rise to powerful questions in the current context. One such question regards the difference between a debt and a moral obligation? Why do we confuse the two so often in our society? Such that those who seek forgiveness of debt, are made to feel as if they are violating a moral code, or a cultural taboo? Perhaps the explanation lies in a more clear definition of the two. A moral obligation is something that can be forgiven with some flexibility, there is hardly exactness involved.
A monetary debt on the other hand can be calculated with the accuracy and immutability of math and the related science of accounting, and grown with the power of compounded interest, and therefore, in proper monetary debt, exist the possibility of subjugation in perpetuity, or at least for the entire natural life of the debtor.
Oddly, our society adds insult to injury in this failing of human civilization, and as if this dreadful revelation were not enough, adds on top of these accurately calculated and compounded financial obligations, the fallacy of a moral obligation, and in so doing the debt-servant is made to feel guilt regarding his moral character as well as his failure to pay.
When this sleight of hand is wedded to exhaustion (a pre-existing condition of many debt-servants), the odds of one actually fighting back against such a system, corrupt though it may be, are only minute. It must have been a genius who figured out that slavery with chains is inefficient. If a human could be conditioned to believe he is a free man, when he is not, and that already disillusioned he might be convinced that he is also a rich man, when he is not, then chains and their related complications are wholly unnecessary. All that is necessary then is to lower his idea of freedom and wealth substantially, and provide him with cut-rate imitations.
Under these circumstances, the average man would in fact work extraordinary hours, even if his paycheck was essentially diminished to less than zero by his existing debts (thus requiring him to take on new ones), and if by chance he was able to save, those funds too would be safely transferred to the hands of strangers (through “innovations” such as 401K’s, which could be convenient deducted from his paycheck electronically and instantly). These strangers are there to help the debt-servant loose what meager savings might be possible through sub-par investments (like internet stocks) which he never understood, but which is broker was always paid for trading.
Notably, this shell game can never be revealed to a debt-servant, because then he would understand that he is not really a free man, even though the real law is “…not on tablets of stone but on tablets of human hearts”, and yet this inclination of the heart is often resisted, even with violence. Nonetheless, In this law of the heart lies “a desire” which is so great that it over powers all other human constructs, including offensive debts.
In this respect, surely a few folks in Europe must have believed that the entire trade in chained slaves made the United States look like an economically and operationally primitive bunch – for the cost of that variety of servant is actually much higher, and had a far smaller pool of candidates, namely those with a particular tint to their skin. Yet, telling someone that they are inferior based merely on the color of their skin is a hard sell year after year. Conversely, telling someone they are free, when they have never tasted real freedom because they were born into debt, is easier to maintain, because it deals with more subtle issues, and the likelihood of confusion with moral obligation, and exploits the power of human denial.
The earliest evidence regarding market places and trade indicate that if you have something to sell that is of far lesser value than you are indicating, than it is wise to have the greatest physical distance possible between yourself and your counterpart – for in such a trade lies the inherent possibility of a violent reaction to the discovery on the part of the unsuspecting buyer, particularly when accurate accounts of credit and debt are kept and ruthlessly enforced. Some of the oldest recorded documents in history are of this variety; they are surprisingly, accounts of credit and debt. Perhaps human history is really a history of subjugation then. Cultural anthropologists are quite familiar with this idea of credit and debt in (even ancient) market places. It’s an old story. However, Americans are bread as consumers, not as economic or cultural anthropologist, because in that knowledge rests power, and power, by definition must belong to a coterie. For the greater the number of those subdued, the greater the power of the few who would subdue, just as with money, power deals only in transfers.
That is why the average American home owner is not allowed to have the true owner of their mortgage debts revealed – they are the counter party to an impolite deal. In these trades great profits were made, and in the pricing of the assets, great misrepresentations regarding intrinsic value. Wealth destruction therefore is a misleading expression in describing what happened; the accurate term is wealth transfer. During the housing “Pyramid” (this term is far more accurate than “bubble”, because it accurately describes an order) one of the greatest logical errors of all time was sold; that the intrinsic value of a home, which had within it the possibility of calculating (accurately) fair price was tied instead to a hyper speculative measure, that which is inherently impossible to price with any degree of accuracy, and which is immaterial; our notion of an ideal. As one might imagine, no price is too high to live an “ideal” – think of it as a seller’s paradise. After, a difficult stock market collapse, and an even more difficult terrorist attack, why would anyone be interested in mere stocks or bonds? After all the very place where these electronic slips are traded was very nearly destroyed. This new investment was allegedly concrete, and also patriotic. Americans were led to believe they had “…discovered a pearl of great value”, the only security whose price could never go down – it was like a “Dream”, like an “American Dream”.
However, when loan documents were to be signed a new broker suddenly appeared. Without any forewarning, with a name that was not before heard, or with anyone who had actually seen him, or understood how he operated, he made a subtle but powerful arrival on the scene. His name is Mr. MERS, and he instituted even greater secrecy than stock brokers and fund managers. Few have seen his physical appearance, or pulled back the curtain, it’s uninteresting anyways, because Mr. MERS is nothing more than a relational database, which only a very small fraction of the world’s population have access to (even democratically elected bodies, such as county recorders have no such access). He brokers the movements of trillions of dollars in capital. He is a construct of your trading partner, and because of his existence, you can never have a “level playing field”, or hope of a fair trade. In this brave new world, the requisite distance that precedes a bad trade, is no longer a measure of geography, it is a piece of software.
With this surreptitious matrix of relational database fields safely in place, how are all those houses, like so many stone blocks cut by ancient hands, turned into a pyramid? The answer seems self-evident; through a pyramid scheme naturally.
How would a contemporary mass exodus from such bondage look? Just as Fannie Mae and Green Tree divided the essential components of their security, It might look like ordinary debt-servants parting and dividing a sea of concrete, and traversing the depth of high rise buildings in New York, just as “by faith the people passed through the Red Sea as on dry land”.
The people in New York are criticized for their lack of direction, the fact that they appear to be lost in a veritable desert – but they are free, and in their hearts live an almost child-like innocence that we should desire to have. After all, their predecessors spent a good deal more time lost, and through it discovered a greater revelation, one that would lay the foundation to ultimate answers.
The popular accounts promulgated by Adam Smith and the contemporary science of modern economics as we were made to understand them, rely on more than one myth regarding the engineering of debt, and its related instrument – money. These underlying misrepresentations give rise to the possibility of great abuses, for the very nature of trade, and all else which rests upon it is thus misunderstood.
There are many reasons to despair over the future of our fragile state in the US today. However, the Massachusetts Supreme Judicial Court is not one of those reasons. By upholding the rule of law, and observing the incredibly important, and notably democratic foundations of land recording practice in the commonwealth they serve as a beacon for the rest of the country to follow and impart hope. This comes at a time when such hope is in scarce supply. If it is God’s will, than the light of wisdom handed down from prior ages on this point will shine through the darkness that has been created by corrupt forces. We can only hope.
A Road Map for Homeowners: Four Authoritative Guidelines
In Massachusetts law there exists four authoritative guidelines by which property may be foreclosed upon in order to redeem a debt (Five if Crowley v. Adams is included from above). Incidentally division is not a problem for these four authorities, for they stand equally well alone as they do in combination as requirements to validly exercise the power of sale of real property. Both the spirit and the letter of these sources are echoed in laws of other states, and as such can be taken as fundamentally universal. They are as follows:
The Common Law and the problem of Division
In Summary Eaton dealt with the following three realities of long standing Massachusetts law:
1. The assignee of a mortgage with no claim to the underlying debt cannot foreclose.
2. A mortgage separated from the debt it secures has no value in and of itself; it can only be held in trust for the note holder (naked title)
3. The trust relationship implied for the benefit of the note holder does not empower a mortgage assignee to foreclose as a “fiduciary” at any time.
It should be offensive even to the casual observer that in the case of Eaton, as would be the case for most home owners today, a valid promissory note memorializing the debt was and is missing. Who held it at the time of the foreclosure, how they obtained it, and what relationship they had if any to the appellants was and is still unknown.
Although a photo copy of the note was produced with the typical “endorsement in blank” markings, the appellants provided no document or other information indicating when the note was endorsed or who held it either then or now. The required assignments between intermediaries were never produced. Interestingly neither of the defending entities offered any testimony or other evidence in either court action to resolve these all important questions or otherwise identify the holder of the note. However, they did concede, that it was not the foreclosing entity Green Tree, LLC.
Conceivably this is because they do not know, and they do not want to know, and maybe they would even like to forget. Perhaps the note it is evidence.
Not surprisingly counsel for the appellants, despite this revelation, argued that the whereabouts and history of the promissory note was “irrelevant” and that they were entitled to foreclose nonetheless.
After a careful review of the full history of the mortgage foreclosure law in Massachusetts, as well as the related statutes and appellate decisions, The Superior court didn’t exactly see it that way – determining that no decision had ever overturned the established common law rule that a mortgage assignee must hold the note in order to enforce it through foreclosure.
Needless to say, this is of great concern to the banks, as predicted in the Ibanez article (cited above). Given the audacity of their claims, we believe it is reasonable to assume these folks would, if given the opportunity “send an orphan into slavery or sell a friend”. It has been difficult and time consuming to discover that notes were sold multiple times into multiple trust, thus creating a out-and-out pyramid of securities, upon which even more derivatives could be sold. However, something even more simple and obvious has been taking place in broad daylight, something peculiar that has been overlooked – the awkward problem of entire houses being stolen, by folks who have categorically no financial interest or otherwise is the properties.
Since this is the direct opposite of “The American Dream”, possibly the moniker “the American Nightmare” is appropriate.
Taking a step back, it is awful to consider that GreenTree, LLC had no interest in the debt, no interest in holding the property pre or post foreclosure, and had no material interest in the entire affair whatsoever, and yet they were the entity which sought to foreclose (or steal). Does it not appear as Les Trois Perdants with GreenTree, LLC acting as a shill?
For centuries promissory notes and the mortgages securing their repayment were held or assigned together. The separation of these two instruments, until recently was an anomaly and exception. Albeit no longer an anomaly, but rather the general business practice of approximately the last ten years, the SJC reaffirmed in Ibanez, that a trust implied by operation of law gave the note holder the right to sue to obtain an equitable assignment of the mortgage (U.S. Bank v. Ibanez, 458 Mass. 637 (2011) – which implies surprising possibilities (e.g. every note allegedly held in every securitized pool, would have an individual and related suit to perfect it’s claim). Implications aside, the court’s ruling established nonetheless a method by which the note holder (the person to whom the debt is owed) could be empowered to collect payment.
Incidentally, long before the bifurcation of the notes and mortgages was ubiquitous, this operation of law was periodically challenged by mortgage assignees who believed that they, as “mortgagees” could simply foreclose in their own names. However, since the 19th century, and as pointed out above, the SJC has ruled otherwise. In a series of decisions it articulated the rule that a mortgagee who has no interest in the debt underlying the note cannot conduct a foreclosure, insisting instead that that right is reserved for a holder of a valid note along with a valid mortgage.
Green Tree, LLC and their Government handlers suggest that the parts of the whole, when taken independently have the properties of the whole. That is to say in this case, that since the mortgage contains the power to foreclose, the mortgage must have with it all the powers of the note – this proposition is patently wrong, and is the fallacy of Division. The instruments may function properly together, but have incomplete authority independently – and that is exactly what long standing statute (as outlined below) has upheld.
In Summary, Ibanez brought to light that banks holding only notes have only an unsecured debt – that is to say one that could be negotiated like any other. Eaton, on the other hand brings to our attention something of far greater importance; namely that a holder of a mortgage alone (even if validly assigned), without proper ownership of the underlying debt, has in fact nothing.
Call us speculators, but if SJC affirms the lower court’s decision we have a funny feeling more than one banks share price might be adversely affected.
In the end, suggesting independent authority of the mortgage, regardless of any concern for the note or the debt is just a bad argument – it’s not only “Division” it is also a great candidate for the “Non Sequitur” argument of the year award.
GreenTree, LLC – Affirming the Consequent
A thorough discussion of Massachusetts foreclosure law can be found in Howe v. Wilder, 77 Mass. 267 (1858). which resolved a foreclosure dispute by holding that a mortgagee, without the note, could not foreclose on the mortgage.
The court goes on to elaborate that because the party who would otherwise seek to foreclose was owed no debt, he cannot recover possession:
“For in pursuing such a suit [the party] has only the rights of a mortgagee, and is limited by the restriction imposed upon him…if nothing is found due to the plaintiff, it follows by necessary implication, from the provisions of the statute, that he can recover no judgment at all; none to have possession at common law, because that is expressly prohibited; and none under the statute, because where there is no condition to be performed, there can be no failure of performance, and no consequences can follow a contingency which in nature of things can never occur.”
Suggesting that by being an assignee of the mortgage, encompasses the right to foreclose is simply “Affirming the Consequent” and is just another logical fallacy.
MGL 244 § 14 and the Straw Man
Bifurcating the note and the mortgage was an extraordinary circumstance when the legislature decided the subject laws. At the time these laws were ameliorated there was no reason to explicitly delineate between the debt and the mortgage instrument securing it. To argue, as Green Tree has, that the term “Mortgagee” as used in MGL 244 § 14 means also “naked mortgagee”, (a mortgage holder not having any interest in the underlying debt) is a “Straw Man“. This suggestion overlooks the historical context in which the law was authored, the rise of the mortgage securitization industry, its related practices and the compulsory changes to recording which has taken place over the last decade. It is to overlook the privatization of land records that (as far as we know), no elected official or law maker had blessed beforehand.
If Green Tree’s argument were accurate, they would not assign the mortgages to third party servicers at all, and rather continue to foreclose in MERS name (more efficient) as had been the practice until several states supreme courts ruled against it, citing the fact that MERS had no economic interest in the mortgage, which is “but an incident to the note” or “a mere technical interest” (Wolcott v. Winchester) – this of course reaffirms the spirit of the law which Henrietta Eaton asserts in her complaint.
In particular the court stated that the assignee of a “naked Mortgage”:
“…must have known that the possession of the debt was essential to an effective mortgage, and that without it he could not maintain an action to foreclose the mortgage.” Wolcott v. Winchester, 81 Mass. 462 (1860)
Despite all of this, the bright idea of the securitization industry was to simply transfer the mortgage instrument to the servicer – a related party, sort of.
If Eaton is not affirmed by the SJC, we might as well make Three Card Monte our national pastime and get rid of baseball altogether. In such a scenario handicapping the future of the US economy and the ability to affectively and profitably speculate in the CDS market will be “duck soup”.
The authority of the UCC codified at G.L.c. 106
Because the common law involves a great deal of common sense, it just so happens to be mirrored in the Uniform Commercial Code. In particular G.L.c. 106. Article 3 of the UCC governs the negotiation and enforcement of negotiable instruments, including promissory notes secured by mortgages. Section 3-301, like the common law, provides that one must hold a (valid) note in order to validly enforce it. This rule serves the purpose of protecting consumers and barrowers against the very real possibility of double liability created when a debt is enforced. As in the current matter, Green Tree, LLC or any other mere mortgagee (even if they could get a valid assignment), would have no power or authority to discharge the actual debt. Thus if the operation of law were in any other capacity than it currently is, the mortgagee could foreclose on a property, while the debtor would still be left with a valid debt outstanding to an entirely unrelated party.
This lends itself to the requirement for transparency. During the oral arguments before the SJC, one justice asked why it mattered if the homeowner knew to whom they owed their debt. The answer is that homeowners have an important role to play in the outcome of the final settlement and discharge of their debt, and are above all the most interested party in ensuring that their payments are in fact reducing the outstanding principle balance as they are made. Otherwise, they may as well be directed to make their payments to any random stranger. It is absurd to suggest that a debtor be required to simply make payments to anybody who asks for it. That is to suggest that he is not only a debtor-servant, but also a mindless sheep – then again, perhaps that is the desired outcome.
In fact the entire matter may only be possible in a non-judicial foreclosure state, for if it were a civil complaint for the collection of an amount due, than would the debt instrument itself not be scrutinized as a first priority in the proceedings? Perhaps small unimportant questions like who actually owns the debt and is bringing the action would be relevant under such circumstances.
The authority of loan contracts
In the end, the entire action by Fannie Mae and Green Tree, violates the very contract which is being disputed. Even if no other statues or laws had operated or ever existed, Eaton’s argument would survive on this one point alone – and Eaton is not unaccompanied – she stands with some 60 million other homeowners in the US with virtually identical contracts.
In the case of Eaton standard mortgage loan documents were used, and they essentially all look alike. The terms of Eaton’s mortgage contract, as with virtually all others, authorizes only the note holder to exercise the power of sale. The one concession Green Tree, LLC made was that they are not the note holder and have neither argued, nor provided evidentiary support for the claim, that a foreclosure by anyone other than the note holder was necessary (not that it would be possible).
A bitter Fruit: Double Liability
It has been said, “By their fruit you will recognize them. Do people pick grapes from thorn bushes, or figs from thistles?”. No, because “every good tree bears good fruit, but a bad tree bears bad fruit” . Is Green Tree’s lawyer actually advocating that homeowners should just rely on the banks and servicers to be “nice guys” and not go after the debtors twice? It is already known that certain elements in the industry were willing to sell the same note multiple times into multiple pools which given Burnett v. Pratt, 39 Mass. 556 (1839), presents interesting problems for RMBS investors, who were essentially their business partners. If the architects of these systems can sell the same note twice, to their own business partners and customers, why would they not try to also collect twice from their debt-servants, who rank many orders below business partners and real customers?
If the severity of compound interest is not enough, the result may be plan “B” – “doubling up” where needed.
If the fact that being named on a valid mortgage is not sufficient to authorize a foreclosure, than automatically the question becomes who holds the note? The answer to the latter question is a bit more serious, for in the answer lies a good deal more than the banks would like to reveal.
Does greed have rational limits? It does not and it cannot because greed is not rational to begin with. Since nobody knows how the foreclosing mortgagee would actually go about paying the note holder, are homeowners to rely on a system of document management (which usually involves an Iron Mountain truck, and a whole lot of paper shredding) to ensure that debt-servants are set free if they ever pay off their “debts”?
Did barrowers really sign up for that when they signed their mortgage and note? If not, when and where are the limits?
It’s only a matter of time
Homeowners must examine the assignments on their mortgages and notes. If a foreclosure is imminent, a preliminary injunction should be sought in order to have an opportunity to examine the documents thoroughly and also to give time to the SJC to issue its ruling – Jurisprudence matters. When the final Eaton ruling is taken together with Ibanez, there will be a sea change – it’s only a matter of time.
It seems reasonable that in a world where bandwidth intensive videos can be encoded and uploaded over a high speed 4G network from the New York Stock Exchange and on the Internet in 30 sec. using a smartphone with 64 gigs of memory (that can fit on a SanDisk card the size of your fingernail), and join billions of other files that have highly accurate GPS data embedded in their metadata, that finding a note for multiple six or seven figures debt and bringing it to court with you would really be no big deal – but apparently it is.
Foreclosures that took place before Ibanez, likely involve an assignment of the mortgage which is invalid because it would have been assigned post foreclosure (as was the common practice at the time), thus invalidating a huge number of existing foreclosures.
For foreclosures or those facing foreclosure in the post Ibanez era, than it is highly likely that the assignment of the mortgage is both invalid and fraudulent, as Mrs. McDonnell so accurately points out is endemic in most registry of deeds. If it’s the note than that servicers intend to rely on, they may need to dream up a new strategy, because those are all “missing” as we see in Eaton. New strategies it seems are now in short supply.
A few more questions and thoughts
The “pump and dump” is as old as “market places” are. Whether it’s a street vendor in morocco extolling the virtues of his wares he wants to sell, or a the salesmen of shares in Netflix and Linkedin at impossiblele valuations – this “pump and dump” technique often is done with considerable misrepresentations, which result in artificially high prices for a time, and makes true price discovery impossible for buyers.
If you’re on the wrong side of the transfer, as a buyer of such stocks or bonds, you would have claims against the salesman – it’s called securities fraud. Now this ‘old time’ operation has been executed in the real estate market as well, and real estate, although most people don’t think of it this way, is also a security just like any other (it’s really not the American Dream, as has been sold – because as pointed out above, when something goes beyond the parameters of a mere security, to that of a “dream”, no price is too high). Just like stocks, these securities were pumped, and then dumped (but only after the related CDS’s were purchased by the architects).
What’s being described is an activity based on fraudulent misrepresentations, like most other such schemes. The “Pump” part involved a lot of paper shuffling, so that when the “dump” took place, the profiteers could not be easily identified. The same is true today. That is why debt-servants are not allowed to know their lender-masters – because it is the beginning of the paper trail, and as any certified fraud examiner will indicate, it all starts with the paper trail.
By focusing the attention of the court and the people on the intricacies of the letter of the law – even though they are wrong at that as well, the banks are taking attention away from the more obvious question, which is why? Why fight to interpret the law that way? That is the real question: Why. Why not produce the note. Why not reunite the note with the Mortgage?
Why would notes go missing? These are not credit card bills, they are documents outlining typically multi-six figure sums, or seven figure sums in some cases. Isn’t it logical that these documents would be kept in a safe place? And tracked? How could so many notes just disappear?
Why would the SJC and the American people at large not be alarmed by entities who foreclose on a property and yet have no idea who actually holds the debt?
The securitization process, in which so many notes were resold is subtle, but complex and riddled with a taxonomy that makes it as understandable as a foreign language to the casual observer. Yet, more careful scrutiny reveals that there is nothing even vaguely sophisticated about it’s operation.
The business of taking homes without any debt being owed is so obvious and simple so as to lend itself to denial. For example, one member of the SJC panel actually asked the attorney for Eaton why the barrower needed to know who owned the debt that they were paying? We thought maybe it was a joke – sadly it may not have been.
Yet, we know that notes have been sold multiple times into multiple pools and trusts, thus creating multiple creditors.
Any consumer should want to know if there debt is actually going to be discharged, and in order to know this, they would have to know who the actual debt holder is.
These debts are not secured. They are negotiable. This week alone, there was talk of bankruptcy proceedings for Eastman Kodak and American Airlines, Friendly’s, after more than 80 years in business, including operating during the last depression, actually did file. As commercial entities, they will be allowed before, during and after bankruptcy to work with their creditors in a completely transparent way.
Why is the average American expressly forbidden this simple aspect of business dealing? Though they entered into such obligations at far greater disadvantage than their corporate cousins?
It is clear that by introducing multiple parties that there are conflicting incentives and interests. It was surprising that the SJC brought up inadvertently during the oral arguments that the lender may have contractually sold their rights to have any say whatsoever in negotiations with the debt holder.
The following question regarding Green Tree, MERS and the Eaton case are worth asking:
- Why would they go to such great lengths to keep the “lender” or holder of the debt in “secret”? What is there to gain? Would it not be much more expeditious to just reunite the note with the mortgage and then foreclose?
- Foreclosing with just a mortgage used to be an anomaly? But now it is the rule – what changed? Why would lenders take such an extraordinary risk with trillions of dollars?
- Does the claim that the notes are “lost”, or “missing” seem credible in light of the extraordinary technological world we live in?
- Is the imbalance in power between the home buyer (as signer) and the lawyer (as author) of the contract important? 99% of home buyers had no clue what they were signing – their attorney’s didn’t understand the assignee aspect of MERS or how it functioned either.
- Why would the servicer hide the debt holder? Why go through all of this trouble? Is it because it is really the US government by proxy of Fannie and Freddie?
- Were the notes used in a pyramid scheme? Were they sold multiple times intentionally in order to accommodate increasing degrees of leverage that the derivatives market required to sustain itself?
In the Commonwealth of Massachusetts servicers in possession of mortgages only (which is basically all of those who represent securitized notes) are barred by common law rule, by statute, by the Uniform Commercial Code, and by the terms of the mortgages themselves from conducting foreclosures. If they have already done so, those foreclosures are void. We believe these principles do and will extend beyond the commonwealth eventually to all of the US.
The reason the banks are fighting this is because there exists a very real fear that homeowners stuck with inflated debts, which are the equivalent to indentured servents, might actually gain some negotiating power to settle these debts, at prices which not only reflect the prudent risk management which should have taken place in prior years, but also the related and more realistic asset prices which should have prevailed at the time of the original transactions.
From a purely business point of view, the asset prices were inflated, and the average home buyer with a home loan vintage 2002-2007 had little or no choice in the setting of those prices. However, there is another group who did, and they were writing “loans” and selling them as fast as the CPU and the RAMM on MERS’ servers would allow them (thankfully cloud computing, with its superior ability to process data, and elastic memory and bandwidth wasn’t yet widely used).
Yet the securitization industry and their very elite and very wealthy captains are not having any of that – because it is a reverse transfer. To be a debt-servant is to be the servant of another man by force. Humans are not designed or built for that – that is a construct of an unfortunate human condition, which we should want to change.
How a mortgage payment can be made with fidelity every month into a authentic black hole, and the attendant psychology which enables this behavior is beyond the scope of this article. The Common Law, the MGL and UCC and even the contracts themselves make it clear though, if a mortgagor expects a discharge of the debt, they need to know who exactly they are paying.
Taking a step forward requires some courage, but less than those who have taken to the streets in NY, Boston or other cities – they are doing really hard and courageous work. Not paying a mortgage in light of the a priori evidence cannot even qualify as an act of civil disobedience. The average homeowner and mortgagor is not called to such a high calling in this instance – they are merely called to follow the mundane laws of the land which have been set down for over 150 years. It is just simple prudence. It is the lack of denial, and a willingness to recognize the truth, no matter how unpleasant. Participation in the system as it is, while concurrently declining to examine the issues intelligently is not defensible.
Paradoxically the hand of the strong which moved to Divide (the notes) and Affirm (title interest) – when taken in God’s hands, has destroyed (the notes) and preserved (the legitimate ownership).
About Gregory M. Lemelson
Author – Amvona.com blog. Entrepreneur. Find joy in teaching and writing. Founded companies in retail, real estate and Internet technology.
Supreme Judicial Court FOR THE COMMONWEALTH OF MASSACHUSETTS NO. SJC-11041
HENRIETTA EATON, PLAINTIFF-APPELLEE, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION & ANOTHER, DEFENDANTS-APPELLANTS.
ON APPEAL FROM THE APPEALS COURT SINGLE JUSTICE
BRIEF OF AMICUS CURIAE MARIE MCDONNELL, CFE
“It is incumbent upon consumers, their attorneys,
registry staff, clerks of court, and judges to learn
how to recognize these sham assignments because they
are corrupting the chain of title in our land records;
and because, once recorded, courts afford them
deference rather than seeing them for what they are:
counterfeits, forgeries and utterings.
The MERS System is no replacement for the timehonored
public land recording system that is the
foundation of our freedom, our prosperity, and our
American way of life. By privatizing property transfer
records MERS has been allowed to set up a “control
fraud” of epic proportions that has facilitated the
largest transfer of wealth in human history, and it
should be abolished.”
John O’Brien, Southern Essex District Register of Deeds in Salem, Massachusetts extends an invitation to banks and all attorney generals to visit his registry.
O’Brien who has been leading the national effort to hold lenders accountable and was the first in the nation to refuse to record robo-signed documents, has invited the CEO’s of the nation’s largest banks including Bank of America, JP Morgan Chase, Wells Fargo along with the 50 states’ attorneys general to come to the Salem Registry and view first-hand the damage that these banks and the Mortgage Electronic Registration System (MERS) has caused to thousands of Essex County homeowners’ chains of title.
“It’s as if a hurricane came through here,” said Register John O’Brien, referring to the financial havoc and damage done to property records at the Registry of Deeds.
“Following any disaster, the powers-that-be generally visit the scene to assess the damage. That is what I would like these major lenders and the attorneys general to do – a visit to my registry sooner rather than later, may help these lenders to truly appreciate the extent of the damage” O’Brien said.
O’Brien believes that a sweetheart deal, in the form of a settlement to grant lenders immunity from prosecution, is in the works. O’Brien stated, “There can be no settlement granting the lenders immunity and at the same time letting MERS of the hook”. “I believe the responsible thing to do would be to see the damage before they talk settlement. They owe the American people that. If they are truly sincere about cleaning up this mess then they should take me up on my offer”.
The settlement currently in negotiations with the banks is being led by Tom Miller, the Iowa Attorney General who just last week removed New York Attorney General Eric Schneiderman, a vocal critic of the proposed settlement. O’Brien has expressed his outrage over the ouster and has called for Miller to step aside. O’Brien said “we need more Eric Schneidermans fighting the fight. He is the voice of Main Street not Wall Street”. According to O’Brien, any settlement at this time would be a total sellout of the American property owner and their property rights.
We still do not know the extent of the damage and just how much they have fleeced from taxpayers in lost recording fees, which in my opinion run into billions of dollars.
These CEO’s have to step up and take full responsibility for what they have allowed to happen. They have played fast and loose with people’s property rights, and have corrupted the chains of title to hundreds of thousands of property owners across this country,” O’Brien says.
In addition, O’Brien believes that the only way lenders and the attorneys general can fully appreciate the ramifications of the schemes (including the recording of fraudulent documents, which in some cases were used to take people’s homes illegally; the use of robo-signers; and the failure to record assignments) is to travel to Salem, sit across the table from him and review the documents. Only then, will they fully understand the extent of the damage that’s been caused.
“Hopefully,” O’Brien says, “By viewing the thousands of fraudulent documents recorded in my Registry, they will begin to understand how serious this issue is and work with Registers of Deeds across this country to correct the wrongs that have been committed.”
“All I am looking for is justice for these homeowners. I have said all along, that the banks need to talk to Registers of Deeds. What better way, than to come to an actual Registry and see first-hand what I am talking about. It would be the responsible thing for them to do. We would be able to have an open and frank discussion which hopefully would lead to a solution. The last thing the American people need now is to have this issue swept under the rug and settled for pennies on the dollar,” O’Brien said.
John O’Brien, Registry of Deeds for Southern Essex County in Massachusetts is asking that Tom Miller, Iowa Attorney General, step down. Miller is the lead AG in the controversial settlement with the big banks on mortgage servicing fraud.
In his most recent obscene act Miller kicked Attorney General Eric Schneiderman off of the 50-state task force probing foreclosure abuses and negotiating a possible settlement agreement with the mortgage firms.
A Virginia-based mortgage registry business mired in the nation’s housing foreclosure investigation has apparently “stiffed” the three Berkshire Registry of Deeds offices of nearly $2 million in recording fees for more than a decade, local registry officials have claimed.
Mortgage Electronic Registration Systems Inc. of Reston, Va. failed to pay an estimated $1.18 million to the Middle District Registry of Deeds in Pittsfield from June 1999 through July of this year, according to Register of Deeds Andrea F. Nuciforo Jr. In addition, Nuciforo’s staff has calculated that the Southern and Northern District registries in North Adams and Great Barrington respectively are owed a collective $775,000 during the same 12-year period.
The $75 state-mandated fee in question is for each time a home mortgage is sold or swapped — known as an assignment — to another lending institution after it has been initially recorded in the appropriate registry. The money collected goes into the state’s general revenue fund.