Posted on 01/19/2011 10:16:36 AM PST by survivingcalifornia
The foreclosure mess just got messier.
Inquiring minds are watching the fallout in Utah where a man just beat the banks in court by agruing that the bank had no right to foreclose…and he got his house given to him with clear title. This means Mr. Walter Keane does not even have to pay his loan of $132,000. All because of the way MERS handled his documents…or that MERS handled the documents:
A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.
The award of a title free of liens means that whoever owns the promissory note on the Draper property — likely a group of faraway investors — no longer has the right to foreclose to collect on a delinquent loan. Indeed, the townhouse owner has sold the property and kept the money. Those who own the promissory note probably don’t even know what occurred.
This is now the second state which has decided against the banks. Remember this SurvivingCalifornia.com post on Massachuetts Supreme Court’s similar decision last month.
This case in Utah may have even more importance:
Decisions such as the one 3rd District Judge Glen Iwasaki handed down in the Draper case could have a big impact as the state wends its way through hundreds of lawsuits involving foreclosures, loans on properties for more than they’re worth and predatory lending practices that led Utahns to lose their homes as the real-estate bubble burst.
As always it seems, MERS is at the center of the storm:
This is all tied up with MERS, the online database that has stood in for the land records system in as many as 60% of the mortgages in America over the past decade or so. As we’ve seen, MERS is essentially a way for the largest banks to avoid recording fees, by naming them as the mortgagee on the original record and then transferring the mortgage and the note through their database. The problem is that MERS is named as an owner on loans in which it has no financial interest, and the judicial system doesn’t yet know how to manage that. This has confused the hell out of title insurance companies, who cannot determine who holds the note or even who can collect payments on it. As a result, in this case, the courts and the title company failed to figure any of that out, so they gave title back to the homeowner.
The ‘why’ in this case has been discussed before here at SurvivingCalifornia.com. If you remember one our most popular posts “The F-Bomb” you will see a similar metaphor of “photocopying a $100 Federal note” used by Christopher Peterson of the University of Utah quoted in “The F-Bomb”. Mr. Peterson says that in this case in Utah, MERS calls into question their ability to succeed:
Under laws adopted by all 50 states, the owner of a “negotiable instrument” such as a promissory note must be in physical possession of the document, said Peterson. Otherwise it would be like someone trying to cash a photocopy of a check instead of the actual check. [SC editor's bolding]
“One cannot be a holder of a note unless one is in physical possession of that note,” he said.
But Peterson said evidence is coming out in courts that shows the actual promissory notes or mortgages signed by buyers were not transferred as the notes made their way into the mortgage-backed securities investment pools.
Yes, we have been saying that 2011 was going to be an interesting year…and the fireworks have already begun!
Other SurvivingCalifornia.com posts on this topic:
“Foreclose on the Foreclosure Fraudsters“ “More on Mortgage Mess“
A law will be passed retroactively legalizing all that the banks have done.
Count on it.
Unfortunately.
My hubbys is a real estate salesman. We’ve watched our income get cut almost in half over the past year or so. I hate to see what this year brings.
Just as I predicted. MERS may be the thing that melts America's financial system to the ground.
This is just the beginning. The litigation is going to go through the roof. Besides these lenders that do not have a clear lien against the property there will be litigation against the same lenders for illegally forclosing on past loans, then litigation against them for selling the property to a third party. Then litgation from that third party against the lender for illegally re-selling the property. And so on through the illegal chain of bogus liens against title because of the use of MERS. Real estate brokers will be dragged in as will the agents and their insurers. The title companies will be dragged in because they indicated clear title when there was none. This will make title insurance rates go through the roof. Title insurance companies have had very low loss ratios (ratios of premium earned vs claims paid) for decades. So much for their cushy business.
Besides all of this the credit reporting agencies are going to be hit and hit hard. They have been using data from the lenders that is based upon a false premise. And that is that the lender had the legal right to report adverse credit data when there was none. Because of this they have been damaging peoples credit. They are now aware of this and should immediately remove any adverse data where the reporting financial entity used MERS.
This has all just begun gang. It is going to get worse because people are people. Some people will figure out that they do not have to pay their mortgage because they own their house "free and clear" due to the MERS mess so they will stop paying. The lender will have no recourse. Many people will sell their upside down houses because they do not have to pay any mortgage off. Others are just in bad shape and will stop paying. The most interesting thing will be when people start moving back in to their illegally foreclosed on home. They will be kicking people out of these homes. The people they are kicking out are going to have to leave because they bought the house form a lender that had no legal right to foreclose and then sell the house.
I believe that MERS is why Obama and company have been bailing out so many lenders. Besides protecting Goldman Sachs and others on Wall Street who participated in the illegal bundling or mortgages in to securities when they had no clear right to the loans.
MERS was an amazingly stupid idea. It would be like a group of companies that finance cars deciding that it would track all the liens on cars instead of the various states doing so. They would just declare that it was legal to do. Then they would bundle all the liens and sell them as financial instruments. And when someone did not pay their car note this new "thing" would repo the car. The problem with that is that just like with MERS it is illegal. You cannot decide one day you are the government. That is what the inventors of MERS did. And speaking of litigation? There are some counties that were bilked out of BILLIONS of dollars because of MERS. Because MERS handled the notes and not the counties the counties are out HUGE sums of money. Those counties are going to go after that money. MERS will be dead and dead soon in my opinion.
Keep watching. This is going to be the mess of all times.
I don't see why, unless title insurance companies start asking astronomical rates. And since the homeowner won, this decision favors the title companies.
I think it just means that large banks will change the way they do business and make sure they collect the paper. Until they can get the laws changed.
I don't see why, unless title insurance companies start asking astronomical rates. And since the homeowner won, this decision favors the title companies.
I think it just means that large banks will change the way they do business and make sure they collect the paper. Until they can get the laws changed.
If not, then the banks will get another bailout at your expense. The banks won't have to pay it. Count on that & then explain why we aren't a banana Republic.
This affects everybody because the US Dollar is largely backed by mortgage-backed securities.
See http://www.cumber.com/content/misc/fed.pdf.
In the past Federal Reserve assets were comprised overwhelmingly of US Treasury securities, but no more. Now Treasurys comprise just half of the assets that back the US Dollar; mortgage-backed securities comprise the bulk of the remainder.
Many of those mortgages are unenforceable and others are backed by real estate that is essentially worthless or worth far less than than the mortgage. Our ruling elites have created a financial system that is totally FUBAR.
This is now the second state which has decided against the banks.
This is actually a decision in favor of upholding basic law.
Nevertheless, way to go Utah.
If the bank hasn’t got the note, its not the homeowner’s fault.
sfl
He’ll have to pay it, if anyone can ever prove they are the ones he owes the money to.
If you can’t prove someone owes you money in court, how do you ever expect to force them to pay it?
On the other hand, if I was planning on purchasing some property and found out the owner had never paid off a loan against it because of something like this, there is no way in **** I would buy it. If they ever got the paperwork straightened out in the future they would come after the property, and the new owner would be screwed.
ping
That is going to be hard to do because this is such basic “law”. I remember going over it in not only B-law in college but also in school for my RE Broker’s license.
To have standing” in court you have to have ownership and an “injury”. MERS effectively cut these into two completely independent parts.
Same with the promissary note. Photocopies after the fact don’t cut it. Or the Fed Notes in our wallets can be copied for our own individual quantitative easing!
I know something is going to be done, though. But for now, my statement stands...this is going to chill the hell out of the RE market. And the MBS market.
I have been a RE broker since ‘97. Me, too.
I have been saying the same. And, a couple of years ago, people were saying that I was a wacko for even entertaining this as a potential problem.
This is the actual issue on why I started the blog.
First, there is no paper to collect. Most notes have been lost. The time it takes to go through channels to produce a replacement takes forever. However, they have been bought and sold so many times and never been recorded that they could become unenforcable voided contracts.
This would play havoc with the markets. No one will buy any foreclosure. The people and institutions who purchased the MBS will be wiped out. All your insurances are with companies that bought and sold these.
The ripple effect through the economy will be swift and terrible.
Thanks, you’re right. This is biblical in proportions.
We either figure a way around this or the entire financial system of the US is imperiled.
No, he own’s the home free and clear. That is what ‘clear title’ means.
For the owner of the paper...does the term “SOL” mean anything to you?
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