The Next Financial Crisis Hits Wall Street, as Judges Start Nixing Foreclosures

[ensho]

http://counterpunch.com/


New Shockwaves From Courts and Accounting Board


-snip-

Three plain talking judges, in state courts in Massachusetts and Kansas, and a Federal Court in Ohio, have drilled down to the “straw man” aspect of securitization. The judges’ decisions have raised serious questions as to the legality of hundreds of thousands of foreclosures that have transpired as well as the legal standing of the subsequent purchasers of those homes, who are more and more frequently the Wall Street banks themselves.

Adding to the chaos, the Financial Accounting Standards Board (FASB) has made rule changes that will force hundreds of billions of dollars of these securitizations back onto the Wall Street banks balance sheets, necessitating the need to raise capital just as the unseemly courtroom dramas are playing out.

-snip-

Because of the expense, time and paperwork it would take to record each of the assignments of the thousands of mortgages in each securitization, Wall Street firms decided to just issue blank mortgage assignments all along the channel of transfers, skipping the actual physical recording of the mortgage at the county registry of deeds.

-snip-

But, at last, some astute judges have done more than take a cursory look and render a shrug. In a decision handed down on October 14, 2009, Judge Keith Long of the Massachusetts Land Court wrote:

“The blank mortgage assignments they possessed transferred nothing...in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form...The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature. To accept the plaintiffs’ arguments is to allow them to take someone’s home without any demonstrable right to do so, based upon the assumption that they ultimately will be able to show that they have that right and the further assumption that potential bidders will be undeterred by the lack of a demonstrable legal foundation for the sale and will nonetheless bid full value in the expectation that that foundation will ultimately be produced, even if it takes a year or more. The law recognizes the troubling nature of these assumptions, the harm caused if those assumptions prove erroneous, and commands otherwise.” (U.S. Bank National Association v. Ibanez/Wells Fargo v. Larace)

A month and a half before, on August 28, 2009, Judge Eric S. Rosen of the Kansas Supreme Court took an intensive look at a “straw man” some Wall Street firms had set up to handle the dirty work of foreclosure and serve as the “nominee” as the mortgages flipped between the various entities. Called MERS (Mortgage Electronic Registration Systems, Inc.) it’s a bankruptcy-remote subsidiary of MERSCORP, which in turn is owned by units of Citigroup, JPMorgan Chase, Bank of America, the Mortgage Bankers Association and assorted mortgage and title companies. According to the MERSCORP web site, these “shareholders played a critical role in the development of MERS. Through their capital support, MERS was able to fund expenses related to development and initial start-up.”

-snip of what another judge said-

One of the first judges to hand Wall Street a serious slap down was Christopher A. Boyko of U.S. District Court in the Northern District of Ohio. In an opinion dated October 31, 2007, Judge Boyko dismissed 14 foreclosures that had been brought on behalf of investors in securitizations. Judge Boyko delivered the following harsh rebuke in a footnote:

“Plaintiff’s ‘Judge, you just don’t understand how things work,’ argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process…There is no doubt every decision made by a financial institution in the foreclosure is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit – to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers…” (In Re Foreclosure Cases)

-snip-

There’s no doubt that one of the contributing factors to the depression of the 30s and the intractable unemployment today stem from a massive misallocation of capital to both bad ideas and fraud. Today’s Wall Street, it turns out, is just another straw man for a rigged wealth transfer system.
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get the bastards

[Skink]

1. This is a naked land grab by the banks.

they are crying poverty and essentially acting as if they have eminent domain.

[no_hypocrisy]

2. And those asswipes will still be expecting their $20 million bonuses at the end of the year.

The arrogance and the hubris can't be measured.

[TomClash]

3. This reminds me of the title of an old play . . . .

. . . by the Italian playwright Dario Fo - "Can't Pay? Won't Pay!"

[OffWithTheirHeads]

4. This is going to get VERY interesting.

This could be the beginning of the greatest reverse wealth transfer in history with millions of folks who get to keep their homes while wiping out the indebtedness. I'm all in favor! Unfortunately, I don't think the power elite will allow this to happen. Can't have the little guys getting a break at the expense of the billionaires you know.

[n2doc]

5. Congress will change the laws if this gets traction

Bet on it. There is no way the banks won't get their pound of flesh. They will probably get 2, one from the borrower and one from the Government.

[Statistical]

7. Sadly true.

Much as today equities (stocks) are registered in the name of "the street" so if this becomes a large & costly issue Congress will pass some financial "reform" will allow a mortgage to be registered in the name of the street or transferred to the street before it is securitized and sold off.

Initially registering shares in the name of the street was rare and simply used to facilitate electronic trading now virtually all shares are and many companies are ending paper (recorded) share receipts.

Now MA may argue the Federal Govt has no authority and legally they would be right however the Feds know how to play that game. Simply make any mortgage that can't be registered in name of the street (either by the terms of the mortgage or by state law) ineligible for sale to FanieMae or FreddieMac. Instantly liquidity dries up to nothing for affected mortgages. No bank wants to issue a mortgage they can't flip to Fannie.

[jayfish]

9. And The Changes Will Take Effect Immediately.

None of this 1-4 years nonsense.

Jay

[closeupready]

15. No, delays in implementation are only for pro-corporation, anti-consumer legislation.

Like credit care reforms or implementation of a public option. :eyes:

[MarjorieG]

6. Most Dems wanted to give Courts jurisdiction, but GOP-ConservaDems said no. Hope we get 2nd chance.

[clear eye]

10. As long as the courts continue to act as though they have jurisdiction

be allowing these suits before them, I can't see how foreclosures they deem invalid can be enforced. The police have to uphold the decisions of courts, not quasi-private regulators.

(Just got a flash of a police vs. Blackwater battle in front of a house.)

[clear eye]

8. The logical upshot of invalid transfers would be that the original lender

still holds the mortgage, not the homeowner. But since accepting that would be the equivalent of declaring almost all mortgage-backed derivatives null, void, and valueless, the financial issuers and holders of the derivatives won't accept that. This leaves the ownership of the mortgages in limbo, and the owner still in possession of his/her house. (snicker) Given how much these same financial entities have stolen from our country and what they continue to do w/ it, I can only fervently wish these decisions hold up on appeal. Wealth would transfer to many, many less wealthy people who would then spend their income in their communities and stimulate their local economies, rather than going into the sinkhole of "too big to fail" firms. These firms have so far been using their ill-gotten gains to bribe regulators to give them more favorable terms for FDIC insurance, etc., than smaller banks, and to then buy up those smaller banks. And to buy Chinese stock. And of course for obscene bonuses and stock options for their executives who sock it away in gold, and foreign investments and other bets against our economy.

Maybe the judges had just finished watching Capitalism; A Love Story?

My dream about the how this gets settled would be that in exchange for being granted valid holder of the mortgages they have "registered", the banks are forced to a) work out affordable settlements w/ the homeowners of either partial forgiveness or conversion to reasonably priced rentals, and b) the large banks have to accept being broken up into regulatable-sized entities whose investment parts are separate from the banking parts, and whose derivative holding portions are declared bankrupt. The top executives would then be punished for facilitating instruments that violated risk agreements made w/ European regulators, etc., by never being allowed to hold positions of responsibility in financial institutions again.

[Better Today]

11. Long response - worth reading...

So I've been reading about this on and off over the past six months. Recently my loan payment didn't arrive at the new mortgagor's processing center and when I didn't receive the usual statement in the mail at the usual time I called, which is when I found out it had either not arrived, or had been posted wrong.

In the meantime the nice lady said, no problem, you've never been late before, we have no indication from the (other mortgage company we purchased your loan from), so just pay double next month, we'll forgive the late fee, all is good. NOTE: I called them.

Well about a week later I get a threat (note a week later was not when the next payment was due, it was more like 3 weeks away) regarding failure to pay that was dated two days AFTER I had called them about my observation that something had gone wrong.

Anyway, this ultimately we get this worked out, but I've got a really bad taste in my mouth being treated this way. So when I read this today, I think. . . I wonder who the hell my deed is assigned to... I call to find out.....


My deed is still assigned to the original bank, three bank assignments ago, and CitiMortgage nor the other intermediate holders of the loan ever filed the update or re-assignment at the county level.

I'm stopping paying my mortgage to this bank (my second loan with a different bank is still with the original bank and properly assigned) until they get their shit together.

Is there any reason I shouldn't???? Seriously, I'm curious because so long as the original bank has the assignment, they can still come after me, right????? This other bank can't, right?????

[BluinTX]

12. Actually,

it may be that no one can come after you. The original bank that holds the note has presumably been paid off and has no financial interest upon which to bring an action. The current bank, which does have a financial interest, may have no legal claim against you if they do not possess the requisite legal authority, which would be proven by posession of a properly recorded note. Having read the Kansas Supreme Court opinion, my impression is that the failure to properly transfer the note upon transfer of the debt creates an irrevocable and fatal break in the chain.

That being said, it will ultimately depend upon how your particular state views the law. If you are in KS, MA, or OH, you may have unwittingly won the lottery.
:party:

[Better Today]

13. UPDATE Really interesting. Will you EVER see the deed of your prop even if you pay fully?

After getting transferred around quite a bit from the county, I was referred to the title company.

The question I asked was this, and was NOT related to foreclosure. I decided to take another tactic. I asked, "if I pay off my loan and the bank I'm currently paying is the fifth transfer of the loan and the original loan holder is still registered at the county level (no transfers or MERS), how will I get the deed to my property?"

The answer: " The mortgagor has to provide the ORIGINAL NOTE AND DEED to the property owner, then it is taken to the title company who searches for other outstanding liens, mortgages, etc. and the a reconveyance is issued at the county level. Then you own your property."

Question two: "So if the current claiming mortgage holder doesn't have those original documents?"

Answer: "You're screwed." Paraphrased of course.

Recommendation from Title Company (not the title company that was used on this loan, as they gave me a runaround answer clearly trying to encourage me to continue paying and don't worry)..."Call the current claiming mortgagor and have them forward copies proving they have control of the original docs."

Question: "Should I stop paying until I get that confirmation?"

Answer: "I cannot offer you legal advice about payments, just information about procedures."

[Better Today]

14. Another update. This is getting pretty interesting. Step by step.

So I decided to call the original local bank that issued the loan and is still listed at the county as the sole assignor of the deed. They tell me that it isn't the deed itself that will be the issue, as there is a MIN or MINS # that shows that the currently claiming mortgagor has the loan on some electronic database.

So the originating bank WILL issue the required re-certification of the assignment of the deed.


HOWEVER, the title company and the loan officer point out that they also have to provide the original loan, not a copy. The loan officer at the originating bank assures me that they will NOT issue a certified copy of the loan to a transferred bank, particularly one they have no knowledge of. IE they might if it was still the first bank that they assigned the loan to, but certainly not for the one fourth down the line that they have no knowledge or relationship with.

I guess my next best step is to contact the current mortgagor and request that they prove they have the original loan docs rather than focusing on the assignment of the deed.

Perhaps we should all be checking some of this stuff. I'm not sure how to write such a letter without a lawyer, or who to send it to since I just have the processing center address, but I'll be looking for that next.