I have in my hot little hands a nice transcript of part of the committee hearing in Virginia where, if you recall, there is a bill pending that would end many of the abuses in the foreclosure realm that have dogged homeowners for the last several years.
MERS doesn't like it, of course, and showed up to give a "full-throated" defense. Well, kinda.
Mr. Hultman: We're the beneficiary, but we're an agent of the lender. So instead of having two -- one party be both the payee on the note and the beneficiary in deed of trust, we're the beneficiary as their agent. In other words, we're holding title to the mortgage lien on their behalf.
COMMITTEE MEMBER: Through this process called nominee?
MR. HULTMAN: Well, nominee is just another word for agent.
COMMITTEE MEMBER: Okay. So the actual record --
MR. HULTMAN: And the mortgage gets recorded or the deed of trust gets recorded so the world is on notice that there is a lien against the property, which is what the purpose of land records are.
COMMITTEE MEMBER: Right.
MR. HULTMAN: History, even before MERS, it was never the role of the land records to tell anybody who the owner of the indebtedness was
Oh that's not true at all.
If there's a suit, one of the purposes of filing in the "land records" is to not only notice the world that there's a lien, but also to notice the world so that if someone wants to sue in some capacity related to the land, they know who to name and serve.
How do you do that if there's no public record as to who owns the paper? You can't.
Mr. Hultman is, as is often the case with these guys, half right - and in my opinion, is intentionally omitting the other half. The terms of the note are not filed with the land records. That is, how much did you borrow, what was the interest rate, were there any "funky" features in that loan, and on and on and on. That has never been disclosed, and frankly isn't anyone's business but the owner's and the lender's.
But the identity of the holder of the paper is a different matter entirely. Without the indebtedness tied specifically to that mortgage, there is no mortgage at all. As such the identity of the actual debt-holder, and evidence of proper ownership of that paper (but not its terms) is inherently necessary to demonstrate that there is in fact a valid security interest against the property.
"What is a title search?" for $200 Alex.....
Then, Hultman goes completely off the rails:
MR. HULTMAN: Oh, okay. Fair enough.
Also, last year from the federal legislation that got passed in May, and this is the (inaudible) amendment, I forget the name, but the statute, but it amended the Truth and Lending Act and added a section, 404, that requires now that every time the note is transferred, the transferee or the purchaser of the note is required under federal law to give notice to the borrower that they now own the note.
I suppose Mr. Hultman would not be surprised to know that the banks repeatedly reply with "you have no right to that" or simply refuse to answer, and in fact MERS' own database has a "private" flag and says that the lender "has opted out" of disclosing this information. In fact, later on he admits to this.
How can you opt out of something that's your duty to disclose under federal law?
But none of this answers the real question, which is the entire issue with MERS at its root: When you come into court to foreclose, the key question before the court is not just whether the payments have been made. It is whether the person who actually, in fact, owns the paper is standing before the court, either personally or through an authorized agent bearing proof of that agency, because if not they do not have a right to foreclose at all - irrespective of whether the payments have been made.
Security interests can be lost through various acts of the parties involved - including acts of malfeasance or misfeasance. Property Law, the UCC, Trust Law along with all these deals in each instance, have specific requirements that must be complied with. That's four sets of law and three of them are unique to a given locale or transaction, and the fourth - the particular securitization in question as defined by the PSA, is unique even within a state and county.
Nobody is arguing over whether someone owes money. The homeowner borrowed money, and they owe money. But they only owe the money to the actual, legal holder of the paper. If the banks involved failed to properly transfer that paper as specified under State Law, The UCC, Trust Law wherever the trust is constituted (typically but not always New York) and the terms of the specific PSA involved then the Trust does not own the paper.
Second, if the security interest has been lost then even if the trust holds the paper now, that does not necessarily give them the right to foreclose.
And third, even if the trust holds or owns the paper now, the rights and defenses of the homeowner are influenced by whether or not the trust has "Holder in Due Course" status - if they do not, then any defenses related to possible defects in the origination of the loan are enforceable against the current holder of the paper!
Since MERS' alleged authority as nominee is no greater than the entity appointing it as nominee, if in fact the underlying entity has not met the requirements for ownership of the paper under all four of those strictures then MERS has zero authority to do anything, ever, because you cannot have as Nominee rights that the underlying entity does not have!
You cannot have a just foreclosure process when any entity is allowed to intentionally obscure parts of the chain of transactions that may give rise to legitimate defenses that the homeowner may have to having their home taken. If in point of fact the transfer of the note never took place and the security interest has been lost (because the actual holder - the originator - has been paid in full and thus has no economic harm) you may be able to recover the ability to sue for money, but the right to foreclose may have been irretrievably lost.
I'm well-aware that MERS, the ASF and others have repeatedly bleated that there's no problem with any of these documents and formalities. But we continue to see, in case law, that there is. The Massachusetts Ibenez case is just one of many in which the banks were actually given two opportunities to produce actual evidence of ownership of the notes within the trust that allegedly foreclosing, and were unable to do so.
The entire "robosigning" controversy, along with myriad "lost note" affidavits and proffers of notes that bear zero evidence of actual transfer to the entity that comes and stands before the court claiming a right to foreclose presents plenty of evidence that in at least some circumstances the entity claiming a right to foreclose doesn't have it in the instant case, and may have irretrievably lost it due to actions by their own hands.
This is not about whether people are going to get a "free house." It is about the rule of law, and if these notes have been rendered unsecured debt and are not actually, in point of fact and law, owned by the Trusts, then the investors have been rooked. Worse, these alleged "agents" of the Trust may now be trying to abuse the court system in a puerile attempt to cover up their own malfeasance and avoid discovery and recognition of the cost of their conduct, which may include exposure to lawsuit by the holders of the paper they issued.
If in point of fact everything is on the up-and-up then the Virginia bill will change nothing with regards to foreclosure. Those alleging a right to foreclose will be able to prove up their case and execute their foreclosure.
Further, if everything was on the "up and up" then the Virginia bill would obviate all of this controversy right up front, because with the assignment of the mortgage to the actual trust that holds the note contemporary with the transfer not only would the homeowner know who holds the debt but so would everyone else - including most-particularly the court.
And, I will note, REMIC law states that these pools are, under the law, static pools of assets post the closing date of the trust. Therefore, the argument that these notes are "traded around" all the time and thus it is "difficult" and "onerous" to record ownership once the note goes into the trust is either (1) an admission that the trusts are breaking the law enabling REMICs, or (2) a lie.
Further, if in point of fact the notes were never transferred or the security interest was otherwise lost due to the acts of the parties involved, then the banks are stealing homes to which they are not entitled, and are enlisting the court system in a massive fraud against the public.
The people of Virginia deserve nothing less than proper enforcement of all aspects of the law when it comes to these matters, and proof that the person standing before the court in point of fact has proper and lawful ownership of the paper and that the security interest is intact should be one of the primary issues before the court in a foreclosure action, standing equal with the representation that payment as agreed has not been made.
The rule of law must be upheld and enforced.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.