Published on Wednesday, August 18, 2010 by YES! Magazine

Homeowners' Rebellion: Could 62 Million Homes Be Foreclosure-Proof?

A committed movement to tear off the predatory mask called MERS could yet turn the tide for struggling homeowners.

by Ellen Brown

Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008 . The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS , a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere "nominee"-an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff's legal ability to foreclose.

That means hordes of victims of predatory lending could end up owning their homes free and clear-while the financial industry could end up skewered on its own sword.

California Precedent

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

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

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

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

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

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

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

What Could This Mean for Homeowners?

Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS' technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance , MERS insisted that it had no actionable interest in title, and the court agreed.

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

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

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

Criminal Charges?

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

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

By Their Own Sword: MERS' Role in the Financial Crisis

MERS is, according to its website, "an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans." Or as Karl Denninger puts it, "MERS' own website claims that it exists for the purpose of circumventing assignments and documenting ownership!"

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

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

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

Axing the Bankers' Money Tree

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

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

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

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

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

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

Ellen Brown wrote this article for YES! Magazine , a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt , her latest of eleven books, she shows how the Federal Reserve and "the money trust" have usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com , ellenbrown.com , and public-banking.com .

This work is licensed under a Creative Commons License

An appeals court refused to reconsider a decision compelling the Federal Reserve Board to release documents identifying banks that might have failed without the U.S. government bailout.

The full U.S. Court of Appeals in New York, denied a May 4 request by the Fed to review a three-judge panel’s unanimous March 19 decision requiring the agency to release records of the unprecedented $2 trillion U.S. loan program. The full court’s ruling was contained in a docket entry dated Aug. 20,

Unless the court stays its decision, the Fed will have seven days to disclose the documents. In the event of a stay, the central bank and the Clearing House Association LLC, an organization of 20 commercial banks that joined the Fed in defense of the lawsuit, will have 90 days to petition the U.S. Supreme Court to consider their appeal. The Clearing House has already said it will ask the high court to rule on the case.

“We are reviewing the decision and considering our options for appeal,” said David Skidmore, a Fed spokesman.

At issue are 231 “term sheets” documenting Fed loans to financial firms during 2008. The records, which include the banks’ names, the amounts borrowed and the collateral posted in return, were originally requested by late Bloomberg News reporter Mark Pittman through the Freedom of Information Act, which allows citizens access to government papers.

The March appeals court ruling upheld a decision of a lower-court judge in Manhattan who in August 2009 ordered that the information be released.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, 2nd U.S. Circuit Court of Appeals (New York).

Mortgage fraud was worse in Florida than any other state besides California in the second quarter, according to MortgageDaily.com.

Its FraudBlogger.com Index  assigned Florida a mortgage fraud index of 213, with $146.7 million in cases filed in the second quarter. The index factors in both the amount and number of claims. California had a mortgage fraud index of 213 with $435.8 million in claims filed.

Florida Attorney General Bill McCollum has more than 60 active civil investigations under way. Click here  to read which companies are under the microscope.

South Florida has been a hotbed of mortgage fraud activity in recent months. Last week , four area residents pleaded guilty to participating in a $2.5 million mortgage fraud ring.

A week earlier , a former attorney and three mortgage brokers were charged in a $6 million scam.

That same week , a Miami federal jury found two women guilty in a $21 million mortgage fraud scheme. They were among 41 people charged in six mortgage cases in July 2009.

Nationwide, MortgageDaily.com said that prosecution of mortgage fraud has increased as the government has placed more emphasis on stopping it. The national mortgage fraud index was 1699, with $2.25 billion in claims in the second quarter, up from 1144 and $1,92 billion in claims in the first quarter.

Read more: Florida second worst for mortgage fraud - South Florida Business Journal  

Jim Traficant, March 10, 2010 at CRC Headquarters

Many may remember the terms of office held by James Traficant in the House of Representatives. His was an unusual story of a sheriff in Ohio who ran for Congress, won, and served from 1985 - 2002. His controversial approach, his independence, and outspoken ways certainly brought on conflicts with colleagues who had fallen into preserving the status quo and protecting powerful interests.

Traficant found it too difficult to ignore the interests of his constituents and the general public. He was one of the few voices in Congress that actually openly exposed the machinations of the Federal Reserve. He had the courage to criticize the undue power and influence of AIPAC. Finally, he was the source of one too many controversies and enemies from within conspired to create use the legal system against him. He knew that it would lead to prison, where he spent 7 years and was released onSept. 2, 2009. Now, he’s back in action with a talk-radio show on WTAM.

Mickey Paoletta with Jim Traficant, March 10, 2010 at CRC Headquarters

CRC founder, Mickey Paoletta met up with Traficant a few months back and they’ve been recognizing a lot of common ground.

For one, they are both committed to educating the public about the crimes of the financial system. On March 10, Traficant gave a passionate and rousing presentation for a packed room of people in Mechanicsburg, PA. He shared his views on the current issues facing the country. He presented his views on what’s needed for job creation, and much more. He explained in great detail what happened to him in Congress that brought on the prosecution and prison sentence. The overall impression everyone was left with is - James Traficant has plenty of energy and drive for which he wants to dedicate to improving the conditions of the country.

The long-awaited protections for credit card holders took effect last week, 9 long months after reform legislation passed which gave banks more than enough to time to enact higher rates and collect millions in fees on unsuspecting consumers. The negative effect this had on their public image didn’t bother them at all. If that’s reform, who can afford it?

So now that we’re here, it’s not a bad idea to learn about some of the changes. There seem to be some good restraints and attempts to standardize various processes in billing. Anyone can Google “credit card reform legislation” and see the details. However, let’s spend time imagining what real far-reaching credit card reform would like.

A few major changes come to mind that one would think would have been tops on the list but was never discussed - limiting how high credit card companies can charge in interest! As we all know, they’ve been free to charge usurious rates as high as 34%. Some have jumped from 12% to 24% for no reason. Even if states have a limit of 16%, for example, if the company is headquartered in South Dakota, they can legally charge 30% or whatever higher rate they want. How could a serious reform bill miss this?

How about requiring the credit card companies to explain what value they provide for the privilege of charging us from our actual labor, plus interest and fees. Why are they allowed to turn around and charge fees to merchants for an additional round of gouging? Why wasn’t this addressed? Do they provide any actual service we should be paying for? Can anyone think of other useful ways that the public could be spending billions of dollars that have been going to enrich the banks through their very elaborate, lobbyist-powered corporate welfare program?

This is the reform we get until enough Americans learn the true nature of debt and banking. Knowledge is power, and as this knowledge spreads through the masses, good things can happen. This legislation is a meager beginning. With the rising tide of anger towards the banking system and FED, the next logical step is to create awareness throughout the masses as well as elected officials that there’s much further to go before true financial reform becomes reality.

On Thursday, Jan. 14 debt collection law firm Mann Bracken, which had been one of the biggest debt-collection firms in the country, closed its 24 offices with little public warning, according to the Baltimore Sun. State financial regulators had revoked their license. And last week, a Maryland judge ordered that tens of thousands of debt-collection lawsuits involving the firm be dismissed.

Mann Bracken principals issued a statement to the Sun that the firm had “no alternative but to wind down” in light of the November bankruptcy filing of Axiant, a company that worked with Mann Bracken to collect debt. “Axiant’s pending liquidation has left Mann Bracken without funds to pay creditors and insolvent,” the statement said.

Axiant had provided Mann Bracken with various logistics such as phone, computer, staffing and support services before filing for bankruptcy in November. The weight of Axiant’s downfall as well as opposition from those targeted by debt collection litigation was too high a cost for the law firm to survive. It got so bad that at one point there was a complete breakdown at Mann Bracken’s Atlanta office with no one to even answer the phone. From all appearances, the falling of this large collection firm is a sign that Goliaths of the debt collection industry can be brought down.

There had been close relationship between Mann Bracken, Axiant, and the National Arbitration Forum, an arbitration firm that has been criticized for favoring credit card companies in debt-collection arbitrations filed against consumers. In 2006, the article noted, Mann Bracken and another law firm it acquired filed almost 60% of the 214,000 consumer-debt arbitrations before the NAF.

The Minnesota attorney general’s office, meanwhile, filed suit last year against NAF claiming it failed to disclose its conflicting financial affiliation with Axiant and Mann Bracken.

Here’s a blog post giving a typical scenario:

It gets better! On December 29, 2009, FIA Card Services (formerly MBNA) filed a cross-complaint against Mann Bracken, in a case brought against FIA, Mann Bracken and others by the San Francisco city attorney alleging professional negligence and breach of fiduciary duty against the law firm. The cross-complaint unambiguously states:

“FIA is informed and believes, and based thereon alleges, that the claims asserted by Plaintiff [the State of California] against FIA in this action therefore arise, in whole or in part, from the conduct of Mann Bracken acting during the relevant time period as FIA’s counsel.”

Another factor contributing to the demise of Axiant/Mann Bracken is the high level of abuse resulting in a public outbreak of protest through calls and letters to the Better Business Bureau as well as state regulators which has finally led to sanctions at the state level. Furthermore, there are growing numbers people who are figuring out the fraud, challenging debt collection lawsuits, and beating them. The cumulative result in this scenario was financial failure. However, there is still a long way to go because most Americans have not yet learned their rights or the real nature of bank-created debt. However, this too can change.

Interested in learning how to defend yourself? See the resources on this site and consider joining CRC today.

It should be no surprise. With a severe recession coming on the heels of years of outsourcing followed by predatory lending of sub-prime mortgages, millions of people are unable to keep up with monthly expenses. The biggest expense is housing. Marketwatch.com has reported that James Saccacio, CEO of RealtyTrac, states that “in the long term, a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond, as lenders gradually work their way through the backlog”.

Foreclosures in California, Florida, Arizona and Illinois account for more than half the national total. According to new data released by Lender Processing Services (LPS), one in every 7.5 homeowners with a mortgage in the United States is either behind on their payments or in foreclosure. This equates to a record high 13.2 percent of the nation’s home loans.

Along the same lines, bankruptcies are also at record levels. One of America’s favorite vacation places is experiencing serious hardship, which can be viewed as an economic indicator. The Las Vegas Review-Journal is reporting that bankruptcy filings in Nevada were up 58.6 percent in 2009. Bankruptcies in the state rose to 29,170 filings from 18,389 in 2008.

It’s hard to know what’s worse, the current rate of foreclosures or the impossible prospects for job creation that would generate the necessary level of employment and decent income to enable people to end this downward spiral. The redirecting of Wall St. bonuses to a serious job stimulus would likely find mass appeal at this point.

We all know that joblessness has hit double digits. We know the official rate is far below the actual jobless rate when you take into account people who have stopped filing for unemployment benefits. Just as significant, if people are able to find work, the jobs will almost definitely pay less than what was available in the past. However, the cost of living continues to go in the opposite direction — higher. No wonder people with jobs are working more hours than ever and barely staying afloat. A high percentage of college students were enticed by credit card’s lure of easy money can’t find work and are unable to keep up with payments. This all translates into record levels in credit card and mortgage defaults.

Just do a Google search on “credit card default rate 2009″ and 4,710,000 pages turn up. You’ll learn points like the following:

Advanta’s default rate more than doubled in June from May to 56.95 percent, and they’ve shut down lamost 1 million accounts after posting three quarterly losses. In Nov. Advanta filed for bankruptcy. This came just after another lender to small business, CIT, filed for bankruptcy.

We know credit card companies have jacked up their interest rates sky-high to 32% and more. Since the new Credit Cardholders Bill of Rights Act takes effect in Feb. 2010, banks have done all they can to pre-emptively gouge the consumer.

In August it was reported that Canadian credit card default rates hit record levels. Obviously, this economic strain has hit almost all “first-world” countries.

In August it was reported that banks were cutting credit limits for 58 million card holders.

According to the LA Times, in August mortgage default rates soared to 13%.

The third-largest issuer of Visa credit cards, Capital One Financial Corp. (COF) stated a rise in its net annual charge-off rate to 9.60% in Nov 2009 from 9.04% in Oct 2009. See more figures in this Reuters article.

Throughout the spring and summer articles report that default rates by major lenders increased. This is all the more reason to learn what CRC has to teach about the true nature of banking and debt, as well as what you can do if faced with debt collection actions or foreclosure. Learn how members are being successful in stopping these collections and foreclosures. Also, being part of an excellent support network is key. Having the right knowledge and connecting with the right people will make all the difference.

If you’re in search of knowledge and support, find out how you can become part of CRC’s Legal Club .

Citizens Reform Center held events in Manhattan and Long Island on Dec. 12th & 13th titled “The Truth & Consequences of Banking Credit Fraud”.

Mickey Paoletta Speaks at CRC New York Conference

People challenged with credit card lawsuits and home foreclosure as well as people desiring to know the inner workings of the money/credit creation process received an information-packed seminar from nationally known banking expert Mickey Paoletta.

Members in Attendance at CRC Conference in NYC with Mickey Paoletta

Believe it or not, people came from as far as Boston, Rhode Island, and Pennsylvania. At least 5 people who attended the Saturday event couldn’t get enough and made the 1 1/2 hour trip to the Sunday event in Long Island. Although, there are some excellent resources on the history and functioning of the Federal Reserve, attendees got an education which is not being taught anywhere else — the true nature of credit and debt at the consumer level.

For anyone in the NYC area looking for a support network on these topics, email the NYC Area Coordinator. Please include your contact information. We will be having conference calls and meetings beginning in January.

The Truth & Consequences of Banking Credit Fraud

If you or anyone you know is mired in credit card debt, is facing foreclosure, or supports an end to the Federal Reserve’s political domination of financial policy, come hear banking expert, Mickey Paoletta, reveal what the banks and government do not want us to know. The time has come for the reality of banking practices which effects us all to be revealed — the true nature of bank-created credit.

You will learn the legal steps you can take to eliminate your credit cards and stop the banks from taking your home. You will also learn about the Fair Debt Collection Practices Act which entitles you to take legal action against lenders for abuses against you and actually receive large sums of money from debt collectors. Additionally, we will discuss the criminal use of the courts who act as a front for the credit card companies and mortgage lenders who have been committing highway robbery on the average individual, leaving millions of Americans in a state of peonage.