ForeclosureGate Deal – The Mandatory Cover Up

ForeclosureGate Deal – The Mandatory Cover Up

Michael Collins

The Federal government is about to settle the ForeclosureGate affair, according to a report in the New York Times on April 9.  The Times noted that twelve million homes will be lost by 2012.  Home equity values are down by $5.6 trillion since the real estate crash.

The draft agreement released to American Banker shows another corporate-friendly deal designed to maintain the incumbent perpetrators at the expense of the people. (Image:  zoonabar)

The proposed settlement culminates an effort by federal prosecutors to address strongly supported allegations of widespread mortgage fraud perpetrated on as many as sixty percent of current mortgage holders.  Homeowners were sold mortgages, serviced for the loans, and, in some cases, subjected to foreclosure and eviction based on fictional contracts and collections practices that violate the most basic principles of contract law and specific federal code pertaining to fraudulent debt collection.

When Wall Street got massive bailouts in 2008, the ultimate rationale was, pass the bailouts or face a complete financial collapse.  We are already hearing hints of a similar deep rationale in the ForeclosureGate affair.             `

The proposed settlement will not move the evicted back to their homes.  It will not establish a moratorium on foreclosures, running at over a million per year.   There will be no cram downs forcing the banks to absorb part or all of inflated housing prices caused by a real estate bubble that the banks and Federal Reserve Board helped create.  In addition, be assured that the settlement will not hold bankruptcy courts accountable nor the attorneys for their failure to spot obvious errors in bankruptcy proceedings, errors that would have invalidated many creditor claims.

The settlement, however, will create a private relief for the big banks, regulators, and politicians responsible for this mess.  The relief will spare the bankers prosecution under existing laws and seriously complicate lawsuits that have the potential to devastate lending institutions by righting the wrongs done to citizens.

The housing market will limp along.  The politicians who stood by during the entire affair will claim that justice has been done.  The big banks will stumble in their comatose state scavenging for the next financial scheme. There will be no justice for the people, only rewards for the perpetrators.

How can we be sure of this?  Because…

The gross violations of acceptable contract and business practices are facts broadly publicized by lenders and others involved.  These practices cannot stand the scrutiny of basic legal analysis, as will be demonstrated below.

Some of the most powerful and wealthy individuals and corporations in the land committed these violations.  Therefore, the most powerful and wealthy will escape justice and reap even more financial rewards.  That’s how things work in a rigged system.  It’s axiomatic.

Just look at the bipartisan response to the financial collapse of 2008.  Those responsible received massive bailouts and regulatory favor while citizens paid the price, captives of a seemingly endless recession with limited assistance from the government they support.

Let’s examine the legal threat to the big banks and the wholesale fraud committed by the mortgage registration system put in place by the bankers, the twin threats to the wealthy and powerful.  The truth is worth knowing before the United States Department of Justice, the big banks, and the others involved lower the curtain on another act in our decline and fall.

The Legal Threat to the Big Banks Requires Private Relief from a Settlement

In the early 1990’s, Fannie Mae, Freddie Mac, and the big banks created a new system for recording and registering the sale of real estate.  Undeterred by centuries of common law and carefully developed statues in place across the fifty states, the lenders created MERS, the Mortgage Electronic Registration Systems.

MERS altered the function of registering home sales with county officials, named itself as the mortgagee (the lender), and assumed the role of creditor when it was time to foreclose on a property.  There are sixty two million mortgages in the MERS system.  Forget the fact that MERS had no legal precedent or basis in existing law.  There was a higher authority operating, greed.

It all started when some clever Wall Streeter came up with the idea of combining subprime mortgages, loans sold to the least creditworthy buyers, and selling them as premium financial product called mortgage backed securities (MBS).  The securities were marketed in the lightening fast international derivatives market.  Even though it was required by law, recording the names true investors in the mortgage every time a MBS changed hands wouldn’t do.  It did not come close to meeting the requirements presented by the constant churn of the international derivatives market.  Constant modifications would have prevented the sale of MBS derivatives.

What did the banks do?  They created MERS, an entity that recorded and electronically stored real estate sales documents.  In the boilerplate contracts for millions of home sales, MERS represented itself as both the loan holder and nominee for the loan holder

Having a real estate registration system in which there was only one named lender, recorded only one time, performed two critical functions.  It eliminated the process of modifying loan registrations with county recorders each time the mortgagee changed, i.e., the MBS buyers.  It also kept the names of the purchasers far from public scrutiny.

University of Utah law professor Christopher L Peterson recently documented the failures and highly questionable legal foundation of MERS.  His comprehensive article was published by University of Cincinnati Law Review (Summer, 2010):  Foreclosure, subprime mortgage lending, and the Mortgage Electronic Registration System.  Peterson  explains and elaborates the logic of key court decisions against MERS.  These include the Kansas Supreme Court 2009 ruling and the highly publicized Massachusetts Supreme Court affirmation of the Ibanez case, which devastated MERS.

Peterson summarizes the foundation of his arguments elegantly

“Under this recording strategy, the originating lender makes a traditional mortgage loan by listing itself as the payee on the promissory note and as the mortgagee on the security instrument. The loan is then assigned to a seller for repackaging through securitization for investors. Instead of recording the assignment to the seller or the trust that will ultimately own the loan, however, the originator pays MERS a fee to record an assignment to MERS in the county records. MERS’s counsel maintains that MERS becomes a mortgagee of record even though its ownership of the mortgage is fictional” (p. 1370).

MERS placed homeowner mortgage in a fictional system that, without any doubt, fails to meet standard of contract law.  The real mortgagee (the lender) is never mentioned.  MERS is represented as the lender from the start to finish.

When the mortgage finishes in a foreclosure, MERS compounds the fiction.  Peterson notes:

“To move foreclosures along as quickly as possible, MERS has allowed actual mortgagees and loan assignees or their servicers to bring foreclosure actions in MERS’s name, rather than in their own name” (p. 1372).

Peterson’s arguments attacking the legal basis for MERS are devastating. (Headings in italics are from Peterson.)

A. MERS Does Not Own Legal Title to Mortgages Registered on its Database

This is a given.

“Federal consumer protection and bankruptcy law also suggests that the MERS does not own legal title to loans registered on its database. For example, under both the Truth in Lending Act and the Home Ownership and Equity Protection Act, a mortgage assignee can be liable for an original lender’s violations of those statutes” (p.1378).

Since MERS does not own legal title, it follows that the loan process represents a deliberate misrepresentation.  Surely, MERS knew that it didn’t meet the standards for ownership.  That didn’t stop the organization and its creators, the big banks, from proceeding with over sixty million contracts for home purchases.

B. MERS Lacks Standing to Bring Foreclosure Actions

In order for MERS to act as the named party in a foreclosure action, it must have suffered injury by the homeowner’s failure to make loan payments.  Peterson is clear that the investors who purchased MBS can show a clear injury.  However, these investors are not named in the recording documents.  MERS is.  Peterson makes a salient point with this question, “How [can] a debtor’s failure to pay causes an injury in fact to MERS, a company that has no factual expectation of receiving loan payments or the proceeds of a foreclosure sale” (pp. 1381-1382).

How can MERS sue for legal relief when there is no injury, no financial harm?

The run rate for foreclosures has reached a million per year.  That represents a great deal of harm to homeowners and their families.  MERS caused this harm by its foreclosure actions, yet it never suffered any losses, the “injury” that Patterson references.  MERS lacked the standing to initiate foreclosure actions and it lacked the right to allow lenders and servicers act in its name when they initiated foreclosures, as Peterson demonstrates.

C. MERS’s Foreclosure Efforts Implicate the Federal Fair Debt Collection Practices Act

When MERS files bankruptcy claims or allows others to do so in its name, it participates in collecting the debt for the delinquent loan.  It is a debt collector, plain and simple.  As a result, it is subject to the Fair Debt Collection Practices Act (FDCPA).  Why?  As Peterson notes, “because MERS remits all proceeds of its collection activities to the actual owner of the loan (usually a securitization trustee), MERS is collecting a debt that is owed to another business entity” (p. 1386).

How does MERS, as debt collector, violate the FDCPA?  Patterson makes these clear arguments:

“… the statute forbids harassment, false or misleading representations, and a variety of other unfair collection tactics, including threatening foreclosure when not legally entitled to do so.The statute also includes disclosure provisions, such as a requirement that debt collectors give consumers written validation and verification of the debt itself, as well as the identity of the creditor to prevent collection of debts or fees not actually owed” (p. 1386).

Since MERS is not the creditor, it has no right to represent itself as so.  As such, it had no right to seek foreclosure.  In doing so, MERS engaged in “unfair collection tactics.”  MERS failed to identify the true creditor for the mortgage.  In doing so, it failed to meet disclosure provisions of the FDCPA and is subject to available penalties.

MERS initiates the collection of debts that is has no right to collect.  This sounds like the definition of “constructive fraud:  when the circumstances show that someone’s actions give him/her an unfair advantage over another by unfair means (lying or not telling a buyer about defects in a product, for example)” Law.Com.  MERS knew the defects in its mortgage agreements and system.  As a result, the collections actions had no basis as well.  The organization and its backers never thought anyone would ask.

D. Loans Recorded in MERS’s Name May Lack Priority Against Subsequent Purchasers for Value and Bankruptcy Trustees

Peterson states:

“Under state law, if a mortgagee fails to properly record its mortgage, and then someone subsequently buys or lends against the home, the subsequent purchaser can often take priority over the first” (p. 1394).

MERS ignored the well-established legal processes that give priority to properly recorded mortgages.  Peterson explains this at some length citing the original mortgage recording statute laying out the consistent requirements found across the nation today:

“… the very first American recording statute, adopted by Massachusetts Bay Colony in 1640, required recording the names of the parties-including both the names of the grauntor and grauntee…

This standard is virtually unchanged in the vast majority of state code.  This legal standard, “does not contemplate nor allow obscuring actual ownership through naming only a mortgagee of record in nominee capacity” (p. 1396).

Since MERS ignored state law in recording mortgages, the claims to the property can be usurped by others with properly recorded documents.  This throws into question any value that the purchasers of MBS have to recover their investments.

Absolute Requirements for any Settlement with the Lending Industry and Big Banks

The entire enterprise of mortgages issued through MERS ignored the most fundamental legal requirements set out in state law developed over centuries.  The laws for recording real estate sales are in place, in part, to assure the right to property and protect investor interests.  This was no mystery for the banks that created MERS. This was and it is their industry, their business.  Their lawyers surely knew that they were up against the entire canon of common and state law.  The most prominent legal justification was offered by Moody’s. Petersen points out that Moody’s  offers no legal precedent for the claim that MERS was a legally viable enterprise.  Legal advice justified acts that were clearly outside the law.

MERS recording procedures are in place in sixty million mortgages, at least.  Petersen’s analysis focused on the subprime market but the arguments and findings apply to every one of those sixty million mortgages.  They were conceived and executed outside the law.  Any US Department of Justice and the state attorneys general settlements must include the following provisions.

1)  All MERS based mortgages must be declared invalid.

2)  The MERS recording processes must be labeled  a scheme that enabled the big banks to sell disastrous subprime mortgage backed securities.

3)  MERS must also be labeled as a key player that facilitated the real estate bubble causing the purchase of inflated mortgages. .

3)  The MERS system is, therefore, a misrepresentation on its face.  It wasn’t created to meet any need in real estate finance.  MERS services operated on the basis of  deliberate misrepresentation.

4)  The big banks and others involved knew this was the case.  They are liable for the harm caused.

5)  All foreclosures conducted by MERS or in MERS name must be declared null and void.

6)  The victims of those foreclosures without legal basis must be restored to the homes they lost.

7)  The homeowners that were victims of MERS foreclosures and evictions should receive adequate compensation through a formula favorable to homeowners.

8)  Every MERS mortgage must be readjusted to a fair market value through the most favorable formula available to homeowners.

Anything short of these remedies rewards the perpetrators at the expense of the victims.

Without these remedies, citizens are fully justified in saying that the legal system is damaged beyond any hope of repair.

END

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Comments
19 Responses to “ForeclosureGate Deal – The Mandatory Cover Up”
  1. Nancy Coxall says:

    Okay, I don’t know about all of you, but I have had a belly full of what the laws say and mean. Apparently, They will not be inforced as the inforcers are criminals. Please correct me if I am wrong…..Main Street are the only United States citizens who abide by he laws and the only people being screwed!!!!????

    What is that movie “Mutiny on the Bounty”. By God, if taking command of a ship at sea is legal because the Captain is not acting in the best interest of its sailors, and putting them in harms way….THEN, WE CERTAINLY HAVE THE SAME RIIGHTS. Except this is so much worse…it is not just one person. We have had criminal deeds committed against how many million home owners??? What are we going to do, wait until the criminals change all the laws so then we would be the criminals protecting what is rightfully ours. We need to take action right now. They have tipped their hand. We know they are all going to stick togetherand protect themselves and screw the rest of the country. NOPE! We are the Americans who believe in the American Flag and what it stands for. We are the Americans you live a good life and live within the parrameters of the law.

    Of those millions of home owners who have lost their homes, how many do you think are still vacant…meaning no one else has purchased that home? I would be willing to bet most of them are just sitting there decaying. I know mine is still vacant. Deutsche Bank was highest bidder at the auction. They are criminals as well.

    I say we all go back to our homes….pick the lock, break the lock or the door and enter your home. We have the right to bear arms to protect our home. Have your paperwork out and ready to show anyone who challenges you…..show the Fraud, mention your legal rights that you you have (WE NOW STILL DO HAVE)…and tell this person to please vacate your property. Nine times out of ten that person will be cheering you on for standing up for your rights.

    We simply cannot wait until the laws in the books are changed to favor the criminals or we are all done…our live are ruined…We do not need to sit and wait for it to hit us in the face.

    This has to be a joint effort or it will not work. This could be like the shot heard around the world. Set a time for everyone to access their home and everyone take control of what is rightfully yours at the same time.

    They can’t arrest millions of citizens….they will have to deal with us on our terms….as WE ARE RIGHT!

    Does anyone agree with me?

    Thanks for listening!

    Nancy

  2. Excellent article, The problem, How the people is going to make that provisions 1 to 8 get implemented? How? I have no clue and so everybody else

  3. l vent says:

    The giant Ponzi Scheme heist was the biggest cyber crime in the history of the world. The mortgage loans were all a grand cyber space illusion, like MERS. The whole lie they told homebuyers and investors was PIGS AND CRAP. The ALGARHYTHMS they used were a giant scam to make everyone believe these LOANS AND MBS’s existed, they never did. THIS WAS CYBER-COUNTERFEIT SECURITIES FRAUD. This was how they created and stole trillions in wealth from all of us. RESCIND THE FAKE MORTGAGE LOANS. RETURN THE STOLEN HOMES AND WEALTH TO THE PEOPLE. WE WERE ALL CYBER SCAMMED AND ROBBED.

  4. Mary says:

    Everyone of the 65 million people that have Mers on their documents should stop making payments. Perhaps that would get someone’s attention. This can be a movement like ‘Move your money’. The Investors who have think they own a piece of real America don’t. They have nothing but a PSA that Mers did not honor and was never entitled to legitmately enforce. Read their documents..what a scam. The Notes are gone. I tire of the appeals to the peoples morals and conscience. The people can show them how moral they are by refusing to participate in this scam. Excellent article, thank you Mr. Collins.

  5. l vent says:

    Here is just one part of the cover-up the ONGOING CRIMINAL ENTERPRISE, FANNIE/FREDDIE AND THEIR CORRUPT NETWORK OF SHAPIRO ATTORNEYS are very insidiously perping the: SHORT SALE SCAM and the INTERESTED GROUP OF INVESTORS MIGHT BE INTERESTED IN YOUR HOME SCAM. REMAX sent me a SHORT SALE OFFER. A CLASS A CRIMINALA**HOLE by the name of BERT G, claims to be the NUMBER 1 RANKED SHORT SALE SCAMMER IN THE STATE OF ILLINOIS. HOW PROUD HE IS OF HIMSELF, HELPING THE CRIMINALS OUT BY KEEPING THE FRAUDCLOSURES OUT OF THE COURTROOMS SO THE CRIMINALS DO NOT HAVE TO PROVE THEY OWN ANYTHING BECA– USE THEY CANT PROVE SHIT BECA– USE THEY ARE ALL CRIMINAL PIECES OF SHIT AND THEY SET THE INTENTIONALLY SET THE AMERICAN PEOPLE UP TO FAIL AND DEFRAUDED THE WHOLE COUNTRY. HE STATED IN HIS VERY DECEPTIVE LETTER THAT HE HAS BEEN DOING SOME BASIC RESEARCH ON MY PROPERTY AND I OWE MORE THAN MY HOME IS WORTH!!!! WELL, NO SHIT SHERLOCK. I PROMPTLY CALLED HIM AND TOLD HIMSELF, FANNIE MAE AND FISHER AND SHAPIRO COULD ALL GO F—-THEMSELVES OR EACH OTHER I REALLY DONT CARE BECA– USE I DONT OWE FANNIE MAE ANY MONEY BECA– USE OF THE PONZI SCHEME THEY TRICKED ME INTO PARTICIPATING IN, NOW MY HOME IS PAID FOR FREE AND CLEAR. THANK YOU VERY MUCH.

  6. Lit Gant says:

    Am I a prophet or what? I predicted this sham. Now let me make another prediction. Somewhere in the fabric of the foreclosure mess there will arise one or more who will go insane. And there can be several innocent killings. When a man has lost everything. When he has lost his job, his home, his family, …everything: it is the very circumstances that birth the inward justification for violence. Both the judiciary as well as the banks and shyster lawyers have to this point escaped violence. But underneath all the foreclosure mess these is a boiling resentment against Republicans and Democrats for not coming to the aid of home owners in the biggest banking scheme ever upon the earth. The greatest ponzi scheme of all and the government legitimized it by cooking up several cover-up schemes. America, America, God gave his grace to the, but the deceitful liars and swindlers will force God to lift his grace and there will be disaster from sea to shining sea. I urge all homeowners who are faced with the hopeless sense of loss, to keep fighting on. Do not give up. do not resort to violence. Do harm to no man. Let God settle the score. This proves God will be just in putting many in hell for ever. This will justify God for eternal punishment for those guilty of taking their neighbors goods and property unjustly and using false witnesses. For those who mock God and declare themselves in control, I say, your day will come. And when God laughs, I want to join in.

    • housemanrob says:

      METHINKS THE LAW IS PAID FOR. TOO MANY RETIREMENT PLANS AT STAKE FOR THE WEALTHY TO ALLOW BANKS TO GO BROKE AND THE WEALTHY OWN THE GOVERNMENT,………BANKS INCLUDED! WE THE HOMEOWNERS….MAINSTREET………ARE EXPENDABLE PEASANTS! LOOK IT UP. IT’S EVERYWHERE REPEATEDLY THROUGHOUT HISTORY! TO WIN……..WE MUST STRIKE FROM HELL’S HEART. BEGGING MUST END, GENESIS MUST BEGIN!

  7. view from above says:

    Simply amazing huh? btw i sorta stay a bit leery,,,,,ck speel plz if u know what i mean! because sumone else might listen a repeat same thing sorta thing:)

  8. l vent says:

    News Headline on my local news channel, J.P. Morgan Chase is admitting they knew all about Bernie Madoff’s Ponzi Scheme. He was no doubt just a perp for Chase. I believe Bernie Madoff said it best when he stated the United States of America is ONE GIANT PONZI SCHEME. Even Jeffrey Skilling is saying he wants out of prison for the Enron scandal/scheme. The perps are getting restless and noisy. I wonder whose toes they stepped on? Probably the same toes as martha stewart. I compare this to the Stern controversy. It is like they are saying “We were only following orders, commandant.”

    • Katheryn says:

      The best press will be when they all start pointing fingers at each other and spilling the “inside” beans!

      • l vent says:

        I think it is coming soon, Katheryn. The truth is slowly coming out about the Ponzi Scheme and the Foreclosuregate Scandal. The truth is bigger than any of their llies. There are alot more victims than criminals. The hard truth buries their lies. That is why they wanted to cover-up the truth. They failed.

      • Mary says:

        I believe that is happening right now. The robo- signers are coming forward and they are not afraid to name names. The Investors are sueing the so called Servicers/Trustees or whatever they are calling themselves on any given day. Judges are starting to look deeper and starting to realize if they go along with this scam it is their reputation on the line. The public is waking up and realizing that America ain’t what she used to be. Justice is coming and God have mercy on those that have destroyed this Nation. Congress likes their ‘prayer breakfast’ well they best be praying more than once a day now. This whole thing is way bigger than the crooks realize, way bigger. By the fruits of their labor they will be judged.

  9. l vent says:

    They better stop stealing the peoples homes frome the people and stomping on our Constitutional rights and property rights or there will be a Revolutionary war in America against this TYRANNY. MERS is a gigantic cover up for the pretender lenders who cannot prove true ownership of the debt. The proof is in the ORIGINATION FRAUD and we all have the proof. FANNIE/FREDDIE were the ORIGINATORS OF THE WHOLE PONZI SCHEME. If they do not stop FRAUCLOSURES, THE PEOPLE WILL COLLECTIVELY SAY, OFF WITH THEIR HEADS. Now they are attacking the Upper Middle Class, now, this should get real interesting. Alot of them were not really feeling the pain of the financial collapse and so many of them were lulled into an extremely false sense of security. THE TRUTH IS, NO ONE IS SAFE, UNLESS YOU ARE IN TOP 2%, the elitists and their perps, the multinationals..

    • walkthetalk says:

      You need to start the Revolution NOW…the drug companies are taking advantage over the elderly
      charging hundreds up to a thousand for medicines…no one is taking on the Housing issue they are just
      stalling because we all are finding out we were scammed the US is not a democracy that is the SCAM
      if we do not start standing up now it’s over and we chose it…what about water boarding these CEOS
      that did the scamming?
      Is that unconstitutional well so is what the government is doing by stalling and distorting the truth
      Why doesn’t Bernie Madoff elaborate on the Ponzi scheme he is already in jail and unfortunately
      RIP a son what will it matter…if he talks he got caught why doesn’t he spill the beans too baffling
      too much will be exposed ? Bernie Madoff will be balancing out his Karma if he repents and starts talking…he probably knew he was safer in Jail the Prison he is in is not a punishment I bet he eats better
      than most

      • l vent says:

        walk the talk, you are so right. The latest headline on my local news is 25% OF OUR MEAT has ANTIBIOTIC RESISTANT STAPH IN IT. No word on where the STAPH CAME FROM. THAT IS EVIL INCARNATE. I heard from a reputable source that there are MD’s who are now becoming Holistic Doctors because these diabolical tyrannts are coming up with horrible illnesses that cannot be cured nor do they want them to be cured by traditional medicine. The medicines the MD’s are going to give to the people are as bad or worse than the illnesses they are supposed to treat. I can believe that from the Pharmaceutical co.s commercials that are on constantly talking about side effects. I think they are even sublliminally trying to make us all sick with their commercials about depression and cancer. These tyrannts are the real cancer. DEATH TO THE DIABOLICAL, MANIACAL TYRANNY!!

  10. pamelag says:

    i think we are b s ing ourselves that the perps are going to punish their perp friends.now i ‘get’ why the judge in my case covered his ears. if he heard me, he would have the knowledge of the fraud. i pray for all the victims of fraudclosure. God Bless America

    • enough already says:

      front page of the st pete times, 100$ HUD homes , 3451 homes owned by te government. nice so fraudclose on a family becuase of the bad economy and sell the house to someelse for 100$ what about selling these houses back to the families that lost them. ???? i so sick os stressed everyday and there seems to be no releif. i have blatant fraud by wells fargo lsoing my paper work so they cant modifiy me but cant get any lwyers to call me. because another lawyer told me fraud is hard to prove. so this means this can keep going take our hhouse because the economy went bust and sell it to some onel else for 100$ nice except i put 20% down 5 yrs ago. amazing that all of a sudden the 20% does not matter but at the time it did. i wish something would give. the secuties fraud would be exposed once and for all and save our homes please someone help us

      • l vent says:

        What a DISGRACE, throwing people from their homes because all they are really after is the Credit Default Swap insurance. They get 3-4 times the value of these underwater houses from their partners in crime, AIG. The bailout money they STOLE FROM THE U.S. TAXPAYERS wasn’t enough for the GREEDY PIGS. WHAT GOES AROUND COMES AROUND.

      • housemanrob says:

        Vent, 30x as much is common! Holy SSSHHHIIIIITTTTTT !

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