ladyliberty3
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- Joined
- Dec 10, 2007
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- 136
Tuesday, September 22. 2009
Posted by Karl Denninger in Editorial at 08:34
(Page 1 of 12, totaling 60 entries) » next page
Has A MERShole Opened Up?
Ellen Brown penned an article over at HuffPo that sounds much more definitive than it really is, yet outlines a potential major problem for the secutized loan industry:
In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure.
Well, kinda. The entire decision is found here and isn't quite as represented in that article. Nonetheless, it is significant.
A bit of background is in order.
A mortgage is a combination of a promissory note (that is, a promise to pay) and a security instrument. That is, there's a deed of trust and a debt (the promissory note.)
State law governs foreclosure and most states require as a matter of statute that these two items remain intact. Further, most states require as a matter of statute (that is, law!) that to foreclose you must present proof that you actually have an enforceable interest. In many cases this requires what is known as a "wet signature" - that is, the actual original signed document from the debtor confirming agreement to be bound to the terms. In addition you must establish ownership of that document - that is, you must show an unbroken chain of assignments from the originating bank to your hand.
This is where the problem comes in - the originating lender has no standing to foreclose once he sells off the mortgage. He was paid in full and thus has no standing to appear in court.
MERS' web page says this:
MERS is 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.
They may as well have said "we have decided that we can abrogate state law with impunity." Oh wait - they did, didn't they?
Sorry folks, life doesn't work that way.
If state law requires an unbroken chain of recorded assignments in order to document ownership of a mortgage and thus standing to foreclose, MERS cannot override this state law by fiat.
Many judges, including some Florida, have held repeatedly that despite the lack of an actual chain of assignments and often despite a lack of actual "wet signatures" on an original promissory note they will evict people from their homes regardless! You have to wonder how many of those judges have been bought, bribed or cajoled by banking interests, given that the purpose of a Judge is to do just that - judge - not write law. If the legislature says you need an unbroken chain of assignments and an original document for it to be enforceable, then it does.
But in other states banks have run into a problem - judges, rather tired of the "fast and loose" way banks have played with the law for the last decade, have put their foot down and actually done their job - that is, they have judged the facts and enforced the law as written.
In those locales MERS has run into trouble.
The underlying issue is that many of these so-called "securities" (MBS, CDOs, etc) were issued "light" of the required legal mandates to keep the chain of assignments and actual consent signatures required for enforcement. Many people charge that the reason behind this was simple volume. I disagree.
I believe that a large part of the root cause of these "lost" documents is to cover up blatant and in many cases outrageous fraud. It is difficult to prove that a bank or other lender knew and ignored stated-income fraud (or allegedly "investigated" and "underwrote" a file when it did not) when the original file has been turned into ticker-tape confetti courtesy of the closest paper shredder!
MERS has thus given cover to a tremendous amount of fraudulent conduct - the very conduct that predatory lending statutes, "wet signature" and "chain of title" laws are supposed to prevent.
The real bottom line here is that securitized bondholders may in fact be holding worthless pieces of paper. My hollering about this began in April of 2007, right when The Ticker began publication, and continued all through 2007.
The shocker to me is that the bondholders have sat still for this as long as they have. The "delay, extend and pretend" game is all fine and well but all making coupon payments by playing "hot potato" does is hold off on the inevitable. It doesn't change a thing in terms of the final outcome, because the cash flow to maturity on these notes doesn't exist!
There's liability in silent consent to getting screwed by so-called "technical" legal defects; you can find yourself on the wrong end of a legal principle called "estoppel." Sucks to be you if that happens, and the "you" in many of these cases are pension funds and others who have a fiduciary responsibility to the final alleged beneficiaries of these "investments."
In point of fact all of these fraudulently-securitized instruments - where the inducement to enter into the transaction included representations about credit quality flowing from the alleged original borrowers and security structure are now known to be false - can be "put back" on the originators and securitizers. That bomb winds up coming to rest square on the balance sheet of the big banks as either principals or the "funding and bundling" sources for the gazillions of small "boutique" mortgage shops that have closed over the last two years.
How long will it be before an enterprising attorney or firm decides to put together a class action with all of the bondholders who are certain to get hosed down the road? Good question. It is in fact one of the mysteries of the present mess that we haven't seen a significant push in this direction as of yet.
I still expect that we will, as the potential recovery (and thus the potential legal fees) are literally in the hundreds of billions of dollars.
Posted by Karl Denninger in Editorial at 08:34
(Page 1 of 12, totaling 60 entries) » next page
Has A MERShole Opened Up?
Ellen Brown penned an article over at HuffPo that sounds much more definitive than it really is, yet outlines a potential major problem for the secutized loan industry:
In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure.
Well, kinda. The entire decision is found here and isn't quite as represented in that article. Nonetheless, it is significant.
A bit of background is in order.
A mortgage is a combination of a promissory note (that is, a promise to pay) and a security instrument. That is, there's a deed of trust and a debt (the promissory note.)
State law governs foreclosure and most states require as a matter of statute that these two items remain intact. Further, most states require as a matter of statute (that is, law!) that to foreclose you must present proof that you actually have an enforceable interest. In many cases this requires what is known as a "wet signature" - that is, the actual original signed document from the debtor confirming agreement to be bound to the terms. In addition you must establish ownership of that document - that is, you must show an unbroken chain of assignments from the originating bank to your hand.
This is where the problem comes in - the originating lender has no standing to foreclose once he sells off the mortgage. He was paid in full and thus has no standing to appear in court.
MERS' web page says this:
MERS is 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.
They may as well have said "we have decided that we can abrogate state law with impunity." Oh wait - they did, didn't they?
Sorry folks, life doesn't work that way.
If state law requires an unbroken chain of recorded assignments in order to document ownership of a mortgage and thus standing to foreclose, MERS cannot override this state law by fiat.
Many judges, including some Florida, have held repeatedly that despite the lack of an actual chain of assignments and often despite a lack of actual "wet signatures" on an original promissory note they will evict people from their homes regardless! You have to wonder how many of those judges have been bought, bribed or cajoled by banking interests, given that the purpose of a Judge is to do just that - judge - not write law. If the legislature says you need an unbroken chain of assignments and an original document for it to be enforceable, then it does.
But in other states banks have run into a problem - judges, rather tired of the "fast and loose" way banks have played with the law for the last decade, have put their foot down and actually done their job - that is, they have judged the facts and enforced the law as written.
In those locales MERS has run into trouble.
The underlying issue is that many of these so-called "securities" (MBS, CDOs, etc) were issued "light" of the required legal mandates to keep the chain of assignments and actual consent signatures required for enforcement. Many people charge that the reason behind this was simple volume. I disagree.
I believe that a large part of the root cause of these "lost" documents is to cover up blatant and in many cases outrageous fraud. It is difficult to prove that a bank or other lender knew and ignored stated-income fraud (or allegedly "investigated" and "underwrote" a file when it did not) when the original file has been turned into ticker-tape confetti courtesy of the closest paper shredder!
MERS has thus given cover to a tremendous amount of fraudulent conduct - the very conduct that predatory lending statutes, "wet signature" and "chain of title" laws are supposed to prevent.
The real bottom line here is that securitized bondholders may in fact be holding worthless pieces of paper. My hollering about this began in April of 2007, right when The Ticker began publication, and continued all through 2007.
The shocker to me is that the bondholders have sat still for this as long as they have. The "delay, extend and pretend" game is all fine and well but all making coupon payments by playing "hot potato" does is hold off on the inevitable. It doesn't change a thing in terms of the final outcome, because the cash flow to maturity on these notes doesn't exist!
There's liability in silent consent to getting screwed by so-called "technical" legal defects; you can find yourself on the wrong end of a legal principle called "estoppel." Sucks to be you if that happens, and the "you" in many of these cases are pension funds and others who have a fiduciary responsibility to the final alleged beneficiaries of these "investments."
In point of fact all of these fraudulently-securitized instruments - where the inducement to enter into the transaction included representations about credit quality flowing from the alleged original borrowers and security structure are now known to be false - can be "put back" on the originators and securitizers. That bomb winds up coming to rest square on the balance sheet of the big banks as either principals or the "funding and bundling" sources for the gazillions of small "boutique" mortgage shops that have closed over the last two years.
How long will it be before an enterprising attorney or firm decides to put together a class action with all of the bondholders who are certain to get hosed down the road? Good question. It is in fact one of the mysteries of the present mess that we haven't seen a significant push in this direction as of yet.
I still expect that we will, as the potential recovery (and thus the potential legal fees) are literally in the hundreds of billions of dollars.
