A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. 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. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.
[I]n December 2007 attorney Sean Olender suggested in an article in The San Francisco Chronicle that the real reason for the bailout schemes being proposed by then-Treasury Secretary Henry Paulson was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. Olender wrote:
“The sole goal of the [bailout schemes] is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. 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.
So–half the homeowners in the USA can simply stop payment and no one can foreclose?==ie, not until foreign investors sue Banks to have them pay face value on the loans that were collateralized which the Banks can’t do.
Timing appears to be everything in life.
When you get down to where legal ownership of property started, you might notice how claiming it made it become the property of those who claimed it, not dollars and sense.
It has been 10 months since I paid a dime on my home loan. My mortgage holder no longer wishes to do business in the US and I really do not think that they want another residential building that has lost >50% of its value in San Diego County.
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Please Help Stop Global Whining
Big news, but banks are surely swinging into action with bribes at the federal level to get it reversed.
From what I gather the nub of the issue is the movement of the physical deeds. On Wall St. sales of securities are only notional until the back office of one firm sends the stock certificates, or whatever is being traded, physically to the other. This usually takes about 3 days. The back end infrastructure is expensive and complicated.
Apparently often there is no similar movement of legal papers regarding the mortgages being bought and sold. The sale of the mortgage is not actually completed without the transfer. Since some mortgages have been resold many times some paperwork is even missing. The sale is still only notional.
Since selling something you don’t own is fraud much of the mortgage securitization market is based on fraud(*at least in Kansas).
I doubt it will hold up in the Kansas Supreme Court or at the federal level. The mortgage industry of the past few years was supremely dirty. If obvious intentional fraud is not punished then unintentional procedural fraud isn’t going to be either.
The implications of nullifying mortgages is very interesting. I like the idea immensely. It would lower the national debt level substantially. Consumers would be able to resume their spending. And best of all, like the Spanish Inquisition, nobody would ever expect it.
This case is a variation on the “produce the note” movement that has just begun. “Show me how you have the authority to foreclose on me by producing my original mortgage paperwork. Don’t have it? Then screw off!”
“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.”
Exactly! And thus the reason for Congress changing accounting rules to what would have formerly have been considered to be fraudulent. That is, the banks can keep toxic assets on their books at their original, super inflated “values” rather than marking them _way_ down to what they’re actually worth. If they were marked to where they should be, the nasty little problem mentioned in the quote above would come into play _big time_. See, if there is anywhere along the way a formal, official admission that there was fraud involved (and there was, in massive form every step of the way), those who lost their shirts would sue like bandits and “the insolvency cover-up game” would be _over_. If the toxic assets were marked to their actual values and the FDIC were to no longer do their wink-wink, ignore mode on true banking health issues, many, _many_ banks, including the “too big to fail” banks would be revealed as _insolvent_ and would be required by law to be shut down. Basically, it’s an “Emperor has no clothes” thing and its only a show of how powerless the average Joe actually is that this hasn’t completely exploded. Anyone with any brains knows that this is exactly what is going on. “Extend and pretend.”
#6 -great response.
(the “Mark To Fantasy” model must be exposed–and stopped)
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Very interesting development. If the judge does not “suddenly have a stroke” and reverse the ruling, this could get ugly [in a good way] very fast.
I’m still chomping at the bit that that they’ve managed to keep this whole thing suppressed from the public eye this long.
-and that no one has clued into the fact that obama hired back all the people that changed the very laws that have allowed this to happen. (so that the charade can remain cloaked and continue)
There has to be a HUGE amount of people on the take for all this to be still going “as smoothly” as it is..
Scan through the DOJ press releases and you’ll find hundreds of mortgage fraud cases going back to the 90’s
anyway….gotta go
-s
It’s a double edged sword. You move to protect greedy US banks from foreign retribution, you also protect consumers from the same greedy banks.
Maybe you could just develop some reasonable, practical governance practices which would limit banks and consumers from doing excessively dumb things. Sorry, that was obviously silly comment – never mind.
Everyone who has a mortgage can do what SpankyOne (#2) is doing.
And the response would be that the banking, and real estate, and money, systems would dissolve is about 5-10 days.
You will not be put in debtors’ prison for not paying a bill.
If that is what everyone wants, then I wish those that survive the follow-on conflagration a hopeful future.
9, don’t worry, if that were to happen, the savior Obama would just nationalize everyone’s home. Then, he could make sure everyone has a home size that is “fair”.
Of course if you still refuse to pay your mortgage to the government, they will just shoot you, and give the home to a much more deserving citizen.
I wonder how many people will now go to a bank that is foreclosing on their home and say in a German accent, “Papers please!”
What happens when someone buys an REO from a bank, but the bank obtained the property by improper foreclosure and therefore has no legal power to confer clear title to the new buyer? The titles to a lot of real estate could be called into question, and the ramifications for title insurance companies could be quite significant.
Makes sense to me, how can you foreclose on somebody’s property when you can’t even prove you own the mortgage?
This should put a damper at least temporarily on financial houses that cut up mortgages and sell them off as securities.
SO–its a mess. No moral or practical reason the defaulting homeowner should be allowed to keep the/stay in the property.
Problem with the “lost note declaration” is that there never was a note. Still, the “nominal” transaction excellently related by Chris at #5 implies to me that the “chain of title” can be reconstructed as part of any foreclosure.
Yes, its a mess and maybe some will unfairly profit from it, but not with the exercise a just a little bit of common sense==something the Courts oftime use, but not always which is why the law rides an ass.
Lets all rejoice that the truth is coming out, and that ‘street justice’ will take place.
Hallelujah! We ‘the people’ one for once!
Oh wait… shit.. the economy just completely froze. The credit markets no longer exist. Banks are all closed, everybody’s money is frozen. The FDIC is insolvent, needs to figure out who and when will get their insured money. The true value of housing has been exposed, and houses drop 50% in value overnight since there are no loans to be had, and even if you had money, it is stuck in a bank that is closed. 7 out of the 10 major shopping chains close within 30 days… only the dollar store booms… but it is now the $1000 store, because the dollar collapses.
But hey.. we got those nasty bankers.
Yea right, cheer all you want about this. But remember we live in a thinly veiled fascist state. That means that the corrupt banking industry will pull alot of strings to basically nullify this decision one way or another.
They will come running to the Pol’s and some sort of legislation will save their asses from this court decision. Under the explanation that its needed to save the___________. (fill in the blank with any excuse)
Im also conflicted by this a bit. As those who took risky loans out, buying a house with payments well out of their means, when the mortgage reset. Will now get a second chance to stay in a house they really cant afford or deserve. So it goes , I guess!
The problem with the ‘if they do this then the markets will collapse’ argument is that deposits are insured and the people already live in those house aren’t going to be hurt by a few banks collapsing because it’s very unlikely that they hold any stocks at all, let alone the ones that this action, writ large, could hurt.
And thee alternative is telling us all that now businesses don’t even need records to claim that they’re owed money!
This is really no different from collection agencies. I have often advised friends who have fallen behind on their debts to challenge the collection agency and prove they have the legal right to collect money.
99.9% of the time, we have discovered that they do not, or will not provide the proof. All they do is send a bad photo copy of a bill, which means nothing. Fight them tooth and nail on this point and they back off.
As I tell them, if someone I’ve never heard of, or done business with, calls me up and demands money from me, then I’d tell them get stuffed.
In fact, I’ve threated to call the police on CA’s for extortion. After all, I’ve never heard of this bozo, and they call up and threaten me and demand money. Sounds like extortion to me.
Why is a debt collector any different? I never signed a contract with them. Unless I get a letter from the business that I did sign a contract with telling me that they have sold my account to such party, then they have zero right to my money.
15: Oh wait… shit.. the economy just completely froze. The credit markets no longer exist.
Maybe not. The mortgages in question are essentially ones that were bundled into mortgage backed securities(MBS). Pension funds and insurance companies were not allowed to buy the riskier tranches of these MBSs because they have to buy AAA rated. Of course AAA rated could be toilet paper, but that is for another thread.
The premise of the decision is that many of the sales were fraudulent. If you don’t actually own something you can’t legally sell it. If you sell something you don’t legally own the sale is not a valid one. If you buy something you ought to know is not legally salable you have no recourse against the seller.
I’m not saying this will stand, doubtfully it won’t. But it would be a very different path than Japan took in the 1990s(simply ignoring bad debt).
Who would get hurt, mostly, is foreigners and big banks. The big banks are already government creatures. That leaves foreigners.
This goes to the nub of why the U.S. went off gold in the 1970s. We ran up huge debt and decided to stick the rest of the world with the bill.
The U.S. is a consumer economy. If, suddenly, many people had much less debt sales would explode. All that dollar denominated debt would cease to exist, so the dollar would become more valuable(I feel credit is part of the money supply). Lower money supply would offset high demand to contain inflation.
Think of it as a reverse devaluation in terms of credit.
Since many bad mortgages are backstopped by the federal government they would also make out like bandits.
We might not be popular at the next G-20, but who cares?
Sorry, thinking about this some more.
Who actually owns an individual house in a non-performing segment of a MBS, especially if the MBS is split into interest-only and principal-only tranches?
Bank? MBS buyer?
?