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Fixing the Mortgage Mess: The Game-changing Implications of Bain v. MERS

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A way around these objections might be to eliminate the private middleman and proceed through a county land bank of the sort set up in other states.  If the land bank focused on properties with MERS in the chain of title (underwater, foreclosed or abandoned), it might obtain a significant inventory of properties free and clear.    

The county would simply need to give notice in the local newspaper of intent to exercise its right of eminent domain. The burden of proof would then transfer to the claimant to establish title in a court proceeding.  If the court followed Bain, title typically could not be proved and would pass free and clear to the county land bank, which could sell or rent the property and work out a fair settlement with the parties.

That would resolve not only the funding question but whether using eminent domain to cure mortgage problems constitutes an unconstitutional taking of private property.  In these cases, there would be no one to take from, since no one would be able to prove title.  The investors would take their place in line as unsecured creditors with claims in equity for actual damages.  In most cases, they would be protected by credit default swaps and could recover from those arrangements. 

The investors, banks and servicers all profited from the smokescreen of MERS, which shielded them from liability.  As noted in Bain:

Critics of the MERS system point out that after bundling many loans together, it is difficult, if not impossible, to identify the current holder of any particular loan, or to negotiate with that holder. . . . Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult.

Like MERS itself, the investors must deal with the consequences of an anonymity so remote that they removed themselves from the chain of title. 

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On August 15th, the Federal Housing Finance Agency threatened to take action against municipalities condemning federal property.  But to establish its claim, the FHFA, too, would have to establish that the mortgages were federal property; and under the Bain ruling, this could be difficult. 

Setting Things Right

While banks and investors were busy counting their profits behind the curtain of MERS,  homeowners and counties have been made to bear the losses.  The city of San Bernardino is in such dire straits that on August 1, it filed for bankruptcy. 

San Bernardino and other counties are drowning in debt from a crisis created when Wall Street's real estate securitization bubble burst.  By using eminent domain, they can clean up the destruction of their land title records and 400 years of real property law.  And by setting up their own banks, counties and other municipalities can use their own capital and revenues to generate credit for local purposes.  

Homeowners who paid much more for a home than it was worth as a result of the securitization bubble have little chance of challenging the legitimacy of their underwater mortgages on their own.  Insisting that their state and local governments follow the lead of Washington State and San Bernardino County may be their best shot at escaping debt peonage to their mortgage lenders.

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)
 

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The banks stretched the law and broke it with thei... by Ernie Messerschmidt on Thursday, Aug 23, 2012 at 3:28:06 PM
I didn't have space to add the details of using e... by Ellen Brown on Thursday, Aug 23, 2012 at 5:47:40 PM
However, I have plenty of reason to misstrust muni... by Paul Repstock on Thursday, Aug 23, 2012 at 11:56:01 PM
In the proposals to date, it's the homeowner who s... by Ellen Brown on Friday, Aug 24, 2012 at 1:50:14 AM
This program, if it can work would go a long way t... by Paul Repstock on Friday, Aug 24, 2012 at 9:42:11 AM
I live in Washington State, and hadn't heard about... by Philip Zack on Friday, Aug 24, 2012 at 7:10:45 PM
of a constructive solution involving the formation... by Laura Stein on Monday, Aug 27, 2012 at 9:02:18 PM