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John O'Brien is Register of Deeds for Southern Essex County,
Massachusetts. He calls his land
registry a "crime scene." A formal
forensic audit of the properties for which he is responsible found
- Only 16% of the mortgage assignments were valid.
- 27% of the invalid assignments were fraudulent, 35% were "robo-signed," and 10% violated the Massachusetts Mortgage Fraud Statute.
- The identity of financial institutions that are current owners of the mortgages could be determined for only 287 out of 473 (60%).
- There were 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership could be traced.
What this means is that . . . the institutions, including many pension funds, that purchased these mortgages don't actually own them . . . .
The March of the AGs
When Massachusetts Attorney General Martha Coakley went to court in December against MERS and five major banks--Bank of America Corp., JPMorgan Chase, Wells Fargo, Citigroup, and GMAC--John O'Brien said he was thrilled . Coakley says the banks have "undermined our public land record system through the use of MERS."
Other attorneys general are also bringing lawsuits. Delaware Attorney General Beau Biden is going after MERS in a suit seeking $10,000 per violation. "Since at least the 1600s," he says, "real property rights have been a cornerstone of our society. MERS has raised serious questions about who owns what in America."
Biden's lawsuit alleges that MERS violated Delaware's Deceptive Trade Practices Act by:
- Hiding the true mortgage owner and removing that information from the public land records.
- Creating a systemically important, yet inherently unreliable, mortgage database that created confusion and inappropriate assignments and foreclosures of mortgages.
- Operating MERS through its members' employees, whom MERS confusingly appoints as its corporate officers so that they may act on MERS' behalf.
- Failing to ensure the proper transfer of mortgage loan documentation to the securitization trusts, which may have resulted in the failure of securitizations to own the loans upon which they claimed to foreclose.
Legally, this last defect may be even more fatal than filing in the name of MERS in establishing a break in the chain of title to securitized properties. Mortgage-backed securities are sold to investors in packages representing interests in trusts called REMICs ( Real Estate Mortgage Investment Conduits ). REMICs are designed as tax shelters; but to qualify for that status, they must be "static." Mortgages can't be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer after the closing date is invalid. Yet few, if any, properties in foreclosure seem to have been assigned to these REMICs before the closing date, in blatant disregard of legal requirements. The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.
Courts Are Taking Notice
The title issues are so complicated that judges themselves have been slow to catch on, but they are increasingly waking up and taking notice. In some cases, the judge is not even waiting for the borrowers to raise lack of standing as a defense. In two cases decided in New York in December , the banks lost although their motions were either unopposed or the homeowner did not show up, and in one there was actually a default. No matter, said the court; the bank simply did not have standing to foreclose.
Failure to comply with the terms of the loan documents can make an even stronger case for dismissal. In Horace vs. LaSalle, Circuit Court of Russell County, Alabama, 57-CV-2008-000362.00 (March 30, 2011), the court permanently enjoined the bank (now part of Bank of America) from foreclosing on the plaintiff's home, stating:
[T]he court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with New York Law in attempting to obtain assignment of plaintiff Horace's note and mortgage. . . .
[P]laintiff's motion for summary judgment is granted to the extent that defendant trust . . . is permanently enjoined from foreclosing on the property . . . .
Relief for Counties: Land Banks and Eminent Domain
The legal tide is turning against MERS and the banks, giving rise to some interesting possibilities for relief at the county level. Local governments have the power of eminent domain: they can seize real or personal property if (a) they can show that doing so is in the public interest, and (b) the owner is compensated at fair market value.