mortgage mayhem and mers 2

8/7/2019 Mortgage Mayhem and Mers 2

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MORTGAGE MAYHEM AND MERS,HOT TUBS, AND THE FBI

PART 2 of 3

By Marilyn M. BarnewallOctober 31, 2010NewsWithViews.com

How did mortgage fraud of such national proportion happen and why?

It was the early 1990s, after the U.S. Congress passed the Depository Institutions Deregulationand Monetary Control Act that helped Americas former mortgage lenders fail you rememberthe savings and loans industry.

The mortgage lenders that replaced savings and loans wanted to evade title costs. They sought

ways to bypass state and county registrations that normally identify and assign property titleownership.

Theres more to this story than Freddie and Fannie investing in a company called MortgageElectronic Registration System (MERS) to speed things up and, for a fee, reduce land title costs.As stated in Part I, mortgage lenders and realtors decided they could profit greatly if a computersystem operated a database to track ownership and, as part of that process, have that computersystem become the mortgagee of record. Foreclosure by proxy was born.

Why did it take so long to uncover all of this foreclosure corruption and fraud? Why did it takeso long for us to hear the words Mortgage Electronic Registration System (MERS)? Why did it

take an entire industry so long to ask Is securitization by proxy legal?MERS stands behind two or three giant corporate walls and people dont know how to penetratethose walls to protect their property. They know they cant afford to stay in court longer thantheir mortgage bank and possibly several other big, involved corporations with lawyers on staff.Because of the walls of lawyers ready to defend clients against whom it is difficult to provecriminal intent, MERS has successfully foreclosed without even producing original notes. Itsvery difficult to defeat a faceless enemy.

To make things worse, under the MERS program almost any certifying officer can come tocourt, claim ownership of a lien, and proceed to foreclose. There are so many certifyingofficers at MERS, the courts have difficulty verifying whether the entity that shows up in court

and claims ownership actually owns the lien on the property. Since MERS by-passes filing theactual name of the lien holder in public records, normal research sources are useless. I repeat:The certifying officers dont work for MERS, they are merely registered on the computersystem as certifying officers. Crazy, I know.

The actual holder of the mortgage (or a certifying officer that isnt, but wants to become, thelegally recognized lien holder) pays a fee and records the mortgage in the name of MERS. And,when asked, MERS forecloses, acting as proxy document custodian for the stated lien holder.


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But when mortgage loans have been leveraged so many times in the mortgage-backed derivativeprocess, who knows who the actual lien holder is? Often, the courts do not. Even more often,innocent victims cannot fight their way through the mortgage industrys walls of lawyers toprotect themselves against unlawful foreclosure.

Its important to understand this process because in its custodial/proxy status, MERS has beenviewed as an investment trust. It has no customer service personnel. So if you or your lawyer askMERS about the trustee if it can be identified you will likely be referred to the legalservicer, who will then direct you or your counsel back to MERS. Non-responsiveness, then, isused as leverage to intimidate and force homeowners out of their property.

This system appears to make the theft of private property acceptable. If it works with mortgages,it can be used for anything maybe your pension fund. Nothing will be safe from the personalproperty mafia. Are mortgages merely a test case?

Another Massive Mortgage Fraud? Judge Reverses Himself After Hot Tub Meeting.

An interesting story published on October 9th by Washington PostStaff Writer Tom Jackmanillustrates the breadth and depth of another kind of mortgage fraud.

Earlier in the year, District Judge Gerald Bruce Lee dismissed Bank of America as a defendant ina potential Northern Virginia real estate fraud case and in November 2010, Judge Lee reversedhis own decision.

In Virginia, 129 investors filed against Bank of America, and in North Carolina, 285 investorsfiled. Both filings were about the same fraudulent act Bank of America, again. All shoutedfoul on lots they said had been over-valued by the appraiser. Here, mortgage fraud becomes anissue of unrealistic, overstated loan appraisals sanctioned even encouraged by mortgagelenders.

In 2006, the 414 investors claim they purchased overpriced vacant lots in North Carolina. Theydidnt know they were overpriced because appraisals supported the $400,000 price. Appraisalfraud has become another major financial services industry problem. Investors were assured theycould buy the lots with no money down, make no payment for two years, and in the meantimeflip the properties for certain profit.

Im not a fan of real estate flipping speculators. This case is a bit different because of theappraisals. Investors say the seller was buying the lots for $150,000, then reselling them for$300,000 or more. It somehow escapes the victims notice that they planned to buy the lots andthen do to another buyer what was done to them. Each of us deals with conscience in our ownway.

The investors say their loss could not have occurred without the help of, in this case, Bank ofAmerica (notice how often that name comes up?). They charge that the seller of the lots and thebank colluded to inflate appraised property values.

That's where the hot tub comes in, says the Washington Post, explaining the Judges decisionto reverse his Decision. In March 2010, after Lee's ruling, a lawyer in the North Carolina caseobtained more than 700 pages of e-mails that hadn't been turned over in the Virginia case.


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The court records say a meeting was held to discuss the issue. The meeting took place in a hottub so, with everyone presumably naked, no one could wear a wire. The e-mails showed a Bankof America loan officer discussing recovery appraisals with the sellers of the property.

After the hot tub meeting, the emails were made available to the Court and Judge Lee reversedhis earlier decision. The emails proved the seller, who wanted $380,000 for a lot, got a firstappraisal via Bank of America for $210,000, then a second appraisal of $220,000. Suddenly, athird appraisal of $385,000 for the same lot appeared. Investors were unaware of the first twoappraisals. After the real estate market tanked in 2008, the lots plunged to a value of $20,000each.

Lee also noted that Bank of America had obtained mortgage insurance for the loans, whichcould have provided the bank with a safety net - except that the insurance company latercanceled many of the policies because of misrepresentation by the bank, the Washington Postarticle said.

Insurance, huh? Hmmmm does anyone remember AIG? The Washington Postsays the

insurance company later canceled many of the policies, but that case is currently being litigated.It is yet to be decided. Maybe taxpayers will be bailing out another insurance company?

Judge Lee gave the Virginia plaintiffs permission to re-file their case against Bank of Americawith the new evidence, though he said "the issue of plausibility still remains. What did the bankhave to gain by entering into fraudulent loans?"

Banks used to loan their deposits. Today, the concept of fractional reserve banking rules, notdeposits. The more a bank loans, the more money it creates to lend. Deduct 10 percent (thereserve) from a loan, and the remainder is new money the bank can loan. A $385,000 loan minus$38,500 (10%) gives the bank $346,500 per loan at the almost zero Federal Reserve rate. Times414 people borrowing for North Carolina lots, the bank lends $143.5 million at an interest rate

of, say, 8 percent. Thats $11.5 million in loan interest per year. If the individual loans are only$150,000, the bank earns only $4.5 million (on $56 million, total). Thats why, Judge Lee.

How will the foreclosure fraud story end?

Many people think those who have faced unlawful foreclosure will get their homes back free andclear. After all, fraud was perpetrated. Though there is no doubt damage has been done tovictims of unlawful foreclosures, the owners signed a mortgage loan. The loan is still a validcontract. When one signs a loan document, one is obligated to repay the loan. An unlawfulforeclosure proceeding doesnt change that hard, cold fact. Suing for damages is a different issue a different lawsuit.

In MERS cases, evidence of the chain of ownership may have been broken. Because of the wayproperty liens were handled, the courts may remove homes from the mortgage loan as collateral.The mortgage lender still has a valid loan, but may have lost the house as loan collateral.

If the home as collateral is removed from the loan, the FDICs auditors wont give the lendermuch choice. Bank auditors will likely require the mortgage lender to call the loan, demandingpayment in full.


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Every loan agreement stipulates that lenders can call loans in full if conditions change thatincrease the lenders risk. So, a new mortgage will be written and the collateral (the house) willbe properly perfected this time. Because property values have fallen so drastically, thehomeowner may be required to provide more collateral than just the house. And, if the borrowercannot so provide it is legitimate grounds for foreclosure by the lender.

Could this be a sneaky way for banks to get those loans on which lien ownership cannot bedetermined because of the MERS and the mortgage-backed, over-leveraged derivatives messproperly re-assigned as collateral on mortgage loans?

For more in-depth information on MERS, written by Christopher Lewis Peterson, QuinneyCollege of Law, University of Utah. For part three click below.

Click here for part ----->1,2,3,

2010 Marilyn M. Barnewall - All Rights Reserved
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