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Slade Smith's Blog

You're Not Entitled to Your Own Facts, Even When Slamming MERS
by Slade Smith | 2011/01/25 |

There are legitimate, substantial concerns about the legal foundation of MERS-- I think most folks who have followed the foreclosure mess can agree on that.  But there is also a lot of blatant misinformation out there coming from MERS critics, and some of it is coming from folks who are presenting themselves as experts on the issue.

For example, University of Missouri Kansas City professor of economics and frequent mortgage crisis blogger/pundit L. Randall Wray, a frequent and vocal critic of the banks and of MERS, just flat out makes stuff up regarding the recent Ibanez decision in Massachusetts in his article, Requiem for MERS (and the Banks That Created the Frankenstein Monster), which appeared yesterday on the Huffington Post. Wray claims that the Massachusetts Supreme Court decision in U.S. Bank v. Ibanez is one of several "recent developments that put the final nails in MERS's coffin," but from his writeup of the case, it is hard to fathom that he even read the case or has any familiarity with it whatsoever.

Slade Smith's Blog ::

Professor Wray wrote:

Ibanez decision in Massachusetts.  Courts continue to chip away at the arguments made by banks and their Frankenstein creation, MERS, to justify foreclosure without proper documentation. MERS was manufactured by the industry to evade proper recording of property sales in county recorder's offices. This not only cheated the recorders out of fees and Uncle Sam out of federal taxes, but it also broke the chain of title. The fiction perpetrated by MERS is that it is simultaneously a nominee of the true owner of the mortgage debt and at the same time it is the beneficiary of the security instrument. (You cannot simultaneously be the party of interest and the nominee, of course.) It also disclaims any financial interest in the mortgage and has no claim on the mortgage payments. But it claims that it can operate as the agent of unnamed owners of the mortgage instrument, unknown owners who--since they are unknown -- have never designated MERS as agent. The Massachusetts Supreme Court ruled decisively against MERS's claims, and a growing number of other state supreme courts (Nevada, New York, Kansas, Idaho) have agreed that MERS is only a nominee or "straw man" (as Kansas put it) with no standing to foreclose.

Here's the facts: MERS had no "claim" in the Ibanez case-- Ibanez's mortgage was not even a MERS mortgage!

Furthermore, according to the land court case which the Massachusetts Supreme Court upheld, U.S. Bank might have been better off it his mortgage had been a MERS mortgage!  The reason that the land court judge threw out the Ibanez foreclosure was because U.S. Bank had not been properly assigned the mortgage at the time of the foreclosure sale, according to the financial entities' own rules.  One of the possible ways that they could have been properly assigned the mortgage, according to the securitization agreements that the judge relied on in his decision, would have been if they had received an assignment of the mortgage in recordable form from the entity they claimed transferred the mortgage to them.  But for MERS mortgages, these agreements waived the requirement of an assignment in recordable form. 

As far as the Massachusetts Supreme Court decision?  Well, MERS is not even mentioned in that-- not once.  Why would it?  Again, the mortgages at issue were not MERS mortgages!

So when Wray says that "[t]he Massachusetts Supreme Court ruled decisively against MERS's claims" in the Ibanez case, he is just making stuff up out of thin air. The Ibanez decision had next to nothing to do with MERS at all.

Furthermore, Ibanez was not about "proper recording of property sales in county recorder's offices" either, despite Wray's claims.   The Massachusetts Supreme Judicial Court decision states just the opposite in clear black and white letters:

We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder.

What is laughable in his piece is that Wray whines in his piece about his critics.  "Whenever those who are critical of MERS and the banksters post blogs about the multiple frauds, we are attacked by commentators -- presumably industry hacks -- who try to obfuscate the issues," he says.  As someone who battled it out on the political blogs for years, I couldn't help but notice that the bloggers who played fast and loose with the truth were often the same ones who thought that anyone who criticized them was an industry shill or had some other ulterior motive.  I guess the same holds true for professors!  If this Huffington Post piece is any indication of the quality of the professor's work, Wray deserves critics and probably ought to have a few more of them. 

I understand that there are many thoughtful and knowledgeable people who have legitimate and substantial criticisms of MERS, and I agree with many of those criticisms. Many of these folks want to see and end to MERS in one fashion or another, for good and well considered reasons.  It may be tempting for otherwise thoughtful people to find common cause with folks like Wray who are outspoken opponents of MERS and the banks and want to see them destroyed. 

But I think it's important to recognize that some folks are just interested grinding axes.  I think some of MERS's critics are more interested in cultivating the choir they are preaching to than solving the many serious problems that we face-- and that in their eagerness to pump themselves up in the eyes of their readers by piling on the deservedly unpopular banks, they actually end up standing in the way of progress by failing to talk about solutions in a meaningful way. Wray doesn't seem really interested in solutions to the problems that MERS has posed, or integrity in land recording systems, or clean land titles out of foreclosure.  For example, check out how he casually tosses aside the entirety of the traditional land title system in one sentence when discussing Marcy Kaptur's recent MERS bill:

In response to this mess, Representative Marcy Kaptur (Ohio) is going to introduce legislation to prohibit Fannie and Freddie from buying new mortgages that are registered in MERS. Since there is virtually no activity in mortgage markets save what Fannie and Freddie are doing, this would effectively take away all new business from MERS.

Further, her legislation would direct HUD to study the creation of a federal land title system to replace MERS while protecting rights of state and local governments. This is a sensible solution that would modernize the recording and tracking of property ownership. At the same time it would put out of business the hopelessly incompetent MERS, which has partnered with the banksters to perpetrate foreclosure fraud. Bye bye fraudsters.

I'm a big proponent of reform of land title recordation systems, but pseudo-reformers like Wray who throw out "solutions" like this just to pretend that they have the answers are the unwitting allies of those who would like to keep MERS as-is, such as ALTA, which failed to mention to its members in an alert that the only binding part of the Kaptur bill is not about creating a federal land title system, but rather about prohibiting federal insurance and guarantees on MERS mortgages.  ALTA apparently would like its membership to advocate for MERS without knowing that they are doing so. With statements like this, Wray and his ilk may help ALTA play up the minimal threat of a federal land title system.




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1848 words | 3681 views | 5 comments | log in or register to post a comment


Think Where We Could Be!

Slade,

Another very good post. You point out this "attack" mechanism doesn't care about facts. Justification is any denigration and damage which can somehow be inflicted on the opponent. You're entitled to your own opinion but not your own facts  -- very good.

You cite part of the alleged argument that MERS somehow cheats counties out of recording fees. And further, the legal wrangle continues with the note holder in due course  vs. the nominee/assignee argument regarding the mortgage or deed of trust (security instrument). This is something the courts have to wrestle with and foreclosure defense attorneys have put forth some pretty clever defenses.

But I think the issue may be thought of more simply. MERS is an entity which provides both an input/output capacity for loan securitization. MERS is not a repository which holds paper or digital notes but rather acts on behalf of lenders, servicers and note holders to move, organize and syncronize various aspects of the loan after the debt obligation is created.

I don't believe anyone would argue or believe a government bureaucracy could accomplish that for which MERS was created. I certainly don't. And I think it's also important to understand that MERS is not trying to replace the recording facilities which are designed for constructive notice far beyond loans documents.

So it would seem to me that county recorders would implement systems which would integrate or tap the MERS databases as an adjunct to the original recording of the loan security instrument. I think MERS referred to it as a Mortgage Identification Number. And  ALTA, which is a stockholder/investor in MERS.  recently sent out a survey request surrounding the payoff information which could be generated with MERS.

And I'm not coming down on the side of MERS being the answer to the lender side. There probably will be other MERS which attempt to provide these organizational services. After all, competition provides the basis upon which better and more capable systems emerge. But again, I don't think any governmental entity could provide the dynamics and customer service needed to oblige a dynamic and creative lending industry.

Here's where the payoff (no pun) begins to come into play. In these pages of SOT are the news reports of the Evans brothers who mortgaged properties multiple times, kept payments going out of new proceeds from those loans and illegally stacked the loans with false title policies, satisfactions, etc. Tremendous damage has been inflicted. And there are certainly many more examples of others in these pages.

But suppose the recording systems were such that people could use an RSS feed, email or other modern notification surrounding any changes in the records. Someone attempting to record erroneous and forged instruments would find that a broadcast would nip it in the bud! Anyone could subscribe to the "title" by legal description or Loan Identification Number or any index. The data channel would broadcast upon any activity.

You could even get into having the payoff information immediately available with the recorded loan document. I don't really see any problem with payoff figures being generally available. Some may have a problem with this for some reason.

But as you aptly point out in your post this unmitigated attack behavior only delays and even destroys the considerations of building a recording system which would streamline and accomodate all the parties which need its constructive notice foundation.

It's sort of on the order of an airport. You have a governmental aspect such as the FAA which defines many operating rules and procedures. Local governments build these airports and provide its connectivity to the community. But within this construct private airlines, private airplanes, private consessionaires operate to build their own communications and procedures. They compete vigorously!

So it would be with recording. Once an instrument is accepted and recorded with the governmental authentication stamp the system could provide different communications and additional postings which may be built around the document. Modern data channels could provide various augmentation.

For example, you would locate the loan security document at the official recorders office/system which would then have MERS button. Click and the MERS data channel would open with detailed information. Such a system could tie into many points. Linkable text is the revolution of our time. Why not build the data channels to the appraiser and the tax collector? The casualty insuror could get on board. When you think about it, it's really limitless!

MERS and other competing entities would pay the county or state recorders for the links. Rather than an assignment having to be recorded the link would substitute. The fees could be based upon a small amount each year for the total number of active links. Links would be deactivated upon satisfaction.

But instead of beginning a discussion and exploration joining all these interests it's ashamed we have to suffer the "creation of one's own facts"!

 
 

 
by Wyatt Bell | 2011/01/28 | log in or register to post a reply

It's Personal Property Vs. Real Property

I'm with Wyatt Bell on this one.

The underlying reality of this entire MERS scenario is NOT that the system doesn't work for its' designed purposes, but rather, that its' designed purpose somehow fell short of providing the already legal existing reqiurement of notice to the general public (including those buying Mortgage paper as investments) to protect any interests they may choose to acquire by reason of their own choice. MERS deals with financial instruments, not Real Estate.

Mortgages, in any format, are nothing more than contracts, and the simplest fact about any contract is that it is enforceable in all directions by its' own principals. Any party to a contract is still responsible to living up to the extent of the law governing at least their own end of the contract, and operating in violation of contract law and all the "stuff" not stated but accepted as being a term of that contract by reason if being Law still constitutes a breach of both the contract itself and the Law. You can't simply "opt" yourself out of the law by contract or otherwise.

And the argument that MERS should be able to stand entirely on its own with respect to anything having to do or even connected in some fashion to Real Property is nothing more tha an attack on existing law. The fact is that securitized "derivatives" (Mortgage Tranches) are NOT real property, and that sort of personal property interest has never been REQUIRED to be recorded in the public records in that they are considered to be "confidential" as to the participants.. Matters pertaining to the ownership rights of "paper"  have always been the property of the Banks, the Stock Traders, and the Financial Industry. They have nothing to do with "Real Estate" per se.

The problem now being not that the public records system is 'failing" somehow relative to Real Estate transactions, but instead, that the MERS system has somehow fallen short with respect to notice and the ability of retrieval with respect to its OWN internal processes in comparison to public records. And MERS doesn't DEAL with Real Estate interests, only with the paper which upon foreclosure comes to fruition as a matter of repossessing collateral.

Courts have in fact been releasing and foreclosing on the Trust deeds on properties where the Lender "lost" the note since the very begiining of the Mortgage as a security instrument. But it costs MONEY to go to Court.

As Wyatt Bell points out, integration seems to be the cheapest way out.

Then again, if these folks had thought this out in the first place, they wouldn't be screaming about having to defend their effort at cheapening the existing system in their own favor, would they?

It's not like the public record system tried to shut THEM out now, is it?

 

 
by Donald Petersen | 2011/01/31 | log in or register to post a reply

Wyatt

I am totally with you and anyone else who has ideas on how to improve things and create systems that serve everybody better.  As you point out, if recorded data is identified, indexed, and made accessible via modern standards, it can be used in various ways that could improve effieciency of the businesses that rely on it and have other benefits, such as reducing the possibility that a fraud goes undetected.   I do believe that the MERS concept of assigning unique mortgage ID numbers across multiple institutions should be kept and integrated into the solution, whatever happens to MERS itself.  Personally, i believe that people should also be assigned unique, public (as opposed to the semi-protected Social Security Number) "Person ID Numbers", which would identify people in the public records uniquely, rather than by non-unique names that can be shared by several people.  There is a lot of resistance to this idea, and it has a lot of ramifications beyond just the public records, so I don't think it will happen anytime soon.

 
by Slade Smith | 2011/01/31 | log in or register to post a reply

MERS -- What is it?

I think Mr. Peterson sums it up very well in the first paragraph of his post:

"The underlying reality of this entire MERS scenario is NOT that the system doesn't work for its' designed purposes, but rather, that its' designed purpose somehow fell short of providing the already legal existing requirement of notice to the general public (including those buying Mortgage paper as investments) to protect any interests they may choose to acquire by reason of their own choice. MERS deals with financial instruments, not Real Estate. The underlying reality of this entire MERS scenario is NOT that the system doesn't work for its' designed purposes, but rather, that its' designed purpose somehow fell short of providing the already legal existing requirement of notice to the general public (including those buying Mortgage paper as investments) to protect any interests they may choose to acquire by reason of their own choice. MERS deals with financial instruments, not Real Estate."

And I emphasize his last point, "MERS deals with financial instruments, not Real Estate"! Below is a document which purports to detail the nature and purpose of MERS. I don't have any way to insure its accuracy but it is consistent with all I've read:

www.landtechdata.com/docs/MERS-Corporate-Info.pdf

The other issue which doesn't get a great deal of discussion is the "wet ink" or "original". Holding the original as a "holder in due course" carries great legal significance. Even though it is possible to collect a debt by other evidence the possessor of the "original" is given very specific legal rights and is insulated from defenses which might otherwise arise.

The problem is that creating or effectuating an "original" or "wet ink" document in digital (computer) systems is very complex. And the only way that it has been accomplished to date is with the Public Key Infrastructure.

The details of PKI are beyond the scope of this post but in very simple fashion a digital key (a number) is provided to a party. This provided number is digested by a complex computer algorithm which then generates a unique "other" number which identifies the "maker" of the document along with the document itself. But once the document is made, even though it is certified and mathematically secure, it can be replicated any number of times in nano-seconds. Therefore, even though it is authenticated you can't tell a copy from the original.

The answer to this problem was to impose dual keys. Therefore, the maker would certify with their PKI and then someone such as MERS or another entity inventorying the note would certify with their PKI. The original then became a result of presenting the "two" keys unwound by the PKI algorithms. Those presenting the dual keys would be deemed the original holders of the debt instrument.

The bottom line with this PKI scenario and why it hasn't been used is basically the idea that we verify and conduct ourselves according to a "visual" authentication system. That is, we can look at a document, any of us, and ascertain whether that document is "original". In using PKI we move from this very easy and visual-authentication-system to one of arcane mathematics. We go from quickly being able to look at a document to a system where we must rely on "programmatical" verification. And I can tell you I've had enough computer snafus in my life that I'll stick with believing what my eyes tell me no matter how smart the computer scientist!!

So back to this visually verified "original". We must follow and adhere to the legal foundations upon which it exists and for which it has developed over the centuries. We're in this kind of void between two very different and real requirements. We must allow debt instruments to flow as freely and quickly as electronics allow yet maintain our simplicity of visual verification.

I don't see any reason why we can't find the proper intersections providing robust and swift public constructive notice while simultaneously allowing instruments to trade at the speed of light.

If only we could rid ourselves of these self-interested myopics we might succeed in redefining and creating the greatest systems on earth! Isn't this really what America is all about?!?!

But leaving this to a big ole' bunch of insurance companies and bureaucracies doesn't get my hopes up much!

 
by Wyatt Bell | 2011/01/31 | log in or register to post a reply

Mr Bell, Surely you jest

RE: last line, para 4. That is exactly what the MERS system was and is intended to do. Whether or not the fact that its system obscures the party entitled to foreclose, and I say it is not MERS, was by design or an unintended consequence, it is nonetheless so.  And, I am for NO federal program to replace our existing land records system.  If the government wants to create a new federal system which relies on and reflects entries in county land office records, that might work out, but it's not broken sans MERS, so why do it.  It would likely lead to its  own brand of mayhem.  County land records worked fine for years and years.

Further, there is NO MERS, other than a computer system, with entries made by its members on the Boy Scout system. MERS does nothing other than provide the computer system.  It does zero diligence, nor likely could it,  and the corporation, which has zero employees (not even its officers), has no way of knowing if the Boy Scout system works or not, that is, there is no' Mers' anything  to tell if entries regarding transfers are made or not. Only its member do actions in the name of MERS.  It's a hoot.  Mers has alleged it is the agent of  so and so, yet it is so and so, who would then be the principal, who is taking actions in the name of its agent. Say what?

Even the "MERS" making any allegations at all is not MERS because there is no MERS - there are only its members making allegations or signing documents in MERS' name. From my perusal of the MERS' membershhip contract (and I concede I don't have all amendments), Mers' members are obligated to execute and record an assignment  of the deed of trust in the land records when the beneficial interest in the note leaves a MERS' member, and this has not been done, and that's a fact.  

 

 
by john gault | 2011/02/22 | log in or register to post a reply
Slade Smith's Blog

I'm the web developer for Source of Title.  Due to this role, I have become an interested observer of the title insurance industry and the broader issues arising out of real estate and finance.   I have also blogged extensively about politics under the pseudonym "skymutt" at the partisan Democratic blog Daily Kos and the non-partisan community Swords Crossed

 

 

 

 

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