Author Archive
MERS Takes It on the Chin in Washington State Supreme Court Case
Posted on May 6, 2013 byIn recent Washington State Supreme Court decision (Bain v. MERS), the court ruled that the Mortgage Electronic Registration System (MERS) is not and cannot be a legal beneficiary under Washington State Law. In effect only the legal holder of the note, the real creditor, has the power to appoint a substitute trustee in order to transact such legal actions as a foreclosure.
The court asserted that the power of sale of a property is a significant one and trustees have tended to ignore their duties and obligations. The court believed it was time to swing a little bit of the power back to the side of the borrower.
Essentially, the court ruled that the lenders could not continue to routinely ignore the state’s laws regarding the recording of deeds and then turn around and use the same set of state laws to foreclose on a borrower. The court also left the door open for those with legal grievances to ask for compensatory damages against MERS and those who used MERS in wrongful foreclosures.
The court made this decision in part because MERS never has anything to do with the actual financial transaction. It never handles any of the money in the loan process, and it never has anyone on staff with personal knowledge of the principal for whom they are acting. Therefore, MERS has no standing when it comes to a foreclosure. Read More→
How Banks Are Committing Fraud, Part 2
Posted on April 5, 2013 byIn last month’s article I explained how the housing boom of the early 2000s created an equally big boom in mortgage fraud. While the housing collapse changed the nature of the crime, the ensuing flood of foreclosures just gave the banks another reason to commit fraud.
Fortunately for homeowners, there has been a wave of investigative agencies that are exposing exactly what the banks have been up to. While my last article covered the types of fraud that the banks have committed, this article will focus on the methods that investigators use to find the fraud in real estate deals.
Due to the fact that the fraud examinations are normally conducted with the purpose of being used in litigation, they tend to fall under the mantle of forensic accounting. In other words, they are conducted with the assumption that the case they are investigating may end up in litigation or a criminal trial. This means that fraud investigators must possess the skills to follow through with a mortgage fraud investigation from beginning to end. This includes but is not limited to researching, collecting evidence, taking statements from people involved, and testifying to their findings in court or a deposition. Read More→
How Banks Are Committing Fraud, Part 1
Posted on March 11, 2013 byThroughout the late 1990s and early 2000s, we experienced an unprecedented housing boom. Easy credit flooded the marketplace and home ownership surged to unheard of levels. Along with inflating an unsustainable bubble, the housing boom created a rich climate for mortgage fraud.
The bust that followed changed the nature of the crime, but it has also provided continued opportunities for mortgage fraud. Fortunately for homeowners, there is a new wave of investigative agencies emerging that are trying to figure out just how widespread and insidious the mortgage fraud epidemic is. Investigators hope the increased awareness will help to educate the general public about the threat that these crimes present.
The scary fact is that fraud continues at astounding levels. The allure of mortgage fraud is clear – it can generate amazing profits with a relatively low risk of discovery. After all, there is a byzantine mess of laws and regulations that govern the finance industry and keep all but the most ardent investigators from figuring out exactly what fraudsters are doing and how they can be prosecuted. Read More→
Proving Lender Negligence and Fraud Part 2: Follow the Money
Posted on February 8, 2013 byIn my last article, I explained that there are two approaches investors can take to determine whether or not a lender has been negligent or committed fraud. The first approach I described is to look through the paper trail to dig up issues. The second approach is to follow the money.
Not many people truly understand how the mortgage and finance industries work. It’s basically a shell game with them moving money around with little regard as to the laws and regulations that govern how banks are supposed to act.
They play this constant game all supposedly in the name of increasing the money supply. Attorney Neil Garfield describes the process as the bank starting out with $100 in the left pocket and taking $10 out to deposit in the right pocket, but still reporting to the SEC and investors that the full $100 is still in the left pocket. When the next $10 comes out, described as trading profits or a fee, the amount in the left pocket is still reported as $100 rather than the $80 that is actually there. Read More→
Proving Lender Negligence and Fraud Part 1: The Paper Trail
Posted on January 6, 2013 byThere are two approaches you can take to determine whether or not there has been negligence or fraud in the loan process. Both paths can be equally effective in uncovering lender misconduct and providing you with leverage for negotiations with the bank. One path follows the documentation from mortgage application through foreclosure documentation, and the other approach follows the money trail. This article will examine how the documentation can lead to a damaging case against a pretender lender. Our next article will cover the money trail method.
In order to prove that they have the right to foreclose on a property, it is becoming standard for lenders to be required to produce the original note on the property. The note is required before a court will allow a lender to sell a property. It must show that the lender is named with a recorded economic interest in the property. However, in many cases these original notes have been either lost in the securitization shuffle or purposefully destroyed as the note bounced around from entity to entity. The note could even have been Photoshopped or otherwise forged to make it appear that the entity trying to foreclose has the standing to do so. Fortunately, the lenders are being called on it by the courts. Read More→
The Mystery of the Missing Trusts
Posted on December 9, 2012 byThe more researchers and attorneys investigate the structure and composition of securitized trusts the more phantom-like they become.
Amazingly, what is being found in many, if not most, is there was no trustor, beneficiary, funding, assets, bank accounts or even the sham appearance of being managed by a trust department. No one has even been moving money through the trust, or with reference to a trust, to its “holders.”
Often when investigators try to establish a money trail between the holders of a mortgage-backed security, to a pretender-lender and then on to a homeowner to close a specific transaction, that money trail does not exist. There is no trail, for example, between a loan originated by ASBC 1234-1 Trust, a trust claimed by US Bank as Trustee, and a specific homeowner, and no evidence of any assignment to where the money has been transferred. Read More→
The Securitization Fraud
Posted on November 3, 2012 byA fraud has been perpetrated upon the American people all in the name of greed. Fraud is defined as deception in the execution of an agreement where some parties to the transaction are deceived as to the real nature of what is being agreed to. When some parties to an agreement are not clear, or some parties enter into the contract deceptively, then the agreement is null and void. A securitized loan is just such a fraudulent agreement.
A securitized loan is one where private investors, pension funds, insurance companies and others have purchased the cashflows from a group of mortgages that have been gathered into a trust in the form of a security assigned a particular risk value. Each mortgage-backed cashflow grouping is called a “tranche” and there are generally several tranches within a mortgage-backed trust. The cashflows are often sold multiple times to multiple investors. Securitization is a way that institutional lenders are able to leverage capital to support additional lending. When the economy is expanding securitization helps to grow the housing industry. When the economy is shrinking the flaw in the system reveals itself as investors begin to lose cashflow as a result of defaulted loans. Read More→
Why Are Foreclosures Falling Off Sharply?
Posted on October 3, 2012 byOn an annual basis foreclosures have dropped 24% according to CoreLogic. Anyone who has been to a foreclosure auction lately knows that there are fewer sales of foreclosed homes coming through to market. Instead, lenders refinanced over 425,000 underwater loans under HARP in the first 6 months of 2012, the same number as were done all last year. Short sales are up also. According to RealtyTrac Q1 2012 short sale activity was up 25% over the year. Does this mean we’ve got the lenders on the run?
It appears as if lenders have finally gotten the message that it is better to resolve a distressed homeowner’s problems short of a foreclosure sale. The five largest lenders were brought kicking and screaming into the reality of settling with homeowners with the $25 billion mortgage settlement with the state AGs. Mid-level lenders, such as US Bank and MetLife, are also now negotiating for settlements on foreclosure irregularities. The settlement with the big banks provides incentives for lenders to push loan modifications and short sales ahead of foreclosure, particularly over this next year. Lenders are resorting to options short of foreclosure not because they have had a genuine change of heart, but because they are being forced to reveal their dirty linen through state investigations and a barrage of lawsuits. Read More→
The Truth About Securitized Mortgages
Posted on September 10, 2012 byThe majority of mortgages in the United States are sold into securitized trusts called REMICS and are not held as in-house or “portfolio” loans. All sub-prime loans are sold off in this way and have been since the late 1960s. The practice became especially common in the 1990s when the writing of sub-prime loans became more prevalent. Many prime loans also wind up sold as mortgage-backed securities.
REMIC is short for Real Estate Mortgage Investment Conduit. They are investment vehicles which hold commercial and residential mortgages in trusts and then issue securities representing an undivided interest in these mortgages. Investors, such as insurance companies, pension funds, and wealthy private investors, buy these mortgage-backed securities. The securities are assembled into pools called tranches according to their level of risk. Higher risk mortgage-backed securities command higher rates of return. REMICs are managed by a trustee, often a large investment bank, and are governed by pooling and servicing agreements (PSAs). Read More→
Did Your Lender Discriminate?
Posted on August 6, 2012 byThe robo-signing fiasco has revealed the seedier side of the mortgage business to the general public. These issues are coming back to haunt many lenders in the form of law suits and settlements with state and federal governments.
Over the last several years, homeowners and the public in general have become increasingly familiar with some of the issues that could lead to a case of fraud against a lender stemming from the way documents were signed, notarized, or dated incorrectly for mortgages or foreclosure filings. The issues that were included in the foreclosure settlement against Bank of America, Wells Fargo, JP Morgan Chase, Citigroup, and Ally are just the tip of the ice berg when it comes to proving fraudulent and inappropriate actions on the part of lenders. The more we find out about what the banks were doing, the more impossible it seems that they have been getting away with it for so long!
Sometimes the fraudulent and inappropriate behaviors that could become the basis of a lawsuit against a lender occurred when the homeowner first got the loan. Many homeowners experienced irregularities and in some cases out-and-out discrimination at the time the loan was first offered. Read More→
Why MERS Cannot Be Legal Owner Of A Note
Posted on July 3, 2012 by
The Mortgage Electronic Registration System is just that—an electronic registration system. MERS came into being after the GSEs produced a white paper in 1993 stating the case for an electronic registration system to track mortgage assignments. It was officially launched in 1997.
From the point of view of the mortgage industry MERS made it possible to transfer mortgages or merge lender acquisitions efficiently without triggering local transfer taxes and other recording fees. It changes what has always been a public documentation process to a private one. The industry claims the MERS system allows the industry to have a central repository for mortgage assignment information in order to keep a more accurate picture of ownership.
Courts have not been unanimous about the legitimacy of MERS and many courts have ruled that MERS muddies the waters in the recorded chain of title and cheats counties out of much needed revenue. In fact, county recorders in several states have sued the MERS system for loss of documentation fees. On the other hand, the MERS website lists cases it has won in at least 22 states since the beginning of 2011. There is clearly a window of opportunity to fight MERS’ legitimacy as an owner of record in many foreclosure cases. Read More→
