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San Francisco Assessor-Recorder Phil Ting Finds Widespread Mortgage Document Fraud
Reposted Article of David Dayen Thursday February 16, 2012 7:08 am. Download and Read the Foreclosure In California A Crisis of Compliance Final Report Here
Yesterday, the San Francisco Assessor-Recorder, Phil Ting, released the results of a cursory review of foreclosure documents, finding widespread irregularities in the vast majority of them. The documents included foreclosures from 2011, after the point at which the banks allegedly “fixed” their foreclosure document problems.
Assessor-Recorder Phil Ting in partnership with mortgage investigation firm, Aequitas, announce the findings from an audit of 382 San Francisco homes that went through foreclosure during 2009, 2010, or 2011. The audit shows that 84% of sampled foreclosures contain at least one clear violation of California’s foreclosure laws. The results provide quantifiable support for greater mortgage industry oversight and legislative change.
The audit began last fall after irregularities and compromised documents were discovered as homeowners facing foreclosure came to the Assessor-Recorder’s office looking for property records in order to modify their loans or refinance. A county recorder’s office is responsible for keeping the official public records of property ownership and state law dictates how the mortgage industry must file those records.
“When it became clear that property records were severely undermined, a red flag was raised,” says Assessor-Recorder Phil Ting. “Those records are supposed to be filed with this office and many were simply missing or had serious inconsistencies. How can we expect homeowners to have a fighting chance of saving their homes when they can’t even find who currently owns their debt?”
It’s incredible to me how the smallest players could so quickly uncover evidence of foreclosure fraud, and the large institutional regulators choose not to even try. Registers of deeds and county recorders like Ting, Jeff Thigpen and John O’Brien have done more investigative work than most federal agencies. Abigail Field, a freelance reporter working for Fortune, did more by going to the local courthouse and finding that Countrywide did not properly engage in the securitization process of sending notes to trusts than practically any Attorney General. As Adam Levitin says, this shows that the only barrier to a real investigation of the mortgage industry is will.
The San Francisco City Assessor’s audit also serves as a benchmark for evaluating the Federal-State servicing settlement. The San Francisco City Assessor managed to accomplish in a few months what the Federal government and state Attorneys General weren’t able to do in nearly a year and a half with far greater resources at their disposal: perform a credible investigation of foreclosure documentation with serious implications about the securitization process in general. That’s a lot of egg on the face of Shaun Donovan, Eric Holder, Tom Miller, et al. The SF City Assessor report shows that it really wasn’t so hard for a motivated party to undertake a serious investigation. And that raises the question of why the largest consumer fraud settlement in history proceeded with virtually no investigation.
The lack of investigation was the compelling criticism that led the NY and DE AGs to stay out of the settlement for quite a while. I’ve never heard an answer as to why no serious investigation. As the SF City Assessor’s audit shows, the documentation is all a matter of public record. It’s not that hard to do, especially if you have the resources of the federal government. So the resources were there. The capability was there. So why no investigation? The answer has to lie with lack of motivation. Were the Feds and AGs scared of what they would find if they delved too deeply into the issue?
As Levitin points out, Ting uncovered more serious irregularities than just robo-signing. He found that the public assignments differed from what was represented to investors in SEC filings, a clear case of securities fraud. Ting also found that the foreclosure data didn’t match MERS records on the loans, which breaks the chain of title and really drives a stake through the heart of the public land recording system in America, something that separates modern civilization from its antecedents, according to economist Hernando de Soto. Ting also found that 59% of the assignments he looked at were filed after the Notice of Default. In other words, the documents were essentially generated after the decision to foreclose. 59% of all documents were back-dated, too.
Gretchen Morgenson has a good story in the New York Times about all of this, as does Yves Smith. In general terms, there are parts of the mortgage business, unseemly parts, that most state and federal regulators don’t want to deal with. They don’t want to regulate in those areas because it would show the banks to be operating a massive criminal enterprise. And nobody wants to deal with the Gordian knot of broken chain of title. They just don’t want to go there. Levitin chalks it up to a social problem, with the political leadership of the country too close to the financial leadership, “and unwilling to call out criminal acts by their peers.” There’s also an economic worldview element, as people like Tim Geithner cannot envision waking up to a world without Bank of America. So rampant criminality, and the destruction of the largest market in the world, gets swept under the rug.
Hoping at this late date for some meaningful action on these issues seems like a pipe dream, but this data would be useful to the RMBS working group investigation, and I hope Eric Schneiderman read his New York Times this morning.
Foreclosure In California A Crisis of Compliance
February 2012 | Final Report | 22 pages | pdf
http://www.sfassessor.org/modules/showdocument.aspx?documentid=1018
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about 2 months ago
It just got more widespread than ever.
. Foreclosure – MERS is DEAD, ILLEGAL by NY Court
Date: Mon, Feb 20, 2012 at 6:53 AM
Subject: MERS is DEAD –
Attached is the Memorandum of Law that puts the FINAL NAIL in the BIG BANKS!
New York’s U.S. Bankruptcy Court Rules MERS’s Business Model Is Illegal –
Feb. 16, 2011
http://www.huffingtonpost.com/l-randall-wray/new-yorks-us-bankruptcy-c_b_824167.html?view=print
http://www.huffingtonpost.com/l-randall-wray/new-yorks-us-bankruptcy-c_b_824167.html?view=print&comm_ref=false
United States Bankruptcy Judge Robert Grossman has ruled that MERS’s business practices are unlawful. He explicitly acknowledged that this ruling sets a precedent that has far-reaching implications for half of the mortgages in this country. MERS is dead. The banks are in big trouble. And all foreclosures should be stopped immediately while the legislative branch comes up with a solution.
For some weeks I have been arguing that MERS is perpetrating foreclosure fraud all across the nation. Its business model makes it impossible to legally foreclose on any mortgaged property registered within its system — which includes half of the outstanding mortgages in the US. MERS was a fraud from day one, whose purpose was to evade property recording fees & to subvert 5 centuries of property law. Its chickens have come home to roost.
Wall St. wanted to transform America’s housing sector into the world’s biggest casino and needed to undermine property rights to make it easier to run the scam. The payoffs were bigger for lenders who could induce homeowners to take mortgages they could not possibly afford. The mortgages were packaged into securities sold-on to patsy investors who were defrauded by the “reps and warranties” falsely certifying the securities as backed by top grade loans. In fact the securities were not backed by mortgages, and in any case the mortgages were sure to go bad. Given that homeowners would default, the Wall St. banks that serviced the mortgages needed a foreclosure steamroller to quickly and cheaply throw families out of the homes so that they could be resold to serve as purported collateral for yet more gambling bets. MERS — the industry’s creation — stepped up to the plate to facilitate the fraud.
The judge has ruled that its practices are illegal. MERS and the banks lose; investors and homeowners win.
Here’s MERS’s business model in brief. Real estate property sales and mortgages are supposed to be recorded in local recording offices, with fees paid. With the rise of securitization, each mortgage might be sold a dozen times before it came to rest as the collateral behind a mortgage backed security (MBS), and each of those sales would need to be recorded. MERS was created to bypass public recording; it would be listed in the county records as the “mortgagee of record” and the “nominee” of the holder of mortgage. Members of MERS could then transfer the mortgage from one to another without all the trouble of changing the local records, simply by (voluntarily) recording transactions on MERS’s registry.
A mortgage has 2 parts, the “note” and the “security” (not to be confused with the MBS) or “deed of trust” that is usually just called the “mortgage”. The idea behind MERS was that the “note” would be transferred from seller to purchaser, but the “mortgage” would be held by MERS. In fact, MERS recommended that the “note” be held by the mortgage servicer to facilitate foreclosures, but in practice it seems that the notes were often lost or destroyed (which is why all those Burger King Kids were hired to Robo-sign “lost note affidavits”).
At each transfer, the note & mortgage are supposed to be “assigned” to the new owner; MERS claimed that because it was the “mortgagee of record” and the “nominee” of both parties to every transaction, there was no need to assign the “mortgage” until foreclosure. And it argued that since the old adage is that the “mortgage follows the note” and that both parties intended to assign the notes (even if they did not get around to doing it), then the Bankruptcy Court should rule that the assignments did take place in some sort of “virtual reality” so that there is a clear chain of title that allows the servicers to foreclose.
The Judge rejected every aspect of MERS’s argument. The Court rejected the claim that MERS could be both holder of the mortgage as well as nominee of the “true” owner. It also found that “mortgagee of record” is a vague term that does not give one legal standing as mortgagee. Hence, at best, MERS is only a nominee. It rejected MERS’s claim that as nominee it can assign notes or mortgages — a nominee has limited rights and those most certainly do not include the right to transfer ownership unless there is specific written instruction to do so. In scarcely veiled anger, the Judge wrote:
“According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents.”
Judge Grossman rejected MERS’s arguments, saying that mere membership in MERS does not provide “agency” rights to MERS, and agreeing with the Supreme Court of Kansas that ruled “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant — their description depended on which part they were touching at any given time.”
He went on to disparage MERS’s claim that since in legal theory the “mortgage follows the note”, the Court should overlook the fact that MERS separated them. He stopped just short of saying that by separating them, MERS has irretrievably destroyed the clear chain of title, although he hinted that a future ruling could come to that conclusion:
“MERS argues that notes and mortgages processed through the MERS System are never “separated” b/c beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) (“n the event that a mortgage loan somehow separates interests of the note & the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable”).”
That would mean not only the end of MERS, but also the end of the banks holding unenforceable mortgages because they were not, & cannot be, “perfected”. MERS & the banks screwed up big time, and there is no “do over” — there is no valid lien on the property, so owners have got their homes free and clear.
There have been numerous court rulings against MERS — including decisions made by state supreme courts. What is significant about the US Bankruptcy Court of New York’s ruling is that the judge specifically set out to examine the legality of MERS’s business model. As the judge argued in the decision, “The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court”. In the scathing opinion, Judge Grossman variously labeled MERS’s positions as “stunningly inconsistent” with the facts, “absurd, at best”, and “not supported by the law”. The ruling is a complete repudiation of every argument MERS has made about the legality of its procedures.
What is particularly ironic is that MERS actually forced the judge to undertake the examination of its business model. The case before the judge involved a foreclosed homeowner who had already lost in state court. The homeowner then approached the US Bankruptcy Court to argue that the foreclosing bank did not have legal standing because of MERS’s business practices. However, by the “Rooker-Feldman” doctrine (or res judicata), the US Bankruptcy Court is prohibited from “looking behind” the state court’s decision to determine the issue of legal standing. Hence, Judge Grossman ruled in the bank’s favor on that particular issue.
Yet, MERS’s high priced lawyers wanted to push the issue and asked for the Judge to rule in favor of MERS’s practices, too. So while MERS won the little battle over one foreclosed home, it lost the war against the nation’s homeowners. The Judge ruled against MERS on every single issue of importance. And it was MERS’s stupid arrogance that brought it down.
As I predicted 2 weeks. ago, MERS would be dead within weeks. Judge Grossman has driven the final stake through its black heart. The half of America’s homeowners whose mortgages are registered at MERS have been handed a “get out of jail free” card. Wall St. has no right to foreclose on their property. The tide has turned. It won’t be easy, but homeowners in those states with judicial foreclosures now have Judge Grossman on their side. Those in the other states (just over half) will have a tougher time because they can lose their home before they ever get to court. But the law is still on their side — foreclosure by members of MERS is theft — so class action lawsuits may be the way to go.
MERS is dead, but can the banks survive? There are two separate issues. First, there are the “reps and warranties” given by the mortgage securitizers (Wall St. investment banks) to the investors (pension funds, GSEs, PIMCO, and so on). We now know that a quarter to a third of the mortgages bundled to serve as backing for the securities did not meet stated quality. Worse, we also know that the banks knew this — they hired third parties to undertake “due diligence” to check quality. This was not done to protect the investors, rather, the purpose was to strengthen the bargaining position of the securitizers, who were able to reduce the prices paid for the mortgages. Now, the investors are suing the banks for restitution–forcing them to cover the losses and buy-back the bad mortgages at original price. To add insult to injury, even the NYFed is suing them. That is a lot like having your parents sue you for their inadequate parental oversight of your behavior.
The second issue is that the mortgages backing the securities were supposed to be placed in Trusts (affiliates of the securitizing banks), with the Trustee certifying not only that the mortgages met the reps and warranties but also that the documents were up to snuff and safely locked away. We know they were not. As mentioned above, MERS told the servicers to hold the notes, and many or most of them were destroyed or lost. Further, the notes were separated from the mortgages — making them null and void. In any case, they are not at the Trusts. This means the MBSs are not backed by mortgages, meaning the MBSs are unsecured debt. MERS’s business model ensures that. So, again, the banks must take back the fraudulent securities — paying off the investors.
What can Wall St. do? Well, I suppose the “help wanted” signs are already up at MERS and Wall St. banks: “Needed: Burger King Kids to Robo-sign forged quasi-professional-looking docs”. The problem is that even with tens of thousands of Robo-Kids, Wall St. will not be able to pull off a vast criminal conspiracy on the necessary scale. Think about it: 60M mortgages, each sold ten times, means 600 million transactions and assignments that have to be forged. MERS’s documentation was notoriously sloppy, relying on voluntary recording by members. The Robo-Kids would have to go back through a decade of records to manufacture a paper trail that would convince now-skeptical judges that there is a clear chain of title from the first recording in the public record through to the foreclosure. It ain’t going to happen.
The only other hope is that Wall St. can call in its campaign contribution chips and get Congress to retroactively legalize fraud. That is what they do in those dictatorships that protestors are now bringing down in the Middle East. Is Washington willing to take that risk, just to please its Wall St. benefactors?
about 2 months ago
What do you do, when the County recorder’s office refuses to record a document that meets all the requirements set forth in that type of document? Specifically, I went to file a Notice of Intent to Preserve Interest. This affects interest in real property. Ca civil code 880.030. Nothing in this title shall be construed to:
(a) Limit application of the principles of waiver and estoppel,
laches, and other equitable principles.
(b) Affect the operation of any statute governing the effect of
recording or failure to record, except as specifically provided in
this title.
Nothing I see in in 880.020 suggests that I can not record an interest to preserve and have it recorded. It seems to me that the Recorder has no right to refuse to record my document.