Really!?!?! Empty trusts are becoming a problem? I know the paper trail is becoming a problem but I didn’t realize that conveyance had not occured. I know that the conveyances were not frequently recodrded because it was expensive but the conveyance came with an agreement that the originator would exercise remedies for the holder (the originator is usually also the servicer). I am surprised to hear that conveyance hadn’t even occurred, that borders on professional negligence and probably violates the securities laws.
That IS pretty astounding. I understand that a lot of the rodents on Wall Street are greedy bastards, but I never would have accused them of being sloppy too. Whatever happened to taking pride in your work?
From what I can tell, MERS isn’t really the problem in the latest fiasco. The problem seems to be primarily that the banks are supposed to have someone review the foreclosure file and swear that to the best of their knowledge the information provided therein was accurate. This didn’t happen. In my opinion, the problem seems to be that the people initiating the foreclosures didn’t follow procedures. It looks like the mistakes fall under a few categories.
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The people reviewing the files had far to many files to review. One person can’t accurately review ten thousand files in a month. It just isn’t possible.
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They didn’t sign the affidavits in front of a notary. This pretty much invalidates the affidavit and seems to be the main fuck-up that is affecting the majority of the foreclosures.
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The law firms handling the foreclosures are trying to run document mills with far too few people to handle the volume of work. In my opinion, this is the worst part of it. Lawyers have an ethical duty to review the with the Court is accurate.
This is Virginia’s requirement and most states have something very similar. The federal courts have Rule 11 which is almost identical. Looking at the amount of litigation that each attorney was handling, it seems difficult to believe that they could really review the files accurately. The fact that staff at this firms were forging documents and backdating them is appalling and they need to have the book thrown at them.
However, getting back to the original topic, the issue isn’t with MERS per se. From the Wikipedia cite on MERS, the majority of courts have upheld MERS’s ability to do what they do. The issue is that people aren’t following procedure. From what I can tell MERS will file and assignment to the bank who currently holds the mortgage when the time comes to foreclose.
You’re glossing over a lot. Why are the banks engaging in foreclosure shenanigans in the first place? Because the notes weren’t properly conveyed and the mortgages weren’t properly assigned. Why? Because the mortgage industry wanted to make securitization easier. MERS is at the center of this. MERS’ raison d’être is to provide the players a way to keep track of the transactions without having to pay all the county fees, or put the notes into the securities at the time they were formed like they’re supposed to be, or pay the salaries of experienced and competent bank personnel. Courts initially rubber-stamped the MERS foreclosures, but now they’re waking up and realizing that MERS has no standing.
The banks know there are fatal defects in their ability to claim ownership of the notes and standing to foreclose. That’s why they’ve been getting caught in so many lies to the courts. The problem is either too expensive to fix (really, it’s the true cost of business finally showing up), or they can’t actually fix them.
I’m finding this discussion of the mechanics of creating MBS’s very educational. It seems that somebody is screwed however this shakes out. Although if it gives banks an incentive to write down principal on all of those underwater loans, it could have a positive effect. I can’t say anything surprises me anymore though.
More on MERS from salon.com: A foreclosure mess of their own design. From the article, quoting Christopher Peterson (law professor):
I’d never heard of MERS prior to this thread. So, as disturbing as it is, at least I’m learning something.
Also, more on the foreclosure mess from dailyfinance.com: Did Robo-Signing Lawyers Knowingly Commit Fraud in the Foreclosure Fiasco?
I don’t think that I am glossing over anything. If it is operating properly MERS shouldn’t be an issue. The issues with robosigners aren’t MERS, they are sloppy file management. The numbers that these firms are handling are frankly oustanding, and I am sure that this is the tip of the iceberg in terms of screw ups. I don’t think that MERS is really the biggest issue however.
For the most part, the Courts have upheld MERS’s ability to do what they have done. Take a look at the string of decisions about MERS in the wikipedia article. I’m not going to paste it in because that will violate fair use. With one exception, they have upheld MERS’s standing in court. I’ve looked through my loan docs and the information about MERS is right in there.
It will be more expensive for the banks to do this right. Meaning that they will need to hire more law firms than they have now and those law firms will have to process fewer foreclosures than they are processing now, but realistically that is the cost of doing business.
Having just read both, your comment reminded of the end of the robo-signing foreclosure article I mentioned:
Depressingly, however, I don’t think that anything so positive (or even neutral) is likely. 
You are glossing over everything if you don’t think MERS is an issue. Off the top of my head, I’m aware of state supreme court decisions in Kansas, Arkansas, and Maine ruling against MERS, as well as in the bankruptcy courts. That Wikipedia entry is nowhere near complete. Like I said, courts initially gave MERS foreclosures the rubber stamp because they were overwhelmed with foreclosure cases. Now the tide is turning.
And MERS might be in your loan docs, but you aren’t understanding what I’m saying. Read this New York decision to get a better idea of what I’m talking about. MERS is a mere nominee of the true party in interest, with the limited task of having the MERS assignment officially recorded with the county (so that afterwards any sale of the loans can be tracked solely on MERS). MERS isn’t an agent of the banks buying or selling the loans, therefore they lack the necessary privity to convey them. So when a bank walks into court and says “this is our loan, it was sold to us by another bank through MERS,” the courts are dismissing the cases because MERS has no legal authority to convey the notes to anyone; there’s no proof of agency. All the robo-signers and other stuff you’re talking about is nothing more than the banks trying to ram this crap through the courts as fast possible, either because they can’t find the note, or because MERS was involved and screwed up the chain of transfer.
The robo-signors and the sloppy law firms are what has stopped foreclosures in most states. MERS isn’t the cause of those issues.
I read the decision and it does seem that Judge Schack doesn’t buy MERS’s argument, however, those cases haven’t made it to the Court of Appeals. I do find that the standing argument may have merit under New York law, but am curious as to what the Court of Appeals will do. The one case that did make it to the Court of Appeal in New York concerned whether the Clerk of Suffolk county was required to accept Mortgage assignments under New York law. The Court there found that the clerk did have to accept MER’s mortgages for purposes of recording. Merscorp, Inc. v. Romaine, 861 N.E.2d 81, 8 N.Y.3d 90 (N.Y., 2006)
I think that the Kansas decision will be more troubling for MERS in that they found other grounds to decide the case, but the Court indicated a skepticism with the assignments of the mortgages under the MERS system. Unfortunately finding decent coverage of the cases is tricky in that most of the hits come from foreclosure defense blogs which may be a bit biased.
My impression is similar to yours. While there are certainly errors, the larger problem seems to be banks and law firms not hiring enough people to process the foreclosures.
With taht said, there was some really sloppy work done with some of the securitizations which is surprising considering how much the law firms were paid to cross the t’s and dot the i’s.
But why are they behaving so sloppily in the first place? They’re not doing it for kicks. If all their ducks are in a row, there’s no reason to try and ram these through while the courts are asleep at the wheel.
It’s certainly not all because of MERS. Like I said, there are instances of originators not conveying the notes and then going bust. Those notes are probably in a file cabinet somewhere. But where MERS is involved (and there’s something like 60 million mortgages registered in MERS), banks are finding that they need to fudge paperwork to try and establish their standing to foreclose.
Because they are farming it out to law firms that the banks are sending the foreclosures to are operating document mills and they aren’t hiring enough people to do the job. The reason that they aren’t hiring enough people is that hiring more people cuts into the profits that the owner of the firm is making. The volume that they are handling per attorney isn’t reasonable. From the descriptions, the attorneys are just handed a file and are showing up in Court. The work is being kicked down to paralegals if the firm is good or as is more likely someone who isn’t properly trained to prepare the documents correctly. Some of the descriptions make it sound like they are filing the cases as soon as they get the information without waiting to receive the supporting documentation. They probably have way more paper than they can handle, or perhaps the document custodian hasn’t given them the file yet.
From what I can tell, these foreclosures aren’t terribly tricky cases* and there really isn’t much variation in the cases. The temptation is take more and more of them and to farm it out to junior folks and support staff. The firm owner can then reap the profits. The firms can get themselves in trouble because the attorney is the one whose name is on the pleading and is the one that can get sanctioned by the court.
The reason that the banks are cutting corners and not doing things properly is because these folks don’t generate a profit and the banks think that they are saving money by dumping a huge load of work on very few people. Human nature being what it is, the banks tried to cut corners and save money by not having a large department who process these things. They dumped ten thousand documents on Jeffrey Stephan to review. From what I’ve seen, none of these folks received proper training and supervision.
- I don’t do foreclosure work, but have friends who do.
I agree with MOIDALIZE the MERS system is a significant cause of the whole mess the banks are now in.
Here’s a nice thorough article on the title issues MERS creates: TWO FACES: DEMYSTIFYING THE MORTGAGE ELECTRONIC REGISTRATION SYSTEM’S LAND TITLE THEORY.
Some highlights:
- MERS purports to act as a nominee and the mortgagee at the same time.
- thousands of employees of the banks executing documents as ‘vice-presidents’ of MERS.
- purporting to convey the mortgage separately from the note in contravention of long-standing authorities saying that doing is void.
- by attempting to avoid paying document registration fees the entire MERS system is an attempt to evade tax.
Seriously, read the article its well worth it.
As a non-US lawyer I find it quite staggering that the US banking system thought it could circumvent land title systems by setting up a shell company and registering all mortgages in its name. All to save on registration costs at the land titles offices. It’s absurd and horrific at the same time.
As horrible as the system was, encouraging mortgages with little opportunity of paying them back, the swaps are even worse. Swaps were insurance policies on the loans. they could not sell them as insurance because insurance has regulations. So they bribed our politicians into allowing them to escape They called them swaps. But the fact that swaps were equivalent to 10 ten times the money that existed in the world, tells you they knew they could not pay them off if things went bad. That is outright fraud. You can not justify that at all. But of course they get to walk and obtain huge bonuses and salaries. Screw them, they should be facing prosecution.
Well credit default swaps would have been fine if financial institutions followed what used to be industry standard credit practices. Instead they traded these derivatives with very little concern over counterparty risk and variation margin requirements. Goldman Sachs famously claimed that they would have been made whole on their AIG exposure because there was collateral so they weren’t “actually” beneficiaries of the AIG bailout, well there wasn’t. In theory AIG was SUPPOSED to maintain collateral and Goldman bought insurance against AIG’s default from other parties but in the end it would have been insufficient to make GS whole by any stretch.
http://www.nytimes.com/2010/07/24/business/economy/24goldman.html?_r=1