Do you really own the home you are living in? That question might not be so easy to answer these days. The recent announcement of the national “mortgage settlement” underscores the importance of property law here in Texas, and across the United States. There are numerous studies noting the importance of property rights as a cornerstone of a free and prosperous society. Notable figures such as John Adams and Thomas Jefferson expounded on the importance of property rights many years ago:
“Property, is surely a right of mankind as real as liberty.” (John Adams)
The Fifth Amendment in the Bill of Rights states:
No person shall be…deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
As Realtor, I understand why people want to own a home. Home ownership provides a sense of freedom, achievement and personal validation. A home is also a store of value for many families, comprising one of their largest investments in many cases. While I certainly don’t have anything against renting a home, there’s just something “American” about owning a home. The housing crisis and subsequent developments have turned that notion on its head. The The idea of a home as an investment has been proven to be a nightmare for many, and the concept of home ownership has been damaged by an epidemic of fraud and abuse, circumventing traditional standards of due process in America.
What we’ve witnessed in recent decades is a slow-moving train wreck which has damaged property rights and made home ownership a moving target. The development of MERS and the electronic mortgage registry system was an evolution of convenience, trashing centuries of sound practices of land recordation in the United States for the sake of exponential growth in securitized financial instruments. In the past few decades we have witnessed the birth of myriad complex finanicial instruments. The mortgage-backed security helped create a machine to feed Wall Street. The resulting damage of this profit-driven system has left millions of American’s wondering just what they actually own or who they owe.
I’ve referenced this before, but the MERS trademark says it all… “Process Loans, Not Paperwork“. Think about that for a minute, and ask yourself if that system has benefited American homeowners. According to the Department of Justice and 49 state AGs, the 5 largest banks using the MERS system, along with LPS (Lender Processing Services) and DocX cousins, are simply guilty of some bad judgement and we should all just agree to cut them a break and move along with our lives. There are plenty of warning signs suggesting that would be a really, really bad move.
“I think MERS poses a grave threat to title”
“MERS is a disaster. Even conservative economists (see Hernando de Soto) have long written that the U.S. public recordation system is one of the reasons that the U.S. rose to become the world’s strongest economy. The real estate lenders, however, for the sake of avoiding a few filing fees, decided to essentially replace the brilliantly successful public system with their pervasively fraudulent private system. MERS cannot survive any serious national investigation, but the foreclosure fraud settlement suggests that they will not face a serious national investigation.”
“The broader point is that the entire rubric of “relief for homeowners” is a fig leaf for a useless and moderately harmful (but it could have been far worse) settlement. A real investigation and prosecution plus civil suits v the massive mortgage origination fraud would have provided far greater relief for homeowners. More to the point, the true liability for their frauds of at least four of the five big banks in the settlement is so large that they are insolvent. They should be placed in receivership and the FDIC should immediately have led to appropriate, vastly greater relief if the goal is to help the victims of the fraud and get the housing markets going again.”
Just last month it was revealed that the U.S. Attorney General, Eric Holder, along with Lanny Breuer, head of the Justice Department’s criminal division, were partners for several years at the Washington law firm of Covington & Burling. Covington was a key player in the creation of MERS, providing legal opinion letters in the late 1990s on behalf of Fannie, Freddie Bank of America, JP Morgan Chase and several other large banks. Our own U.S. attorney’s involvement in the creation of a fraudulent system goes a long way towards explaining why there has been scarce investigation of the financial crisis and virtually no criminal prosecutions for those who caused it.
Raymond Brescia, a visiting professor at Yale Law School who has written about foreclosure practices said, “I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history.”
It seems the only real investigations going on lately have been by local officials. The San Francisco assessor-collector recently audited 400 foreclosure files, discovering that roughly 85% of the cases had serious or outright illegal issues. Last year, the register of deeds for Massachusett’s Southern Essex District found that of a pool of 473 audited mortgage loans, 83 percent included erroneous documentation making it impossible to to know which mortgage company owned the loan. Jeff Thigpen, the register of deeds in North Carolina’s Guilford County, found similar problems. His office looked at 6100 mortgage documents issued from January 2008 to December 2010, finding that 74 percent had problems with forged signatures and fraudulent documents. His office even published the list of offenders online. The issues in Essex County, San Francisco, and Guilford County are the same things going on across the country. The fraud is there for any regulator or AG who bothers to look.
So what are we to make of the recent “landmark settlement” in terms of property law and home ownership? We can either take it for what it is, or we take it as a call to action. I would propose that the foundation of property law in the United States demands a more rigorous investigation into the financial crisis and accountability for those who enabled it, as well as those who covered up the crimes. Anything less than that will only sow the seeds of the next crisis and leave more American’s wondering just who owns their mortgage and their home. Holding on to the status-quo and the devolution of a fraudulent, degenerate system has the potential to leave many homeowners in the same position as those MF Global customers who thought their money was safe in supposedly segregated customer accounts. Everything was fine; until it wasn’t.
“The schemes of the monied interests depend on the mispricing of risk, and the public remaining asleep while their wealth is quietly transferred, until one day they wake up and find that their accounts have been looted. And surprise, the money has simply vaporized. Fill out these claims and stand over there. We’ll give you something, whatever scraps are left over after the oligarchs, bankers, and their politicians have taken their fill. I saw it happen in Russia, as their empire crumbled. And I am seeing it happening now.” Jesse – Cafe Americain