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Posted at 10:51 AM ET, 12/ 2/2010

Congressional hearing: Do banks lack the legal standing to foreclose?

By Ariana Eunjung Cha

A state judge, law professor and consumer attorneys are testifying before Congress that in many cases the banks trying to foreclose on borrowers do not have the legal standing to do so, according to prepared remarks.

New York State Supreme Court Justice Dana Winslow said Thursday in written remarks that "standing has become such a pervasive issue" in the cases he sees "that I frequently use the term 'presumptive mortgagee'" to describe the entity trying to foreclose.

Winslow described a litany of problems with documentation about mortgages that go far beyond the "robo-signing" that led to the current uproar over foreclosures. He said it's unclear whether MERS, the electronic system used by the majority of lenders to record mortgage assignments, gives it the right to foreclose, as well as whether trusts -- where many mortgages wound up after they were pooled and traded -- also have that right.

However, Winslow acknowleged that "the judiciary may have inadvertently contributed to the creation of the foreclosure crisis, by accepting, without question, the submissions of lending institutions seeking foreclosure," Winslow said.

The hearing before the House Judiciary Committee chaired by Rep. John Conyers (D-Mich.) is the second on foreclosures this week. During a hearing Wednesday by the Senate Banking Committee, Fannie Mae and Freddie Mac blamed mortgage servicers for causing the current foreclosure crisis.

On Thursday, Conyers emphasized that as of last year, about 2.5 million homes were lost to foreclosure and that current projections estimate that as many as 13 million homes will be lost to foreclosure by the time the current crisis abates.

"Yet the big Wall Street firms, other mortgage lenders and servicers, and Fannie Mae and Freddie Mac - all of whom received taxpayer bailouts to the tune of billions of dollars over the last couple of years - have in many instances turned a blind eye toward homeowners in similar financial distress," he said.

University of Utah law professor Christopher L. Peterson raised further questions about MERS in his written remarks, saying the system has a "problematic legal foundation" because it undermines state recording laws.

Calling MERS a "deceptive" and "anti-democratic" institution because it allows 20,000 people who are not its employees but rather employees of mortgage lenders, servicers and law firms to sign mortgage paperwork in its name, Peterson argued that the practice clouds the ownership of the loan.

"How is a homeowner to understand with whom they can negotiate a settlement, or from whom to obtain additional information or how to distinguish a legitimate employee from the thousands of mortgage related con artists and charlatans?" he asked.

Merscorp, which owns MERS, and the financial services industry have said the legality of the system they use to track and transfer mortgages has been upheld by numerous court cases.

Peterson called on Congress to bar Fannie Mae, Freddie Mac and Ginnie Mae from purchasing MERS-recorded loans--echoing legislation introduced by Rep. Marcy Kaptur (D-Ohio) last month.

Joseph R. Mason, a banking professor from Louisiana State University, said legislation may be necessary to clarify the status of MERS.

"MERS presents two main risks in the current marketplace," he testified. "The first regards whether MERS has legal standing to foreclose in its own name. The second is whether loans recorded in MERS can be foreclosed at all."

Thomas Cox, a pro bono attorney from Maine, took one of the depositions of Ally Financial "robo-signer" Jeffrey Stephan, who triggered the recent uproar. Cox refuted claims by banks that they are foreclosing only on borrowers who are hopelessly behind in their payments.

"I hear and see reports of wrongful foreclosure actions on virtually a daily basis," Cox said in his written testimony.

Here are links to testimony by Cox, Deutsch, Peterson and Winslow.

Bloomberg VIDEO on MERS.

By Ariana Eunjung Cha  | December 2, 2010; 10:51 AM ET
Categories:  Congress, Housing  
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Comments

University of Utah law professor Christopher L. Peterson raised further questions about MERS in his written remarks, saying the system has a "problematic legal foundation" because it undermines state recording laws.

MERS does NOT have any legal foundation, problematic or otherwise, because it has no standing to "undermine" state recording laws; instead, it simply ignores the law. MERS, by ignoring the laws to which it is subject, has become nothing more than an instrument of organized swindlers and racketeers.

It's just a damned shame that all the big banks that used MERS to carry on unlawful business have abandoned the protection of the law, invalidated their own mortgage contracts, and rendered themselves effectively insolvent. The "putback" liability associated with MERS-based securities dwarfs the banks' asset bases.

You can't just go back and write law to retro-actively endorse MERS, either, because that woulld amount an ex-post-facto abridgment of the rights of home owners. The fact that the banks committed fraud after fraud in originating and servicing the American mortgage market is simply not the home owners' fault.

Personally, I have zero sympathy for the swindlers who created this mess, and believe that we are witnesses to a true and just reckoning of the corruption and criminality of our banking system. Banks rendered insolvent by this crisis should not be bailed out again, except through receivership, and the prosecution of the bank managers and executives responsible.

Posted by: lonquest | December 2, 2010 1:52 PM | Report abuse

wow - great to see authoritative parties like a NY Supreme (!) and law prof call out the fraud-closure scumbags.
banks have mounted well-organized public relations campaigns for months - perpetuating the "no free houses for deadbeats!!" mania that has prejudiced the public against the end-of-the-line *victims* of the housing meltdown.
no more checks for banks, Florida. hold the line.
pay your taxes, insurance and maintain your home.
they can rework you, there is money set aside for you to have prevailing interest rates. your tax money paid for the program the bank is opting to ignore.
make them pay attention. stop feeding the beast.
No.More.Checks.

Posted by: FloridaChick | December 2, 2010 2:35 PM | Report abuse

Currently the banks are breaking the law. I expect Congress to pass a law retroactively legalizing their conduct.

Posted by: Anonymous | December 2, 2010 2:40 PM | Report abuse

While some wrongfully blame Fannie and Freddie (the GSEs) for the housing bubble (whether through ignorance or political partisanship--probably the later), the GSEs have to take their share of the blame here. They pushed MERS, thus giving the banks an excuse to not correctly track the paperwork. That the GSEs thought they could create a private alternative to public land records shows a toxic combination of ignorance and arrogance.

Posted by: Garak | December 2, 2010 2:42 PM | Report abuse

While some wrongfully blame Fannie and Freddie (the GSEs) for the housing bubble (whether through ignorance or political partisanship--probably the later), the GSEs have to take their share of the blame here. They pushed MERS, thus giving the banks an excuse to not correctly track the paperwork. That the GSEs thought they could create a private alternative to public land records shows a toxic combination of ignorance and arrogance.

Posted by: Garak | December 2, 2010 2:43 PM | Report abuse

Yes matter of fact. Here is what the
Foreclosures & Chain of Title
"Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper...only the "note-holder" has legal standing to ask a court to foreclose and evict. Not the mortgage, "the note", which the actual IOU that people sign, promising to pay back the mortgage loan.

Posted by: JWTX | December 2, 2010 3:29 PM | Report abuse

I think the banks are going to find out soon that MERS was a very, very bad idea. I dare Congress to grandfather any legislation that provides banks with immunity on this issue. If BofA, Wells Fargo, Citi, and the other corrupt banks who failed to follow the law go under than the new system will be a stronger, better system. We have bailed out our last bank. Any legislator who tries to protect banks at the expense of homeowners and taxpayers will lose their job.

Posted by: Desertdiva1 | December 2, 2010 6:01 PM | Report abuse

A question: if we cannot establish who holds the note for foreclosure proceedings, then how to we establish who holds the note when a mortgage is fully paid?

This may be just a beginning.

Posted by: OldUncleTom | December 2, 2010 6:24 PM | Report abuse

"A question: if we cannot establish who holds the note for foreclosure proceedings, then how to we establish who holds the note when a mortgage is fully paid?

This may be just a beginning."
---------------------------------
Uncle: Couldn't agree more. And if you've been making your mortgage payments to the wrong party - any release from said party is worthless; and the person with "standing" can still foreclose! And I heard that separating the note from the mortgage nullifies the foreclosure rights of the note holder! I hope to see that clarified!

All this is avoided if the mortgage (and associated note) are recorded per established state law in the local county courthouse. But then they can't be securitized and sliced and diced and sold to investors/suckers in Iceland and Norway for big commissions!

Posted by: shadowmagician | December 2, 2010 6:49 PM | Report abuse

Cox's testimony is worth reading. "The King is law" - NA Banks, the Fed and the OCC have deliberately hacked democracy. My experience with the OCC demonstrates how eager they are to confound consumers trying to achieve even a modicum of fairness. Banks play games and get away with it - the OCC assists and approves: "Get over it" - as one person at the OCC said. I'm not over it! Wake up Washington.

Posted by: Algo1 | December 2, 2010 11:27 PM | Report abuse

If you are in a home and want to refinance, 2 things are absolutely key. First, you must have meaningful equity in your home. Second, you must have a good credit score. But in this economy if you do not have both of them still you could get a good rate, Search online for "123 Mortgage Refinance" they gave me the lowest rate of 3.45% my credit history is not so good.

Posted by: Anonymous | December 3, 2010 1:44 AM | Report abuse

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