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The Secrets of MERS: A Fiasco Unfolds

Or what you do not know can hurt you and many other people badly!

In other words: Welcome to the Massive Mortgage Meltdown

By H. Hinman

Presider,
International Property Title Alliance*

Chief Financial Officer, Senior Legal Researcher and Director of Communications


California Legal Rights Fund, Inc.*

It is more than just the blue-gray and weatherworn house in Denmark, Maine. As the fall
of 2010 becomes the winter of 2011 the secrets – whether they involve widespread
incompetence, fraud or even worse – perhaps the deliberate crashing of the American
economy – regarding MERS (“Mortgage Electronic Registration Systems”, abbreviated
“MERS”) – and its effects – are becoming apparent around the world.

Look at this incredible quote:

"’The whole financial system is becoming a lot less transparent,’ says


Hernando de Soto, a Peruvian economist who has written on the
importance of well-defined property rights. ‘You can't size up risk
anymore.’"i

This is in sharp contrast to what current American Land Title President (ALTA) Anne L.
Anastasi said a little over year ago when she was named President-elect:

“’I am honored to serve ALTA as its president-elect. The coming years


will be pivotal for the title insurance industry,’ said Anastasi, who also
serves on ALTA's Board of Governors and is Chairman of the Abstractors
and Agent's Section for ALTA. ‘We will continue to reach out to
legislators and regulators to educate them on the value of title insurance
and the benefits it provides in assuring property rights. Each day we strive
to make the closing process more transparent for homebuyers and for
those refinancing their mortgages so they understand that title insurance is
not just a product but a process – a valuable process.’”ii

It appears that transparency is transforming into opaqueness. Read on for more of the
mystery.

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On October 8, 2010, Alan Zibel, a Real Estate Writer with the Associated Press, reported
that Bank of America is suspending foreclosures in all 50 states [this is in addition to the
23 so-called “judicial foreclosure” states where this occurred a bit earlier in the ongoing
fiasco].

“Potential flaws in foreclosure documents are threatening to throw the real


estate industry into a full-blown crisis, as Bank of America on Friday
became the first bank to stop sales of foreclosed homes in all 50 states.”iii

Note that Alan Zibel said “the first bank”. Although it has been reported that Bank of
America is resuming foreclosures in 23 states “once documents are fixed” [One wonders
how there can be any easy fixes?]iv, Zibel is hinting that it will not be the last.

In response to the announcement from Bank of America that it is resuming foreclosures,


a “racketing” lawsuit has been filed in United States Federal District Court in Indiana.
This is apparently a RICO action. More about RICO later. v

There is a crisis mushrooming in this country, and it threatens to paralyze the entire real
estate market along with its stream of revenue of many types – and possibly bring down
the entire American economy with it.

This is no understatement.

Here is a small part of an incredible article by Jim Willie entitled “Gold and Silver
Breakout as Fascist Business Model Crumbles, Mortgage Market Fraud” in the The
Market Oracle:

“Some significant events are in progress, extremely important


developments in the grand pathogenesis that reflects the deep decay and
deterioration in the US financial structure. The most recent events
pertaining to mortgage loans, home foreclosures, and disclosed fraud carry
great potential to open extremely wide cracks in the American social
order. Revealed systemic fraud is slowly coming into the open. Civil
disobedience has already entered the arena of popular protest. However,
the recent events surrounding illegal home foreclosure seizure of
properties elevates the exposed fraud to a very clear high new level. This
is a boil ready to break open, releasing financial puss.”

The article then goes on to discuss various points including various RICO actions –
which the powers that be would like to keep under wraps – and includes this startling
quote:

“Recent cases threaten to encourage the Strategic Defaults and highly


charged Civil Disobedience which could actually contribute in powerful
ways to commercial chaos, popular disorder, public disruptions, creeping
distrust, and even systemic failure.”

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(Further quote from this article and cite below.)

In the Washington Post article of October 7, 2010 entitled “In foreclosure controversy,
problems run deeper than flawed paperwork” by Brady Dennis and Ariana Eunjung Cha
features this amazing quote by Janet Tavakoli, founder and president of Tavakoli
Structured Finance, a Chicago-based consulting firm.

"Banks are vulnerable to lawsuits from investors in the [securitization] trusts,"vi

Janet Tavakoli is the author of the book “Dear Mr. Buffett: What an Investor Learns
1,269 Miles from Wall Street”.

Warren Buffett paid her a very high compliment:

“Janet Tavakoli should have been listened to much more carefully in the
past… and will be in the future.” [Emphasis in original.]

At the core of it all is MERS, a concept of bundling and securitizing loans. What is
going on continues to astound me – and may just astound you as well.

According to my source, a senior merchant banker who is oriented towards global


development in Eastern Washington State, well over 60 million homes and untold
numbers of commercial properties appear to be affected because over what is essentially
a decade of time corners were cut, documents were lost – or perhaps deliberately
destroyed.

If my Northwest United States source is correct, there will be an attempt to pick out a
handful or two of scapegoats, the Bernie Madoffs of the hour, to be sacrificed for what is
essentially a systemic screw-up.

In contrast to the book “The Black Swan” by Nassim Nicholas Taleb, this was not an
unexpected event. The warning signs were sounded – but almost everyone was too busy –
with their daily lives, with entertainment of all types – from “Dancing with the Stars” to
the latest movie or on set romance to those all important major league baseball pennant
races and playoffs. It all happened in plain sight – if anyone was paying attention to what
was – and is – truly important. This is REAL. It is really happening. The shockwaves
are buffeting Wall Street, Main Street and the worldwide economy.

What is MERS?

Originally Mortgage Electronic Registration Systems or MERS was supposed to


streamline the way that mortgage documents were recorded in the United States.

According to an article by Terry Smiljanich dated April 17, 2009 “Who is MERS and
Why Are They Suing Me?: The Mystery Company that Forecloses on Homes”:

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“MERS stands for “Mortgage Electronic Registration Systems.” Created a
decade ago, it is owned by several of the largest mortgage companies in
America, including Fannie Mae, Freddie Mac, Wells Fargo, Citimortgage,
Chase, HSBC and Countrywide.

“In the heyday of mortgage securitization, when individual mortgages


were repeatedly ‘sliced and diced’ to be sold as securities (the same
securities that are bringing down our economy as we speak), the mortgage
industry created MERS ‘to streamline the mortgage process . . . by acting
as the mortgagee of record for the holders and servicers of mortgages.’

“In other words, MERS made it cheaper and faster for these mortgage
companies to buy and sell loans without all the extra paperwork and fees
they would have incurred had they done it the old fashioned way. The
idea was that while your mortgage was being chopped up, sold and resold
[the so-called “slice and dice”], the ownership interests would supposedly
be electronically tracked by MERS, hopefully avoiding those pesky
recording fees in the county records.”

Those “pesky recording fees” are touched on later in this piece.

Here is the key point in the current MERS Fiasco from the same article:

“With record numbers of mortgages going into foreclosure today, business


for MERS is good. No matter how many times your mortgage might have
been traded, MERS simplifies things for the mortgage industry by suing in
the MERS name as a ‘nominee’ of the actual mortgage company, whoever
that may be. But here’s the catch – MERS still has to prove it actually
owns your loan.” (Emphasis added.]vii

An additional background article – which has been widely cited -- may be found at:

http://foreclosuredefensenationwide.com/?p=175

The nickel version of what happened is described here:

“In the period beginning in 1999 and ending in March of 2008, Mortgage Electronic
Registration Systems Inc., a/k/a/ MERS, has been named as a ‘mortgagee’ on over fifty
million mortgages. Yet MERS has never originated a single mortgage loan nor loaned a
dime to a single borrower.”

This means that MERS has no “skin in the game” and may not have what is called
standing. This means that they are not permitted under the United States of America
system of jurisprudence to maintain a court action.

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Here is what I think is a really juicy quote from further on in this article:

“It appears that after MERS mortgage loans are flipped to the mortgage
backed trusts the promissory notes are not actually delivered to the
trustees. Nor are assignments of mortgages executed and delivered which
evidence the fact the original lender has transferred the debt that is secured
by the mortgage. This leaves the trusts with absolutely no paper evidence
of ownership of the secured debt it purportedly owns. One informed
lawyer who represents homeowners in Florida, April Charney, had
foreclosure proceedings against 300 clients dismissed or postponed in
2007 for lack of standing. She is quoted as saying that ‘80 percent of them
involved lost-note affidavits’. . . They raise the issue of whether the trusts
own the loans at all,” Charney said. ‘Lost-note affidavits are pattern and
practice in the industry. They are not exceptions. They are the rule.’

The assertion that losing the mortgage note paperwork is normal is astounding to me. It
appears to be the work of simpletons, charlatans, fraudsters and/or incompetents.

Continuing the quote:

“Ms. Charney started challenging MERS and it members lost note


affidavits after becoming skeptical of the lender could possibly lose
hundreds of promissory notes.”

April Charney is the Florida attorney who appears to have originally figured what was
going on some three years ago. Now this knowledge is bursting up all over the country,
regarding the cutting of corners, standing and missing documents.

The next paragraph from the same article:

“At least two Florida judges shared Ms. Charney’s skepticism regarding
the copious amounts of MERS lost note affidavits and they issued show
cause orders, sua sponte [the court acting on its own, hopefully in the
interests of justice], challenging MERS to show proof that it held and/or
lost notes in numerous actions. After evidentiary hearings these two alert
judges dismissed twenty nine (29) MERS actions to foreclose for lack of
standing. One judge struck MERS pleadings as being sham.”

But like the United States Federal Reserve System, there are secrets, and secrets within
those secrets – some of them downright ugly.

Here is the most astonishing quote from the Jim Willie article that was picked up by Lew
Rockwell:

“MERS is a property title database, intended by Wall Street and Fannie


Mae to serve as a repository that kept order when mortgage bonds were

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traded fast and furious. In recent court cases in at least three states, the
MERS database failed to attain legal standing in mortgage foreclosure
challenges. The holder of the note (home loan) could not combine with the
MERS database (title holder) to win property seizure. The system began to
unravel. Now in at least one state, the MERS database is directly cited in a
criminal fraud class action lawsuit that invokes the RICO statutes. MERS
is the financial system's Achilles Heel.”viii

The idea that RICO might be aimed at Wall Street probably has the insiders having many
sleepless nights. Will a series of RICO actions across the country be their Achilles
Heels?

Background information about RICO may be found at:

http://en.wikipedia.org/wiki/RICO

Know that RICO is an extremely serious matter. Here is a quote from this wikipedia
article:

“In many cases, the threat of a RICO indictment can force defendants to
plead guilty to lesser charges, in part because the seizure of assets would
make it difficult to pay a defense attorney. Despite its harsh provisions, a
RICO-related charge is considered easy to prove in court, as it focuses on
patterns of behavior as opposed to criminal acts.”

Here is another very telling quote from this article regarding Drexel Burnham Lambert
and a case from some two decades ago:

“Since banks will not extend credit to a firm indicted under RICO, an
indictment would have likely put Drexel out of business.”

Here is another way to look at the basics of the current Massive Mortgage Meltdown:

“In the mid-1990s mortgage bankers decided they did not want to pay
recording fees for assigning mortgages anymore. This decision was driven
by securitization—a process of pooling many mortgages into a trust and
selling income from the trust to investors on Wall Street. Securitization,
also sometimes called structured finance, usually required several
successive mortgage assignments to different companies. To avoid paying
county recording fees, mortgage bankers formed a plan to create one shell
company that would pretend to own all the mortgages in the country—that
way, the mortgage bankers would never have to record assignments since
the same company would always ‘own’ all the mortgages.”ix

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This has lead to a series of qui tam [Latin abbreviation for “who as well for the king as
for himself sues in this matter”x; actions by local officials who feel that they did not
receive fees properly due for property title transfers.

Bloomberg news has recently reported on this in the October 18, 2010 article entitled:
“Foreclosure Crisis Triggers Debate on Role of Mortgage Registry” by Thom Weidlich.

“The company is accused in two whistleblower suits filed this year of


cheating California and Nevada counties out of millions of dollars in
recording fees. In 2006, New York State’s highest court told one county it
had to record MERS mortgages against its wishes. The county said MERS
cost it $1 million a year.

“Several courts have expressed confusion that MERS positions itself as


both mortgage owner and representative of a mortgage owner. That stems
from its use of mortgage language that typically states it is both the
mortgagee and ‘acting solely as nominee for Lender and Lender’s
successors and assigns.’

“Agent and Principal

“’It is axiomatic the same entity cannot simultaneously be both an agent


and a principal with respect to the same property right,’” Christopher
Peterson, a law professor at the University of Utah in Salt Lake City,
wrote in a law-review article about MERS this year.”xi

Look for cash-strapped localities all over the United States – and swift attorneys in those
areas where they can share in the expected bounty to file suit over all the documents that
were to supposed to have been recorded – but either never were – or perhaps they were
created long after the fact.

In dry financial terms, here is what the Group of 20 (the so-called “G20”, comprised of
financial representatives of the 20 of the industrial powerhouses of the world, including
the United States, Canada, the European Union, Russia, South Africa, China, Brazil,
Argentina, South African and Australia) stated on November 15, 2008 – over two years
ago:

“During a period of strong global growth, growing capital flows, and


prolonged stability earlier this decade, market participants sought higher
yields without an adequate appreciation of the risks and failed to exercise
proper due diligence. At the same time, weak underwriting standards,
unsound risk management practices, increasingly complex and opaque
financial products, and consequent excessive leverage combined to create
vulnerabilities in the system. Policy-makers, regulators and supervisors, in
some advanced countries, did not adequately appreciate and address the
risks building up in financial markets, keep pace with financial innovation,

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or take into account the systemic ramifications of domestic regulatory
actions.”xii

Note the reference to “supervisors” in the G20 verbiage. Where were the supervisors?

Amazingly, it seems that virtually everyone was asleep at the switch. Perhaps they were
engrossed with “Dancing with the Stars” or the latest vampire movie or their favorite
soap opera.

Quoting from a June 18, 2007 Forbes article by Brandon Condon entitled “Paper Chase”:

“You're in luck. Your mortgage lender has flipped, sliced and diced your loan--and now
no one knows who holds it.”xiii

What I and I suspect many others would like to know is:

Where were the title insurance companies in all this? [For those of you who do not
know, they are routinely paid for a title insurance policy to ensure a clear chain of title
during real estate transactions. This is sort of like losing track of the chain of custody of
evidence in a criminal case. Remember the O.J. Simpson murder trial in Los Angeles
about 15 years ago?]

Was no one at any of the companies paying attention – especially the supervisors?

In the Spring of 2010, when the situation of “robo-signers” first hit public awareness,
where were they? [For those of you who do not know, these were people who signed
thousands upon thousands of foreclosure documents without proper review.]

Here is a quote from an article by Lauren Tara LaCapra in The Street published on
October 8, 2010:

“Now even the final step in the mortgage death spiral -- foreclosures --
could end up costing banks even more grief as a result of outside
contractors.

“The most current legal mess is the practice of ‘robosigning,’ in which


employees blindly signed thousands of foreclosure documents under oath
without having verified any information.”xiv

Again, this appears to be a failure by many individuals throughout the entire system.
Any attempt to scapegoat a few for this systemic failure will simply lead to further
catastrophes in the future.

Now I am not a real estate attorney, nor I am allowed to give any legal advice. But I
CAN reveal the facts, as I believe them to be.

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However, it is my personal opinion that the MERS Fiasco – be it corruption,
incompetence, fraud or even worse -- may assist in bringing down the entire financial
system of the United States. Note that I used the term fiasco and not crisis, because this
one has the potential to make the long ago Savings and Loan Crisis** look like a mere
trifle.

The first thing for you to do is to ask who – if anyone – holds your mortgage note. This
is called: “Produce the Note”. You might just be in luck!

I would not be surprised if over the next few months the powers that be to attempt to ram
legislation through on the local, state and federal levels to ratify what has happened and is
happening. Watch especially for action by so-called lame duck legislators!

What does this all mean for the general real estate market?

Expect to see a bifurcated real estate market.

Barring some sort of quick fix, the properties tainted by MERS may be tied up in
litigation for years.

But there will be jewels. Properties that did not go through MERS such as seller-
financed property, or is owned free and clear – especially productive farmland and
ranchland.

Or as the Founder of Resilient Freedom Foundation, Kent Hastings said:

“Off grid has never looked better.”

Another way to look at this is: Who will get left holding the bag? The insiders are
counting on John Q. Public and Jane Z. Public to get stuck yet again. Will you let them?

To quote Brock D’Avignon, a real estate analyst with Phone Voter Television Network:

“Just as Ron Paul asked ‘Is there any gold in Fort Knox’, I wonder if there
is any marketable title on Wall Street”.

To quote Janet Tavakoli again:

“Taxpayers have already been saddled with crushing debt that transferred
benefits to those most connected with Washington. Bloomberg News
estimates the financial rescue already approaches $12.8 trillion in
combined lending, spending, guarantees, and commitments. Taxpayer-
subsidized banks that played a key role in getting us into this mess
continue to pay their officers handsomely for failure. There were
alternatives to Washington's largesse: controlled bankruptcy,
conservatorship, and restructuring.”xv

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It will let my friend Geo. McCalip, who has been right on many things over the course of
our friendship, have the last word:

“It dawned on me that there is a possibility – this is only a hypothesis – we


do not have proof -- that the destruction of the original documents in many
of these loans was possibly done to conceal the criminal activity in the
origination of questionable loans. At least it is a convenient coincidence
for many financial institutions that originated the loans.”

[This article is for educational and informational purposes only. Copyright 2011 by H.
Hinman. All Rights Reserved.]

*Title for identification only.

**Background information on this event from the 1980s and 1990s may be found at:

http://en.wikipedia.org/wiki/Savings_and_Loan_Crisis

(That one was pretty ugly, but not nearly as ugly as I suspect this one is going to be! To
paraphrase Gerald Celente: Welcome to the Greater Depression.)
i
Source:

http://www.businessweek.com/magazine/content/10_44/b4201076208349_page_2.htm

ii
Source:

http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&ne
wsId=20091116006747&newsLang=en
iii
The entire article may be viewed at:

http://news.yahoo.com/s/ap/20101008/ap_on_bi_ge/us_foreclosure_mess
iv
[Source: http://news.yahoo.com/s/ap/us_bank_of_america_foreclosures]
v
Source Andrew M. Harris on Bloomberg.com:

http://www.bloomberg.com/news/2010-10-19/bank-of-america-s-countrywide-accused-
of-racketeering-in-homeowners-suit.html
vi
The URL for this article appears to be:

http://www.washingtonpost.com/wp-
dyn/content/article/2010/10/06/AR2010100607227_2.html?sid=ST2010100607251

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vii
The full article may be found at:

http://www.consumerwarningnetwork.com/2009/04/17/who-is-mers-and-why-are-they-
suing-me/
viii
The full article may be found at:

http://www.lewrockwell.com/spl2/gold-silver-breakout.html

Its original source appears to be:

http://www.marketoracle.co.uk/Article23276.html

ix
http://www.washingtonsblog.com/2010/10/what-is-mers-and-what-role-does-it-have.html
x
Source: http://www.quitam.com/id8.html
xi
The complete article may be found at:

http://www.bloomberg.com/news/2010-10-19/u-s-electronic-mortgage-registry-comes-
under-fire-in-foreclosure-crisis.html
xii
Source: http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

xiii
The full article may be viewed at:

http://www.forbes.com/forbes/2007/0618/040b.html

xiv
The complete article by may be found at:

http://www.thestreet.com/story/10883307/1/revenge-of-the-robosigners.html

xv
Source:

http://www.huffingtonpost.com/janet-tavakoli/warren-buffett-and-charli_b_732998.html

Copyright 2011 by H. Hinman. All Rights Reserved.

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