Stop payment! A homeowners' revolt against the banks
By Christopher Ketcham
Christopher Ketcham’s last article for Harper’s Magazine,
“The Albany Handshake,”
appeared in the May 2010 issue. He is a reporting fellow with the
Investigative Fund at The Nation Institute and the recipient of a grant
from the Fund for Investigative Journalism.
The first slide was cryptic. QUIET TITLE: THE NEW AMERICAN
REVOLUTION, it said. The presenter, a former real estate broker named
George Mantor, promised the words would make sense by the end of the
two-hour workshop. “The revolution takes learning,” said Mantor. He was a
wiry man in cowboy boots with a sunburned nose and hands that shook,
and he described himself as a member of the National Homeowners
Cooperative, a group dedicated to fighting foreclosures and shifting the
burden of mortgage debt “back upon the shoulders of those who invented
it—Wall Street and the greed we all see manifested there.”
Mantor advertised the free event, which took place last
March at the public library in Ramona, California, as an opportunity for
those in attendance to join the NHC and become the “brave pioneers” who
would “take on big banks and win.” About twenty people, old men and
their old wives and a few younger people, had shown up. Many had either
lost their homes or were about to be foreclosed upon.
Mantor’s first recommendation, per slide No. 21, was to STOP
KIDDING OURSELVES. “We are no longer a nation of laws,” he said.
“America’s greatest asset, its middle class, is being intentionally
destroyed. And elections are not the answer. Voting,” he said, “is like
playing patty-cake with a man holding a machete.” Household net worth
was down $12.3 trillion since 2007; the country ranked forty-eighth in
life expectancy worldwide; one half of all American children were
expected to live on food stamps sometime in their lives. Our pensions
were upside down and sinking, our 401(k)s were now “201(k)s,” our home
values could fall 25 percent or more in the coming years.
“Now how is it possible,” asked Mantor, “that Wall Street is
an island of prosperity in this great sea of poverty? Is this what we
want?”
“No,” said a voice in the crowd.
“So how the hell did we get here?” asked Mantor, before
launching into a breathless history of banking deregulation under Ronald
Reagan; how it accelerated in the 1990s under Bill Clinton; how the
Gramm–Leach–Bliley Act of 1999 dropped the barriers that barred
commercial banks from taking on the risks of investment banks; how the
Commodity Futures Modernization Act of 2000 allowed for the
proliferation of derivatives markets; how derivatives formed an “avatar
economy,” a system of illusory value built atop the real economy, in
particular the economy of the edifices in wood and brick and stone that
people like us bought and sold and called home.
Mantor clicked through the slides faster, telling the now
familiar story of the housing boom and bust. Wall Street had packaged
our home loans in derivatives known as mortgage-backed securities so
that the banks could raise more capital for more loans—to anyone and
everyone—to be pooled into more securities to make more profits. The
housing machine, of course, collapsed under the weight of its many
frauds. The result was a recession, bailouts for the banks, and
foreclosures on the homes of the kind of people who had come to listen
to Mantor. He said there were 50 million handguns in America. He talked
about armed struggle, a rising up. He mentioned that a month earlier
there had been a report on Fox News that Al Qaeda planned to target
executives of the banks in New York City. “The American middle class,”
said Mantor, “appears to be getting a new ally.”
But, he told the room, there was another strategy that we
could follow: attack the banking industry with the fine print of real
estate law. For a bank to foreclose on a homeowner, the law requires the
bank to show it owns the loan secured by the mortgage against a house.
To do that, the lender needs to produce a chain of title as documentary
proof that it has legally acquired the loan. This, said Mantor, is where
opportunity beckoned. In the frenzied mortgage markets of the past
decade, the chains of titles on the loans of tens of millions of
homeowners had been “clouded.” If homeowners sued to quiet the
title—demanding proof of who really owned their loan—there was a chance
they could get their house back. They could even separate their house
from the debt against it. The debt then would be unsecured,
non-collateralized, and the bank could not take the house even if the
homeowners never repaid the money. “And why should we pay it? What are
they gonna do?” Mantor struck a defiant pose, his chin out, and rocked
for a moment on the heels of his boots. “The fight going forward is
about the title,” he went on. “We need to do it
together or it won’t work. Pack the courtrooms with quiet-title actions.”
When Mantor finished his presentation, a squat man with a
white beard and a big belly stood up and introduced himself as Charles
J. Koppa, cofounder of the National Homeowners Cooperative and a related
group called Protect America’s Dream. Like Mantor, Koppa had been a
player in the housing game; he had invested in properties, watched them
rise in value, and flipped them, and for many years had worked as a real
estate broker and loan officer in Ramona. But now, he said, he was
organizing a citizens’ movement to oppose the banks, and he urged those
in attendance to join the NHC and Protect America’s Dream. He said he
was organizing a series of public events in Ramona called the Mad As
Hell Seminars, in order “to create a mad outcry across America, starting
right here in Ramona.” Then he handed out a flyer that said “Main
Street demands to KNOW WHO holds their NOTES on their HOMES. ARE YOU MAD
AS HELL?” For a fee, Koppa could lead the revolution.
At the heart of the clouded-title problem is a
Virginia-based company, recently much in the national news, called
Mortgage Electronic Registration Systems. MERS was created in 1995 as a
privately held venture of the major mortgage-finance operators, chief
among them the government-sponsored mortgaging entities Fannie Mae and
Freddie Mac.
1
Its stated purpose was to manage a confidential electronic
registry for the tracking of the sale of mortgage loans between lenders,
which could now place loans under MERS’s name to avoid filing the
paperwork normally required whenever mortgage assignments changed hands.
No longer would the traffickers in mortgages have to document their
transactions with county clerks, nor would they have to pay the many and
varied courthouse fees for such transactions. Instead, MERS was listed
in local recording offices as the “mortgagee of record,” the
in-name-only owner, a so-called nominee for the lender, so that MERS
would effectively “own” the loan where the public record was concerned,
while the lenders traded it back and forth.
This centralized database facilitated the buying and selling
of mortgage debt at great speed and greatly reduced cost. It was a key
innovation in expediting the packaging of mortgage-backed securities.
Soon after the registry launched, in 1999, the Wall Street ratings
agencies pronounced the system sound. “The legal mechanism set up to put
creditors on notice of a mortgage is valid,” as was “the ability to
foreclose,” assured Moody’s. That same year, Lehman Brothers issued the
first AAA-rated mortgage-backed security built out of MERS mortgages. By
the end of 2002, MERS was registering itself as the owner of 21,000
loans every day. Five years later, at the peak of the housing bubble,
MERS registered some two thirds of all home loans in the United States.
Without the efficiencies of MERS there probably would never have been a
mortgage-finance bubble.
After the housing market collapsed, however, MERS found
itself under attack in courts across the country. MERS had
singlehandedly unraveled centuries of precedent in property titling and
mortgage recordation, and judges in state appellate and federal
bankruptcy courts in more than a dozen jurisdictions—the primary venues
where real estate cases are decided—determined that the company did not
have the right to foreclose on the mortgages it held.
In 2009, Kansas became one of the first states to have its supreme court rule against MERS. In
Landmark National Bank v.
Boyd A. Kesler,
the court concluded that MERS failed to follow Kansas statute: the
company had not publicly recorded the chain of title with the relevant
registers of deeds in counties across the state. A mortgage contract,
the justices wrote, consists of two documents: the deed of trust, which
secures the house as collateral on a loan, and the promissory note,
which indebts the borrower to the lender. The two documents were
sometimes literally inseparable: under the rules of the paper recording
system at county courthouses, they were tied together with a ribbon or
seal to be undone only once the note had been paid off. “In the event
that a mortgage loan somehow separates interests of the note and the
deed of trust, with the deed of trust lying with some independent
entity,” said the Kansas court, “the mortgage may become unenforceable.”
MERS purported to be the independent entity holding the deed
of trust. The note of indebtedness, however, was sold within the MERS
system, or “assigned” among various lenders. This was in keeping with
MERS’s policy: it was not a bank, made no loans, had no money to lend,
and did not collect loan payments. It had no interest in the loan, only
in the deed of trust. The company—along with the lenders that had used
it to assign ownership of notes—had thus entered into a vexing legal
bind. “There is no evidence of record that establishes that MERS either
held the promissory note or was given the authority [to] assign the
note,” the Kansas court found, quoting a decision from a district court
in California. Not only did MERS fail to legally assign the notes, the
company presented “no evidence as to who owns the note.”
Similar cases were brought before courts in Idaho,
Massachusetts, Missouri, Nevada, New York, Oregon, Utah, and other
states. “It appears that every MERS mortgage,” a New York State Supreme
Court judge recently told me, “is defective, a piece of crap.” The
language in the judgments against MERS became increasingly denunciatory.
MERS’s arguments for standing in foreclosure were described as
“absurd,” forcing courts to move through “a syntactical fog into an
impassable swamp.”
“What’s happened,” said Christopher Peterson, a law
professor at the University of Utah who has written extensively about
MERS, “is that, almost overnight, we’ve switched from democracy in
real-property recording to oligarchy in real-property recording.” The
county clerks who established the ownership of land, who oversaw and
kept the records, were democratically elected stewards of those records,
said Peterson. Now a corporation headquartered outside Washington,
D.C., oversaw the records. “There was no court case behind this, no
statute from Congress or the state legislatures,” Peterson told me. “It
was accomplished in a private corporate decision. The banks just did
it.” Peterson said it was “not a coincidence” that more Americans than
at any time since the Great Depression were being forced out of their
homes just as records of home ownership and mortgages were transferred
wholesale to a privatized database.
I first met Charles J. Koppa and the other leaders of the
National Homeowners Cooperative at the invitation of Vermont Trotter, a
former logging contractor from Coeur d’Alene, Idaho. Trotter’s home was
being foreclosed on, and he had started a popular blog about MERS. On
the blog, he referred to himself as “V.”—V for vengeance, V for victory,
Trotter wasn’t sure what V stood for (aside from his first name)—and
the guys behind the NHC had contacted him to ask whether V. could be the
spokesman of the movement. “V. is us,” they told him. A few days before
the NHC workshop, Trotter and I met at the San Diego airport before
driving to Koppa’s house in Ramona, about an hour north. He was trim and
tanned and dressed like a ski bum—he’d been out skiing that week—and
seemed untroubled by his situation: fifty-three years old, with a
nine-year-old daughter to support, no job, his savings running out, and
the bank trying to take his house.
After he read about MERS’s legal problems in early 2010,
Trotter looked for MERS on his mortgage papers and found it: as nominee
for Bank of New York Mellon. He called up the bank and told them to “go
to hell.” He was in default already—the logging business had collapsed
with the end of the real estate frenzy. In November 2010, refusing to
budge from his home, he filed suit against Bank of New York Mellon,
demanding that the bank prove ownership of his loan and citing what he
called the “MERS curse” as his defense. He lost in the lower courts, and
appealed. When I met him in March, the Idaho Supreme Court had set a
hearing date for the fall. Trotter was unable to afford a lawyer, so he
was going to argue the case himself. He had studied the case law, and
believed he knew enough about MERS and the mortgage-contract statutes
in Idaho to sway the judges.
As we drove toward Ramona, Trotter told me that the “true
horror” of MERS was what it could do to homeowners who were current on
their mortgage payments—the “good” homeowners who still had a job and
who weren’t facing foreclosure. If there was no legal record of which
bank owned their debt, and the MERS-mortgaged homeowner nonetheless had
been making payments, then who exactly was the homeowner paying? The
checks, clearly, were going out each month, cashed by a bank that
claimed to own the note. But without the legal record to certify the
ownership of the note, it followed that the bank could not legally issue
the homeowner a clear title to the home. In effect, a homeowner with
MERS on his mortgage could spend thirty years paying a lender that
wasn’t the owner of the note. After those thirty years, said Trotter,
when the note was paid off, the homeowner would come to an awful
discovery: without a clear title issued to stipulate that the home had
no claim of debt against it, the homeowner could assert ownership of
exactly nothing. “Because you’d always be looking over your shoulder,”
said Trotter. “Some other lender could come and say, ‘No,
we
owned that note. You paid the wrong guy.’ ” When this realization came
to him, Trotter was alone in front of his computer—the house was dark;
his daughter was asleep—but he said he nearly screamed. “With MERS,” he
said, “nobody owns anything. You’re only paying rent.”
As a logging contractor, Trotter had spent a lot of time in
title rooms at county courthouses. His work there was a matter of due
diligence: he needed proof, for his own indemnity, that the owner of the
land he was being asked to log was in fact the real owner and could
claim the right to cut timber there. The title searches involved paging
through documents that sometimes went back to the 1880s, when the
original land grantor was the U.S. government.
You couldn’t sell real estate without a clear title,
explained Trotter. Title-insurance companies will not insure the sale of
a house when the title’s status is unclear, and without title
insurance, there can be no home sales. “It means that the mainstay of
our economy, real estate, is no longer viable.” He pointed out the
window at the houses in the San Diego hills and spoke about the Peruvian
economist Hernando de Soto. “De Soto says that free enterprise fails in
third-world countries because they have no reliable real-property
recording system. No one knows who owns what. What do the Israelis do
when they take over parts of Palestine? They destroy property records.
And the bureaucrats can tell you, ‘I’m sorry, sir, but there’s no record
of that.’ ”
When Trotter and I arrived at Koppa’s house, it was a warm
spring afternoon, and Koppa was on his porch with a beer, yelling into
the phone. “By God, I’m going to hang up this phone, as I have done
before,” he shouted into the receiver, “because this is unfair and this
is America and in America you have to document what you do.” Koppa had
once owned eleven investment homes in San Diego County, three of
which—at a loss of what he said was more than a million dollars—were
foreclosed on by lenders using MERS. A couple in Ramona had hired him to
fight a foreclosure brought by SunTrust Bank, which had apparently lost
their note in the MERS system. The couple, Larry and Karen Graham, had
paid a lawyer $2,500 to take on SunTrust, but the lawyer, they said, had
“done absolutely nothing” to help. The Grahams then called Koppa,
though he had no law license and could not represent them in court. His
only power was to pester SunTrust, and to conduct what he called a
“title audit” to find any breaks in the chain of title.
Koppa hung up, having gotten nothing he wanted from
SunTrust, and turned to me, waving a digital recorder: “The sixteenth
hour of tape with these people. They’re going to jail. Fraud and lies,
fraud and lies.” Trotter and Koppa, meeting for the first time in
person, talked awhile. Then we all sat on the porch, joined by a tall,
grim, white-haired man named Steve Campbell, who had been in the
mortgage business for thirty-three years—for Citibank, Wells Fargo, and
Norwest—and had once owned a house in Las Vegas but lost it in a MERS
foreclosure. Koppa and Campbell had met at a foreclosure-defense seminar
in Phoenix, in the winter of 2010, and they had talked about “taking on
MERS.” Koppa had an idea for a homeowners’ cooperative, “like the
cooperatives of the Great Depression, when people will reach out to a
neighbor when they no longer trust the government, the businessmen, the
bankers.”
The two men combined forces. Self-trained in website design,
Campbell built a site that they called the National Homeowners
Cooperative/Protect America’s Dream. They read George Mantor’s column in
National Real Estate Investor and got him to join. Then Trotter
signed up. They reached out to lawyers, realtors, journalists, anyone
who would listen. They envisioned hundreds of thousands—and eventually
tens of millions—of MERS homeowners banding together to mount lawsuits
against the banks. They talked about “saving the country one real estate
parcel at a time.”
They would provide a service to each of those homeowners,
but they wouldn’t do it for free. They were broke. “An army travels on
its stomach. You got to feed the people in the movement,” Trotter told
me. “You got to eat if you want to destroy the banks.” To monetize the
NHC the group offered, at a cost of $1,139, a “primary title analysis”
that they claimed members of the cooperative could use in court to
pursue foreclosure defense, or, as Trotter hoped, to pursue a case of
quiet title whether they were being foreclosed on or not.
Koppa would be the lead investigator in the title audits,
and he would train other investigators. The NHC would feed homeowners,
title analysis in hand, to lawyers, and the lawyers would be thankful
for the clients. The organization would have state directors, and each
state director would have subdirectors looking for homeowners in
distress, and when they brought in people who purchased the title
analysis, the money would be spread among all parties who had had a hand
in drawing new “clients” into the movement. It was to be a proper,
vertically integrated enterprise.
Later that evening, after Koppa and Trotter went to sleep,
Campbell and I sat down to look at the websites he had spent a year
building. First, though, he wanted me to see the house in Las Vegas he
had once owned. He clicked through photographs. The place had nine
rooms, three fireplaces, granite countertops, refinished oak cabinets, a
massage chair and a treadmill and king-size sleigh beds and big TVs and
an air-hockey table. “I did the lighting,” he said, “and the
electrical, the concrete work, the landscaping, brand-new French doors, a
tiled courtyard, dug the holes in the yard, planted the trees, laid out
sixteen tons of gravel, wheelbarrowed it all in myself, put in $12,000
custom-made awnings and Sunburst blinds, an outdoor firepit so you could
sit out in the wintertime, redid the hot tub. Invested over $150,000. I
put labor into that house. You’ve never owned a home”—I told him I
rented in New York City—“so you can’t understand how personal this all
has been.”
When the housing market crashed, Campbell lost his job, and
then, in September 2010, the house. His wife divorced him, and he ended
up living with Koppa and his wife at their house in Ramona. He lingered a
moment over the photos, then clicked over to the websites. The National
Homeowners Cooperative was the initial portal, and here people could
find out—“with no charge,” he said—whether they had MERS on their loans.
“Almost every homeowner is attracted, because they’re gonna be curious:
Do I have MERS?” MERS homeowners could find other MERS homeowners and
form “neighborhood alliances.” Then the user was prompted to Protect
America’s Dream and thence to a site, also run by Koppa and Campbell,
called HERSID, which stands for Homeowner Examinations of Recordations,
Securitizations and Intermediary Documentations. The homeowner, in order
to proceed, was then asked for money.
I asked Campbell if he didn’t see a problem in taking cash
from homeowners who were already financially distressed. He spun around
to face me. “Do you blame us for wanting to make a product and charge a
little something from the homeowner and maybe even help them? We have to
survive! And maybe we can do it without hurting anyone.” By this point
he was yelling so loudly I was worried he would wake the others. After a
pause, he continued in a quieter voice. “Because capitalism, you know,
is about hurting people,” he said. “It wasn’t capitalism that built this
country, it was entrepreneurialism—you made a product and people
needed it and it helped them, it made their lives better. The true
definition of capitalism is those who seek success by the demise of
others. True capitalism is the destruction of your competitor. We’re
entrepreneurs.”
He clicked on a link on the NHC website that led to a clip from his favorite film,
Network. “You know
Network?
Prophetic.” On the screen was the figure of the crazed evangelizing
newscaster Howard Beale, in his famous freak-out scene—Beale in a
soaking-wet raincoat over his pajamas. “We’ll start the Mad As Hell
Seminars with this,” said Campbell.
“I want you to get mad,” said Beale on the screen. “I’m a
human being, goddammit! My life has value! So, I want you to get up
now”—Campbell nodded his head, and his leg began to tremble—“I want all
of you to get up out of your chairs. I want you to get up right now and
go to the window, open it, and stick your head out and yell—”
Campbell paused the video: “This is what I’ll do to my
audiences. We’ll have Mad As Hell meet-ups. And on the website we’ll
have Mad As Hell calendars.” There were plans for Mad As Hell T-shirts
and Mad As Hell buttons and Mad As Hell baseball caps—an entire Mad As
Hell storefront—along with Mad As Hell Tuesdays on the website, when V.
would post a new piece of writing and the pages would turn red from 6:00
a.m. until midnight.
On May 12 of last year, Sheila Bair, the head of the Federal
Deposit Insurance Corporation, testified in a prepared statement before
the Senate banking committee about “promoting the stability of our
financial system.” One of the “systemic risks” to stability that Bair
singled out was the problem of clouded title, though she didn’t identify
it as such. She spoke of “flawed mortgage-banking processes” that had
“potentially infected millions of foreclosures,” of “a historic
breakdown in U.S. mortgage markets,” and she noted that “we do not yet
really know the full extent of the problem.”
The extent of the problem is, however, increasingly clear.
April Charney, a foreclosure-defense attorney in Florida who is an
expert on MERS, wrote me recently to warn that the mortgage market was
now suffering from “an incurable case of economic HIV.” The
clouded-title infection, she said, “is not limited to mortgages where
MERS is nominee for the originating lender.” Whereas MERS had created
breaks in the chains of title for tens of millions of loans, she said,
the same breaks were increasingly evident for any mortgage that was
securitized—which represents the great majority of home loans in the
United States today.
One example is the case of Antonio Ibanez. In 2007, Ibanez
defaulted on the mortgage for his Springfield, Massachusetts, home and
was foreclosed on by U.S. Bank. The bank then applied before the
Massachusetts Land Court for a “quiet title” action to show that the
bank alone owned the property. The Land Court declined to quiet the
title. Ibanez’s promissory note was not assigned through the MERS
system, nor was MERS named as mortgagee of record; yet the deed and the
note for his mortgage nonetheless had been separated before his note was
assigned to a securitized trust. A lender called Rose Mortgage had
originated the loan, then sold it to Option One Bank, which sold it to
Lehman Brothers, which sold it to Lehman’s fully owned subsidiary
Structured Asset Securities Corporation, which pooled the loan into
Structured Asset Securities Corporation Mortgage Pass-Through
Certificates, Series 2006-Z, whose investors were now alleged to be
the owner of Ibanez’s note. U.S. Bank was appointed trustee of the
securitized trust, to enforce the payment of the notes, and, if
necessary, to foreclose on defaulting homeowners such as Antonio Ibanez.
The deed had been legally transferred once, while the note
had been moved multiple times, without legal assignment under
Massachusetts statute, from bank to bank and then to the Lehman trust.
As a consequence, U.S. Bank, acting as an agent of the investors in the
Lehman trust, did not have the right to foreclose on Ibanez. The Land
Court returned ownership of the house to Ibanez, and in January 2011 the
Massachusetts Supreme Judicial Court upheld the decision. Bank stocks
plummeted on news of the high court’s ruling. Reuters called it a
“housing-market catastrophe risk” and reported that the case had
unleashed a “bank-eating cancer.” It was unclear whether Ibanez still
owed money to any lender, as the factual “beneficiary” of his note could
not be determined. He had, in effect, gotten a house for free. The
Ibanez decision was retroactive, and it could be applied to most of the
securitized loans in Massachusetts.
Charney has closely examined the decision in Antonio
Ibanez’s case. As the case progressed through the Massachusetts courts,
the banks had three years to produce the note showing ownership of the
loan, but they were not able to do so. Charney has defended hundreds of
foreclosure cases in Florida state courts but said she has yet to see
one securitized mortgage in which the loan documents were legally
transferred to the trust. She said the evidence also points to
investment banks having pledged loans into multiple trusts in order to
double-sell the loans to investors—which, if true, would constitute
securities fraud. She suggested that investors in mortgage-backed
securities had bought “nothing-backed securities,” “empty-sack trusts,”
tranches of ethereality, worthless in the real world.
The consequences of all this could be cataclysmic. Pension
funds, mutual funds, sovereign-wealth funds, insurance companies,
municipalities and state governments, along with government-sponsored
entities such as Fannie and Freddie, purchased an estimated $7 trillion
worth of mortgage-backed securities during the past decade. If they in
fact bought empty sacks, their likely recourse would be to sue the banks
that sold them the fraudulent securities, a process that has already
begun. In April 2011, the Federal Home Loan Bank of Boston filed a
securities-fraud suit against Bank of America, CitiGroup, Goldman
Sachs, J.P. Morgan, Capital One, Barclays Capital, Credit Suisse,
Deutsche Bank, and numerous other lenders and servicers involved in the
$5.8-billion MBS pool in which it had invested. The bank wanted its
money back, and charged, among dozens of counts of fraud, that “mortgage
loans were not validly assigned, and papers necessary to ensure
enforceability of the mortgage were never transferred to the trustee,”
and that, as a result, what it had purchased in the trust was
“worthless.” Five other Federal Home Loan branches have filed similar
suits. Last June, Eric Schneiderman, the attorney general of New York
State, opened a probe into fraudulent home-loan securitization practices
at Bank of America, Deutsche Bank, and Bank of New York Mellon, and in
October Beau Biden, the attorney general of Delaware, announced a suit
against MERS for “a range of deceptive trade practices that sow
confusion among consumers, investors, and other stakeholders in the
mortgage finance system, damage the integrity of Delaware’s land
records, and lead to unlawful foreclosure practices.” Adam Levitin, a
professor of law at Georgetown University, told me that if the lawsuits
are successful, the banks will be on the hook “for hundreds of billions
of dollars” and will likely go bankrupt.
A few weeks after the NHC workshop, Vermont Trotter emailed
me a twenty-three-page file of court documents relating to a case
brought by a Utah man named Scott Harvey. In 2010 Harvey had filed a
quiet-title action against the alleged owners of his loan, and he had
apparently gotten the debt against his house canceled. Harvey was not
facing foreclosure, had never missed a payment on his loan, and was
never at risk of losing his house. He had done what Vermont Trotter
counseled all Americans to do. “Read the case,” said Trotter. “It’s
simple, it’s beautiful, it works.”
Harvey had hired a Salt Lake City attorney named Walter
Keane, a Chicago transplant who runs a one-man office, to argue his
case. In his brief, Keane borrowed language from Kansas’s
Landmark
decision: it states that MERS had effected “a split of the note and
deed of trust,” making “the latter [a] nullity,” and that therefore the
debt should be “stricken from the chain of title.” Keane also cited a
statement by the Salt Lake County recorder of deeds, who said that MERS
was potentially “the scam from hell.” MERS never responded. Nor did the
alleged lender. Nor did the trustee for the lender. The judge, finding
no disputed facts, handed Harvey the house. The owner of the debt, the
true beneficiary, was unknown, and whether Harvey would have to pay back
the loan was not for the court to decide.
When I met Harvey and Keane at a seafood restaurant in Salt
Lake City, they were having drinks with another Salt Lake City
homeowner, Mike Waters, who was fighting foreclosure by Bank of America.
Waters, a real estate investor with five children, said Bank of America
had offered him a loan modification after he lost his job in early
2010, then canceled the contract because the bank admitted it didn’t own
the loan and had no right to negotiate the modification. Eighteen
months later, in March 2011, after Waters filed a lawsuit alleging
breach of contract, the bank suddenly reversed itself and claimed that
it did in fact own the loan. Waters had closed hundreds of real estate
deals but had never experienced anything like this. Then he read about
MERS, which was listed on his deed of trust, and made it the focus of
his ongoing lawsuit. Bank of America offered him a cash settlement to
drop the suit and sign a nondisclosure agreement, but Waters refused.
Scott Harvey had also been in real estate for many years.
When he discovered that his loan had been sold by the originating
lender, Garbett Mortgage, to another bank—and when no record of this
transfer could be found in the Salt Lake County Recorder’s office—he had
an “epiphany” not unlike Vermont Trotter’s. “I asked myself, ‘Who owns
the note? Am I just paying rent?’ ” Like Waters, he found MERS named on
his deed of trust, and thereafter, like Waters, and like Trotter, he
learned all he could about MERS. With the help of Keane, Harvey had
escaped a $130,000 debt, had resold his house for $155,000—the court had
given him clear title to do so—and walked away. He bought another
house, where, in October of 2010, he moved with his wife and daughter.
“People, you know, are looking at me like I’m gaming the system,” Harvey
said. “Like I got away with something. But the system is what’s gaming
us.”
Keane was in a celebratory mood. He ordered lobster-stuffed
shrimp and a filet mignon and more wine. “We are gaming the system as
much as the motherfucking banks are,” he said, and laughed so
explosively that the diners at the next table turned to stare. When he
first arrived in Salt Lake City six years earlier, he had struggled to
survive in his practice. “Then I read the
Landmark case. And I
said, ‘Fuck, I can do this.’ I’m making four times the amount I made in
my best year. I fuck the banks! I love it! I’ve got roughly, what,
twenty to thirty new clients a month seeking quiet-title actions naming
MERS.” In the previous ninety days, he had grossed more than $150,000.
“I only take MERS cases. I don’t think there’s a basis in law for me to
go after the banks if it’s not a MERS mortgage.”
Keane raised a glass of red wine. “So thank you,
motherfucking banks. You now have Walt Keane as a crotch-cricket on your
ballsack, and I have sunk my fangs. I am the Darwinistic response. The
banks have scattered all these corpses across the land—real estate
properties where chain of title is broken, where there’s no fucking
record—and natural selection has selected Walter the fucking lunatic to
clean them up and adapt to this new environment.”
“That’s right,” said Harvey, whose voice was an order of
magnitude quieter than Keane’s. “It’s time to adapt. What we’re doing,
what Walt is doing, is only forcing the banks to obey the law. Why
should they be able to disregard centuries of land-titling statutes?
Awareness is the first step of adaptation. How is this country going to
evolve if people don’t even know what’s going on?”
I asked Harvey how much he’d paid Keane in attorney’s fees
to get his house free and clear. “Thirteen thousand dollars,” Keane
answered for him. “I wrapped that cash around my cock and danced around
the room. It was the easiest fucking money I’ve ever made. I got into
this MERS game because I’m a capitalist and I wanted to make money.
There’s nothing altruistic here.” When he finished his steak, though, he
did pay for everyone’s dinner.
At the end of September, I went to see Vermont Trotter argue
his case before the Idaho Supreme Court. The hearing was held in an
empty auditorium at the University of Idaho, in the city of Moscow, and
Trotter, who hadn’t slept the night before, sat alone in an ill-fitting
suit at a table that held a pitcher of water and a glass that he didn’t
touch. Three lawyers, representing MERS and Bank of New York Mellon, sat
on the opposite side of the room, talking breezily. Over the previous
weeks, MERS had been faring unexpectedly well in the courts. On August
31, the U.S. District Court for the Northern District of Georgia had
dismissed a class-action lawsuit against MERS. On September 7, the U.S.
Court of Appeals had tossed out a class-action suit brought against the
company by Arizona homeowners. Two days later, the Alabama Supreme
Court affirmed that MERS could foreclose on homeowners in that state.
And by September 13, two California appellate courts had upheld the
legality of MERS foreclosures. Trotter had read about all these
decisions, and tried to ignore them.
The judges filed in, and Trotter stood. The matter, he said,
came down to sloppy recordkeeping. “The most glaring deficiency in this
entire action,” he said, was that MERS had not executed an assignment
of the deed of trust. “Where is that document? It’s not part of the
record before this court. The County Recorder of Deeds couldn’t find it
either. I asked! . . . It must be in a secret drawer. Doesn’t that
defeat the purpose of publicly recording documents?
“Does it matter,” he went on, “whether documents filed in
the public record have any authenticity? Or is an impressive but
defective scorecard of cases from all over the United States, is that
enough to deprive Idaho homeowners of their property and of their
rights?”
Trotter sat down, and Bob Pratte, the attorney for MERS,
rose and stated that Trotter had “fundamentally misapprehended” Idaho
mortgage and contract law. But the heart of his argument was simpler:
“The consequences of finding that MERS cannot be a beneficiary would be
hugely problematic,” he said. “It is important to understand that if
MERS can’t be a beneficiary under a deed of trust, it doesn’t just
affect the five or ten percent of the population that doesn’t pay their
loans, it affects every transaction. It affects everything
they”—MERS—“have done. If they can’t be beneficiary for one purpose,
they can’t be a beneficiary for any purpose.” Trotter’s challenge to
MERS, said Pratte, would “upset” the “fundamental integrity of
negotiable instruments and security instruments” in Idaho, and, if that
challenge were upheld, “there would be broad consequences.” Pratte was
appealing, in the end, to the power of the status quo, and the
fearsomeness of the abyss beyond it.
In 1942 the economist Joseph Schumpeter, in his book
Capitalism, Socialism, and Democracy,
asked, “Can capitalism survive?” Schumpeter thought the prospects
weren’t good, in part because corporate capitalism had resulted in a
diminished sense of real-property ownership. The “capitalist process,”
wrote Schumpeter, substitutes “a mere parcel of shares for the walls of
and the machines in a factory.” It thus produces an “evaporation of what
we may term the material substance of property—its visible and
touchable reality. . . . Dematerialized, defunctionalized and absentee
ownership does not impress and call forth moral allegiance as the vital
form of property did.” Real property could be seen, held, cared for,
protected, preserved; real property gave to the holder of the title his
“will to fight, economically, physically, politically.”
After Trotter’s trial, I drove eighty miles north to Coeur
d’Alene, where he lives near the lake around which the town is built. I
wanted to meet him at his house, but he said we should meet at my hotel
instead. We drove around. “I really want to see your house,” I said.
“I’m thinking about it,” he said.
Finally, after much persuading, we pulled up in front of a
split-level cedar-sided home, about 1,800 square feet, that had a
basketball hoop and a white garage and a bedroom over the garage and big
trees towering over a field of tall grass that abutted the driveway. I
thought we’d go inside, and reached for my door handle, but Trotter
said, “Don’t get out. There are things in there sacred to me, things I
cannot show you.”
I asked him about the trees. “Oh, let’s see, that’s a
forty-year-old ponderosa there, maybe sixty-five feet, and those there
are red fir—big-ass trees, serious money, one hundred foot easy—and
those there are maples, and I got some locusts. It’s the land. Where you
awaken to the land is where you belong. It talks to me. I’ve got a
flock of thirty wild turkey that come wandering through, and one night, a
cold night, I saw three deer, three buck, outside my bathroom window. I
could see their racks. They’ll bed down right in that field. And the
birds, the birds, the birds—the crows, the blue herons, seagulls,
eagles—and the black squirrels, acrobatic like nobody’s business:
wheeee!
from tree to tree. And in the spring, the flowers bursting with color.”
He paused a moment, looked out the window at his house. “The land, they
stole the land.”
Trotter’s case is still pending. He might get lucky, like
homeowners in Massachusetts and Kansas, and get his home back, or it
might be seized like so many others and moved from one side of a bank’s
spreadsheet to another. The question before the Idaho court, and
everywhere else, is when is the possibility of a cataclysm not a threat
to be feared, but an opportunity to be embraced.
Getty Images -WSJ
Picture **
Was Mortgage Electronic Registration, Inc. ( MERS)
involved in your foreclosure action?MERS claims that over 60 million
mortgages in the U.S. have been registered on its system. Given the
action MERS took it will be much harder now for lawyers to argue in
court that assignments made only on the MERS registry are legally valid.
Unfortunately, for any of these 60 million mortgages that were
securitized, chances are the various assignments along the way to the
trustee were not recorded on local government records. This now means
the chain of title is “clouded”, and such uncertainty affecting tens of
millions of mortgages is the last thing the housing market needs.
Sellers and buyers don’t know if the title will be clear of any other
claims should they engage in a transaction, and homeowners might not
even know if they are making monthly payments to the right bank.
Was any of the following Law Firms listed below involved in the foreclosure on your home:
Yesterday
New York Attorney General Eric Schneiderman filed suit against JP
Morgan Chase for the actions of Bear Stearns (which it acquired in 2008)
surrounding the issuance of $87 billion in residential mortgage backed
securities.
