Who Really Owns Your House?

Who really owns your house? If your mortgage was securitized (used as collateral to back bonds that were sold worldwide) and you still owe on it, then the answer may be no one. Literally no one. As a matter of law, it isn't clear if the legal entities used to securitize mortgages can really assert ownership and foreclose on your house. Neither you, nor they, nor a bank, nor a diffuse group of bondholders can claim title. 

So how can banks foreclose on you if you go into default? Legally, they can't. This is the real reason why some of the big banks stopped foreclosure proceedings recently. Although recent stories focued on "robo-signers" signing tens of thousands of foreclosure notices a month, the story of this deeper legal morass is the real reason that bank shares are tumbling: investors are terrified that banks might not even be able to sell off foreclosed properties to cut their losses on mortgage-backed securities. The banks don't own the the underlying mortgages. Nobody does.

Floyd Norris of the New York Times, leads his column on Tuesday with this question: 

Was the great securitization machine that made hundreds of billions of dollars in mortgage loans based on a legal foundation of sand?

And the answer is Yes. 

In chapter 3 of my book, I made a passing reference to a judge's ruling in Cleveland that mortgage "trusts" couldn't actually claim title to homes. It turns out this is a major problem for any mortgages that were processed through MERS, the Mortgage Electronic Registration System, which is really a shell company set up by banks in the 1990s designed to bypass the traditional title registration process. (If you know anyone whose mortgage was processed through this system and who might be headed toward default, now is a good time to alert them to their rights.)

For those who want to delve into the legal details on this, Norris' column refers to a forthcoming paper by Christopher Peterson of the University of Utah Law School (click on the PDF download to read it)  that picks apart the fraudulent legal fiction called MERS, whose slogan is

As Peterson puts it, 

MERS is two-faced: impenetrably claiming to both own mortgages and act as an agent for others that also claim ownership.

MERS no legal right to both foreclose on you (as if it owns your mortgage) and act on behalf of banks (as if it is an agent of banks or trusts, to whom you owe a promissory note, promising to pay off what you owe). It cannot both assert property rights over your house and claim to be acting as a trustee of banks or bondholders who have a lien on your home. It has to be one or the other, but cannot be both. Yet MERS tries to do both. 

When financiers talk to investors, they claim to own mortgages in order to convey the sense that they own what they are selling. But when financiers talk to the government they claim not to own what they are selling so as to not be obliged to pay fees associated with owning it. MERS and its members prevent recording fees from being paid on assignments—that was the whole point of MERS—but then attempt avail themselves of the protection that having taken such an action would have afforded. 

The "whole point of MERS" was attempt to privatize and speed up the process of recording property rights and titles, bypassing local governments and their fees. Meanwhile, as Peterson says, the same giant banks that set up this shell company received massive bailouts while local governments were 

laying off teachers, firefighters, police officers, infectious disease clinic workers, closing criminal detention centers for violent juveniles, and shuttering courthouses.

Maybe this is why people are so mad at incumbent politicians. They know that something is deeply wrong with our institutions. They see that massive global banks continue to profit while ordinary people struggle to get by in local communities. 

Now, thanks to Professor Peterson and others like him, we can see that monied interests captured our institutions and no one really noticed. Globalized finance ran amok while we slept.

Can we wake up and figure out who owns our houses?