Financial Institutions Stole Americans’ Money, Created the Foreclosure Crisis, and Clouded Title to Real Estate ─ How’s that for Plutocracy in Action?

© 2010 Peter Free

 

22 October 2010

 

A better example of plutocratic excess you will not find

 

In law, proving real estate title is sacrosanct.

 

But the same institutions that played with incomprehensible financial instruments (thereby effectively stealing Americans’ money), also diced mortgage loans, so that real estate ownership cannot now be easily traced.

 

Who caught them?

 

Ordinary lawyers trying to get a semblance of justice for their average person clients.

 

Lower court judges who understand that these institutions are making a mockery of the laws that protect us from chaos.

 

Defaulting on a mortgage loan is not good, but allowing Institutional Greed to cloud title is a direct attack on our American system of law

 

Until recently, Americans did not realize how cavalierly the plutocratic institutions that made mortgage loans treated centuries of real estate law.

 

In the current foreclosures crisis, we begin to recognize the depth to which these institutions believe they literally own the entirety of American democracy.

 

If this episode doesn’t scare us, we’re not paying attention to the evaporation of our finances and freedoms.

 

Background ─ no clear chain of title, real estate law ignored

 

Washington Post reporters wrote:

 

Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.

Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.

 

 

© 2010 Brady Dennis and Ariana Eunjung Cha,  In foreclosure controversy, problems run deeper than flawed paperwork, Washington Post (07 October 2010)

 

Dennis and Cha pointed out that the core of the problem lies with the Mortgage Electronic Registration Systems (MERS).  It was created more than ten years ago by the giants of the mortgage industry.  MERS ignored property laws that required new forms and filing fees every time a loan moved from one owner to another.

 

From my perspective as a lawyer, those laws are on the books to verify each step in the chain of real estate title.  Ignoring them makes tracing title difficult or impossible.  The result is that nobody provably knows who owns, or is owed, what.

 

Paul Krugman weighed in on the mortgage issue a week later:

 

These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

 

© 2010 Paul Krugman, The Mortgage Morass, New York Times (14 October 2010) (italics added)

Splitting loans into pieces and sending them hither and yon was not good

 

It should be obvious that, if failing to properly record the ownership of an entire mortgage loan is a problem, splitting it into pieces and failing to record the ownership of each piece is even more problematic.

Sometimes unfair personal consequences resulted

Professor Krugman pointed out that many “borrowers are being defrauded.”

They are being charged fees that should not have accrued.  Some have been declared in default, even though they followed the terms of their loans.

Bad national economic consequences for everybody else

Dennis and Cha concluded that, if substantial numbers of foreclosures are held illegal, banks will probably be sued by:

 

(a) homeowners who took out home loans

 

and

 

(b) investors who hold now near worthless mortgaged-backed securities.

 

Legal and financial confusion could last for years.

 

Can it get any worse?

 

Yes.

 

The institutions that made the loans and clouded real estate titles are the same ones the Government bailed out in 2009.

 

The mortgage crisis may create another financial crisis.

 

Based on recent history, guess who is going to pay for this potential second crisis.  The same people who were screwed the first time around.  You and me.

 

Ain’t plutocracy great?

 

Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”

 

© 2010 Gretchen Morgenson and Andrew Martin, Battle Lines Forming in Clash over Foreclosures, New York Times (20 October 2010)

This is what happens when we permit oligarchs and plutocrats to buy our democracy.

 

The consequences to freedom and personal financial success are similar to those that prevailed, when Americans decided they had had enough of the British monarchy and royalty’s regal prerogative to steal from the American people.

 

The arguable difference today is that we are being subjugated by the financial elite, not a hereditary nobility.

 

The negative consequences to us, however, are the same.