Mortgage Casino - How Homeowners Win
By David Oppenheim
Chicago, IL, USA
Allow me to set the stage. Our story takes place in a democratic society that spent thirty years enacting policies by the super-rich and for the super-rich. In the forefront of the plutocracy are large multinational banks that have taken advantage of a consistent pattern of deregulation and lax enforcement of what laws and regulations remained to operate their businesses as more respectable organized crime syndicates. They feature gambling, loan sharking and, when something is necessary from Congress, legal bribery through campaign contributions.
These operations have transformed what at one time was a straightforward practice of lending money to home purchasers in exchange for an income stream from the mortgage. Today, mortgages are merely a stack of betting chips in the great banker’s casino. The banks take the mortgages they enter into and, before the ink is dry, transfer the mortgage to another bank. In some cases, the banks don’t even sell the whole mortgage; instead they transfer pieces of the asset to a number of other banks, pension funds, municipal funds, foreign investment funds and other entities. After all, why put all your chips in the same slot machine? This spreading of the transaction around reduces all incentive for the bank offering the mortgage to ensure that the borrower was likely to be able to pay—as well as removing all traces of a personal relationship between lender and borrower.
What is truly scary is the fact that so many of us are one piece of bad news away from losing our essentials of life: livelihood, home, and health insurance. Nothing, in fact, is quite as scary as the prospect of joining the vast and growing numbers of homeowners whose houses have been foreclosed. There is a little bit of light on that front coming, of all places, from Kansas. No, it is not Dorothy, the cowardly lion or the tin man out trick or treating; it is the Kansas Supreme Court.
In a landmark decision entitled Landmark National Bank v. Kesler, that court held that a company called Mortgage Electronic Registration Systems, or MERS for short, had no standing to bring a foreclosure action. MERS is a company that electronically tracks changes in the ownership of mortgages. Well, MERS was supposed to be keeping track of all the movement so that when it came time to evict some poor homeowner, the banks would know which of them needed to come to court.
Instead, MERS ended up listing itself as the lender on millions of individual mortgages. It tried foreclosing on one Kansas home as it has as a matter of routine practice on so many others. But this time the homeowner fought back and had a clever attorney. That attorney put up a “show me the note” defense, arguing that MERS did not own the mortgage and therefore had no business suing for foreclosure.
Since that decision, a federal judge in New York has similarly thrown out a foreclosure action, and ordered a mortgage dissolved, where the suing bank failed—after numerous opportunities—to produce the note. Could this be a trend? Courts actually sticking up for the rights of consumers after the other branches have thus far shown themselves incapable of doing anything other than shoveling Brinks trucks full of cash to the big banks?
Let’s hope that it is and remains so. Obviously, the big banks will take the bushels of taxpayer money they have been given and use it to pay lawyers to fight homeowners who seek the benefits of these decisions. But these cases are good law. If the bank suing a homeowner for foreclosure could not provide the homeowner a title to the house were the bank to be paid the sum it claims it is owed, the homeowner would receive no benefit from paying—and should not be made to.
Anyone reading this who is in a foreclosure or might be, keep Landmark National Bank v. Kesler in your thoughts. It does not matter what the balance or the past due number is on your statement if the statement’s sender does not have the title to your house. And even if the bank can get its act together and sorts out who left their casino with the title, this issue can be used as leverage to get them to negotiate terms rather than have to spend money legally establishing how it got your mortgage and what it did with the title.
This is a good thing for everyone. Even if Congress will not step in to stop the mortgage note wheeling and dealing among the big banks, the risk that they might end up holding nothing in a court of law may well give them pause before willy-nilly selling off mortgages and hiding behind fronts like MERS. That would ensure that consumers know exactly who is the man behind the curtain.
David Oppenheim is a licensed attorney in Illinois. He graduated from Yale University in 1999 and Harvard Law School in 2002. He is married, with two children.