B.L. Zebub: “OK everyone, listen up. The last time we had a conference call, there seemed to be an undue amount of bickering and finger-pointing between Liz Pendens, representing the title industry, and Dee Faulting representing the lender servicing industry. By the way, Dee, you outdid yourself this month. I heard some of our employees talking about how you saved up thousands of default notices and sent them all out on March 15th. For the Shakespeare aficionados on this call, that’s the “Ides of March”, which, as the soothsayer predicted, was a very bad day for Julius Caesar. Brilliant, Dee, mixing business with pleasure again! Anyway, to save time, I will identify those in attendance besides Dee and Liz. Of course, my trusty “Della Street” is here, Lucy Furr, will be taking notes again for us today. As before, there are to be no recording devices used – we only turn them on to secretly record frustrated homeowners after telling them we’ve denied the loan mod they were waiting on for 14 months. We replay the tapes for the Belial Bank’s Holiday Party. [Laughter] M. T. Remick, of the securitization industry is here, along with our intern, Les Guile, who apparently found the last conference call a real eye opener. Isn’t that right Guile?”
Les Guile: “You got that right, sir. Before that call, I had no idea the lending, servicing, securitization, and title industries were all in bed together…well, er, actually, er, I mean, they all have overlapping business models. If something happens to one of them, it affects all of the others in some way. Anyway, sir, I want to thank you again for allowing me to sit in – I’m sure it will be another ‘eye-opener.’”
B. L. Zebub: “Well, Guile, you’re in for a treat today. There are two more attorneys on line with us. We have with us today, Hugh Bruss, one of the original legal minds behind the MERS business model. I asked Hugh to join us today because after some recent court decisions in Oregon and elsewhere, MERS is starting to look something like a pinata at a party. So, I thought he might want to give us all some assurances that MERS will be around for a long time. And I’ve also asked our lead bank counsel, Damien Faust, to be here today. Damien had mentioned a while ago that he had made some kind of secret “deal” with someone that should give us all some protection on the legal front. I want Damien to enlighten us about his big secret, and let us know what it’s going to cost us – since everything seems to have a price these days. Let’s start with Hugh – can you tell us about the current status of the underground record keeping business today – just kidding Hugh, I know you don’t like it when I refer to MERS’ system of voluntary registrations that way. Just wanted to lighten up the tone around here.” [Snickers]
Hugh Bruss: “Well, we’ve had some hits and some misses. By now, you’ve all heard of our Oregon setbacks. But we’ve got a Plan B. In Oregon they have a trust deed foreclosure law that contains a little glitch for us – it says that before banks can foreclose a family out of their home, the bank must first record all of the successive trust deed transfers, from first to last. Unfortunately….”
Les Guile: “Excuse me Mr. Bruss – sorry for interrupting. But before this conference began, I checked Oregon’s foreclosure law. That “little glitch” you’re referring to has been on the books for several decades – probably forty years or more. I thought that MERS had a legal opinion from one of those white shoe law firms in Washington D.C., that said its business plan of voluntary registration – instead of mandatory recording – was perfectly legal. Even though Oregon’s statute doesn’t say when the assignments have to be recorded, it’s pretty obvious, it has to occur before foreclosure. If I’m going to learn anything as an intern at Belial Bank, I’ve gotta ask – how’d you guys miss this one? It certainly can’t be the only law in the nation requiring that mortgage and trust deed transfers be recorded on the public record.”
Hugh Bruss: “Well, before I answer, let me suggest you use a little more finesse in your questions, Guile. I understand you’re still in law school, so you’re not a lawyer yet. Once you pass the Bar, you’ll have a license to be rude, but not before. Anyway, we’re sorta scratching our heads on how this law got overlooked. But you are correct, Oregon’s law has been around for a while – long before you were born. It seems we paid a lotta money to a senior partner in the firm for a legal opinion he said he could deliver. But he turned it over to a junior partner, who turned it over to a senior associate, who turned it over to a junior associate, who turned it over to a summer intern, who rendered the opinion. The opinion came over the signature of the senior guy, so we thought it had been thoroughly researched. Seems, however, no one checked the state laws….”
Les Guile: “Excuse me, sir – do I understand this right? This opinion was written by a summer intern!? Those are the kids who spend their summer vacations being wined and dined by the big law firm recruiters! They spend more time on raft trips than research. Everyone knows that real estate laws are state-specific – not national. That intern must have been from the Grenada International School of Law. I know I’m not yet licensed to be rude, Mr. Bruss, but not checking state laws seems like a real bone head mistake. I hope MERS got its money back.”
Liz Pendens: “Well fasten your seat belt Les, we’re in for a rough ride. For all of you on this conference call, let me put a fine point on the mess MERS made. By taking all of the trust deed assignments underground, it means that unless the original assignments can be found, foreclosure can’t be lawfully completed in Oregon. At least that’s what Judge Alley seems to be saying in the McCoy case.”
B.L. Zebub: “Well isn’t this great! You mean that Oregon families will get to stay in their homes even longer now? Folks, we need a solution and we need it now. Pendens, you and Dee Faulting are going to have to work together. Here’s what I want you to do. Faulting, you tell all of your foreclosure companies, you know, the ReconTrusts of the country, to terminate all of their foreclosures. No public announcements, no press releases, no nothing. Do it under the radar. I’m sure the press will pick it up, but if they ask, you issue a “No Comment.” And Pendens, I want you to tell all of your title insurance underwriters to stop issuing title guarantees for all bank REO sales. We’ll make those Oregon judges regret they ever thought they could push us around.”
Dee Faulting: “I think I see the plan! This is brilliant, B.L.! So with all the foreclosure sales stopped, and the title companies refusing to insure title from the bank REOs, everything will come to a halt. Banks won’t foreclose in Oregon since they’d be void under McCoy. Banks won’t sell their REOs because they can’t convey title they never legally acquired after the foreclosure. And since there would be no title insurance available for buyers who want to purchase the REOs, everything stops. It reminds me of The Day the Earth Stood Still I saw when I was a kid! The banks are like Gort – just more evil! I knew if we worked together we could come up with something. And Liz, this is where you’ll come in: You will run down to the Oregon Legislature, wringing your hands – sorry Liz, but you are a real hand wringer – and say that commerce will come to a halt. You’ll tell them Oregon’s foreclosure crisis will be prolonged, since a few federal judges have forced the banks to play by these silly little laws. Then, you carry a pro-MERS bill down there. But whatever you do, don’t use the word “MERS.” The bill should just use words like “nominee” or “agent” – those Oregon hayseeds won’t figure it out. Oregonians are more worried about being green, than being smart – they’ve fallen off their bicycles once too often! [Laughter] Then you get a politician to introduce a “friendly amendment” in some pro-consumer bill, and, in the vernacular – gut and stuff it. By the time anyone has figured things out, we’ll get a bill passed that legislatively reverses those bleeding heart liberal judges in Oregon. Oh, and by the way, make sure the bill is retroactive, so we can magically turn thousands of “void” foreclosures into legal foreclosures. Otherwise, we’ll have to contend with potential quiet title lawsuits for years. Are you on board with this, Liz?”
Liz Pendens: “I feel like I’ve been gut and stuffed. This is sick! Tell you what Dee, I have a novel idea. Why don’t you and the other servicers start granting real modifications and put short sale consents on a fast track. Knock off the games, stop losing the paperwork, quit pretending your “investor” is still considering the modification or short sale. Just work with the homeowners, rather than against them. But wait, that would require a conscience…. You and I both know how your servicer contracts work with the banks. You get paid a percentage on the total principal balances in the loan pool. So you really don’t want principal balances to go down – you want them to go up, by piling on late charges, penalties, and junk fees. And when you collect money from the homeowners struggling to make their modification payments, you don’t reduce principal anyway, do you? No. You put the money in a “suspense account” – whatever that is – and get the use of the money. You don’t call any of it income, even the homeowner’s interest payments. You don’t even tell the IRS that you’ve collected interest income. And even though the homeowner can’t pay all of those fees and charges, you keep piling them on just for good measure. You don’t care, because you get paid out of the foreclosure or short sale proceeds – even before the banks. You even drag out the short sale sellers, just so you’ll be able to reap more fees at the end. So the bottom line is, your entire business model is based upon hurting, not helping. A nonperforming loan is music to your ears. In short, Dee, I think this “brilliant” idea stinks. Go find someone else to carry your water for you. There’s a reason the title industry doesn’t have the same reputation as the banks and servicers. We just don’t think the way you people do!”
Les Guile: “Wow, I like it when you get angry! But Liz, I do have a question. If the title industry has such clean hands, why is it also an owner of MERS? I mean, it sounds to me like the pot just met the kettle, if you catch my drift.”
Liz Pendens: “I know. Amazingly, we apparently believed the legal opinion that summer intern wrote….”
Les Guile: “Well, Liz, I’m still not sure I understand. I mean, your industry has been issuing foreclosure guarantees to the banks before they ever start a foreclosure in Oregon. You knew what the title looked like before the Notice of Default was filed. You could see that the bank bringing the foreclosure was not the same bank that the borrower got their loan from. That means to me there were intervening assignments, especially when the bank doing the foreclosing was a trustee of a REMIC trust. You knew what the Oregon statute said about having to record all of the successive assignments from the original lender to the foreclosing lender. I don’t recall your industry saying much back then. In fact, if I remember correctly, didn’t one of your largest title companies actually own LPS? They are one of the biggest foreclosure processing companies in the country and were the poster child for phony paperwork! They practically invented robo-signing.”
Liz Pendens: “Les, you obviously don’t know anything about title insurance. We only insure what’s on the public record. We have no responsibility for off-record transfers, since we’re only obliged to disclose what is filed in the county courthouse. We can’t be legally responsible for what happens outside the courthouse. And by the way Les, I’m starting to agree with Hugh; I don’t think I like your tone of voice either.”
B.L. Zebub: “Well Liz, I have to agree with Les. What I hear you saying is that your industry had no duty to speak up, even though you knew full well that the foreclosures were not in compliance with Oregon law. And besides, even if you didn’t have an obligation to speak up when you issued us those foreclosure guarantees, you also guaranteed title when we sold these properties out of our REO departments. You had to know then that the foreclosures were being completed by lenders who acquired title through off-record assignments. So, in the final analysis, you went along with the ruse – just like the rest of us. It’s probably a little late to get too sanctimonious. What’s changed now? Why is your industry so edgy all of a sudden? We’re not doing our foreclosures any different today than we did during the last five years. Did someone just grow a conscience?”
Hugh Bruss: “I’ll tell you what’s different. It’s the McCoy case, plain and simple. If foreclosures that don’t follow the statute are void according to Judge Alley, marketable title can’t be transferred to anyone. In fact, it arguably never left the original homeowner who got foreclosed. So, for every foreclosed home that was either purchased at auction or resold by the bank out of its REO department, the title is suspect. Since title insurance insures title, this is now starting to come home to roost. I’m right, aren’t I Liz? Liz?”
B.L. Zebub: “Seems she hung up. Perhaps it was something we said….”
Damien Faust: “B.L., let me jump in here. I find all this fascinating. Sorta like a scene out of “Reservoir Dogs”. But as B.L. mentioned at the start of this telephone conference, I’ve made some arrangements that may work for all of us. I have it on good authority that we’re going to dodge another bullet here. As we speak, I am having our people quietly moved into positions of authority who can reverse this trend against MERS, the Big Banks, their servicers, and yes, even help get the title companies off the hook. But it will require a significant personal commitment by all of you here today. And it won’t cost a penny. I’m already on board, and I didn’t pay a cent. B.L. and Lucy know where I’m going with this, even though they’ve made it sound like it was my little secret. B.L., you’re such a devil! Now, before any of you react, let me explain it this way. Belial Bank is a model of success. Right? Well, we didn’t get here without help. I know we have our detractors, but there are always people out there who believe in God, motherhood and apple pie. If you’re one of those people, we don’t want you on board with us. Where I am taking you is not for the faint of heart.”
Les Guile: “Mr. Faust, what are you referring to “not for the faint of heart”? This is starting to sound a bit ominous. I’ve been noticing you and Mr. Zebub talking lately, and the look on your faces makes me nervous. Would the two of you mind explaining what this is all about?”
B.L. Zebub: “Guile, relax. Let me explain the facts of life to you. Do you know where the word “mortgage” came from? I bet not. Well, it’s derived from two old French words, “mort” which means “dead” and “gaige” which means “pledge.” So, “mortgage” got its name because if the loan is paid off, the debt “dies”, but if it cannot be paid off, the land is forever taken from the debtor – figuratively, it is “dead” to him. So, in either case, a mortgage truly is a “death pledge.” That’s what we do here at Belial Bank – we take pledges. We expect a similar pact from our people. They must give Belial their “death pledge.” In return, we give them money and power for life. It’s a real bargain. Just ask Faust.” Ѱ
