[Caveat: As recited on my website, Q-Law.com, unless expressed otherwise, all contents are solely those of the author and do not necessarily represent the views of my clients. This post is for entertainment purposes only. Truth, like beauty, is in the eyes of the beholder. The satire is mine. – PCQ]
As succinctly stated by C.S. Lewis in his Preface to The Screwtape Letters, ” I have no intention of explaining how the correspondence which I now offer to the public fell into my hands.”
CEO: “OK, do we have everyone on the line? Why don’t we do brief introductions, if we could. I’m not sure everyone is familiar with each other. I am B.L. Zebub, President and CEO of Belial Bank. I speak for the Big Banks on behalf of our lending industry.
Voice #1: “Well, OK, I’ll go next. My name is Lucy Furr, and I’m Assistant to the President. I work closely with BL. I’ll be taking notes of this phone conference. Just so you know, no one should make notes or take any recordings of this conference. My notes will be compiled into a summary, and after review and approval by BL, they will become our ‘official record.’ However, this conversation is intended to be absolutely confidential and the summary will not be made available to public under any circumstances. We need to be able to speak freely here. For all intents and purposes, this conference never occurred.”
Voice #2: My name is Liz Pendens, and I represent the title insurance industry. I’m new to this group.
Voice #3: My name is M.T. Remick, and I represent the securitization industry. Just call me “MT.”
Voice #4: I’m Dee Falting, and I represent the lender processing industry. We provide solutions, tools, and document services for the foreclosure industry, primarily the banks and servicers. We also act as successor trustees for non-judicial foreclosures in states such as Oregon.
Voice #5: “I’m new to all this. My name is Les Gile, and I’m currently in my second year at the Rough Justice School of Law, BL’s old school, where he endowed our new Department of Moral Equivalency. I just started interning at Belial Bank. BL said I could sit in on this conference. He said it would help me understand the lending business “from the other side of the curtain” – whatever that means. I’m very excited to be here. Thank you.”
BL: “OK, let’s get started. You all know why we’re here. A few days ago, some bleeding heart Oregon judge ruled that before we could foreclose people out of their homes, we had to actually record the assignments from the originating lender all the way to the foreclosing lender. This is a big problem, since we have no idea if the documents were ever prepared – and if they were – where they are now. The McCoy case involves a loan that was registered with MERS, so obviously, all of the subsequent transfers – sometimes called “assignments” of the trust deed – were never placed on the public record. Our attorneys argued that it shouldn’t make any difference, the homeowners were in default anyway, but this judge wouldn’t buy it. He actually bought into the homeowner’s argument that defaulting borrowers have rights too. I want to hear from each of you as to how we’re going to deal with this case. If we’re not careful, other courts are going to start following suit, and pretty soon, the mainstream press will pick this up (the blogs are already on to us), and it will give our industry another black eye – as if we need another one. It could also bring foreclosures to a halt, just like what happened during the robo-signing scandal last year. So, I want some ideas how we’re going to nip this in the bud.”
Les Gile: “Excuse me sir. What is MERS and what do they have to do with all this? I just heard about them, but can’t find any laws regulating what they do. I always thought that when an interest in land was created or transferred it had to be recorded in the public records of the county where the property was located. I’m sorry to interrupt, but need to understand the lending industry ‘from the other side of the curtain,’ as you say.”
BL: “Lucy – put your pen down. It looks like I have to explain the facts of life to Mr. Gile. MERS stands for Mortgage Electronic Registration System. We – meaning the lending, servicing, and title industries – created it in the 1990’s. It seemed like a good idea at the time. It is a members-only organization. We realized that if we were to assign mortgages and trust deeds quickly and quietly, it could be done better off the record than on. The title folks are pretty tight with the lenders, and since they never insured against title defects arising from off-record transfers anyway, I guess they figured they should ‘go along to get along.’ Of course, like us, they never counted on the foreclosure crisis, where banks would be dumping millions of foreclosed homes back into the marketplace. Now the title companies are having to insure title to properties that the McCoy court suggests were void in the first place. And, you’re right, there’s nothing in the statutes about MERS. That’s because all of the major players got together and simply agreed to implement this system. So while the laws in states like Oregon do require recording of all assignments, we decided that given the collective size of our industries – and Fannie and Freddie were also on board – “might makes right.” [snickers] Until the foreclosure crisis hit, MERS was working just fine. We’d been ignoring the recording statutes in states like Oregon for over ten years. Whenever a loan is made by one of the MERS members, they can decide whether MERS will appear on the trust deed as the “nominal” beneficiary, or whether the loan will be recorded in the name of the original lender and then registered with MERS. In either case, the goal is to enable our members to quickly and quietly sell or transfer their rights in the trust deed. This gives them liquidity and the ability to conduct business with less regulatory oversight . And we save millions of dollars in recording fees! MERS allows the banks, who were never very good with their paperwork, to process loans, while MERS processes paperwork. However, now whenever we file for foreclosure, homeowners are making a fuss that they don’t know who the real lender is that’s foreclosing them. For the life of me, I don’t see what difference it makes; these deadbeats are living in homes that we financed; they’re not paying us back, so they should just leave quietly. It really doesn’t matter whether we followed the letter of the law, they breached first! This is the moral eqivalency argument I’ve been preaching about for years.”
Les Gile: “But sir, wouldn’t it have just been better to have tried to amend the recording laws in the first place, rather than creating a system that the statutes and the courts have never recognized? I’ve always believed that you reap what you sow.”
BL: “Gile, I want to move this conversation in the direction of how we’re going to fix this mess. No use crying over spilled milk. McCoy was never supposed to happen, according to our lawyers. The purpose of this conference call is to find solutions. It wasn’t for you to criticize the underbelly of our industry. You’ll figure that all out in due time. We’ve got money and connections, we’re too big to fail, and by God, we’ll fix this problem like we’ve done before. Let’s hear some solutions, people!”
Liz Pendens: “BL, I’ve been thinking a lot about the McCoy ruling. This judge seems to be saying that if the lender forecloses a family out of their home without recording all the assignments following MERS, then the foreclosure is “void.” If that is literally true, it really impacts the quality of the post-foreclosure titles we’re supposed to be insuring. Once the successor trustee completes the foreclosure sale, they sign a Trustee’s Deed over to the high bidder. But these Trustee Deeds do not warrant the quality of the title to the buyer. So we’ve now got a situation where the bank has completed a foreclosure that the court says is a complete nullity, so there’s nothing the successor trustee can really convey. Does this mean the homeowner still owns the property? And if so, what happens when the banks take a property back, and then sell it to someone else in the marketplace? If the foreclosure is void, the successor trustee gets nothing, so the bank receives nothing, and therefore can’t transfer what it doesn’t yet own. Does this mean that new purchasers have no real interest in the property they just paid the bank for? The title industry can’t insure title in these situations. It would be a disaster for us. We’ll need some sort of indemnification from the banks – it’s just that simple.”
BL: “Pendens, stop with the hand-wringing. You know we’re not going to give you indemnification. Remember last year? You already tried to force us to give you indemnities, and it didn’t work. ALTA caved. End of story. So everyone better figure out a way to fix this little glitch. You’re all in this as deep as the banks are.”
Liz Pendens: “BL, with all due respect, we didn’t cause this problem – your industry did when you came up with this MERS fantasy in the first place. Obviously, no one ever developed a “Plan B” in case MERS didn’t work. What ever made them think they could get away with this in the first place? Some folks might call that “hubris.” If MERS never existed, we wouldn’t be in this fix. All transfers of the mortgages and trust deeds would have been recorded, and the banks would not be having the problems they have today.”
BL: “Pendens, you seem to forget, the American Land Title Association is also an owner of MERS. You guys bought into this scheme from the beginning. It’s a little late to start pointing fingers now. Here’s my take: We’re going to have to do some legal triage. This will probably mean getting some laws changed. We’re going to have to line up some lobbyists to figure out some way to sneak in some amendments to a pending bill. The more consumer oriented sounding the bill the better – that way people won’t suspect what we’re up to. Better that your industry does this than ours. We’re already persona non grata with most of the public and quite a few politicians. If they found out that we’re trying to ram through some pro-lender law to overturn the effect of McCoy, we’re toast. The title industry is the perfect group to do this. They are still persona grata. You guys have been operating under the radar for years. People never realized you had a stake in MERS or that the McCoy decision created as much a problem for you as for us. Besides, people think of title companies as just a bunch of harmless geeks whose idea of a good time is reading a long metes and bounds description. You’ll give us the perfect cover.”
Liz Pendens: “BL, I think it’s high time we stopped carrying your water. Not all of our industry agrees that MERS was good idea.
BL: “Let’s move this discussion along. Can I hear from Dee, she’s always got sneaky – oops, didn’t mean that Dee – you’re always full of great ideas. I must say, I continue to be amazed how your employees can wear so many hats in a single foreclosure. Why, I’ve seen a single person sign the Trust Deed Assignment to a bank, acting as a MERS Vice President, then as an officer or attorney-in-fact for the bank, they would appoint your own company as the Successor Trustee, and then – the coup de grâce – your company files the Notice of Default and completes the foreclosure! This was a stroke of genius, saving manpower and time. And I especially like the way you upload your blank company documents into the Internet where they go to robo-signers from across the country, and you get them back fully executed and notarized the next day by overnight delivery. Now that’s innovation. And since you’re not doing the robo-signing yourselves, you have plausible deniability, if you’re ever called on it. So Dee, what suggestions do you have for us in dealing with the effects of the McCoy case?
Les Gile: “Excuse me sir – don’t mean to interrupt, but how can one employee of a foreclosure company create a set of unsigned documents, sign them as an official vice president of MERS assigning the trust deed to a bank, then acting as an officer of that same bank, appoint itself as the successor trustee to foreclose the borrower? These sounds like a sham transactions. Do the banks know this is how their foreclosures are being processed? I recently saw one instance where they gave an entire foreclosure company a power of attorney to complete foreclosure documents. The bank also gave the power to an entire law firm. In my book, that’s an abuse of the power of attorney law, which is intended to be exercised by named individuals – not corporate entities and entire law firms. I know if I got caught doing that sort of thing as a lawyer, I could lose my ticket. I don’t know how legal counsel for the banks and the foreclosure companies can turn a blind eye to this. Seems to me that some of them are helping to perpetuate this entire sham.”
BL: “Gile, welcome to the real world. MERS must be acting within the law – we even had our counsel write a legal opinion saying so. Besides, didn’t you learn anything in the Department of Moral Equivalency classes? I paid millions of dollars so students like you could learn how avoid black and white thinking. Listen, our goal is “misdirection.” Don’t let people spend time focusing on the immorality of your act – shift the attention to the complainers. Demonize and marginalize them. Ridicule them. Sarcastic humor often works. (We called this ‘Reductio ad Absurdum‘ in law school.) One of the best examples of the old moral equivalency trick occurred last October. Bank of America was sued because investors claimed the packages of loans they bought from Countrywide (who B of A had acquired), were overrated junk. Brian Moynihan, the bank’s CEO immediately responded that these plaintiffs were like ‘people who come back and say, ‘I bought a Chevy Vega, but I want it to be a Mercedes with a 12-cylinder [engine]***. We’re not putting up with that.’ Priceless. That’s how more bank CEOs should respond when faced with criticism from the public. Of course giving signing authority to shills is edgy business. But remember, it was always a part of the MERS business model. They have it on their website, although it’s spun with a straight face. There are approximately 20,000 of these “officers“. Not bad for a company with no employees. But the MERS former president even explained all this to Congress in lurid detail. Not a blink. Hell, last December he even spoke to the Oregon Senate. Not a peep about it in the Oregonian newspaper. Stayed under the radar. MERS isn’t concealing anything. It’s what we call the “Big Lie.” If the story is repeated enough times as truth, people come to accept it as if nothing’s wrong. They never look “behind the curtain.” Welcome to the ‘other side of that curtain,’ Gile. Now let’s move on. Dee, have you got anything for the good of the order.”
Dee Falting: “Yes, sir, I think I do. I believe in the “Golden Rule” – “He who has the gold, makes the rules.” [laughter] That’s us! I think we should continue on course. This is a simply a numbers game. We’re foreclosing millions of loans. The number of homeowners questioning what we’re doing is only a very, very small percentage overall. I think a straightforward cost/benefit analysis will prove that there is nothing to fear. American consumers have enough to worry about without focusing on the banks, too. Most have never even heard of MERS. Sure, the McCoy case is a bump in the road, but it’s not a stop sign. I say we continue as we have; pooh-pooh the court holding, say the judge is a wild-eyed maverick. Besides, everyone knows Oregon is full of aging pot smoking ex-hippies who lost their Afros, but couldn’t shake their belief in individual rights. So what can you expect? I say we just act as if nothing happened. Sure, we may have to pay a few million dollars in legal fees, damages, and maybe even walk away from some problem loans. But statistically, few people will contest our foreclosures, especially in the non-judicial states like Oregon where we don’t have to file anything in court to foreclose a family out of their home. I vote that we just continue to fill out bogus documents. If someone complains, – which is rare – we deal with it then.”
Liz Pendens: “Easy for you to say, Dee. But then it becomes our problem, since we have to insure title even though we know you guys are creating bogus foreclosure documents out of whole cloth. Whenever I have to insure an REO property handled by you guys, I have to hold my nose when I sign a title guaranty. I can tell just by the source of the notarizations on your documents that you used robo-signers. Broward County in Florida, Dakota County in Minnesota, San Diego and Orange Counties in California – all come to mind. I know their names and can even recognize their intentionally scrawled signatures. In fact, sometimes your signers get so carried away, they screw up the signatures and notarizations. I’ve even seen a robo-signer sign as a V.P. with one bank and the notary says he’s the V.P. of another bank. This is what happens when the notary doesn’t witness the signer’s act of signing, even though the law requires it. Sometimes you’ve appointed your own company as Successor Trustee before you assigned the trust deed to the bank that appointed you. That makes your appointment of Successor Trustee a nullity, since the bank didn’t have the power of appointment at the time. But you don’t care – you don’t even bother to go back and re-sign correctly before recording. You just record the invalid documents anyway, even though you know they are incorrect. These robo-signers are nothing more than the “useful idiots” of your business model. If our title industry continues to underwrite these shenanigans, we’re going to end up with the same shoddy reputation as yours.
M.T. Remick: “BL, I’m also concerned about McCoy. As you know, we made billions of dollars between 2005 and 2008 securitizing large loan pools. We were finally able to make loans to people Fannie and Freddie wouldn’t even touch. We practically gave money away. We were more concerned with whether our borrowers had a pulse, than a good FICO. In fact, the lower their FICO the better. These folks never fully understood what they were doing in the first place – they’d never had a mortgage before – they didn’t know what to expect. We even had to fill out their loan apps for some of them! And we didn’t care ’cause we had no skin in the game. Loans were sold as fast as we could bundle them, and so they became the investors’ problem, not ours. Obviously, some of this might change with Dodd-Frank, but we’re leaning on the regulators right now to soften the impact. But I know your guys at Belial made millions in yield spread premiums whenever you put these sub-primers into risky, high interest loans – of course that was back in the good old days. Today you actually have to exercise good faith when making a good faith estimate. Anyway, after we made the loans, we delivered them to the large investment banks, had the ratings agencies engage in their alchemy turning straw into gold, and then sold the packages off to pension funds and other large investors who actually relied up our prospectuses. Everyone who understands the securitization process knows that before the notes and trust deeds or mortgages ever get into the REMIC trusts – if they ever did – they must be assigned multiple times to achieve “true sale” and “bankruptcy remote” status. But somewhere we lost control over the process. We were moving so fast, and making so much money, people stopped crossing “Ts” and dotting “Is.” We started hearing stories in judicial foreclosure states – where the lawyers and judges were actually looking at this toxic stuff – that some courts were refusing to grant summary judgment if it suspected the banks were relying on bogus or forged documents. They discovered that many times, the loan docs were never transferred into the REMIC Trusts, like the PSA said they were. There was so much paperwork that we had to find a way to deal with it. Now, I’m concerned where the paperwork actually is – or even if it still exists. It’s either stored in some vault at Iron Mountain, or it was shredded to avoid the storage cost entirely. No one thought much about it back then, since we figured buyers paying off their mortgages and trust deeds wouldn’t care where the recorded satisfactions came from. Today, it’s a different story, as the McCoy holding underscores. I have no idea how we’re going to re-create documents that were lost, destroyed, or never existed in the first place. We already tried to forge new notes or fabricate bogus allonges when the foreclosure mess first started , but the Florida courts got wise to that. David Stern is paying dearly for this now, as well as other foreclosure mills.
Les Gile: Boy! I’m stunned. You’re making this sound as if it’s been going on for years, in plain sight. How can this be? Isn’t there any Code of Ethics your industry is supposed to uphold?
BL: Gile, I think you’ve had enough of an education for the day. Everybody, I have another appointment, so we’re going to have to end things here. I will have Lucy set up another conference call in a few days. I’m going to want less finger-pointing and more suggestions how to get around McCoy. I’m meeting with Dodd and Frank shortly. That damn Financial Reform Bill is giving us fits. We’re trying to tie everything up in rulemaking so some of it never sees the light of day. God, if it’s not one thing, it’s another. I’m starting to feel like Rodney Dangerfield. Remember, this phone conference never occurred! Lucy, get your notes together, type them up and give me a clean draft by the end of the day. Based on what I’ve heard so far, I’m going to have to sanitize some of this. We don’t want to risk it getting into the wrong hands…. By the way, I notice our legal counsel, Damien Faust, isn’t here today. He told me privately that he’d made a pact with someone, and that the McCoy case should not be a problem for any of us. I’m curious what it’s going to cost us. Next time, I want him on this call.
