For millions, the manufactured American Dream of homeownership has metastasized into the nightmare reality of Zombie Foreclosures.
The sorcerer returns and is able to get his hands on the lamp by tricking Aladdin’s wife, who is unaware of the lamp’s importance, by offering to exchange “new lamps for old.”
Eminent Domain – The best kept secret (weapon) to condemn and then extinguish toxic mortgage loans. A secret weapon Capitalists (and their pocket politicians) don’t want you to know about.
Once upon a time, financing the purchase of a home with a mortgage loan, compared to today, was much simpler. After saving the customary 20% down payment, the borrower would meet with the local banker for a long-term, fixed-rate loan. Once income and character were investigated, qualified and then approved, the borrower signed a mortgage note, and gave a mortgage in exchange for a loan.
A mortgage note is the personal promise to repay a loan. A mortgage (lien) collateralizes or secures the mortgage note. Foreclosure can force the sale of the collateral (home) to repay the debt.
It was at the same local bank where the borrower made monthly loan payments for the life of the loan. If and when the borrower had a problem making a scheduled payment due to an unexpected expense or temporary hardship it wasn’t necessarily an earthshaking event. The borrower could speak directly with the banker who could usually resolve the issue by adjusting the payment amount or due date – usually without a lot of red tape. That’s because the local banker, who handled the bank’s investments – which included the borrower’s mortgage note – knew that keeping the loan (and the bank’s investment) current and in good standing was in its (and the borrower’s) best, long term interest. Minor blips and slips were both anticipated, and manageable. Foreclosure, then a losing situation for all concerned, was something to be avoided and usually was.
In the era of mortgage loan securitization, brainchild of unconscionable finance capitalism, the once mutually-to-be-avoided trauma of mortgage foreclosure produced windfall profits for the financial industrial complex – specifically the loan servicing industry. Those profits were sucked from the weary bones of those who were seduced and steered into the “American Dream.” However, the American Dream morphed into the nightmare of mortgage foreclosure with its predatory low or no down payment loans, an expedited minimal underwriting criteria, inflated valuation appraisals and slick terms only the financially sophisticated could fathom and/or avoid, and a compliant regulatory and judicial system.
Very few local banks make loans to keep as investments anymore.Loans are quickly sold, transformed, and bundled into complex (mortgage backed) securities and quickly monetized into huge front-ended profits for finance capitalists. The local bank, instead of keeping the promise to repay as a long term investment, earns an origination or transaction fee and has no further interest in the borrower, or the performance status of the loan. Usually, before the ink on the loan documents had dried, the promise to repay the local lender has been sold, assigned, or otherwise transferred.
In the wake of the most recent financial meltdown, it seems many shortcuts to quick profits had circumvented or had violated securities law, contract law, and the Article 3 of the Uniform Commercial Code (negotiable instruments). Subsequently, certain financial giants have been exposed to liability from claims of loss, misconduct, and fraud. By whom? There are several perpetrators, including the investors who purchased the securities from charlatans of Wall Street who manufactured and then sold a defective product – what was advertised and believed by the clients to be highly rated, low-risk mortgage backed securities, and some of the millions of borrowers trapped in foreclosure hell.
But these securities were anything but secure. Though immeasurably profitable for the casino-capitalists, the securities and underlying debt remain toxic to their investor clients who may be holding worthless securities, and to millions of financially-stressed homeowners.
Getting back to the ten billion dollar question: Who are the rightful owners of the toxic mortgage notes? And why is this important? It’s important because only the rightful owner of the mortgage note is authorized to modify the terms of a mortgage note. That’s a little publicized reason behind the failure of many loan modification programs and stalled foreclosure proceedings. Only the rightful owner can modify the terms of its Note, and only the rightful owner is entitled to payment: payment from (alleged) Borrowers in the form of monthly payments, or compensation as Rightful Owner & Seller in Eminent Domain condemnation proceedings.
This unanswered question is one reason why the power of Eminent Domain can be the Achilles Heel for the too big to fail/too big to jail finance capitalists. The results from the search for the rightful owners of millions of toxic mortgage notes can be the peoples’ secret weapon used to repair a terribly broken and dysfunctional housing and housing finance system.
Millions of mortgage notes are prime candidates for modification to reflect both current property values and homeowner affordability. However, mortgage notes can only be modified by those who can demonstrate they hold 100% of the rights to that note. Only the rightful owner is entitled to accept fair compensation.
If no such control exists within any party to the loan transaction, or, if no such owner can be identified, the mortgage lien against the property securing the mortgage note can then be wiped off title or extinguished. How? By alleged mortgagtors filing lawsuits demanding their “alleged” lender produce a lawful claim as required by the Uniform Commercial Code, or, to take a hike.
“Alleged” lenders are now being told by many Courts to put up or shut up. The growing sense in the anti-foreclosure realm is that more and more courts will rule against these “alleged” lenders who submit fraudulent documents as proof because they cannot produce proof of lawful right to initiate foreclosure, or to modify mortgage notes.
In several cases courts have ruled that the loans NEVER EXISTED.
“Our loan contract never existed? No loan? No mortgage! Oh, Baby!”
Oh, Baby indeed. If the mortgage note is ruled to be invalid or void, then it follows that the mortgage lien, which secured the alleged note, could also be voidable. If there is no loan, is the house now owned “free and clear” of a mortgage? How can a homeowner have the mortgage lien extinguished?
It’s a legal process called Quiet Title Action. More about that a bit later.
For a couple of years, an idea has been percolating within corporate finance think tanks. The idea is to create special public/private partnerships with local government to selectively use the police power of eminent domain to condemn certain mortgage loans and facilitate a process to replace possibly worthless investments with government-backed mortgage notes. It can be heralded as a tactic to break through the quagmire known as zombie foreclosures.
Good idea. But the casino-capitalists disguised in savior’s clothing have proposed a self-serving business model that, in my view, is not a good idea at all. Fool me once, shame on you. Fool me twice, shame on me. Not a great idea to have a fox guarding the henhouse. Aren’t there regulations and agencies to enforce those regulations? Isn’t that how we got into trouble 1929?
Who now is guarding the henhouse? Is anyone keeping watch or are they simply turning a blind eye to the banking industry?
The Glass-Steagall Act, a law enacted in 1933, prevents overzealous or improper banking activity, and has been under attack from finance capitalists in the decades since.
“In 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA). This act separated investment and commercial banking activities. At the time, “improper banking activity,” or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. ” Investopedia
Finance Capitalists’ heavy capital investment in administrations (past, present and future) including the Clinton White House, finally resulted in its repeal.
“Consequently, to the delight of many in the banking industry (not everyone, however, was happy), in November of 1999 Congress, under Clinton, repealed the GSA with the establishment of the Gramm-Leach-Bliley Act, which eliminated the GSA restrictions against affiliations between commercial and investment banks. Furthermore, the Gramm-Leach-Bliley Act allows banking institutions to provide a broader range of services, including underwriting and other dealing activities.” Investopedia.
Its long anticipated repeal set into motion a conspiracy that included cooperation and participation by major finance corporations in the early 1990s. In 1997, an electronic registry for mortgage loans named Mortgage Electronic Registration System, or MERS for short, was launched and worked its way into the center of the mortgage loan securitization scheme.
Subsequently, a Federal Bankruptcy Court ruled the MERS business model illegal.
From Huffpo Business: “There have been numerous court rulings against MERS — including decisions made by state supreme courts. What is significant about the US Bankruptcy Court of New York’s ruling is that the judge specifically set out to examine the legality of MERS’s business model. As the judge argued in the decision, “The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court.” In the scathing opinion, Judge Grossman variously labeled MERS’s positions as “stunningly inconsistent” with the facts, “absurd, at best,” and “not supported by the law.” The ruling is a complete repudiation of every argument MERS has made about the legality of its procedures.”
Though regulations on Wall Street and its financial transactions were greatly relaxed, an equally important set of rules and regulations, known as the Uniform Commercial Code, remained.
From Duke Law: “The Uniform Commercial Code (UCC), a comprehensive code addressing most aspects of commercial law, is generally viewed as one of the most important developments in American law. The UCC text and draft revisions are written by experts in commercial law and submitted as drafts for approval to the National Conference of Commissioners on Uniform State Laws (referred to as the Uniform Law Commissioners), in collaboration with the American Law Institute. The Commissioners are all attorneys, qualified to practice law, including state and federal judges, legislators and law professors from throughout the United States and its territories. These quasi-public organizations meet and decide whether to endorse these drafts or to send them back to the experts for revision. The revision process may result in several different revisions of the original draft. Once a draft is endorsed, the Uniform Law Commissioners recommend that the states adopt these rules.
The UCC is a model code, so it does not have legal effect in a jurisdiction unless UCC provisions are enacted by the individual state legislatures as statutes. Currently, the UCC (in whole or in part) has been enacted, with some local variation, in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands.”
Why is the Uniform Commercial Code important? Because no matter what shenanigans and shortcuts to quick profit cooked up by the conspirators, whatever documents they devised, and whatever three-ring circus assignment procedure was used, they still has to adhere to the umbrella of Uniform Commercial Code Section 3 – Negotiable Instruments.
But the Wall Street whiz kids’ plan paid too little attention to that pesky Uniform Commercial Code. It’s almost as if they felt the law did not exist or would not apply to them. After all, it’s common knowledge that the financial regulatory agencies are largely staffed by former Wall Streeters who are still friendly/loyal to their former pals.
But first thing’s first.
What is the power of Eminent Domain and how can it be used to stop illegal mortgage foreclosures, reaffirm housing affordability, and redistribute billions in stolen equity to duped borrowers?
According to the Free Dictionary, “The Power of Eminent Domain is the power to take private property for public use by a state, municipality, or private person or corporation authorized to exercise functions of public character, following the payment of just compensation to the owner of that property.”
Typically, the power of Eminent Domain is used to take private property needed to build a public road or public school. Sometimes, as in the case of Long Branch, NJ, the power of Eminent Domain was abused to take perfectly good, (beachfront) single family dwellings from their elderly and low income owners at fire-sale prices and turn the prime “in need of redevelopment” real estate over to the (salivating) wealthy developers.
Mortgage Notes, like the oceanfront cottages, are PRIVATE PROPERTY.
Mortgage notes (the personal promise to repay a debt secured by a mortgage lien on real estate) are technically private property. Private property which can be condemned for public benefit under the power of Eminent Domain. Once the demonstrated owner of the note seized under Eminent Domain has been paid just compensation, the designated public benefit agency can modify the note to restore affordability and some lost equity to the borrower/homeowner.
Or, if the lawful owner of the Note can’t be identified or confirmed pursuant to the Uniform Commercial Code, payment and the amount remaining on the debt (if any) is very much in question. The way in which mortgage notes were originated, and then transformed from debt and a promise to pay into an asset, securitized and sold to investors, is coming under intense scrutiny… This may soon result in lawsuits filed by regulatory agencies who are coming under public fire for not being tough on the “too big to fail – too big to jail” activities committed by their former or future colleagues.
Many believe that there are hundreds of thousands – if not millions – of mortgage notes that were fraudulently originated between 2001 and late 2008, which may now (as then) be little more than worthless paper.
“The procedure invoked by the mortgage meltdown scheme defrauded investors and borrowers in identical fashion as part of a single scheme (false ratings and insurance) in asset backed derivative securities, who were the source of funding for the fraudulent loans on residential real property (false appraisals, undisclosed parties, undisclosed fees, abandonment of underwriting standards etc.). The borrower and the investor were co-victims of a Ponzi scheme. The middlemen needed money from the investor and a signature from the borrower. Everything else was smoke and mirrors.” Neil Garfield, former investment banker and trial
The Wall Street Model to use Eminent Domain to modify particular mortgage loans is contingent upon public/private partnership. A purportedly cash strapped local government partners with a (deep pocketed) financial manager (mistake #1). It then uses public power of Eminent Domain to target certain mortgage notes and then threaten the alleged mortgage lenders who purport to hold 100% control over the mortgage notes. In theory, the use of Eminent Domain would force the lawful owner of the mortgage note to accept “fair market” compensation as part of the eminent domain process.
But the Wall Street Model stops well short of economic justice. It anticipates the use of completed Eminent Domain proceedings only as a last resort.
Also, the Wall Street Model targets only certain mortgage notes – some which may not even be in delinquency, default, foreclosure or underwater. What makes them special? They happen to be part of an investment portfolio which 1) may be worthless to its owner, and 2) needs a bailout. The loans or their alleged borrowers may not need relief, but the portfolios and their investors sure do.
Instead, the Wall Street Model proposes to select and then purchase from the alleged Note-holders (their former, current or future clients?) the possibly worthless mortgage notes for whatever the market (or an ill-informed & duped public) will bear. To be promised 60% of an allegedly mortgaged home’s fair market value under the premise that “something is better than nothing” is just the start. More importantly, the use of Eminent Domain facilitates the replacement of those toxic and possibly worthless mortgage notes allegedly owned by disgruntled investors with brand new government insured loans. Under the guise of providing homeowner relief, the charlatans – or sorcerers – want to substitute their clients’ possibly worthless investments with government insured mortgage notes. Pretty slick. Like depositing billions of counterfeit dollars into the bank and then immediately withdrawing billions in freshly US minted cash. New Lamps for Old?
New Notes for Old. Another backdoor bailout for the finance capitalists under our very noses in broad daylight.
Under the Wall Street Model, not all mortgage loans are considered for replacement, er, relief. The WSM targets only alleged mortgage notes purportedly owned and controlled by select “Note-holders” and will blindly accept the alleged Note-holders’ word that he/she is the rightful owner of the toxic Note and entitled to payment.
New Notes For Old.
In my view, the entire mortgage retirement or mortgage loan replacement program, which utilizes Eminent Doman, can best be accomplished by local non-profit agencies using public money without Wall Street bed partners and their private agenda…
Instead of embracing schemes by the very foxes who guard the henhouse while munching on a steady diet of chicken legs, we’ll need to create and task 100’s of independent community agencies who will be responsible to their own community.
My model for an entity to administer an Eminent Domain / Mortgage Retirement / Replacement Plan would specifically exclude private (self-interested) capital, but instead use a publically-owned bank for Public Funds for Public Benefit.
We, the, People can and will establish Public Banks, and independent, community based, nonprofit public agencies which would operate under strict, fully transparent, public benefit objectives.
Those homeowners who wish to participate in a mortgage retirement or replacement program would have to agree to share any benefits derived from the program with other participants. For example, one homeowner might have his mortgage loan reduced by 50%. Another homeowner’s reduction might be 25%. Some might realize little benefit, yet others might have their mortgages wiped away and owe nothing. But nobody would get a free house.
Instead of unbalanced or disproportional rewards, all program mortgage debt would be restructured to a previous democratically agreed upon formula based upon property value, loan affordability, and public benefit.
Loan-to-Value (LTV) is the amount of a loan based expressed as a percentage of the property’s fair market value. 50% LTV? 60% LTV? 75% LTV? If a home is valued at $250,000, a 50% LTV would be a loan of $125,000.
The amount of relief to be shared by those in the Mortgage retirement or Replacement Plan can be whatever makes financial sense such that all benefits derived by the comprehensive program are shared equally by those in the program, and by the community which has authorized the use of Eminent Domain. For example, those who own their homes free and clear of mortgages, or are content with whatever financing they may have, would not monetarily benefit from having their neighbor’s mortgage debt reduced. So, they should receive a comparable benefit. Perhaps property tax abatement or some other financial reward the community deemed to be fair.
It’s whatever we want it to be.
Immediate Public Benefit would be two-fold: These Public Benefit proceedings would serve to expose illegal mortgage foreclosure practices, and could result in preserving continued and affordable homeownership for hundreds of thousands – if not millions – of families across the USA.
Let’s consider mortgage notes that are in foreclosure, or in distress and determined to be “underwater” – a term used to describe homes with mortgage debt in excess of the property value. For example, if a home valued at $250,000 had mortgage debt of $500,000, the home would be considered underwater with a loan to value of 200%. The Public Benefit Agency for Eminent Domain Mortgage Retirement or Relief Plan would create a Program and then designate those mortgage notes / negotiable instruments for condemnation.
Eminent Domain law would require the new Public Benefit Agency to set aside money to pay for the public taking of the private property (mortgage notes). The Public Benefit Agency would notify the alleged owners of the negotiable instruments (mortgage notes) that their private property (mortgage notes) was subject to condemnation proceedings via the Power of Eminent Domain.
Once the Note’s ownership presents itself for Eminent Domain compensation, the current value of the private property is negotiated and then an amount of money is determined to be fair compensation.
I cannot emphasize this enough: Fair compensation can only be paid to the lawful owners of the toxic mortgage notes, subject to the rules for Eminent Domain taking. The lawful owners must demonstrate they possess 100% of the rights required by law to enforce the negotiable instrument / mortgage note.
Unlike the Wall Street Model which prematurely, and perhaps unjustly, rewards the alleged Note-holders, my idea for a non profit public benefit agency seeks to expose many – if not most of the program mortgage notes – as invalid or voidable, and eventually extinguished via Quiet Title Actions.
The process of Eminent Domain to identify and then qualify the rightful owners of the toxic mortgage notes will require an alleged owner provide proof, as required by the Uniform Commercial Code, it has 100% of the rights required to enforce the note as owner of the mortgage note and is entitled to payment for the condemnation compensation. Fair Compensation. But what’s fair?
Many people who advocate Eminent Domain Mortgage Retirement or Replacement believe (perhaps mistakenly) that current Fair Market Value is a percentage of the remaining debt owed or some portion of a home’s fair market value. But a prerequisite to determining the outstanding debt, if any, is an accurate financial and legal accounting of the history of the mortgage note, and full disclosure of any and all payments which should have been applied to the original debt, including insurance proceeds or payments made by third parties.
What if the Note’s owners had already been paid in full by a third party or an insurance policy disbursement but hadn’t credited the payment received to the Borrowers’ debt? This loan servicing tactic raises the question of how much the Borrower still owes to the rightful owner of the Note – if anything at all.
U.C.C. – ARTICLE 3 – NEGOTIABLE INSTRUMENTS
Per the Uniform Commercial Code, identifying the lawful / rightful owner of the mortgage note and/or that which is entitled to its right to payment and the amount remaining on the debt (if any) is very much in question. The way in which mortgage notes were originated, and then transformed from debt and the promise of repayment into an asset, securitized and sold to investors, is coming under intense scrutiny. This may soon result in lawsuits filed by Regulatory Agencies coming under public fire for not being tough on the former or current colleagues’ “too big to fail – too big to jail” acts.
Perhaps the most interesting / potent feature of using Power of Eminent Domain is that in most cases the alleged owners of the mortgage note may not be able to prove, per the Uniform Commercial Code, any qualifying relationship to the Note whatsoever…and are, therefore, simply holders of worthless paper.
Enter Quiet Title Actions.
n. A lawsuit to establish a party’s title to real property against anyone and everyone, and thus “quiet” any challenges or claims to the title. An action for quiet title requires description of the property to be “quieted,” naming as defendants anyone who might have an interest (including descendants-known or unknown- of prior owners), and the factual and legal basis for the claim of title. Notice must be given to all potentially interested parties, including known and unknown, by publication. If the court is convinced title is in the plaintiff (the plaintiff owns the title), a quiet title judgment will be granted which can be recorded and thus provide legal “good title.”
Since political (mis)leadership consists mostly of hand-picked corporate shills and represents a profit before people system, the People must empower themselves by using existing law to fix our problems – including, but not limited to, the mortgage foreclosure problem. If left to its own devices, the Wall Street Model will further enrich its bed partners while selectively “helping” but a small handful of homeowners.
We can use existing law to redistribute the recovery of billions in stolen equity and restore communities ravaged by illegal mortgage foreclosure or abandonment.
What can we do?
1) Write letters to local newspapers which encourage local government to explore Public Benefit Nonprofits to use Eminent Domain to remedy local foreclosure problems, 2) attend and participate in those public meetings, and 3) support public banking.
As Abe Lincoln was thought to have said, “The strength of a Nation lies in the homes of its people.” How strong is a nation in which the number of foreclosed/vacated homes sitting empty is greater than the numbers of its people who are homeless, or under threat of homelessness?
If you are interested in helping to create – and expand – a program to benefit your community and neighbors, and take back what is rightfully Ours, please contact us for further information and assistance.
David Petrovich, Executive Director
Society For Preservation of Continued Homeownership,
A NJ Nonprofit 501c3 Corporation (established 1998)