Sunday October 21st 2018

You May Not Have To Pay Your Mortgage!

Suppose Barney Rubble lends his modern-stone-age, next-door neighbor Fred Flintstone $10,000. Fred signs an IOU in front of a notary saying that he owes Barney $10,000 and he will pay it back plus 10% interest over a period of 10 years. They both agree to make it a self-amortizing loan, so every month Fred will make a payment of $132.15 on the first of the month.

Flintsone makes timely payments for one year. But then he stops making the monthly payments. Barney tries to contact him but he does’t return any calls. Fred falls further and further behind each month. After about six months of no payments, Barney takes Fred to court to collect on the loan.

It is a landmark court case, Rubble v. Flintstone. But Barney has a problem. Unfortunately, because of his negligence and sloppy record keeping, Barney lost the original IOU with the notarized signatures.

What happens when they go to court? Without the original document it is difficult for Barney to prove how much he is owed. Fred might claim everything was paid off in full after the first year of payments.

Can Barney just write up a new IOU? Sure he can, but it needs Fred’s notarized signature on it to be worth anything. Maybe Barney can convince him to sign a new IOU. But why would Fred sign it if he doesn’t intend to pay? Maybe Barney could trick Fred into signing it. He might tell Fred it is for Pebble’s college fund or for the Water Buffalo’s annual convention and get Fred to sign it without reading it.

Or Barney could just add Fred Flintstone’s signature himself just like it was on the original IOU. But that would take a special skill known as forgery, which is a crime.

It seems like unless Barney is willing to resort to some shady tactics, he might just be out of luck. Of course this story about the Flintstones is made-up, but  is similar to the situation that banks are finding themselves in with mortage loans.

Disclaimer: I am neither a lawyer nor an expert in mortgage loans. I don’t have any more insight into this issue than what I read in articles and saw on television. Do your own research.

Here is an article about banks in America that are suspending foreclosures on mortgages. It’s long, but worth reading all the way through.

The Second Leg Down Of America’s Death Spiral

Here is a particularly scary quote from the article:

If for whatever reason, any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.

To repeat: If the chain of title of the note is broken, then the borrower no longer owes any money on the loan.

Read that last sentence again, please. Don’t worry, I’ll wait.

Apparently, for many mortgages that were sold to Wall Street for securization, nobody knows where the original note with the notarized signatures are. They may be in a document storage warehouse, or they may have been shredded. During the securitization process, lots of original documents were digitized and then shredded en masse to reduce costs.

There is much debate over this issue. Some have argued that when the loans were sold, the rights to foreclose on the property may not have been conveyed. So a homeowner may still owe the balance of the loan, but the loan holder doesn’t have a right to foreclose. They still may be able to sue you for not paying, but can not automatically take your house.

Robo-signers and Fabricated Documents
Enter the Robo-signers. Banks hired a lot of people with no experience in the mortgage industry. Some people referred to them as “Burger King Kids” because their only job experience was working at Burger King. Other foreclosure experts were former hair stylists, teenagers or Walmart workers. They were given no training and had no knowledge or expertise in mortgage lending or foreclosures. Their only job was to sign documents to allow foreclosures to proceed through the pipeline. Many robo-signers were processing hundreds of foreclosures per month.

Robo-signers signed affidavits that certifying that
1. They had the original loan documents in their possession
2. They were familiar with the books of account and the loan documents
3. They had personal knowledge of all the facts, particularly about the sums of money due

But robo-signers have given depositions under oath that none of these things were true. Many of the “Burger-King Kids” were unable to provide even the most basic definitions for terms like mortgage, note, affidavit, etc. The robo-signers had committed purjury by fixing their signature to false statements in the affidavits.

These affidavits were presented as evidence in court in front of a judge which permitted the judge to make a summary judgement in favor of the foreclosure. Without the affidavits, the bank would have to present the actual loan documents as evidence. Loan documents which the bank, just like Barney in our story, had either lost or destroyed during the securitization process. Instead of a summary judgement, homeowners may have been entitled to a trial by jury.

In some cases, documents were created from scratch. One service company even offered a rate sheet for creating missing loan documents. In other words, they would fabricate documents for a fee. See this on

Bad Paperwork or Fraud?
Some people want to characterize the issue with the robo-signers, which is becoming known as “foreclosure gate”, as simply a paperwork issue–a mere technicality. They generally acknowledge that few new employees did commit purgery, but it was just from their lack of experience.

But it appears that the robo-signers were put in place and committed purgury for the express purpose of allowing illegal foreclosures to take place. Foreclosures on homeowners by banks that did not have the legal standing to do so. That amounts to banks illegally taking someone’s property. That sounds like a form of fraud.

Ramification of Foreclosure-Gate
There have been millions of foreclosures and evictions in the past few years. How many of them were done illegally? There have been cases reported when homeowners that were current on their mortgage were evicted. There have even been cases reported where a homeowner without a mortgage was foreclosed on and evicted.

Most mortages nowadays are bundled and sold to Wall Street for securitization. But there may be a fatal flaw in this process which is casting a cloud on the title of every houses sold in the U.S. during the past few years. I read somewhere that there might 8.9 trillion dollars in mortgage loans in the U.S. This could be a big problem.

Here is a youtube video from The Alyona Show. Marcy Wheeler from firedoglake talks about the possibility that this is about fraud and not just a simple paperwork discrepency.

Further Down the Rabbit Hole We Go
The more you look into foreclosure-gate, the further down the rabbit hole it takes you. It feels like the sub-prime crisis of 2007. At first sub-prime was just going to be a minor bump in the road–a few billion dollars, at most. Bernanke and others in charge said, “No problemo, this will be contained!” A year later, the credit markets were freezing up and they were asking for trillion dollar bailouts. This is shaping up to be the big scandal of 2011 that will rock the markets like its 2008.

Here are some more article on this topic:

Watch this report on PBS NEWSHOUR with Jim Lehrer: Faulty Paperwork Prompts Deepening Foreclosure Problem

The Foreclosure Mess by Barry Ritzholtz at The Big Picture.

Foreclosure-Gate Primer: Here’s Why The Banks Used Robo-Signers

Why Foreclosure Fraud Is So Dangerous to Property Rights by Barry Ritzholtz at The Big Picture.

For foreclosure processors hired by mortgage lenders, speed equaled money by Ariana Eunjung Cha and Zachary A. Goldfarb in the Washington Post.

Foreclosure Fraud: “Systemic, Industrywide, Pervasive” by Barry Ritzholtz.

Here is a very good description of the MERS system, which is the database that is used to record when lenders buy and sell mortgages: Will the Mortgage Electronic Registration System (MERS) Crash the Housing Market? at

Next Topic: Meet The Squatters

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