TBR News December 4, 2017

Dec 04 2017

The Voice of the White House

Washington, D.C., December 4, 2017:”BitCoin may be a bubble but in a number of countries, the mortgage fraud is far larger and will prove to be equally a fiscal disaster when it collapses. Over 70 million Americans who have home, or business, mortgages, do not, and never will have, ownership of their properties. This is due entirely to criminal and deliberate fraud practiced on the public by banks, financial institutions and the government itself. This fraud has now spread to China and also to Germany where German banks, controlled by Americans, are defrauding Germans on a regular basis.”


Table of Contents

  • Hidden peril awaits China’s banks as property binge fuels mortgage fraud frenzy
  • The Defrauding of America: The MERS swindle


Hidden peril awaits China’s banks as property binge fuels mortgage fraud frenzy

COLLUSION: Zhu Chenxia and Lei Yarong conspired to trick the bank into issuing an inflated mortgage for an apartment in this housing development in the southern Chinese metropolis of Shenzhen. REUTERS/Staff

         Gravity-defying property prices in China have spawned widespread home-loan fraud as buyers fear missing out on what seems like a sure bet. Real estate agents, valuation companies and banks themselves are party to the scam.

by Engen Tham, Clare Jim and Yawen Chen

December 4, 2017


SHANGHAI/HONG KONG/BEIJING  – When Zhu Chenxia bought a flat early last year from Lei Yarong in the up-market Nanshan district of China’s southern metropolis of Shenzhen, the two women drew up three purchase agreements to cover the deal.

Only one was genuine.

In the legitimate contract, Zhu agreed to pay Lei 6.49 million yuan (about $980,000) for the 96-square-meter apartment near the city’s border with Hong Kong, according to records filed in a Shenzhen court. With the help of her property agent, Zhu cooked up a second contract with Lei that overstated the value of the flat at 7 million yuan. This one was for the bank.

If Zhu had presented her lender with the true purchase price, she would only have been entitled to borrow up to 70 per cent of that amount, or 4.54 million yuan. Chinese regulations stipulate that first-home buyers in some major cities must make a down payment of at least 30 percent to reduce bank exposure to risk. The higher valuation convinced the Bank of China to lend Zhu 4.85 million yuan, leaving the lender less buffer against a price drop.

Details of the deception are contained in a court judgment from a subsequent dispute between Zhu and Lei over the transaction. Remarkably, Zhu herself disclosed the fraud to the court when she gave evidence that showed the pair had conspired to cheat the bank and the government.

Mortgage fraud like the pair’s flouting of rules designed to protect banks is rampant in China’s roaring property market, according to interviews with buyers, sellers and dozens of property market insiders including real estate agents, lawyers, bankers, valuers and loan middlemen from three of China’s major cities and four smaller cities. Many of these people declined to be identified because they were familiar with or involved in “re-packaged” loan applications, the industry euphemism for these frauds.

A Reuters examination, including a review of court records of cases such as Zhu’s dispute with Lei, shows that across China, unqualified borrowers use fake documents to secure mortgages, while loans deceptively obtained for other purposes are funnelled into property. These frauds are often committed with the consent and encouragement of other parties to the transactions, including lending brokers, property agents, valuation companies and the banks themselves.

And these alleged crimes are rarely punished. Neither Zhu nor Lei suffered any penalty for the fraud.

Hu Weigang, a senior partner at Guangdong Shen Dadi Law Firm, would like to see the law enforced on the mainland as it is in Hong Kong, where creating a bogus document can lead to jail. But, he acknowledges, the scale of this cheating makes it virtually impossible.

“When everyone is doing it, you can’t put everyone in jail,” says Hu, who specializes in real estate litigation.

While property prices in China continue to rise, mortgage fraud remains largely a hidden danger, much as subprime loans in the United States remained mostly out of sight ahead of the 2008 global financial crisis. The fear is that in a property correction, fraudulent mortgages would unravel, accelerating a collapse of housing prices in the world’s second biggest economy. This, in turn, would imperil China’s debt-laden financial system.

The danger from gravity-defying home prices is clear to the ruling Communist Party. In his marathon speech at the 19th Party Congress in October, Chinese President Xi Jinping warned about the overheated property market. “Houses are built to be lived in, not for speculation,” he said.

Top bank officials are also worried. Xu Zhong, head of the research bureau at the central bank, the People’s Bank of China, sees pitfalls ahead. “We must be very aware that rapidly rising housing prices could not only hamper our economic development, but could easily result in systemic risks and negatively impact the macroeconomy,” Xu wrote in an op-ed for a central bank-controlled magazine in September.

The motive for widespread mortgage fraud is simple: fear of missing out.

Millions of homeowners are enjoying the sensation of ever-expanding wealth. The average value of residential housing in China more than tripled between 2000 and 2015 as a huge property market emerged from the early decades of economic reforms.

So far, China’s new home-owning class has yet to experience a sustained downturn in housing values. Official data showed prices grew 12.4 percent in 2016, the fastest rate since 2011. A report tracking home price trends by the Chinese Academy of Social Sciences, a state think tank, showed prices in 33 major cities soared 42 percent in 2016. Private estimates and anecdotal evidence suggest prices in most big Chinese cities actually doubled or tripled since late 2015.

For millions of Chinese, buying a home is now a rite of passage to the middle class. In 2016, the rise in property prices boosted total household wealth in 37 of China’s most developed cities by 24 trillion yuan, almost twice the value of total disposable income of 12.9 trillion yuan, according to a March research note from Deutsche Bank.

For many buyers without the required down payment or income to qualify for a mortgage, a fraudulent loan application is a tempting if illegal sidestep. Home values in the Haiyue Garden complex where Zhu bought her flat have increased 40 percent in the last two years, according to local property agents.

Zhu stood to make a tidy profit. She was not so keen to share gains with the government. Under the third contract she drew up with Lei, the Shenzhen flat was valued at only 2.8 million yuan, less than half its true value, the court records show. That contract was for showing to the taxman. At that value, Zhu would have saved more than 50,000 yuan in taxes, according to Shenzhen regulations.

In the vast majority of cases, fraudulent loan applications remain concealed as prices continue to rise and buyers meet their repayments. In Zhu’s case, the fraud only became public because she fell out with Lei, the seller.

A clause in the genuine contract between the two women stipulated that Lei, the seller, agreed to refund Zhu the extra 310,000 yuan that Zhu extracted from the Bank of China using the fake loan application. It is not clear from the court documents what Zhu intended to do with the extra money. In effect, though, the bank would have been refunding part of Zhu’s down payment. However, Zhu alleges, Lei reneged and kept the money.

Court documents show that Zhu last year sued Lei in Shenzhen to recover the funds plus interest. In taking Lei to court, Zhu disclosed the details of the fraudulent contracts she signed with Lei.

In her court submissions, Zhu described her deal with Lei as a “yin-yang” contract – a widely used expression in China’s property market meaning real and fake agreements operating side-by-side.

Almost all contracts for the sale of existing property in China have some yin-yang element, according to Denny Jiang, a former banker and recent home buyer in Beijing.

Zhu’s willingness to admit to wrongdoing in court suggests that this kind of deception in China is not considered a serious crime. The People’s Court of Nanshan District of Shenzhen ruled against Zhu on the grounds that the seller and buyer had committed fraud.

Zhu later appealed to the Shenzhen Intermediate People’s Court, arguing that her agreements with Lei showed the pair had taken part in the scheme together.

The appeals court, too, found that the two women had committed fraud. But it also accepted Zhu’s argument that she was entitled to her share of the gains from the scheme. The court ordered Lei to pay Zhu the amount they had fraudulently extracted from the bank – despite acknowledging in its ruling that the pair had engaged in “illegal behavior.” Lei’s lawyer said she complied with the ruling. The Bank of China did not respond to questions from Reuters about the case or allegations of widespread mortgage fraud in China.

Zhu’s lawyer, Zhou Zhengfeng, declined to relay questions to Zhu or answer specific queries about his client’s case.

In an interview with Reuters, the lawyer was frank about the prevalence of mortgage fraud. Buyers, he said, were in reality using the bank’s money to speculate in real estate. “In the last few years in Shenzhen, there have been lots of over-valuations used to get higher loans,” said Zhou, a specialist in property disputes at his firm, China Commercial Law in Shenzhen. “It’s been quite insane.”

Lei declined a request for an interview sent via her lawyer, Xuan Hong Xia, a partner at Guangdong Wansheng Law Firm based in Shenzhen. Lei was “very unhappy” about the appeals court outcome, Xuan said.

Xuan said the dispute between the pair wasn’t about Lei’s refusal to hand the extra funds extracted from the bank to Zhu. Instead, Xuan said, the case arose because Zhu delayed some contract payments to Lei. In fact, Xuan said, Lei had been willing to return the extra money to the bank.

Mortgage fraud need not be as elaborate as the deal between Zhu and Lei. Simple bribery can also be effective.

A Hong Kong property investor surnamed Fu, who declined to give his full name because he was admitting criminal behavior, told Reuters that 20,000 yuan (about $3,000) in a traditional red gift envelope was enough for a valuation company to inflate the price of the apartment he wanted to buy in Shenzhen by 40 percent. That increased the amount the bank was prepared to lend him by 1.26 million yuan.

While regulators press banks to enforce prudential standards, it is clear that some lenders are aware of these deceptions. “In accordance with industry standards, using a high property valuation to get a higher loan usually involves the staff of the bank,” said one 2016 judgment from a case in the Shenzhen Intermediate People’s Court.

Real estate agents play a pivotal role in mortgage fraud, according to industry insiders. China has an army of these agents, many of them poorly trained but highly motivated to make sales.

It was an estate agent from Centaline, a large Hong Kong-based property agency, who helped Zhu create her fake purchase agreements, Lei told the court according to case documents. Centaline said it had not found any documents in its records of the transaction showing that the property was overvalued to secure a higher mortgage. It said it forbids its staff from assisting customers in overvaluing property.

Reuters interviewed 12 property agents selling new and existing homes who said they had helped clients dodge lending rules. Another veteran salesperson in Shanghai who works at real estate company E-House China said around 50 percent of his clients engage in some kind of mortgage fraud. The person declined to be identified, and the company didn’t respond to questions.

Property agents often recommend buyers use so-called loan agents to help them secure funds from lenders. These loan agents have created an industry satisfying the demand for funds from borrowers unable to meet lending standards.

Bankers anxious to hit lending targets also introduce borrowers to these agents, according to property insiders. The use of loan agents allows the bankers to keep fraud at arm’s length.

Operating out of small, cramped offices, often in residential blocks, loan agents “re-package” – or falsify documents for mortgage applications.

“Around 60 percent of property buyers in Shanghai are involved in some kind of re-packaging,” said Jack Xiao, who worked for over a decade as a property agent in the city.

Online chat groups with names such as “Shanghai mortgage loans re-packaging” are inundated with adverts from agents touting their wares. “Doesn’t matter if black or white, we can get you a mortgage,” says one advert – meaning it doesn’t matter how good or bad a client’s credit rating is.

The price of fake documents needed to secure a loan, buy a home or dodge property taxes and fees is openly discussed on social media in China. In recent posts on WeChat, China’s biggest messaging platform, users compared the price of bogus documents in various cities.

When warnings of a property bubble intensified on surging prices last year, China’s state-run media carried commentaries arguing that the down payment rules were a sufficient buffer for banks if prices reversed. The requirement is a sharp contrast to down-payment ratios near zero for the deadly subprime loans that crashed the U.S. market in 2008.

In China, however, many buyers also borrow to cover their down payments. Among them is Fu, the Hong Kong investor who said he paid a bribe to inflate the appraisal for the property he wanted to buy. He borrowed a million yuan for his down payment from a finance company at a rate of 2 percent a month. When the bank advanced him his inflated mortgage, he paid for the property and repaid his down payment loan.

A senior employee of Centaline, the Hong Kong property agency, said around 30 percent of his clients have borrowed their down payments from a third party. A senior mortgage banker at Shanghai Pudong Development Bank placed the number at around 20 to 30 percent. Centaline said the employee’s comments don’t represent the company’s view; the bank said it strictly forbids the illegal flow of funds into the property market.

Borrowing money to finance a down payment is common because small loan companies, banks and unregulated black market loan firms lack the resources to check how the money is spent, or don’t care as long as their interest is paid, say employees from small loan firms.

China’s banking regulator has told lenders they need to scrutinize the flow of consumer loans into property more closely. Official figures show short-term household loans soared about 243 per cent in the first ten months of 2017 from a year earlier to 1.6 trillion yuan.

Loan and estate agents also help to divert funds advanced from banks for other purposes into property. Banks, for instance, can lend money for refurbishment loans, but according to internal lending rules, the loan proceeds must be paid into the account of the company that is meant to do the work. So, the loan agents create a firm, complete with working accounts, to deceive the bank into advancing the funds.

In 2016, Li Longteng signed an agreement to buy a property from Mai Bixia in the city of Guangzhou for 1.25 million yuan. The deal later fell through because Li, a resident of Hunan, was ineligible to buy property in Guangzhou. Mai subsequently decided not to sell.

Li sued Mai, claiming contractual default fees and the return of his deposit, according to case documents from a court in Guangzhou. The records show that Mai told the court the property agent and banker together suggested she assist with Li’s attempts to apply for a refurbishment loan from a bank with the intention of diverting the money to pay his down payment on the flat. Li and his property agent told the court it was the bank that suggested faking the loan application.

In the end, a fraud did not take place because the deal’s collapse meant no loan was issued. And the court ruled against Li because he didn’t meet the residential requirements to buy the property. Li’s lawyer told Reuters his client declined to comment. Questions sent to Mai’s lawyer went unanswered.

For bankers, there are rarely repercussions for failing to police the use of consumer loans or approving re-packaged mortgage applicants – as long as prices keep rising and defaults remain at bay.

Some commentators, property agents and developers argue Beijing can sidestep a market correction because China has a closed capital account, abundant reserves, a current account surplus and a financial system largely controlled by the government. The authorities also control the supply of land.

China’s new home price growth has slowed this year. Still, regulators and local authorities are showing concern about the threat from a property bubble.

Since April, more than 40 major Chinese cities require newly bought homes to be held for two or in some cases three years before they can be sold, in an effort to curb speculation. The authorities are also urging vigilance to counter fraud.

In August and September, the central bank asked lenders to be wary of borrowers channelling personal loans into property, according to reports carried by state media and official documents seen by Reuters. Regulators also ordered banks to crack down on yin-yang contracts and over-valuations, according to official notices sent to the banks and seen by Reuters last month.

Property market insiders see little prospect of an effective crackdown on fraud unless banks cooperate, however. Xuan Hong Xia, the lawyer for Lei Yarong, cites a case last year in which her firm represented a seller in a property deal. The buyer and agent had overvalued the property. Xuan’s law firm advised the bank of the deception, but the lender ignored the warning.

“It seems banks don’t consider the issue a serious one,” she said.


The Defrauding of America: The MERS swindle

December 3, 2017

by Christian Jürs

This is rapidly becoming a decade of official deceit and public disillusion.

The issue under discussion here is MERS (Mortgage Electronic Registration System).

MERS, set up by the U.S. government  in 1995, now claims to be a privately-held company and their official function is stated to be ‘keeping track of a confidential electronic registry of mortgages and the modifications to servicing rights and ownership of the loans.’

MERS is actually a U.S. government initiated organization like Fannie Mae and Freddy Mac and its current shareholders include AIG, Fannie Mae, Freddie Mac, WaMu, CitiMortgage, Countrywide, GMAC, Guaranty Bank, and Merrill Lynch. All of these entities have been intimately, and disastrously, involved with the so-called “housing bubble,” and were subsequently quickly bailed out by the supportive Bush administration

In addition to its publicly stated purpose of simplifying mortgage registration MERS was also set up to assist in the creation of so-called ‘ Collateralized’ debt obligations (CDOs) and Structured investment Vehicles (SIV). The CDOs is a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets. CDOs securities are split into different risk classes, or tranches, which permits these entities to be minced into tiny tranches and sold off by the big investment banks to pensions, foreign investors and retail investors, who in turn have discounted and resold them over and over.

It is well-known inside the American banking institutions that these highly questionable, potentially unsafe investment packages were deliberately marketed to countries, such as China and Saudi Arabia, that are not in favor with elements of the American government and banking industry and were, and are, marketed with full knowledge of their fragility.

The basic problem with this MERS system that while it does organize the mortgage market, it also knowingly permits fiscal sausage-making whereby a huge number of American domestic and business mortgages, (75 million by conservative estimate) are sliced up, put into the aforesaid “investment packages” and sold to customers both domestic and foreign.

This results in the frightening fact that the holders of mortgages, so chopped and packed, are not possible to identify by MERS or anyone else, at any time and by any agency. This means that any property holder, be they a domestic home owner or a business owner, is paying their monthly fees for property they can never own. Because of the diversity of the packaging, it is totally and completely impossible to ascertain what person or organization owns a specific mortgage and as a result, a clear title to MERS-controlled property is impossible to get at any time, even if a mortgage is fully paid. No person or entity, has been, or never can be, identified who can come forward and legally release the lien on the property once the loan is paid.

In short, MERS conceals this fact from the public with the not-unreasonable assumption that by the time the owner of the home or business discovers that they have only been paying rent on property they can never get clear title to, all the primary parties;  the banks, the government agencies, the mortgage companies, or the title companies, will be dead and gone. MERS is set up to guarantee this fact but, gradually, little by little, mostly by word of mouth, the public is beginning to realize that their American dream of owning a house is nothing but a sham and a delusion.

The solution to this is quite simple. If a home or business American mortgage payer , goes to the property offices in their county and looks at their registered property, they can clearly see if MERS is the purported holder of the mortgage. This is fraudulent – MERS has never advanced any funds in the transaction and owns nothing. It is merely a registry. If MERS is the listed holder, the mortgage payers will never, ever, get clear title to their property.

In this case, the property occupier has two choices: They can either turn the matter over to a real estate attorney or simply continue pouring good money after bad. And is there relief? Indeed there is. In case after case (95% by record) if the matter is brought to the attention of a court of law, Federal or state, the courts rule that if the actual owner of the mortgage cannot be located after a reasonable period of time, the owner receives a clear title from the court and does not need to make any further payments to an unidentified creditor! It will stop any MERS based foreclosure mid process and further, any person who was fraudulently foreclosed by MERS, which never held their mortgage, and forced from their home can sue MERS and, through the courts, regain their lost homes.

MERS Basic Corporate Information

MERS is incorporated within the State of Delaware.

MERS was first incorporated in Delaware in 1999.

The total number of shares of common stock authorized by MERS’ articles of incorporation is 1,000.

The total number of shares of MERS common stock actually issued is 1,000.

MERS is a wholly owned subsidiary of MERSCorp, Inc.

MERS’ principal place of business at 1595 Spring Hill Road, Suite 310, Vienna, Virginia 22182

MERS’ national data center is located in Plano, Texas.

MERS’ serves as a “nominee” of mortgages and deeds of trust recorded in all fifty states.

Over 60 million loans have been registered on the MERS system.

MERS’ federal tax identification number is “541927784”.

The Nature of MERS’ Business

MERS does not take applications for, underwrite or negotiate mortgage loans.

MERS does not make or originate mortgage loans to consumers.

MERS does not extend any credit to consumers.

MERS has no role in the origination or original funding of the mortgages or deeds of trust for which it serves as “nominee”.

MERS does not service mortgage loans.

MERS does not sell mortgage loans.

MERS is not an investor who acquires mortgage loans on the secondary market.

MERS does not ever receive or process mortgage applications.

MERS simply holds mortgage liens in a nominee capacity and through its electronic registry, tracks changes in the ownership of mortgage loans and servicing rights related thereto.

MERS System is not a vehicle for creating or transferring beneficial interests in mortgage loans.

MERS is not named as a beneficiary of the alleged promissory note.

Ownership of Promissory Notes or Mortgage Indebtedness

MERS is never the owner of the promissory note for which it seeks foreclosure.

MERS has no legal or beneficial interest in the promissory note underlying the security instrument for which it serves as “nominee”.

MERS has no legal or beneficial interest in the loan instrument underlying the security instrument for which it serves as “nominee”

MERS has no legal or beneficial interest in the mortgage indebtedness underlying the security instrument for which it serves as “nominee”.

MERS has no interest at all in the promissory note evidencing the mortgage indebtedness.

MERS is not a party to the alleged mortgage indebtedness underlying the security instrument for which it serves as “nominee”.

MERS has no financial or other interest in whether or not a mortgage loan is repaid.

MERS is not the owner of the promissory note secured by the mortgage and has no rights to the payments made by the debtor on such promissory note.

MERS does not make or acquire promissory notes or debt instruments of any nature and therefore cannot be said to be acquiring mortgage loans.

MERS has no interest in the notes secured by mortgages or the mortgage servicing rights related thereto.

MERS does not acquire any interest (legal or beneficial) in the loan instrument (i.e., the promissory note or other debt instrument).

MERS has no rights whatsoever to any payments made on account of such mortgage loans, to any servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans.

The note owner appoints MERS to be its agent to only hold the mortgage lien interest, not to hold any interest in the note.

MERS does not hold any interest (legal or beneficial) in the promissory notes that are secured by such mortgages or in any servicing rights associated with the mortgage loan.

The debtor on the note owes no obligation to MERS and does not pay MERS on the note.

MERS’ Accounting of Mortgage Indebtedness / MERS Not At Risk

MERS is not entitled to receive any of the payments associated with the alleged mortgage indebtedness.

MERS is not entitled to receive any of the interest revenue associated with mortgage indebtedness for which it serves as “nominee”.

Interest revenue related to the mortgage indebtedness for which MERS serves as “nominee” is never reflected within MERS’ bookkeeping or accounting records nor does such interest influence MERS’ earnings.

Mortgage indebtedness for which MERS serves as the serves as “nominee” is not reflected as an asset on MERS’ financial statements.

Failure to collect the outstanding balance of a mortgage loan will not result in an accounting loss by MERS.

When a foreclosure is completed, MERS never actually retains or enjoys the use of any of the proceeds from a sale of the foreclosed property, but rather would remit such proceeds to the true party at interest.

MERS is not actually at risk as to the payment or nonpayment of the mortgages or deeds of trust for which it serves as “nominee”.

MERS has no pecuniary interest in the promissory notes or the mortgage indebtedness for which it serves as “nominee”.

MERS is not personally aggrieved by any alleged default of a promissory note for which it serves as “nominee”.

There exists no real controversy between MERS and any mortgagor alleged to be in default.

MERS has never suffered any injury by arising out of any alleged default of a promissory note for which it serves as “nominee”.

MERS’ Interest in the Mortgage Security Instrument

MERS holds the mortgage lien as nominee for the owner of the promissory note.

MERS, in a nominee capacity for lenders, merely acquires legal title to the security instrument (i.e., the deed of trust or mortgage that secures the loan).

MERS simply holds legal title to mortgages and deeds of trust as a nominee for the owner of the promissory note.

MERS immobilizes the mortgage lien while transfers of the promissory notes and servicing rights continue to occur.

The investor continues to own and hold the promissory note, but under the MERS® System, the servicing entity only holds contractual servicing rights and MERS holds legal title to the mortgage as nominee for the benefit of the investor (or owner and holder of the note) and not for itself.

In effect, the mortgage lien becomes immobilized by MERS continuing to hold the mortgage lien when the note is sold from one investor to another via an endorsement and delivery of the note or the transfer of servicing rights from one MERS member to another MERS member via a purchase and sale agreement which is a non-recordable contract right.

Legal title to the mortgage or deed of trust remains in MERS after such transfers and is tracked by MERS in its electronic registry.

Beneficial Interest in the Mortgage Indebtedness

MERS holds legal title to the mortgage for the benefit of the owner of the note.

The beneficial interest in the mortgage (or person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note and/or servicing rights thereunder.

MERS has no interest at all in the promissory note evidencing the mortgage loan.

MERS does not acquire an interest in promissory notes or debt instruments of any nature.

The beneficial interest in the mortgage (or the person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note (NOT MERS).

MERS As Holder

MERS is never the holder of a promissory note in the ordinary course of business.

MERS is not a custodian of promissory notes underlying the security instrument for which it serves as “nominee”.

MERS does not even maintain copies of promissory notes underlying the security instrument for which it serves as “nominee”.

Sometimes when an investor or servicer desires to foreclose, the servicer obtains the promissory note from the custodian holding the note on behalf of the mortgage investor and places that note in the hands of a servicer employee who has been appointed as an officer (vice president and assistant secretary) of MERS by corporate resolution.

When a promissory note is placed in the hands of a servicer employee who is also an MERS officer, MERS asserts that this transfer of custody into the hands of this nominal officer (without any transfer of ownership or beneficial interest) renders MERS the holder.

No consideration or compensation is exchanged between the owner of the promissory note and MERS in consideration of this transfer in custody.

Even when the promissory note is physically placed in the hands of the servicer’s employee who is a nominal MERS officer, MERS has no actual authority to control the foreclosure or the legal actions undertaken in its name.

MERS will never willingly reveal the identity of the owner of the promissory note unless ordered to do so by the court.

MERS will never willingly reveal the identity of the prior holders of the promissory note unless ordered to do so by the court.

Since the transfer in custody of the promissory note is not for consideration, this transfer of custody is not reflected in any contemporaneous accounting records.

MERS is never a holder in due course when the transfer of custody occurs after default.

MERS is never the holder when the promissory note is shown to be lost or stolen.

MERS’ Role in Mortgage Servicing

MERS does not service mortgage loans.

MERS is not the owner of the servicing rights relating to the mortgage loan and MERS does not service loans.

MERS does not collect mortgage payments.

MERS does not hold escrows for taxes and insurance.

MERS does not provide any servicing functions on mortgage loans, whatsoever.

Those rights are typically held by the servicer of the loan, who may or may not also be the holder of the note.

MERS’ Rights To Control the Foreclosure

MERS must all times comply with the instructions of the holder of the mortgage loan promissory notes.

MERS only acts when directed to by its members and for the sole benefit of the owners and holders of the promissory notes secured by the mortgage instruments naming MERS as nominee owner.

MERS’ members employ and pay the attorneys bringing foreclosure actions in MERS’ name.

MERS’ Access To or Control Over Records or Documents

MERS has never maintained archival copies of any mortgage application for which it serves as “nominee”.

In its regular course of business, MERS as a corporation does not maintain physical possession or custody of promissory notes, deeds of trust or other mortgage security instruments on behalf of its principals.

MERS as a corporation has no archive or repository of the promissory notes secured by deeds of trust or other mortgage security instruments for which it serves as nominee.

MERS as a corporation is not a custodian of the promissory notes secured by deeds of trust or other mortgage security instruments for which it serves as nominee.

MERS as a corporation has no archive or repository of the deeds of trust or other mortgage security instruments for which it serves as nominee.

In its regular course of business, MERS as a corporation does not routinely receive or archive copies of the mortgage security instruments for which it serves as nominee.

Copies of the instruments attached to MERS’ petitions or complaints do not come from MERS’ corporate files or archives.

In its regular course of business, MERS as a corporation does not input the promissory note or mortgage security instrument ownership registration data for new mortgages for which it serves as nominee, but rather the registration information for such mortgages are entered by the “member” mortgage lenders, investors and/or servicers originating, purchasing, and/or selling such mortgages or mortgage servicing rights.

MERS does not maintain a central corporate archive of demands, notices, claims, appointments, releases, assignments, or other files, documents and/or communications relating to collections efforts undertaken by MERS officers appointed by corporate resolution and acting under its authority.

Management and Supervision

In preparing affidavits and certifications, officers of MERS, including Vice Presidents and Assistant Secretaries, making representations under MERS’ authority and on MERS’ behalf, are not primarily relying upon books of account, documents, records or files within MERS’ corporate supervision, custody or control.

Officers of MERS preparing affidavits and certifications, including Vice Presidents and Assistant Secretaries, and otherwise making representations under MERS’ authority and on MERS’ behalf, do not routinely furnish copies of these affidavits or certifications to MERS for corporate retention or archival.

Officers of MERS preparing affidavits and certifications, including Vice Presidents and Assistant Secretaries, and otherwise making representations under MERS’ authority and on MERS’ behalf are not working under the supervision or direction of senior MERS officers or employees, but rather are supervised by personnel employed by mortgage investors or mortgage servicers.

The Fundamentals:

In the period beginning in 1999 and ending in March of 2008, Mortgage Electronic Registration Systems Inc., aka MERS, has been named as a “mortgagee” on over 50 million mortgages. Yet MERS has never originated a single mortgage loan nor loaned a dime to a single borrower.

In 2001 the New York Supreme Court ordered the Suffolk County Clerk to accept MERS mortgages for recording as a purely ministerial duty. However the Court denied MERS request for a judgment declaring that MERS mortgages were “lawful in all respects”.

The New York Court of Appeals affirmed the Supreme Court’s order directing the County Clerk to record MERS mortgages. The Court of Appeals did not reverse the Supreme Court’s denial of MERS request for a judicial declaration that MERS mortgages are “lawful in all respects”.

MERS, for obvious reasons, did not want a published opinion of the fact that MERS mortgages are legal nullities and/or that MERS has no standing to enforce a mortgage when it is not a creditor entitled to collect a debt. The New York Court of Appeals did address and frame these two issues but left them to be decided at a future date.

No Note No Foreclosure:

In reality MERS is really nothing more than a shell, or a front corporation for its so-called “members”. Many of these MERS members were once some of the most prestigious names in American finance. Many MERS members are now reporting hundreds of billions of dollars of losses as result of their ill conceived scheme to ramp up mortgage origination so they could pretend to flip millions of mortgage loans into trusts in exchange for trillions of dollars of investor’s money. One big problem was that the promissory notes were never actually delivered to the trustees of these trusts. Therefore these trusts have no evidence of ownership of the debts they purportedly purchased.

Akin to purchasing a home without being given a deed and to make matters worse many of the debts evidenced by these undelivered promissory notes were supposed to be secured by mortgage liens. However in place of mortgages being executed in favor of the original lender many of these mortgages were executed in favor of MERS and because MERS never holds these notes or owns a debt it is not a creditor. MERS therefore has no legal standing to enforce a debt, or so it told the Nebraska Court of Appeals in 2005. However this lack of standing defense must be raised by property owners who are sued.

The most effective economic way to raise this lack of standing defense is by bringing a motion to dismiss in response to the complaint to foreclose. In many states and in federal court this is called a Rule 12 motion. This motion is brought in place of answering the complaint.

An honest attorney in most areas of the country should be willing to prepare and bring such a motion for $500.00 to $1,500.00 for a distressed homeowner. Or you might be able to find a lawyer to do it for you pro bono and perhaps a legal aid attorney. At least five judges around the country have dismissed these actions for lack of standing sua sponte, which means they did it on their own volition. Perhaps more judges will feel the duty to do the same thing in the future to protect the integrity of the Court.

MERS members, mortgage industry executives, invented the so-called MERS paperless system to short cut standing mortgage lending safe guards and circumvent the legal requirements for originating mortgage loans and/or for selling and transferring these loans to subsequent holders. This would allow MERS members like Countrywide Financial, Fieldstone Mortgage, and Option One Mortgage to make loans to anyone with a heartbeat and then quickly flip these questionable loans to other MERS members such a Fannie Mae, Freddie Mac, Bear Stearns, Merrill Lynch, Lehman Brothers to name just a few. (“Secondary Mortgage Market Players”)

These Secondary Mortgage Market Players would claim to package millions of these loans, with or without being delivered the promissory notes, into loan pools or “mortgage backed security trusts” and then flip the loans by selling trillions of dollars of bonds to investors around the world. The bonds were touted by Secondary Mortgage Market Players as producing safe yet high returns. The investors who bought these bonds included many of the world’s largest national banks. Initially MERS members reported windfall profits year after year by quickly originating, packaging into pools and then flipping trillions of dollars of mortgages loans to investors.

Other MERS members, such as title insurance companies, also took their cuts from each of the fifty million loans that were made while this high speed gravy train was rolling. MERS itself would earn over a billion dollars a year by charging its members $250.00 for each mortgage that MERS would be named as “mortgagee”.

A June 10, 2007 article in Forbes magazine details the carelessness in the securitization process by which mortgage loans were packaged and sold off to mortgage pools is now coming back to bite the trustees of these mortgage backed trusts who are now seeking to foreclose millions of loans that are in default.

The financial engineering (i.e. mortgage securitization) helped oil the housing boom by making credit more available, but stalled housing prices and rising defaults have revealed a mess. In the rush to flip paper, lots of the new lenders or pools don’t have the proper paperwork to show they even hold the mortgage.

The reported profits from the sale of these mortgaged backed securities would result in billions of dollars of salaries and bonuses being paid to the senior executives of many of MERS member corporations. Ultimately the bond investors who actually provided all the money would learn that their “safe” investment was anything but safe.

As hundreds thousands and then millions of these loans fell into default, these bondholders would lose hundreds of billions of dollars. As of April 1, 2008, the largest banks around the world had already written off loses of one hundred and fifty billion dollars relating to bonds they had purchased. One Swiss bank, U.S.B., has recently reported 40 billion dollars in losses.

These loses may only be the beginning. What many people refuse to admit is that because of the so-called MERS paperless “system” many of the so-called mortgage backed security trusts do not actually hold the promissory notes which evidence the debts that are supposed to be backing the bonds purchased by these investors. The situation is reminiscent of The Great Olive Oil Scandal in the late 1800’s when banks were duped into investing millions of dollars into Olive Oil only to later discover that the tanks which were supposed to be holding millions of gallons of olive oil backing their investments were mostly empty.This problem with the missing trust assets/promissory notes manifests itself each time MERS and/or the trustees for the bondholders brings a legal action to collect on a debt through foreclosure. Because neither MERS nor the bond holders or trustees are holding the notes and lack proof of standing to maintain their legal actions, thus the actions are subject to dismissal. Many foreclosure actions have been dismissed based upon lack of standing. This is a problem that it is a direct result of MERS “system”.

It appears that after MERS mortgage loans are flipped to the mortgage backed trusts the promissory notes are not actually delivered to the trustees. Nor are assignments of mortgages executed and delivered which evidence the fact the original lender has transferred the debt which is secured by the mortgage. This leaves the trusts with absolutely no paper evidence of ownership of the secured debt it purportedly owns.

One informed lawyer who represents homeowners in Florida, April Charney, had foreclosure proceedings against 300 clients dismissed or postponed in 2007 for lack of standing. She is quoted as saying that “80 percent of them involved lost-note affidavits”.

They raise the issue of whether the trusts own the loans at all,” Charney said. “Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule.” Ms. Charney, started challenging MERS and it members lost note affidavits after becoming skeptical of that a lender could possibly lose hundreds of promissory notes.

At least two Florida judges shared Ms. Charney’s skepticism regarding the copious amounts of MERS lost note affidavits and they issued show cause orders, sua sponte, challenging MERS to show proof that it held and/or lost notes in numerous actions. After evidentiary hearings these two alert judges dismissed twenty nine (29) MERS actions to foreclose for lack of standing. One judge struck MERS pleadings as being a sham.

A South Carolina court dismissed a MERS action to foreclose for lack of standing even though MERS filed an affidavit wherein a person claiming to be an officer of MERS claimed that MERS was holding a promissory note. The South Carolina court vetted the MERS affidavit claim that it was the holder of the note after being apprised of the fact that MERS had previously told the Nebraska Court of Appeals that it never held promissory notes.

In late 2007 three Federal Court Judges in Ohio dismissed over fifty law suits brought by trustees of mortgage backed trusts where they could not produce the original promissory notes. Following these decisions the Bankruptcy Court in Los Angeles, California adopted a rule of practice which requires all foreclosing trustees or other plaintiffs to produce the original promissory note when bringing an action to foreclose a debt or face sanctions for not doing so. Several courts in New York have been routinely dismissing foreclosure actions brought by MERS or its members because they continually fail to produce promissory notes.

It is disturbing to know that National Banks are the trustees of thousands of trusts that may be missing millions of promissory notes. This might explain why, to date, not a single National Bank has publicly disclosed the fact that they are not actually holding what may be millions of promissory notes which evidence ownership of debts supposedly owned by their respective trusts.

An independent audit of these trusts would probably be quite revealing and this writer is also unaware of any such audits that have been performed to date.      These National Banks, as trustees, are accountable and therefore liable for missing trust property or the documents evidencing ownership.

As more borrowers, lawyers and judges learn that neither MERS nor these trustees are actually holding the promissory notes evidencing the debts they seek to collect through foreclosure, dismissals of these foreclosure actions for lack of standing will become routine, as it now has in New York, Ohio and Florida. This will also mean that bond holders from around the globe will be seeking to recover their losses from the National Bank trustees who never got around to obtaining the notes evidencing debts that were purportedly owned by these trusts.

A Review of problems with basic MERS paperless system:

The members of MERS had from the onset, three serious problems which would ultimately derail their high speed and high volume mortgage lending system. The first problem was finding millions of Americans who could qualify for a loan to purchase any home. The second problem was how to quickly endorse and deliver of millions of promissory notes from the originating lender to Secondary Market Players and then on to subsequent holders, like the trusts. The third problem was executing millions of assignments of mortgages and recording these assignments in the public land records, with each successive transfer of the promissory notes.

The last two would require significant administrative time and expense. MERS and its members didn’t want to be bogged down by trivial administrative details. They wanted to make big money fast by making millions of loans with other people’s money and making those loans at lightning speed. Their attitude was “Damn the torpedoes full speed ahead” rather than finding people who could actually qualify for loans, meaning pay it back.

MERS members simply lowered the qualification bar by creating all kinds of “creative loans”, including two which they called “No Doc” and “Sub-Prime loans”. No Doc (no documentation) loans would be made to borrowers who had good credit scores but would not require verification of actual income of the borrowers. Sometimes relying on income as stated by the borrower and sometimes putting in fictional numbers. These loans would later become known as liar loans.

Sub Prime loans would be made to borrowers who had less than stellar credit history or no credit history at all. Many people from minority groups and newly arrived immigrants became targets for these loans. Both No Doc and Sub Prime loans carried higher interest rates than regular mortgage loans. By lowering home loan qualification bar these greedy geniuses had invented a larger market of residential home purchasers.

Swarms of previously unqualified borrowers could now be swooned by real estate agents, mortgage brokers into buying a house by borrowing money, not from a bank or savings and loan, but from investors who were at best, two times removed from the closing table.

This expanded market of previously unqualified home buyers and/or investors created a real estate bonanza on the street level for realtors, mortgage brokers, and home builders. Prices for homes rose dramatically as this new demand by buyers who really were not qualified out-stripped the supply of homes. The high foreclosure rates in the Las Vegas, Miami, California and rust belt areas as no relationship to geography. But clear relationships with the ease of No Doc and Sub Prime loan acceptance.

Rather than actually delivering millions of endorsed promissory notes to the Secondary Market Makers and then on to the bondholder’s trusts, which is the only way a debt evidenced by a negotiable instrument is legally transferred to a new owner, the promissory notes were either not delivered at all, or were simply delivered to the original loan servicer, weeks and/or months after the originating lender had sold the debt. Thus in many cases the “mortgage backed security” trusts may not actually be holding millions of promissory notes which evidences the ownership of the debt that these mortgage backed loan pools supposedly own or hold.

To make matters worse many of the original mortgage lenders and large loan servicing companies have filed for bankruptcy or just gone out of business and decreasing the trusts likelihood of ever locating, much less obtaining possession of what could be hundreds of thousand if not millions of missing promissory notes.

Rather than actually delivering bona fide (real) assignments of each mortgage to the Secondary Mortgage Makers and then causing each mortgagee’s interest to be re-assigned to each mortgage backed investment pool, along the high speed mortgage gravy train route, they simply invented the MERS “paperless” system.

The founders of MERS knew that MERS was merely a “a facade” they would employ to expedite the number of loans that could be originated, packaged and sold as mortgage backed securities. They felt they could “eliminate” such paperwork as promissory notes and mortgage assignments, even though commercial law requires such sundry items as promissory notes and mortgage assignments. The MERS founders seem to think they could ignore and/or circumvent the law as if the “the ends justified the means” as long as they would make big money.

Rather than record millions of mortgages and multiple millions of assignments in local land records, the founders of MERS decided that it would be named the “Mortgagee” in place of the original lender. By creating (inventing) this new entity, MERS declared that it was some sort of agent for each and every mortgagee or mortgagee assignee and could then act as a “mortgagee” in the public land records.

Through this clever legal sleight of hand MERS founders believed they could eliminate the commercial lending practices of having to endorse and deliver each promissory note to the new owner/holder and eliminate the execution of each assignment of mortgage by the mortgage lender for each secured note that was sold to a Secondary Market Maker, together with incidental recording of each assignment of mortgage by the Secondary Mortgage Maker or its assigns.

MERS founders and members went about foisting their so-called “paperless” system on the American economy and indirectly upon the global economy. MERS studiously avoided seeking any legislative changes of long standing commercial laws relating to promissory notes, mortgages and public recording of assignments in any of the 50 states that it would ultimately be operating. It is possible that this blatant abuse, of the UCC and state recording laws might have passed itself off as the new way of doing business in our computer age.

But MERS member companies, under clear instructions from their leaders, guaranteed disaster by pumping up and then dumping these shaky loans onto investors through trust they set up for this purpose. These investor/bond holders are just now discovering that they were duped. They just don’t know how badly they were duped.

Perhaps this is what the global economy is really all about. Seeing who can dupe international banks and governments out of trillions of dollars depositor and taxpayer money and do so with complete impunity. Yet, to my knowledge, after learning that they invested trillions of dollars into these questionable loan pools, aka cesspools, not a single National Bank has ordered an audit of these cesspools or trusts to determine the actual contents and the value.

As a matter of sound public policy our courts should not allow MERS or its so-called “members” to circumvent and/or violate long standing laws of commerce, simply because some greedy mortgage executives thought they could shoe-horn their so-called “paperless system” into the framework of our current system of commerce. Our system still requires such sundry instruments as promissory notes to be used to evidence debts and also requires that these instruments change hands when sold or transferred to a new owner.

Our system also requires a new holder of a promissory note to record an assignment of security interest or mortgage in order to enforce a lien which secures the debt evidenced by the promissory note. No one should be able to simply ignore these long standing laws just so they can reap billions of dollars in illicit bonuses by quickly originating and then flipping loans without the attendant delivery of notes and assignments of mortgages. Our system of commerce does not operate this way. This is because we have laws of commerce including the UCC which regulates our system of commerce.

The MERS paperless system simply provided an expedient way for MERS and its members to fleece investors on a global basis, by loaning money to people who couldn’t or wouldn’t pay the money back and then flipping trillions of dollars of these bogus loans to third party investors. The MERS system does not comply with our current laws of commerce.

While the computer age has admittedly changed how business is transacted it has not eliminated or replaced the legal requirement for such things as promissory notes, mortgages and assignments of mortgages, when a loan is made, a mortgage is given and the loan is subsequently sold and/or resold. This is precisely why a competent and prudent lender who makes a loan to a qualified borrower takes back a promissory note and if the loan is to be secured the borrower executed a mortgage or security agreement naming the lender as the mortgagee or secured party. The lender must then record or file its mortgage or security agreement to prefect its lien.

If the lender decides to sell the debt it is owed to a third party it must endorse and deliver the promissory note to the third party, and in order for the third party to enforce either a mortgage lien or security interest, the original lender must execute an assignment of mortgage or security interest, which must then be recorded or filed by the third party to give evidence and public notice of its status as assignee of the lien securing the debt it had purchased. Only the holder of the promissory note is entitled to enforce the note and/or any lien which secured the debt.

Given the extremely close relationship that MERS and its many corporate members have with the politicians who run our state and federal governments, it is not surprising that MERS and it members were able to pull off this gigantic global financial scheme without raising the brow of a State or Federal law enforcement or regulators. Only now are a few politicians and regulators paying lip service to what they refer to as the “Mortgage Meltdown”.

What no politician or regulator ever seems to mention is that a millions of the mortgages that “melted down” have the name Mortgage Electronic Registration System Inc. on them. American courts should no longer tolerate or close a blind eye to the fact that the MERS has no standing to commence any legal actions relating to peoples properties because they do not hold any legal or equitable interest in the debt or in the properties.

The Court’s must protect the integrity of our court system by enforcing our laws of commerce as they have existed and not allow parties to come into our courts and commence actions relating to debts that they do not own and/or have no proof of ownership.

The MERS “paperless system” is the same kind of scheme that is hatched in some internet boiler room in Nigeria, not in the boardrooms of our once prestigious American financial institutions and this gigantic scheme has completely ignored long standing laws of commerce. The effect of the system has already had a catastrophic effects on both the American and global economy.

Yet many of the investment “trusts” which supposedly hold thousands of original promissory notes are hard pressed to produce them when legally required to do so. MERS admittedly does not hold any promissory notes. A party must have possession of a promissory note in order to have standing to enforce and/or otherwise collect a debt that is owed to another party.

Given these facts how will these investors ever recoup their investments if the debt they were supposed to own cannot be legally enforce or collected? What will be the status of title to properties that were purportedly foreclosed by MERS where MERS admittedly had no legal right to foreclose or otherwise collect debt which are evidenced by promissory notes held by someone else?



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