Man vs. Bank

Utah courts are taking it to the banks

Inquiring minds are watching the fallout in Utah where a man just beat the banks in court by agruing that the bank had no right to foreclose…and he got his house given to him with clear title. This means Mr. Walter Keane does not even have to pay his loan of $132,000. All because of the way MERS handled his documents…or that MERS handled the documents:

A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.

The award of a title free of liens means that whoever owns the promissory note on the Draper property — likely a group of faraway investors — no longer has the right to foreclose to collect on a delinquent loan. Indeed, the townhouse owner has sold the property and kept the money. Those who own the promissory note probably don’t even know what occurred.

This is now the second state which has decided against the banks. Remember this SurvivingCalifornia.com post on Massachuetts Supreme Court’s similar decision last month.

This case in Utah may have even more importance:

Decisions such as the one 3rd District Judge Glen Iwasaki handed down in the Draper case could have a big impact as the state wends its way through hundreds of lawsuits involving foreclosures, loans on properties for more than they’re worth and predatory lending practices that led Utahns to lose their homes as the real-estate bubble burst.

As always it seems, MERS is at the center of the storm:

This is all tied up with MERS, the online database that has stood in for the land records system in as many as 60% of the mortgages in America over the past decade or so. As we’ve seen, MERS is essentially a way for the largest banks to avoid recording fees, by naming them as the mortgagee on the original record and then transferring the mortgage and the note through their database. The problem is that MERS is named as an owner on loans in which it has no financial interest, and the judicial system doesn’t yet know how to manage that. This has confused the hell out of title insurance companies, who cannot determine who holds the note or even who can collect payments on it. As a result, in this case, the courts and the title company failed to figure any of that out, so they gave title back to the homeowner.

The ‘why’ in this case has been discussed before here at SurvivingCalifornia.com. If you remember one our most popular posts “The F-Bomb” you will see a similar metaphor of “photocopying a $100 Federal note” used by Christopher Peterson of the University of Utah quoted in “The F-Bomb”. Mr. Peterson says that in this case in Utah, MERS calls into question their ability to succeed:

Under laws adopted by all 50 states, the owner of a “negotiable instrument” such as a promissory note must be in physical possession of the document, said Peterson. Otherwise it would be like someone trying to cash a photocopy of a check instead of the actual check. [SC editor’s bolding]

“One cannot be a holder of a note unless one is in physical possession of that note,” he said.

But Peterson said evidence is coming out in courts that shows the actual promissory notes or mortgages signed by buyers were not transferred as the notes made their way into the mortgage-backed securities investment pools.

Yes, we have been saying that 2011 was going to be an interesting year…and the fireworks have already begun!

Other SurvivingCalifornia.com posts on this topic:

“Foreclose on the Foreclosure Fraudsters”
“More on Mortgage Mess”