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

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10 Responses

  1. someone like myself, would at this point ask the question, “can the courts do this, just give the house to the guy?”
    well louie, they just did…………

  2. Yes, it looks as if courts have the power. If you read “The F-Bomb” (it is linked) you will get an idea.

    Also, there was a case about 2 years ago in New York where a bank (BofA I think) kept putting off court appearences. Then, when the bank’s representative finally did show up, she was caught lying. At that point, the Judge slammed his gavel, said a latin phrase, and the home was the owner’s free and clear. And, from what was said at the time, because of this old tradition, it couldn’t even be appealed. At least, with hope of being overturned.

    The courts have enormous power.

  3. It’s not over until the nine Supremes sing. This was based on a technicality. That is the county has a record saying who owns it and the judge said we don’t care who else signed a legal contract in good faith our county record is the final arbitrar of this. Another court might decide that since MERS has been upheld in the past it has a higher standard then the county property records (which by the way were incorrect) AND that there was a legal contract between the person who owned the not (mortgage) and the person who bought the note thus contract law supercedes a piece of paper in a county courthouse. In my opinion if this ruling is allowed to stand there will be some serious unintended consequences.

  4. Agree with the Supremes. Disagree about your point of law.

    CA real estate law states that if the deed isn’t recorded it is unenforceable. It was the lenders responsibility. This is basic real estate law and is drummed into the head of every licensee ad nauseum.

    The county records weren’t incorrect. The owner of the mortgage (deed) didn’t record it. These investors were playing musical chairs. Or hot potato.

    If deeds don’t need to be recorded, then why to we record everytime we finance or refinance?

    And, Mass Supreme Court ruled last month the same way. So it isn’t just ‘one court’.

  5. You may be right, but then again you may be wrong. The law allowed MERS to do this in good times and set a precedent. There was clearly a contract betweent two parties and one of those parties clearly held the mortgage and had the right to sell the mortgage. If your arguement is that contract law, federal law and the future of real estate loans and banks take a back seat to a county “requirement” that real estate deeds be recorded in their office, then I have to fall back on it ain’t over till the nine Supremes sing.

  6. Let me add that it was to congress that MANDATED that Fannie mae and Freddie Mac sell mortgages into the investment market and that they could be bundled. None of this would be possible if every individual mortgage had to be individually updated in each individual county every time they are sold. I have purchased stock and sold stock and never even seen it. Then one day I purchased some for a present and wanted the actual certificate and it cost a pretty penny for that piece of paper. But it got worse. When it was sold there was a cost to sell it over and above the normal fee because of that piece of paper. So it is clear to me that congress intended that mortgages could be bought and sold without that extra cost and inconvenience. Last I looked congress trumped county.

  7. […] This is a follow-up to: “Man vs. Bank“ […]

  8. […] Reasons Why MERS Problem Can’t be Fixed by Legislation The F-Bomb More on Mortgage Mess Man vs. Bank Follow-up to Utah’s “Man vs. […]

  9. […] F-Bomb Man vs. Bank Follow-up to Utah’s “Man vs. Bank” “MERS Corp Lacks Right”, Says […]

  10. […] Man vs. Bank […]

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