How They Steal Your House

Published by nootkabear

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3 thoughts on “How They Steal Your House

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    Mers Cannot Transfer Note!

    In 2009, the decision of the Supreme Court of Kansas which attacked MERS (Mortgage Electronic Registration System) assignments has literally subjected some sixty (60) million mortgage foreclosures to challenge.

    Notwithstanding the wealth of recent court decisions on the fallacy behind and the legal invalidity of MERS assignments, several jurisdictions (most notably Arizona and, to some extent, Hawaii) still blindly believe that simply because a MERS Assignment of Mortgage states that the mortgage is assigned “together with the Note or indebtedness” that such language also legally transfers the interest in the Note from the original lender (or whoever claims to be the then-holder) to the assignee of the Mortgage.

    Several courts throughout different jurisdictions in the United States have examined this issue and have uniformly held that MERS assignments DO NOT transfer any interest in the Note.

    The standard MERS language in a Mortgage (or Deed of Trust as it is termed in nonjudicial states, or Security Deed as it is termed in Georgia) provides that “MERS is a separate corporation and is the beneficiary”. However, this language ONLY appears in the Mortgage or Deed of Trust; it DOES NOT APPEAR IN THE NOTE. However, the standard MERS assignment nonetheless purports to transfer not only the mortgage (or Deed of Trust), but also the Note without any authority for doing so.


    July 9, 2010

    The United States Bankruptcy Court for the Eastern District of California has issued a ruling dated May 20, 2010 in the matter of In Re: Walker, Case No. 10-21656-E-11 which found that MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp. The Court’s opinion is headlined stating that MERS and Citibank are not the real parties in interest.

    The court found that MERS acted “only as a nominee” for Bayrock under the Deed of Trust and there was no evidence that the note was transferred.

    The opinion also provides that “several courts have acknowledged that MERS is not the owner of the underlying note and therefore could not transfer the note, the beneficial interest in the deed of trust, or foreclose on the property secured by the deed”, citing the well-known cases of In Re Vargas (California Bankruptcy Court), Landmark v. Kesler (Kansas decision as to lack of authority of MERS), LaSalle Bank v. Lamy (New York), and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court).

    The opinion states: “Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.”

    Read that again: “Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note IS VOID UNDER CALIFORNIA LAW.”

    This conclusion was based upon California law cited in the opinion that the note and the mortgage are inseparable, with the former being essential while the latter is “an incident”, and that an assignment of the note carries the mortgage with it, “while an assignment of the latter [the mortgage] alone is a nullity.” As MERS must own the note in order to assign the incident deed of trust, MERS is legally precluded from assigning the deed of trust for want of ownership of the note, and cannot assign the note in any event as it never owned it. MERS’ lack of ownership interest in promissory note is a matter of decided case law based on a record stipulation of MERS’ own lawyers in the MERS v. Nebraska Dept. of Finance decision.

    This opinion thus serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

    The Court concluded by stating: “Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.” Thus, any foreclosing party which is not the original lender which purports to claim payment due under the note and the right to foreclose in California on the basis of a MERS assignment does not have the right to do so under the principles of this opinion.

    This ruling is more than significant not only for California borrowers, but for borrowers nationwide, as this California court made it a point to cite non-bankruptcy cases as to the lack of authority of MERS in its opinion. Further, this opinion is consistent with the prior rulings of the Idaho and Nevada Bankruptcy courts on the same issue, that being the lack of authority for MERS to transfer the note as it never owned it (and cannot, per MERS’ own contract which provides that MERS agrees not to assert any rights to mortgage loans or properties mortgaged thereby). 



    Department of Justice Press Release

    For Immediate Release
    May 7, 2010 United States Attorney’s Office
    Northern District of Georgia
    Contact: (478) 752-3511

    Two Former Bank Executives and Hotel Developer Charged with Frauds Relating to the Collapse of $1 Billion Atlanta Bank

    ATLANTA, GA—A federal judge in Atlanta unsealed an indictment today charging two former Atlanta-based Integrity Bank executives, Douglas Ballard, 40, and Joseph Todd Foster, 42, both of Atlanta, and hotel developer Guy Mitchell, 50, of Coral Gables, Fla., with various acts of conspiracy, bribery, bank fraud and/or securities fraud relating to over $80 million in loans that Mitchell obtained from Integrity Bank. Mitchell, Ballard and Foster were indicted by a federal grand jury on April 14, 2010, and Mitchell is expected to make his initial appearance before U.S. Magistrate Judge Gerrilyn Brill today. Arraignments are expected to be scheduled shortly in federal court in Atlanta for the three defendants.

    U.S. Attorney Sally Quillian Yates said, “We have charged two of Integrity Bank’s former officers and its largest borrower with various acts of fraud, bribery, and insider trading. These officers of Integrity Bank sure weren’t living up to the bank’s name. After passing out $80 million to the developer like it was monopoly money, both officers dumped their Integrity stock before the failed loans came to light. While the developer was living the good life, even buying a private island with Integrity’s money, and the bank’s senior loan officer was making huge commissions and taking payoffs from the developer, the bank was dying a slow death. The defendants were going to leave the bank’s shareholders and the FDIC holding the bag, but now they are being held accountable.”

    Jon T. Rymer, Inspector General, Federal Deposit Insurance Corporation, said, “The Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG) is pleased to join the U.S. Attorney’s Office for the Northern District of Georgia and our law enforcement colleagues in defending the integrity of the financial services industry. We are particularly concerned when senior bank officials, who are in positions of trust within their institutions, are alleged to be involved in unlawful activity. Prosecutions of individuals and entities involved in criminal misconduct help maintain the safety and soundness of the Nation’s financial institutions.”

    IRS-Criminal Investigation Special Agent in Charge Reginael McDaniel said, “This indictment is an important victory for America’s taxpayers who play by the rules and have no tolerance for those who make up their own rules. This investigation serves to remind us that there is no such thing as free money and there are no awards or incentives for creativity when it comes to crime.”

    According to U.S. Attorney Yates, the charges and other information presented in court: From 2004 to 2007, Mitchell and companies he controlled obtained more than $80 million in various supposed business loans from Integrity Bank, based in Atlanta. He allegedly obtained much of these funds under false pretenses, and deposited nearly $20 million of these business loans in a personal checking account, in which he made millions of dollars worth of personal luxury expenses and withdrew substantial amounts of cash. Among his personal expenses was over $1.5 million spent on a private island in the Bahamas.

    While Mitchell was spending much of the loan proceeds on himself, the indictment alleges that he paid little, if any, of his money back to Integrity to satisfy interest payments. Rather, the indictment alleges that with the assistance of individuals within the bank, Mitchell paid interest on existing loans by taking draws or disbursements from other loans, and continually borrowed more and more money to keep paying the ever-increasing interest payments.

    The indictment specifically focuses on three loans totaling approximately $20 million in 2006, which the indictment alleges were dispersed under false pretenses at the alleged approval and direction of Ballard, Integrity’s former Executive Vice President. In one example charged in the indictment, Mitchell requested and Ballard helped disperse nearly $7 million out of a construction loan relating specifically to supposed construction and renovation at the “Casa Madrona,” a luxury hotel owned by Mitchell in Sausalito, Calif. The indictment alleges that none of this money was used for construction, and in fact no renovations had occurred. Rather, most of the funds were wired directly to Mitchell’s personal checking account, and used by him for personal purchases or cash, and the remainder was used to pay interest due on older Mitchell loans.

    The indictment also alleges several acts of bribery. The indictment charges that Mitchell corruptly paid and Ballard corruptly received over $230,000 in a 9-month period—half in cash and half in a cashier’s check—as a reward for Ballard’s assistance in Mitchell’s fraud. The indictment alleges that both men corruptly discussed other personal business opportunities That Ballard would receive for assisting Mitchell.

    The indictment also alleges that Ballard evaded bank reporting requirements to avoid scrutiny of his cash deposits. And the indictment alleges That Ballard and his colleague, fellow bank Vice President Joseph Todd Foster, committed securities fraud by engaging in what is commonly referred to as “insider trading.” Specifically, they allegedly sold nearly all of their shares of Integrity stock based on materially adverse secret information about the company—specifically relating to substantial problems with the loans to Mitchell—which they knew was not generally known to the public. The indictment charges that in essence they allegedly took advantage of secret inside information to sell stock that they knew to be overvalued, to others who did not share the same information.

    The bank fraud and bribery charges against Mitchell and Ballard each carry a maximum sentence of 30 years in prison, the evasion of reporting requirements charges against Ballard carry a maximum of 10 years in prison, the securities fraud charges against Ballard and Foster carry a maximum of 20 years in prison and the conspiracy charge against Mitchell and Ballard carries a maximum of five years in prison. Each of the charges also carries a potential fine of up to $1 million.

    Members of the public are reminded that the indictment only contains charges. The defendant is presumed innocent of the charges and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.

    President Barack Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

    This case is being investigated by the FBI, the FDIC’s Inspector General’s Office, and the IRS, as part of President Barack Obama’s Financial Fraud Enforcement Task Force.

    Assistant U.S. Attorneys Justin S. Anand and Christopher C. Bly are prosecuting the case.


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