A few counties have filed litigation against various securitization players (originators, servicers, MERS) for the underpayment of recording fees. Similarly, New York attorney general Eric Schneiderman filed a wide ranging suit against MERS and three banks that used it and settled it for $25 million (it included a mention of $2 billion in unpaid recording fees but we were skeptical of viability of his argument).
However, counties in Michigan have scored an important victory. Michigan law imposes a transfer tax on deeds recorded at the county office. Fannie and Freddie refused to pay that, claiming that they were part of the Federal government and hence exempt. That argument was clearly ridiculous and a Federal judge ruled against the GSEs.
This is going to be a boon for cash-starved Michigan counties and the state. The statue of limitations is six years, and the county treasurer estimates the damages will be $3 to $4 million to the county and between $10 and $20 million to the state. The treasurer has asked the state to allow him to keep the state’s portion of they money in his county to fight foreclosures. Good luck with that.
Other counties in Michigan have related actions underway, and I’d expect any one that does not have a case in progress to file an action modeled on the Oakland case. From the Detroit News:
Meanwhile, Ingham County filed a similar lawsuit and Genesee County is heading up a class-action suit. Macomb County is the first in the state to deny the lenders the exemption. Clerk/Register of Deeds Carmella Sabaugh and Treasurer Ted Wahby have partnered on that approach, which was implemented with the guidance of county attorneys.
Interest in local action to bring the big banks to heel seems to be heating up. Rachel Maddow discussed the efforts of local registers of deeds to straighten out the mess created by cavalier bank attitudes towards land records and other legal niceties. Her segment focus on Guiford County and includes an interview with register of deeds Jeff Thigpen, one of the first to audit his files and prove the existence of widespread errors Thigpen has filed suit against MERS and major banks to recover $1.3 million in unpaid recording fees.
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Let’s hope these local actions start getting some momentum. With the Federal/state fix underway, it’s the last hope for throwing sand in the gears of the securitization doomsday machine.
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So what happens when all mortgages are securitized and the market collapses? The risk associated with making bad loans is being foisted off by the perpetrators of market fluctuations on the public. It sets them up to never lose money on bad loans.
How much of the worth of your house is going to be controlled by what the relative value of the securitization the mortgage for it ended up in is worth?
I still can’t figure out why securitization of mortgages is not ruled either gambling or another form of pooling scam. Gawd knows the SEC is toothless about this crap.
There seem to be two different issues. One is that MERS/banksters failed to pay recording and transfer fees. The other is that even if they are fined for this fraud and ordered to pay a settlement, nobody is discussing the clouded titles. The chain of title issue is going unaddressed; and along with it, the securitization issue. And justice hasn’t yet drawn the clear connection. Amazing.
It’s being ignored because the costs of fixing clouded title may exceed the amount of transfer taxes owed. Who is going to foot that bill? I think REO buyers will get stuck with it and have no title insurance to indemnify them. The “free” title insurance policies provided by banks selling REO properties have taken that into account with exceptions from coverage.
At the end of the day, I don’t think that clouded title is going to be as much of a problem as some are postulating. I don’t think that many courts would foreclose on a property based on a lein that has already been executed under the name of another litigant. Let those two parties fight it out between each other, but leave the later purchaser and his lender out of it. Of course the title insurers are pretty thinly capitalized, so it wouldn’t take too many claims to sink them.
….in other words, how does someone put the tranches=parts and pieces of mortgage title-deed back together when they are scattered widely in various
MBS all over the world…? Needless to say this is not being discussed at all…
When two MI county registers (Ingham and Branch counties) filed their class action suit last year, emptywheel covered it and a commenter asked:
It reminds me of slide #18 in the Florida Candyland Power Point (PDF) — MC Escher’s staircase: “If the mortgage is not properly assigned, the result is chaos.”
Not a fan of these taxes, but even less of a fan of MERS coming up with sneaky ways around it.
Couple of different ways to look at it I suppose. It’s important we remain a nation of LAWS. These properties were fraudulently transferred, MERS just flat broke the law.
Second, the counties and the state were deprived of these fees which have resulted in cutting services like cops, firefighters, ENT, teachers, etc. Lose of these types of services directly impact your quality of life (in addition to impacting working people.) If you are in one of these counties and have a heart attack, you’re going to be dead if there isn’t an EMT or ambulance to come and get you to the hospital in time.
Taxes are frequently code for narcotic in political speech. In one word, discourse is simplified to discourage any thought. Taxes, obviously, are extremely important to the wealthy in this country, as their bailouts, weapon systems, entitlements, private schools, superior due process, health care, housing and access are largely funded by extraction from outside their own tax havens. The loyal “opposition” too, can’t resist the power of taxes. They offer “taxation” as a ridiculous pallative for the greatest criminogenic transfer of wealth in the Nation’s history, therefore drowning any challenge to the rule of kleptocrats. Taxes in this MI case, are an inspiring take down. Note the first defensive reflex is to say hey ‘we’re Feds, we’re exempt’.
Did I get this right, the Banks owed NY $2,000,000,00(billion) dollars over avoided recording and trasnfer tax dollars and Schneiderman accepted twenty five million instead?
Yes, you read that correctly. And that wasn’t even one of the claims in the suit, just a mention in passing.
Ed DeMarco, head of the Federal Housing Finance Agency — which oversees Fannie and Freddie — has stood in the way of (principal) reductions and he’s claimed the support of Fannie and Freddie. But that’s no longer the case. Even Fannie and Freddie now support principal reductions. It’s time for Ed DeMarco to step aside by signing this Whte House petition:
https://wwws.whitehouse.gov/petitions/!/petition/push-fannie-mae-and-freddie-mac-issue-principal-reductions-underwater-homeowners/qtS3crg7
Removing DeMarco is a good idea, but a political smokescreen of sorts. He’s not the “one” denying principle reduction. Let’s remove Obama from office too, since he has refused to do the same thing. The kleptocracy refuses to restore bankruptcy protections that were stolen from American consumers. Most of the “press” can’t mention this because it is taboo, a bit like enourmous civilian deaths in a foreign country. If we generally dislike Banksters, it follows that we should generally dislike mainstream “reporters” who are tightly embedded, and will never mention a number of taboo, or conduct Bank unfriendly reporting. Consider Morgensen, it has been a few weeks or so since the AG bailout, and she obediently pushes the everybody is to blame mantra including the victims who are bearing the destructive brunt of the entire crisis by inserting the lie that they “bought more house than they should have.” Does she need a raise of sorts to finally admit that most folks did not expect to be lied to, stolen from and beaten up by a Bank in their own community when they wanted to buy a home?
Morgenson’s assertion that “Fannie” and “Freddie” caused the housing bubble as a result of a political goal of giving mortgages to unqualified low income borrowers has been discredited.
Just like in music, and the arts – the best material is sometimes hidden way below the surface. Frequently, the crap that sells or is designed to obscure the truth, floats to the top and is published widely.
That isn’t what Morgenson said. It’s what the WSJ and Fox News say she said.
Her point is more complicated. Jim Johnson (head of Fannie) created and built a very powerful political coalition of affordable housing types, builders, and bankers. And Fannie and Freddie became a Democratic party slush fund. Her account has much more to do with Johnson seeing the opportunity and then pushing affordable housing (and using his huge spending power to bury critics) that housing policy driving Fannie and Freddie per se.
When you say “affordable housing,” do you mean easy loans for everyone, or are you talking about government “affordable house” programs? That’s one niche I wish I’d hear more about — there was a report out of California last year about CalHFA foreclosing on “affordable house program” buyers who were current in their mortgages but had rented the houses out, a questionable violation of federal rules. It didn’t make sense. “Each foreclosure cost the agency more than $50,000 in uninsured losses…” So why did they do it?
http://blogs.sacbee.com/capitolalertlatest/2011/10/report-cal-hfa-foreclosing-on-borrowers-current-on-loans.html
Here’s an interview that Gretchen did Chris Martenson that demonstrates she doesn’t blame borrowers for the meltdown. She does mention Fannie and Freddie, which Yves has already explained. In addition, during the subprime MBS/securitization boom, Frannie saw that they were losing market share and lowered their underwriting standards, thus putting the taxpayer on the hook. However, Frannie’s loans still enjoy a far lower default rate than loans retained by the banks.
http://www.chrismartenson.com/page/transcript-gretchen-morgenson
End the federal backstop of Fannie/Freddie before asking for principal reductions from them. Let the cost of dealing with the mess they caused land on their stockholders and creditors, not on the federal debt.
OAKLAND COUNTY, MI WINNING ORDER AGAINST FANNIE MAE & FREDDIE MAC
http://stopforeclosurefraud.com/2012/03/24/read-oakland-county-mi-winning-order-against-fannie-mae-freddie-mac/
There are about 3,000 counties in the US. $1M per county on average would be about $3B to state and county coffers. That is not trivial to the local and state governments but not bank-breaking. This just covered Fannie and Freddie mortgages, held by the government so you could probably double it to account for the private market out there which is probably smaller but would have had more transfers.
I don’t follow that either – if Demarco understands what he’s saying when he reads his statements, he seems to be saying that he is foreclosing on the taxpayers to protect the full value of th losses on what they as taxpayers have already paid for. Gibberish.
I think the issue with the “Fed Backstop” as you call it, means the rentiers didn’t want the inconvenience of losing a penny and prefer to screw other taxpayers in order to get “theirs”. This was the motivation for the well funded TeaBagger insurgency that conveniently hid the fact THEY were getting bailed out, and couldn’t stand the thought of losing money by helping so-called borrowers. (Pied piper leads an obese mass of generally white idiots.)
Frannie mortgages have not been paid for by taxpayers, they were purchased by investors (though they are taxpayers too, unless foreign). It is their guarantee that is backed by general taxpayer funds. If a mortgage loan ends up in default, at that point tax revenues would be used to cover any deficiency from the foreclosure sale.
On the other hand, why weren’t servicers sued for this tax? Banksters?
Because the servicers aren’t responsible for paying the tax. The new assignee of the mortgage is responsible, which if MERS is involved, would be either MERS or whomever MERS purports to be nominee for. MERS has claimed the position we would all like, of having broad authority yet no liability, with inconsistent results in the courts.
Question would be would if this decision provides both Fannie and Freddie with additional ammunition in enabling more ‘put backs’ of securitized mortgages back to the originators?
If the transfer taxes were originally not paid by the originators of these mortgages, does that not mean that all subsequent transfers (through securitization) are potentially invalid/fraudulent, and the current holders (ie; Fannie and Freddie) would have a case to put these MBS packages back with the originators? (and get their/our money back).
Anybody?
Whether or not failure to pay transfer taxes would have an impact on putbacks would depend upon the agreements in place between the purchaser and sellers of the loans. I haven’t ever heard of this being one of the criteria. Typically putbacks are based on “reps and warranties” which have to do with the loans meeting stated underwriting standards and being currently performing.
As for the second question, it isn’t so much the transfer tax as the recording of assignments, which necessarily incurs paying a transfer tax, that would be questioned. In other words, a mortgage assignment (and endorsement of promissory note, but that is not recorded) is made to the new owner, then the assignment is taken to the county clerk where a copy is recorded and a transfer tax is paid. Some states require all assignment transfers to be recorded while other states have no such requirement. Mortgage assignments may be recorded retroactively. The agreements governing securitized mortgages, which include most but not all mortgage loans (~60%???), do not allow the mortgage to be assigned into the trust pool once the trust has closed, even retroactively, though the recording may occur later. However, all states DO require a current recording in the county clerk’s office prior to filing a foreclosure suit, and these are where most of the “robosignings” have been showing up. Are you thoroughly confused yet?
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