More Banks Lies, More Government Complicity in Your Victimization’”

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OCTOBER 1, 2010


So here we are in October, 2010 and in what was just touted in September by “the usual (highly political) sources” as the “Part One of the Great Recovery” is already starting to look more like the “Part Two of the Ongoing Giant Collapse.”

Let’s assess: It was in the last week revealed that all of the major mortgage lenders across the nation not only cooked the books for their own greed in ways that got us into this mess in the first place, but now they are trying to cook more books to make only us, the victims, look culpable for it and thereafter financially oppress us even more. Courts and regulatory officials across the country are finding that lenders are regularly signing false oaths alleging false claims against borrowers, forging missing documents from borrowers’ files, including forging borrowers’ signatures to debt documents and are making sworn, perjurious misrepresentations to the courts against debtors. And not just a few times. This occurred hundreds of thousands of times at least and perhaps millions of times as the extent of this scandal unfolds! That they should be so felonious and be allowed to get away with this for so long by so many solely in power to protect us against precisely that predation simply boggles the mind!

Many major lenders have, under pressure from the state and federal law enforcement officials who finally awoke from their slumbers through the work of some private class actions, virtually stopped their foreclosures “until they can clear things up” (read “find a better excuse or a new avenue for the same fraud”). The lenders had already sought to have their perjury avoid scrutiny by trying to pass a new law that “legitimized per se” their false oaths, but a few days ago President Obama refused to sign the Act. One gets the spooky impression he probably would have signed it had the adverse publicity over this not been so great. And it took private class actions against the Banks by citizens to finally get this boiling pot — made hotter by the Congress who backed the Banks all of the way in stewing it — to the front of the stove where the stink of this carrion stew could be smelled!

So now we hear about “National Moratoriums”, the “MERS Scandal” and some revelations that everyone’s real property titles are now defective because the Banks failed to follow the laws regarding proper mortgage, note and title transfers. Every day another shoe drops!

The fact is the Banks cannot get it right, do not want to get it right, and the only time they seem to, it is only after the public gets so disgusted that it defends itself through class actions. And then the “corrective changes” the Banks announce after paying out some huge sum for damages turns out to be yet another mess and yet another fraud, yet more smoke and mirrors and more predation.

Can this help but damage an already reeling real estate market and drive values down again? Was the President wrong to spend political time and money on health reform while the rest of the country sunk deeper into a financial ruin that would make health care as National Need Number One look more like Nero fiddling while Rome burned? Who cares whether insurance coverage at work will rise when one has no job in the first place and now has no home? Health care—Hillary Clinton’s issue back in the early 90s-- has little meaning when standing in a soup line and sleeping in the park in 2010. Has Congress and the President been irresponsible to leave us all to the mercy (and time-after-time proven disintegrity) of the Banks? After all, this Administration didn’t “toss the last bastards out” at the conclusion of President Bush’s administration, the one rightly accredited with allowing the Banking and Wall Street greed that collapsed the system in the first place. President Obama retained them all. The “Bushies” are still running the Treasury and the Financial Regulators. And running it the same way, it now appears. What we need now is not more “programs” (they seem to come out daily and do even more nothing each time). What we need RIGHT NOW is some high-end Bankers and Wall Streeters and perhaps a few politicians to be on TV in arm and leg chains, doing the “PERP WALK” outside of a few federal court houses!

It’s not happening.

So hang on, fellow citizens, it’s going to get worse.

Nuff said on the political scene. Stay tuned.


Now: This Counselors’s Corner covers some additional important current items we have been asked about after our September, 2010 Newsletter. You have heard of these issues out there. No one seems to want to discuss them or to make the issues more clear. Remember, unless I otherwise note, these discussions are for property in Arizona. Some I will note are national. I can talk about processes in other states, but, wow, that would be a long Newsletter. Let’s get started on two of these for this issue: The “Strategic Default” and the unfolding “MERS Fiasco” that has commanded headlines recently.


A “strategic default” or a “buy and bail” is a process where a debtor keeps up payments on an existing home (which is underwater with more debt than value) long enough to buy another home at the current low loan rates and low purchase prices, then, after move-in to the new home, the debtor lets the house payments on the former home lapse and go into default, making now just the payments on the new home, keeping it and bettering his overall asset and payment position and, after several years of on-time payment, also acting to restore his credit. This method works best where, as in Arizona, most home purchase money loans (where all of the loan proceeds went into buying the property) have no deficiency so that the foreclosure of the old home generates no further financial risk to the debtor — such as a deficiency judgment against he debtor for any foreclosure sale proceeds shortfalls to meet the unpaid debt. These are not as effective in those states which permit deficiency judgments, but can still be partially effective with a few more steps not relevant for this article.

In any event, the Banks are telling borrowers that the “Strategic Default” is illegal. Problem is: They cannot show why because in most cases it is not. Not yet.

Here is the current status of this process in Arizona and in many states, but after Arizona you need to check state-by-state: As to the old debt, it is no crime to be unable or unwilling to pay it. It is just a debt default and will have the above adverse credit and other consequences. But if a misstatement is made on the loan applications to qualify for the new home, it could be a form of fraud on the new creditor (except for the fact, of course, that the borrower INTENDS TO PAY the new one — just not the old one). Some argue that unless it prejudices payment to the new creditor, it is a “no harm, no foul” step against that lender.

The issue, if any, would have to be some misstatement made in the application for the new loan, so let’s examine that question. Obviously, one’s credit underwriting for the new loan will have its own standards, will have designed the loan application and all of the questions on it that it deems material, will have its own access to the tri-merge to verify the borrower’s history, to the borrower’s FICO scores for creditworthiness and a financial statement from the borrower and will verify everything the borrower says. If the underwriting approves the loan, it will be because the borrower has met or exceeded all these criterion. Assuming every question in the application was answered truthfully, then the only alleged “misrepresentation” about considering a default on the old home — even though it is then current — is “secretly considering it”, even when it has not happened yet, is not even sure of happening yet and no question about that was asked by the lender. Is the consideration of a future option that has not happened yet and which will not affect the new lender — the one that is intended from the beginning to be paid in full--in the least a “fraud?” The reality is that as long as the new lender is paid promptly and reliably, the issue rarely comes up as there is no reason to examine a loan in good stead and it is to the new lender and loan application process that any duties are owed. And the notion that one might default it is not a violation of the former loan applications—-the one for the old home left behind—since those applications were completed and signed long ago when that home was obtained and are not now relevant . The reality is that if you are paying the new lender—the one the application was made for—they are happy as a clam and would be the last one to give you any troubles.

There is a federal statute and a state statute in Arizona that bars “untruthful statements“ on residential loan applications and processes (whether by lender or borrower) and makes the practice a felony, but those are for affirmative misrepresentations, such as falsely answering a direct question. They do not seem to apply when no question asked is falsely answered, as noted above. At this time there is no credit application that states “do you ever intend to default or believe you might default on now existing debts at some point in the future(?)” to which, aside from being a fairly bizarre hypothetical credit application question, a false answer could even be given, so the clear application of these laws to a directly false answer to a direct question has factually never come about. Thus, these laws have not been applied at this time to a strategic default in any known Arizona case. Most lenders have their own underwriting standard and own documents for qualifying the borrower to be buying two homes at once. If that is met by the borrower and the documents are completed without any misstatement in them, it is difficult to see any clear violations of statute.

As to the borrowers, most of these statutes were to curb "liar loans” where debtors vastly overstated their income and assets to the next lender to get a loan — not ones where all questions were answered truthfully at the time and a default came about years later. It is likely that some lending regulations or some new type of loan application addendum will be passed on this practice at some point, but as of October 1, 2010 there were none known. Always check with an attorney to determine the status of these rules, laws and regulations, as they constantly change.

For those citizens who are completely underwater on their current loans, who know that no matter how much they pay, the gap between value and the debt is just too large to ever see daylight, who realize that the Banks are NOT going to modify the loan permanently and down to an amount low enough to close the gap, and who still have credit strong enough to qualify for a new home purchase, the strategic default could be a survival option. But this step is serious business, still has other tax, employment and credit ramifications not discussed in this session and for that reason never opt for one without legal consultation.


We have been hearing a lot about the “MERS” controversy, threatening to bring “society as we know it to a halt” any day now. The MERS legal issues raised are legitimate, but most of the alleged fallout to come is overblown and capable of a fairly early cure. The MERS Scandal is nonetheless more worth discussing as yet another act of lawlessness by a Banking industry addicted to the economic “Golden Rule” (“them that has the gold makes the rules”) and the legal philosophy that “Might is Right.” With those as the founding doctrines for the Banks in this debt resolution mess, and with a permissive political environment behind them, and with Bank profits in so doing soaring as the rest of us sink, is it any wonder that the Bank atrocities against citizens magnify daily?

What MERS is and why it is not in kilter is really no mystery at all. We are in a society in which lenders regularly cross state borders to make loans and the resulting loans are regularly traded in whole or parts or as bundles between lenders like stocks might be between exchange members. Enforcement of a defaulting loan has thus become more complex for the original Bank or the current mortgage holder when the originating Bank may be in New Jersey, the current debt holder might be in New York, the property is in Arizona and the borrowers in Nevada. MERS is a Bank Consortiums’ attempt to remedy and streamline this otherwise confusing “disconnectedness of the loan parts” by creating a “multi-state general holding tank” (MERS) to contain the collection rights to all mortgage debt instruments from numerous bundles, Banks, current holders, lenders and states in a single unified package. They transfer their “receivables interest” in the debt to MERS immediately after it is generated and grant MERS the “right” to enforce these as though they were the owners of them. After that, as the loan is sold or bundled or transferred between original Bank and other Banks or entities who buy the loans downstream, rather than assign the mortgage and endorse over the note each time to the new owner, each transferor simply assigns its computer MERS account number for that loan to the transferee. MERS then maintains a network of operatives such as title companies, brokers, lawyers, and collection agencies, in each locale who actually do the front-line collection at the local level. MERS typically prepares all of the collection paperwork at a central location, many times out-of-state, and instructs the local operatives to use them in debt enforcement. See more about MERS at and use its website tools to see if your residential loan is held there. It’s 80% likely it has yours, too.

Neat deal for the lenders? Yes! The problem is merely that it is illegal!

Here is a list of the issues with this: First, all mortgage debt instruments have two parts to them — the promissory note which gives rise to the debt and the mortgage that attaches the promise to pay to a particular collateral, like the real property. In most states, the lender’s interest in a loan is a property interest that can only be transferred by a written, often notarized document, signed by that lender, which specifically assigns the precise loan to the next holder by name. Second, in most states, the only way the promissory note can be transferred is by an endorsement, which means that the transferring holder must sign the actual promissory note — usually on the back of it (or sign an allonge affixed to the actual note) which endorses it over (just like a second party check) to the new holder by name. Third, the note and mortgage must be held by the same hands to collect them — the note cannot be held by some bank in New York and the mortgage in some bundle in Seattle. Fourth, the transfer must in most states be recorded with the county land recorder on EACH transfer and can only be foreclosed by persons or entities specifically allowed by state law in the state where the property is. Only if the lender follows these rules does the ultimate holder have title to the mortgage or a right to enforce the note, whether it is MERS or any of its local operatives.

The problem is, MERS disregards all of these laws, yet implies or expressly alleges in the often sworn, notarized paperwork it prepares and files to enforce the loans that it has followed these rules and thus has standing to act for the collection. It usually doesn’t, as the courts now are starting to rule. In addition, in most states, the one enforcing the loan as, for example, the trustee in a trust deed foreclosure, must be either an attorney or a real estate broker or title company licensed in the state of the enforcement and in many states MERS is appearing in foreclosures without operatives of that status. Courts are now striking that practice, too. It also now appears that MERS, the originating Banks and interim transferees have in many cases lost the original notes and mortgages and thus cannot even present the originals for payment and proof of lawful holding of them as some states require! Last, all of these flagrant violations mean that MERS and the holders it represents in the particular foreclosure (the original Bank, all transferees in this system and those operatives thus wrongfully collecting) has engaged in wrongful foreclosures, perjury or the generation or recordation of false documents and committed other legal failures that have violated local laws, generated title defects, fouled the integrity of local land records with unlawful, unrecorded transfers which also defeated local transfer-filing or transfer tax fee incomes to the tune of billions of dollars fees sorely needed by counties during these hard times and in sum, has wrongfully damaged borrowers all over the country and certainly in Arizona!

It all sounds pretty awful for those law-abiding victims among us and it is. But MERS is for the most part a giant procedural defect and can be repaired fairly quickly and that is happening right now. First, MERS is working to correct and amend all of its paperwork for correct transfers and substitute proper local operatives. All it really has to do is go back and correct the chains of titles, assignments and endorsements and that will cure most of the issues in those chains. Second, under the law of most states, lost notes and mortgages can all be replaced by “lost document affidavits” in which the holder certifies that they held it, lost it and that an attached “exemplar” of the note is a true and accurate portrayal of the lost instrument. These will usually be accepted as originals by the legal system. In addition, in those states where whole copies of the entire mortgage are recorded, the recordation is deemed to be as good as the actual instrument and can legally replace it if lost. This process is also taking place. Third, the actual “hit” on defective titles would be mostly taken by the title insurers who in each foreclosure and any transfer after it insure that it was done correctly and that a proper title was conveyed to the new owner. MERS has tendered any title issues to the title companies for coverage. But holding all of those title companies liable would surely bankrupt them, so the Banks whose foreclosures are challenged have come to the rescue—they are secretly guarantying the title companies that if there is a claim, the Banks will back them up on any loss beyond their own coverage or capital! Yes, it can be and is going to be fixed. Not before a lot of law suits, but even now, today, October 14, 2010 when this article as written, JP Morgan Chase has announced that it has put yet another several billions of dollars away in a legal fund to defend or pay these anticipated claims.

OK. But here goes the real bombshell in all of this: Now guess who is backing up the Banks who are backing up the title companies who are backing up MERS who is backing up the blatantly illegal acts perpetrated on consumers? You got it: YOU. The feds are secretly telling the Banks they will back THEM up, too, with your tax dollars, if the flood of claims gets too great. So before one gets excited about collecting from the MERS Pot of Gold, just remember it’s going to be YOUR GOLD! Moreover, for the most part, what this means and the REAL SCANDAL in all of this is that the government is, in functional reality, defending MERS against your claims as its victim—the victim you became solely because the government abdicated on its watchdog duties to protect you from unlawful Banking activities in the first place!

MERS is not, then, so much a part of the collapse as yet another example of why. The ”Greed is Good” Banking and Wall Street Bad Boys are running amok against us and all the cops hired to watch them and catch them are busy getting their second roll at a political Dunkin’ Donuts.

It’s all back to what I said first in this month’s column, above. What we really need here is several hundred “perp walkers”. But not just for the Bankers and Wall Streeters, but also for the Congress members and Regulators who have become their henchmen! But what we are getting instead are bills like Congress just passed with the blessings of the Regulators (it was vetoed —THIS TIME) which simply cut to the chase and tried to retroactively “declare legal” all of this MERS banditry--a “Get Out of Jail Free” card for the Banks for whom Congress has become hitmen.

It’s THAT kind of high-level, endemic, engrained governmental callousness and complicity which shouts out to us that we are in real trouble in this country!

For more, go to this website:

For more on foreclosure laws, log to and see “FAQS”.

Also cut and paste this hyperlink on go there:

Nuff said on the legal scene this time around. Stay tuned!

Look out for our future Newsletters with more hard-hitting realities!


J. Robert Eckley is a multi-state real estate, agency and banking law attorney, successful litigator, popular writer, educator, economist, past Realtor and national speaker with an immense personal and professional involvement in forefront issues over the past three decades. He has established precedent at the Supreme Court and co-founded transactional laws, rules and forms that guide practitioners today. He has been a real estate licensee and a former Realtor for three decades, was named to numerous Commissioner's Advisory Committees and Governor’s Agency Advisory Committees, received a host of leadership and instructor awards, is a CCIM Affiliate, testified in Congress against the due-on-sale clauses in 1982, fought the clause in state and federal courts, fought against all and defended a half dozen state and nationally chartered banks and thrifts, and has received leadership awards and honors from U.S. President Reagan and former Arizona Governor Napolitano, to cover just a few of the miles he has gone.  Often as entertaining as he is practical and enlightening!  See more at