THE FORECLOSURE MESS MADE SIMPLE
An Easy Read: from Prosperity to Here
by Lauren Paulson
1968-- It all began in 1968 when President Lyndon Johnson sold Fannie Mae to shareholders to finance his war in Vietnam. Fannie Mae was set up to insure mortgages of regular folks. That simple mission went south as we shall see below.
1986-- Alan Greenspan, an Ayn Rand adherent, is appointed as head of the Federal Reserve (The Fed). Ayn Rand wrote The Fountainhead; a novel with an insight into greed and what integrity requires. Alan Greenspan is the protagonist in our story today. He flies into action:
1986 -- THE FEDERAL RESERVE BOARD decides that banks can have up to five (5%) percent of their gross revenues from investment banking business, thus blurring the firewall set up by the Glass-Steagall Act between commercial (lending) banks and investment (securities) banks. This decision also allows banks to “do a small amount of underwriting. Paul Volcker, the chairman of the Federal Reserve Board votes against these changes and expresses a fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. It boiled down to a culture of risk which was the securities business and a culture of protection of deposits which was the culture of banking.
1999-- In 1999, the Congress enacted and President Clinton signed into law the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act. This law repealed the part of the Glass–Steagall Act that had prohibited a bank from offering a full range of investment, commercial banking, and insurance services since its enactment in 1933.
The Consumer Buys A Home
California is the land of the crazies. One wondered why home values were so high there. It is because many financial excesses pertaining to the residential home loan market began there. Much is written as to why and how. Here is a different frame of reference.
Consider the ordinary consumer. Mr. and Mrs. Public. They want to buy a home. The first thing to be aware of is the real estate agent’s commission sales contract. Remember Caveat Emptor----Let the buyer beware. A home buyer SHOULD ALWAYS HAVE A LAWYER. Here one is often making the biggest investment of their lives. Few consumers really know what they are doing and that the real estate agent’s loyalty is often divided. Others in the chain do not know what they are doing either, as we shall see.
Ahhhhhh, but these Consumers find that house of their dreams. Buyer-fever sets in. The real estate agent steers the Buyers to their mortgage-broker brother-in-law, HUD-1 HUD is a monolith. It is the governmental Housing and Urban Development regulatory agency. It is a weak one. ‘HUD 1’ is an oft-required form that should alert the Consumer to the complex reality of what a buyer of real estate is getting into. The information there is neither simple nor user friendly. Well, what is in this arena? Another daunting law: The Truth-in-Lending Act (TILA) is the Consumer protection law, also little understood. It is what I call ‘the Four Empty Box’ law -- (APR), Annual Percentage Rate, Finance Charge, Amount Financed and the Total to be paid over the lifetime of the loan. There are a cascade of other Consumer FAUX-Protection laws brokered by a myriad of banking interests. These laws are not understood by anybody including judges. Particularly, local Circuit Court Judge Nely Johnson. She found that a lender complied with TILA even though the Lender didn’t fill in any of the required boxes of consumer-needed information. The theory of the four boxes is that having secured the required information from one lender; Consumers could then shop with other lenders, using the information in the four little boxes for comparison. No one follows TILA as it was intended. No one even understands TILA requirements nor TILA’S protections.
I. M. Consumer Goes to a Real Estate Closing
At closing, the Consumer is expected to have read and understood the tall stack of mortgage loan and real estate title/security documents. Is expected to understand the real estate agent’s contract with regard to commissions. Nobody, repeat, nobody; not even Philadelphia lawyers read or understand this pile of Real Estate Closing Documents. Nobody.
More of What The Consumer is Expected to Understand:
Let’s ask all in this audience, a real estate, fundamental question. Is your state a “lien theory” or a “title theory” one? This dichotomy of state law controls what rights you have as a consumer as you enter the World of Foreclosure.
THE WORLD OF FORECLOSURE
The banks got together decades ago. They decided they were spending too much time and money in kicking human beings out of their homes through the cumbersome, expensive and slow judicial court process. The central feature of nonjudicial foreclosures is that it can be done without the supervision of judges. This means The Bank better do it right, because nobody in authority is watching. This is where the family home is auctioned off at the courthouse steps, but ain’t nobody getting the safeguards to be found inside that courthouse.
If a courthouse is needed to dispense justice in the ordinary course of human affairs, why is a courthouse all of a sudden NOT needed when it comes to your home? So, let’s summarize where we are:
Everyday home buyers neither read nor understand the real estate sale contract, don’t understand nor read their home-closing documents including the mortgage loan papers; and can have their home taken away with no judicial safeguards. Finally, no consumers understand basic real estate law. Even lawyer-consumers fail the real estate quiz. Think about that for a moment.
Banks Don’t Understand Either
What nobody realized until just now is that banks didn’t understand what they were doing either. This is what is shocking. Nor their lawyers. Trust me. I have carefully confirmed all this with my law school real estate professor.
My first signal to this gap in understanding came on October 6, 2010 with the ruling in Natache’s case. In that case, Federal Portland Judge Garr King ruled that the banks had made fatal errors beginning as far back as the 1990’s. What follows here is a summary of bank errors and your ‘Essentials’ for understanding the monumental mistakes made by The Banks precluding foreclosure for thousands of homeowners: (It ain’t just MERS)
FORECLOSURE LAW -- THREE ESSENTIALS
1. MERS -- This is the magical acronym for Mortgage Electronic Registration System. This is getting a lot of attention right now, but don’t stop reading here. The Bankers decided they could avoid local County recording fees by creating their own real estate ownership and loan bulletin board: MERS! What the Bankers didn’t understand is that you can’t do a simple nonjudicial foreclosure if you haven’t obeyed local County recording laws. Thus, the foreclosure is invalid. Now Bankers and their lawyers are scratching their chins on what to do next to defraud Consumers out of their home. They are scheming on this subject as you read this. They want to substitute JUDICIAL foreclosures, but it is too late.
2. BLUE INK -- Bankers didn’t understand that the Blue Ink (original) promissory notes signed by consumers at closing actually have to travel to the creditor who ultimately bought or planned on collecting the loan. That Blue Ink promissory note must be offered up to the judge to prove a bank’s right to foreclose. That was missing in Natache’ s case. “SHOW ME THE NOTE!!” --- is the real issue. Most judges do not, I repeat, do NOT understand this part of foreclosure law. Just ask Hon. Alicia Fuchs.......................:
Local Circuit Court judges Alicia Fuchs and Ed Jones have recently put their ignorance on the record in two local foreclosure cases. Embarrassing. Tragic for the homeowners. What about The Rule of Law
3. HUMPTY-DUMPTY-- Finally, what none of the bank lawyers across the United States understood is that you can’t separate these document-things into various vaults and bulletin boards across the country. They have to travel together. The promissory note along with the mortgage documents HAVE to travel together in the securitization process. If they don’t, the banks right to collect the debt is gone. Kaput. Done. The consumer gets a free home. By law, the bank DOES NOT get a free ‘Opps!’
OREGON LAWYERS GENERALLY DO NOT UNDERSTAND #2 and #3 of FORECLOSURE LAW --
The Worst Foreclosure Lawyers in Oregon are at Legal Aid
.........when the poor need their help the most.
All ‘authorities’ on foreclosure law are lost in the MERS thicket above, along with the new mediation law. Thus, the Clarion Call to “SHOW ME THE NOTE” and the Humpty Dumpty rule are ignored when those defenses to foreclosure are applicable to THOUSANDS of local foreclosures.
Go back and reread Judge King’s decision in Natache’s case. Legions of Lawyers are committing professional malpractice. Worse, lawyers are not protecting the interests of the homeless and houseless foreclosure victims. Much, much worse. The Worst Foreclosure Lawyers in Oregon are at Legal Aid. Study what happened in Natache’s case before and after October 6, 2010. The most unscrupulous lender-lawyers are downtown. Consumers need to become aware and unite!!
bulletinsfromaloha.org the foreclosure ombudsman