The following is an excellent excerpt from the book “CHAIN OF TITLE: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud” by David Dayen from Chapter 3: “Securitization Fail; or, Cirilo Codrington and the Panama Doc Shop” on page 43 and I quote: “”Mm-hmm.”
“I just got a copy of a note, and your name is on it. I’m just trying to get to the bottom of this–can you send me what you have in your file about me?”
Kathy Harman may have never received a call like this before. But after the initial bewilderment, she offered to fax Lisa all the information she could find on her mortgage, including screenshots for the computer system. “I hope this can help you,” Kathy said.
One screenshot showed that DHI Mortgage shipped the loan out to something called “Chase Alt-A Bulk” right after Lisa signed it (“Alt-A” is industry shorthand for a below-prime mortgage that isn’t quite a subprime loan). JPMorgan Chase “table-funded” the loan, supplying the funding up front and taking possession of the mortgage and note thereafter. Under Department of Housing and Urban Development regulations, table funding actually had to be disclosed; Lisa never received any disclosure. More important, nothing in Kathy Harman’s file included any reference to U.S. Bank, whose law firm managed to doctor up the assignment but not the promissory note, which was–by its own evidence–held by a different party.
The mortgage assignment, dated three months after the foreclosure filing, also had a bunch of names on it. Christina Trowbridge was listed as vice president and Whitney Cook as assistant secretary of the mysterious company known as Mortgage Electronic Registration Systems. The assignment included two witnesses, Zaher Gerges and Vladimir Buskarov. After their signatures came a statement from a notary public from Franklin County, Ohio named Jennifer Jacoby, who attested that Christina Trowbridge and Whitney Cook “personally appeared” before her and “acknowledged that they executed the foregoing as its duly authorized officers.” Underneath, in small type, there was this little notation: “Recording requested, prepared by and return to: Cirilo Codrington.”
Of all the names on the assignment, Lisa figured she’s have the easiest time finding the real Cirilo Codrington, since that name was so unusual. Plus he wasn’t just a witness; he prepared the incorrect, after-the-fact document. Maybe he could shed some light on its origins. So Lisa went to where presumably all private investigators start missing-persons searches these days; Facebook. When she typed in Cirilo Codrington, only one profile came up. The location: Panama City. Panama. Lisa sent Cirilo a friend request, not knowing whether someone in Panama would notice an unknown lady from Palm Beach, or what she would even do about it if he did. But Cirilo quickly replied with a confirmation. He then sent Lisa a private message: “Who are u?”
Before panic set in, Lisa pulled together a cover story. “Your name looks so familiar,” she wrote back. “I was searching for someone else and saw your profile and something was triggered in my memory. Have you ever been to Florida or Washington D.C. area (VA and /or MD)?”
Fortunately for Lisa, she cast her net wide enough to find a connection. “Washington dc my dad used to live over there, his name is bruce antonio codrington. I live in Panama and my aunts live in landover hills Maryland.”
“I used to live all over Wash. DC!” Lisa replied. “In NO. VA and in Kensington, MD and Columbia, MD. Now, I’m in Florida. Do you ever go by Cirilo besides here on Facebook?”
Lisa didn’t get a response right away, so a few days later, she tried to pump more info out of her new Panamanian friend. “Hi Cirilo, by any chance did you used to work doing mortgage stuff? I’m just starting to work in the industry and I saw your name on a document and wondered if that was you! I mean, how many people have the same name as you do? Small world! How’s life in Panama these days? Lisa.”
Thirteen minutes later, Cirilo messaged back. “Sure I work for Firm Solutions Panama it has to do with foreclosures I am the training manager.”
Maybe private detective work was Lisa’s calling, not nursing. She later tried to get Cirilo interested in an interview about mortgage documents with a local paper; she would be the interviewer, of course. Cirilo replied, “I will let u know promptly,” but never followed up.
But Firm Solutions Panama was enough of a lead. The company billed itself as “the premier legal and financial support services provider in Panama.” They seemed to work directly with foreclosure mills, providing and processing documents. Like outsourcing in American manufacturing, law firms apparently outsourced document creation, which would go from the doc shop in Panama to wherever the documents needed to be signed. Lisa found one Facebook page where Firm Solutions and Florida Default Law Group, the firm in her case, were connected.
Why would a law firm employ an offshore document processor in Panama unless the documents had never been created initially? These were basic forms, to be completed for any mortgage transfer. It was obvious to Lisa that this was all a weak attempt to paper over inattention to proper procedure during the go-go housing bubble. Mortgage originators sold $1.9 million worth of loans every minute in the peak bubble years; they had no time or inclination for paperwork. These fabrications covered up the original sin: nobody established the chain of title properly, on perhaps millions of mortgages.
Cirilo seemed nice enough to Lisa. She figured he was just a cog in the Great Foreclosure Machine, a line worker, someone told what to do and when to do it. If it wasn’t so sad it would be comical: day by day, unsuspecting Central Americans put on ties and dress slacks, went to the office, and nonchalantly manufactured the raw materials in U.S. foreclosure cases, unaware of their central role in what increasingly looked to Lisa like a criminal enterprise. How many families were thrown onto the street every day because of what someone in Panama did for a living?
Lisa had one more question. What was Mortgage Electronic Registration Systems?
Several different entities had a connection to Lisa’s loan; DHI Mortgage, JPMorgan Chase Bank, Chase Home Finance, Wells Fargo, U.S. Bank. But this new company, Mortgage Electronic Registration Systems, seemed to play no role in the securitization chain. The assignment called it the nominee for DHI Mortgage. But the note said DHI sold the originated loan to JPMorgan Chase. How was Mortgage Electronic Registration Systems the nominee for the mortgage but not the note? How did they fit into the picture?
The answer can be found in hundreds of obscure county offices all over America. In Palm Beach County they call the lead administrator at this office the “clerk of courts.” Elsewhere they are called “county recorders” or “registers of deeds.” Whatever the title, public servants have managed these offices since before the American Revolution. They track and record property transfers on every piece of land in the United States. You could walk into a county recording office and trace the history of your property for as long as it existed.
Property recordation is based on old English common law. After the feudal period, when the monarchy owned all land, statutes governing privately owned real estate gradually developed. The need for standardized property laws intensified during the Crusades, when landowners would travel to fight and leave their properties in the care of trusted colleagues. Often, when the landowners returned, the colleagues proved to not be so trustworthy, as they would refuse to give the properties back.
The Statute of Frauds, passed in England in 1677, required that all agreements to land, from leases to conveyances of transfer, had to be recorded in writing, signed and dated by all parties involved in the transaction. Later, notarizations, the ultimate assurance that the proper person signed a document on a specific date and in a particular place, were added. Contracts without written evidence would be unenforceable. The purpose of many fraudulent Practices which are commonly endeavoured to be upheld by Perjury and Subornation of Perjury.” It allowed courts to fairly adjudicate disputes over property, and it gave land a specific value, turning it into a tradable and insurable instrument. If anyone could claim property without consequence, nobody would have confidence to buy or sell real estate. In The Mystery of Capital, Peruvian economist Hernando de Soto identifies accurate property records as what separates underdeveloped countries from developed ones. “What creates capital,” de Soto writes, “is an implicit process buried in the intricacies of its formal property systems. The formal property system is capital’s hydroelectric plant. This is where capital is born.”
Without a landed gentry in America, colonists frequently bought and sold property, prompting the need for a system to codify transfers in law. The Massachusetts Plymouth Colony established a recording law in 1636, mandating public acknowledgment to the governor for all home and land sales. Other colonies followed, legalizing the recording statutes used today. They created land registration offices, typically at the county level, to track property transfers and hold evidence of legal title. These offices designated what instruments needed to be recorded and preserved, along with penalties for failure to record. The information was indexed and available to the public, so mortgage lenders could confirm ownership before they issued loans, tracking the chain of title back to the original owner and ensuring the lack of defects in that chain. All transfers included a nominal fee to the public recording office to cover administrative costs. Like any pen-and-paper system subject to human error, it wasn’t without its occasional rough spots. But it worked pretty well for three hundred years.
When banks started securitizing mortgages on a wide scale in the 1980s, they viewed recording offices as a problem to be overcome. The nominal recording fee, typically between $25 and $50, barely registered on a mortgage costing several hundred thousand dollars. But to create the bankruptcy-remote trusts used in mortgage-backed securities, banks needed to transfer mortgages multiple times. Under the old system, that would trigger a recording fee and document creation at every step. With millions of mortgages expected to enter securitization, suddenly recording fees represented a drain on profits.
In October 1993, at the Mortgage Bankers Association annual convention, a white paper suggested the creation of a private electronic database to track mortgage transfers. A subsequent accounting study by Ernst & Young identified hundreds of millions of dollars in savings by avoiding recording fees, leading to the incorporation in 1995 of the Mortgage Electronic Registration Systems (MERS), backed by funding from several major financial institutions, Fannie Mae, and Freddie Mac. By the end of the 1990s, practically all GSE and private-label mortgage securities involved MERS. Despite the lack of public debate or legislative approval, this database commandeered the land recording system for a substantial majority of mortgages in the United States.
Instead of filing with county recording each time a mortgage transferred–and paying the fine–banks instead listed MERS as the “mortgage of record” in the initial mortgage assignment. Then, for subsequent transfers, the parties would go to the MERS database and list trades on an electronic spreadsheet. Banks could make unlimited transactions inside MERS; the county recorder only knew about the original assignment.
Though frequently listed as legal title holder on borrowers’ deeds, and though named on the assignment in the public records, MERS has no financial interest in the mortgage, does not receive payments from any borrower, and does not receive proceeds from any foreclosure sale. They make their money on the front end from mortgage originators, who pay to use the MERS database. MERSCORP, the parent company, owned a headquarters in Reston, Virginia, and a data center in Texas. They employed around sixty workers. MERS, Inc., the name on all the mortgage documents, was a shell company with no actual employees. Yet at the height of the housing bubble, most of the existing mortgages in the United States, more than sixty million, listed MERS Inc. as the “mortgagee of record.”
Law professors such as Christopher Peterson of the University of Utah identified a couple of major problems with MERS. First of all, it operated like a tax evasion scheme, depriving local governments of recording fees by transferring mortgages internally. The far bigger problem was that the MERS database served as the repository of all knowledge about the various transfers from originator to trustee. Thousands of people could access the MERS database, which proved far more susceptible to human errors than the recording office. Banks failed to record transfers within MERS in a timely fashion, if at all. Nobody took responsibility for flushing out errors or double-checking transfers. With millions of loans, that project could hardly be managed by a large team of operatives, let alone the few employees at the MERS data center. Law professor Alan White of Valparaiso University surveyed a sample of MERS loans and found that only 30 percent matched the ownership record in the public domain. MERS didn’t so much track mortgage transfers as it pretended to track them.
If the borrower missed payments and the servicer decided to foreclose, MERS acted in one of two ways. In some cases they carried out the foreclosure process in their own name, as the mortgagee of record, despite the fact that they had no material interest in the loan itself. Alternatively, like in Lisa’s case, they quickly made an after-the-fact assignment to the trustee, which under the pooling and servicing agreement is supposed to hold legal title on the loan. The difference depended on state laws surrounding foreclosures, whither the note was specifically endorsed to some other entity or not, and whether local courts had caught up to the fast-moving scheme.
Either way, MERS operated under questionable legal foundations. In depositions, MERs claimed to be merely acting as “nominee” for the lender while also claiming to hold legal title on the mortgage. They would argue their role as mortgage holder whenever possible but deny liability when pressed. In a March 2009 bankruptcy case in Nevada called In re Hawkins, MERS brought foreclosure action in its own name and as a nominee for others simultaneously. On page 9 of their brief in the Hawkins case, MERS asserted the “right to enforce the note as the note’s holder”; on page 8 of the same brief, they asserted “authority to act for the current beneficial owner of the loan or its servicer.”
MERS didn’t even seem to know what MERS did. (They lost that case, incidentally.) As Peterson wrote in a law review paper, “To grant MERS standing based on legal title held by someone else is to treat the notion of legal title as some magical nonsense where ownership means nothing other than a willingness on the part of courts to let financiers seize homes in whatever manner is most convenient for them.”
In cases like Lisa’s, where MERS assigned the loan to the trustee, the legal problems did not go away. First, the recorded assignments happened after the foreclosure commenced. Also, they were assigned after closure of the trust under the pooling and servicing agreement, after which time assets could not be conveyed. The PSA also barred trustees from putting delinquent or “nonperforming” loans into trusts, and by May 2009, the date on the assignment, Lisa’s loan was delinquent.
MERS had, according to their corporate roster, just a handful of employees. How did Whitney Cook and Christina Trowbridge, named as MERS “corporate officers” on Lisa’s mortgage assignment, work for them? MERS’s corporate HQ was in Virginia and their data center was in Texas, and yet the mortgage assignment was signed and notorized in Ohio. Lisa did some more Facebook snooping and found a Whitney Cook, age twenty-three, living in Akron, Ohio, near the offices of Chase Home Finance. Furthermore, on the “Affidavit of Amounts Due and Owing” in the case, Cook’s name appeared as a representative of Chase, not MERS.
Christopher Peterson, the Utah law professor, found that MERS sold their corporate seal on their own website for $25. Thousands of low-level workers across the country who worked at mortgage servicers or their law firms became “vice presidents” and “assistant secretaries” of MERS, despite never working for or receiving pay from them, so they could sign documents purporting to assign mortgages. Under the membership agreement, MERS empowered these “corporate officers” to execute whatever documents were necessary for loans in the MERS system.
Lisa couldn’t believe it. Three centuries of American land title operations had been outsourced to a shell company created by big banks so they could save a buck–and they were using it to circumvent established procedures and kick people out of their homes. Every step of the process involved an alphabet soup of companies blithely ignoring the law to maximize profits. Originators neglected underwriting standards and served up predatory loans to anyone with a pulse. In securitization, banks chopped up the loans in faulty ways that clouded chain of title, and apparently didn’t convey the notes properly. The same banks took bad loans and knowingly passed them on to investors to increase their profit margin. When this all crashed, servicers, foreclosure mill law firms, and trustees continued to neglect legal standards, using document fabrication and shady third parties to rush foreclosures through the system. In fact, foreclosure fraud was necessary to stay one step ahead of the origination and securitization fraud.
Chain of title is a long-standing concept in contract law based on the principle of privity, under which nobody can sue on a contract to which they are not a party. In any other legal context, from shoplifting to murder, breaking the chain of evidence would lead to a judge tossing the charges. If evidence in a judicial proceeding can be faked and nobody challenges the fakeries, the legitimacy of the system breaks down. Anyone can be swept up and condemned to eviction based on false documents or inaccurate testimony.
If actually reading your mortgage documents constituted a revolutionary act, then Lisa was among a handful of brave radicals, conscripted into a fight she never sought against the most powerful foe in America. But unknowingly, Lisa was actually building on twenty years of critical forensic work done mostly by one man, unsuprisingly based in Florida: a former sports agent named Nye Lavalle.”
(THE REASON THAT THE SYSTEM CALLED MERS [MORTGAGE ELECTRONIC REGISTRATION SYSTEM] WAS SET UP WAS TO MAKE IT LOOK LIKE THE BIG , UNREGULATED INVESTMENT BANKS,[THE ONES SEN BERNIE SANDERS WAS CONSTANTLY TALKING ABOUT IN THE DEMOCRATIC PRESIDENTIAL PRIMARY] WERE ACTUALLY DOING SOMETHING TO PROTECT THE CUSTOMERS, WHEN ACTUALLY IT WAS TO PROTECT THE BANKERS TO MAKE MORE PROFIT.
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran