By lambert strether.
The current version of Harpers — go buy it on the newstand! — has a terrific article by Christopher Ketcham on the MERS mess, which NC has done so much to bring to the attention of the public. I’m going to excerpt and contextualize two portions of the article. First, Ketcham interviews foreclosure activist Vermont Trotter of Coeur D’Arlene, Idaho on the “clouded title” problem. I’m a connoisseur of the worst case scenario, and this is a doozy:
Trotter told me that the “true horror” of MERS [1818 Library Street, Suite 300
Reston, VA 20190, 1-800-646-6377] was what it could do to homeowners who were current on their mortgage payments: The “good” homeowners who still had a job and weren’t facing foreclosure. If there was no legal record of which bank owned their debt [see below if you haven't been following NC on MERS], and the MERS-mortgaged homeowners had been making payments, then who exactly was the homeowner paying? The checks, clearly, were going out every month, cashed by a bank that claimed to own the note. But without the legal record to certify the owner of the note, it followed that the bank could not legally issue the homeowner a clear title to the home. In effect, a homeowner with MERS on his mortgage could spend thirty years paying a lender that wasn’t the owner of the note. …. “[Y]ou’d always be looking over your shoulder,” said Trotter. “Some other lender could come and say ‘No, we owned that note. You paid the wrong guy.” “WIth MERS”, he said, “nobody owns anything. You’re only paying rent.”
That’s not a bug. It’s a feature. At least for a rentier, although not necessarily for Trotter.
Second, Ketcham offers a lucid and succinct explanation of how this MERS feature came to be implemented:
[Mortgage Electronic Registration Systems] was created in 1995 as a privately held venture of the major mortgage-finance operators… Its stated purpose was to manage a confidential electronic registry for tracking of the sale of mortgage loans between lenders… No longer would the traffickers in mortgages have to document their transactions with county clerks, nor would they have to pay the many and varied courthouse fees… This centralized database facilitated the buying and selling of mortgage debt at great speed and greatly reduced cost. … Without the efficiencies [dread word] of MERS there probably would never have been a mortgage bubble.
After the housing market collapsed, however, MERS found itself under attack in courts across the country. MERS had single-handedly [oh?] unraveled centuries of precedent in property titling and mortgage recordation, and judges in state appellate and Federal bankruptcy courts in more than a dozen jurisdictions — the primary venues where real estate cases are decided — determined that the company did not have the right to foreclose on the mortgages it held. … “There is no evidence of record that establishes that MERS either held the promissory note or was given the authority [to] assign the note,” the Kansas court held. … “It appears that every MERS mortgage,” a New York State Supreme Court judge recently told me, “is defective, a piece of crap.”
“What’s happened,” said Christopher Peterson, a law professor at the University of Utah who has written extensively about MERS, “is that, almost overnight, we’ve switched from democracy in real-property recording to oligarchy in real-property recording.” The county clerks who established the ownership of land, who oversaw the records, were democratically elected stewards of those records, said Peterson. Now a corporation headquartered outside Washington, DC oversaw the records. “There was no court case behind this, no state from Congress or the state legislatures” , Peterson told me. “It was accomplished in a private corporate decision. The banks just did it.“
Let’s return to that statement: “The banks just did it,” because it raises a number of questions (not necessarily internally consistent). I feel like this post should have been written by a political scientists with training in computer forensics, neither of which I am. And I’d be really happy if the whole post were completely off base, because while I like imagining worst case scenarios, I don’t like it when they actually come to pass. Nevertheless, if the existence and possible retroactive legalization of the MERS system could raise important questions about the nature of law and the State, we’d better start hashing these questions out now. So, far fetching and blue-skying freely:
1. Doesn’t MERS look just like kleptocracy is supposed to look? Leave aside the banks’ outright looting of $200 billion or so in recording fees (so far). Even if those billions would go a long way toward solving the fiscal crisis at the state and local level. Haven’t the banks just appropriated for themselves the very ability to claim the title to hundreds of billions of dollars worth of housing stock? “You own your house if we say you own it..” Well, who owns your house, then?
2. If MERS is what banks can “just do,” is government really the problem?” Aren’t we already living in a libertarian paradise just like the Somalians, except that we’ve got a lot more stuff and a lot more delusion about the warlords who run the country?
3. If MERS controls the chain of title, where and what is the law? Apparently, the supreme law of the land is no longer to be found in in the “the code” — the state and local statutes, rules, regulations, interpretations, and precedents that lawyers and officials and citizens work with. No, so far as I can tell, “the code” is now the computer code of the MERS registration system itself, because the computer code controls the chain of title. But the MERS computer code is proprietary and opaque, so citizens can’t really know what the law is anymore (and possibly not even the MERS programmers themselves, if the system is poorly documented (as it might well be, to provide executives bent on accounting control fraud with plausible deniability)).
4. If MERS is the law, then where is the State? If the supreme law of the land is embodied in software and not controlled by the State as we know it — and empirically it’s not, because with MERS “the banks just did it” — then where is the State to be found? And how does the State gain legitimacy? Does that even matter?
NOTE 1 Questions 3 and 4 are not as far-fetched as they might seem. For example, election results are controlled by proprietary software that’s both proprietary and known to be insecure. And yet election results using these systems are presumed to be legitimate, both by voters and the powers that be. In the FISA debacle, the Fourth Amendment was destroyed by the retroactive legalization of Bush’s program of warrantless surveillance; “the law” was reverse engineered from an already running data mining system.
NOTE 2 If all the title assignments performed under MERS are indeed “crap,” that would give an additional motive — besides pure greed and the lust to inflict pain on the powerless — for the banksters to avoid cram down, HOLC, and any other solution that would involve opening up the MERS can of worms systemically.