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Interview, MERS RICO complaint: Doug Welborn, State District Court Clerk vs. MERSCORP Shareholders and Trustees (“the banksters”)

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By lambert strether of Corrente.

Yes, I know that Doug Welborn, East Baton Rouge Parish Clerk of Court vs. MERSCORP Shareholders and Trustees (“the banksters”) is a bit unwieldy as a case name, but it’s a lot less wieldy than the actual name — [32 parish clerks in Louisiana, so far] vs. [16 big banks including TBTF poster weasels BAC, JPM, and WFC (but not GS)] — so I think I’ll just go with “Welborn” from here on in.

The triple damages claim under civil (sigh) RICO is a billion dollars or so for Louisiana alone — real money — which makes Welborn interesting. Even more interesting is that RICO, as a “theory of the case,” is simple, clean, and easy to explain, unlike so many of our criminal banksters’ crooked schemes. We caught up with the trial lawyer for Welborn, Ted Lyon, and interviewed him. Did I mention the claim is for a billion?

Skip ahead, if you wish, to the interview, it’s indented, but the backstory is important, too: Hat tip to alert reader Roger Bigod, who piqued my interest in comments with “county clerk’s suit”, leading to this link on Louisiana clerks suing the banks under RICO. So I searched the go-to site on foreclosure fraud and found this post (love the graphic!), which linked to this fine story in the Baton Rouge Advocate. The reporter, Bill Lodge, had some excellent quotes from Richard D. Faulkner, Esq., so I found Faulkner and called him. Faulkner was gracious enough to play phone tag with a pseudonymous blogger whose answering machine was full, and then to hear him out. He put me in touch with Ted Lyon, who’s going to try Welborn. (It seems that these days there are very few lawyers who actually appear in court, but Lyon is one such. I note with pleasure that Lyons took a packet from Koch Industries for the death of a child.) I then arranged, on very short notice, for a professional interviewer (hat tip, Stephen Malagodi) to speak with Lyon, and a professional transcriptionist (hat tip, KL), whose collaboration you see below. With more time, we’d have done more preparation and some editing, but think of any solecisms as signs of authenticity, like scars in fine leather.

I go through all this detail, not to bewail the rigors of a blogger’s life, but to raise a single, simple question: Why does The New York Times give front page treatment to a $25 million bribery scandal run out of Bentonville, Arkansas, and no coverage whatever to the filing of a $1 billion dollar lawsuit over an accounting control fraud scheme run largely out of Manhattan? (“Your search – Baton Rouge RICO site:www.nytimes.com – did not match any news results”; 2:20AM, April 25, 2012.) A question that answers itself, once asked. Perhaps Krugman will cover the story in his blog.

So, to the interview, which took place yesterday, April 24,at 9:00AM EST. Note that one of our goals in the interview was to get the theory of the case explained in simple terms, so that we can explain it to our neighbors or in the coffee shop. After the interview there is a copy of the complaint, and so, readers, you may introduce as much complexity as you wish. (If the copy does not display in your browser, try the link.) Further, you will notice that Lyon seems to be familiar with the great Peggy Noonan’s dictum It would be irresponsible not to speculate. And, quite properly for one in his position, to disagree with it completely. You, readers, however, may speculate freely!

SM: We’re speaking with Ted Lyon of Ted Lyon & Associates. Mr. Lyon is filing a suit regarding the MERS, Mortgage Electronic Registration System. Thank you for joining us, Mr. Lyon.

TED LYON: Well, thank you.

Tell us what MERS is.

TED LYON: Mortgage Electronic Recording System is a system set up by a number of banking entities, primarily in New York, the large financial institutions, to avoid recording fees that they are due to pay across the United States every time they record a mortgage. This is tied back to the mortgage-backed securities that nearly brought the country to financial ruin. It was developed on Wall Street by a lot of folks in that industry, and each time you have a mortgage, by law in almost every state, the person that sells that mortgage or transfers it, in other words the bank, is supposed to pay a recording fee to your local county clerk so they can keep the title clean and record it. They set this system up so they wouldn’t have to pay these fees, and we believe that eventually they have benefited to the tune of billions of dollars as a result of that, by not paying county clerks across the United States.

Well, let’s back up just a minute. The actual system, the Mortgage Electronic Registration System, is a computer database, basically, but that was set up by one company. Why do you say that it was set up by banks? Isn’t it a single company?

TED LYON: Correct. But all the evidence that we have developed shows that it was a scheme that was developed by the defendants that we have in this lawsuit.

Well, who are your defendants?

TED LYON: Well, I don’t have the list here. There are several of them [see below. --lambert]

How would you describe them? Are they the big four banks, or who are they?

TED LYON: The defendants are the major banking entities in the United States as well as some other banking entities, but the largest ones in the United States, but almost all of them are very huge banking entities.

So is MERSCORP, Incorporated itself part of your suit or not?

TED LYON: Yes, it is.

So MERSCORP , Incorporated is the actual company that runs this database. They’re included plus the major institutions in the banking industry, is that right?

TED LYON: Yes.

Okay. So, give me a little bit about the background of this case. How did it come about? Who’s your plaintiff?

TED LYON: Well, right now we have a number of counties or parishes in Louisiana that have signed on with us. I think the number is over 32, and we have more coming in every day. And that’s the basis of our lawsuit, because the county clerks, or the clerks of court is what they’re called in Louisiana, they are required to record these mortgages and they have not been given that information. This is a very serious issue because if you have a house and you have a mortgage on it, you want to be sure that if you buy a house that has a mortgage on it you have a clear title to it. So by failing to do that recording, we believe it affects the title. I mean this has happened all over the country. And we also have a number of counties in Texas that we represent and we’re going to be filing a suit in Texas here in the near future.

So you’re filing on behalf of county – I would assume mostly county governments. Are there no individual homeowners that are involved in this?

TED LYON: No. Our case is we’re representing the counties or the parishes. We’re not representing any individual homeowners, even though they have been damaged also. That’s not our lawsuit. Our lawsuit we think is on firmer footing, and what makes this different than most other lawsuits – there have been a number of lawsuits filed against MERS across the country, but they’re basically all, almost all of them have been brought as a result of the individual homeowner. We’re not going to go that route because that’s just too time-consuming and also many of those cases have been lost.

So, given that, tell us the theory of your case, since it’s not representing homeowners but it is representing local government entities. Tell us the reason for that approach.

TED LYON: Well it’s pretty simple. We believe they’re required by law to pay recording fees every time they change these mortgages. In other words, every time they transfer a mortgage they’re supposed to pay a recording fee to the county, by law. And they set up this system to avoid that. And so each time they transfer a mortgage, instead of recording it with the county clerk or the parish, the clerk of court, they record it through MERS. And so they’re avoiding paying the $150 each time they – and I’m giving you just a ballpark figure here, $150, maybe as much as $200 – each time they change that mortgage. So they don’t pay that to the county clerk. So the county clerk, the county government, the parish government, loses that $150 to $200. And when you multiply that times the number of mortgages that are changed, that change hands in a county the size of some of the counties down in Louisiana, you’re talking hundreds of millions of dollars.

Now, you say that the defendants set this system up to avoid the payment of these fees. The defendants may say that they set this up because the process is cumbersome, that they were trying to establish some efficiencies in the mortgage security market. So, do you have – (crosstalk)

TED LYON: Well, when you’re talking about – yeah, sorry, go ahead.

I’m sorry. Do you have any evidence that the reason that they set this system up was indeed for the avoidance of paying these fees rather than, you know, inefficiencies in the business model?

TED LYON: Yes. Their website says it. And it said it for a number of years. As well as depositions that have been taken in other cases by some other chief executives.

So they specifically say themselves that the reason that they set this up was to avoid the payment of these local government fees?

TED LYON: Exactly.

Now, that probably isn’t in itself against the law, trying to, you know, trying to maximize your profits. It’s certainly not against the law in the United States. How – the simple fact that they may admit that they were doing this to avoid these particular fees, is that itself a basis for your suit?

TED LYON: No, they’re required by law to record these mortgages with a county government official. There’s no doubt about that. There is no – the federal law requires that. And they are not living up to the federal law. It’s not – there isn’t any, in our opinion as lawyers in this case, there’s no debate over that. We know, based on federal laws, that they are required to record that with a local county government, and they are not doing that. They have not been doing that for over 10 years.

Is there a reason why you are filing this suit in Louisiana? Is there something particular about the law in Louisiana that is conducive to this suit?

TED LYON: Well, Louisiana does have very strong laws in this area and we have some very good local counsel in Louisiana that are helping us on the case, and we were able to get most of the local governments down there to sign on. I mean, we’re in the process of doing the same thing in Texas, but it’s a little more difficult in Texas because of you have to have so many different levels of local government agree, whereas down in Louisiana they can pretty much, if the clerk of court wants to agree to the lawsuit, it’s a pretty simple matter. So in Texas or with some other states you have to go through the county attorney and then he has to go to the Commissioners Court – I mean, it’s, I would liken it to herding cats to sometimes get all these local politicians to sign on. But it’s coming along.

So, if your case in Louisiana is successful, will this have implications in other states?

TED LYON: Absolutely. If we’re successful in Louisiana, it will have a ripple effect across the country.

In what way? I mean you just said that filing these suits in other states is much more complicated, so how would winning in Louisiana impact what the law is in Illinois, for instance?

TED LYON: Well, almost every state has the same recording requirement that they record those mortgages locally, so in every state they’re not doing it. So it’s a simple matter of proving to your local elected official that this is a case that they need to bring. And of course this is a test case, so if in fact we are successful, then we feel very confident that other states will follow.

How big is this suit? Is it going to be, does it have the potential to be another tobacco industry sized case?

TED LYON: I don’t want to compare it to that. We think it’s huge. How big it is and how huge it may be is totally – it depends on whether or not we have the case. I mean, if we actually have the law right, and we think we do, then it’s going to be huge. I won’t characterize it as being as big as the tobacco litigation, though.

Well let’s compare it, just for the sake of comparison, to the tobacco litigation case. That took a long time for those suits to finally succeed, I think 10 or 15 years. How long do you think this fight is going to drag out, at least in Louisiana?

TED LYON: Well, I think in Louisiana, and in federal court you have what is called a 12(b)(6) motion, and that’s where they try and dismiss your case for lack of evidence, a good lawsuit. And this is the first one of these cases that’s like this that’s been filed. If they are successful, then it’ll be over very quickly. If they are not successful, and we are successful, then from there you would spend probably a year or more determining the damages. The damages are relatively easy to figure. We can do that, you know, because everything is now recorded through computers. You can run these numbers very quickly. You can determine – for instance, wherever you live you have a county government, and they have, there are so many houses in that county, and we know, we can determine from our computer discovery how many times those mortgages have been sold. It’s relatively simple to figure out how many times that house has been sold, what the recording fees would be, and then add that to the number that they would owe. And then in addition to that, under the federal RICO act, racketeering influenced corrupt practices act, you have treble damages on that, so you get your actual damages, then you treble those. And then you have attorneys fees, and those are kept up with on an hourly basis. So that would be a fairly – it’s not like the tobacco litigation, because that took a long time to determine the damages. But this case is pretty simple from a damages standpoint.

Why isn’t this a class action case, or is it?

TED LYON: It’s not a class action in Louisiana because we didn’t want it to be, and we wanted to have individual counties because we need their cooperation to come up with their damages, and we wanted to have a contractual relationship with each county that we represent down there. We don’t want to have to – one of the problems that you have with a class action, if you have one in this area, is that you may have a county that doesn’t want to cooperate, that doesn’t cooperate, it makes it real hard for your damages [for them?]. We want them to have some incentive to compute their damages.

Well you say the damages are fairly easy to compute. Have you computed them? Do you have any idea what the potential damages are?

TED LYON: We think in Louisiana the damages are over a billion dollars.

And that’s just in Louisiana, and you say that if you win your suit that this will have import in other states, so if we’re talking a billion dollars in Louisiana, we’re talking a lot of money potentially nationwide, correct?

TED LYON: Correct.

Some people have speculated that if you win your suit and this does in fact go national, that the defendants in this case, basically the U.S. banking industry, is going to face a need for recapitalization. So, you know, what was too big to fail in 2008 and 9 and 10 is still too big to fail. So are we looking at the possibility of, you know, catastrophic banking failure if your suit succeeds and goes national?

TED LYON: No, I don’t think so.

Do I detect a little hint of hopefulness there, that, no, you hope it doesn’t, or – ?

TED LYON: No. No, I don’t think so, at all.

Well, if we –

TED LYON: When you look at the national, when you look at the assets of every one of these defendants, they can afford to pay the damages that they have taken from the counties over a number of years and pay those back to the counties. And if they stole that money, which is what we’re saying they did, they owe it. And they have made multiples off the money that they took from the counties, and their assets are well, well within the realm of paying these damages.

So you don’t, you don’t see any real dire consequences for the banking industry if this – if your suit and similar suits in other states succeed?

TED LYON: No. They have plenty of money to pay these damages.

Now you said, you mentioned earlier about possible RICO implications here. Yours is a civil suit, but can you see criminal charges coming out of your case through the discovery process? Have you, can you tell us what you expect to find in discovery?

TED LYON: No, I really don’t want to speculate on that. We’ll just have to wait to see what the evidence – where the evidence goes and what it points to.

So you just don’t want to comment about the possibility of criminal charges coming out here?

TED LYON: No.

Hm. Okay.

TED LYON: That would be pure speculation on my part.

Well thank you very much, Mr. Lyon. We appreciate it, and good luck with your case, sir.

TED LYON: All right, well you have a good day.

You too, sir.

* * *

Here’s a copy of the complaint:

Rico Louisiana

Two points of interest:

1. I’ve extracted the list of defendants from the complaint document above. You’ll notice they fall into two classes: Shareholders, and Trustees.

  • BNY Mellon**
  • Bank of America*
  • Chase*
  • Citi*
  • Deutsche**
  • GMAC*
  • HSBC*
  • HSBC Bank**
  • J.P. Morgan Chase**
  • LaSalle**
  • Merrill Lynch*
  • Nationwide*
  • SunTrust*
  • United*
  • Washington Mutual*
  • Wells Fargo*,**

KEY
* Shareholders of MERSCORP, and “MERS members” of Mortage Electronic Registration Systems
** Trustees of residential mortgage-backed securities

2. The following two causes of action seem especially salient to me (though legal experts will correct me):

64. All Defendants, together with Mortage Electronic Registration Systems, Inc. and MERSCORP, Inc., constitute an association-in-fact “enterprise” (the “MERS Enterprise”) as the term is defined in 18 USC § 1964(4) [RICO], that engages in, and the activities of which affect, interstate commerce. The members of the MERS enterprise are and have been associated through time, joined in purpose and organized in a manner amenable to hierarchical and consensual decision-making, with each member fulfilling a specific and necessary role to carry out and facilitate its purpose. Specifically, Defendant Shareholders operated and directed the affairs of MERS to enable them to transfer mortages in a manner designed to unlawfully avoid payment of required recording fees, directed the publication of advertising materials to investors and the general public misrepresenting the need for properly recording mortgage conveyances, actively concealed the lack of valid assignments from investors, and mailed false notices, including, but not limited to, foreclosure documents, to Plaintiffs, homeowners and others. The Defendant Trustees conspired with the Defendant Shareholders to create the MERS scheme, and assisted in implementing the scheme by disregarding their duty as trustees to ensure proper perfection of the mortgages, facilitating the creation and profitability of mortgage-backed securities. The execution of the MERS scheme would have been beyond the capacity of each member of the MERS Enterprise acting singly and without the aid of each other.

I have to say, that if you want to slice the kleptos out of a kleptocracy, RICO would seem the perfect surgical tool. After all, what is a kleptocracy but a racket?

69. Further. each of the Defendants has conducted and/or participated in the conduct of the MERS Enterprise’s affairs through a pattern of racketeering activity in violation of RICO, 18 USC § 1962(c), by engaging in numerous acts of mail fraud and/or wire fraud. False representations or fraudulent pretenses made by defendants include:

1) misrepresenting to homeowners, investors and MERS members the need for recordation of assignments in the parish records;

2) mailing and/or electronically transmitting false notices, including foreclosure documents, to Plaintiffs, homeowners and others;

3) actively concealing its lack of valid assignments from investors, Plaintiffs, and homeowners.

So the Tinkertoy-quality MERS website (“MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans”) is a case of wire fraud? Too funny.

* * *

When I was talking with Richard Faulkner I was reminded of this passage from Reflections on the Psalms, by C.S. Lewis. He wrote:

The Unjust Judge in the parable [Luke 18:8] is quite a different character. There is no danger of appearing in his court against our will: The difficulty is the opposite — to get into it. It is clearly a civil action. The poor woman (Luke 18:1-5) has had her little strip of land — room for a pigsty or a hen-run — taken away from her by a richer and far more powerful neighbor (nowadays it would be Town Planners or some other “Body” [or "entity" -- lambert]). And she knows she has a perfectly watertight case. If once she could get it into court and have it tried by the laws of the land, she would be bound to get that strip back. But no one will listen to her, she can’t get it tried. No wonder she is anxious for “judgement.”

Behind this lies an age-old and almost world-wide experience that we [sic] have been spared. In most places and times it has been very difficult for the “small man” to get his case heard. … Hundreds and thousands of people who have the right entirely on their side will at last be heard. Of course they are not afraid of judgement. They know their case is unanswerable — if only it could be heard.

How many of us are in that position, literally and metaphorically! Our case is unanswerable. If only it could be heard. So let’s hope for a favorable outcome for that 12(b)(6) motion.

UPDATE Cross-posted to Corrente. Attributions added, plus the Hatlo hat tip image.

PODCAST

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79 comments

  1. Foppe

    Been having fun, I see?
    Sounds nice, though, especially if the case is indeed as cut and dried as your interviewee makes it out to be. ;) You might even wonder why no one has tried it before…

    1. PL

      It takes considerable resources to bring a civil action unlike a criminal indictment where the state or federal prosecutor foots the bill.

    2. Lambert Strether Post author

      One might. My object was to present the theory of the case. In the end, that court that really matters is the court of public opinion, no? That said, if you check out the links to Lyon you’ll see this:

      In addition, Mr. Lyon has achieved verdicts and settlements in excess of $400,000,000. Mr. Lyon twice achieved the largest verdict in the nation for the loss of a child, including the landmark $296 million verdict in the Smalley v. Koch Industries case that earned national recognition and was noted in the National Law Journal and the National Law Review as the fifth largest verdict nationwide and the largest single wrongful death verdict, in actual damages, in United States history.

      So it would seem that Lyon knows very well what he is about.

      1. Foppe

        Oh, I don’t mean that this sounds too good to be true; what interests me is why, if this is indeed so straight-forward, the counties/county clerks have never cared enough to try this before. What were the structural reasons this didn’t happen? Because I can’t imagine that the counties never noticed the drop-off in registrations/mutations before, so choices must have been made not to do so.

      2. LucyLulu

        It isn’t that Lyon isn’t very talented or has the requisite experience. The question was why this type of case hasn’t been brought before. First, there are a few isolated cases already of counties that have filed cases against MERS seeking recording fees owed. Yves has posted about one in MI where Frannie tried to claim they were exempt being federal agencies and has posted about Jeff Thigpen’s case in NC, and perhaps others. AFAIK, none have yet to be settled.

        PL rightly pointed out that money is an issue as well. Counties are strapped for funds and it takes money to litigate cases. This case in LA will require LOTS of money, and if the county registrars prevail, you can be sure the defendants will appeal, likely all the way up if necessary. I was told by an attorney that RICO cases are very tricky to litigate and take skill and experience to avoid fatal missteps (which I’m not saying Lyon doesn’t have, IDK). Often cases will come down to the luck of the draw, whose courtroom the case ends up in. It could be several years before there is a final decision, which is never certain, and many millions in legal fees. I doubt Lyon comes cheap (but at least they’ll be TX fees instead of Manhattan fees). Or perhaps he’s agreed to work straight contingency, which if so, that’s an excellent sign.

        I’m not trying to put a damper on any enthusiasm, only trying to answer original question about why more cases like this have not been brought. Of course MERS was a scam to avoid paying recording fees and save time and paperwork during securitizations, but knowing this and proving this in court are two different propositions….. especially in a legal environment where today’s foreclosures are allowed to stand or people like Mozilo, Vikram Bandit, and Corzine aren’t prosecuted. The banks collectively have LOTS of financial resources in this suit and with the nationwide implications that an award, they have the incentive to throw those resources full bore at this case. BUT…… I hope they get nailed to the wall. It would be nice to see the good guys (and those who have the law behind them) win for a change.

        1. LeonovaBalletRusse

          The transcription shows why: let’s call it the “peculiar institution” of the Louisiana legal system, especially when it comes to the sacrosanct issue of clear title to real (“immoveable” is the term the suit uses) property.

          1. Nathanael

            Louisiana law is based on the French Civil Code.

            I wouldn’t be surprised if there are various procedural obstacles in common law states which make it difficult for county clerks to file suit — in Louisiana, with wildly different laws, it appears to be entirely straightforward for them to file suit.

        2. LeonovaBalletRusse

          “Straight contingency” is the tradition among the Southern Boys.” It worked as a powerful incentive to Beat Big Tobacco. Q.E.D.

  2. Roger Bigod

    It’s good to see my homies show some gumption. I explain to newcomers that Louisiana combines Redneck charm with French efficiency.

    It strikes me that the plaintiffs are too timid. The defendants have screwed up a property system that worked tolerably well for over 200 years. They should have to pay for restoring the integrity of the system, i.e. straightening out all the chains of title. If it costs a lot more than the $150-200 fee they avoided, that’s their problem.

    1. Jim Haygood

      Louisiana’s parishes have a restricted income thanks to the state’s homestead exemption of $75,000, so recording fees on mortgages would be an important source of revenue to them.

      In an example shown on the East Baton Rouge Parish website, a $175,000 house [about the median price there] incurs a parish property tax of $895.00 after the homestead exemption is applied:

      http://www.ebrpa.org/Assessments-Millages

      Using a median price example conceals another unusual aspect of Louisiana property taxation. Baton Rouge features a wide price of house prices, running from the $200,000 range in its affluent east and south to more like $60,000 in Scotlandville, a neighborhood of modest, old frame houses directly across Scenic [sic] Highway from the huge Exxon Mobil refinery, with its rich scents and flares that light the night.

      Thus in a modestly valued home, one could owe no parish property tax at all (though the lower Baton Rouge municipal property tax still applies). This extreme progressivity in property taxation is unique to Louisiana. As a tax slave of New York, I sure do miss it.

      1. LucyLulu

        Jim,
        It could be argued that the LA property tax system is extremely regressive. By restricting collections on property taxes so sharply, which are weighted more heavily towards those in higher wealth brackets, the bulk of the tax burden is shifted to the more regressive taxes that affect all state residents equally, e.g. state and local income taxes, sales taxes, excise taxes.

        *Your property taxes are quite reasonable even on the taxable portion. County/municipal taxes for the largest town in the county where I live, are 1.415/$100,000 or $1415, about $350 more on $100,000 value ($1070 inside city limits per link you provided, or 1.070) after homestead exemption. And you have some really good Mexican food!

        http://taxweb.co.guilford.nc.us/CamaPublicAccess/GuilfordTaxRates.pdf

    2. LeonovaBalletRusse

      RB, thanks. Dead right: the NUT: French efficiency–esp. when it comes to legal entitlement to real property, and the records that prove it. The recording of mortgages is as sacrosanct as the recording of marriages, baptisms, deaths, and inheritances (involving probate records). The “record” is what makes “politics” equivalent to “genealogy” in French Louisiana. Not for nothing has the Roman Catholic system still the prime recorder of the social order in Louisiana since the 17th century. The records are “sacrosanct.”

  3. Pat

    I welcome this lawsuit of course and hope that other states join in (I believe Nevada already has), but it sidesteps the real crime that the MERS originators committed: they wanted to kill the scheme of local title recordation in favor of centralized database controlled by the banks that obfuscates property ownership. Why would they do this? Avoiding local recording fees is one reason, but perhaps also to make it easy to move mortgages back and forth between creditors and perhaps also to cover up larger frauds, like selling the same mortgages more than once to different RMBS pools.
    If you avoid recording fees, you save pennies on the dollar, but if you can sell the same mortgage twice – that’s striking gold.

      1. LeonovaBalletRusse

        d, the “exponential financialization” of real property via synthetic derivatives compounded ad infinitum (until the music stops).

        For How it works, and why, see/read: Josph Vogl: “Sovereignty Effects” (INET Conference Berlin, April 12, 2012, Panel Which Way Forward?), who says/writes: “In consideration of the current situation, one can thus argue that the financial and economic state of emergency in recent years has given rise to a form of government action resembles a continuous coup d’Etat.” Prof. Vogl bases his argument on his study of the book of 1639 by Gabriel Naude, “Considerations politiques sur les Coups d’Etat.”

        Essentially, “finance” has occupied the government.

    1. LucyLulu

      Yes, interesting article about its who brings the claim that determines success of RICO cases. I hope the author is right. I was under the impression though that RICO was the unique case in which even individuals could bring criminal charges.

      “What was very interesting to me about RICO is that in addition to being a federal statute authorizing private enforcement by individuals, it was also a federal criminal statute authorizing prosecution by the US government.”

      1. LeonovaBalletRusse

        Thanks. The salient point is that it is much easier to dismiss an individual than a legion of Clerks of Court of the Louisiana Parishes, who have made their complaint “just right” in its particulars. This isn’t a case of Joe Schmoe against the Bar.

        Of course, judges can always be bribed. But it won’t be so easy to get away with that this time. The case is air-tight. Soon it will be in the spot light, as a “test case.” Only by corruption and/or murder can this case be lost, and the whole world will be watching. Best not to mess with the Clerks of Court.

        1. John Regan

          Well, then, with all due respect I was exactly on point.

          I appreciate what you are saying on the practical level. I just think it is sad that so much depends on WHO the parties are, rather than the law and the evidence. It’s not supposed to be that way, especially in courts. The world works that way enough as it is without the courts doing the same thing. In fact, you could argue that if the courts do work that way, it would be better not to have them. Or at least more honest.

          Even so, if the “clerks” are on the side of the angels on this, then that’s a Good Thing.

        2. Nathanael

          Indeed. I actually suspect the judges will not be quick to succumb to corruption when every local government in Louisiana is watching.

  4. Justicia

    At Last! Hats off to the LA parish clerks and their TX attorneys (and Yves for keeping us informed).

    And I, too, am wondering why there’s been zero coverage of this RICO action in the NYT or other MSM outlets.

  5. Dr Janice Lester

    It’s great to wake up and read good news, unlike at the NYT where we’re told debt collectors are coming after people on their hospital beds. I wish Maryland would wake up, and smell the criminogenics.

  6. F. Beard

    Nice! Go Ted Lyon!

    However, I was dismayed by excessive concern about whether the banks could afford to pay. So what if their capital is wiped out? Isn’t that the price of failure in capitalism?

    Are we held economically hostage by the banks or what?! So it seems.

    Let’s end that disgraceful vulnerability forever, eh?

    1. LeonovaBalletRusse

      FB, Capitalists who live by the sword die by the sword. So be it. Michael Hudson and the team at UMKC have the remedy, which can be put into place overnight.

      1. LeonovaBalletRusse

        AND Steve Keen has the Jubilee Plan (INET in Berlin 2012: “Paradigm Lost”), told in Keen’s presentation on April 14, 2012 during “Breakout Sessions II: Instability in Financial Markets: Sources and Remedies”
        http://ineteconomics.org

  7. Peter Pan

    If it sounds to good to be true…..

    So why only the shareholders listed? Why not the complete list of shareholders of MERS? Where’s FNM & FRE (that are now owned by the US government)? Won’t the named defendants be asking these quetions?

    Sorry about the skepticsm, folks.

    1. Lambert Strether Post author

      There’s never a reason to apologize for (reasoned) skepticism! But if you check the links, you’ll see that Lyon has a track record of winning big awards from very large players, including Koch and the world’s most evil corporation, Monsanto. So I’m sure the theory of the case and also the jurisdiction were chosen most carefully.

      1. LeonovaBalletRusse

        LS, also, if you read their case, the text and diagrams prove their claim without a doubt. It is so clean as to seem absurd. Clarity rocks.

    2. Nathanael

      I bet he’s avoiding suing entities which might claim “sovereign immunity”, which means avoiding any defendant owned outright by the federal government.

      Even if there’s no solid claim for sovereign immunity, just litigating the question could tie things up for months.

  8. Alice

    Bravo Louisiana! This is the beginning of the attempting to put Humpty Dumpty back together again. Sixty five million loans in the MERS system must be reconstructed. Every loan has to be tracked from the beginning..the time when it was entered into the computer program with a MIN number. Every state must do this if they want the economy to recover. The ramifications of the success of the lawsuit are mind boggling.

    1. LeonovaBalletRusse

      The really sticky part will come when they de-construct who was long/short on either side of naked “financial instruments” compounded in free float–very far from the original “mortgage instrument.” This is where Paulson/GS “straddles in the saddle” come into the light. How to assign partial possession of title by tranche holders long and short? How does the AIG bailout affect GS collection of non-regulated “insurance” (actually “hedge product”) on the lost “investment?”

      Thank goodness we have High Frequency computers to do this sorting for us. Then the Clerks can be paid according to fractional “ownership?” Banking is busted. Louisiana clerks have said it: “The Emperor has no clothes.” They and their “Southern country lawyers” are now going to prove it. Game over.

      1. just me

        Thank you! Tranches! I never understood if MBS had whole mortgages in them or slices of them. Can someone clarify?

        1. PL

          MBS trusts purportedly contain whole mortgages ;)

          MBS investors purchase select “tranches” in the trust representing the right to payment. Tranches have differing amounts of risk.

  9. Carla

    Excellent post. But I am left with two questions:
    Since when is the theft of dollars owed to local governments not a criminal offense? And since when is the theft of tens of millions of Americans’ homes via fraud not a criminal offense?

    We all know how wrong this is. And we all live with the knowledge and go on about our business, such as it is.

  10. Susan the other

    This is good news. Let’s hope for the best possible judges. If this case goes forward it might make moot the significance of the Securitization Fraud Taskfarce. It could produce more lawsuits for more detailed counts. But I’m still unable to see how proving this wrongdoing and settling for damages is going to clear anyone’s title. This is literally going to require legislation. Because the records have been so fractured and lost there is no way to splice the separate interests back, unbroken, into the chain of title. The settlement will be, more or less, an estimate.

    1. LucyLulu

      I’d love to see a RE attorney respond to this question about how titles could/would be cleared. I believe that once properties are sold or are refinanced the problem will self-correct, or at least in most states. The understanding I have of the statutes I’ve read are that property sales are considered final and non-voidable, even if transferred by the wrong party, after a certain and rather brief time period. The recourse available to the prior owner is to go after the party that wrongly transferred the property for damages, but don’t include return of their property. However I’d love to see confirmation by somebody more qualified to speak to this.

      This is part of the reason lenders are incentivized to refinance. It clears up any clouds in legal titles. Though I suspect lenders are less worried about such issues these days as they’ve learned they rarely matter.

      1. Lambert Strether Post author

        You write: “property sales are considered final and non-voidable, even if transferred by the wrong party, after a certain and rather brief time period…”

        Got a link on that? Readers?

        1. Nathanael

          Absolutely backwards. Under English-derived legal theories, the “true owner” of the land, the one who can trace their claim back through a line of legitimate purchases, has a claim superior to the person who purchased it from a fraudulent owner. There aren’t even any statutes of limitations. Proper filing at the county clerk’s office defeats certain types of competing claims, but not others.

          There are legal procedures for the current occupant to claim title and wiping out anyone else’s title — these are called “quiet title” actions and are rather involved, involving giving notice to everyone who might have a claim against your title and legal notices in newspapers and whatnot.

          This is roughly how it works in 49 states. Louisiana has French-derived legal theories, which may be entirely different. I don’t actually know how it works there.

        2. chitown2020

          Alright, I have had enough already. I went to my County Recorder of Deeds Office over a year ago located in City Hall downtown Chicago, Illinois to do a title search on both my home and residential property. The clerk did the title search on both properties and the searches went right to the Property deeds unencumbered by any liens. The reason why?? NO LEGAL ASSIGNMENTS WERE EVER RECORDED AKA THE ASSIGNMENT OF BENEFICIAL INTEREST AKA THE TRUST AGREEMENT AKA THE LEGAL LIEN. THE CLERK TOLD ME BECAUSE OF THAT MY PROPERTIES ARE PAID FOR FREE AND CLEAR AN I CAN DO WHATEVER I WANT WITH THEM. YET I AM FIGHTING 2 FRAUDCLOSURES PRO SE IN THE CITY OF HOT AIR…. THERE IS NO LEGAL FIX FOR THE ORIGINATION FRAUD…PERIOD…..END OF STORY.

      2. PL

        I *think* if a mortgagor refinances and the original mortgage is marked satisfied by the Recorder of Deeds, then gaps in the chain of title created by the note having been sold without assignments of mortgage having been recorded during Mortgagor’s ownership may become moot.To illustrate:

        Mortgagor–>Mortgagee A who sells note w/out recording assignments of mortgage–>B–>C;
        Later refinanced as Mortgagor–>Mortgagee C (or D,E or F)and original mortgage marked satisfied in public record. No gap.

        On the other hand, if the mortgagor is foreclosed by a subsequent purchaser of the promissory note (not the mortgagee of record,) then a gap in the chain of title is created which a sheriff’s/trustee’s sale to an innocent buyer does not remedy. To illustrate:

        Mortgagor–>Mortgagee A who sells note w/out recording assignment of mortgage–>B then resold–>C;
        Mortgagee C gets foreclosure judgement against Mortgagor;
        Sheriff’s/trustee’s sale to Mortgagee C;
        Mortgagee C sells REO property to Innocent Buyer.
        Now there is a gap in the chain of title between the recorded mortgage held by Mortgagee A and the foreclosure judgment in favor of Mortgagee C because there is recorded evidence of how Mortgagee C had standing to foreclose and then convey title to Innocent Buyer.

        Recent decisions by the Massachusetts Supreme Court hold Mortgagee C did not have any title to convey to Innocent Purchaser, therefore the REO sale is void. Innocent Purchaser needs to get a quitclaim deed from foreclosed Mortgagor to remedy the gap in the chain of title.

        Someone please correct me if I’m wrong. The last thing we need is more incorrect information creating confusion.

        1. Nathanael

          “original mortgage marked satisfied in public record.”

          This is the key part. Filing the satisfaction of mortgage in the public record may be sufficient to wipe out title claims based on the mortgage, in some states.

          However, if the satisfaction was filed by the *wrong owner*, not the true mortgage holder, it may not be sufficient. This seems to be a complicated legal issue.

          There are also various rules which state roughly that the “true” mortgage holder has to actually demand payment or the mortgage becomes void. So if you get your “satisfaction of mortgage” and *nobody* asks you for mortgage payments for several years, you can probably assume that that cloud on title is gone. (Though case law in this area is very complicated.)

          Now, that’s not the ugly part. This is the ugly part. As you say, if the house is sold through foreclosure and the foreclosure was executed by a party which did not have the right to do so, *the entire sequence of transactions is void*, as the Massachusetts Supreme Court ruled in Ibanez. Not merely voidable — void ab initio.

    2. LeonovaBalletRusse

      It may not clear anyone’s title, that’s what they mean to demonstrate in court: the tragic destruction of three-hundred years of property law as “collateral damage” of an organized crime racket designed to avoid making legally required payments to the Clerks of Court for the proper recordation of changes in title via the mortgage (first lien against the property), the second lien, unto the franctionalized/polarized liens to the nth degree via “securitization” hedges labeled “insurance” (actually, unregulated “shadow” ersatz insurance).

      Literally, the criminal cartel Broke the Law of Louisiana. For starters.

  11. Jill

    I like these people’s style! The Lord has closed a door and they are opening a window. This will be interesting.

    Access to a functioning court system is fundamental to justice. Glenn Greenwald lays this out in the cases of denying access to torture victims. Access is denied for the same reason sited here with the widow. The law is clearly on their side.

    This govt. owns most of the appellate courts on up. They do that to avoid access to justice. This case will scare the PTB. That is why I think this will be truly interesting.

  12. grayslady

    I haven’t looked at my mortgage documents in a long time, but I’m willing to place a small wager that I paid for title recordation that never occurred. Maybe I could make a case in small claims court.

    1. LucyLulu

      I’d wager it DID occur. The original recordation, the one you paid for, when a purchase and financing is made were invariably recorded, in order to establish the priority of the lien. It’s subsequent sales of the mortgage in the chain of securitization that were never recorded.

      1. PL

        Exactly right. The deed to a property purchaser and his/her mortgage are recorded, but subsequent assignments of the mortgage are not filed in violation of recording statutes.

        1. chitown2020

          I would check the LAW OF CONVEYANCES in your State. There is a lot of deception about the recordation of the ASSIGNMENT which is the LEGAL LIEN. For example, in Illinois the bank does not have to attach the LEGAL LIEN to bring a foreclosure complaint under ILLINOIS MORTGAGE FORECLOSURE LAW…IMFL…BUT…in Illinois, THE PERFECTION OF THE MORTGAGE LIEN IS GOVERNED BY THE ILLINOIS CONVEYANCES ACT (765 ILCS 5/1 et. Seq.) SECTION 28 (765 ILCS 5/28) requires instruments relating to or affecting title to real estate shall be recorded in the County in which said Real Estate is situated in 30 days but since securitization the have no more than 90 days from the closing of the trust to record a LEGAL LIEN. In my case it has been 19 years. The clerk at the Recorders office told me because of that my house is paid for…I can live in it, sell it or do whatever I want with my home. The statute of limitations has run out on them to record a legal lien. Yet..I am still fighting foreclosure..! BTW…They also have to prove up the chain in order to be granted a foreclosure in Illinois courts.

    2. chitown2020

      On your warranty deed that you should have in your possession there should be a stamp affixed to the deed. It will have the amount that you paid for your house on the stamp.

  13. chitown2020

    Bravo…! Great post! MERS along with the Origination Fraud was how the swindlers got away with selling the notes hundreds of times per note without anyone knowing. When the phony, fraudulent MBS’s became completely toxic and insolvent by overselling that is when the fraud was sold to the public. It is in your recordings at your County Recorder of Deeds office. In my case, Chicago Title and Trust sold mine to public in 2007 after years of being in MERS. MERS is not a bank and cant own a loan. MERS tracks servicers but was a vehicle used by the banks to hide massive fraud they were committing with our notes…

    1. LeonovaBalletRusse

      chitown, you’re right. To prove your point, please see:

      http://deadlyclear.wordpress.com/2012/04/18/behind-the-securitization-curtain-21st-century-mortgage-casin0#more-1943

      “Behind the Securitization Curtain…” at the Deadly Clear website is truly shocking in its implications. Is it possible that ALL personal/professional “data” mined by every “social” and “search” SERVICE is hoovered into the maw of the Great Financialization Machine for private profit by the 1%? Is this what Friends are for? Are the “motives” of “social sites” really “ulterior?”

      People, get out while you can! Recall George Carlin’s admonition: “They don’t care about you at ALL! at all, at all.” They really don’t.

        1. LeonovaBalletRusse

          “Bought and sold before you sign on the line.” It’s true. I am a witness to the fact.

    1. Lambert Strether Post author

      GS are not shareholders; far too downy birds for that, I imagine.

      Via FT Alphaville, which has this great quote from the MERS site:

      Does MERS change the current mortgage closing process?

      Yes, it makes it better! Your organization follows its normal and customary procedures, except that you’ll save $30 or more per loan when you specify MERS as the Original Mortgagee (MOM) of Record in the mortgage or deed of trust. MERS becomes Nominee for you as the lender and the lender is also identified on the document, using Fannie Mae and Freddie Mac approved language. You need to generate a Mortgage Identification Number (MIN), and include it on the closing documents, and complete the registration of the loan on MERS. Your closing process is even easier if the old mortgage on the property was registered on MERS, because the lien release process is not delayed because of missing or incorrect prior assignments. Chain of title starts and stops with MERS!

      1. LeonovaBalletRusse

        LS, re “Fannie Mae and Freddie Mac approved language” — again, dirty details at the Deadly Clear link in comment above to the shocking expose: “Behind the Securitization Curtain..” Look who INVENTED the “perfect instrument” (in requisite software, the sine qua non for success) to set the racket in motion.

        The software is the “Heart of Darkness” beating in the Monster of MERS. Some might call it a “smoking gun” showing INTENT to defraud, intent to establish a racket for aiding and abetting theft and illegal practice for profit. Was this not a Plan, evidence of a “Conspiracy,” to stiff the Clerks of Court of Louisiana, at the very least? William K. Black? Abigail Caplovitz Field? Yves Smith?

        Did they think that MERS was TBTF?

      2. chitown2020

        MERS should land them all in prison. MERS is not a bank and these are all illegal reconveyances. Then, if they never held legal title in the first place and conveyed fraudulent mbs’s and sold interests in them via MERS then they are felons. 3 felonies=life in prison.

        1. Nathanael

          The correct term is “fraudulent conveyances”. According to law since the Statute of Frauds, and confirmed by the Ibanez case, a purported transfer of an interest in real estate is not actually a transfer unless it’s written down. So these supposed transfers using MERS were not, legally, conveyances at all; they were fraudulent (pretend, phony) conveyances.

          1. chitown2020

            FRAUDULENT RECONVEYANCE is the misrepresentation of who you are by signing phony and fraudulent legal documents by falsefying documents an things like using phony signatures of notaries public as well as fraudulent stamps of notaries public. Like those phony assignments the banks are manufacturing AKA ROBOSIGNING… in an attempt to gain an illegal foreclosure. Here is an example: http://www.justice.gov/usao/cacti/Pressroom/2012/004.html

          2. chitown2020

            The link is once again broken but if you google the words FRAUDULENT RECONVEYANCE you will find numerous articles on the subject though you may have to click on to search FRAUDULENT RECONVEYANCES. That is the name of the crime they are using to steal property they have no legal right to take. They call it ROBO-SIGNING.

          3. chitown2020

            For example a recorded assignment of mortgage by MERS would be an example of a fraudulent reconveyance.

  14. Tim

    Here is how I see it playing out:
    Banks loose the case, appeal to higher court, ending up in supreme court where the banks primary arguement is heard:

    Yes we broke the law, but if you convict us of this crime then we will no longer be able to perpetuate this crime, which will severely limit our ability to bundle and securitize mortgages resulting in higher mortgage rates (all true), therefore destroying the feable real estate market and throwing the US into a depression.

    At which point the Supreme court decides that the case should be thrown out.

    1. Nathanael

      The banks should watch out. Machiavelli warned that the Prince should not steal people’s land, as it was one of the few things which the people would get revolutionary over.

  15. chitown2020

    These banks claim to be trustees for these mbs’s but they could have no legal assignment that could legally convey a mortgage and note to MERS because MERS is not a bank. Then there is the legal matter of if the bank ever held legal title in the first place, AKA as the ORIGINATION FRAUD…The fact they never conveyed the loans to a trust and fraudulently conveyed them to MERS would be Fraud in the Sale of Securities which is a Predicate Act of Racketeering and allowing the fraud to continue in the sale of a fraudulent security is a basis for criminal prosecution under RICO ACT 18 U.S.C. Then there is the matter of the PSA requiring that the tax-exempt status of the mbs’s not to be
    jeopardized. I hope this case sets a precident nationwide.

    1. Paul Tioxon

      You might find it useful to go to the MERS website where you can clarify a lot issues. For example, the founding of MERS including not only banks, but our famous GSE who provided start up founding for MERS. This was an industry wide initiative to use the internet to automate the securitization process and better manage the paper trail by turning it into industry standard platform of doing business. A digital bourse or if you are old enough to remember a VerticalNet B to B platform. There are other examples of industry wide platforms formed around the same time period, for example, Elemica. That was founded by the chemical industry and is still operating.

      From their website, you can go there yourself and read up on the latest court cases and results. They follow this closer than most.

      MERSCORP Holdings, Inc. Board of Directors

      “MERSCORP Holdings, Inc. owns and operates the MERS® System, a national electronic registry system that tracks the changes in servicing rights and beneficial ownership interests in mortgage loans that are registered on the registry. MERSCORP Holdings is the parent company of Mortgage Electronic Registration Systems, Inc.”

      http://www.mersinc.org/about/bod.aspx

      MERS is using a well known legal loop hole in real estate transaction to avoid local fees and transfer taxes. Since real property is exclusively recorded by local authorities, they are hard to avoid. But MERS is trying to unilaterally rewrite the law without taking the time to go through the legislative process. At one time, the name of the real estate on some big downtown commercial properties would change on the deed everytime the property was sold. Until there was a transfer tax instituted by the city as well as the state causing much wailing and gnashing of teeth. The Philadelphia lawyers quickly worked around this outrage by keeping the name on the deed the same but just selling all of the shares of the corp set up expressly to have that piece of real estate as its sole asset. So, no change on the deed when there was a sale, because the only thing sold were shares of stock, no transfer of real property. The city council plugged that loophole by writing the appropriate law requiring a payment on transfer of stock as well when it related to such property transfers. It just be that a similar effort to rewrite state laws to capture these fees needs to be written and have it incorporated into the MERS system with automatic payment being sent as well to the localities. It may be that not only the economic system but the political system must be encoded as well into MERS.

    2. chitown2020

      I have been to MERS site. Not very informative but revealing if you know what to look for. . They tell you who the servicer is and in my case that Fannie Mae is an INVESTOR. The also have paid off notes and mortgages and defaulted ones still active in there. Which I take to mean they are still buying, selling and trading off of them. The fraudsters never stop trying to make a profit from fraud. Where’s the cuffs?

  16. indio007

    I’m kind of curious exactly what Federal law requires recordation of a mortgage.

    I don’t even think most states don’t require the mortgage be recorded. I know it isn’t required in Massachusetts but you must have the original doc to foreclose as opposed to just making the court take judicial notice of the public filing.

    1. chitown2020

      In Illinois they ILGA are trying to make us believe the recordation of a mortgage is a lien but the courts do not uphold this theory.

    2. LucyLulu

      That comment caught my attention, too. I don’t think there is any federal law requiring mortgages to be recorded. As you pointed out, most states don’t require recording of mortgages either. However, recording is beneficial to mortgagee in that it establishes the priority of the lien, therefore lenders invariably record the mortgage at the time of origination. If they subsequently sell the mortgage, the transfers are often not recorded (whether mortgagee is MERS or not).

  17. Tyzao

    Isn’t RICO essentially the modern equivalent of how they got Al Capone? Key words from the suit, Interstate Commerce, it will also be interesting to see if tax evasion is introduced at some point.

    One comment on the Town Planner equivalency in the Luke verses, I’m not sure who wrote that, but I would suggest that person to take a look at the AICP Code of Ethics, in order to get a better understanding of land use planning.

  18. Tim Bryant

    I only wish they had added an antitrust action under the Sherman Act to this suit. That would eventually end MERS, once and for all.

    BTW, it is untrue that MERS, Inc. is a bankruptcy remote entity. That can only occur if there is remoteness. Bank employees acting as MERS “certifying officers”, breaks the remoteness requirement.

  19. Tyzao

    I would be interested to hear some takes on how RICO and UCC jive?

    LucyLulu says:
    February 14, 2012 at 11:31 pm
    Tyzao,
    Trusts are governed by the state law in which they are domiciled. MBS trusts were invariably domiciled in either NY (vast majority) or DE because of those states’ favorable treatment of those type of trusts. (And the domicile of other types of trusts, e.g. estate trusts, CAN and often ARE transferred to a different state if there is a change of residency of trustees and beneficiaries.) Promissory notes are also filed with the state when mortgages are made. I’m not sure if the originating state law prevails if the notes are sold or not. The UCC would specify this though. However, conveyance of notes into the MBS trusts is additionally governed by state UTC requirements, as well as individual trust agreements.

    In the case of UCC and UTC, state law trumps federal law.

  20. rivegauche

    Great post and info. Able to read it only yesterday. Many thanks to Lambert, Yves, and NC’s always erudite commenters.

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