Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
Occupy the Neighborhood:
How Counties Can Use Land Banks and Eminent Domain
By Ellen Brown
Al-Jazeerah, CCUN, January 18, 2012
An electronic database
called MERS has created defects in the chain of title to over half the homes
in America. Counties have been cheated out of millions of dollars in
recording fees, and their title records are in hopeless disarray.
Meanwhile, foreclosed and abandoned homes are blighting neighborhoods.
Straightening out the records and restoring the homes to occupancy is
clearly in the public interest, and the burden is on local government to do
it. But how? New legal developments are presenting some
John O’Brien is Register of Deeds for Southern Essex County,
Massachusetts. He calls his land registry a “crime scene.” A
formal forensic audit of the properties for which he is responsible
• Only 16% of the mortgage assignments were valid.
• 27% of the invalid assignments were fraudulent, 35% were “robo-signed,”
and 10% violated the Massachusetts Mortgage Fraud Statute.
• The identity of financial institutions that are current owners of the
mortgages could be determined for only 287 out of 473 (60%).
• There were 683 missing assignments for the 287 traced mortgages,
representing approximately $180,000 in lost recording fees per 1,000
mortgages whose current ownership could be traced.
At the root of the
problem is that title has been recorded in the name of a private entity
called Mortgage Electronic Registration Systems (MERS). MERS is a mere
place holder for the true owners, a faceless, changing pool of investors
owning indeterminate portions of sliced and diced, securitized properties.
Their identities have been so well hidden that their claims to title are now
in doubt. According to the auditor:
What this means is that .
. . the institutions, including many pension funds, that purchased these
mortgages don’t actually own them . . . .
The March of the AGs
When Massachusetts Attorney General Martha Coakley went to court in December
against MERS and five major banks—Bank of America Corp., JPMorgan Chase,
Wells Fargo, Citigroup, and GMAC—John O’Brien said he was
says the banks have “undermined our public land record system through
the use of MERS.”
Other attorneys general are also bringing
lawsuits. Delaware Attorney General Beau Biden is going after MERS in
a suit seeking $10,000 per violation. “Since at least the 1600s,” he
says, “real property rights have been a cornerstone of our society.
MERS has raised serious questions about who owns what in America.”
alleges that MERS violated Delaware’s Deceptive Trade Practices Act by:
· Hiding the true mortgage owner and
removing that information from the public land records.
Creating a systemically important, yet inherently unreliable, mortgage
database that created confusion and inappropriate assignments and
foreclosures of mortgages.
Operating MERS through its members’ employees, whom MERS confusingly
appoints as its corporate officers so that they may act on MERS’ behalf.
· Failing to ensure the proper transfer
of mortgage loan documentation to the securitization trusts, which may have
resulted in the failure of securitizations to own the loans upon which they
claimed to foreclose.
Legally, this last defect may be even more fatal than filing in the name
of MERS in establishing a break in the chain of title to securitized
properties. Mortgage-backed securities are sold to investors in
packages representing interests in trusts called REMICs (Real Estate
Mortgage Investment Conduits). REMICs are designed as tax shelters;
but to qualify for that status, they must be “static.” Mortgages can’t
be transferred in and out once the closing date has occurred. The
REMIC Pooling and Servicing Agreement typically states that any transfer
after the closing date is invalid. Yet few, if any, properties in
foreclosure seem to have been assigned to these REMICs before the closing
date, in blatant disregard of legal requirements. The whole business
complicated, but the bottom line is that title has been clouded not only
by MERS but because the trusts purporting to foreclose do not own the
properties by the terms of their own documents.
The title issues are so complicated that
judges themselves have been slow to catch on, but they are increasingly
waking up and taking notice. In some cases, the judge is not even
waiting for the borrowers to raise lack of standing as a defense. In
two cases decided in New York in December,
the banks lost although their motions were either unopposed or the homeowner
did not show up, and in one there was actually a default. No matter,
said the court; the bank simply did not have standing to foreclose.
Failure to comply with the terms of the loan documents can make an
even stronger case for dismissal. In
Horace vs. LaSalle, Circuit Court of Russell County, Alabama,
57-CV-2008-000362.00 (March 30, 2011), the court permanently enjoined the
bank (now part of Bank of America) from foreclosing on the plaintiff’s home,
[T]he court is surprised to the point of astonishment that
the defendant trust (LaSalle Bank National Association) did not comply with
New York Law in attempting to obtain assignment of plaintiff Horace’s note
and mortgage. . . .
[P]laintiff’s motion for summary judgment is
granted to the extent that defendant trust . . . is permanently enjoined
from foreclosing on the property . . . .
Counties: Land Banks and Eminent Domain
The legal tide is
turning against MERS and the banks, giving rise to some interesting
possibilities for relief at the county level. Local governments have
the power of eminent
domain: they can seize real or personal property if (a) they can show
that doing so is in the public interest, and (b) the owner is compensated at
fair market value.
The public interest part is obvious
enough. In a 20-page booklet titled “Revitalizing
Foreclosed Properties with Land Banks,” the U.S. Department of Housing
and Urban Development (HUD) observes:
The volume of foreclosures has
become a significant problem, not only to local economies, but also to the
aesthetics of neighborhoods and property values therein. At the same time,
middle- to low income families continue to be priced out of the housing
market while suitable housing units remain vacant.
The booklet goes
on to describe an alternative being pursued by some communities:
ameliorate the negative effects of foreclosures, some communities are
creating public entities — known as land banks — to return these properties
to productive reuse while simultaneously addressing the need for affordable
States named as adopting land bank legislation include
Michigan, Ohio, Missouri, Georgia, Indiana, Texas, Kentucky, and Maryland.
HUD notes that the federal government encourages and supports these efforts.
But states can still face obstacles to acquiring and restoring the
properties, including a lack of funds and difficulties clearing title.
Both of these obstacles might be overcome by focusing on abandoned
and foreclosed properties for which the chain of title has been broken,
either by MERS or by failure to transfer the promissory note according to
the terms of the trust indenture. These homes could be acquired by
eminent domain both free of cost and free of adverse claims to title.
The county would simply need to give notice in the local newspaper of an
intent to exercise its right of eminent domain. The burden of proof
would then transfer to the bank or trust claiming title. If the
claimant could not prove title, the county would take the property, clear
title, and either work out a fair settlement with the occupants or restore
the home for rent or sale.
Even if the properties are
acquired without charge, however, counties might lack the funds to restore
them. Additional funds could be had by establishing a public bank that
serves more functions than just those of a land bank. In a series
Solution to the Foreclosure Crisis,” Michael Sauvante of the National
Commonwealth Group suggests that properties obtained by eminent domain can
be used as part of the capital base for a chartered, publicly-owned bank, on
the model of
the state-owned Bank of North Dakota. The county could deposit its
revenues into this bank and use its capital and deposits to generate credit,
as all chartered banks are empowered to do. This credit could then be
used not just to finance property redevelopment but for other county needs,
again on the model of the Bank of North Dakota. For a fuller
discussion of publicly-owned banks, see
Sauvante adds that the
use of eminent domain is often viewed negatively by homeowners. To
overcome this prejudice, the county could exercise eminent domain on the
mortgage contract rather than on title to the property. (The power of
eminent domain applies both to real and to personal property rights.)
Title would then remain with the homeowner. The county would just have
a secured interest in the property, putting it in the shoes of the bank.
It could then renegotiate reasonable terms with the homeowner, something
banks have been either unwilling or unable to do. They have to get all
the investor-owners to agree, a difficult task; and they have little
incentive to negotiate when they can make more money on fees and credit
default swaps on contracts that go into default.
Settling with the Investors
What about the rights of the
investors who bought the securities allegedly backed by the foreclosed
homes? The banks selling these collateralized debt obligations
represented that they were protected with credit default swaps. The
investors’ remedy is against the counterparties to those bets—or against the
banks that sold them a bill of goods.
Foreclosure defense attorney
says the investors are unlikely to recover on abandoned and foreclosed
properties in any case. Banks and servicers can earn more when the
bulldozed—something that is happening in some counties—than from a sale
or workout at a loss. Not only is more earned on credit default swaps
and fees, but bulldozed homes tell no tales. Garfield maintains that
fully a third of the investors’ money has gone into middleman profits rather
than into real estate purchases. “With a complete loss no one asks for
Not only homes and neighborhoods but 400
years of property law are being destroyed by banker and investor greed.
As Barry Ritholtz
observes, the ability of a property owner to confidently convey his
property is a bedrock of our society. Bailing out reckless financiers
and refusing to hold them accountable has led to a fundamental breakdown in
the role of government and the court system. This can be righted only
by holding the 1% to the same set of laws as are applied to the 99%.
Those laws include that a contract for the sale of real estate must be in
writing signed by seller and buyer; that an assignment must bear the
signatures required by local law; and that forging signatures gives rise to
an actionable claim for fraud.
The neoliberal model that says
banks can govern themselves has failed. It is up to county governments
to restore the rule of law and repair the economic distress wrought behind
the smokescreen of MERS. New tools at the county’s disposal—including
eminent domain, land banks, and publicly-owned banks—can facilitate this
Ellen Brown is an attorney and
president of the Public Banking Institute, http://PublicBankingInstitute.org.
In Web of Debt, her latest of eleven books, she shows how a private cartel
has usurped the power to create money from the people themselves, and how we
the people can get it back. Her websites are
http://WebofDebt.com and http://EllenBrown.com.