Why this technical stuff matters, part I
By MITCHELL SOMMERS
There’s lots being said about foreclosures right now. You’ve probably heard about people signing court verifications when they never read the documents, and that state attorney generals in all 50 states are investigating all of this. And maybe you’ve wondered, “Say, isn’t this just a bunch of technical stuff that doesn’t really matter?” Well, yes it does. And so, we present part one of:
Why this technical stuff matters.
Q: Really, does it make that big a difference if the people who said they read foreclosure documents didn’t actually read them? I mean, come on, I never read all that stuff I signed at my settlement.
A: I didn’t read it either. And I’m a lawyer. But here’s the thing: I wasn’t signing that I’d read them under oath. They were. And that verification is a big deal. It’s a crime in most places to sign things when you can’t even begin to aver that they are true. In my state, Pennsylvania, it’s called unsworn falsification to authorities. Your state may call it “making up crap.” Either way, it’s bad. It’s corrosive to the respect of the judiciary system we’re supposed to have. It leads to mistakes like foreclosing on people that didn’t even owe anything to anybody in the first place. But that’s not the worst of it. The worst of it is that in lots and lots of cases, those mortgages may not have been owned by the entities that were suing in the first place.
Q: Ok, but still, people still owed somebody something, right? So what’s the big deal about who actually owns what?
A: To explain that it is a big deal, let’s go back to that real estate settlement with all the documents that neither one of us ever read. There were two documents in that big pile of incomprehensible stuff that really matters. The first was the note. The second was the mortgage.
Now most of us with houses remember the mortgage. We usually forget about the note.
But it’s the note that actually represents our financial obligation. The mortgage is just the means by which the lender says, “don’t pay me, and I take that house.”
And those documents are inseparable. They are the conjoined twins of home ownership. Split one from the other, and, to use a legal term of art, you’ve got bupkis. It’s been like that for years. Decades. Literally centuries. A mortgage without a note is worthless.
Q: So how is it they got split up?
Q: Can you elaborate on that?
A: Sure. Back in the mid 90’s, big financial institutions (and really, calling them financial institutions is part of the problem – they’re banks, dude) started playing with the concept of securitization of debt, the bundling of mortgages into chunks of collateral for bonds. And to do that, they had to be able to move those mortgages around easily. And by easily, I mean they didn’t particularly feel like paying county recorder of deeds offices their 20 or 30 or 40 bucks to record a transfer of a mortgage. So, something called MERS was born.
Q: What’s MERS?
A: We’ll get to that. But before we do, let’s talk about those county recorder of deed offices. Every county’s got one, and unless you are a title searcher or lawyer who deals with real estate law, there’s no reason you’d ever need to set foot in one, for the most part. But they are hugely important. They keep track of who owns property and what liens are on property. And if you want to have a society where people can buy and sell homes and land, and have faith that their right to that home or land is secure and safe against someone coming up to you and saying, “Nice house, get the hell out, I own it,” you need to have some way of showing you hold title against the whole world. And if I, as a lending institution, or, as we humans say, bank, loan you money using that house as collateral, I want to make sure that someone else doesn’t jump over my lien and devalue the worth of my investment.
This is critical in a market-driven, capitalistic society. The real estate industry as we know it, and by “as we know it,” I mean an industry where squatters don’t rule and land has value, depends on those boring county recorder of deeds offices. Protecting things such as this is, in fact, conservative values in the best sense of that word.
Q: So what did MERS do?
A: They wrecked it.
Q: Does that mean that these financial institutions…..
Q: Financial institutions really don’t respect market-based, conservative values?
A: You catch on quick.
Q: So when do you explain this MERS thing?
A: That’s the hook for my next column. See you then.