I have been involved in the mortgage industry for many years. I have also sat in court, in Fort Myers, Florida, which is "ground zero" in the foreclosure arena. I have personally witnessed the local Judges rule on over two-hundred cases in one day. Yes, I sat and watched families without any representation of any kind, beg the Judge to let them keep their home. In, all cases the answer was the same. "You have thirty days to move out. Your home is being sold".
Fast forward and we saw the "rocket docket" become extinct. Not because the foreclosure mess was cleaned up, but because the State of Florida ran out of money to pay for this re-incarnation of the French Inquisition. Great minds, didn't figure it out. No tax dollars coming in and no money to pay the Judges and court costs. Hmmmm.
Now, here we are today and we still have the foreclosure scenario. BUT, strange things are happening. Today, more and more attorneys are paying attention to what has really happened and more and more Judges are beginning to wrap their arms around the real deal.
You see, when you applied for our loan, you signed two VERY IMPORTANT documents. (1) This was the promissory note. Yes, you promised to pay the bank a certain amount of money over a certain period of time. At that instance, you gave the bank an asset. I know, it is hard to imagine that. You THOUGHT you were borrowing money. In a sense that is what the end result is. But, at that instant, when you gave the bank that promise to pay, it was an asset to the bank. So, whether or not you believe it, YOU were the lender for a few seconds.
(2) You signed a mortgage or deed of trust. This document became the security for the money that you in theory borrowed. BUT, a very interesting point here and very important. Look closely at your documents. The bank NEVER signed any one of these two documents. Yes, look at your mortgage and you will see that your signature was notarized but the bank did not sign the mortgage. Wonder why? I have asked this question to hundreds of title agents and lawyers as I travel and speak around the country. NO ONE gave me the right answer.
The answer is this. They knew that, if, they signed that document they would be breaking a Federal Law. Yes, there is a law called Ultra-Vires and that law states "banks cannot lend their credit". If, they signed that document, they would be breaking the law. Yet, they had you believe they were loaning you the money. Yes, the money came through the bank, but they were only acting as a broker and not the source. Don't believe me? Ask the Title Company for a copy of the wire transfer and you will see that the actual funds came from someone else who was NOT at the closing table. In, other words, Bank "A" processed your application but Bank "B" provided the funds.
Now, Bank "A" takes your promise to pay and gets a bond in the amount of the note. This bond is then presented to the Federal Reserve and they in turn credit the bank with TEN TIMES the amount of the bond. They retain a certain percentage for reserves, but the bank has just gotten almost ten times the amount of the bond for YOUR SIGNATURE. A great business to be in. Put up NOTHING and make ten times the amount the consumer needs.
How much money has the bank put up at this time? NOTHING who does the Federal Reserve owe when they gave the bank ten times the amount of your promise to pay? NOBODY Many articles have been written on the Federal Reserve and how they simply print money and charge us two-percent.
Now, let's go back to the closing. The bank has put up nothing at this point but has a large credit on the books from your signature. The bank then sells the note, or securitizes it by getting the Trustee for a Wall St group to purchase your note. Here is where today's foreclosure arena is beginning to get smart. When the bank sold your note, they endorsed it. Yes, the same way you would have to endorse a check on the back when you took it to the bank to deposit.
On the face of the note or check, it says "pay to order of". This makes the document order paper. When it is not endorsed it becomes bearer paper. Bearer paper is owned by the person in possession of the document. BUT, here, are the technical aspects of this transaction. Because they had to endorse it when they sold it, they endorsed it "without recourse". This means they no longer had any interest in that document. They were paid for it, and the money was provided to who you purchased the home from.
Now you have the entire scenario. You are now an expert. The bank made a ton of money from your signature and no longer has any financial interest in your note. So, the magic question is "how can a bank foreclose, modify or accept a short sale" on something that they have no interest in. Want to know what happened to the security? Look for my upcoming article on MERS.
Regis P Sauger