Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
March 13, 2011
Issue 138  -  MERS, Military, and Metals
 
 
This week I'm breaking the blog into three separate sections.
 
MERS
 
MERS stands for Mortgage Electronic Registration Systems .  This is a small private company, based in Reston, VA, with less than 50 employees.  Created by Fannie Mae and Freddie Mac, this company was used to expedite the old system of registering titles of ownership with various county and city clerks.  This helped streamline the system and speed up the process.  It also, and more importantly, allowed the banks to securitize the debt.  This is the process I've mentioned before where hundreds of mortgages are placed into a pile and sold to investors.  
 
Transferring all of the titles, what with the notary requirements and such, was just a monumental headache.  MERS was used to bypass this system.  MERS would be the title mortgage holder.  This would allow a central repository of records where it would, in theory, be easier to transfer titles.  This is not how things have worked and it seems that MERS cut quite a few corners.
 
Law dictates that the mortgage holders file the correct paperwork with the jurisdication containing the property.  MERS claims to maintain title no matter how many times title changes even though they never invested a single dollar into any of the properties.  
 
Currently, MERS is responsible for 60 million mortgage loans, 50% of ALL outstanding loans.  Why does this matter?  It seems that there may have been mass fraud in the system.  Failing to file the correct paperwork, selling loans to multiple parties, and foreclosing without the proper standing.
 
MERS was not, as the founding banks argued, about streamlining the system, it was about speed.  The more loans made, the larger the profits.  It really was that simple.  Just who does own MERS?
 
 
As you can see, it's practically all of the major mortgage loan sellers.  It is believed that the banks got together to create this, knowing it wouldn't be completely legal, but because EVERYONE was doing it, no court would want to rule against them and throw a monkey wrench into the whole mortgage system.  It hasn't quite worked that way:
 
Mortgage Electronic Registration Systems, Inc. v. Lisa Marie Chong, et al. (United States District Court, District of Nevada)

On December 4, 2009, Judge Dawson found that MERS has standing to petition a bankruptcy court to lift a bankruptcy stay on litigation when the proper evidence of agency is presented. He issued his decision in 5 of the 18 cases (In re Chong, In re Pilatich, In re Cortes, In Re Medina and In re O’Dell) on appeal and found that MERS can be a real party in interest if MERS identifies the holder of the note or provides sufficient evidence of the source of its authority.[13]

[edit]Cervantes v. Countrywide Home Loans Inc. (United States District Court, District of Arizona)

On September 24, 2009, the U.S. District Court for the District of Arizona, in Cervantes v. Countrywide Home Loans, Inc., et al, dismissed all federal and state law claims made by three borrowers in a complaint filed against a group of defendants that included MERS. This ruling confirms that the borrowers, when they make MERS the mortgagee or beneficiary,contractually have agreed to do so, and their obligations to repay the mortgage loan remain in force.[1]

[edit]Mortgage Electronic Registration Systems, Inc. v. Revoredo, et al. (Florida Third District Court of Appeals)

Both the 3rd District Court of Appeals in Miami and the 2nd District Court of Appeals in Lakeland held that MERS can foreclose. Senior Judge Alan R. Schwartz noted the decision was based in part in the changes in finance and technology over time. "The problem arises from the difficulty of attempting to shoehorn a modern innovative instrument of commerce into nomenclature and legal categories which stem essentially from the medieval English land law," Schwartz wrote. [2]

[edit]Jewelean Jackson, et. al. v. Mortgage Electronic Registration Systems, Inc. (Minnesota Supreme Court)

On August 14, 2009, the Minnesota Supreme Court ruled that MERS can foreclose under state law as the mortgagee of record.[3]

A class-action lawsuithas been filed by homeowners in Delawareto hold MERS responsible for fraudulent fees on foreclosures filed by MERS. [14]

Homeowners have argued in court that their homes could not be foreclosed because MERS deeds of trust were unlawful.[4]In other cases, state appellate courts have held that MERS is permitted to foreclose mortgage liens when it is the holder of the note and mortgage. One judge, the honorable Jon Gordon of Florida's circuit court in Miami-Dade stated that: "It truly concerns me, however, that thousands and thousands—thousands and thousands of mortgage foreclosure actions have been filed with these allegations. I am not certain what remedy, if any, these people would have were it to be determined that MERS was not ever the proper party notwithstanding that these folks [might] have been in default what their recourse, if any, would be. I'm not certain with the satisfaction of mortgages that have been filed on behalf of MERS how good those are and I am not certain how good title to property is that people bought at these foreclosure sales if it turns or becomes established that MERS was indeed not only not the right party but misrepresented by way of their pleadings and affidavits that they held something they didn't own, so I'm not certain of the consequences but it seems vast."[15][16][17]

[edit]Landmark Nat’l Bank v. Kesler (Kansas Supreme Court)

On August 28, 2009, the Kansas Supreme Court in Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834 (Aug 28, 2009), issued a decision involving MERS that focused on finality of judgments. MERS' involvement with this case arose from the fact that the company did not receive notice of a foreclosure action even though MERS was the mortgagee of record on a junior lien. In the opinion, the court noted that “Even if MERS was technically entitled to notice and service in the initial foreclosure action--an issue that we do not decide at this time--we are not compelled to conclude that the trial court abused its discretion in denying the motions to vacate default judgment and require joinder of MERS….” The case did not affect MERS’ standing to foreclose and the company is entitled to receive notice of legal actions when MERS is the mortgagee.[5]

[edit]MERSCORP, Inc., RESPA Litigation (United States Court of Appeals for the Fifth Circuit)

In 2008, the United States Court of Appeals for the Fifth Circuit dismissed a multi-district class action lawsuit against MERS. The Plaintiffs alleged that a small fee charged by mortgage lenders, which was then paid to MERS, violated provisions in the Real Estate Settlement Procedures Act (RESPA). The Plaintiffs also argued that MERS unfairly received business referrals from the mortgage lenders. However, the Circuit Judges held that “In exchange for the fee, MERS performed the service of being the permanent record mortgagee in the public land records...” Plaintiffs’ complaint was dismissed by the appellate court for failure to state a claim under RESPA.[18]

[edit]District of Columbia Attorney General's Enforcement Statement

On October 27, 2010, DC Attorney General Peter Nickels issued a statement which concludes that "a foreclosuring may not be commenced against a D.C. homeowner unless the security interest of the current noteholder is properly supported by public filings with the District's Recorder of Deeds."[19] So in Nickels' view, subsequent transfers of the mortgage on MERS' records will not count unless they were also recorded in D.C.

[edit]Gomes v. Countrywide Home Loans (California Court of Appeal for the Fourth Appellate District, Division One)

On February 18, 2011, the California Court of Appeal for the Fourth Appellate District affirmed the sustaining of a demurrerwithout leave to amend. In an opinion by Justice Joan Irion, the court ruled in favor of MERS in two ways: (1) California's nonjudicial foreclosure statutes did not expressly or impliedly allow a lawsuit simply to determine whether the party initiating a foreclosure was authorized to do so; and (2) even if they did, the plaintiff consented to the use of MERS to initiate the foreclosure when he signed the deed of trust.[20]

[edit]MERS statement regarding foreclosure issues

On October 9, 2010, MERS issued a statement[21] asserting that

  • Courts have ruled in favor of MERS in many lawsuits, upholding MERS legal interest as the mortgagee and the right to foreclose.
  • MERS does not create a defect in the mortgage or deed of trust
  • The trail of ownership does not change because of MERS
  • MERS did not cause mortgage securitization
  • Lenders cannot “hide” behind MERS
  • MERS fully complies with recording statutes

[edit]Electronic signatures and notarizations

Because the MERS system is electronic, it depends on the electronic storage and transmission of legal documents. On the question of notarization of electronic signatures and the honoring of notarized signatures across state lines, the United States House of Representative had passed bills to legalize these steps, and in 2010 the United States Senate passed the legislation without debate. However, President Barack Obama publicly opposed the legislation on October 7, 2010. As a result, the bill died, and state laws govern whether electronic signatures can be notarized or whether a notarized signature in one state must be accepted in another.

 
This is just a FRACTION of the lawsuits that have been filed.  There are dozens more in the pipeline.  The way this will shake out is unknown.  This is a recent story from Zerohedge:
 

MERS Exits Stage Left, Tells Members Not To Foreclose In MERS' Name

The MERS Valentine's Day Massacre, previously reported on Zero Hedge, where Judge Robert Grossman found that MERS has no right to transfer mortgages, the company appears to have proceeded with the logical next step: professional Harakiri. In an announcement sent out to all MERS Members, the company stated that according to a proposed amendment to Membership Rule 8, it will require "members not to foreclose in MERS' name." MERS is seeking comments in a 90-day period, but since this is a directive driven from external judicial decision(s), it is unlikely that MERS members' opinions will matter at all. Basically MERS may have just exited the US mortgage scene, stage left, for good.

Highlights from the release:

MERS is providing the following guidance to all Members to strengthen business practices, and minimize reputation, legal and compliance risk to MERS and its Members. In recent months legal challenges have arisen regarding alleged inadequacies and improprieties in the foreclosure process including allegations of insufficient or incorrect supporting documentation and challenges to the legal capacity of parties’ right to foreclose. MERS is committed to reevaluate and strengthen its systems and procedures to protect against these types of legal challenges. Consistent with this approach we have enhanced the Corporate Resolution Management System (CRMS) and instituted related policies and procedures designed to strengthen MERS’ business practices and limit compliance risks. To comply with this guidance, MERS Members should implement the following practices, effective immediately.

MERS is planning to shortly announce a proposed amendment to Membership Rule 8. The proposed amendment will require Members to not foreclose in MERS’ name. Consistent with the Membership Rules there will be a 90-day comment period on the proposed Rule. During this period we request that Members do not commence foreclosures in MERS’ name. If a Member determines that it will commence a foreclosure in MERS’ name during this 90-day period, two weeks advance notice must be given to MERS to permit verification of the appointment and current status of the Certifying Officer proposed to participate in the foreclosure. No foreclosure may be processed in MERS’ name without first obtaining this verification. We encourage Members to bring foreclosures only in the name of the holder of the note, in the name of the trustee or the servicer of record acting on behalf of the trustee.

 
So the company seems to be distancing themselves from the system that THEY are in control of.  This could be trouble and make foreclosure impossible.  This is going to take away supply on the market, slowing the market pricing decline.  It will not, by any means prevent it.  This will only stall the eventual settlement of market forces. 
 
There are rumblings that the powers that be are attempting to paper over the problem by stating there isn't a problem and just forcing the foreclosures through.  This has been done in a couple court cases.  Judges just deciding the LEGALLY REQUIRED paperwork is unnecessary.  If this becomes widespread, it would be a tremendous affront to the rule of law.  Hopefully it doesn't come to that.  Let the cards fall where they may.
 
Military
 
There has been a great deal of talk lately about the national budget.  A lot of the proposed cuts will have little effect.  One of the main spending areas remaining untouched is the military.  This is a very polarizing issue for people with most being firmly on one side of the fence.  I was on the "keep military spending" side of the fence for a long time.  Over the last 5 years I've come to realize that the military is far from what you'd think.  IF the purpose of the military is to defend our shores, then we have strayed WAY off that mandate.
 
Do you know how many countries there are in the world?  There are 192 officially recognized countries.  How many countries would you guess the U.S. has troops located?  20? 30? 40?  Not even close.  135!  That's right we have troops in 70% of all the countries in the world.  Does that strike you as odd?  What could that possibly have to do with defending our shores?  Have a look at the list:
 
Afghanistan
Albania
Algeria
Antigua
Argentina
Australia
Austria
Azerbaijan
Bahamas
Bahrain
Bangladesh
Barbados
Belgium
Belize
Bolivia
Bosnia and Herzegovina
Botswana
Brazil
Bulgaria
Burma
Burundi
Cambodia
Cameroon
Canada
Chad
Chile
China
Colombia
Congo
Costa Rica
Cote D'lvoire
Cuba
Cyprus
Czech Republic
Denmark
Djibouti
Dominican Republic
East Timor
Ecuador
Egypt
El Salvador
Eritrea
Estonia
Ethiopia
Fiji

Finland
France
Georgia
Germany
Ghana
Greece
Guatemala
Guinea
Haiti
Honduras
Hungary
Iceland
India
Indonesia
Iraq
Ireland

Israel
Italy
Jamaica
Japan
Jordan
Kazakhstan
Kenya
Kuwait
Kyrgyzstan
Laos
Latvia
Lebanon
Liberia
Lithuania
Luxembourg
Macedonia
Madagascar
Malawi
Malaysia
Mali
Malta
Mexico
Mongolia
Morocco
Mozambique
Nepal
Netherlands
New Zealand
Nicaragua

Niger
Nigeria
North Korea
Norway
Oman
Pakistan
Paraguay
Peru
Philippines
Poland
Portugal
Qatar
Romania
Russia
Saudi Arabia
Senegal
Serbia and Montenegro
Sierra Leone
Singapore
Slovenia
Spain
South Africa
South Korea
Sri Lanka
Suriname
Sweden
Switzerland
Syria
Tanzania
Thailand
Togo
Trinidad and Tobago
Tunisia
Turkey
Turkmenistan
Uganda
Ukraine
United Arab Emirates
United Kingdom
Uruguay
Venezuela
Vietnam
Yemen
Zambia
Zimbabwe
 
That list should leave you shaking your head in bafflement.  The idea that we need troops in some of these places could be argued, but all 135?  No way.
 
Actually, the military has become nothing more than a large money making operation.  Contractors are paid large sums to support and supply these far flung deployments where there isn't ANY clear reason.   Need more proof?
 
How about spending on the military?  If you take the whole world and what it spends on military expenditures, it looks like this:
 
 
 
How is it possible that we have to spend almost as much as every other country COMBINED to protect our shores?  That wouldn't even pass muster from a 6th grader.  This expenditure should and must be reduced to fix our fiscal house.  The idea that we police the whole world is ludicrous. 
 
Why do we have such a large military?  We're fairly isolated, bordered on the east and west by oceans, allies to the north and south pose no military threat. (illegals are a whole different issue)  We are one of the most heavily armed citizenries in the world, so an invation would be difficult.  These facts don't lead me to think it necessary for troops to be stationed in Fiji, Senegal, or Mali.  How about you?  This is a business complex.  Designed and built to extract money from the general populace.  Nothing more. 
 
We need to trim the military back to the functions that were intended.  This would require no more than 1/5 of the current budget.
 
Metals
 
The metals have been a roller coaster ride of late and this can cause you to become nervous and sell.  Bull markets are termed that because they try to "buck" you off.  Giving the appearance that they are finished is a common occurrence.  Don't be fooled.  Keep your positions.  If you are looking to add to your physical positions here, I wouldn't jump in with both feet.  Try buying 20% and then every month following, do the same.  This will ensure you don't get the worst price, and that you buy more at lower prices.
 
The last bubble we had was in housing.  This ended in about 2006.  How has gold done against housing since?  Have a look:
 
 
This shows the median home price divided by the price of gold.  As you can clearly see, it would have been really wise to sell real estate in 2005/6 and buy gold.  I expect this trend to continue for at least the next couple years. 
 
The main reason for this will be the continued pumping of money.  Billions and billions of dollars are being injected into the system.  This is an attempt to reinflate the debt balloon which is shrinking.  How is that coming along?  A chart from Zerohedge:
 
 
This shows the problem for the Fed.  They need to keep debt levels high to keep the system functioning smoothly.  QE1 and 2 were efforts to do that.  Looking at the chart, you can see that regular bank debt has risen only slightly, while the Fed and other "shadow" banks liabilities has plummeted.  The plan was to have the traditional banks pick up the slack with the QE injections.  As you can see this has been a complete failure. 
 
This means that QE3 is on the way and the metals are heading higher.  Don't sweat the short term gyrations, just accumulate on the dips and you come out of this mess in one piece.
 
Positions
 
Goro  (closed at $25.30, down $3.30, average price paid, $6.10) 
 
A tough week for GORO with hardly any movement in the metals.  I believe that there are traders trying to take the price lower in anticipation of a lousy earnings report next week.  GORO has already announced that their gold production in Q4 was lower than Q3.  This is a negative.  However, the accelerated switch over to the underground ore will quickly overcome this.  If there is a selloff in GORO this week (probably Wednesday) it will be a great time to add or start a position.  Don't be afraid and sell!  That will only help these guys close out their short positions.  Hold tight.
 
Mexus Gold  (closed $.27, up $0.01, average price paid, $.20) 
 
I added some shares this week at 25-27 cents a share.  I still view this as an attractive speculative play. 
 
Stocks    (Current status, Long, 100%, 1/3 International, 1/3 small cap, 1/3 large cap, moved back in January 1, 2011)
 
Physical Gold  (Closed $1,420,  down $12,  average price paid $395)
 
Physical Silver  (Closed $35.90,  up $0.23,  average price paid $5.31)
This week's video involves my hobby, magic.  I've done magic for over 20 years.  Here's a young magician who has put a LOT of time into his skills.  Have a great week!