The financial and mainstream media have missed the real bombshell in the mortgage foreclosure mess. It isn’t about “sloppy paperwork.” The robo affidavits are an attempt to hide the fact that (1) the mortgage securitization trusts or REMICs didn’t comply with the IRS rules, and (2) the trusts may not have had a legal interest in the mortgages they were selling. The consequences in both cases are dire.
REMICS are a vehicle for avoiding double taxation on mortgage backed securities. The tax code governing REMICs requires original (as in blue ink) mortgage documents to be held by the REMIC custodian on the closing date and the REMIC is prohibited from taking distressed paper after the closing date. A failed or disqualified REMIC is liable for 100% tax on income (with interest) from its closing date. There may also be state tax consequences. And, if the REMIC had no legal interest in the mortgages, it was selling pure blue sky!
Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory by Christopher Lewis Peterson, University of Utah – S.J. Quinney College of Law. Real Property, Probate and Trust Law Journal, Forthcoming. From the abstract:
Hundreds of thousands of home foreclosure lawsuits have focused judicial scrutiny on the Mortgage Electronic Registration System (“MERS”). This Article updates and expands upon an earlier piece by exploring the implications of state Supreme Court decisions holding that MERS is not a mortgagee in security agreements that list it as such. In particular this Article looks at: (1) the consequences on land title records of recording mortgages in the name of a purported mortgagee that is not actually mortgagee as a matter of law; (2) whether a security agreement that fails to name an actual mortgagee can successfully convey a property interest; and (3) whether county governments may be entitled to reimbursement of recording fees avoided through the use of false statements associated with the MERS system.
This Business News Network interview with Yves Smith also explains the essentials, Explaining the Mechanics of the Foreclosure Mess on BNN, Naked Capitalism, 10/13/2010.
Guest post from Leslie Lowe, an attorney who specializes in environmental law, and corporate environmental disclosure and governance and who also serves on the board of the Social Investment Forum.