Filed October 19 in the Southern District of Indiana. Here are some highlights:
26. The Defendantsʼ fraudulent conduct alleged in this Complaint traces its roots to the boom years of the housing market, when home prices were soaring and lenders pursued profit while paying little attention to the details and proper documentation of mortgage transfers and loan servicing.
27. In their zeal to maximize profits from the soaring housing market, lenders and mortgage loan services—including defendants—cut comers in the way they did business, ignoring and/or attempting to surreptitiously rewrite the most fundamental rules of how mortgages and promissory notes were generated, assigned, and recorded. The ultimate goal was to “securitization” these mortgages by bundling them by the thousands into investment vehicles for Wall Street’s consumption.
28. While lenders and hedge fund managers were busy gambling with securitized blocks of ordinary peoples’ mortgages, the bubble rapidly expanded and eventually burst, leaving in its wake thousands of borrowers with negative equity and unfavorable loans for which they were unable to make monthly payments.
29. One of the primary tools used by banks to shortcut traditional laws and procedures regarding mortgages, and to quickly transfer, bundle, and securitize mortgage loans, was the Mortgage Electronic Registration System (“MERS”) that is owned and operated by MERSCORP, Inc., a Delaware corporation.
30. MERS is owned by the country’s biggest lenders, lender associations, and other industry giants, including the Mortgage Bankers Association of America, Fannie Mac, Freddie Mac, American Land Title Association, and various other mortgage companies, title insurers, and mortgage insurers. In addition to the capital contributed by the shareholders, MERS has a committed line of credit from Bank of America, guaranteed by the Mortgage Bankers Association of America, Fannie Mac, and Freddie Mac.
31. MERS describes itself as “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate Finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” This is a fancy way of saying MERS is a way to bypass the established laws governing mortgage transfers and recording. …
36. However, the mere fact that MERS managed to come up with a convenient way for mortgage banks to avoid the legal methods of assigning and recording mortgage transfers, does not make that system legal or effective.
37. In fact, as has been widely reported throughout the mortgage industry and popular press, the MERS system was poorly conceived and sloppily run, and it routinely lost track of mortgage ownership and vital documentation, including mortgages and promissory notes.
38. As a result of the use of the faulty MERS system, lenders wishing to foreclose on mortgages found that it was frequently difficult, if not impossible, to accurately identify the holders of mortgages and notes, or to locate documents that were essential to initiating and pursuing foreclosure proceedings. …
41. The Defendants recognized that actually determining the correct holders of the mortgages and notes, locating the mortgage and note documents, ensuring that the mortgages and notes were properly and legally assigned to the holders, and ensuring that all proper information and documentation was accurately assembled before initiating foreclosure proceedings, was not cost-effective for them. Considering the sheer volume of mortgages at issue and the complexity of the iterative assignments and bundling of these mortgages, the task of sorting out the Defendants’ tangled web was daunting.
42. The Defendants did not have nearly enough qualified and experienced personnel to undcrtake this task, so the Defendants hired workers with minimal qualifications or work experience —what one industry insider characterized as the “Burger King kids? Many of the workers did not understand basic concepts of mortgage lending, barely understood what a mortgage was, did not know what an affidavit was, and did not know what was meant by real property.
43. The result was chaos, with Defendants often failing to identify the holders of mortgages and notes, or failing to locate essential documents related to mortgage transactions.
44. However, the Defendants did not let their inability to locate essential information and documents stop them from promptly initiating foreclosure proceedings against the Plaintiffs and the Class members. Instead, the Defendants directed their inexperienced and unqualified employees to prepare documents that were submitted in foreclosure proceedings, including without limitation affidavits containing essential allegations concerning the Defendants’ purported mortgage rights. …
You can find the full copy here.