= new reply since forum marked as read
The real culprit here is MERS. Short for Mortgage Electronic Registration Systems, it was a strawman the banks set up so that they could create the mortgage backed securities market. Here is the deal.
Typically, as most people know, when a person transfers a property, they have record the mortgage at the county clerk's office. This is the system set up for two reasons. First to put the world on notice of who has a lien (an entitlement to prevent transfer) against a property (the person who has the lien is the "lienor"
. Second, it's so the owner of the property (the borrower) can always know who actually owns the lien (known as the mortgage). The thing is that the law requires that every time the owner of the lien transfers it to someone else, the new person must "record" the new mortgage (why that is, I won't get into) and pay the clerk a fee to record.
Now, after our genius banks devised the scheme to package Mortgage backed securities together, they realized that every time they sold the packaged mortgages, they would have to record the transfer and pay the fee. The way around this was to set up the strawman MERS. When a person borrowed money, they agreed to have MERS serve as the agent (the precise term they use in the loan documents is "nominee" of the bank...and any bank to which any other bank transfers the mortgage. So, at the country clerk's office, the only mortgage was the one naming MERS as the mortgagee (or the owner of the mortgage). The borrower (or anyone else) was supposed to be able to go to MERS's website to find out the actual mortgagee/bank who owned the lien. Now...with MERS as the nominee/agent of most banks simultaneously, the banks could transfer the mortgages as many times as possible without having to record and without having to pay the recording fee. Because MERS served as the nominee/agent of any bank, if MERS held it, any bank held it.
The problem is that there are several studies (like the one in the OP) that show that MERS' record-keeping is extremely poor and that even if a borrower goes to MERS' website to find out who owns the loan, it's exceedingly unreliable.
Finally, the really sketchy part is that MERS "appoints" officials of the banks to act on MERS' behalf to assign mortgages to themselves...this is where the robosigning came in. MERS' (incidentally, which is supposed to be the agent of the banks, not the other way around) appoints John Smith bank official as MERS' official to "assign" mortgages that MERS holds (for bank) to bank when bank wants to foreclose.
The whole thing is designed to skirt the recording requirements. The problem is, these geniuses on Wall Street never considered what would happen if people's homes were underwater or they couldn't pay. So, we have the situation where there is no mechanism to know who actually owns what, who assigned what to whom and where the records are that show this.
**Little factoid. In Michael Moore's "Capitalism A Love Story," he mentions a company from Flint that was foreclosing on loans. That is MERS.
I'm one of the crotchety misanthropes of DU, but I get it right once in a while.
should really be prosecuted under RICO statutes due to them being an ongoing criminal enterprise.
I would agree with that statement, and you have a much better way with words than I do.
I didn't want to get too technical because this stuff can't get really hairy. Now, it depends upon the state, but technically, no, a transferee** does not have to record a mortgage to make a transfer (the term is "assignment" valid (I should have been more nuanced in how I wrote what I wrote). Now, you're probably asking: "WTF?"
As I said above, there are two reasons banks record a mortgage. First, banks do it to put the world on notice they have the right to "encumber" aka "prevent" transfer in order to protect their asset (the property). Second, so that the borrower can know who owns the mortgage. Now, again, this begs the question: If recording is not a requirement for a valid assignment, why do it? Here is why. I will explain by example.
Suppose person X goes to buy a house and seeks to obtain financing from the Bank. X borrows the money from the Bank and signs the promissory note. X then executes a mortgage in favor of the Bank as security, giving the bank the right to take the house back if the borrower defaults. The bank then records the mortgage. In most states, when someone records, the law imputes knowledge of the bank's mortgage onto everyone in the world. Now, suppose X wants to sell the house to Y. Y's "people" go down to the county clerk's office and see the mortgage there. Now Y knows that it either has to pay off the remaining loan that X took out (to satisfy the lien) or assume the loan (if the bank finds Y sufficiently credit-worthy). This is how it's supposed to work.
However, here is where the utility of the recording system comes in. Suppose the above (X purchases the house and X's bank records), but X finds sucker Z to buy the house. Sucker Z buys the house, his bank does not check to see if there's a mortgage and "buys" the house from X. Z executes a mortgage and Z records. Of course, X stops paying after moving out. The bank comes after X and says it is going to take the house. The thing is, Z is living there and paying another bank. X's bank sues and says "wait a minute, we recorded first, we have priority." So, X's bank says: someone still owes us the money we lent X. Because X's bank recorded the mortgage, X's bank's mortgage/lien is superior to Z's bank's mortgage/lien.
Now, suppose X buys the house, but X's bank does not record the mortgage. Now, X sells the house to Y in an "arms-length transaction" (meaning no fraud or they aren't in cahoots.) Y records his mortgage. Now X stops paying. X's bank brings a foreclosure suit to take the house, but Y is living there. Now, because Y recorded (and X didn't), Y is known as a "bona fide purchase for value." Y is the innocent party here. X's bank has lost the possibility of foreclosure because it didn't record and Y did. This is where recording has value.
As I said, there other nuances regarding these scenarios, but this gives the gist of how the recording statutes work and what their usefulness is. I hope nobody's brain is hurting too much. If you want to know more, there are good articles on Wikipedia. Among the types of states are race jurisdictions, notice jurisdictions or race-notice jurisdictions.
**Let me define the terms: 1) transferor - the who transfers; 2) transferee - the one to whom the transferor transfers; 3) promissory note - the contract where the bank agrees to lend and the borrower agrees to repay the money; 4) mortgage - the lien (let's say "conditional entitlement to property" that the bank has to take back the property if the borrower defaults; 5) mortgagor - the borrower. I know this can sound backwards. However, it is the borrower who has just purchased the property so is its owner. The borrower executes the mortgage in favor of the bank which is the mortgagee
