This article originally appeared at BullionBullsCanada.com: “The Real Nightmare of U.S. Mortgage-Fraud”.
As I write this piece, U.S. state and federal politicians continue to edge closer to “cutting a deal” with the Wall Street fraud-factories who have destroyed the entire U.S. land-title registry (can anyone forget this “60 Minutes” clip?). Sadly, because most people in Western nations have lived their entire lives with a completely secure land-title registry system, the American people don’t have the slightest clue about the severity of this legal nightmare.
The extent of this real estate catastrophe can be partially illustrated through first explaining the basis (and need) for a totally secure land-title registry system, followed by an illustrative example of the fraud-nightmares which can occur in a system which has lost its safeguards.
With respect to the former point, this is impossible to overstate. Over the past century, many of our most prominent legal and economic commentators have argued that the highly evolved system of Western property rights was the critical component which separated the (extremely) prosperous Western economies from all other jurisdictions on Earth.
To those who lack a sophisticated understanding of such legal issues (and their market implications) this may seem like hyperbole. However, when we expand upon how secure property rights translate into economic prosperity, it becomes easy to see the validity of this claim.
Let’s express this principle first in its positive form. Any market which provides security of title will enjoy a significantly higher rate of economic activity and higher asset prices. The reasons why a secure system of property rights ensures this are many and obvious. It starts with an elementary premise: buyers know that they will get what they paid for.
The importance of this premise becomes immediately apparent when we take away that certainty, and a buyer can never be 100% certain that a third party will not enter the picture – claiming to be the real title-holder of the asset in question. Whether someone is buying a car, a house, or their own island in the Caribbean, such a purchase becomes much less appetizing when a potential buyer is not 100% certain that he/she will obtain “clear title” upon completing the purchase.
The dynamics should be obvious. Buyers will flock to those markets which offer 100% security of title, and shun those markets which do not offer such certainty. They will willingly pay higher prices in such markets because certainty of title also ensures that asset-holders will be able to obtain much more favorable resale prices when/if they choose to dispose of assets – since those future prospective purchasers will also be lured to this market due to security of title.
At this point, logic has led us to the point where markets which offer secure title will have higher asset-prices, and much higher levels of demand and “activity”. Of equal importance, this also implies much greater “mobility” of capital. In a market which lacks security of title, “trading” will be an activity which has little appeal – since a single fraudulent/defective purchase could wipe-out months (or years) of trading profits. Conversely, where security of title is assured, traders can fearlessly buy and sell assets.
These factors help to tremendously boost the “velocity of money” in safe-title jurisdictions. As anyone with even a basic understanding of economics appreciates, the velocity of money is one of the most important statistics on the health of any/every economy. The more times that each “dollar” in any economy moves from one hand to another, the greater the “multiplier effect” produced by this commerce.
The difference between safe-title jurisdictions and those which lack such protection is just as stark as the difference between going to your local shopping mall to purchase goods versus meeting a “fence” in order to purchase stolen property.
Shop at a mall, and one sees an endless stream of transactions. Buyers don’t hesitate to make purchases (even though forced to pay full, retail price) due to the implicit security behind all such commerce. Conversely, even though prospective buyers from a fence know that they can purchase goods at a large discount, any such purchase comes with a number of risks – meaning each purchase involves a lengthy negotiation (due to the “uncertainty” surrounding such purchases) and total commerce slows to a trickle.
The most obvious risk is that someone could “buy” a good from the fence only to have the real owner emerge, claim the property – and leave the purchaser who bought from the fence with nothing. Further corollary risks accompany this. Obviously a vendor who can’t/won’t even “guarantee” clear title to a purchaser will not stand behind the quality of the good being sold.
Buy a defective product from Wal-Mart, and we know we can exchange it or obtain a refund, since another aspect of law which accompanies security of title are the implicit or explicit warranties of the quality of the good being sold. If (for some reason) Wal-Mart refused to honour that legal duty to consumers, buyers of defective goods could (and would) take Wal-Mart to court to force compliance.
Buy a defective product from a “fence”, however, and then try to seek some sort of refund or compensation, and first of all you might not be able to find him. Even if one does track down this vendor, if you asked for a refund such a request would be greeted with laughter, and likely the sarcastic suggestion that “you should go and complain to the police”. Quite obviously, since the purchaser was never the “rightful owner” of the good in question, he has no legal rights whatsoever in the property he thought he had purchased – and thus no means of being compensated for his loss.
We can now take this hypothetical discussion and apply it directly to the U.S. housing market, which has now sunk to such a low state of repute that a new form of real estate fraud has emerged. Scammers are pretending to hold title to property(s) (i.e. effectively “stealing” the land) and then “selling” these properties to unsuspecting buyers, much like that old joke about someone being “conned into buying the Brooklyn Bridge”.
Apologists for the Wall Street crime syndicate will argue that such scams could have been attempted even if the banksters had not contaminated the U.S. land-title registry with tens of millions of defective titles. The rebuttal to that is “yes”, in prior years (while secure title still existed) such fraud could have been attempted, but it would have had virtually zero possibility of succeeding.
One of the safeguards which has grown around our ability to guarantee clear title to purchasers is that we have “title insurers”: businesses whose sole function is to provide an additional layer of security – to prevent exactly the sort of real estate fraud now springing up around the U.S. However, just as “clear title” is a concept which no longer exists (in absolute terms) in the U.S., “title insurance” is now also becoming little more than an illusion.
Case in point was a news item I discovered while “surfing” at one of my favorite U.S. websites: “The Mortgage Lender Implode-O-Meter”. The article was devoted to precisely the form of real estate fraud I have just outlined previously, and titled “Sorry – The House You Purchased Was Stolen”.
Here are the facts. A California family “purchased” a home. They had a mortgage issued to them by Bank of America, and (so-called) “title insurance” provided to them by First American Title Insurance. Several months later the family was contacted by the FBI.
The FBI told them that the original “owners” (and rightful title-holders) had simply “walked-away” from their mortgage – and abandoned the home. At that point, a scammer named Karen Tappert forged title documents for the property, pretended to be the “owner”, and then “sold” the property to the victims.
As totally innocent victims here, the Zahari family should have had no worries – in any system which maintains the integrity of its property rights. Yet in this instance, Bank of America is trying to pretend that somehow it is a “victim” here. If the Zaharis cease making “mortgage payments” (on a house they can never own), Bank of America could/would ruin their credit rating. Meanwhile, the so-called “title insurer”, which is legally obligated to indemnify the Zaharis has not issued them a cheque to cover their loss, but instead has simply issued the statement “no comment”.
Obvious questions present themselves. How could a major U.S. bank execute a mortgage based upon such brazen fraud? How could a title-insurer “insure” such fraud?
The answers are equally obvious. U.S. banksters (with Bank of America being one of the worst offenders) have flooded U.S. land-title registries (and even U.S. courts) with millions of fraudulent and/or forged documents. With the banksters themselves willingly trafficking in such forged documents, and willingly taking part in millions of fraudulent transactions, they have now made it simple for “freelance scammers” like Karen Tappert to rip-off victims with impunity.
Spotting such scams in a real estate system where the integrity of title has not been compromised is simple, because the lengthy, unbroken “paper trail” which accompanies legitimate titles would quickly expose such frauds. However in a system filled with tens of millions of fraudulent/defective titles already, slipping through a few more fraudulent documents becomes much, much simpler – with much less risk of being caught.
The nightmare of systemic fraud in the U.S. real estate market which I first warned readers of nearly two years ago has now come to full fruition. No one can buy any residential property in the U.S., and be 100% certain that they will be the “legal owner”, even after paying for that property. The consequence is a permanent discount on all U.S. real estate – unless/until such systemic fraud is purged from the entire system of U.S. land-title registries.
Meanwhile, the thoroughly corrupt politicians at both the state and federal level are not even contemplating trying to purge all of this fraud. Instead they want to entrench all this fraud in the U.S. land-title system – and let the banksters walk away with nothing but a “slap on the wrist”. The $20-billion figure being tossed around as a “fund” to partially compensate the victims of Wall Street’s systemic fraud would (at best) cover approximately 1% of the losses which will emanate from this fraud.
Originally, the risks of fraud resulting from Wall Street’s crime-spree were confined to the 60 million titles contained in the thoroughly fraudulent (and completely disgraced) “MERS” database. However, thanks to the pervasive fraud created by Wall Street (and their additional gross negligence in refusing to weed-out this systemic fraud), there is now the potential for infinite dollars of indirect losses from the Wall Street fraud-campaign – as they have directly facilitated this new form of crime, in two ways.
First, as previously noted, it is the millions of fraud-documents created by the Wall Street fraud factories which have made it possible for people like Karen Tappert to begin their new “careers”. However, even worse, it is their absolute refusal to “clean up their own mess” which has created “permanent career opportunities” for all of the Karen Tapperts lurking out there.
There are many jurisdictions in which I would never, ever even buy shares of a corporation, precisely due to the lack of certainty regarding property rights (and the buyer-protections which accompany such certainty). Russia is an obvious example which comes to mind. I’m certainly not unique in having such fears, indeed arguably a majority of such investors have an equal amount of risk-aversion, if not more.
The U.S. real estate market has now been transformed into an equally lawless frontier. The permanent discount which will now be applied to all U.S. residential real estate extinguishes the “last hope” for the millions of holders of underwater mortgages that “one day” their home might actually be worth what they paid for it.
Meanwhile, all that the Wall Street crime syndicate wants to do is to move on to their next scams (and new victims). And all that the corrupt and spineless U.S. political “leaders” want to do is to make that as easy as possible for the banksters.
For the 300+ million Americans trapped within this labyrinth of fraud, the Latin warning of “caveat emptor” seems woefully inadequate.