On this episode, Jason Hartman interviews Dave Krieger, author of Clouded Titles, and an investigative journalist, for a fascinating look at the MERS mess, the foreclosure crisis, and get Dave’s outlook on things. Dave says there are an anticipated 4 million homes yet to go into foreclosure.
Dave explains some of the problems happening across the country with titles, defining “quiet title,” that he says homeowners tend to look at as a silver bullet to clear a title. He cautions these homeowners to seek legal counsel before considering this option. Dave also talks about the issues surrounding MERS (Mortgage Electronic Registration Systems) that have left many homeowners in trouble, and caused problems for title companies and investors. The biggest problems with this come when investors are trying to buy properties at foreclosure auction. Buried in the mortgage paperwork are statements that allow MERS to foreclose, leaving title companies to scramble to stop the action and coming up against clouded titles missing legal descriptions and other information, causing serious problems for investors.
Dave Krieger is a former major market radio news reporter and news director and television news reporter/anchorman and investigative journalist, who won national and state news awards from Associated Press Broadcasters. Dave was a former member of Radio and Television News Directors Association.
Dave began studying law in early 1990; specializing in real estate, tort, consumer credit and collection issues. His first self-published work, The Credit Restoration Primer, a 263-page, self-help, credit repair book, was first released in 1995 and is now entering its 4th Edition. Dave currently serves as a paralegal and legal research analyst for Wade Kricken, an attorney in Dallas, Texas, who specializes in consumer and real estate law and foreclosure defense.
He has lectured at the Texas County Clerk’s school hosted by the V.G. Young Institute and Texas A&M AgriLife Extension and currently conducts audits of county land records and instructs attorneys on the subject of Chain of Title Assessments & Quiet Title Actions in continuing legal education courses around the country. The newest version of his book, Clouded Titles, is 396 pages of updated information about the aspects of foreclosure defense, strategic default, quiet title actions and county land record functions; coupled with a detailed Index and Table of Case Citations and comes highly regarded by attorneys.
ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth Show! This is your host, Jason Hartman, and we are here at episode number two hundred and eighty-eight, and I know we haven’t been with you for about a week and a half; been busy with some other stuff, but glad to be back talking to you. And remember, my advice is, whenever we don’t publish a show as often—you know, some weeks we publish two or three shows. Maybe even four from time to time. And then we might go two weeks without a show on occasion. Whenever that happens, that’s your opportunity to go back and listen to the old episodes, the archives. The vast majority of our nearly 300 episodes are on iTunes and on our website at www.jasonhartman.com, and you can access those. So always take that time, when we don’t have episodes coming out in rapid succession, to listen to the prior episodes, okay? That’s your time to go back and review. Okay, anyway, I’ve got Steve, one of our investment counselors, here with me. Steve, how you doing?
STEVE: Hey, doing great! How bout yourself?
JASON HARTMAN: Doing well, thanks. So I think let’s start off today’s news—of course we’ve got a guest, we’ve got Dave Krieger talking about Clouded Titles, and about the foreclosure mess throughout the country, and how it’s sort of gone down in different states. It’s just such a—I mean, what a joke. This is like, as disorganized as the government—but before we get to our guest today, we’ve got some news items and some housekeeping items, and I think this first item is going to be time for me to gloat heavily and say I told you so. Is that the one we’re going to start with, Steve?
STEVE: Yeah, we’ve got a big I told you so coming here for you, Jason. This is from our friends—our paranoid friends, and understandably so, at Zero Hedge. And this is a big shocker. You’re gonna want to make sure you’re sitting down. But it looks like the FHA is broke.
JASON HARTMAN: Oh, surprise, surprise, surprise.
STEVE: They backed a bunch of insurance for sub-prime borrowers, and you know, for whatever reason, and I’m laying the sarcasm thick here, Jason—the sub-prime borrowers haven’t been paying those mortgages very well.
JASON HARTMAN: No, you must be kidding!
STEVE: I know.
JASON HARTMAN: What a concept. So, you know, basically what happens here is, the government comes in, as they always do, and they mess everything up. And due to special interest groups, political pressure, political correctness, and sheer stupidity, and maligned motivations, FHA is giving out sub-prime loans—the Federal Housing Administration. And they let people into properties with very little money down, and you know, it’s just another flavor of the sub-prime bubble that I thought we all went through a few years ago, and I thought we were all over that, and I thought everybody learned their lesson. But you know, Americans have such a short memory. It blows my mind.
STEVE: Well, I could tell you that you’re just bitter that Obama won, but we’ll take a different track here.
JASON HARTMAN: I’m not bitter, I’m just—
STEVE: It’s $16 billion that the FHA’s short on, and the money’s gotta come from somewhere. I don’t know how else you can explain it. So you know, when you’re going out there and mandating banks that they have to issue certain amounts of loans, they don’t have any organic risk. They’re not really truly evaluating the person for true risk. Like, when you do a hard money loan, or when clients do hard money loans through our network, they really research these things! They really want to know about the property, the borrower, all kinds of different things, because they’re on the hook if it’s not repaid! But when you’ve got the FHA back there, who’s also probably backed by the Treasury, which—we can get into that. Not directly, but we all know it happens. Who’s taken any risk? Nobody is, and surprise, they’re broke.
JASON HARTMAN: Like I always say, when it’s everybody’s money, it’s nobody’s money. And that’s the problem with government in general. But FHA and their quotas—you know, I remember when George Bush, he was promoting the ownership society concept, and he wanted to see the homeownership rate increase to certain levels, and whenever you put a quota on something, you always mess up. It’s like the policeman with his radar gun, hiding there waiting to give out tickets because he’s got a quota to meet. And you ask any police offer and they’ll say we don’t have quotas, there’s no such thing. Well, that may be true. I think some of them may be unspoken. I really don’t know, I’m just speculating here.
But, I will tell you, they are rewarded for bringing in revenue, because police officers have become the modern day tax collector, to some extent. As broke governments need money, they need to give out fines. And FHA will make silly loan underwriting decisions when they’ve got basically a quota they’ve gotta fill giving out a certain number of loans! And anybody who comes along who’s lucky enough to have not enough income, not good enough credit, and certainly not putting much money down on FHA loan programs—they can come along, get the loan, and then imagine this—they don’t pay the payments. So, here you go. FHA is broke, and another one of my—I predicted this a long time ago, and I’d love to take credit for some of my predictions, but some of them are like shooting fish in a barrel. They’re just too easy! You knew FHA—I mean, let me see. I’ll predict now that California’s bankrupt—oh wait, it already is.
STEVE: They just haven’t filed the case, but yeah. They are bankrupt.
JASON HARTMAN: So the word we should use, the proper word, is insolvent. And the US government is in the same condition. And the next one, I think, I said it a long time ago—FDIC. I think FDIC’s gonna be in some trouble too. They did raise the insurance rates. I have a friend in the banking business who works for FDIC who is actually a listener of the show. I’m not gonna mention his name, because he’s very paranoid about that, but FDIC is basically an insurance service that is way too intertwined with the government, and they raised those limits from 100,000 to 250,000 during the financial crisis. And they’re probably gonna run into problems too. Especially as we see things change, and the next shoe to drop, which we’re gonna talk about here in a little bit as we talk about rising home prices. But folks, get ready, because there’s another shoe that’s gonna drop in the economy, if you ask me, and it’s gonna really hurt some, but it’s gonna really benefit others. Others who are listening to this show and following our plan. What else we got, Steve? Is that enough on FHA?
STEVE: Well, I’m curious if the FDIC’s an insurance agency, if it had to actually play by the same rules and be rated, what do you think their rating would be? They’re not AAA. They’ve gotta be something like, ZZZ, I would think.
JASON HARTMAN: Well, maybe not that bad yet. But it’s like the post office. I mean, these are like, these pseudo-governmental entities like Fannie Mae and Freddie Mac, and it’s just a joke. I mean, don’t get me started. I just—oh God that stuff makes me so mad. It’s just so stupid.
STEVE: Well, we’re probably already started. And while we’re on that, obvious predictions, we’ve got all this fiscal cliff insanity talk happening right now, and I would just like to go on record saying, have we not already gone over this cliff? I can’t believe people think that we’re about to go over it when I mean, we’ve already gone over it a million times! When you’re that far short on your budget, the damage is done.
JASON HARTMAN: No question about it. The damage is already done, they just gave it a brand name. So it would be a great news story. And my prediction on that is that they’ll probably—the democrats and the republicans will come together. They’re both on the left side of the aisle, if you ask me, fiscally—I mean, they’re both left of center, in my opinion, regardless of their labels. Because they’re all pandering to a constituency. That’s what they do. That’s what politics is; it’s pandering to buy votes, no matter what party you’re on. And they’ll probably come to some “resolution,” and I say that in quotes, with snarkiness. Right before Christmas, right around Christmas when nobody’s paying attention, and it’ll be something that increases taxes. There will be very little that Obama gives up on the spending side, and the dysfunctional government will continue down the road. Kick the can down the road, raise the debt ceiling, just put the country into more debt. Keep the Ponzi scheme going, as it were.
STEVE: Yup, that’s right. Inflation is the path of least resistance, and politicians specialize in the path of least resistance.
JASON HARTMAN: And what that means is, investors, you’d better get on the right side of that path of least resistance by following our plan, and take advantage of inflation-induced debt destruction. What were you saying, Steve?
STEVE: Well, I was just going on to the next one. But you raise a valid point, and we need to certainly take advantage of that. But we’ve got a couple of changes in how the podcasts are—some tech-geek stuff we need to get to, on how the podcasts are uploaded. You want to cover that, Jason?
JASON HARTMAN: That is true. Yeah, we have been in the process for a couple of months now, of changing our podcast service provider, and some of you may have experienced some problems where you went into iTunes—most of our listeners are on Apples, iTunes, they listen to the podcast, they get it through the iTunes store—and you may not have seen an episode there, but if you went to www.jasonhartman.com, the episode would be there. Or vice versa. So, www.jasonhartman.com/podcast, you can get the podcast directly from the website. Or, you can get it from iTunes. And what I just want to say here is that if there’s ever a time where you don’t see the podcast show up in iTunes, you may want to just go to www.jasonhartman.com/podcast and take a look there, and sync up your episode numbers.
We have had a few little glitches. I think we’ve got them solved now, but I just want to put that out there in general. So always check both places, is what I want to say, okay? And there are other aggregators, as I call them, like iTunes, as well. So, same things apply there. And while we’re talking about some housekeeping items here, I also want to mention, our Meet the Masters event in January is totally sold out. It’s completely full, and we’re not able to get a larger room at the Hyatt Regency Irvine, and so we’re gonna have about 100 people there, and I think it’ll be a great event. But my apologies to those who couldn’t make it; I do want to recommend, though, that you go ahead and get a copy of the Masters Weekend Home Study Course at www.jasonhartman.com under the products tab.
And that is actually—I haven’t mentioned this in a long time, but that is actually a compilation of two different Meet the Masters, or Masters Weekend events. We changed the name of the event, and that’s why I’m saying both. But it’s a compilation of two of them, where it’s actually, I believe it has 22 speakers, which is way more than we have at a live Meet the Masters event. But that is available at www.jasonhartman.com, and it’s an audio product as well as about 500-page PDF file with all of the slides from all of the presenters. So, take advantage of that. It’s a great product. A lot of people have purchased it, and they’ve said very nice things about it. It’s had very good reviews, and it’s available.
Even if you’re attending the Meet the Masters event, you should get a copy of that, because that’s kind of a best-of, and there’s more on that than there is at the live event. Of course the live event, the advantage is, you get to meet our whole team, you get to meet the property managers, you get to shake their hands, look them in the eye, meet all the presenters, and ask questions, so it’s interactive, unlike a home study course. So advantages to both, but do take advantage of that.
The next thing we’ll have coming up that we’ll announce soon will be a property tour, and that will probably be late February. Maybe early March. And we’re kind of deciding on the area now. We may do Memphis, which of course, as we mentioned before, is a spotty area, where really, really you’ve gotta be careful in terms of your neighborhoods. You could do great, or you could get yourself into trouble by making a mistake. And that’s one of the areas that we have not done a tour in, and we’ll probably just do the same format, where we do the Creating Wealth in Today’s Economy Boot Camp on a Saturday, and then we do the tour on a Sunday. So, keep your eyes peeled at www.jasonhartman.com under the events section for upcoming tour and announcements on future podcast episodes as well. And Steve, any last thoughts about Meet the Masters coming up in January?
STEVE: Well, we’ve got a lot of investors registered for that. We’re excited. And if you haven’t been to Meet the Masters, or one of our one-day Creating Wealth Boot Camps, it’s definitely worth your time. Because these are not something that’s a pitch-a-thon where people are trying to unload books and tapes and buy this and buy that. It’s actual real estate. These are people that are out in the market right now that are doing deals every day, and so you really get to learn a lot of practical knowledge by coming to these workshops. So I definitely encourage you to watch for that announcement on the upcoming property tour. And we’re planning on doing quite a few of them this year, and we’re looking forward to it.
JASON HARTMAN: Right, and on our Meet the Masters event, I just want to mention one more thing about that. And on the Home Study Course. There are pretty much two types of speakers and presenters that we have at that event. One, they’re the educational speakers—what we call the content speakers, or the educational speakers: subject matter experts that are teaching you about taxation, exchanges, asset protection, investing techniques in general—things like that. Then we have the local market specialists and property managers, and they’re talking about the practical issues that take place in their specific geographical markets. I always say, all real estate is local. And it’s just great for people to get to hear directly from those local market specialists, and those local property managers, about the certain markets, and the unique characteristics, the unique challenges and problems, and the unique opportunities, in those markets. And again, not a pitch-a-thon. We don’t have people selling stuff and things like that. I guess we’re selling real estate, because people do buy real estate, but it’s not like, line up at the back of the room to buy my CDs and my books and stuff like that. We don’t have those kinds of speakers. They ask us if they can come all the time, but that’s not what this deal is. So, take advantage of that, either live or in the Home Study version on the website. Let’s talk about our next news item.
STEVE: Yeah! We’ve got a really good one here, and we’ve been talking about this off and on on some of the podcasts and things. And this is an article called Phoenix Picked Clean: Private Equity Descends on Atlanta. I want to read something briefly from the article that I think is pretty insightful. And this guy’s name I can’t even pronounce it, so I’m just gonna use Tyler Durden, one of our favorites on the pod—he can be our new piñata. Notice, this is very insightful into what’s happening in the market, and then look forward to your comments on it, Jason. But check this out. “Tyler Durden started noticing investors from New York and California at Atlanta area foreclosure auctions about four months ago.
Working for private equity firms such as Colony Capital and Blackstone Group, they clutched plastic folders crammed with cashier’s checks and astonished locals with how much they were willing to pay. If you go head to head with them, they always win, because they always overbid. Durden, an immigrant-turned American house flipper, said during a foreclosure auction outside the Gwinnett County Courthouse, northeast of Atlanta, Colony, Blackstone, Waypoint Real Estate Group, and American Homes For Rent, have converged on Atlanta in search of low-priced properties to buy and rent out, after helping drive prices up 34% in Phoenix from a year ago. Their goal is to take advantage of the burgeoning US housing recovery, earning annual returns of at least 6% on rents until home prices rise enough to make a lucrative exit.”
JASON HARTMAN: Wow. Isn’t that amazing?
STEVE: That about sums it up, as to what happened in Phoenix, and what in turn is happening in Atlanta. Gwinnett County is—we do a lot of properties out there with our clients and our local market specialist in Atlanta. So the question is, can they sustain this because of the fragmented nature of the business. What do you think, Jason?
JASON HARTMAN: Well, it’s amazing, and it’s interesting—by the way, I want to try pronouncing that guy’s name, the Polish immigrant, that’s who you’re talking about. It’s [unintelligible]—never mind. I’m not gonna try.
STEVE: Nice job.
JASON HARTMAN: Yeah, thank you. But that was your Tyler Durden, okay? Tyler Durden, by the way folks, if you don’t know, is the character from Fight Club, which is an excellent movie. Very well written. And it’s all about debt, by the way. It’s kind of fascinating. But, you know, I love to go on tangents, Steve. I gotta take one now. I was in Chicago, and I was dating a girl who lived in Dallas, and I was in Chicago for a speaking—actually, that was a speaking event I did—yeah, that was the Zig Ziglar! The late, great Zig Ziglar, who just recently passed away, I was in Chicago to speak at an event with him. I actually got to share the platform with Zig in a couple different cities.
And I was waiting for this girl to fly out from Dallas and meet me in Chicago, and we were gonna hang out that weekend. And she missed her flight, or she got bumped, or something like that, because she worked for the airline, so she didn’t have a priority seating. And she had to take the next flight, so I was walking around Michigan Avenue with nothing to do, and I stopped by a movie theater, and I walked up there and I go, what’s playing right now? You know, just figure I’ll kill an hour and a half, two hours. And the only movie that was playing was Fight Club, and I saw the preview, and I thought, this movie looks—I would never want to see that movie. These guys fighting? Are you kidding me? And I went in and saw it anyway, and I couldn’t believe how interesting and well written that movie was. It was all about cancelling the debt, which is something we talk about on the show all the time. So it’s kind of ironic. And Tyler Durden was the character, and that name is also used on the Zero Hedge website as a nom de plume that the writer writes under to protect his identity. So. That’s why you’re saying Tyler Durden.
STEVE: Yeah, he’s our new piñata. Anytime we don’t want to say somebody’s name on the show now, we use Tyler Durden. I guess I made the executive decision there.
JASON HARTMAN: There you go. But what’s interesting here is that in this article, they actually—this is a Bloomberg article. And they actually go down a little further to quote John Burns from Irvine, where I used to live, and he’s the real estate consultant that we’ve had on the show before, and we quote a lot of his work. And it says, is Atlanta the next Phoenix? said John Burns, an Irvine, California-based real estate consultant. The answer is yes, for these guys. The economy isn’t nearly as robust in Atlanta as Phoenix, but we’ll be talking about a robust economy there in a year. I think there’s a lot of chance that Atlanta’s gonna be in pretty darn good shape. We’ve liked that market for a long time. Inventory on our tour was very, very scarce; we did not have enough properties to supply to the attendees who attended the tour. But I think it’s a great market, and I just spoke to our local market specialist there a couple of days ago, and he said that they had some inventory about ten, eight or ten new properties that were good. The prices aren’t as good as they were a year and a half, two years ago, though, folks. You’ve gotta just adjust your thinking. I know that everybody listening wants to buy at those same prices that they did before. But you just can’t do it! You just can’t do it now. So, that’s the deal.
STEVE: Yeah, I have a couple clients that are doing that. And they’re doing that classic, we’re tripping over dollars to get to pennies, you know? They’re waiting for that price from a year ago, or 18 months ago, and it’s not coming back. And while they’re waiting for the perfect deal, the average deals are going down in return. So, when you see a good property on the site in Atlanta, you’re well advised to jump on it, because you see this competition that’s coming on. The estimate is that private equity has raised somewhere in the neighborhood of $8 billion to buy single family homes, and they’ve gotta go do this predominantly in big markets like Phoenix and Atlanta. So they’re in full swing out there; they’re competing at the auctions, and our local market specialist, luckily, is very good at what they do. They can outfox these guys. There’s things that you can do to get around these big funds that are overpaying, and so that way the individual investor like you, like our clients, can still get good cash on cash return there in Atlanta.
JASON HARTMAN: I do want to dovetail on your comment about how the deals aren’t really there like they used to be. And I agree that they’re not, Steve. However, when we go to our next news story—we’re gonna talk about rising prices—I think there may be a little bit of give in that. So let’s kind of talk about that one right now, and I’ve got a couple comments for you on that.
STEVE: Yeah. They’ve got a couple of reasons as to why home prices are rising, and I’ll just name a few of the notable ones. One of them is housing affordability is really attractive, on a historical basis, right now. And they’re looking mostly at something called the price-to-rent ratio, and the price-to-income ratio. So, historically what it costs to buy versus what it costs to rent is very good. A tangent that I’ll try to avoid, though, is that the mortgage financing is so tough to get, even though the interest rates are low. And that’s probably it’s not really just [unintelligible] the ground, in addition to unemployment and a few other factors.
JASON HARTMAN: Oh my gosh, I mean, could you imagine if we were in a market right now where we’ve got some of the characteristics we have, which include virtually no construction for the last few years, massive numbers of people displaced and turned into renters, incredibly low interest rates—the lowest interest rates in all history—and incredibly good prices, like we have now. If you added one more ingredient to that mix—well, maybe two more ingredients. And they would be ease of qualifying, the way people used to be able to qualify for loans. If it was that easy, now, as it used to be a few years ago, if you added that to the mix, and you added maybe a general sentiment of optimism, which I don’t think exists now.
If you added those two ingredients to all of the other ingredients we have now in the real estate marketplace, the market would be on fire. I mean, it’s pretty much on fire already, in any desirable areas. I mean, anybody will tell you that. Inventory is low—you know, I just talked to our former, from years ago, local market specialist from Mobile, Alabama just yesterday. And Steve, I don’t know if you’ve—I asked you to talk to her about bringing that area back online, potentially. And before I could even ask her a question—I was just asking her about a property that I own there, and I said, how’s the market? And she said, our biggest problem is that we just don’t have anything to sell. Everything’s selling so quickly. It’s really terrible for brokers, because brokers don’t make money unless they have something to sell. So, that was the first thing she said.
But if you added those two ingredients, I mean, it would just be—prices would just, they would massively increase. But we don’t have those two ingredients. So, we have what we have. Which is actually good, a good opportunity for investors, because so many people have bad credit from the last few years. They can’t qualify for loans. The lending restrictions are much tighter than they used to be. And boy, if you can get a mortgage now, and you don’t get a mortgage—if you don’t stock up on long term 30 year fixed rate investment grade debt against packaged commodities, you need to have your head examined. Seriously. I mean, they’re giving away mortgages below the rate of inflation. It’s just insane. And you can outsource that debt to a third party called a tenant. It’s insane if you don’t take advantage of that. You know Steve, you know what’s interesting? When most people look at a balance sheet—and I’ve taught this at my seminars before. I draw a line down the middle of the white board and I say, balance sheet. Assets, liabilities. You know what item people never put on their balance sheet as an asset?
JASON HARTMAN: Their ability to borrow money. Nobody really considers that one an asset. They don’t put it down. They don’t include it. And it’s just a phenomenal thing. They’ve gotta take advantage of it. They’ve gotta borrow the money if they can get it.
STEVE: Yeah, yeah. And it’s not super easy to get these days, but you can do it if you’ve got the right financials, you can go out there and get this. And there are products, too, available if you’re not squeaky clean on your credit and such. And I think, Jason, that this really is a testament to how weak the economy really is. Look at all of these favorable factors right in front of us on financing. But yeah, I mean, prices are going up, but they’re not skyrocketing through the ceiling, which you would think they would based on everything that you just said.
JASON HARTMAN: Well, I got a comment for you on that, and it’s about inflation and GDP. If you look at the manipulated growth numbers, the GDP numbers, for the economy of the United States, and you look at the rate of inflation, just the reported, manipulated numbers, and we all know that inflation is manipulated through the CPI with weighting, substitution, and hedonics being the major ways it’s manipulated, and we talked about that, I’m not gonna go into it right now. But weighting, hedonics, and substitution, manipulate the inflation index. The GDP index is massively manipulated in a service economy where a lot of things are counted into the GDP to make things look better than they really are that shouldn’t be counted. I mean, think about it. When someone gets a haircut, should that really be considered part of the GDP of an economy? Most economists will say yes. And it is counted.
But I think GDP is hard, exportable assets. Not that they’re exported, but just exportable. That’s really a country’s production. Because nobody has to get their hair cut. They can let their hair grow long and shaggy. Real economies are built on manufacturing; that’s where—that’s the solid, good old-fashioned economy. But whatever, forget about it. Just take the numbers that are reported—the official stats for GDP, the official stats for inflation, and you can say right now that the best number—if the economy grows at 2% and inflation is 2%, or the economy grows at 4% and inflation is 4%, you’re treading water! There’s no real growth. And by the time you manipulate both those numbers, if you take away the manipulation, the economy is contracting pretty dramatically. Okay, now, most people listening to this would say, well, gee, Jason, why should I be investing in real estate in a contracting economy? Well, because most of the globe’s economy is contracting. It’s not just us.
But at the same time, the population is increasing. The thing that has to give is the standard of living. The standard of living will decline, but it’s not an issue of you should or shouldn’t invest. You should invest! It’s a great time to be investing. Your tenants are getting poorer. Every time the government spends more money, every time they increase taxes, all the people that don’t get it, that don’t know how to work the system, or game the system, if you will, like we do—they get poorer and poorer. And they’re usually the same people that vote for all these stupid things, too. But people who know how to play the game and work the system, they just get richer and richer. They sit here and benefit the whole time. It’s kind of ironic.
STEVE: Yeah, it really is. And it’s funny, I’m talking to you here, and I have an alert on my iPad that comes on, and it literally just came on and said, stocks, erase gains after Bernanke comments. And you know, I had some things to say about Bernanke, but ultimately, it’s the country’s not exporting anything. I mean, what do we really make here, other than dollars?
JASON HARTMAN: We make funny manipulated phony financial instruments and export them around the world so we can impoverish other countries. That’s what we make. We’re good at that. Financial manipulation. That’s like the best US export nowadays.
STEVE: Yeah, nobody better. Nobody better. Made in the USA. Derivatives, it’s great stuff. But, before we take a couple of potshots at Bernanke, he’s a very easy target. There’s a few other things from a Wall Street Journal article to talk about. The affordability is attractive, but also, in spite of all of this stuff going on, the housing market has recovered, to a degree, in spite of all this. Which tells you how resilient America is. How resilient the economy is. But rents are rising. It doesn’t matter. The standard of living is going down. People have to pay more for less house, in most of these places that we’re operating in right now. So rents are going up like crazy, because just like we said, these mortgages, while they’re cheap, while they’re very attractive on paper, they’re tough to get. Unless you’re an A+++ borrower, it’s not happening for you. So you can go live with your parents, or you can rent. And it’s gotta get pretty bad before you go live with your parents, I think we would all agree on that one.
JASON HARTMAN: Well, that’s for sure. And, see, the thing everybody has to understand is that look. Real wages can continue to decline as they have. They’ve been stagnant or declining for decades now. We can have unemployment even increase a little more. We can have the price of food and energy—we can have the price at the pump for gasoline skyrocket. Everybody still needs to live somewhere. What will give is the luxuriousness of their residence. They will live in an inferior area, they will live in a smaller house, they will live in a higher density neighborhood; things have to give. America, generally speaking, people are getting poorer as globalization creates this equalization. You know, as wages come down here, and rise elsewhere. And that’s been happening for many years. Okay, no one can deny that that’s happening. But the opportunities there for the investors is just that old thing. It’s the ladder. If you talk to your tenant of the future, they will say they used to live better in the past than they did now. Now, some things in their life will be better. Certainly technology will advance. But the house they live in, by and large, will not be as nice as it used to be. So that’s what has to give. Lifestyle has to give.
STEVE: Yeah, that’s right. And so, we certainly want to position our investments in that portion of the ladder where people are moving to. And when you look at the pro formas on the website, these are properties that are three bedroom, sometimes four, they’re one, two, maybe two and a half bath; very standard, basic houses. You don’t go a lot lower in housing before you get to apartment units and such. And that’s why we like these, is because we feel like that’s where most people are going to end up settling, is into these kinds of properties. And that’s where the rents are rising the fastest, ironically enough. Because they’re in such demand, like you say—you can’t not live somewhere. But you can sell the extra car. You can cancel this subscription, or you can do that. There is a lot of other room to give here. But there has to be a place to lay your head down at night.
JASON HARTMAN: Yeah, that’s for sure. No question about it. And it’s a great time to be an investor. Alright. You want to take a couple potshots at Bernanke before we go? We’ve only got a moment.
STEVE: Okay, we’re going to play a guessing game here.
JASON HARTMAN: Alright.
STEVE: Bernanke—I was watching him on CNBC before we started recording. And he has stated what the Fed thinks the inflation rate is going to be.
JASON HARTMAN: [LAUGHTER]
STEVE: Over the next 12 months. So, is the answer a) 10%, b) 7%, c) 2%, or d) 1%?
JASON HARTMAN: Well, I got a question for you. When you were in school, Steve, and the listeners, maybe they had this happen too. Did you ever have a teacher, which I did, give you advice on how to take a test, when it’s a multiple choice question? They said that—did that ever happen to you, by the way?
STEVE: Yeah, and I used that logic in my thinking of not wanting to make the host look bad.
JASON HARTMAN: Oh, you set this up for me! Okay.
STEVE: Yeah, I teed it up for you. So now you can’t miss. Now you have to get it.
JASON HARTMAN: Because I know, that according to statistics, at least back in the days when I was in school—they’re probably better at fooling you nowadays, with computers and software and such. But according to statistics, 35% of the time, if you don’t have any idea, the answer will be C.
STEVE: And you are correct.
JASON HARTMAN: Yay!
STEVE: Yes. Chairman—and I think it’s ironic that he’s called Chairman—Chairman Bernanke is predicting it’s gonna be about 2% inflation over the near term here. so, that is hilarious.
JASON HARTMAN: Hey, I want to make another little prediction, folks. And this is a prediction that actually some people would think is, well, maybe a little negative. And here it is. My prediction is that we are going to see a little bit—and I don’t think this will be extreme, by the way. But a little bit more loosening of inventory. Just slightly, in some markets. Mainly Phoenix, which we hardly ever talk about Phoenix, because it’s virtually impossible to do business in Phoenix. Where we’re gonna see a little more loosening of inventory, that banks have been doling out the foreclosures, I think—and I don’t really know how this works. It’s all speculation, because nobody really knows how it works. Not any one single person. Even Obama doesn’t know. Or Bernanke, or Geithner.
STEVE: Get out of town. Those guys don’t know?
JASON HARTMAN: Yeah, the smartest guys in the room, right? Well, Obama’s the least experienced guy in any room. But anyway. I think we’re gonna see an increase in inventory, and somehow, before the election, to make things look a little better, I think somehow, some way, banks were holding back a little bit of the inventory. In terms of releasing it from their possession onto the general market. And I think we’re gonna see a little bit of loosening of inventory, which I am praying for, because me business is suffering, not having enough inventory to sell! I hope we’re gonna see a little bit of inventory increase over the coming year. But think about that!
Remember, there’s a flip side to everything, folks. As inventory is released, where did that inventory come from? Well, it either came from the builder creating new inventory, building something—and when you buy new, you have to pay at or above construction cost. But most of the inventory is from exiting inventory, and when it comes from existing inventory, what does that mean? That means you had someone who was displaced. Someone had to move out of that property, and a lot of times, very shortly before it was sold. If you’ve heard of cash for keys and you understand how that program works, as we do, a lot of times someone just moved out before that property was put up for sale. And in that case, you’ve got a renter that is now out looking, and they’re in the market to rent something. So, there’s two sides to every equation. There’s always an equalizing factor; that’s what so many people just do not understand. And we’ve gotta understand as investors. So, anyway. Steve, we gotta wrap it up here.
STEVE: As we do always. We talk way too long. So, I’ll let you go.
JASON HARTMAN: We always think this is just gonna be a few minutes, right?
STEVE: Yeah. Every time.
JASON HARTMAN: Imagine that. Anyway, hey folks. We will be right back with our guest, and talk about Clouded Titles here in just a moment.
JASON HARTMAN: It’s my pleasure to welcome Dave Krieger to the show! He’s coming to us today from Texas, and he is the author of Clouded Titles, and this is a fascinating look from an investigative journalist’s point of view in terms of the foreclosure crisis, the MERS mess, and you’ve heard about MERS before; we’ll talk about it again today, and get Dave’s outlook on things. Dave, welcome. How are you?
DAVE KRIEGER: Oh, doing very good, Jason. Thank you.
JASON HARTMAN: Good. Well, hey, it’s a pleasure to have you on the show. Give us an update! Of course we’ve covered it in past episodes, on the foreclosure crisis, and what’s happening. We’re not out of the woods yet, are we?
DAVE KRIEGER: Not by a long shot. As a matter of fact, there are approximately—and these figures vary, but there’s approximately 4 million more homes that are anticipated going into foreclosure this year alone, for the balance of this year. And that’s across the country, that’s not just in the sand states, Arizona, Nevada, California, and Florida.
JASON HARTMAN: Now, what’s interesting to ask—when you think about those 4 million homes, many people refer to that as the shadow inventory. How do we know those homes are slated to become foreclosures? Are they because adjustable mortgages are adjusting, and they’re going to see some payment shock? Or are they for other reasons?
DAVE KRIEGER: Well, I think, Jason, what you’re seeing is that RealtyTrac and CoreLogic and a lot of the ratings outlets and survey outlets, statistical outlets, that are looking at this, are looking not just at the shadow inventory, but they’re also looking at the fact that there may be issues with skewed numbers, numbers that don’t quite fit some—like, RealtyTrac is saying that 8-10 million foreclosures, they’re saying that all these homeowners, millions of homeowners could be in default. So what they’re looking at, depending on the survey that you’re looking at, the numbers vary vastly, because of the fact that you’ve got shadow inventory already existing in the marketplace; you have homeowners that are in default currently that have not been foreclosed on that anticipate being foreclosed on.
You have issues where homeowners are struggling to make payments and are going through some sort of trial modification before they go in and default, knowing that there’s issues involved. So, depending on whose survey you’re looking at, the numbers are hugely skewed. And the thing that I research when I’m doing land record audits and chain of title assessments for homeowners, is condition of title. And I focus more on that from an investor standpoint, because I actually buy property as an investor, and I think that’s pretty key as far as being on your show; the problem in creating wealth is to not step in it while you’re doing it, and I use that figure meaning the pile of proverbial dung. The problem we’re seeing, Jason, with a lot of these investment properties and portfolios that investors are buying is, they’re met at the closing table by a lender that may not own the property, and they’re having to sign an indemnification agreement, which we’ve gotten several copies of. I’m also a paralegal, and I’m assisting a network of about 40 attorneys across the country, and actually writing and filing quiet title actions to try to clear titles on property, and we’re running across a lot of issues.
JASON HARTMAN: Let me just ask you something. Just explain, for the listeners who may not know, what does quiet title mean? Or a quiet title action?
DAVE KRIEGER: Sure. Well, there’s different kinds of quiet title actions. There’s try to trespass, and there’s suit to remove a cloud, and suit to quiet title—basically, all these things derive out of a proceeding that’s done in court. It’s judicial. And a lot of homeowners are doing it these days, and I think they think it’s a silver bullet, but it’s not the silver bullet they all think it is. And I caution people to not venture into this without getting counsel, without legal advice. The circumstances surrounding quiet titles is basically when you go into court, you file a proceeding against all known parties in the chain of title. And then you publish in the legal notices for four weeks running in most states, and then you file the affidavit of publication with the court against all the unknown parties that you don’t know of. Now, when you’re dealing in MERS issues, and I know your listeners, many of them have probably heard of Mortgage Electronic Registration Systems—
JASON HARTMAN: So, this is the system, yeah. Explain MERS, too, because this is the system that is a mess, that has kept track, theoretically, of all the mortgages, right?
DAVE KRIEGER: Yeah. Well, theoretically, in their own database. MERS is a winner in its own mind. That’s a problem, because they circumvent the land records. MERS, for all intents and purposes, goes in and creates what we call a static condition, by becoming a beneficiary and a catchall. These borrowers that go to the closing table, Jason, I don’t know what gets into them other than the fact they want the keys to the house, and they’ve got house envy, and they don’t care what they sign. They could literally sign documents giving away their first born, and they wouldn’t know until it bit them. And so that problem is that when they start reading their deed of trust and mortgages, and when they see that MERS can not only foreclose and sell their property, which of course it doesn’t do know, because of the fact that it issued a policy directive on July 21st, 2011, that said don’t foreclose in the name of MERS anymore. But it’s still there in the contract, and this is creating all sorts of headaches for the title companies who write around all the defects, and investors buying these properties.
JASON HARTMAN: And what we should explain is that this discussion—we’re going to discuss many things, and I’m just so excited to have you on the show for this—but this particular aspect of this discussion, the quiet title mess, and people buying a property, paying for it, and not having real title to it—this really applies to the people that are trying to buy properties at foreclosure auctions without title insurance, right?
DAVE KRIEGER: Oh, big time.
JASON HARTMAN: It totally applies—
DAVE KRIEGER: Let’s look at your investor pool. Let’s look at the group of people that want to go out and use that money and, like you say, create wealth. They want to buy property. That means, for all intents and purposes, if you’re buying a piece of property from a lender, and you get a special warranty deed, and you’re forced to sign an indemnification agreement at closing—that you will not hold this lender liable for anything? You might as well just rent that property for the rest of your life, because that’s what you’re stuck with. You’re stuck with a house that may not be in your name, and you may not legally own it.
You may have something on paper that says you have an equitable interest in it, but the deed smacks of all sorts of issues, and the title companies won’t insure it, and so if you go to sell this property and flip this property, which a lot of investors do—they buy and flip. They fix and flip. And so, I’ve done this. I’ve quieted titles of properties, too, and I explain that in the book, Clouded Titles. Jason, we’re finding a lot of issues where investors go in and they buy property, and they put down hard cash. Hard money. And when they get a special warranty deed, they say, well what’s this all about? And they don’t understand the difference between a general warranty deed and a special warranty deed. Well, the general warranty deed basically means that the seller of the property is gonna warrant title.
They’re gonna warrant the condition of title to be good, clear, and marketable. And they’re actually going to pay for it! Their title company is going to issue a policy, whether it’s a lender’s policy, a seller’s policy, an owner’s policy, if you will. And they’re going to put forward the legal money if anybody comes back in the future and says, Mr. Investor, you just bought this place. Well, we have an interest in it, and we haven’t been paid, so we’re gonna foreclose. And the title company has to all of a sudden jump to, and kick in some money for legal fees to defeat that challenge.
Well, the problem is when you’re signing these indemnification agreements at closing, and they’re buried in paragraph 22 on page 4, and all you’re looking is where do I sign. Because if you’re like most investors, you’re just as excited to get the keys, knowing what you’re gonna do with this property. And then after you get out of the gate without doing the research and finding out whether the title is really clear, you get an owner’s policy, and the next thing you know, you have the title company saying, well, we can’t insure this property, sir, because there’s defects in it, and it was sold to you with defects, and this is what the—
JASON HARTMAN: Defects in the title, is what you’re talking about.
DAVE KRIEGER: Oh yeah, in the chain of title there’s all sorts of defects. There’s sign that things don’t make sense. There’s a sign that [unintelligible] file out of order. The warranty deeds—and this is another shocking thing we’re finding, Jason. The warranty deeds that were issued to a lot of these buyers of these homes in 2003 and 2008 are missing the [unintelligible] address to the property, and the legal description, which means that the seller conveyed nothing to them.
JASON HARTMAN: Wow, unbelievable.
DAVE KRIEGER: And these guys went out and borrowed money and claimed that they were the grantor, that they had the right to convey the property, and do all this stuff. Well, the problem is, they didn’t have the right to convey the property. And so you’re looking at potential issues of breach of contract right out of the gate. It’s crazy!
JASON HARTMAN: Unbelievable. So, I say that one of the lessons here is, if you’re buying properties at a foreclosure auction, you better be a professional. I mean, you gotta know what you’re doing. You gotta be able to research title in advance—this is what really amazes me. Is that all these people that go to these seminars, they watch the guy on TV at 2 o clock in the morning, and they buy the course on how to buy foreclosures at the auction, not realizing how professionalized this business has become. I mean, this is not a business where you can just show up at the auction with a suitcase full of money and be okay. I mean, these are mature, refined experts that have been doing this for a long time, that have support systems, that have software systems, that have networks, that have connections, that do this stuff. And I mean, even they mess up sometimes, and it costs them a lot of money.
DAVE KRIEGER: Exactly, and that’s a real big problem when you’re investing in properties, especially REOs. The bigger problem we’re seeing—I’ve got title insurance guys that own title companies that are telling me if you buy a real estate owned property, an REO, you’re crazy. A lot of investors like to go out and buy short sales. Well, there’s a caveat there too, because even though you’re getting a warranty deed from the seller, and this warranty deed says that they’ve coveted—that they’re going to defend title to the property, what if the lender that is actually accepting that money at the short sale that claims to have an interest in it is part of the MERS system, and there’s other intervening assignees within the MERS system that may still have a claim? This makes the bona fide purchaser subject to double liability, and that’s a scary thought.
JASON HARTMAN: So, really what’s happening here is that the MERS system is still so messed up that a lot of these institutions—they don’t even hold the mortgage on this property, but they think they do? I mean—
DAVE KRIEGER: Exactly! You got a servicer out there that’s doing all the negotiating for a trust entity that’s claiming to own the property on Wall Street, but we’re finding, through the research we’re doing in the county land records and my firm, DK Consultants LLC, which is a Texas limited liability company—we actually go out and audit county land records. We take a team of people in, we sift through files, and we’re just totally being engaged by counties. In fact, High Sheriff Chris Conley of the New Hampshire has asked us to come in and help him as he does a criminal investigation into some of the nonsense that’s going on in the land records up in Carroll County, New Hampshire.
So, when you look at the bigger picture, and you see a county as small as Carroll County, New Hampshire, with 28,000 MERS mortgages, and you look at the number of reconveyances done by MERS, and MERS has alleged officers, then all of a sudden you find out these alleged officers are members of a document manufacturing plant like DocX or LPS or CoreLogic or Verdugo Trustee Services or Stewart Title Support Services, or CoreLogic Document Solutions, or LPS Default Solutions—when you’re looking at the massive third party document manufacturers out there, the bigger problem is that the people who are signing these documents, which is robo-signing, for all intents and purposes, have absolutely no idea what they signed, but they’re signing 350 of these documents an hour. They get paid 10 bucks to be a vice president.
JASON HARTMAN: Unbelievable.
DAVE KRIEGER: It’s crazy, and it could spell out some serious problems for your investors that are in your network, Jason.
JASON HARTMAN: Yeah, yeah. So, the document manufacturers—I mean, 60 Minutes did at least one store on this, which I remember seeing. They may have done a couple of them. And they talked about especially Florida, which has been like ground zero for this complete disaster, and there’s just so much fraud going on there. When you say document manufacturers, are you being sarcastic? I sense that there’s—when you say manufacturers, I mean, are they manufacturing fake documents? Or just, kind of elaborate on that, if you would.
DAVE KRIEGER: Okay. Document manufacturing, for all intents and purposes, Jason, is where you have what’s admittedly what we call a signing room. It’s a signing room, okay? The signing room is used by companies admittedly—in depositions, and upon investigation by the AG in George, for example—they found that this one particular company had a signing room. The signing room basically was where all these people that get paid $10 an hour sit, and while they’re sitting there, all they’re doing is signing documents. They’re signing these documents, and there is no notary present.
The documents come in pre-notarized, and the law is very clear in many states, that says that when somebody is signing one of these documents, they have to have a notary present. And so, the notary is not present; in many of these instances, the notary has pre-stamped the document before they even witness the signature, and in effect there is no witness signature, and these people in many instances of the signing room, sign their name to a document, they batch all these documents up and take them to another part of the building where a group of notaries sit around and do nothing but stamp documents, without being in the purview of the signer that signed them. And unfortunately, if the state requires a logbook to be kept of the notaries’ activities, this is virtually nonexistent, as we’ve seen. So, it’s awful.
JASON HARTMAN: So there’s all this fraud going on in these signing rooms, in these document-manufacturing companies. It’s like Deep Throat in the Watergate scandal said—follow the money. Explain the motivation that’s going on here. These lenders, they don’t want to go through the hassle of properly foreclosing on properties? Is it like the robo-signing problem, or are there some distinctions that we should understand about it?
DAVE KRIEGER: Well, the basis for all of this is the fact that the lenders can’t find the documents, and many times what we’re hearing is that the documents were recorded in a central recording service electronically, and put into the MERS system. And then these notes and documents were shredded. And so all they have basically is a data file that they can cough up. And so what happens is these third party document manufacturers go into a computer database, and they look at this information. They don’t know where this information came from, but it basically, they go to a terminal, and they look at the status of it. They have no idea who inputted it there. And they just take what they see, which a lot of courts, especially in the Taylor case in Pennsylvania—Henry Taylor—that move that this is nothing but hearsay.
And so when you’re looking at stuff like this, and you’re seeing that the lenders destroyed a lot of these documents, or lost these documents and can’t find these documents, and this is what first surfaced in Florida, were these lost note affidavits, when the banks came into court and said, we can’t find the notes. Well, we suspect that once these notes were electronically recorded into the MERS system, they were shredded. And so they don’t have the note anymore, and therefore, they basically have to manufacture it. So they have to use whatever signatures they can find, and they use signing machines to try to duplicate the borrowers’ signature on the note that they remanufacture. And some of these services actually put the price list online, and gave you a price for a rehashed note. They said, we’ll invent a note out of thin air for you for 95 bucks.
JASON HARTMAN: Unbelievable, just unbelievable.
DAVE KRIEGER: Oh yeah. And then they bring that into court and try to pass that off as legitimate.
JASON HARTMAN: Unbelievable. These criminal banks, I mean, it is unbelievable what they are doing. One of the reasons this problem occurred, and I’m sure you’ll want to add to this—I mean, this is my understanding. Is that these loans were pooled up into these pools, and I always say, pools and for fools. And these institutions would sell them to each other around the world, and they would sometimes sell the same loan 30, 35 times! And when one institution was buying a pool of mortgages from another institution, they wouldn’t even know what’s in it!
DAVE KRIEGER: Exactly.
JASON HARTMAN: And that’s why they had the same loans—so say, for example, just so the listeners understand what I’m saying there. 123 Elm Street is a property. A borrower went and borrowed money and got a mortgage on that property at 123 Elm Street. And then that loan, after it was generated, created, and funded, and the property was purchased by the borrower, then that loan was put into a pool. It was sold off onto Wall Street, and then maybe it was just duplicated and an institution said, hey, we have that loan on 123 Elm Street. And Institution B, the next institution, said, we also have that loan! And they did that 30 times! And sold these pools of mortgages, when the mortgages weren’t even there! Right?
DAVE KRIEGER: Yes, in effect that’s what it is. In fact, the derivatives market on Wall Street is so huge now that you can literally go out, and this is what they did. The allegations have been put forward, Jason, that they took and they built all of these trust pools, and they put these notes in there, and the notes from the beginning, [unintelligible], were designed to fail. They knew that within two year to five years, that the interest rates would reset themselves. The borrowers could not pay the new interest rates, and sadly, a lot of these were tied to LIBOR, which in itself now has generated a whole new mess out there, because the Barclays CEO, Bob Diamond, when he resigned, admitted that they have manipulated the LIBOR rates.
And so, some homeowners paid too little on interest, some owners paid way too much, and because of the fact that they manipulated LIBOR, all these interest rate standards that investors and servicers relied on to adjust the mortgages that were in these pools—allegedly in these pools—became a real issue. And so, we don’t know whether the actual note and the actual sums collected from the borrowers was actually what was easier to do, or overpaid.
So, this is the real problem with these pools. And we’re also seeing a lot of assignments; if you look at every trust pool has what we call a pooling and servicing agreement, and in there, there’s a cutoff date for when the note has to be conveyed in the pool. When you go in the land records and you see an assignment in the chain of title that shows that some note was conveyed into a pool in 2011 and 2012, or whatever the case may be, and the cutoff date of the pooling and servicing agreement that you can find at SECinfo.com, just by typing in the name of the trust, and you can see the cutoff date in the PSA, and it says that it was October of 2007, and here you have an assignment in the land records that says October 2012. Well shucks, that’s five years too late! So it never made the trust pool in the first place! So the trust doesn’t legally own it! This is a problem.
JASON HARTMAN: Unbelievable. This is so shocking, it’s like, you couldn’t make this stuff up in fiction, and have it be better than reality. It’s mind boggling. Now, who owns MERS? Is that just a collective organization that is owned by many bank?
DAVE KRIEGER: Basically, MERS was started up in 1995 by Fannie Mae, Freddie Mac, the mortgage bankers association, ironically the American Land Title Association, who issued a position paper basically saying that the county land records are so slow, and impede the process of recordation to perfect, and we need another electronic system, and so, all these entities, plus the major banks, all got together and created MERS, and basically, by the time January 1st, 1999 got here, MERSCORP, which is now MERSCORP Holdings Inc., the new company that just filed a certificate of [unintelligible] with the Secretary of State of Delaware in 2012, became the parent company of the bankruptcy remote entity known as MERS, Mortgage Electronic Registration Systems, Inc.
Both are Delaware corporations, but MERS itself is nothing but a computer. Does nothing but track mortgage transfers throughout the system in Wall Street electronically. It has nothing to do with the land records, it circumvents the land records, and like you said earlier, with these 35 mortgage sales, reselling of the notes over and over and over again—we’ve had the former CEO of MERS write an article called Yes There Is Life On MERS, and in it he says that in order for the system to work, they have to split the deeds from the note. Well, if you split the note, and send the note out in one direction, the potential exists for you to put that into a non-negotiable instrument, which is what a security is.
And then you’ve got some real problems, because when they try to come back in, they’re arguing UCC Article 3, instead of Article 9; they don’t want to bring the PSA in. A lot of lenders don’t want to talk about the pooling and servicing agreement, because it’s like virtually pulling their pants down in court in front of the judge! He’s gonna see the naked truth! And he’s not gonna like what he sees.
JASON HARTMAN: Let me take a brief pause; we’ll be back in just a minute.
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JASON HARTMAN: Well, what are your thoughts—let’s kind of, we talked about the mess, and so forth, in terms of the tracking, the fraud, the multiple sales on loans. But there are broader issues here in terms of the shadow inventory, in terms of how lenders are foreclosing, and how quickly they’re doing it. Which, actually that’s a good question. Is the rate of foreclosure—not the rate, but the speed at which a foreclosure happens—is that speeding up now? Have the lenders worked out a lot of their robo-signing? I mean, there’s multiple layers to this onion.
DAVE KRIEGER: Absolutely not. We’re not seeing any evidence of it. We’re seeing the same stuff, even with the settlement, the AG settlement with the 49 states, over all this nonsense, the third party document manufacturers are still doing it. I’m seeing evidence of it every time I open up a chain of title and start doing an assessment on a chain of title, I’m seeing the same garbage, the same nonsense, over and over and over again.
JASON HARTMAN: Right, but is part of that nonsense—is it still taking 700 and some odd days to foreclose?
DAVE KRIEGER: Well, in Florida it takes about 800 days to foreclose on a piece of property. And if you’re in a judicial state, you have a much better chance of dragging this out than a non-judicial, because once they set the sale date in a non-judicial state, which is a deed of trust state, the only way that you’re gonna stop that is by filing an action in court. That’s the only way it stops. And getting a temporary restraining order, and getting it in front of a judge, and taking it judicial. With the issues that are going on right now in Oregon and Washington, both supreme courts are listening to and considering arguments that MERS isn’t even a valid beneficiary. And if that’s the case, you can see the potential for that to undo all those contracts were signed with MERS as the beneficiary. It would literally undo the process of tens of thousands of deeds of trust issues in the state of Washington and Oregon.
JASON HARTMAN: So, those properties may change ownership even if the owners don’t want them to, right?
DAVE KRIEGER: Yeah, well, you still have a mess, Jason. You still have a big mess. Because—you know, in the Bain hearings, on March 15th of this year, the attorney that was in there talking for MERS in front of the Washington Supreme Court, they asked him about note ownership, and he said, you know, we get that a lot. He goes, it’s a fallacy to think that borrowers need to know who owns their notes. You can imagine the number of raised eyebrows in the Supreme Court in the state of Washington when he made the comment. And then they asked him, well, who owns the note in these particular cases? And the attorney said, I really don’t know. I mean, if you come to court, you would think that if you’re representing the banks and MERS, and they ask you a direct question like, who’s the owner of these notes, and you say I don’t know—well, excuse me, you didn’t bring your case into court. You’re not very convincing.
JASON HARTMAN: Unbelievable. You know, that kind of really flippant answer reminds me of the answer the CEO—I think it was the CEO of Google gave on an interview once when the reporter asked him about privacy concerns, and the fact that Google just knows too much about all of us. And his answer was, well, what are you really needing to do that’s that private? [LAUGHTER]. I mean—
DAVE KRIEGER: Yeah, that’s kind of sad, that people ignore the 4th Amendment freedoms that we have.
JASON HARTMAN: Yeah, it’s incredible.
DAVE KRIEGER: And I understand that completely. But this, as far as the investors go—because I know your show caters to a lot of them, Jason—the specific problem I’m seeing is, they’re going to have to do a complete chain of title assessment on any property that they want to purchase, to make sure that the title is clear or at least the lender who they’re paying hard money to actually owns the property. That’s a real problem in today’s times. Anybody that’s buying an REO, good luck trying to get title insurance. And there’s a problem with title policies, and that is, the title companies are writing around the defects. And what I mean by that is, they have a paragraph under scheduled deeds, exclusions and conditions, that basically says, the exclusions and conditions of your scheduled deed basically state that we do not insure property that is not recorded in the land records.
JASON HARTMAN: It’s just mind-boggling, it really is. Yeah, I think the lesson here, folks, is don’t buy these properties at auctions. Stay away from that. Let the professionals take their risk. These are people with mature businesses that know how to do that—buy properties with proper, normal title insurance, right? I mean, that’s the upshot of this discussion, isn’t it?
DAVE KRIEGER: Well, you think that the title company would insure you if you get an owner’s indemnity policy, but again, I make reference to schedule D under exclusions, where they say if it’s not in the land records, we don’t insure it. Which means that anybody that’s got a MERS mortgage, that should raise a red flag right from the get go. And even the professional investors need to be aware that if MERS is involved in the transaction, they could be potentially exposed to double liability in the future.
JASON HARTMAN: Now, how do you know if you have a MERS mortgage? I mean, how many of the mortgages, first of all, are MERS mortgages out there? What percentage?
DAVE KRIEGER: Well, we know that there’s over 30 million MERS mortgages that have been reconveyed as either paid in full, or, that many assigned to different people or different parties by alleged MERS certifying officers. But we’re dealing with over 70 million properties in America that are affected by this. And the way that you tell that you’ve got a MERS mortgage or deed of trust, is right by the document title on page one, you’ll see a MIN number. MIN, it stands for MERS Identification Number; it’s an 18-digit code, that generally starts with a 1. And it’s like 1-0-0 something. And so when you look at this and you see the deed of trust and you see this MIN by the title deed of trust or mortgage, you have reason to be suspicious.
JASON HARTMAN: Very good points. Well, what else do you want people to know about this absolute mess that is going on in our market? I mean, it’s just unbelievable that these criminals in our banking and Wall Street system, are allowed to get away with this stuff. It is mind-boggling. It is mind-boggling to me that throughout this whole financial crisis, we have yet to see anybody go to jail!
DAVE KRIEGER: Yeah, that’s another great point, and I’m glad that you brought that up, because we just saw a report—a white paper, if you will, by a think tank, and it basically is saying that we’ve got some real problems here, because of the fact that there are issues with—and let me see if I can bring that report up, because this—it’s from the Government Accountability Institute, and it’s entitled Justice Inaction: The Department of Justice’s Unprecedented Failure to Prosecute Big Finance. This just hit the streets. If you go to Google and you Google this, it’s a PDF, and it’s 27 pages long, and it talks all about the relationship between the law firm of Covington & Burling in Washington, D.C. and the MERS entity, which Covington & Burling wrote a position paper for, claiming its legitimacy. The problem with Covington & Burling and the Justice Department is, Eric Holder, who’s your current Attorney General, used to work as a partner in Covington & Burling, and so did Lanny Breuer, his assistant.
JASON HARTMAN: How convenient.
DAVE KRIEGER: The guys that have the capability to prosecute the big banks that claim they’re too big to fail—they’re too big to jail. And what you have, is you have SEC attorneys, attorneys that go to work for the SEC, end up working in the private sector for the very banks and brokerage houses that the SEC is trying to prosecute civilly. And then you got the DOJ and everybody else skimming back and forth and doing the same thing in the criminal area.
JASON HARTMAN: Right, right. And I want to just elaborate on that point. The SEC—I think the SEC should be disbanded, because all of these SEC guys, what you alluded to—all of these people that work for the SEC, they go and they pretend to regulate these companies and Wall Street criminals, and then they just get hired by them! Everybody knows that’s your career path. You get out of school, you go to work for the SEC, and then you’ll get hired by one of these people that you’re supposed—one of these companies you’re supposed to be regulating a few years later, and you’ll be making many, many hundreds of thousands of dollars per year, a lot better than your government job.
So, be nice to these people that you’re “regulating” and investigating, because they’re gonna be your future employer. So, the SEC needs to go. That needs to be taken—that role needs to be taken over, well, first of all, I think it needs to be lessened dramatically, because regulation is just a way to preserve monopoly, but that’s sort of another discussion. But it needs to be taken over by police, by people that act more like cops rather than people that are on an upward career trajectory. Maybe the FBI should be regulating all this stuff, because those people tend to be a little more loyal to country, so to speak. Certainly there’s corruption there too, but just my thought about that. You have any comments on that?
DAVE KRIEGER: Well, it does go very deep. We’re seeing allegations constantly of various banks that are being charged for money laundering. I know that HSBC has been accused, I know there was an indictment of Credit Suisse, who allegedly laundered money to the state banks in a run. They changed the routing numbers and transit codes. I mean, there’s no end to the surprises that we’re uncovering. It’s just—it never ceases to amaze me. I’m never surprised to hear that somebody’s gotten popped for money laundering or some sort of regulation issue. We’re seeing a lot more of the local mom and pop, and the small guy, getting prosecuted, not the big guy. And I think that as far as your assumptions and overviews of your trajectory careers coming out of the SEC, I think that’s not a far cry from the truth.
JASON HARTMAN: It’s really something else. But, yeah. So, we’ve got this problem. I mean, with the SEC. Talk a little bit more about shadow inventory, if you would, before you go. And give us your thoughts on that. You originally said at the beginning on the show, 4 million was kind of your number, right?
DAVE KRIEGER: Yeah, and I mean, that’s just basically what I see being foreclosed on this year. The remainder of the year. Now, a lot of this also depends on these statistics that they spew out. I’m trying to be conservative in my estimates, looking at all the states here. But the basics of shadow inventory is, you’ve got stuff out there that’s in various stages of the game, that the lender knows there’s a certain amount of days before this property is gonna be marketable. That there are issues with each one of these properties, then shadow inventory, that is—the title is so unmarketable that they know they’re not gonna be able to sell it, and it’s just going to sit there and blight the neighborhood.
And you’re seeing a lot of that as well. That’s another serious problem that we didn’t even talk about, but you have to look at the properties that are currently on the market that are not being sold because there’s problems with the neighborhood, the chain of title—who neighborhoods are just sitting there dormant, and the government’s talking about at the state level doing imminent domain to take these properties back, and try to get somebody living in them so they can maintain property values. Because right now, the markets, and the property values within the markets, are tanking.
And so, when the markets tank, the cause and effect means the tax base is gonna shrink. And then the services shrink. The library hours shrink. The fire department and your public services shrink. You get budget cutbacks. Your services that people depend on to get your carts, your public transportation service shrink. A lot of things, if they’re not privatized, and maintained by some private entity, and you’re maintaining the public to do these things—all of a sudden you have no budget, because the tax base of the market is shrinking. Largely, in part, due to a lot of this. This mess, it’s had a ripple effect across the complete spectrum. And when you’re looking at shadow inventory, all you have to do is drive through blighted neighborhoods.
JASON HARTMAN: Look at Detroit. I mean, that is the poster child—
DAVE KRIEGER: That’s the poster child for this mess.
JASON HARTMAN: I mean, it’s a poster child for the disaster known as the government, and the disaster known as corruption, and race-based politics, and I mean, it’s just a disaster at every level. There is—you just can’t find anything good out of the Detroit example, can you?
DAVE KRIEGER: Well, no. I mean, you go on eBay, and you can buy a house in Detroit for 6 bucks! I mean, somebody did. But when I look at the house that’s been bought, it’s like, okay. First thing I want to know is, what’s the condition of the title? And you go on the land records, you’re in shock. It’s like, oh my gosh, I just absorbed a huge liability.
JASON HARTMAN: Right, I thought I got a deal for $6.
DAVE KRIEGER: Yeah, I thought I got a deal on eBay for $6. The problem is, this house I just bought on eBay has so many clouds on title because of robo-signing, and several lenders are touching it, and the county’s got nuisance liens against it for having [unintelligible] several times. And when you’re looking at situations like that, and the taxes have gone unpaid for three years, and there’s a liability suit against it because the owner forgot to drain the pool and the next door neighbor’s kid went and fell into the pool and drowned, and now the neighbors are suing you—oh my! You just buy all sorts of headaches.
JASON HARTMAN: Yeah, it’s mind-boggling. We really are—I mean, it’s amazing. There’s a lot of competitors to my real estate investment company that are selling that kind of junk. It’s just really, really scary that that’s going on out there. I mean, it is amazing.
DAVE KRIEGER: Look at what you claim as shadow inventory. Jason, the numbers are so skewed, I don’t think anybody’s got an actual handle on the number. I don’t think they really know. I think you actually have to drive through the market, and you have to look at the areas that are blighted. I know that your investors out there are probably savvying up to figure out that if you’re driving through a blighted neighborhood, and you see it run down, and the drug gangs have moved in, and the cartels have moved in—you pretty much know, that might not be a good neighborhood to set up rental properties.
It’s very difficult to even show or demonstrate. I don’t think that anybody’s got an accurate headcount as to shadow inventory, but I know it’s caused a drain on the real estate market. I know a lot of realtors are scrambling for properties to sell, and they’re actually starting to shy away from these blighted neighborhoods, and they’re starting to look at re-sales that are not in trouble, because a lot of these people that are actually living in or near blighted neighborhoods are like, you know, maybe we should move to a different part of the country, where this problem is not so predominant! And let’s go ahead and sell this, because somebody out there, I’m sure, would like a good deal. But you know, as we know, the market conditions have suffered to the point where houses and people and their mortgage loans are upside down.
Their houses literally are underwater in the mortgages. So you’re looking at taking a seriously bath if you even try to leave! So, you see more of what’s happening is what we call strategic default, and that’s something I talk about in chapter 3 of the book Clouded Titles, which you can get on my website, www.cloudedtitles.com. This is a real problem that I had to entertain, because I’ll be honest with you—in 2003, I found myself in the same position, and I elected—it was my conscience, my decision—I walked away from the house.
JASON HARTMAN: Sure, and a lot of people are making that very wise, frankly, decision, to do a strategic default. We’ve talked about it many times on the show, and it frankly just makes sense. I mean, a lot of times it does.
DAVE KRIEGER: Well a lot of times it does! There’s no other way around it!
JASON HARTMAN: People have to ask themselves—look, this whole market was pumped up, and all the big institutions pumped it up. They made a fortune doing that, by floating a bunch of cheap, easy-to-get money, [unintelligible] qualify for a loan, doesn’t matter, they let the middle class take the hit, and then they’re buying up all the assets on the cheap after they’ve destroyed everybody’s credit—on purpose, I say. I hate to sound conspiratorial, but I really see there’s a lot of evidence for it. And then so they can charge them higher rates later, and basically guilt trip the middle class into thinking it’s their fault, when it’s not all their fault. Some of it is, certainly. There’s no question there were millions of profligate people out there who made bad decisions, and that is their responsibility and their fault, but a lot of it is just that the cycle that’s been created largely by Goldman Sachs! The articles—you’ve seen them out there on Goldman Sachs, the giant bubble machine, in cahoots with the Federal Reserve and the Treasury to create these cycles in the economy that allow the biggies and the elites and the insiders to gobble up assets on the cheap after they’ve already inflated them previously—it’s unbelievable how deep the scam runs. It really is.
DAVE KRIEGER: You’re right about that.
JASON HARTMAN: But give out your website again, if you would.
DAVE KRIEGER: Okay, the website is www.cloudedtitles.com, and there are four things that I do. The reason I set up my company is that we do chain of title assessments and assist investors and homeowners in making sure that the title to property is at least going to be transferred into their name properly, that there’s no issues with title, or potential defects. We actually do land record audits, where we go to the public record, the counties actually hire the firm to come in, and they go through a cross section of the audits and determine how much of suspect issues there are. We offer litigation support to attorneys, and we also do training, from time to time. We call them chain of title assessment workshops, where we actually teach investors and homeowners and attorneys and their paralegals, and real estate professionals, of course, that aren’t selling houses and want to help people. And you really have to care, but we actually teach them how to do what this company does, because there are so many opportunities out there to make a new income stream, and helping others is, I think, more apropos, especially in today’s times.
JASON HARTMAN: Dave Krieger, keep up the good work, and thank you so much for joining us today. This is an epic mess, and it’s still with us. We’ve worked through some of it, but there’s still a lot of it to go. Thanks again for joining us.
DAVE KRIEGER: Not a problem. Take care.
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Transcribed by David
The Jason Hartman Team
Episode: CW 288: Clearing Clouded Titles with Dave Krieger Investigative Journalist & Author of ‘Clouded Titles’
Guest: Dave Krieger
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