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Who should Alan pay?

I got the following message today, in reference to my statements and rants against the fraud being committed by our banks:

Look, If someone isn’t paying for something, is it really theirs? I have a real hard time with this whole “free house” shit. I understand there are some complex issues to do with the paperwork, etc. but bottom line, if people aren’t paying for the house, WHY DO THEY HAVE THE RIGHT TO LIVE THERE? And if so, why the hell should anyone else pay their mortgage?

 What I am talking about here is not about giving a person a free house. What I am talking about here is the banks using fraud to take a home that they do not have the legal right to take. Let me break it down:

Alan loans $100 to Bob, who agrees to repay him $150 in 10 payments of $15. He uses his television as collateral and signs an IOU. The thing is, Alan doesn’t have $100 to spare for the next 15 weeks, so he tells Charlie about the deal, and says, if you pay me $110, I will give you all the money that Bob pays me. Charlie agrees, essentially taking Alan’s word that Bob is good for it. Alan pockets $10 just for making the deal. Charlie has assumed all the risk, but makes $40 on the deal.

Things go well, until Alan figures out that he can loan out that same $100 a hundred times, and sells the IOUs to Charlie. Alan’s money making scheme relies on him continuing to make loans to people over and over, and soon he runs out of honest guys to loan money to, so to keep the cash train going, he begins to loan money to everyone, whether they can pay it back or not. Who cares, Alan thinks, getting them to pay is Charlie’s problem. Alan pockets the $1000 in profit.

Charlie is now the holder of $10,000 worth of paper, but has $1500 a week coming to him. The problem is that he doesn’t have the cash to pay Alan, so he gets 10 of HIS friends to loan him $1,000 each using the notes as collateral, and agrees to pay them $1200 a week. Charlie pockets the $300 a week in profit. The investors split up the IOUs, and split the weekly money. They are promised a total profit of $200 each for the loan. In the shuffle, no one really knows who owns which IOU, but this is not a problem.

Until people stop paying. Now, Bob owes money to someone, no one disputes that. Who does he owe the money to? Who has the right to take Bob’s television? What if Charlie comes forward and has a photocopy of the note, and demands the television? Is that good enough proof for Charlie to take the TV?

What happens a week later when David (one of the investors, or so David claims) produces a copy with a signature on it that says, “Pay to the order of _______, signed Charlie”? David states that the original was destroyed when he washed his pants, but he has this copy to prove that he is the rightful holder of the IOU. The problem is that Alan won’t give anyone the television unless they can prove that he is paying the right guy, so now who gets the money or the TV? David decides to solve the problem and sends a friend over to break into Bob’s house to steal the television. After all, SOMEONE owes David money, right?

Then, to complicate things further, Edward comes forward and has the ORIGINAL IOU, and sues Bob. So, how do we untangle this mess? Bob has lost the TV, and now has three different people, each with a legal claim to the $150 he owes someone. Who gets the money, who gets the TV? Who gets the shaft?

That is what we are dealing with, but on a much smaller scale. Imagine that this is not 100 loans of $100 each, but 60 MILLION loans averaging $200,000 each. While my example is hard to follow, the real one is much harder.

Just because a homeowner owes SOMEONE money, it doesn’t mean that he owes that particular bank money, and before a bank can take your home, they should have to prove that they are the one who is entitled to it. The problem is that the banks can’t do it, because through dishonesty and ineptitude, they have created a paperwork mess. There are 600,000 pending foreclosures on backlog right now in Florida, a state of 16 million people. In some counties, one in ten homes is in some stage of the foreclosure process. Some of them are cases where more than one bank is foreclosing on the  same home, using the same mortgage and promissory note as evidence.