The Ruse - the 'Law' that Banks use to "steal' Property
A Ruse: "Planned deception that hides true intent"
The Ruse – How the Banks ignore the Law and legally required Accounting Reports to steal residential property in the UK…and other common law countries.
Definition of a Ruse: A strategically planned deception that conceals the true intent.
Banks sell your mortgage to an investor, usually via a Special Purpose Vehicle (SPV) bundled up with other mortgages in a tranche known as a “security”.
They do this from 3 to 6 months after you take out the mortgage with them. The bank continues to collect the money from you, but they don’t change details of ownership at the Land Registry.
Therefore, if you default on your mortgage for any reason, the bank most likely do not actually have locus standi (legal authority) to take over your property and evict you.
It is the law that these SPVs should register their legal title.
When challenged, (via a DSAR) the bank may say to you that they are “…perfectly entitled to securitise or sell your mortgage….” It may even be in your terms and conditions…and if it is, they will point this out to you with great glee.
They will tell you that whilst they have sold your mortgage, they will state that they have only transferred the equitable interest in the mortgage not the title or security.
If Banks want to play the ruse of maintaining that there was a transfer of the equitable interest only, fine - then in that case the SPV issuer has misrepresented the facts to the Investors, so you have a fraudulent misrepresentation issue in the prospectus - or, if they insist that the prospectus is true then you have a criminal concealment from the Land Registry.
You can’t have both.
Either way, it is misrepresentation and that is unlawful and the mortgagor (person who took out the mortgage) is entitled to a remedy. (More on what those remedies are in another article.)
But for now, The Ruse. (I’m thinking that’s a good name for a film or documentary…along the lines of Bates v The Post Office)
This Ruse usually comes in two parts, Legal and Accounting.
THE LEGAL RUSE
First, the legal ruse. The law provides mortgagees with a statutory power to transfer a legal charge. Law of Property Act 1925 s.114 and Land Registration Act 1925 s.33 (note the LRA 1925 is repealed as of October 2003 pursuant to the LRA 2002 It is under these statutory provisions that the banks exercise their right to assign the mortgages to the SPVs.
In a contract of sale that provides for a disposition of an interest in land, the legal title will be conveyed immediately from the seller to the buyer - Megarry & Wade 7th Ed. Para.7-150 - on the completion date.
There can be no doubt that on completion, the buyer has acquired the legal title, but there will inevitably be a "registration gap" between the conveyance date on which the buyer acquired the legal title and the date on which his legal title is registered at H.M. Land Registry.
During this registration gap, the law provides that the buyer's title: "does not operate at law until the relevant registration requirements are met". Land Registration Act 2002 s.27(1) As legal title does not operate until registration, it operates in equity pending registration.
Also note equity's rule that: equity regards as done that which ought to be done.
This is where the legal ruse comes into play.
It is this "registration gap" that the SPV unlawfully exploits in order to conceal its ownership and control of the mortgages.
Under the Land Registration Act 2002 ("LRA 2002"), the transferee (A transfee is: an assignee of a legal charge. See Law of Property Act 1925 s.114(2)) of a registered charge is required to register at H.M. Land Registry, its ownership of the mortgage that it purchased.
Therefore, it is a legal requirement that the SPV register its proprietorship of the mortgage at H.M. Land Registry. Whilst the law implicitly permits the registration gap as a matter of pragmatism, the law also implicitly mandates that the registration requirements are to be observed expeditiously. Nonetheless, in contumacious disregard for its legal duty to comply with the registration requirements of the LRA 2002, the contract of sale expressly provides that the SPV will not register the transfer at H.M. Land Registry indeed, the contract provides that notice of the transfer is to be concealed from the borrowers and H.M. Land Registry and a fortiori concealed from the world.
The suppression and concealment of this information from H.M. Land Registry is a criminal offence according to the Land Registration Act 2002 s.123, and in furtherance of this offence (or example, Clavis Securities were sold GMAC mortgages under an absolute assignment with full title guarantee on or around 15 June 2006 and after some 2½ years have failed to register its ownership at the Land Registry) the SPV's legal title to the mortgages is also concealed from the county courts and the Government. The Banks remain registered as the proprietor of the mortgages and accordingly all interested parties are deceived by this concealment with one exception. The SPV does inform its investors that the bank sold its legal title to the SPV (to whom, the right to register the legal title to the mortgages is important). Consequently, the bank appears to be the legal owner, but it is not.
For example, in the case of Northern Rock as the seller of mortgages, the prospectus states: "under the mortgage sale agreement dated March 26, 2001 entered into between the seller, the mortgages trustee, the security trustee and Funding, the seller assigned the initial mortgage portfolio together with all related security to the mortgages trustee”. Additionally, under the terms of Northern Rock's mortgage sale agreement, it is, "entitled under the terms of the mortgage sale agreement to assign new mortgage loans and their related security to the mortgages trustee".
Northern Rock may remain falsely registered as the putative `legal owner' but in truth, Northern Rock is merely the administrator of the mortgage loans.
Again, the Prospectus states: "The seller acts as administrator of the mortgage portfolio under the terms of the administration agreement, pursuant to which it has agreed to continue to perform administrative functions in respect of the mortgage loans on behalf of the mortgages trustee and the beneficiaries, including collecting payments under the mortgage loans and taking steps to recover arrears."
The legal reality is that:
(i) Northern Rock sold its legal title to the SPV, in this case, to Granite Finance Trustees Limited and therefore, Granite is the legal owner;
(ii) Northern Rock is the administrator of the mortgages and falsely holds itself out as the legal owner of the mortgages;
(iii) Granite Finance Trustees Limited should be, but is not, registered as the owner of the mortgage; and (iv) all these facts remain concealed because Granite and Northern Rock have unlawfully contracted to suppress this information from H.M. Land Registry.
Notwithstanding that the SPV conceals its legal title from H.M. Land Registry, the SPV will, nonetheless, avail itself of, and exercise, all the statutory and contractual legal powers that the legal owner enjoys.
For example, the SPV will exercise the legal owner's statutory power to create a legal charge on the borrower's mortgages. The SPV will file at Companies House a Form 395 "Particulars of a Mortgage or Charge" within the statutory 21 days, to register the Legal Charge that the SPV created against the mortgage loans in favour of the SPV's trustee, as security for the payment of money due to its investors and creditors.
The SPV's exercise of the legal owner's contractual and statutory legal powers leaves no doubt that SPV is the legal owner of the mortgages. Nonetheless, the banks and the SPV unlawfully exploit the "registration gap" in a smoke and mirrors tactic to cause confusion and conceal the SPV's legal title.
The SPV is the legal owner.
The banks are the administrators.
The contractual relationship is not one of equals, it is one of Goliath and David without the stone! The scales of justice are in urgent need of recalibration. To restore equilibrium between the contracting parties the remedy is: the faithful application of the rule of law.
The failure of British courts to give effect to consumer rights makes the UK a most creditor friendly jurisdiction (which means a most debtor unfriendly jurisdiction) in the world attracting the highest creditor friendly rating of A1. This high rating is achieved not through the lack of consumer protection law, but rather through the lack of consumer law enforcement.
Consumers do not necessarily need new protection laws; consumers need empowerment to enforce their contractual rights and the consumer laws that exist.
It is the law that the SPVs register their legal title. If Banks want to play the ruse of the maintaining that there was a transfer of the equitable interest only, fine - then the SPV issuer has misrepresented the facts to the Investors, so you have a fraudulent misrepresentation issue in the prospectus - or, if you insist that the prospectus is true then you have a criminal concealment from the Land Registry.
Either way, misrepresentation is unlawful and the mortgagor (person who took out the mortgage) is entitled to a remedy.
THE ACCOUNTING OR AUDITOR RUSE
The UK Treasury Committee has endeavoured to discover the amount of bad debts on the British banks' books. They have never had an adequate response. As discussed above, the bank has sold the mortgages and thereby transferred the credit risk to the SPVs which means, that the banks do not have these (allegedly) "bad" debts on their books.
Therefore, to provide the Committee with the full answer, the question must be re-framed as: having sold legal title to the debts, how do these allegedly "bad" debts appear back on their balance sheets?
Likewise, as discussed above, the SPVs legal title to the mortgages is also concealed from the auditors. The auditors know that the bank originated and owned the mortgage loans and therefore, the mortgage loans are initially and correctly `recognised' as an asset on the bank's books. However, when the bank securitises that asset, the bank has sold the asset to the SPV. This means that the SPV owns both the benefits and the credit risks of the assets. Accordingly, the bank's transfer and sale of legal title should result in the assets being `derecognised' as an asset on the banks' books. However, the auditor's continue to recognise the assets on the bank's books. This is because of an inadvertent erroneous evaluation and application of the IAS39 accounting standard.
IAS39 sets out three main scenarios in which an asset will be derecognised and removed from the bank's books. Under any one of these three scenarios, the mortgage loan assets that have been securitised should be derecognised with the consequent effect that the assets are removed from the bank’s books.
The mis-application of the IAS39 derecognition policy is best illustrated by the following example. In the Northern Rock's Annual Report and Accounts 2007, the derecognition policy states: "The Group also derecognises financial assets that it transfers to another party provided the transfer of the asset also transfers the right to receive the cash flows of the financial asset." In a securitisation, that is exactly the legal effect. However, auditors are called upon to make an evaluation of the bank's legal rights in their analysis. The auditor must determine who has the legal right to the cash flows. Understandably, an auditor is not best qualified to make an accurate legal determination. Nonetheless, the auditors do see that: (i) the bank's legal title is still registered at the Land Registry (albeit falsely); (ii) the auditors see the bank's administration of the mortgage loans; and (iii) the auditors see the cash flows from the mortgage loans are paid to the bank. In contrast, the auditors do not see (iv) the contract of sale wherein the bank transferred to the SPV, all its title and rights to the asset; (v) do not see the bank's administration agreement with the SPV which evidences the bank's interest is merely authority to administrate the mortgage loan asset; and (vi) do not see that the bank has no right or title to the cash flows it receives from the mortgage loans. Consequently, the auditors understandably fail to accurately evaluate the legal rights and accordingly fail to derecognise the asset. As a result, the asset erroneously remains recognised as an asset on the bank's book.
However, the auditors are mindful that the asset has been securitised and that such transactions require some acknowledgment and entries in the accounts. Again, IAS39 is the culprit. IAS39 directs the auditor to "Consolidate all subsidiaries (including any SPE)". The IAS39 therefore instructs the auditor's to consolidate the special purpose entity (or vehicle), into the group accounts.
This is an extremely bizarre instruction to auditors for three reasons. Firstly, this instruction contradicts the foundational principle of a securitisation structure which is: that the originator of the asset must be `Bankruptcy Remote' from the SPV. That is, that the SPV is a wholly independent company that is in no manner whatsoever connected with the originator of the assets it has purchased. The true sale must be an `arms-length' transaction between the two wholly independent entities. This is an essential element of the securitisation structure to ensure that the SPV and its assets are not in any way affected by the bankruptcy or insolvency of the asset originator. Secondly, the bankruptcy remoteness of the SPV is the credit rating agencies predominant factor for the SPV's Notes achieving the triple A rating. Thirdly, there is no legal basis on which a wholly independent company, (ie an SPV) should be included in the consolidated accounts of another company where the SPV is not a subsidiary or legal undertaking of that company.
Notwithstanding that the SPV and Northern Rock are wholly independent and separate companies, the mortgage loan assets and liabilities that the Granite SPV own, was consolidated onto the Northern Rock's Group accounts.
To illustrate this point, take for example Granite Master Issuer plc's prospectus where it expressly states: "The Issuer is wholly owned by Funding 2. The Issuer has no subsidiaries. The Seller Northern Rock does not own directly or indirectly any of the share capital of Funding 2 or the Issuer".
Therefore, when reading the Northern Rock accounts, the figure of £43,069.5 million stated as a Northern Rock liability, is in fact, Granite Master Issuer plc's liability. The "Debt Securities" issued of £43,069.5 million is the liability of Granite Master Issuer plc, a wholly independent company which the auditor has erroneously consolidated on to the Northern Rock Group accounts solely because of the erroneous application of IAS39. That liability is Granite's liability to its investors.
Likewise, Granite's assets also appear on Northern Rock's balance sheet. Consequently, when reading the figure of £98,834.6 million stated as a Northern Rock asset, at least £49,558.5 million, is in fact, Granite Master Issuer plc's asset.
The Committee is respectfully reminded that whilst Northern Rock has been used to illustrate the point, this application of IAS39 is common practice.
In summary, the assets "appear back on the books" due to the misapplication of IAS39. The error is compounded through the unlawful exploitation of the registration gap which conceals the facts necessary for an accurate application of IAS39. It is this concealment that causes the auditor confusion. These assets and liabilities should not be on the bank's balance sheet. They are there solely because of the combined effect of the legal and auditor ruse.
In consequence, the British taxpayer is not just the supporter of British banks, the taxpayer is the unwitting guarantor and supporter of all the privately owned, wholly independent SPVs foreign companies incorporated in tax havens. Their consolidation into the group accounts of British banks means that the taxpayer is also funding the capitalisation of the SPVs.
These foreign SPV companies and their investors must be extremely satisfied with the UK taxpayers support. After all, there are always winners in any crisis.
The material provision in the mortgage contract is that the lender will loan the advance for a term of 25-years. The SPV imposed itself into the mortgage contract as assignee, and as such, assented to perform this fundamental term of the contract. However, the SPV has no intention of performing that 25-year term. The SPV uses its wide discretionary interest rate setting powers to demand interest, often in excess of that which the consumer is legally obligated to pay, and often sets its rates at levels that are specifically designed to force consumers to seek to remortgage to a more reasonable rate. For those consumers who do not, or cannot remortgage, the excessive fees and interest rate charges are designed to guarantee arrears such that, the alleged arrears can be contrived as the grounds for repossession. Either way, the strategy ensures that the mortgages in the securitised pool will be redeemed within a 2-to-5-year period. Hence, the practice is designed to defeat the SPV's obligation to lend for the 25-year term. Moreover, it does so in a manner that gives the impression that it is the borrower in default of contract.
In June 2006, Clavis Securities plc became the owner of 4,293 consumer mortgage contracts that were originated by GMAC-RFC Limited. Clavis securitised those mortgages totalling £587,945,144 in a securitisation transaction which issued £600 million of Notes to Investors. This £600 million of Notes mature in the year 2031 which reflects the 25-year term of the mortgage contracts.
In theory, the principal amount on the Investors Notes should pay down in exact correlation with the consumer's payments of principal on the mortgage. From the consumer perspective, this means that it should take at least a couple of decades to pay down the Investors. However, the Clavis Investors Report in December 2008 shows that miraculously, Clavis have paid down £456.8 million of these 25-year consumer mortgage contracts in only 2½ years. This means that within the short duration of only 2½ years, Clavis has successfully manipulated over 77% of its borrowers to redeem either through duress perpetrated on the borrower to remortgage through its interest rate policy and/or through repossession. Either way, Clavis has absolved itself of performing its 25-year loan obligation to the vast majority of its borrowers.
It is submitted that it can reasonably be inferred from these facts, that Clavis had no intention of performing its 25-year obligation. Whilst the Clavis securitisation is used to illustrate the point, this course of conduct is not an isolated example. It is ubiquitous throughout the securitisation industry and illustrates that the SPVs are in breach of contract for their evident intention not to perform and/or their failure to perform their contractual obligation to the consumer for the 25-year term.
Qui Bono? Who benefits? The banks and the SPVs. The banking-crisis has undoubtedly been the greatest heist of public money at the hands of moneymen wielding their power in the guise of victimhood. In reality it is passive-aggressive intimidation. Power is being concentrated in the hands of the few remaining banks that have successfully dispensed with competition, leaving the public at the future potential mercy a cabal of bankers and the attendant possibility of a concealed cartel. The golden rule will prevail. He who holds the gold—Rules!
Private foreign companies and their investors have also done exceptionally well. The SPVs are being capitalised by the public purse through bank consolidated balance sheets and consequently, the public purse will carry any SPV losses. The investment paradigm appears to have shifted. Historically, investors capitalised their companies and received high returns for taking risk and, if the risk manifests, investors lost their investment; but now, the Investors still receive high returns but, the public capitalise their companies and guarantee the investors' returns.
The contractual relationship is not one of equals, it is one of Goliath and David without the stone! The scales of justice are in urgent need of recalibration. To restore equilibrium between the contracting parties the remedy is: the faithful application of the rule of law.
The failure of British courts to give effect to consumer rights makes the UK a most creditor friendly jurisdiction (which means a most debtor unfriendly jurisdiction) in the world attracting the highest creditor friendly rating of A1. This high rating is achieved not through the lack of consumer protection law, but rather through the lack of consumer law enforcement.
Consumers do not necessarily need new protection laws; consumers need empowerment to enforce their contractual rights and the consumer laws that exist.
It is the law that the SPVs register their legal title. If Banks want to play the ruse of the maintaining that there was a transfer of the equitable interest only, fine - then the SPV issuer has misrepresented the facts to the Investors, so you have a fraudulent misrepresentation issue in the prospectus - or, if you insist that the prospectus is true then you have a criminal concealment from the Land Registry.
Either way, misrepresentation is unlawful and the mortgagor (person who took out the mortgage) is entitled to a remedy.
Taken from Carmel Butler report (Link below) with law and cases inserted and the Introduction and conclusion edited and updated.
https://publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144w273.htm#n116
That is a thorough and eye-opening article Ray, for which I’m grateful to you, so thankyou.
We were at the presentation in Cricklade Townhall last Tuesday and thanks again for sharing your story and expertise.
I’m glad you mentioned Northern Rock in the article because we had our house repossessed by them on their third District Court Action against us in February 2013. So like you we were made homeless despite being in Negative equity of over £120k - which they demand from time to time but which we ignore and file.
We’d be very happy indeed to be able to punish them for that. The Bailifs (Mr Smiths) had been very good to me throughout as I’d kept them posted in person when visiting them over several years to pay off what I could for non-mortgage debts. In fact, on eviction day they didn’t attend. I later met one of them who told me they were all disgusted with that arrogant judge and withdrew their support. He was even more lame vid when I told him I’d gone without representation to the final hearing to tell the judge my long-awaited planning permission on my office building (owned by our SSAS) had come through so I could clear the arrears once I’d sold it. He demanded paperwork I couldn’t provide at the time but had the decision number which he disregarded! It wasn’t a fair hearing.
I have subscribed to your group on the minimum £5 a month as I was waiting for my state pension to come through. I can increase that now.
Do you think we could claim against them as you are doing? I have all the paperwork. We were evicted in February/March 2013, homeless for 4 months & in halfway flat for 5 months and finally got a social housing house by Christmas of that year.
Thanks again for bringing your campaign to our attention.
All the Best,
Tony & Gill Lovell
07368369532