This simple, easy to understand explanation of how the mortgage business works is a fascinating, if slightly uncomfortable, read. The people at 'Debt Free Sovereign Trust', who wrote this article, conclude that several criminal acts are committed (by the banks/mortgage providers) during the whole the mortgage process. Although written from a Canadian perspective a similar system (scam) is in operation here.
"A typical real estate purchase and sale goes down as described below after the buyer and the seller have signed the agreement of purchase and sale:
The buyer goes to Magic Bank in response to the bank's claim that it is in the business of lending money in accordance to its corporate charter. The buyer went to the bank believing that Magic Bank had the asset (money) to lend. Magic Bank never tells its customers the truth that it does not have any money to lend, nor are they permitted to use their depositors' money to lend to its borrowers.
Notwithstanding the fact that Magic Bank does not have any money to lend, Magic Bank makes the buyer/borrower to sign a mortgage loan application form which is essentially a promissory note that the buyer/borrower promises to pay Magic Bank for the money (what money?) he/she is supposed to receive from Magic Bank even before any value or consideration is received by the buyer/borrower from Magic Bank. This promissory note is a valuable consideration, a receivable and therefore an asset transferred from the buyer to the bank which Magic Bank enters into its own asset account as a cash deposit.
After making sure that the buyer has the ability to pay the required monthly payments (the buyer has credit), Magic Bank agrees to lend the buyer the money (cash) to pay the seller. Magic Bank has no money to lend but it gave the buyer a promise to lend money by way of a commitment letter, loan approval letter, loan authorization or loan confirmation letter, etc., signed by a bank official or loans/mortgage officer employed by Magic Bank.
Magic Bank's acceptance of the buyer's promissory note made the bank liable to the buyer/borrower for the full face value of the promissory note which is the agreed purchase price of the property, less any cash deposit or down payment money paid by the buyer directly to the seller.
It is important to note at this point that all real estate transaction requires that the property being sold must be conveyed by the seller to the buyer free of all liens and encumbrances which means that all liens such as existing mortgages, judgments, etc. must be paid before the property can be mortgaged by the buyer as collateral to the mortgage loan which is yet to be received by the buyer pursuant the promise made by Magic Bank. How can the seller obtain clear title if he has not yet received any money from the buyer? And how can the buyer mortgage a property that does not yet belong to him or her?
This dilemma is solved using Magic Bank's magic tricks. Magic Bank in concert with other magicians, the bank's lawyers or notaries, causes all the liens and encumbrances to magically disappear by using a cheque drawn in the name of Magic Bank backed by the buyer's promissory note and the agreement of purchase and sale. This cheque is deposited into the lawyer's trust account. In essence, Magic Bank and its magicians, the lawyers and notaries used the buyer's promissory note as the cash to enable the purchase agreement. It was the buyer's promissory note that made the conveyancing possible. Magic Bank caused the property to be conveyed to buyer from the seller clear title, free and clear of all liens and encumbrances. The property now belongs to the buyer which makes it possible for the buyer to mortgage the property to Magic Bank. The buyer paid for it using his/her own promissory note.
At this point, the seller has not yet received any money or cash so Magic Bank and its magicians must perform another magic in order to satisfy the seller's requirement that he/she must get paid or the whole deal is null and void. The seller does not even know that the property had been magically conveyed to the buyer's name in order for the seller to receive any money.
The ensuing magic trick is accomplished this way. The buyer is made to sign another promissory note. The mortgage contract is attached to the bottom of the promissory note which makes the buyer liable to pay Magic Bank for the money or the loan which the buyer has not yet or will never receive for up to twenty five years or more depending on the amortization term of the mortgage contract. This note is linked to the collateral through the mortgage contract and as such, it is valuable to Magic Bank.
Magic Bank then goes to Bank of Canada or to another bank through its accomplice, the Canadian Payment Association to pledge the deal that they have just gotten from the buyer for credit. Bank of Canada then gives Magic Bank the "credit." Remember, it is not Magic Bank's credit, it was the buyer's credit who promised to pay Magic Bank if and when the money is received by the buyer from Magic Bank, payable for up to 25 years or more (30 to 40 years in the USA).
Note: What happened above is basically a "swap", a transaction all banks do to 'monetize' security. In this case, the second promissory note that is linked to the mortgage contract and signed by the buyer is a mortgage-backed security.
Magic Bank will then agree to pay Bank of Canada a certain percentage of interest over "prime". Thus the buyer's loan package goes to Bank of Canada which credits Magic Bank with the full amount of credit which is the total amount of the money Magic Bank is entitled to receive after 25 years which is the amount of the principal plus all the interest payments the buyer has promised to pay to Magic Bank for 25 years or more which is usually three times the amount of the money promised by Magic Bank to the buyer. By magic, Magic Bank just enriched itself and got paid in advance, without using or risking its own money.
Magic Bank's magician, the lawyer who holds the cheque that is backed by the buyer's original promissory note then cuts a cheque to the seller as payment for the property. In effect, The buyer paid the seller with his/her own money by virtue of the fact that it was the buyer's own money (the promissory note) that made the purchase and sale possible. Magic Bank just made a cool 300% profit without using or risking any capital of its own. Neither was there any depositor's money deducted from Magic Bank's asset account in this transaction.
What really happened was pure deception that if we the people try to do this, we would end up in the calaboose and be found guilty of fraud and criminal conversion not to mention that the subject property would have been seized from us by the court.
This is only a crime if we the people do it to each other such as it would be an indictable crime if we issue a cheque with no funds. There would not be any deal, no purchase and sale agreement because there is no valuable consideration. In order to de-criminalize the transaction, we need Magic Bank and their cohorts to make the deal happen. It is really a conspiracy of sorts but these "persons", the banks, the lawyers, the land title offices or even the courts do not consider the transaction as fraudulent transactions because these transactions happen all the time.
Such a contract is void ab-initio or void from the beginning which meant that the contract never took place in the first place. Moreover, the good faith and fair dealing requirement through full disclosure is non-existent which further voids the contract. Magic Bank failed to disclose to the buyer that it will not be giving the buyer any valuable consideration and taking interest back as additional benefit to unjustly enrich the corporation. Magic Bank also failed to disclose how much profit they are going to make on the deal.
Magic Bank led the buyer to believe that the money going to the seller would be coming from its own asset account. They lied because they knew or ought to have known that their own book or ledger would show that Magic Bank does not have any money to lend and that their records will show that no such loan transaction ever took place. Their own book will show that there would be no debits from Magic Bank's asset account at all and all that would show up are the two entries made when the buyer gave Magic Bank the first collateral or the promissory note which enabled Magic Bank to cut a cheque which made it possible to convey the property from seller to the buyer free and clear of all liens or encumbrances as required by the agreement of purchase and sale entered into in writing between the buyer and the seller. What really happened was not magic; in reality, the buyer's promissory note was used by Magic Bank and its magicians - the lawyers and land title clerks to convey free title to the buyer from the seller. So why do we need the mortgage contract for?
The other entry that would show up when we audit Magic Bank's book is the other pledge of collateral including the buyer's promissory note which was converted (unlawfully and without disclosure or permission from the buyer) into a mortgage-backed security which was "swapped" or deposited by Magic Bank to Bank of Canada and "cleared" through the Canadian Payment Association for which another deposit was entered into Magic Bank's transaction account.
From the above, we can list all the criminal acts perpetrated by Magic Bank:
• The mortgage contract was void ab-initio because Magic Bank lied and never intended to lend a single cent of their own asset or depositor's money to the buyer. A valid contract must have lawful or valuable consideration. The contract failed for anticipated breach. Magic Bank never planned to give the buyer/borrower any valuable consideration.
• Magic Bank breached all its fiduciary duties to the buyer and are therefore guilty of criminal breach of trust by failing in its good faith requirement.
• Magic Bank concealed the fact from the buyer that it would be using the buyer's promissory notes; first to clear all the liens and encumbrances in order to convey clear title to the buyer; then use the second promissory note to obtain more money from Bank of Canada or other institutions that buy and sell mortgage-backed security. Magic Bank received up to three times the amount of money required to purchase the property and kept the proceeds to itself without telling the buyer.
• Magic Bank violated its corporate charter by loaning "credit" or nothing at all to the buyer and then charging interests on such make-believe loan. Banks are only licensed to loan their own money, not other people's money. Magic Bank used the buyer's promissory note to clear the title which essentially purchased the property from the seller. The transaction is an ultra vires transaction because Magic Bank has engaged in a contract outside of its lawful mandate. An ultra vires contract is void or voidable because it is non-existent in law.
• Everyone involved in this undertaking with Magic Bank, starting with the loan or mortgage officer, the lawyers, the land title office and even the central bank are equally guilty by association by aiding and abetting Magic Bank in its commission of its crimes against the buyer and the people who would eventually have to absorb all of the loss through increased taxes, etc.
In the final analysis, Magic Bank and the others who profited from the ultra vires transaction are all guilty of unjust enrichment and fraud for deceiving the buyer and the people for acting in concert in this joint endeavor to deceive the buyer.
The rest can be read here.