Fraud from the Fringe: The Sovereign-Citizen Movement and the Rise of Mortgage-Elimination Schemes

By Dollar, Rachel | Mortgage Banking, November 2013 | Go to article overview

Fraud from the Fringe: The Sovereign-Citizen Movement and the Rise of Mortgage-Elimination Schemes


Dollar, Rachel, Mortgage Banking


You might have seen the Internet or advertising claim: Eliminate your Mortgage--Legally, Ethically and Morally--in as Little as 90 Days. Only $1,499 [paragraph] Every disaster brings fraudsters out of the woodwork. The amount of fraud perpetrated after Hurricane Katrina was staggering. As with natural disasters, the financial crisis spurred a substantial increase in fraud schemes. [paragraph] Predators always target the weakest prey and financial crisis predators set their sights on struggling homeowners. From run-of-the-mill advance fee, mortgage modification and foreclosure rescue schemes to complicated bankruptcy fraud schemes, for the last five years, the mortgage industry has been plagued with back-end or servicing frauds. [paragraph] One prolific scheme is mortgage elimination--based on the theory that, due to historical conspiracies underlying our financial system, mortgages are not valid and cannot be enforced. [paragraph] The groups that buy into these conspiracy theories sell their programs to other conspiracy theorists but often catch well-intentioned distressed homeowners in their webs.[paragraph]

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Although even the smallest lenders have seen fake "presentment packages" and have been targeted with forged mortgage lien releases, the history, theory and operation of these schemes is not widely understood. Mortgage-elimination theory arises out of the sovereign-citizen movement--a movement that has gained significant traction in the United States since the financial crisis.

A paper war

Sovereign citizens believe that, by filing certain documents and engaging in certain activities, they free themselves from the rule of government and become immune to the law.

The Federal Bureau of Investigation (FBI) considers extremist sovereign citizens to be domestic terrorists. Sovereign citizens don't look or act the way most people would expect when evoking the image of a terrorist.

The language used and antics engaged in by sovereign citizens strike most people as a little crazy. They make up their own license plates for their vehicles and carry driver's licenses purportedly issued by entities such as the Kingdom of Heaven.

Sovereign citizens wage war with paper and pen. Every year, thousands of Uniform Commercial Code (UCC) financing statements and other documents packed with legal gibberish and misused Latin phrases are recorded, filed and sent to law enforcement, company presidents and the secretary of the Treasury.

Adherents to these theories believe these documents will remove them from the jurisdiction of the state and federal government of the United States, and restore them to their status as sovereign citizens--subject only to common law.

The papers generated and sent by sovereign citizens make no more legal sense than the theories that underlie their beliefs. As U.S. 7th Circuit Court of Appeals Judge Frank Easterbrook noted in Coleman v. Commissioner (1986), discussing a tax protestor who argued that wages were not income unless paid in gold, "[s]ome people believe with great fervor preposterous things that just happen to coincide with their self-interest."

Desperate homeowners are vulnerable and may be willing to believe anything that allows them to keep their homes--even the circular logic of the sovereigns.

Sovereign citizens are not part of an organized movement; they are known more for their lack of organization than for any cohesive structure. Although individual sovereigns may be part of a militia group and they are sometimes involved in the purchase and sale of illegal weapons, violence is not necessarily a part of their ideology. That isn't to say that they cannot be or are never dangerous. Certain sovereign citizens can become violent due to their disenfranchisement with the government or when their beliefs are challenged.

For instance, in 2010, two Memphis, Tennessee, police officers were gunned down during a traffic stop by Jerry Kane and his 16-year-old son.

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