Back in April, we mentioned the The Mortgage Netherworld of MERS — the Mortgage Electronic Registration Systems.

MERS is the firm that (technically) holds 60 million US (securitized) mortgages on behalf of the actual buyers. They were created by a consortium of lenders in part to save money (on paperwork and recording fees) every time a loan changes owners. In the era of securitization, these savings amounted to billions of dollars.

But MERS also acts as a shield, making it all but impossible for many borrowers to deal directly with whoever happens to be holding their mortgage at the moment. As the NYT noted, it has “made life maddeningly difficult for some troubled homeowners.”

Now, the Kansas Court of Appeals has called foul. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. (Other than GlobalResearch.ca, I have yet to see any MSM coverage of the issue). The Court stated that MERS’ relationship is not that of a true party possessing all the rights given a buyer. Hence, the court ruled:

“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” (emphasis added).

What does this mean for the 60 million people — over half of all US mortgages — whose loans have been securitized, sliced and diced, and are now held by MERS?

To start, it potentially gives a powerful weapon to homeowners who are being foreclosed upon. If their mortgage is held by MERS, they certainly have a strong basis for challenging the action on the grounds of standing. (Note that this was a Kansas COURT OF APPEALS decision, and while it is not binding on other states the way a US Supreme court ruling would be, it is likely to be influential).  I also think the Kansas Court of Appeals could also review this case

I don’t quite agree with Ellen Brown, who in an extensive legal analysis of the decision, writes: “The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose.” It may be possible for trustees for the securitized loans to somehow perfect standing, i.e., develop the ability to claim loan ownership (perhaps via a purchase) and then move to foreclose. (Brown also calls it a Kansas Supreme Court decision, but it appears to be the intermediate 3 judge panel of the Court of Appeals that heard the case, not the full Kansas Supreme Court).

But Brown is correct when she states this is a very significant legal development, one that might dramatically impact foreclosure litigation.

This ruling could send the lenders who work with MERS scurrying to resolve this in their favor. Look for a lobbying effort to get some favored congresscritter to pass legislation granting them standing to sue on behalf of loan holders (Congress may be able legislate that legal right, although there are state laws to be contended with).

As foreclosures continue to ramp up, I expect a lot of rhetoric about why we need to stop them (I disagree) and modify mortgages (which have been mostly unsuccessful).

Last, you never know what someother state supreme court might rule. (Any lawyers out there know what is on upcoming dockets involving MERS ?)

Bottom line: It just got a lot harder to foreclose on homes with securitized mortgages in Kansas, and quite probably, the rest of the nation.

>

Previously:
The Mortgage Netherworld (April 2009)

http://www.ritholtz.com/blog/2009/04/the-mortgage-netherworld

Sources:
Landmark National Bank v. Kesler
COURT OF APPEALS OF THE STATE OF KANSAS
No. 98,489
September 12, 2008

http://www.kscourts.org/Cases-and-Opinions/opinions/ctapp/2008/20080912/98489.htm

Landmark Decision: Massive Relief for Homeowners and Trouble for the Banks
Ellen Brown
GlobalResearch.ca, September 23, 2009

http://www.globalresearch.ca/index.php?context=va&aid=15324

See also:
Six Degrees of Separation
Andrew Davidson
August 2007

http://www.securitization.net/pdf/content/ADC_SixDegrees_1Aug07.pdf

Category: Bailouts, Legal, Real Estate, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

57 Responses to “Mortgage Electronic Registration Systems Loses Legal Shield”

  1. Marcus Aurelius says:

    I’ll bet the legislature(s), and to a lesser extent, the courts (both state and federal, outside Kansas) change statute law and/or ignore precedent in favor of the banks/MERS. The government does not serve the individual, regardless of the law. This ain’t your father’s USA.

  2. A mortgage is a combination of a promissory note (that is, a promise to pay) and a security instrument. That is, there’s a deed of trust and a debt (the promissory note.)

    State law governs foreclosure and most states require as a matter of statute that these two items remain intact. Further, most states require as a matter of statute (that is, law!) that to foreclose you must present proof that you actually have an enforceable interest. In many cases this requires what is known as a “wet signature” – that is, the actual original signed document from the debtor confirming agreement to be bound to the terms. In addition you must establish ownership of that document – that is, you must show an unbroken chain of assignments from the originating bank to your hand.

    This is where the problem comes in – the originating lender has no standing to foreclose once he sells off the mortgage. He was paid in full and thus has no standing to appear in court.

  3. Had Enough says:

    …and the mean kid from the Simpsons TV show laughs…

    “HA…HA…”

  4. Marcus Aurelius says:

    Karl Denninger (re: article at market-ticker.denninger.net):

    “How long will it be before an enterprising attorney or firm decides to put together a class action with all of the bondholders who are certain to get hosed down the road? Good question. It is in fact one of the mysteries of the present mess that we haven’t seen a significant push in this direction as of yet.

    I still expect that we will, as the potential recovery (and thus the potential legal fees) are literally in the hundreds of billions of dollars.”
    ______________

    With all of the blatant fraud and criminality in the mortgage/finance industries, to date, there has not been a single prosecution or precedent-setting lawsuit (despite your continuous ringing of the warning bell — for which I am sincerely thankful).

    Law enforcement/the judiciary has been relegated to the role of security for the government/corporate hybrid interests. Maybe some capable law firm will take this to court on contingency or pro bono.

  5. call me ahab says:

    MA @ 7:06 has probably nailed it-

    the banks will get who they need on their side-

    banks will win- citizens will lose-

    that’s the way of things

  6. Marcus Aurelius says:

    ahab:

    And it’s a damned shame. My long-ago departed uncle Joe used to say:

    Never be too happy about anything, because good things don’t last forever. Never be too sad about anything, because bad things don’t last forever, either.

    Someday, we’ll get justice. (I sure hope uncle Joe was right).

  7. VennData says:

    About 360,000 mortgage modifications to date. That’s a good start they are increasing too expected to 500K by November…

    http://www.usnews.com/money/blogs/the-home-front/2009/9/9/feds-move-to-boost-mortgage-modifications-5-things-to-know.html

    …looks like it works for some house contracts, but it certainly can’t work for all or even most. The success of the program must be judged by what’s possible, not the total mortgage foreclosure market.

  8. call me ahab says:

    David Roche’s take on the shape of the recovery-

    “You want to know my shape? My shape is a toilet shape,” Roche said on “Squawk Box Asia.” “Because I think that’s where 14 percent of (gross domestic product) in terms of spending and central bank help will disappear. . .

    . . .The problem about the recovery is that none of the problems that caused the credit crisis have been resolved,” he said. “Household leverage is worse than before, banking leverage is worse than before. The bad debts problem have not been dealt with and we have a new level of prophesy and leverage which is the government.”

    sunny days are here again

    also Robert Reich’s take on what is happening- the new trickle down-

    “Trickle-down economics didn’t work when the supply-siders were in charge. And it’s not working now, at a time when — despite all their cries of “socialism” — big business and Wall Street are more politically potent than ever.”

    undoubtedly

  9. beaufou says:

    KD
    “This is where the problem comes in – the originating lender has no standing to foreclose once he sells off the mortgage. He was paid in full and thus has no standing to appear in court.”

    On one side, we’d see less derivatives which is a good thing, but on the other side who’s going to lend?
    I expect a swift move from the banks to stop this whole thing, there is no way they’re going to let this spread all over the country.
    We need to slice those loans to create growth.

  10. jc says:

    The MERS issued started a way back with local judges in MI and NYC ruling that MERS didn’t have the standing to enforce foreclosures.

    Marcus – another class action type activity would be for attorneys (or “consumer advocates”) to organize MERS documented homeowners to stop paying their mortgages.

    There must be MERS challenges moving thru the state court systems in lots of states. If the homeowners win in places like CA,FL then we enter a new round of the finance crisis with CDO paperholders demanding restitution from the banks.

  11. V says:

    The irony of banks essentially defrauding themselves via the complexity of securitization is beautiful to watch.

  12. call me ahab says:

    David Roche’s take on the “shape” of the economic recovery-

    ” You want to know my shape? My shape is a toilet shape,” Roche said on “Squawk Box Asia.” “Because I think that’s where 14 percent of (gross domestic product) in terms of spending and central bank help will disappear. . . ”

    “. . .The problem about the recovery is that none of the problems that caused the credit crisis have been resolved,” he said. “Household leverage is worse than before, banking leverage is worse than before. The bad debts problem have not been dealt with and we have a new level of prophesy and leverage which is the government.”

    sunny days are here again

    and Robert Reich’s take- the new Trickle Down economy-

    “Trickle-down economics didn’t work when the supply-siders were in charge. And it’s not working now, at a time when — despite all their cries of “s o c i a i s m” — big business and Wall Street are more politically potent than ever. . . ”

    undoubtedly

  13. jc says:

    It would be interesting to know how many MERS related cases in various court systems are wending their ways to decisions. This listing shows US cases.

    We will have legal & financial bedlam if these 60 million mortgages are unenforceable. Wonder why mortgage related paper was trading for pennies on the dollar when only a small fraction were delinquent (at the time) and/or subprime? 60 million MERS mortgages is the whole shooting match!

    http://dockets.justia.com/search?q=Mortgage+Electronic+Registration+System%2C+Inc.+%28MERS%29

  14. call me ahab says:

    this is all a rhetorical exercise-

    congress will protect the banks- otherwise- all mortgage holdings go to zero if the note is unenforceable

  15. Robespierre says:

    To me the players have chosen sides. Obama/Congress (Dems. and Rep)/Tim/Ben have sided with the big W St financial firms. The only place where I’m seeing any even handed treatment of main st is the judiciary. So perhaps it is time for main st to band together and fight the corruption that has perverted the government the only way available to them: debt repudiation and the courts.

  16. Andy T says:

    There’s no way this will become a “get out of foreclosure free” card, but what it may due is forestall for quite a while the process. It may just “gum up the works” for a longer period of time.

  17. dead hobo says:

    Karl Denninger Says:
    September 23rd, 2009 at 7:09 am

    This is where the problem comes in – the originating lender has no standing to foreclose once he sells off the mortgage. He was paid in full and thus has no standing to appear in court.

    reply:
    ———
    Several years ago I had a conversation with an attorney who told me that once a mortgage is sold, the debt becomes unenforceable. He wondered why so many people were so rabidly selling mortgages to each other since they were essentially worthless after being sold. I ignored him because I believed there MUST be something in the fine print that allowed it … nobody could otherwise be THAT stupid.

    I suspect that the court will ignore the law and uphold the validity of securitized mortgages. They will do so using the legal theory that “since 50 trillion flies eat shit, then it must be good food.”

  18. Dan Duncan says:

    This is an interesting development….but I don’t get what Marcus Aurelius is referring to when writing:

    “I’ll bet the legislature(s), and to a lesser extent, the courts (both state and federal, outside Kansas) change statute law and/or ignore precedent in favor of the banks/MERS.”

    A Kansas Court of Appeals is not precedent for any court ion Texas, let alone any court in the federal judiciary system.

    But let’s just pretend that the rest of the nation was somehow bound by the decisions of the Kansas judiciary system…

    “MERS does not have the standing to foreclose”.

    OK, now what? Does the court provide some guidance for MERS to establish an Agency relationship?

    OR

    Do 60 million homeowners get a windfall? And do they get this windfall—not because they are able to prove fraud on the part of the originating lender—but because their mortgage just happened to be included in a well established assignment practice? [If the originating lender had engaged in fraud, it would not matter if they sold the mortgage--the originator could (and should) still face liability.]

    What USA did your father live in? What’s exactly is the Justice that you demand? Every single borrower in these transactions clearly and explicitly acknowledged that their mortgage would be assigned. Every one of them. Additionally, every single borrower signed an acknowledgment stating that if they fall behind on payments there is no duty on the part of the lender or servicer to renegotiate any term. Additionally, every one of them signed a document outlining the fact that if payments are not made, they’d lose the house in a foreclosure. Yet, somehow they’ve been defrauded because they can’t make payments and their mortgage was assigned?

    Don’t get me wrong: I understand why the Court wants to establish the standing or MERS to foreclose…and as importantly, it wants to establish some chain of ownership with respect to Notes and Deeds of Trust….

    But knee-jerk assertions about fairness and justice completely miss the point. It’s not as if these Borrowers have been making payments and all of the sudden find out that some mysterious entity named MERS is taking their house…and as a result these borrowers find themselves in some Kafka-esque legal proceeding.

    Maybe the Kansas Court wants to prevent such an unjust scenario from playing out in the future; and that is admirable. But where in the hell were they the last 10 years? Is this the first time MERS has foreclosed on a house in Kansas? Of course not.

    So what do we have? Bullshit political pandering on the part of judges, who, if they really did care about this MERS issue had ample opportunity to address it in another foreclosure back in 2004.

    And blogging masses love this shit…until it dawns on them that their neighbor, who took out a 125% interest only option ARM…who quit making payments…whose irresponsibility was just like all the others… who contributed to the decline of all values in the neighborhood…get his house free and clear…because of a MERS assignment!

    While the rest got to slog it out because they went through Bank of America…and Bank of America doesn’t use MERS.

    So I’ll repeat: If the Kansas Court disapproves of MERS, where in the hell have they been all these years? Why is a MERS foreclosure problematic in 2009, but not in 2004?

  19. Moss says:

    Another benefit of financial innovation. The proxy ownership society.

  20. chris steinbach says:

    Sounds like a vulture opportunity to me. It can’t be too hard to reassemble all of the pieces of something that is radioactive. If the current investor finances the purchase and the sale price is contingent on the proceeds of the foreclosure, then the vulture should be able to effectively guarantee themselves a service fee.

    In the future, the industry would be better served by turning securitizations into derivatives that hedge the risk while leaving the underlying mortgage intact.

  21. jc says:

    Ahab, I’m sure they’ll do whatever their lobbyists tell them to do but even Congress can’t rewrite laws ex post facto.

    Like I’ve said before, there will be a US superagency that will take ownership of all the bank defaults at fair prices and then rent them at fair prices until they become breakeven for the gummint which will be 15-20 years from now unless hyperinflation kicks in. If MERS goes bad en masse then Congress will write law that participation by the US agency establishes clear title and then the agency will do a back & forth transaction with the defective mortgage holder – probably paying the holder a fee for the opportunity to help them. Just need to name this creatively – Homeowners Protection Agency.

  22. Marcus Aurelius says:

    Dan Duncan Says:

    This is an interesting development….but I don’t get what Marcus Aurelius is referring to when writing:

    “I’ll bet the legislature(s), and to a lesser extent, the courts (both state and federal, outside Kansas) change statute law and/or ignore precedent in favor of the banks/MERS.”

    A Kansas Court of Appeals is not precedent for any court ion Texas, let alone any court in the federal judiciary system.
    _____________

    No shit.

    I never said that the Kansas precedent applied to other jurisdictions. Nonetheless, it’s case law precedent that will be considered by other states/Federal courts that decide on the same issues (in states where statutes are similarly written).

    The precedent has been set, and as of this moment, there is no counter-precedent.

  23. This is a juicy story Barry. It may take the MSM a whole year to break it this time instead of the usual six month lag

  24. jc says:

    Dan D,
    1) Appeals courts wait for the cases to come to them, Kansas seems to be the first appeals court to deal with MERS not the 50th! Stuff happens slowly in our legal system – no “rush to judgement” which is good when you think about it.

    2) The court only needs to rule on the issue at hand, they don’t have to offer free legal advice to the parties.

    DD: 1) So I’ll repeat: If the Kansas Court disapproves of MERS, where in the hell have they been all these years? Why is a MERS foreclosure problematic in 2009, but not in 2004?

    DD: 2)OK, now what? Does the court provide some guidance for MERS to establish an Agency relationship?

  25. Marcus Aurelius says:

    Dan Duncan Says::

    “What USA did your father live in? What’s exactly is the Justice that you demand? Every single borrower in these transactions clearly and explicitly acknowledged that their mortgage would be assigned. Every one of them. Additionally, every single borrower signed an acknowledgment stating that if they fall behind on payments there is no duty on the part of the lender or servicer to renegotiate any term. Additionally, every one of them signed a document outlining the fact that if payments are not made, they’d lose the house in a foreclosure. Yet, somehow they’ve been defrauded because they can’t make payments and their mortgage was assigned?”
    _______

    My father lived in a USA where the rule of law applied. Where did I write anything about fraud or relief for the indebted party?

    I don’t give a damn about what the original contract said – once the mortgage obligation and the deed of trust are separated, the holder of either has no recourse under the law (according to the Kansas Supreme Court). I doubt there was any language in any of these original mortgage contracts that allows the violation of statute law or precedent regarding what happens to the loan should the originator screw themselves in the process of trying to take profits by hiding behind a straw party.

    This is not about the origination of loans, it’s about the fraudulent securitization of those loans. I demand justice in cases where fraudulent securities were created, sold and distributed around the globe.

    Don’t put words into my mouth.

  26. Marcus Aurelius says:

    And, finally:

    “So I’ll repeat: If the Kansas Court disapproves of MERS, where in the hell have they been all these years? Why is a MERS foreclosure problematic in 2009, but not in 2004?”
    ___________

    As the courts are not law enforcement agencies (that’s an executive function) they don’t police, they decide the cases that are brought before them. apparently there was no case brought before them in 2004.

  27. beaufou says:

    @DD
    “And blogging masses love this shit…until it dawns on them that their neighbor, who took out a 125% interest only option ARM…who quit making payments…whose irresponsibility was just like all the others… who contributed to the decline of all values in the neighborhood…get his house free and clear…because of a MERS assignment! ”

    Now now, one of my neighbors got in trouble a few months ago after committing the deadly sin of losing his job, he is now back on track thanks to a little help from his friends.
    I fail to understand the values in the neighborhood bit, unless you mean a tight religious conservative community, not my bag, or cutting the grass, I sometimes work 7 days a week so I do lag a little bit on grass cutting and I never pay for something I can do myself.

    The irresponsability in all of this is that the population of this country is becoming increasingly poor, the middle class turned to crumbs but we are on the path to recovery of this destructive system.
    My neighbor didn’t save enough for a rainy day, maybe it is true but maybe saving for a rainy day is practically impossible these days for a middle income, the tax system is designed to leave him with 1-5% savings rate while higher incomes can save up to 95%, that’s tragic when you think we will see a recovery somehow.
    And seriously, if he had gotten his house for free, well good on him, I tend to worry about my own stuff rather than stare at the neighbor’s yard.

  28. CTB says:

    This is a perfectly sensible ruling: you can’t foreclose unless (or until) you own the note.
    If investors of MBS don’t want to take on receivership of the property, they shouldn’t have been buying the notes.

  29. call me ahab says:

    “So what do we have? Bullshit political pandering on the part of judges”

    who’s pandering? who wins- who loses- if you say the banks lose with this decision than that is far from political pandering since both parties are bought and paid for by banking lobbies and both parties subsequently protect banking interests-

    it is opposite of political pandering-

    don’t let your religion . . . i mean your politics . . . cloud how you see things

  30. Marcus Aurelius says:

    I have a great idea: let’s negate all of the underpinnings of contract law and let the Judiciary decide these issues on a willy nilly, case-by-case basis.

    Sheesh.

  31. FrancoisT says:

    “congress will protect the banks”

    They can’t make retroactive laws. And I’d love to see Congress trying to repeal tons of State laws on this matter.

    “Who’s going to lend?”

    Any bank that respect the laws of the land. WTF is so wrong with going back to hold the mortgage for 3-5 years instead of 5 minutes?

    When will the Administration wake up and reign in? (Yes! It is a rhetorical question.)

    About time we go back to boring finance and put our resources to productive uses. Fuck the financial sector altogether.

  32. Marcus Aurelius says:

    FrancoisT Says:

    They can’t make retroactive laws.
    _______

    They can, and they have (a recent example is Telecom immunity for illegal wiretapping).

  33. jc says:

    Dan Duncan Says::

    “What USA did your father live in? What’s exactly is the Justice that you demand? Every single borrower in these transactions clearly and explicitly acknowledged that their mortgage would be assigned.

    Dan, The problem is the banks didn’t assign these mortgages in a legally enforceable way. They wern’t tricked by the homeowners – they did it to themselves.

  34. beaufou says:

    DD
    And by the way, the only consequence of my house going up 150k is more taxes.
    I don’t do equity line of credit or selling.

  35. jc says:

    I think Congress will write a law that allows the banks to do back & forth sham transactions with a US agency that will create clear titles for the banks bad MERS mortgages at that point, a start fresh do-over.

    Maybe at the same time the banks will be able to refuse to buy back their delinquent mortgages so the US will be stuck with all the bank foreclosures (at the banks cost) so the banks are kept whole and the agency can manage the couple million foreclosures til they reach breakeven in 2035.

    A WIN -LOSE -LOSE solution. The banks win, the taxpayers lose and the homeowners lose because the unenforceable MERS mortgages will be made enforceable!

  36. Greg0658 says:

    interesting development .. thanks bloggers .. I think I’m following this thing
    Question:
    Does the MERS accounting facility have the ability to divide the (once resold) property $s into the multiplitude of pie-piece owners? Or does the MERS facility get very rich via lost owners of pie?

  37. Bob_in_MA says:

    BR: “What does this mean for the 60 million people — over half of all US mortgages — whose loans have been securitized, sliced and diced, and are now held by MERS?”

    um, there are fewer than 120 million households. Most households do not have a mortgage (1/3 rent, 1/3 of owners have to mortgage, only 4/9 of all households) have a mortgage. The total number of households with a mortgage is only around 50 million.

    Barry frequently undermines his argument by misunderstanding the undelying data.

  38. Greg0658 says:

    didn’t do the math but 1/3 renting .. probably from a landlord with a mortgage .. a second business for many

  39. Marcus Aurelius says:

    From US Statistical Abstract, table 961

    http://www.census.gov/compendia/statab/cats/construction_housing/homeownership_and_housing_costs.html

    74,931,000 housing units in the US in 2005, 48,394,000 had a mortgage .

  40. jc says:

    The MERS website doesn’t mention the Kansas ruling in their news section LOL

    Feb. 3 (Bloomberg) — A record 19 million U.S. homes stood empty at the end of 2008

    There must be a lot of second & third mortgages out there, 50 million mortgaged homes and 120M mortgages!

  41. WaveCatcher says:

    This discussion reminds me of the Tax Protestors. While they argue the fine points of constitutional law, their assets are seized and they are thrown out of their homes, sometimes into jail.

    Good luck trying to convince the sheriff that your mortgage is unenforceable when he comes to evict you from your home. You will find yourself homeless and all your stuff on the front lawn.

  42. jc says:

    Really?
    Monday, February 2, 2009
    Wayne County’s Sheriff Evans Stops sheriff’s sales

    Statement from Sheriff Warren Evans
    Watch it on YouTube at: http://www.youtube.com/watch?v=gv9_TII3bXo

    Today I will be stopping all mortgage foreclosure sales in Wayne
    County, beginning with the sale that was scheduled for this Wednesday.

    I am doing so because its my opinion that recently enacted federal laws
    provide protections for homeowners facing foreclosure.

    To proceed with sales without assuring that homeowners have been able
    to avail themselves of those protections would put me in a position of
    violating federal law.

    The Troubled Asset Relief Program known as TARP that was approved by
    Congress last fall requires the Secretary of the Treasury to implement a
    plan to mitigate foreclosures.

    That includes encouraging servicers of mortgages to modify loans to
    enable homeowners to stay in their homes.

  43. willid3 says:

    marcus, your are correct they can write a retroactive law. if it gets challenged it gets thrown out, thats what courts are for. and why they exist. and i am guessing so far nobody has challenged that law yet. usually takes time to get that far. but unless the courts duck and bail on it, they will end up having to rule on it.

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  45. MinnItMan says:

    Congress could write a retroactive curative statute (curative statutes are almost by definition retroactive), but it unclear whether it could pre-empt state law in this area. Banking raises interesting interstate commerce issues, since it’s not at all clear to me that banking is interstate commerce.

    As for MERS, it does have a system that is very easy to use, and as a practitioner in this area, its existence is welcome on a number of fronts. See https://www.mers-servicerid.org/sis/

    The problem, as I see it, is exactly what authority the servicer has to act on behalf of the noteholder. If the servicer is not an agent of the noteholder, then there is a fairness issue in borrowers not being able to identify who they need to deal with for loss mittigation.

    By the way, there is a local public interest law group pursuing an interesting case arguing that TARP recipients are state actors and as such required to follow Due Process in administering the Home Affordable Mortgage Program (HAMP), particularly in denying loan modifications, and that there must be some kind of right of appeal for denials. See http://www.hppinc.org/_uls/resources/HAMP_Complaint.pdf

  46. Anna says:

    I believe that the Court of Appeals decision was October 2008–which was just affirmed by the Kansas Supreme Court last month. While admittedly this is absolutely non-binding on other jurisdictions, it will be available for all as persuasive authority–putting MERS & the investors they represent in a very difficult position. This is a clearly drafted state supreme court decision which appears to place MERS & subsequent note-holders at a status similar to that of an unsecured creditor. One could make a compelling argument that parties would no longer be bound by the original contractual terms set forth in the four-corners of the agreement — opening up the possibility for a myriad of affirmative defenses. If they and other bondholders are not scrambling, then they do not understand the implications of a decision like this.

  47. vachon says:

    Ghaaa! I argued this very point with my county’s recording department. The *$@^ idiots insisted on recording mortgages under MERS instead of the actual lender.

  48. carping demon says:

    @DD

    To whom would Kansas state judges be pandering? Just wondering.

  49. Simon says:

    Another giant step towards communism in America. It’s just lovely.

    I mean I’m actually in favor of the ruling. In a way it’s what has to happen. A compulsary debt jubilee and a huge transfer of wealth from the haves to the havenots. I mean in a way its far tidier then what people like Marc Faber see coming down the line in a decade or two.

    Econmically it makes sense.

    The finance industry as a whole failed to do its job and allocate capital properly.

    The organisations that originated the loans made bad bets

    The people who bought the securitized loans made bad bets

    The banks made the bets out of greed.

    The banking industry have co-opted the tax-payer, the majority of whom have said loans, to underwrite those loans through the Treasury and the Fed as lenders of last resort. This is not any sort of workable form of capitalism.

    The people who took the loans are part of the productive class. Free them of the loans and they will surely start spending money elsewhere. This would be a huge boost to the economy.

    Why shouldn’t those who failed to invest in productive assets with sustainable futures lose all their money? I mean they will anyway this would just far cleaner quicker and cheaper and get the economy going again much sooner to the benefit of those who produce.

  50. JusTryinTaMakeIt says:

    Does this issue have an implication on the ultimate debtholders (security holders) ability to demand payment when a property is sold? Or when a junior debtholder (i.e. second or third mortgage holder) forecloses on a property???

  51. bergsten says:

    I had a scary thought too…

    What happens if/when you pay your mortgage off? How do you insure clear title?

  52. [...] Mortgage Electronic Registration Systems Loses Legal Shield [...]

  53. [...] perspectives on MERS: Mortgage Electronic Registration System Loses Legal Shield [ Barry Rtitholtz ] Has a MERShole opened up? [ Karl Denninger [...]

  54. [...] Mortgage Electronic Registration Systems Loses Legal Shield (September 23rd, 2009) [...]

  55. telez_one says:

    I think the Court got it right, but for all the wrong reasons. It is not the agency issue. The agency is clearly established in the mortgage instrument, as it says there that MERS acts as Nominee for the Lender. That’s agency. It is also not a split (between the security instrument and promissory note) issue, as there is no split. MERS either does have the right to the entire mortgage or not, which depends on the fact whether the current lender has been properly assigned the mortgage. In other words, MERS can only have standing, if the current owner has standing. And that is the central issue.
    In a typical situation, you have the original lender, who sells the mortgage to the new owner the next day after the closing (only to retain servicing rights) and MERS, who is the nominee of the new lender or any current lender. The new lender is a group of investors, who hold shares of a pool that has this mortgage as well as many other mortgages. Let’s call them “Pool Investors.” Now, the original lender is out of the picture, as he sold all his rights. That leaves us with the “Pool Investors” and MERS. MERS’ rights are derived fom the rights of the Pool Investors. So, in order to properly foreclose, the Pool Investors must show that they have been properly assigned the mortgage at issue. But the problem is: there is never an assignment from the original lender or any subsequent lender to the Pool Investors. You only have assignments from one servicer to another. But servicers have no rights to the mortgage. MERS, as Agent, cannot assign any right to the Principal either. It only works the other way around. Therefore, the only way to obtain standing is poduce a valid assignment from any of the lenders to the Pool Investors. And that is not easy to say and even more difficult to accomplish.

  56. [...] Mortgage Electronic Registration Systems Loses Legal Shield (September 23rd, 2009) [...]