“MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage-recording process. The court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”

-U.S. Bankruptcy Judge Robert E. Grossman

>

To be technically precise, they lack the ability to legally transfer mortgages. That doesn’t mean they are invalid, but it does eliminate their reason for existence.

Here’s Bloomberg:

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said.

U.S. Bankruptcy Judge Robert E. Grossman in Central Islip, New York, in a decision he said he knew would have a “significant impact,” wrote that the membership rules of the company’s Mortgage Electronic Registration Systems, or MERS, don’t make it an agent of the banks that own the mortgages.

“MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law,” Grossman wrote in a Feb. 10 opinion. “MERS did not have authority, as ‘nominee’ or agent, to assign the mortgage absent a showing that it was given specific written directions by its principal.”

April Charney, a senior attorney with Legal Aid in Jacksonville, Florida, who has been aggressively criticizing MERS for some time, had the quote of the day, channeling Tom Petty: “ ‘Don’t come around here no more,’ is basically the message to MERS.”

The judge has “deconstructed” MERS and determined that they cannot be both principle and agent =– you have to chose one or the other.

Happy Valentines Day to you!

>

Sources:
In re: FERREL L. AGARD, Debtor
Case No. 810-77338-reg
UNITED STATES BANKRUPTCY COURTEASTERN DISTRICT OF NEW YORK
http://www.ritholtz.com/blog/2011/02/mers-decision-in-re-ferrel-l-agard-case-no-810-77338-reg/

Merscorp Lacks Right to Transfer Mortgages, Judge Says
Bloomberg Feb. 14 2010
Thom Weidlich
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a7hKAVragHWg

Category: Legal, Real Estate

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.

52 Responses to “Judge: MERS Invalid”

  1. Shorter version:

    Judge to MERS: Go Fuck Yourselves

  2. Julia Chestnut says:

    :) Happy Valentines Day, indeed!

  3. obsvr-1 says:

    another Valentines Day Massacre in the making ?

  4. Transor Z says:

    I ♥ Judge Grossman.

  5. curbyourrisk says:

    So…..Denninger has been right all along? All the way back to 2007???

    2 thumbs up to karl Denninger for ferreting all this bullshit out WAY back in 2007. If everyone had listened to him then, maybe a lot of this BULLSHIT could have been prevented….

  6. [...] From Barry Ritholtz “MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage-recording process. The court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.” [...]

  7. TomL says:

    The important question is will this ruling survive the inevitable appeals to the Roberts’ pro-business court?

    In its current makeup, I would score it 5-4 for the banking industry.

    If Obama gets to appoint another justice, he needs to consider a much stronger Republican Senate than the last 2 years.

  8. Joe Friday says:

    Justice in America.

    What a sight to behold.

  9. Sechel says:

    The story says Grossman ruled in favor of Select Portfolio. It’s not clear to me how this plays out,since there’s no specific decision to over-rule. So whas Gross being a gadfly? I’m more than interested in seeing how this affects future foreclosure cases and challenges to MERS.

  10. doug says:

    “It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices.”

    Grossman quote seems to say they just need to go purchase a bill from the legislature. Will that be hard?

  11. NoKidding says:

    It seems to be the right decision. But:

    Where the USG (us) owns Fannie and Freddie, this is not necessarily a victory for people vs. banks, but a victory for lawyers,regulators and accountants vs. everyone else.

    Bottom line, if you intend to keep paying your mortgage, you do not care who MERS is.

    If you are defaulting, the “I get to keep my house on a technicality and screw the bank” pipedream is … a pipedream. Only difference is the amount the creditors have to spend on lawyers fighting over who gets to liquidate your mess.

  12. Sunny129 says:

    ‘purchase bill from Legislature’

    It looks hard mainly RE laws are States’ territory. But in this Country, where there is price tag to be bought on each lawmaker, it is NOT impossible. K street guys should be busy already.,Just like suspending M to M accounting it can be done right in day light!

    America, the Best Democracy (Republic) Money can buy!

  13. Brent_in_Aurora says:

    Obama vetoed a bill last year (HB3808) that was supposed to fix this MERS problem, though the issue that the Judge cites is a little different than HB3808.

  14. rip says:

    Well lets think about this.

    A Democratic House had no problem quickly drafting HB3808.

    And A Republican House????

    Yeah I guess the K St whores bank a little more juice.

    Will BSO veto it again? Should I take the over or under on that one?

    But it does add some more fuel the States vs Fed fire. But I think we all know how that vote will turn out. At least 5-4 for.

  15. Floyd says:

    Honestly, it seems as the whole MERS thingy is a technicallity.
    That is, if a person stops paying a morgage, does it essentially matters if MERS has been involved?
    What is so wrong with MERS supposing that it essentially neither violate people rights, nor cheat, nor etc.?

    Further, reducing paper work, lawyers, accountants, appraisals, etc sounds to me as a good thing.

    What am I missing?

  16. Francois says:

    This judgment validates what Barry, Yves Smith, Karl Denniger, fraud4closure and others have been saying for quite a while.

  17. rktbrkr says:

    From The Candidate “now what do we do”.

    I suspected the shadow inventory of foreclosures had been building up because they kinda knew they couldn’t provide clear title.

    Guess they’ll have to appeal but that will take time unless they can get “rocket docket” for the appeal because there will be millions upon millions of homes hanging fire.

    Kudos to Chase for having the sense to quit the MERS club

  18. Mandelman says:

    New Bankruptcy Court Decision Sounds the Alarm – The USS MERS is Going Down

    The Set Up: U.S. Bank, as the trustee for one First Franklin Mortgage Loan Trust 2006-FF12, Mortgage Pass-Through Certificates, Series 2006-FF12… which all just means that we’re talking about a REMIC trust containing a securitized pool of mortgages… moves to obtain relief from the automatic stay created by a Chapter 7 bankruptcy filing, in order to complete the foreclosure of Ferrel Agard’s home. New York State courts had already ruled and a foreclosure judgment was issued, so now U.S. Bank as trustee just needed to finish things out by obtaining relief from the automatic stay so they can proceed with selling the home.

    Records show that the bankruptcy trustee expected a routine, no assets case… file report, collect fee, end of case. U.S. Bank, represented by its loan servicer, Select Portfolio Servicing (“SPS”), who was in turn represented by Buffalo’s most infamous foreclosure mill, Steven J. Baum PC, must have thought about the same… a straight forward foreclosure case, lets get rid of the deadbeats and be home by dinner.

    But, in today’s fast changing world of Fraudclosuregate, things are not always as they appear, and crap that flew yesterday may not fly again tomorrow.
    The Opposition: On October 27, 2010, the borrower’s attorney filed a single page document on which the type was double-spaced. It was a “partial opposition to the motion for relief from stay” that U.S. Bank had filed, and it suggested to the judge that perhaps there might be some sort of small problem with the MERS assignment. It also, in so many words, posited: Who the heck was Select Portfolio Services and why did they have any role in the case anyway?

    After that, one might say… the fit hit the shan.

    The Hearing: At a hearing held on November 15, 2010, the judge must have more than just hinted that he was going to look very carefully at this whole MERS thing, because he suggested that the parties might want to consider filing some real legal briefs on the subject, and he made it clear that he would be holding a real hearing on the issues on December 15, 2010, just one month down the road.

    The Response: All of a sudden nothing was at it seemed just days before… SPS asks the court for more time and rushes out for reinforcements, bringing in a “tall building” law firm from New York City to replace the relative pikers at Baum’s Mill. The newly retained big city lawyers file a major brief in support of the U.S. Bank/SPS position on December 8th.

    Then, on December 9th, MERS shows up, metaphorically at least with lights flashing and sirens blaring, to file an “emergency motion to intervene,” crying in sheer panic that their entire national business model is being attacked and that the result can be nothing less than the end of the world as we all know it.

    They bring in a sworn declaration from MERS Treasurer and Corporate Secretary, William Hultman on December 10th, that explains what an entirely fabulous and utterly wonderful invention MERS actually is, and then… I suppose afraid that the one Hultman declaration just might not carry the day they show up with yet another declaration from MERS Treasurer and Corporate Secretary, William Hultman on December 23rd.
    In an effort to keep things straight as related to the declarations, we’ll call that one: “Why Everyone Should Love MERS More Than Life Itself… The Sequel.”

    The judge then begins to dig into the matter. Perhaps he was waiting for a case such as this one, or perhaps some other forces were in play, but regardless… for MERS… this was the wrong judge on the wrong day.
    The Decision: Judge Grossman devotes the first half of his opinion to discussing whether he even has the legal authority to look into how U.S. Bank obtained this mortgage in the first place, since it already had obtained a foreclosure judgment in state court, and because there is an irritating (to Federal judges) and arcane Rooker-Feldman doctrine that prohibits federal courts from interfering with state court judgments.

    Alas, our intrepid judge concludes on page 18 of his decision that Rooker-Feldman does in fact preclude him from looking further into the issues that underlie the U.S. Bank foreclosure judgment. And, as a result, Judge Grossman decides that he must grant U.S. Bank’s motion for relief from the bankruptcy automatic stay so that the trustee can complete the foreclosure.

    Now, were we talking about most judges, that would represent the end of this proverbial road… the opinion would be dated and signed and I would not be writing about the case now. But we’re not talking about most judges… we’re talking about the Honorable Judge Robert E. Grossman of the U.S. Bankruptcy Court, and he’s apparently not a judge with which one should trifle.

    He’s got MERS in his crosshairs, apparently exactly where he wants them, and in the 18 pages that follow his decision to grant the relief from the automatic stay he goes after MERS mercilessly. Attorney Thomas Cox of Portland, Maine, who you may remember from the “GMAC uses robo-signers deposition” that brought foreclosures to a standstill last fall, says that in his opinion…

    “He (Judge Grossman) does the most thorough and competent analysis of the MERS charade that I have seen, basically concluding that the entire MERS business model does not comply with our laws, and that he will no longer accept MERS mortgage assignments in his court room.”
    “It’s a decision that was a delight to see.”

    Now, clearly this is a decision that’s worth reading for one’s self… Judge Grossman is one heck of a writer and not one to play patty-cake with MERS or those of the banking persuasion, but I thought I’d at least provide the overview of the decision with “training wheels” for those who aren’t of the mind to wade through the entire text of the decision themselves, or who find these things next to impossible to read and understand.

  19. beaufou says:

    Floyd,
    “What am I missing?”

    The whole first story it seems.

  20. Mike in Nola says:

    This is quite satisfying for us old lawyer who always thought property law was made by the legislatures and not the banks.

    Hope it stands up. I can see Alito saying that this was an activist judge and that the Founding Fathers intended for banks to make the laws.

    OTOH, one could hope that real businesses are a little tired of the banks getting special treatment and might pass the word to Roberts to take them down a notch.

  21. So, if I read this correct, everything the judge said about MERS was dicta? He approves the relief from stay and allows the foreclosure to proceed, and then spends eighteen pages bitching about MERS?

    I’d say this case means nothing, if the rule prohibiting Bankruptcy court interference with with state court adjudications that the judge felt compelled to honor in awarding the foreclosure stands. And the only precedential value to this opinion is that it does.

    Geez. Do you guys really think having every bankruptcy court judge in America setting their own standards for foreclosure is the way to cure the ailing real estate market? Really?

    The legal issue of principal vs. agent that the judge claims invalidates MERS doesn’t hardly. The court has no business, absent an objection of either the agent or the principal, of doing anything other than upholding the obligations of the relationship. This judge is whacked.

    He should just keep his irrelevant opinions to himself while on the bench. If he wants to vent his spleen, he can get a blog like the rest of us do.

  22. wisedup says:

    well let’s just say that he issued fair warning to all state judges. It would be a stupid judge that continues to say that MERS had/has legal right to transfer the notes. This is nothing about courts “setting their own standards” and everything about MERS setting its own standard and tell the rest of America to go swivel.

  23. rip says:

    @mandelman: Thanks for the training wheels.

    Geez US Bank held my mortgage of one month until they recently passed it on to Freddie Mac. What now? Saudi Arabia or China?

    Should prove for some interesting follow-up.

  24. uzer says:

    “It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices.”

    since the legislative branch made the citi/travelers merger retroactively legal, is it so hard to believe a similar retroactive immunity will be granted to mers/the banksters again?

  25. stopGOVTwaste says:

    *NoKidding – this goes way beyond trying to screw someone over on a technicality OR cop a free house.

    There are scores of people that have made CONSTANT attempts to settle up – some fax and send paperwork OVER and OVER, others are TOLD THEY HAVE TO BE 90 DAYS LATE (default) before the servicer can help. Others have money set & ready to go (relatives willing to cash in stocks/401k) to pay off the loan but the response from (pretender) servicer is “the investor won’t allow it”. Contrary to what the PSA says.

    So the plethora of LOST NOTE counts you see and (fake) documents sent in for recording only prove the fact that this was a “catch & release” scam of epic proportion.

    Bank A issues securities… the notes are supposed to be transferred, recorded and delivered to the “Custodian” on behalf of the “Trustee” for the benefit of the “Certificate-holders”. But there’s a problem, Bank B comes in and claims LOST NOTE, files an assignment to themselves in public records and claims to be the new owner of the loan. In some cases Bank A & Bank B issue securities (without properly transferring the asset into the pool per the PSA) and Bank C comes in with lost note count and fake assignment.

    Public land records should accurately reflect the REAL creditor… unfortunately, the system has been perverted and now only “some” people know who the real owners of these loans are.

    Understand these loan pools were largely “vacant” and in many instances the trusts were never legally created. The assignments that were supposed to be made NEVER HAPPENED until YEARS AFTER THE CUTOFF DATE.

    So a company like “Suntrust” could issue securities (Bear Stearns) fail to record chain of custody of the note and mortgage and then all the sudden “Chase” comes along, claims lost note and files fake assignment of mortgage. It is a catch and release scam that encompasses Securities Fraud, Tax Fraud and Fraud on the court.

    Is your county issuing Certificate of Title to entities that have no standing and no pecuniary interest in the deal? Are non-creditors submitting credit bids at foreclosure sales (and getting away with it)? Look at all the bank walkaways – they don’t actually want to own the house… they just want to scam the right to sell it (again).

    I’m not saying anyone should be entitled to get something for free… but it sure as hell makes you wonder why people are being told to default on their loan.

    So lets find out who is lying, who is telling the truth, who has been made whole compliments of the Tarp, AIG, etc etc, which loan pools legally existed, which ones were vacant and who is committing securities fraud, tax fraud and fraud on the court.

    After all, we’re still a nation of laws right?

  26. formerlawyer says:

    I am looking forward to the class action suits on behalf of land registrars across the land. Land transfer fees or more particularly mortgage transfer fees can be small but in large numbers – the numbers that MERS was set up to avoid – you could be talking 100′s of millions of dollars.

    Hmm – state governments, hungry for money vs. out of state, foreign banks, “New York Banks”. I don’t think any remedial legislation is going to come cheap – or at least I hope not.

    http://www.rollingstone.com/politics/blogs/taibblog/an-extremely-long-metaphor-to-explain-mortgage-chaos-20110101

    http://foreclosureblues.wordpress.com/

  27. stopGOVTwaste says:

    I found 350,000 MERS mortgages recorded in Palm Beach County over the course of the last decade (yes I counted them).

    The going rate for recording an assignment is about $20. This mean they siphoned off $7M from Palm Beach – Qui Tam anyone??

  28. Expat says:

    MERS will be covered by either a new law or an executive order. If an executive order is used, it will cite the Patriot Acts and national security (the default of the mortgage banking system is a matter of national economic security).

    If not, if this is truly upheld, then there is hope to see:
    -Patriot Acts revoked
    -Afganistan, Iraq, and Okinawa liberated
    -Bush, Cheney, Rumsfeld, Rice, and Gonzales arrested, tried, waterboarded, and executed for crimes against humanity.
    -Blankfein sent to Sing-Sing for 7 to 10 years of doing God’s work for some homeboys in the shower
    etc.

    “you can call me a dreamer, ooh ooh oooh…but I’m not the only one.”

  29. farmera1 says:

    IS MERS another body blow to capitalism or just a technicality?

    Is MERS part of the shadow banking system, or just another indication of a society where the 1%ers are completely in control and the shadow banking system and MERS were the end result of an economic system with no laws built to enrich the few?

    I am not directly involved in this mess (other than owning a few pieces of real estate) and being a citizen, but it seems that this MERS is much like the whole shadow banking system (OTC derivatives), in that it was completely unregulated, the few got rich and inevitably the MERS system got way out of control and is now crashing. Lawless short term self enrichment coupled with the amount of sloppy work and greed, eventually put the entire housing industry, and property rights in general in a huge mess. Much like the shadow banking system put the world’s economy at risk, MERS could strike another blow to capitalism.

    Here’s my summary:

    1) Well defined property rights are very important, maybe the most important thing to a well operating capitalistic system. Having rock solid property rights is one of the things that has made the US great.

    2) It seems to me that whoever decided that they could circumvent a system that was well established and worked but somewhat “old” slow and costly by computerizing it and so they did on a massive scale all for the sake of short term profits. Needless to say without laws and regulations this MERS “system” was abused again for the sake of short term profits.

    3) In my very limited understanding this MERS system very much was a part of the shadow banking system or at least there are similarities. A lot of people probably got rich, there were now laws, the risks were huge and eventually the whole “system” came crashing down.

    Here are some other questions and comments:
    1) Does the MERS mess impact all real estate or just residential?
    2) This MERS mess can not end well. When a whole real estate bubble (at least residential)is built upon a foundation of sand, any solutions will be unfair and will undoubtedly protect the guilty and not be a pretty site. Maybe we’ll see the TARP II, a sequel of an expensive movie.
    3) Lack of laws (radical deregulation) works very well for a few to self enrich themselves at the expense of the many. Does this MERS fiasco fall in with the general radical deregulation?
    4) We have become a nation that has put self enrichment above any other requirement.
    5) Somehow this MERS thing smells like it is a part of the shadow banking system at least there are similarities.
    6) Would the whole real estate bubble have been possible without MERS?
    7) Are we going to see a FULD moment when Mr. Fuld testified before congress. Fuld of Lehman fame made hundreds of millions as CEO and drove his company along with the economy (not the entire cause of the economic crisis but he had a staring role) right into the ground.

    Don’t understand a lot about MERS, but I have this uneasy feeling this isn’t going to end well. When it comes to property rights on a massive scale , I don’t think there is such a thing as a technicality. Hope I”m wrong about this but I have the same uneasy feeling that I had before the whole shadow banking system and a FED that didn’t do their job, blew the economy apart in our recent past.

  30. mathman says:

    Look, we’re running out of room for all this fraud, fiat money, and fiasco accounting:

    http://www.zerohedge.com/article/fed-now-boxed-dislocations-ahead-ratchet-effect-stick-slip-and-qe3

  31. Moss says:

    The fact that the process does not comply with the law yet 50% of ALL mortgages are part of the process is more proof of the decriminalization of fraud and corruption when perpetrated by the banking cartel. Looks like the banksters will need to accrue some additional reserves. The fed then has more funny money to buy more bonds and the circle jerk continues.

  32. Petey Wheatstraw says:

    The Rule of Law ended some 10 years ago, or more. That there is any question as to the legality of MERS is evidence enough that we have entered a new relationship between the government and the governed. I’m glad this judge had the balls to step in front of the freight train of corporatism, but in the end, I think that any attempt by rogue members of the Judiciary to enforce the laws of our former Republic will be met with overpowering resistance by the entrenched, wealthy, and powerful shadow government. The new law: Don’t make waves.

    If you want to see what the future holds for us, look back to the end of the Roman Republic.

  33. Transor Z says:

    @Curmudgeon:

    What’s a bit unusual for dicta is that there appears to have been a full hearing on the issue of MERS’s ability to convey a mortgage, even though the state foreclosure judgment couldn’t be collaterally attacked.

  34. rktbrkr says:

    If MERS is a mere technicality then well established property laws are mere technicalities.

    The banks can push this issue thru appeals but that is time consuming, expensive and may not meet their desires. The more cost effective way to get the results they want is to pay the Congress to make some retro law changes like the benign sounding notary change they rammed thru but O’Bama vetoed.

    This is going to create an interesting situation for all MERS based titles. I assume the title insurance companies have included verbiage that gives them wiggle room if MERS is finally found not to comply with the law.

    Meanwhile the logjam of shadow foreclosures continues to build and eventually there will be a guvunderspurt of REOs hitting the markets creating mayhem.

  35. dead hobo says:

    Based on the main post and the associated Bloomberg article and my limited understanding of debtor-creditor law, what I read here is that the lenders have lost a perfected security interest. In English, this means the note is unsecured … much like a light bill or a doctor bill. Lenders lose priority in bankruptcy with respect to the home and are going to be treated as unsecured … meaning they get leftovers, if any, in a bankruptcy.

    Foreclosure is not an option anymore. Rather, the note on the house will go through collection proceedings … like an unpaid doctor bill … and subject the debtor to a judgment that puts all assets at risk in order to satisfy the unpaid debt.

    What is commonly ignored in this space is that the mortgage only secures the note in a way that makes it easier to collect if the note goes into default and/or gives the lender priority in a bankruptcy. MERS processing appears to have invalidated a gigantic number otherwise perfected security interests when the notes were sold.

    If the judge’s decision stands and becomes the national standard then mortgages once foreclosed on will have o go through a pedestrian collection process and the notes will likely be sold for a fraction of face value to collection agencies.

    Enterprising lenders who no longer hold perfected security interests will probably use negotiated short sales or negotiate a borrower walk-away as a substitute. Their negotiation tactic will be “lose the house today or everything you own later.”

  36. budhak0n says:

    One word. “Wow”.

    Now this puppy is going to get nasty. It’s ok though because the percentage of people in this situation coupled with the percentage of people with the guts to go this far in this situation coupled with the percentage of people smart enough to pursue this type of claim is minimal.

    But it’ll be fun to watch nonetheless.

    Ok and rkt , ‘we’ve’ being waiting for those REO’s for more than 2 years now. If you want to explain to me exactly what the banks and their trustees are doing, we’re all ears.

  37. dead hobo says:

    Re my post above:

    This should also make putbacks associated with junk mortgage securitizations an even more fun spectator sport to watch. Since it is unlikely an investor would buy multi-tranche receivables consisting of light bills, credit card debt, and doctor bills (all unsecured debt) it is unlikely they will be happy to know their mortgage securitizations are now virtually identical.

  38. budhak0n says:

    Oh and I’m not so intellectually inept to consider that my “minimal” analysis may be completely wrong.

    I can’t help it. I’m an oddball in all of this. I’m more of a people watcher at the moment. Lucky enough to not be in the middle of the fray on “THIS” particular battlefield which is an extraordinarily odd place for a monkey of my nature to be.

  39. bjorn says:

    My family immigrated to the USA in 1956. We’ve been screwed over, cheated, lied to, and bamboozled.
    We have learned to adjust.
    In the end, we are happy to be citizens of the greatest society on earth.
    Whats not to love no matter what the final outcome.

  40. budhak0n says:

    Haha formerlawyer…. once a lawyer…. ALWAYS thinking like a lawyer.

    To be completely honest the ones who benefitted are usually the ones the natives point their spears at when they realize they’ve been boondoggled.

    To try and point the arrow at the lender is insane but they’ll do that we know.

    Seems to me, where you wanted to be in the middle of this complete insanity was exactly in the title or land transfer company’s seat. Lots of bobo transactions coupled with lots of bobo fees with very little recourse.

    Nice place to have been. But in the immortal words of Mick , ” but it’s all over now.” For the time being at least, seems to a lot of commercial paper being issued on formerly vacant sites lately. Nobody wants to lend on houses but there are an awful lot of bobo retail enterprises popping up lately. Wonder if it’s all family funded or if somebody’s actually writing these bobos.

  41. Expat says:

    @ Dead Hobo: So you are basically saying that any MERS’ed mortgage becomes simple unsecured debt. Consequently, in non-recourse states, the mortgage effectively becomes recourse. Nonetheless, given the differences between foreclosure and bankruptcy proceedings, the note will lose much more of its value.

    The big question is: who can produce the note and who is the owner of the note anyway?

    Somewhere out there is a mortgage, the last legal document before the loan was im-MERS-ed (mmm, waterboarding realtors, what a joy!). But that document has been chopped and diced and sliced and resold a zillion times. Does that mortgage have any legal value? Is it like a bearer bond?

    If the mortgage is not a bearer instrument, then the only way to make a claim with the unsecured note is to get legal authority from all the holders of the mortgage, right? 100% A simple majority? That means you need to chase down everyone who bought the CDS and get them to sign on for the legal proceedings.

    But in non-recourse jurisdictions the holders of the unsecured note cannot arbitrarily change the terms of the contract simply because they fucked up the chain of title. The buyer still holds a binding contract with someone that says if he does not pay his mortgage, the other party may take back the house and nothing more.

    So, how do you reconcile non-recourse and binding contract with unsecured clusterfucks? Basically, the lenders can never foreclose since they don’t own the note or can’t prove it is perfected and the borrower will not have to face bankruptcy since his contract is explicit…he will only legally submit to foreclosure.

    Ah ha. HA ha ha ha ha ha ha ha ha ha ha ….suck on that, Blankfiend

  42. Transor Z says:

    @DH, no banana for you. The state foreclosure judgment clearly establishes U.S. Bank as a secured creditor.

  43. @Transor Z re dicta:

    Indeed. Hearings and everything for a ruling that is irrelevant to the case. Do you think maybe this judge got a little carried away? How much discretion in ruling over the relatively tiny fiefdom that is a bankruptcy court should we allow these petite emperors? How much money was wasted in allowing the judge to vent his spleen on MERS?

    Incidentally, to everyone that thinks this little case matters much: A bankrupcty court judge’s rulings have effectively no precedential value outside of their own courtroom, and even those are subject to judicial review by the whole chain of courts in the federal system. AND this eighteen page diatribe against MERS was overruled by its own author’s ruling that the foreclosure could proceed, i.e., taken at face value, the judge contradicted himself. Or, wasted his time. Take your pick.

  44. Darmah says:

    I think the bankers’ attitudes can be described as:
    If we commit a thousand frauds it’s our problem; if we commit a million frauds, it’s the governments problems.

  45. formerlawyer says:

    @Expat

    On a somewhat related topic, “too big to fail” now seems to justify at least a temporary injunction against enforcement of a foreign judgement on the basis that it could seriously disrupt the debtors business?

    “Just last week, a U.S. federal judge in New York took the unusual step of pre-emptively blocking any judgment for at least 28 days after concluding that attempts to collect assets could seriously disrupt the business of a company vital to the global economy. He took the action at the request of Chevron’s lawyers.”

    http://www.salon.com/news/env/environment/index.html?story=/news/feature/2011/02/14/chevron_ecuador_lawsuit_rain_forest

  46. Transor Z says:

    @Curmudgeon:

    I’m not inclined to be that harsh with perfect 20-20 hindsight. Oftentimes a case unfolds according to its own logic. As the opinion states, the bank’s original response to the debtor’s opposition defended the validity of a MERS transfer and it looks like maybe the bank’s attorneys had a “duh!” moment and remembered to raise the collateral estoppel issue around the state court foreclosure judgment in an amended response. From the docket record, the servicer’s counsel requested extra time to supplement their original response. Also, MERS filed an emergency application to intervene based on the original issue to be adjudicated (MERS’s right to convey mortgages).

    It doesn’t follow that that dead end of sorts on that point was reached by mismanagement on the part of the judge. Procedurally, two issues raised by the servicer were on the table for adjudication: MERS’s right to convey and collateral estoppel. It’s not a given at that point in time that the collateral estoppel argument will be successful. So the judge had a hearing on both issues, as he should have. Litigants drive the action to a large extent, not the judge, who sits as a referee.

    At the end of the day, Judge Grossman was sitting there with a fully briefed and argued record on the MERS transfer issue and didn’t want it to go completely to waste. But I do agree with you that the precedential value of the decision is more limited than many understand.

  47. dead hobo says:

    Transor Z Says:
    February 15th, 2011 at 9:57 am

    @DH, no banana for you. The state foreclosure judgment clearly establishes U.S. Bank as a secured creditor.

    reply:
    ———–
    Thank you. I only know generic debtor-creditor law from an observer perspective. Your atty skills are extremely valuable in this analysis.

    Then, given your reply, the entire judge’s exercise was pointless. Why did he even bother?

  48. Transor Z says:

    Then, given your reply, the entire judge’s exercise was pointless. Why did he even bother?

    Obviously Judge Grossman is a glass-half-full kinda guy. :-)

  49. wally says:

    “Geez. Do you guys really think having every bankruptcy court judge in America setting their own standards for foreclosure is the way to cure the ailing real estate market?”

    Each judge… no. each State… yes.

  50. @wally:

    Each State, i.e., in this case, New York, effectively does set its own standards for foreclosure, as this judge acknowledged in ruling that the foreclosure could proceed, notwithstanding his opinion of MERS.