Posted on 09/27/2009 4:32:21 PM PDT by dennisw
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.
Yeah I’d say this might cause a glitch or two...
This is a complete misinterpretation of the decision.
For the uninitiated, your first clue that a “get out of jail, free” card had been discovered and that the link between a secured interest in the collateral and the mortgage loan agreement had been severed would be the total collapse of the financial sector. If you haven’t seen that, this view is wrong.
This is precisely what too much government brings: Loopholes, Red tape, confusion, ect. and as always the taxpayers will be left holding the bag.
You have a point but most people will never hear about this. Those that do will still make their payments if they can.
And this would not be the first time such institutions, in an attempt to cover their own asses ended up shooting themselves in the foot.
Wow! If there’s a loop-hole, you can always count on the bums and freeloaders to find it!
Let me understand your position. If a Main Street business man created a stupid financial product and it goes bad, he eats the loss because his business is too small to impact the country. However if you are a banksta, you can create a stupid and flawed product and if goes bad, he can have the government modify it because he is too big to fail. Sounds like we do need a little socialism/facism by telling the banking industry (and other industries) they cannot exceed a certain percentage of the GDP, otherwise they can act recklessly and recoup their losses by threatening our country that they are too big to fail.
Not sure how you got all of that out of my short post.
Most people will still continue to make their payments if they have the money. Because the alternative is to lose their home. Its only when everything breaks down will payments stop. Its all about confidence.
This decision won’t have an impact such as was suggested.
Remember during the campaign, the woman claiming Obama was going to give her a house, put gas in her car.........
Bet'cha we see it before very much longer.
Can anyone say US Supreme Court (USSC) here? Given all of the dangling strings and enormous impact, I see this as a near-certain USSC case and of more interest than even the Kelo Eminent Domain case. If the Wall Street Banks and Brokerage Firms can’t get their money back, they are BROKE in every way and what then for the Obama Administration, another bail-out?. As the great Arte Johnson would say in a faux German accent, “Verrrry Interesting”!
If the loan quasi-went to one of these MERC organizations, how would foreclosure be able to happen? The MERC organization can’t make it happen.
People are getting free automobiles!
Actually I have heard of recent bankruptcy cases here where not all the creditors show up
So the creditor that made your car loan is absent in court and you get your Lexus for free
I have heard of that
I should say, MERS.
How stupid is it to create a financial product out of a mortgage which doesn’t have any legal interest in the underlying property. What’s the other piece of this corpse/ghost type separation? Someone who has an interest in the property but is getting no income from it? What are our bankers smoking?
Yes, but most people won’t believe it. And banks will continue to call and threaten people. It would take a large percentage of people to stop making payments for this decision to have a major impact. I doubt that will happen until the Mugabe style inflation arrives.
Umm, as soon as grifters found they could buffalo the bank away after defaulting on their mortgage, everyone would know.
“What are our bankers smoking?”
TARP Money. The small bankers usually have pretty good practices. Its the big global banks that do stupid stuff like this. At least thats my experience.
Good decision. Every one who claims an interest in real property must file their instrument in the recorder’s office. Every one can then go there and search the property records to find who owns what. If you buy property, you record your deed. If the electric company has gotten the right to put a power line across your property, it records its easement.
When banks sell a loan, for decades they would file an assignment of the mortgage in the recorder’s office. You could then go to that office and see who owns your loan. But the big banks didn’t want to play by the same rules any longer. So they created MERS and now, as the case noted, it can be maddening to find out who owns your loan and who you are dealing with.
The banks should file their mortgage assignments and play by the same rules as the rest of us.
All well and good when the mortgage is sold and resold whole. Lots of mortgages were chopped up with one MBS holding the piece that gets the principle payments and another MBS holding the piece getting the interest payments
***MBS = mortgage backed security
I’ll bet some mortgages were cut into more than two pieces
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