MERS Mortgages Can't Be Foreclosed - Federal Judge Rules
In a federal bankruptcy court decision in the influential Eastern District of New York, Judge Robert Grossman explained in a 37 page decision in In re: FERREL L. AGARD, Case No. 810-77338-reg that MERS must have specific powers from its "principal" to transfer the mortgage and promissory note, and that the transfer of the mortgage by MERS does not automatically also transfer the promissory note it secures. Borrower attorneys nationwide have called suspect the practice of the splitting of the promissory note from the mortgage using the MERS concept of "nominee" and "mortgagee of record". MER'S "... argues that any member/lender which holds a note secured by real property, that assigns that note to another member by way of entry into the MERS database, need not also assign the mortgage because legal title to the mortgage remains in the name of MERS, as agent for any member/lender which holds the corresponding note. MERS's position is that if a MERS member directs it to provide a written assignment of the mortgage, MERS has the legal authority, as an agent for each of its members, to assign mortgages to the member/lender currently holding the note as reflected in the MERS database." In a classic foreclosure question of whether the plaintiff has standing to sue for the relief requested, the court went on a detailed analysis of the MERS scheme and basis for its existence. The court acknowledged the far reaching effect of its decision on mortgages nationwide. "The Court recognizes that an adverse ruling regarding MERS's authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. 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." The court went on to say that the argument that MERS owns 50% of the mortgages in the US is not a reason to turn a blind eye to the requirements of the law. Also classic is who has the note? The court said, "By MERS's own account, the Note in this case was transferred among its members, while the Mortgage remained in MERS's name. MERS admits that the very foundation of its business model as described herein requires that the Note and Mortgage travel on divergent paths. Because the Note and Mortgage did not travel together, Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also that it is acting on behalf of the valid assignee of the Mortgage." The next issue is about the abiltiy of MERS to assign the mortgage. "Other than naming MERS as "nominee", the Mortgage also provides that the Borrower transfers legal title to the subject property to MERS, as the Lender's nominee, and acknowledges MERS's rights to exercise certain of the Lender's rights under state law. This too, is insufficient to bestow any authority upon MERS to assign the mortgage. In Bank of New York v. Alderazi, the court found "[t]he fact that the borrower acknowledged and consented to MERS acting as nominee of the lender has no bearing on what specific powers and authority the lender granted MERS." Alderazi, 900 N.Y.S.2d at 824. Even if it did bestow some authority upon MERS, the court in Alderazi found that the mortgage did not convey the specific right to assign the mortgage." In wrapping up its decision, the court said, "However, even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that 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. "This Court finds that MERS's theory that it can act as a "common agent" for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged "nominee" status was appropriately described by the Supreme Court of Kansas as follows: "The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant - their description depended on which part they were touching at any given time." The significance of this decision has been enough for it to have reached most news wires on a global basis. Although the decision is long, it is a very interesting read, and it will help give detail and meaning to the endless articles you see in the newspaper on the foreclosure litigation issues. This decision lends tremendous support to the defense counsel arguments made over the past half dozen years that standing alone, MERS does not have the standing to foreclose a mortgage. Copyright 2011 Richard P. Zaretsky, Esq. ------------------------------------ Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.