Gretchen Morgenson, unlike the rest of the press, pays attention to a Kansas court ruling last week that has potentially huge implications for homeowners and the mortgage industry.
The court ruled that the Mortgage Electronic Registration System, used by much of the mortgage industry to reduce paperwork and filing fees by acting as an ownership front, has no legal standing because it has no underlying interest in a note.
MERS is one of the little-known cogs in the machine that created the housing bubble. It eased the way for securitization by eliminating the need to refile paperwork with a county every time a loan changed hands. The Times itself wrote one of the only big stories about the entity back in April, and I reviewed it here, noting that the piece raised serious questions about MERS.
The Kansas court seems to agree, noting that Sovereign Bank didn’t register its ownership of a loan, which was attributed to MERS:
In January 2007, it found that Sovereign’s failure to register its interest with the county clerk barred it from asserting rights to the mortgage after the judgment had been entered. The court also said that even though MERS was named as mortgagee on the second loan, it didn’t have an interest in the underlying property.By letting the sale stand and by rejecting Sovereign’s argument, the lower court, in essence, rejected MERS’s business model.
This has huge implications for the foreclosure mill, Morgenson reports:
BUT Patrick A. Randolph, a law professor at the University of Missouri, Kansas City, who described himself as a friend of MERS, described the recent decision as unsettling. “This opinion is hostile to the notion of MERS as nominee and could lead to problems for it in foreclosing,” he said. “The entire structure of MERS as a recorded nominee could collapse in Kansas, and that could lead to a patch-up job where they would have to run around and re-record the mortgages.”
To which Morgenson says:
If so, MERS would be hoisted on its own petard. And it would be a rare case of poetic justice in this long-running mortgage mess.
Indeed.
Why has this issue been almost totally ignored by the press? Every newspaper in every community in the country can do a MERS story—probably a really good one.
It’s time to play catch-up.
If banks who used MERS are no longer allowed to foreclose, what happens to the loan? Is there just a delay in the process while paperwork is (re)shuffled - or are we talking banks losing their claim to loans on their books?
#1 Posted by murph, CJR on Mon 28 Sep 2009 at 03:18 PM
MERS is a smart idea that benefits every positive participant in the mortgage industry, including borrowers, by lowering costs and reducing meaningless paperwork. Judges and others who fail to understand that are foolish or have a political agenda to delay justifiable foreclosures.
#2 Posted by Progressive Pragmatist, CJR on Mon 28 Sep 2009 at 08:37 PM
Arkansas Supreme Court Decision MIRRORS Kansas Decision, refers to SAME "Black Letter Law". Arkansas also CITES the Landmark v Kessler in its decision. IS THIS RELEVANT NEWS???????????
----------------------------------------------------------------------------------------------
MORTGAGE ELECTRONIC REGISTRATION SYSTEM, INC., APPELLANT, VS. SOUTHWEST HOMES OF ARKANSAS, APPELLEE
No. 08-1299
SUPREME COURT OF ARKANSAS
2009 Ark. LEXIS 121
March 19, 2009, Opinion Delivered
NOTICE:
THE LEXIS PAGINATION OF THIS DOCUMENT IS SUBJECT TO CHANGE PENDING RELEASE OF THE FINAL PUBLISHED VERSION.
SUBSEQUENT HISTORY: Rehearing denied by Mortgage Elec. Registration Sys. v. Southwest Homes of Ark., Inc., 2009 Ark. LEXIS 458 (Ark., Apr. 23, 2009)
PRIOR HISTORY: [*1]
APPEAL FROM THE BENTON COUNTY CIRCUIT COURT, NO. CIV07-223-2, HON. DAVID S. CLINGER, JUDGE.
DISPOSITION: AFFIRMED.
COUNSEL: George Nicholas Arnold – Counsel for the Appellant.
Howard Keith Morrison – Counsel for the Appellant.
Thomas D. Stockland – Counsel for the Appellee.
JUDGES: JIM HANNAH, Chief Justice. IMBER, DANIELSON and WILLS, JJ., concur.
OPINION BY: JIM HANNAH
OPINION
JIM HANNAH, Chief Justice
Mortgage Electronic Registration System, Inc. (”MERS”) appeals a decision of the Benton County Circuit Court denying its motion to set aside a decree of foreclosure and to dismiss the foreclosure action. 1 MERS alleges that the circuit court erred in ordering foreclosure because as the holder of legal title it was a necessary party that was never served. We affirm the circuit court and hold that under the recorded deed of trust in this case, James C. East, as trustee under the deed of trust, held legal title. Because MERS was at most the mere agent of the lender Pulaski Mortgage Company, Inc., it held no property interest and was not a necessary party. As this case presents an issue of first impression, our jurisdiction is pursuant to Arkansas Supreme Court Rule 1-2(b)(1).
1 Mortgage Electronic Registration System, Inc.’s (”MERS”) motion was [*2] entitled Motion to Set Aside Default Judgment; however, the circuit court found, and the parties agree, that MERS was never served. Because MERS was never served, it could not have failed to respond to that service and suffer a default judgment. The relief sought was that the decree of foreclosure be set aside and the foreclosure action be dismissed.
This case arises from foreclosure on a 2006 mortgage granted in a one-acre lot. A prior deed of trust also encumbered the property. In 2003, Jason Paul Lindsey and Julie Ann Lindsey entered into a deed of trust on a one-acre lot in Benton County to secure a promissory note. The lender on that deed of trust was Pulaski Mortgage, the trustee was James C. East, and the borrowers were the Lindseys. MERS was listed on the deed of trust as the “Beneficiary” acting “solely as nominee for Lender,” and “Lender’s successors and assigns.” The second page of the deed of trust states that “the Borrower understands and agrees that MERS holds only legal title to the interests granted by the Borrower and further that MERS as nominee of the Lender has the right to exercise all rights of the Lender including foreclosure.” The deed of trust was recorded.
In [*3] 2006, the Lindseys granted the subject mortgage on the same property to Southwest Homes of Arkansas, Inc. to secure a second promissory note. This mortgage was recorded. On February 9, 2007, Southwest Homes filed a Petition for Foreclosure in Rem against the Lindseys under the 2006 mortgage. The Lindseys, the Benton County Tax Collector, and “Mortgage Electronic Registration System, Inc. (Pulaski Mortgage Company)” were listed as respondents. Pulaski Mortgage was served; however, MERS was never served. Pulaski Mortgage did not file an answer. 2 A Decree of Foreclosure in
#3 Posted by anon, CJR on Fri 2 Oct 2009 at 06:01 PM