In Kansas bankruptcies, all attorney fees must be approved by the Bankruptcy Court. Our Topeka law office will quote you a fee for your case after the initial consultation concerning your financial situation. Depending on the situation, the bankruptcy case quote will vary. In Kansas, the following initial filing fees will apply, which are paid to the clerk of the bankruptcy court at the time of filing: Chapter 7 Bankruptcy, $306.00; Chapter 13 Bankruptcy, $281.00.

We will also provide you with a written contract showing the services to be provided and the fees to be charged, as required by law. Of course, our office is more than happy to discuss the fees with you should you have any questions or concerns.  There is never any charge for the initial bankruptcy consultation.

Bankruptcy shouldn’t be taken lightly, but we want to make the situation as clear and painless for you as we can. We  want you to be informed about the cost of legal services in connection with your case. Remember –the only “stupid” question is the one that isn’t asked.

You can contact my Topeka, KS bankruptcy office at 785.273.1353 or toll free at 1-800-346 1353, or complete the contact us form or visit my website for a free initial consultation or more legal information.

Unfortunately, in almost every case the filing of Chapter 7 Bankruptcy or Chapter 13 Bankruptcy will have some adverse effect on your credit record.

Luckily, however, your credit record is not simply one particular entry, but rather a history of your credit over a period of several months or years. For example, if you are slow at paying your bills and are receiving collection notices from creditors, this will be reflected on your credit report. Likewise, if you have been sued or your wages garnished, these will be reflected on your credit report. In the past, the effect of a Chapter 13 on your credit is less significant than a Chapter 7, due to the reason that the person filing Chapter 13 is attempting to pay back all or some of his or her debts, and this has been reflected by the credit report.

However, credit reporting agencies now show any type of bankruptcy in the least favorable light, and keep the filing on a person’s credit record for ten years. In any event, you have the right under the Fair Debt Collection Practices Act to file with the credit reporting agency a statement on your own behalf explaining your financial difficulties and your reason for filing bankruptcy if you so desire.

Most importantly, please be aware that a bankruptcy filing will not “expunge” your credit record, and that adverse credit entries occurring before bankruptcy filing may continue to be shown on the credit report after filing.

Have more questions about filing bankruptcy? If you are considering bankruptcy, you can call our law office for a free initial consultation. You can contact my office at 785.273.1353 or complete the contact us form or visit my website for more information.

Filing Bankruptcy in Kansas? You have three courts that handle bankruptcies: Topeka, Kansas City and Wichita. If you live west of Topeka and live north of I-70 highway, seeking a Topeka bankruptcy lawyer like Paul Post may be your best option. Few western Kansas attorneys offer bankruptcy counsel, because it requires them to drive to Topeka, Kansas City or Wichita’s bankruptcy courts.

After your bankruptcy petition is filed by you or your attorney, the bankruptcy court sends a notice to all the creditors listed on your list of creditors filed with the case. This notice is generally mailed out within five days after you file your bankruptcy petition.  It advises creditors that you have filed bankruptcy, provides the case number, the location of the bankruptcy, and the name and address of the bankruptcy Trustee.

If you owe any secured creditors (that is, creditors with a lien on property such as a mortgage company, automobile finance company, furniture stores, etc) the bankruptcy does not wipe out the creditor’s lien.  If you file a Chapter 13 repayment plan (sometimes called a “wage-earner plan”) your plan will make provisions for the debt to be paid so that you can keep the secured property.  If you file a Chapter 7, you are required to notify secured creditors of your intentions concerning the secured property, that is, whether you want to keep the property or surrender it. This is done by filing Statement of Intent.   You then have approximately 75 days to either return the secured property or agree to what is known as a “reaffirmation agreement” if you want to keep the property.

The bankruptcy courts will also mail you or your attorney, as well as all creditors a notice scheduling the so-called 341 Meeting of Creditors. This hearing is often referred to as the “Meeting of Creditors” or “341 Meeting.”  At this meeting, the bankruptcy judge is never present.  That is because the bankruptcy code prohibits it, as the 341 meeting is an administrative hearing presided over by the Trustee.  The Trustee’s primary job is to make sure that you have complied with the disclosure requirements of the bankruptcy code, and also to generally look out for the interests ofyour creditors.  The Trustee will review your bankruptcy petition and attached schedules, and ask you  specific questions about these documents. Your attorney will already have provided the Trustee with tax returns and pay stubs.  You may be asked to provide the Trustee with copies of bank statements, titles to motor vehicles, an appraisal of your home (if you own one) along with a recorded mortgage and deed, and perhaps other documents.  Or the Trustee may be satisfied with information shown on the bankruptcy petition and schedules, and not request anything further. That decision is up to the particular Trustee assigned to your case, and depends in large mearsure on the accuracy and detail of your petition and schedules.

In most “no asset” cases, creditors rarely appear at these 341 Meeting; however, a representative from one of the companies you owe, or a person you owe, may show up at this meeting. They normally only make an appearance to ask where the secure item is located and if it is insured.  Even though the 341 Meeting is known as the Meeting of Creditors, creditors do not have to attend, nor do creditors forfeit any rights that they may have in the case by not attending.

If your bankruptcy petition and schedules are sufficiently detailed and adequate to provides all the information the Trustee requires, the Meeting of Creditors will normally only last 5-10 minutes.  You will ordinarily not be required to return for another meeting, although the Trustee may request that you provide additional documents or information after the meeting is concluded, which you have an obligation to do.

You can contact Paul at 785.273.1353 or use website contact form for a free consultation.

The filing  of  a bankruptcy will have some adverse effect on your credit record. However, a credit record is not simply one particular entry, but rather a history of your credit over a period of several months or years. For example, if you are slow at paying your bills and are receiving collection notices from creditors, this will be reflected on your credit report. In any event, you have the right under the Fair Debt Collection Practices Act to file with the credit reporting agency a statement on your own behalf explaining your financial difficulties and your reason for filing bankruptcy if you so desire. Please be aware that a bankruptcy filing will not “expunge” your credit record, and that adverse credit entries occurring before bankruptcy filing may continue to be shown on the credit report after filing.

Some people file bankruptcy on their own.  Yes, it can be done, but the truth of the matter is, bankruptcy law is complicated, and if it isn’t done right, the result can be dismissal of the case, or denial of a discharge.  I have represented several clients over the years who first tried to file bankruptcy themselves, but failed to correctly follow the law and prepare the case, resulting in having to hire an attorney anyway.  In several of these case, the fee I had to charge to fix a botched case was more that what I would have charged if I had  been on the case from the beginning.

I do not charge for the first consultation.  Therefore, if you have bankruptcy questions, make an appointment with me to discuss your options.  If you decide after meeting with me that you want to file a case on your own, you will not be charged for that initial meeting with me.

If you are thinking about filing bankruptcy yourself, give me a call before you go down that road.  Again, it is a free consultation.

Most people in today’s economy establish some sort of consumer debt, whether it be the purchase of a home, the purchase of an automobile, or perhaps to buy necessary furniture.  The use of credit cards has expanded over the past years, and now “plastic money” is often times used in place of cash and checks.  Most financial difficulties occur over a period of time with the purchase of consumer goods or the overuse of credit cards, where the person buys more on time payments than he or she can actually afford to pay, after taking care of necessary living expenses.  Likewise, periods of unemployment, lengthy illness, serious injuries, and divorce also may have caused financial difficulties.  The ultimate result is that sooner or later, some creditors are not being properly paid, and eventually, legal collection remedies are threatened or pursued.  While some persons are able to make satisfactory arrangements with their creditors for payment, others are ultimately faced with actual legal collection remedies such as garnishment of wages, repossession of property, and court proceedings.  For these persons, the financial crisis has become very real.

There are basically two types of bankruptcy actions available to individuals and families.  The first is what is commonly known as a “straight bankruptcy” or a Chapter 7.  In a chapter 7 bankruptcy, any “nonexempt” property or assets will be sold by the Bankruptcy Trustee, with the money derived from the sale of property to be used to pay the creditors’ claims.  However, from a practical standpoint, most property owned by individuals is “exempt property.”  This means that the property is exempt from attachment by the creditors, whether in or out of bankruptcy, and cannot be sold or utilized to pay creditor debts.  Your residence, automobile, household goods and furnishings, wages, and personal effects are generally all exempt and cannot be taken by the creditors or by the Bankruptcy Trustee.

In a Chapter 7 bankruptcy, most debts are discharged within approximately four to six months after the filing.  The problem with a chapter 7 bankruptcy is two-fold.  First, some debts are not dischargeable, which means these debts continue to exist after the bankruptcy is over.  For example, certain tax obligations are ordinarily not dischargeable, nor are student loans, nor are child support obligations.  Second, if a creditor has a security interest – a lien or a mortgage on property – this security interest generally survives the bankruptcy.  The underlying debt is discharged, but if the property is not paid for, the creditor gets the property back.  As a result, many people still end up owing money after the filing of a chapter 7 bankruptcy, in the form of tax obligations, student loans and payments on secured property (such as a home mortgage or a car loan).

Under the Chapter 13, sometimes called a “wage earner plan,” the purpose is to attempt repayment of your bills, rather than simply canceling them out.  Under present law, a debtor must have regular income from some source, and usually must pay a minimum of $85.00 per month for a period of three years to be eligible for this type of bankruptcy.  However, since the facts of each case vary, oftentimes the payment will be considerably more.  The reason for this is that any creditors to be paid, including secured creditors such as on car loans or other secured debts, are included in the one payment that is made to the Bankruptcy Trustee.  The only exceptions to this are home mortgages on a person’s residence, which continue to be paid directly to the mortgage holder, child support or alimony obligations, which are paid directly to the recipient, and car lease payments.

Other considerations in determining the amount you must pay include the value of any secured property, and any tax obligations, and any nondischargeable debts, such as student loans.  In order to complete a Chapter 13 and to keep secured property in your possession, you must pay at least the value of that property back to the secured creditor.  For example, if you have a car loan balance of $10,000.00, with the car being worth $8,000.00, then the requirement under Chapter 13 is that you propose to pay at least $8,000.00 to the secured creditor in order to keep that automobile in your possession.  This rule now applies only to vehicles purchased more than 910 days prior to filing bankruptcy (910 days is approximately 2 ½ years – if acquired within 910 days or less, the debt must be paid in full through the Plan).  You have up to five years to pay your creditors under Chapter 13.  If a creditor does not agree with the value which you place on the property, the Bankruptcy Judge decides what the property is worth, and you have to pay the value as decided by the Judge.

In addition, there are other significant differences between the Chapter 13 and Chapter 7 bankruptcy.  Under the Chapter 13, some debts can be discharged or eliminated, which might not be dischargeable in a Chapter 7.  Likewise, you are in control of how much you choose to pay back, rather than the creditor dictating to you how much must be paid.  The Chapter 13 saves you money in three ways, as follows:

a)    Interest on any unsecured claim, such as credit cards, stops running, and you simply pay back the principal due and owing to that creditor;

b)    Many consumer debts have a repayment cycle of one to three years, but under the Chapter 13, you may take up to five years to pay back any obligation.  This type of extension would reduce the payment owed to any creditor.

c)    You can, if you choose, pay less than the total amount of the debt due and owing under certain rules established by the Bankruptcy Court, which will also reduce the amount which you must pay.

However, you should be aware of the fact that some debts are not dischargeable in either a Chapter 7 or Chapter 13 bankruptcy, and under a Chapter 13, must be paid in full.  Some tax debts and most child support obligations cannot be discharged, nor can student loans unless you can show what is known as “undue hardship”.   As to student loans, to seek discharge of the debt you have to file a separate proceeding in your bankruptcy against the student loan creditor.  This is known as an “adversary complaint.”   Student loan discharge issues will be the subject of a future article on this blog.

Finally, Congress amended the Bankruptcy Code in 2005 to add the concept known as “means testing” or “needs based bankruptcy.”  This rule attempts to force people who are above the median income to file a Chapter 13 and pay something back to their unsecured creditors over a period of five years.  However, every case is different.  Even people who earn above the median income can still file Chapter 7, depending on the outcome of the so-called means test.  There are many deductions which can be taken in completing the means test, including support payments, retirement plan loan repayments, charitable gifts, and secured debt payments, which will result in no money being left over to pay creditors in a Chapter 13, and thus allow for the filing of a Chapter 7.

I have not covered business bankruptcy filings in the article.  Business bankruptcies are usually filed under Chapter 11.  Farm bankruptcies are generally filed under Chapter 12.  I will talk about those in the future.

Paul Post

My staff and I at the Law Office of Paul D. Post, P.A. in Topeka, Kansas, are ready to help answer your questions about bankruptcy in Kansas.   Call us at 785.273.1353/800.347.1353 or use website contact form for more information.

As part of the bankruptcy process, debtors are required to list all of their assets, which includes income tax refunds which they expect to receive.  The refunds may also include the earned income credit (EIC) also known as the earned income tax credit (EITC).  If a tax refund is received after the case is filed, the debtor is usually required to turn the tax refund over to the bankruptcy trustee, for distribution by the trustee to unsecured creditors.

The amount of the income tax refund and earned income credit required to be turned over to the trustee varies depending on when the case is filed.  If a bankruptcy is filed early in the year, but after the previous year’s tax refund or earned income credit is received, then the trustee will only require turnover of that portion of the refund or EIC that was “earned” prior to the time that the case was filed.  In other words, if a case is filed on April 1, which is one fourth of the way through the year, then one fourth of the tax refund or EIC must be turned over.  As the year progresses, more or the refund or EIC must be turned over.  If a bankruptcy is filed after the new year begins, but before the tax return is filed and the refund received, then all of the tax refund and EIC from the previous year is subject to turnover to the trustee.

A trustee has discretion to decline to accept a refund or the EIC.  If the refund is small, then a trustee may allow the debtor to keep the refund, since there would not be a meaningful payment to unsecured creditors arising out of the refund.  In my experience, if the refund is less than $1,000.00, then the trustee may decline to administer the refund for the benefit of creditors.  However, this is not always true, especially if there are other potential non-exempt assets which the debtor owns that may be required to be turned over.

Court decisions in the 1990′s determined that the earned income credit was subject to turnover to the trustee.  This credit is available to the “working poor” who have minor children dependent upon the working parent for support.  A person cannot receive the earned income credit if he or she does not work or if there are no minor children at home.  Oftentimes, depending upon the number of children in the family and the amount of income received, the EIC can be substantial, oftentimes amount to several thousand dollars.  It caps out at $5,000.00, which is not an insubstantial amount.  A working parent can receive the EIC even if no taxes were withheld on account of employment, which oftentimes happens with a parent who has a low wage and several children in the home.  Since the EIC is available only to working parents, it is specifically intended to encourage persons with minor children to work outside the home – it is a work-incentive program that is part of our federal welfare system, and when combined with the Temporary Aid to Needy Families program (TANF), is intended to assist those families in meeting their basic needs after the TANF payments expire.

The court rulings which allowed bankruptcy trustees to require turnover of the earned income credit are at cross-purposes with the national welfare assistance programs.  The effect of these decisions is to remove the money from families who need the funds essentially to survive, and allow the money to be distributed to creditors .  The question becomes whether it is fair result to redirect money away from low incomes families who need the funds for essential survival, and pay it to creditors.

This question can be answered by looking how unsecured creditors receive money from the bankruptcy estate.  The trustee is allowed to base a fee on 25% of the first $5,000.00 of recovered assets in a Chapter 7 case, with a 10% fee charged for sums received thereafter on amounts up to $50,000.00.   A $5,000.00 earned income credit refund would result in a fee of $1,250.00 to the trustee.  A Chapter 7 trustee may also charge additional expenses against the recovered asset.  Most trustee’s charge separately, and usually at an hourly rate, for actual legal work that benefits the estate, and this on top of the trustee fee previously discussed.  The attorney fee charges usually add an additional $500.00 to $1,000.00 to the total bankruptcy estate expenses, which are deducted from the recovered asset.  Again, using the hypothetical $5,000.00 earned income credit, fees could easily exceed $2,000.00, leaving the balance for unsecured creditors, who share pro rata in the net recovered assets based upon the amount of each claim compared to the entire recovery.

It is not uncommon for unsecured creditors to receive small distributions amounting to only a few dollars.  Oftentimes, the original creditor has sold its claim to a collection agency or a company that buys claims in bankruptcy for cents on the dollar.  Thus, the small amount of money paid to creditors in Chapter 7 may end up in the coffer of a speculator who has purchased another company’s bankruptcy claim.  This comes at the expenses of working parents who would otherwise use the earned income tax exemption to purchase needed goods and services in the local economy.   Exempting the earned income credit would allow those low income families to keep this source of funds for the benefit of their children.

In 2011, Senator John Vratil of the Kansas Senate introduced Senate Bill 12, which would exempt the earned income credit in a bankruptcy proceeding.  A person filing bankruptcy, who is also receiving an earned income credit, would no longer be required to turn over those funds to the trustee in the bankruptcy case if this bill is enacted.  I had the privilege of testifying before the both the Senate Judiciary Committee  on January 31 and the House Judiciary Committee on March 14, 2011, in support of this bill.  Along with colleagues Marilyn Harp, Executive Director of Kansas Legal Services, Jill Michaux, and John Hooge (both being bankruptcy lawyers in Topeka and Lawrence, respectively), we presented testimony that the earned income credit is part of the federal welfare assistance program designed specifically to encourage low income people to obtain and keep jobs, and that the requirement to turn over the credit for the benefit creditors in bankruptcy usually results in small, essentially insignificant payments to creditors, especially after trustee fees and expense are charged against the EIC prior to any distributions going to creditors.

Senate Bill 12 passed the Kansas Senate by a vote of 38-0 on February 15, 2011.   The bill was amended to allow the exemption to be claimed for only one year.  It was later approved by the Kansas House and the governor, and became law.

Since this law was enacted in 2011, several of the Topeka Chapter 7 trustee’s  have challenged this law in bankruptcy court.  Those challenges were denied by the bankruptcy court.  On appeal to the Bankruptcy Appellate Panel, those challenges were again rejected.  Thus, the EIC exemption remains available for Chapter 7 debtors.  The Topeka Chapter 13 Trustee has not challenged this exemption, and permits it to be taken in Chapter 13 cases.

Judge Karlin of the Topeka Division, U.S. Bankruptcy Court, entered an EIC decision in the case of In Re Westby.
http://www.ksb.uscourts.gov/index.php/kansas-bankruptcy-court-opinions/judge-karlinopinions/1655-11-40986-westby-doc–45

Congress amended the bankruptcy law in 1986 to create a new bankruptcy remedy specifically for farmers and ranchers, known as Chapter 12.  Prior to that, farmers and ranchers were forced to reorganize under Chapter 11, which is really designed for non-farm businesses, or file under Chapter 13, which is primarily intended for individuals with consumer debt.  Chapter 12 was a hybrid between the two other reorganization chapters, and included the best of both.  Especially important was the ability of farmers and ranchers to restructure long term debt, including mortgages secured by a homestead, which could not be done under Chapter 13.  The problem with Chapter 12 was that Congress created it as a “temporary” chapter to the bankruptcy law, intending it to expire or “sunset” after a few years.  However, each time that Chapter 12 was about to expire, it was extended again by Congress, but still on a temporary basis.  Finally, in 2005, Congress made Chapter 12 a permanent part of the bankruptcy code.

So how does Chapter 12 work?  First, the person filing must be a “family farmer” as defined by the law, meaning that the debtor must be a farmer or rancher with at least  50 per cent of the debt arising out of the farming operation, and with at least 50 per cent of the debtor’s gross income for the preceding taxable year being from the farm or ranch operations.  If those requirements are met, the farmer or rancher can file a Chapter 12 petition, and must file a Chapter 12 plan of reorganization within 90 days of filing the bankruptcy petition.  A farm corporation or partnership will be eligible to file a Chapter 12 case if it meets four specific conditions. First, at least 50 percent of the stock or equity of the corporation or partnership must be held by one family, with that family conducting the farming operation. Second, more than 80 percent of the value the corporation or partnership’s assets must be related to the farming operation. Third, the aggregate debts must not exceed $3,544,525 with not less than 50 percent of that arising from its farming operation. As with an individual, the $3,544,525 debt ceiling is automatically adjusted every three years to reflect any change in the Consumer Price Index.

The Chapter 12 Plan is essentially a restructuring of existing debts.  For example, as to secured debt, the plan can propose to pay the value of collateral rather than the full debt if the collateral (property securing the debt) is less than the amount of the debt.  If a tractor is worth $25,000.00, but has a $35,000.00 debt, the plan can propose to pay the value of $25,000.00, with the $10,000.00 difference becoming an unsecured debt.  The plan can also modify the length of debt repayment, extending it beyond the amount called for in the original note.  The plan can also modify the interest rate.  As to unsecured debt, interest stops on filing and doesn’t have to be paid.  In some cases, all or part of the unsecured debt can be discharged after the plan is  complete.  The frequency of payments can also be adjusted.  For example, if payments are scheduled by a creditor’s note to be made before harvest, the plan can modify that requirement to make the payment come due after harvest.

Plan payments are made to the Chapter 12 trustee during the first three to five years of the plan.  The trustee then distributes those payments to creditors pursuant to the plan provisions.  After the three to five year period, the plan payments terminate and unsecured debts are discharged.  Long term secured debts are then made directly by the debtor to secured creditors.

Bankruptcy is a federal law and cases are filed in bankruptcy court, which is part of the federal court system.  There are three bankruptcy court locations in Kansas:  Topeka, Wichita, and Kansas City.  The person filing Chapter 12 will have to attend a meeting of creditors, known as a “341 meeting,” about 30 days after the case is filed.  This meeting is with the trustee, and although creditors can attend, they are not required to.  The 341 meeting is held in the city where the case is filed:  Topeka, Wichita, or Kansas City, as appropriate.   After the plan is filed, the court sets a hearing to confirm or approve the plan.  If creditors object to plan provisions, they must file written objections to the plan.  The court will then  hear and consider those objections as part of the confirmation process.  Once the plan is confirmed, it then is binding on all creditors, and supercedes any provisions in promissory notes and security agreements.

Much wailing and gnashing of teeth was heard in mortgage banking circles after the Kansas Supreme Court answered the question: “What is MERS?” Landmark National Bank v. Kesler, 289 Kan. 528, 216 P.3d 158, 2009 Kan. LEXIS 834. MERS, an acronym for Mortgage Electronic Registration Systems, Inc., was set up some years back by mortgage bankers to be the “straw man” or placeholder for lenders, with MERS to be the mortgagee or recipient of mortgage to real estate, while the debt was held by the mortgage lender. It is really an electronic database, nothing more. MERS is privately owned by, you guessed it, the mortgage bankers who created this fictional entity. State laws require that there be a clear chain of assignment recorded at the county level. MERS allowed lenders to circumvent this requirement, and had the added benefit of permitting lenders to avoid paying registration fees and recording costs to local governmental units. This also allowed a number of other things to occur, all beneficial to the mortgage banking industry, and none helpful to homeowners. By putting the mortgage in the name of MERS, lenders could then sell and assign their notes to each other without the worry of recording an assignment. Farewell to transparency. Homeowners would know that MERS held their mortgage, but might not have the foggiest notion about who owned the note, i.e., who was the creditor in the transaction. Moreover, even if the homeowner knew at the beginning of the loan who the lender was, the creditor holding the note might change on a regular basis through assignments to other mortgage lenders. Last but certainly not the least, a third party, known as a “loan servicer,” would often be the entity to whom payments were made by borrowers.

Beyond that, this tactic was part and parcel of the mortgage “securitization” bugaboo that was instrumental in bringing on the worst recession since the Great Depression. Securitization might thought of as the mortgage industry’s version of the “kitchen magician.” They sliced and diced home loans, repackaged the bits and pieces into “mortgage backed securities” which they then marketed to the investing public. Many of these repackaged mortgage debts included high risks loans, where the debt exceeded the value of the home, and other devices, such as “interest only” mortgage loans, where the homeowner was betting on the eventual increase in value of the home. Finally, many of these mortgages had adjustable rate features with “teaser” rates at inception. So what is wrong with these home buying strategies? Well, now we know, two years into the recession. When home value appreciation stalled, there was no incentive for the speculative homeowner to continue to make payments, even if interest only. Likewise, when interest rates adjusted upward, after expiration of the teaser period, home buyers walked away. These sliced and diced mortgages, now repackaged as mortgaged backed securities, began to lose value. If the underlying mortgages were increasingly falling into nonperforming status, the value of the “securities” had nowhere to go but down. And so it was. So what did the Kansas Supreme Court have to say about the MERS folly? Just this: No debt is owed to MERs, and therefore, MERS has no right to foreclose. The entity that has the debt has no security in the form of a home mortgage to back up the debt, so it is an unsecured creditor. It has no right to foreclose. Said the Court:

The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is a party to whom property is mortgaged, which is to say, a mortgage creditor or lender. A mortgagee and a lender have intertwined rights that defy a clear separation of interests. By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323 . Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting ‘solely’ as the nominee of the lender.

The Court went on to state that: 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. [Citation omitted.] 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. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009).

Apologist for the mortgage banking industry characterized the opinion as having “narrow application.” If that is so, then they were probably surprised at what happened next. In 2009, I represented a homeowner whose house was being foreclosed upon by MERS. The trial judge ordered that the foreclosure proceed. I appealed that decision to the Kansas Court of Appeals, and relied upon the Kansas Supreme Court decision in Landmark National Bank v. Kesler, above, to convince the Court of Appeals that the trial judge was wrong, and that the foreclosure should be dismissed. That case, MERS v. Graham, 2010 Kan. App. LEXIS 210, held that In the instant case, this mortgage states that MERS acts “solely as nominee” for Countrywide. There is no mention of MERS in the promissory note, and there is no evidence that Countrywide assigned the note to MERS.

Thus, there is no evidence that MERS has suffered any injury caused by Graham and Martinez’ failure to make payments on the promissory note. The note does not obligate Graham and Martinez to make payments to MERS. Further, there is no indication that MERS possesses any interest in the promissory note, and given Landmark’s “straw man” characterization of MERS’s relationship to lenders, 289 Kan. at 539, there is no evidence that MERS received permission to act as an agent for Countrywide. Having suffered no injury, MERS lacks standing to bring a foreclosure action. Accordingly, the district court did not have jurisdiction to grant MERS’s petition to foreclose the mortgage.