{"id":5,"date":"2013-05-14T20:19:14","date_gmt":"2013-05-14T20:19:14","guid":{"rendered":"http:\/\/www.paulpost.com\/blog\/?p=5"},"modified":"2014-05-05T15:54:10","modified_gmt":"2014-05-05T15:54:10","slug":"mers-unmasked-by-kansas-supreme-court","status":"publish","type":"post","link":"http:\/\/www.paulpost.com\/blog\/2013\/05\/mers-unmasked-by-kansas-supreme-court\/","title":{"rendered":"MERS Unmasked by Kansas Supreme Court"},"content":{"rendered":"

Much wailing and gnashing of teeth was heard in mortgage banking circles after the Kansas\u00a0Supreme Court answered the question: \u201cWhat is MERS?\u201d Landmark National Bank v. Kesler<\/em>, 289\u00a0Kan. 528, 216 P.3d 158, 2009 Kan. LEXIS\u00a0834. MERS, an acronym for Mortgage Electronic Registration Systems, Inc., was set up some years\u00a0back by mortgage bankers to be the \u201cstraw man\u201d or placeholder for lenders, with MERS to be\u00a0the mortgagee or recipient of mortgage to real estate, while the debt was held by the mortgage\u00a0lender. It is really an electronic database, nothing more. MERS is privately owned by, you guessed it,\u00a0the mortgage bankers who created this fictional\u00a0entity. State laws require that there be a clear chain of assignment recorded at the county level.\u00a0MERS allowed lenders to circumvent this requirement, and had the added benefit of permitting lenders\u00a0to avoid paying registration fees and recording costs to local governmental units. This also allowed\u00a0a number of other things to occur, all beneficial to the mortgage banking industry, and none\u00a0helpful to homeowners. By putting the mortgage in the name of MERS, lenders could then sell and\u00a0assign their notes to each other without the worry of recording an assignment. Farewell to\u00a0transparency. Homeowners would know that MERS held their mortgage, but might not have the foggiest\u00a0notion about who owned the note, i.e., who was the creditor in the transaction. Moreover, even if\u00a0the homeowner knew at the beginning of the loan who the lender was, the creditor holding the\u00a0note might change on a regular basis through assignments to other mortgage lenders. Last but\u00a0certainly not the least, a third party, known as a \u201cloan servicer,\u201d would often be the entity to whom\u00a0payments were made by\u00a0borrowers.<\/p>\n

Beyond that, this tactic was part and parcel of the mortgage \u201csecuritization\u201d bugaboo that\u00a0was instrumental in bringing on the worst recession since the Great Depression. Securitization\u00a0might thought of as the mortgage industry\u2019s version of the \u201ckitchen magician.\u201d They sliced and diced\u00a0home loans, repackaged the bits and pieces into \u201cmortgage backed securities\u201d which they then\u00a0marketed to the investing public. Many of these repackaged mortgage debts included high risks loans,\u00a0where the debt exceeded the value of the home, and other devices, such as \u201cinterest only\u201d mortgage\u00a0loans, where the homeowner was betting on the eventual increase in value of the home. Finally, many\u00a0of these mortgages had adjustable rate features with \u201cteaser\u201d rates at\u00a0inception. So what is wrong with these home buying strategies? Well, now we know, two years into\u00a0the recession. When home value appreciation stalled, there was no incentive for the\u00a0speculative homeowner to continue to make payments, even if interest only. Likewise, when interest\u00a0rates adjusted upward, after expiration of the teaser period, home buyers walked away. These sliced\u00a0and diced mortgages, now repackaged as mortgaged backed securities, began to lose value. If\u00a0the underlying mortgages were increasingly falling into nonperforming status, the value of\u00a0the \u201csecurities\u201d had nowhere to go but down. And so it\u00a0was. So what did the Kansas Supreme Court have to say about the MERS folly? Just this: No debt\u00a0is owed to MERs, and therefore, MERS has no right to foreclose. The entity that has the debt has\u00a0no security in the form of a home mortgage to back up the debt, so it is an unsecured creditor. It\u00a0has no right to foreclose. Said the\u00a0Court:<\/p>\n

The law generally understands that a mortgagee is not distinct\u00a0from a lender: a mortgagee is a party to whom property is\u00a0mortgaged, which is to say, a mortgage creditor or lender. A mortgagee and\u00a0a lender have intertwined rights that defy a clear separation of\u00a0interests. By statute, assignment of the mortgage carries with it the\u00a0assignment of the debt. K.S.A. 58-2323 . Although MERS asserts that,\u00a0under some situations, the mortgage document purports to give it the\u00a0same rights as the lender, the document consistently refers only to rights\u00a0of the lender, including rights to receive notice of litigation, to\u00a0collect payments, and to enforce the debt obligation. The\u00a0document consistently limits MERS to acting \u2018solely\u2019 as the nominee of\u00a0the lender.<\/p>\n

The Court went on to state\u00a0that: The practical effect of splitting the deed of trust from\u00a0the promissory note is to make it impossible for the holder of the note\u00a0to foreclose, unless the holder of the deed of trust is the agent of\u00a0the holder of the note. [Citation omitted.] Without the\u00a0agency relationship, the person holding only the note lacks the power\u00a0to foreclose in the event of default. The person holding only the deed\u00a0of trust will never experience default because only the holder of the\u00a0note is entitled to payment of the underlying obligation. [Citation\u00a0omitted.] The mortgage loan becomes ineffectual when the note holder did\u00a0not also hold the deed of trust.\u201d Bellistri v. Ocwen Loan Servicing,\u00a0LLC<\/em>, 284 S.W.3d 619, 623 (Mo. App.\u00a02009).<\/p>\n

Apologist for the mortgage banking industry characterized the opinion as having\u00a0\u201cnarrow application.\u201d If that is so, then they were probably surprised at what happened\u00a0next. In 2009, I represented a homeowner whose house was being foreclosed upon by MERS. The\u00a0trial judge ordered that the foreclosure proceed. I appealed that decision to the Kansas Court of\u00a0Appeals, and relied upon the Kansas Supreme Court decision in Landmark National Bank v. Kesler<\/em>,\u00a0above, to convince the Court of Appeals that the trial judge was wrong, and that the foreclosure should\u00a0be dismissed. That case, MERS v. Graham<\/em>, 2010 Kan. App. LEXIS 210, held\u00a0that In the instant case, this mortgage states that MERS acts \u201csolely\u00a0as nominee\u201d for Countrywide. There is no mention of MERS in\u00a0the promissory note, and there is no evidence that Countrywide\u00a0assigned the note to\u00a0MERS.<\/p>\n

Thus, there is no evidence that MERS has\u00a0suffered any injury caused by Graham and Martinez\u2019 failure to make\u00a0payments on the promissory note. The note does not obligate Graham\u00a0and Martinez to make payments to MERS. Further, there is no\u00a0indication that MERS possesses any interest in the promissory note, and\u00a0given Landmark\u2019s \u201cstraw man\u201d characterization of MERS\u2019s relationship\u00a0to lenders, 289 Kan. at 539, there is no evidence that MERS\u00a0received permission to act as an agent for Countrywide. Having suffered\u00a0no injury, MERS lacks standing to bring a foreclosure\u00a0action. Accordingly, the district court did not have jurisdiction to\u00a0grant MERS\u2019s petition to foreclose the\u00a0mortgage.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Much wailing and gnashing of teeth was heard in mortgage banking circles after the Kansas\u00a0Supreme Court answered the question: \u201cWhat is MERS?\u201d Landmark National Bank v. Kesler, 289\u00a0Kan. 528, 216 P.3d 158, 2009 Kan. LEXIS\u00a0834. MERS, an acronym for Mortgage Electronic Registration Systems, Inc., was set up some years\u00a0back by mortgage bankers to be the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-5","post","type-post","status-publish","format-standard","hentry","category-bankruptcies"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/5","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/comments?post=5"}],"version-history":[{"count":8,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/5\/revisions"}],"predecessor-version":[{"id":109,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/5\/revisions\/109"}],"wp:attachment":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/media?parent=5"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/categories?post=5"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/tags?post=5"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}