A New York appeals court has thrown out another MERS foreclosure proceeding, this one on a delinquent $479,000 mortgage with no note in evidence not just in MERS, but anywhere. “They’ve had three years to find it [the note],” said the homeowner’s lawyer, “and they haven’t.” The trustee for the trust allegedly containing the mortgage, the Bank of New York (BONY), could not produce the note and, according to the courts, since MERS “couldn’t give BONY the authority to foreclose because it didn’t possess the underlying note,” the homeowners will not face foreclosure. “A transfer of the mortgage without the debt is a nullity, and no interest is acquired by it,” the court ruled[1].
While this might appear at first to be a big deal, even the homeowners’ lawyer believes that the situation may be unusual enough that it will not impact most homeowners because BONY actually admitted that it did not have the note. However, other analysts are not willing to say that the judges making rulings like this one are not opening up the door to potentially massive lawsuits if the MERS model is ultimately deemed invalid. “We know that MERS is a problem; we don’t know exactly what that’s going to mean,” explained Adam Levitin, a professor of law at Georgetown University[2]. However, judges ruling against MERS are standing firm, saying that “the law must not yield to expediency and the convenience of lending institutions,” in the words of Justice John M. Leventhal. “Proper procedures must be followed to ensure the reliability of the chain of ownership,” he added.
Do you think that the MERS mess will blow over, or is it here to stay?
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[1] http://blogs.forbes.com/danielfisher/2011/06/14/new-york-appeals-court-rejects-mers-foreclosure/
[2] http://www.washingtonpost.com/business/economy/courts-may-reshape-mortgage-industry/2011/06/13/AGhPzHVH_story.html
If an institution does not show proper chain of Title and or Ownership of a property, what precludes Anyone, any Entity from trying to foreclose on a property? Kudos to the Judges who are playing it straight, for the good of all people and companies who abide by the laws already written.
Great news, except that (1) I haven’t a clue as to what the judge meant by “A transfer of the mortgage without the debt is a nullity, and no interest is acquired by it.” Can anybody translate that into English? Basically, if you are transferring a mortgage but you cannot prove you have the right to transfer that mortgage, then you can’t really transfer the mortgage and whoever is on the other end of the transfer does not now have an interest in said mortgage
and
(2) Who can end up with the title? Presumably the original lender had title insurance. Did that lender record a transfer to BONY? Does MERS record titles and get insurance–if not, can the borrower end up with the title? Good questions, and ones that we will probably have to wait for the courts to determine.
Perhaps this explanation will help. The note is the financial instrument signed by the borrower who promises to pay the debt to the lender, who becomes the holder and owner of the debt. The note itself is evidence of the indebtedness, and the party who possesses the note is presumed to be its holder.
The “mortgage” known in various states as the “trust deed” or “deed of trust” is the security instrument executed by the borrower by which the note holder enforces the debt if the borrower defaults. But only the party who holds the note (and is entitled to payment) can direct foreclosure of the mortgage and recovery of the secured property. Therefore, unless a foreclosing lender can produce the actual note to prove it is the holder, the lender has no legal right to foreclose and the foreclosure is void.
Assigning a mortgage to the MERS system or holding a security that is collateralized by a mortgage note does not make the security owner a “holder” of the note, i.e. “a transfer of the mortgage without the debt is a nullity and no interest is acquired by it” in the language of the court. The court is absolutely correct in its decision and I join your praise of the judge for following the law.