Thursday, September 16, 2010

MERS cannot foreclose

This is a quote from an email I have just received --
I presume the guy who sent it will be happy for me to spread it around.'t-foreclose-citibank-can't-collect/

"Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is VOID under California Law."

If you read that sentence and thought… "MERS," then you're already in the club. If you've never heard of MERS, and have no idea what is meant by being "in the club," don't worry, this is a club that just about every homeowner is invited to join. In fact, you may already be a member and not even know it.

MERS is the acronym used to describe Mortgage Electronic Registration Systems, Inc. Best I can tell, our friends in the mortgage banking industry created MERS to make it easier for banks and servicers to sell and transfer our mortgages at the speed of light during the real estate bubble. According to the company's Website:

MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Our mission is to register every mortgage loan in the United States on the MERS® System.

MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS® System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded.

I have to tell you… I hate these guys already. Their attitude alone bothers me. I looked at pictures of their three top executives on their Website and thought to myself… "No way I'd be friends with these guys." Probably not very fair of me, but as far as I'm concerned, when it comes to anything that talks like that and was created by the mortgage banking industry… "fair," is where you go on Sunday to have popcorn and cotton candy. Just so we're clear.

MERS, which is a company that I hear doesn't even have employees, has been about as controversial as you get ever since houses started dropping like flies into foreclosure back in 2007-08. God forbid you find yourself losing your home to foreclosure, you'll very likely find a representative from MERS looking smug and acting like the owner of your mortgage. But, MERS is not the owner of your mortgage, of course, and now a bankruptcy court judge in the Eastern District of California has officially said that he agrees.

MERS is a relatively new development in the mortgage world, and as the foreclosure crisis began the courts pretty much let them do whatever they wanted to do, as the party in interest in a foreclosure action.

But, that was before the foreclosures became a full fledged tsunami, and homeowners watched the bankers first get bailed out, and then pay out billions in bonuses before treating every single American homeowner/taxpayer who applied for a loan modification like insignificant garbage.

In response, homeowners, having been trained for over 200 years in the fine art of pushing back when shoved, went to their lawyers, and those lawyers started asking questions, as they are prone to do. Many started with questions like: "Who the heck is this MERS guy and why does he think he has any right to be foreclosing on my client's home?"

For almost two full years, it seemed to me that judges, who frankly weren't used to foreclosures being challenged, basically yawned and gave the house back to the bank. Then, starting about a year ago, give or take, things started to change. Judges started to listen to the points being raised as related to MERS showing up as the party in interest ready to foreclose, and the more the judges learned, the more they saw problems with what MERS was doing. As time went on the tide seemed to shift a bit and several decisions weren't falling as MERS would have liked for one reason or another.

According to the company's Website, MERS "is a proper party that can lawfully foreclose as the mortgagee and note-holder of a mortgage loan." Here's what it says on the MERS Website:


("MERS") is In mortgage foreclosure cases, the plaintiff has standing as the holder of the note and the mortgage. When MERS forecloses, MERS is the mortgagee and it is the holder of the note because a MERS officer will be in possession of the original note endorsed in blank, which makes MERS a holder of the bearer paper.

But, in this latest decision, the bankruptcy judge in California didn't agree, writing in his opinion:

"Since no evidence of MERS' ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law."

Did you get that? Since MERS didn't own the underlying note, it couldn't transfer the beneficial interest of the Deed of Trust to Citibank.

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