Commentary: The article below by Joy Leopold reports on a recent decision that came down in the Bankruptcy Court for the Eastern District of New York. The caption of the case is In re: FERREL L. AGARD, Case No. 810-77338-reg. This article misses the point in two respects with regard to MERS:
First, a decision from the Bankruptcy Court, EDNY, is not binding on the Supreme Court of the State of New York. It's perhaps persuasive authority, but it is not binding. One gets the impression that Ms. Leopold overestimates the significance of this decision.
Second, Ms. Leopold fails to explain why MERS does not have the right to transfer mortgages or file foreclosures on behalf of lenders or its own behalf. MERS is a "nominee" of banks and acts as a record keeper and clearing house for mortgages that are originated and sold by financial institutions. MERS is an agent or middleman of sorts. The most important fact about MERS is that it does not have an ownership interest in any mortgage and is never the holder of the note. For this reason, it cannot on its own initiative transfer mortgages between banks, nor can it file foreclosure actions on its own behalf. The problem with MERS is that it transfers mortgages and sometimes commences foreclosures without being able to demonstrate to the courts or to defaulting borrowers that it has the right to do so. The mere title "nominee" does not give MERS carte blanche. It needs to show a power of attorney or a corporate resolution from the financial institution that actually owns the mortgage [i.e. "the holder the note and mortgage"] in order to demonstrate that MERS has the capacity to make assignments or commence foreclosure actions. MERS time and again has been unable to prove that it has such authority--for that reason its assignments of mortgage are defective; for that reason it does not have standing to commence foreclosure actions. The bottom line is that courts and homeowners need to know that the correct financial institution is bringing the foreclosure action. After all, this is not just about balance sheets and payment ledgers--it's about people's home.
Banks, if you want to take someone's home, do it correctly and be able to show that you're doing it correctly.
By: Joy Leopold
February 16, 2011
A New York judge has ruled that Mortgage Electronic Registration Systems, Inc. (MERS) does not have the right to transfer mortgages on behalf of its members, meaning it does not have the right to file foreclosures on behalf of lenders.
The company has recently been under fire for the practice, but the company defended its actions saying that borrowers are required to sign documents stating that MERS can assume rights and responsibilities on behalf of creditors.
The company’s Web site says, “MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.”
In recent years, though, that role has evolved substantially, with MERS taking foreclosure actions on behalf of lenders and servicers all over the country, even becoming embroiled in the robo-signing scandal.
At present, the company has about half of all the mortgages in the United States in its electronic database.
But last week, Judge Robert Grossman ruled MERS does not have the authority to act on behalf of its members, and the actions of the company are actually illegal, no matter what papers MERS requires members sign.
“The court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its members/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” said his statement.
He continued, “However, the court must resolve the instant matter by applying the laws as they exist today. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”
At present, the company has about half of all the mortgages in the United States in its electronic database.
But last week, Judge Robert Grossman ruled MERS does not have the authority to act on behalf of its members, and the actions of the company are actually illegal, no matter what papers MERS requires members sign.
“The court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its members/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” said his statement.
He continued, “However, the court must resolve the instant matter by applying the laws as they exist today. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”
A New York judge has ruled that Mortgage Electronic Registration Systems, Inc. (MERS) does not have the right to transfer mortgages on behalf of its members, meaning it does not have the right to file foreclosures on behalf of lenders.
The company has recently been under fire for the practice, but the company defended its actions saying that borrowers are required to sign documents stating that MERS can assume rights and responsibilities on behalf of creditors.
The company’s Web site says, “MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.”
In recent years, though, that role has evolved substantially, with MERS taking foreclosure actions on behalf of lenders and servicers all over the country, even becoming embroiled in the robo-signing scandal.
At present, the company has about half of all the mortgages in the United States in its electronic database.
But last week, Judge Robert Grossman ruled MERS does not have the authority to act on behalf of its members, and the actions of the company are actually illegal, no matter what papers MERS requires members sign.
“The court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its members/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” said his statement.
He continued, “However, the court must resolve the instant matter by applying the laws as they exist today. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”
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