Court of Appeals Rules that MERS Cannot Foreclose Via Advertisement

Do you know if MERS owns your home?  MERS [you know, the Mortgage Electronic Registration System] has been getting drawn deeply into the nationwide mortgage meltdown.

The Michigan Court of Appeals recently handed MERS some more bad news here in Michigan: they cannot foreclose by advertisement because the COA ruled they do not hold an interest in the indebtedness under the applicable Michigan statute.

In the 2-1 decision in Residential Funding Corp v Saurman, two cases were consolidated which posed the same legal question: whether the mortgagee, MERS, could foreclose by advertisement rather than filing a foreclosure lawsuit (a "judicial foreclosure"). 

The respective home owners in these consolidated cases each defaulted on their mortgages.  MERS instituted non-judicial foreclosures by advertisement, as permitted by statute.  The properties were then purchased by MERS at sheriffs' sales.  At this point, the respective homeowners from Kent and Jackson Counties, challenged the foreclosures on the basis that MERS could not foreclose via advertisement as they did not fall within the definition of a "mortgagee" under the statute.

Just what is MERS?  The Saurman opinion provides a good clean glimpse.  According to the Court of Appeals:

MERS was developed as a mechanism to provide for the faster and lower cost buying and selling of mortgage debt.  Apparently, over the last two decades, the buying and selling of loans backed by mortgages after their initial issuance had accelerated to the point that those operating in that market concluded that the statutory requirement that mortgage transfers be recorded was  interfering with their ability to conduct sales as rapidly as the market demanded.  By operating through MERS, these financial entities could buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even though the loans were changing hands.  MERS would purportedly track the mortgage sales internally so as to know for which entity it was holding the mortgage at any given time and, if foreclosure was necessary, after foreclosing on the property, would quit claim the property to whatever lender owned the loan at the time of foreclosure.

In the 1990s, the early challenges from county officials throughout the nation to the MERS system of high-speed and cheap securitization went unnoticed in favor of the mortgage lending industry.  Remember Andy Jacobs and his World Wide Financial ads?

As the MERS system of speed collateralization took off, it developed a process of instant deputization, where thousands of loan officers received “certifying resolutions” in minutes via the Internet. These financial deputies or, in some cases "agents", were authorized to process mortgage transfers and foreclosures on behalf of MERS.

As usual, all good things come to an end.  This blog chronicled the unraveling of MERS in an earlier post.  This Michigan Court of Appeals' decision, published thus binding on circuit courts, is just the latest in a series of legal losses for the corporation.

All this has the board of directors of the Virginia-based MERS Corporation very nervous. MERS is a private mortgage registry database that has essentially replaced our nation’s tradition of publicly stored land ownership records. MERS’ CEO, R.K. Arnold, among the founders of the corporation, jumped ship in January.

Like the banking system, however, the mortgage lending system cannot simply fall apart.  This is a developing problem you will be hearing more about in the months and years to come.

In the meantime, if you are experiencing mortgage payment difficulties in Oakland County, the Oakland County Treasurer has partnered with GreenPath Debt Solutions, the United Way and others to establish the Oakland County Foreclosure Prevention Initiative.   Simply click on this link or call (888) 350-0900 for assistance with the eviction process or to speak with a certified housing counselor.

For the scholars among our loyal readers, the University of Cincinnati Law Review has published a comprehensive article on MERS' intimate relationship to the mortgage industry and the contemporary foreclosure process.

http://www.clarkstonlegal.com/

info@clarkstonlegal.com

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Posted in: foreclosure,MERS,Michigan Court of Appeals,Oakland County,Oakland County Foreclosure Prevention Initiative,University of Cincinnati Law Review

Does the MERS Corporation Own Your Home?

The signs have been piling-up for more than a year now. Mortgage foreclosures have careened out-of-control.

The chief question in courts of law is: who owns the subject property, and can they prove it by producing a mortgage note? Increasingly, the respective answers are: “Don’t know” and “No.”

In 2010, the Arkansas Supreme Court ruled that MERS (Mortgage Electronic Registration Systems) Corporation was prohibited from filing foreclosures in that state.

A federal bankruptcy judge in Long Island ruled just last week that MERS could not act as the “agent” of the mortgage note owner. Judge Robert Grossman acknowledged in a case called In re: Agard, that MERS may be involved with up to 50% of all home foreclosures nationwide, and that his decision may negatively affect the mortgage industry (i.e. accelerate its demise), but his decision required that the process comply with federal and state bankruptcy laws.

Many MERS-held "notes" will either not materialize, or will not pass muster relative to the many networks of applicable legal standards.

The Iowa Attorney General recently announced progress, along with other state attorneys general, in conjunction with the newly established Consumer Financial Protection Bureau, to overhaul the process of how the nation’s largest banks conduct the foreclosure process.  The group essentially is a nation-wide focus group of state law enforcement officers and bureaucrats tasked to generate a list of best-practices they can mold into national standards.

In Florida, attorney and foreclosure-giant, David Stern, under investigation by the Florida Attorney General, just announced that his law firm is suspending foreclosure operations.

In Utah last month, a local judge made national headlines by allowing a judgment debtor to rip-up his mortgage note in open court and literally walk away from his home, debt-free, because the lender could not prove ownership by producing a mortgage note.

All this has the board of directors of the Virginia-based MERS Corporation very nervous. MERS is a private mortgage registry database that has essentially replaced our nation’s tradition of publicly stored land ownership records. MERS’ CEO, R.K. Arnold, among the founders of the corporation, jumped ship in January.

As the foreclosure meltdown has unfolded over the past 24-months, many mortgage lenders’ practices of cutting corners in the lending process, and making some rather huge mistakes, have come to light. This has had the effect of making it difficult, and in some cases impossible, to actually prove who owns a particular home.

The early challenges from county officials in the 1990s to the MERS system of high-speed and cheap securitization went unnoticed in favor of the mortgage lending industry. As the MERS system of speed collateralization took off, it developed a process of instant deputization, where thousands of loan officers received “certifying resolutions” in minutes via the Internet.  These financial deputies or, in some cases "agents", were authorized to process mortgage transfers and foreclosures on behalf of MERS.

All good things usually come to an end; sometimes a bitter end. Now, the judges in all the various courts are tipped off; and bankruptcy judge Grossman's decision may go federally viral.

Where will this all lead? Will the state attorneys general, through a new layer of bureaucracy, be able to arrest the process and introduce effective reform? Or will judges, case-by-case, reluctantly pull the threads that will undo our nation’s mortgage lending system?

Only time will tell, so stay tuned on this one.

In the meantime, if you are experiencing mortgage payment difficulties in Oakland County, the Oakland County Treasurer has partnered with GreenPath Debt Solutions, the United Way and others to establish the Oakland County Foreclosure Prevention Initiative.   Simply click on this link or call (888) 350-0900 for assistance with the eviction process or to speak with a certified housing counselor.

http://www.clarkstonlegal.com/

info@clarkstonlegal.com

Read more »

Posted in: Consumer Financial Protection Bureau,David J. Stern,foreclosure,Green Path Debt Solutions,MERS,Oakland County,Oakland County Foreclosure Prevention Initiative,R K Arnold,Robert Grossman

Specialized Foreclosure Courts Spring-Up in Florida

If you lost your home to foreclosure, would you know who steps into your shoes as the next owner?

Uncertainty answering that question is plaguing an innovative specialized court-system in Florida designed to speed-up the foreclosure process.  The recently tallied second quarter found Florida leading the nation in the proportion of delinquent or foreclosed mortgages: 20.13%.

This high mortgage failure rate is nurtured by the poor economy which has driven home values so far down, nearly half of all Floridian home-owners now owe more on their mortgages than their homes are worth.  To combat this problem, the Florida legislature recently allocated ten million dollars to implement a high-speed "foreclosure only" court system.

Florida's Ninth Judicial Circuit Chief Judge, Belvin Perry, Jr, reported last month in the Florida Bar News that the foreclosure court disposed of 1,319 cases in July alone.  While impressive, this case-completion rate will not make a dent in the nearly half million homes awaiting the requisite repossession adjudication under Florida law.

And speed does not always equate with justice.  Some attorneys that represent borrowers in the Jacksonville area complain that the retired judges enlisted to process the foreclosure "rocket docket" do not spend adequate time reviewing often-complex files, and the homeowners' motions contained therein.  Another common complaint is that as these judges slash through the backlog, they tend to favor lenders over borrowers.

In some cases, judges have awarded foreclosure rights to plaintiffs who have not proved ownership of the subject property; a threshold issue.  In other cases, the retired visiting judge on a particular date is simply not adequately advised in the premises of the multitude of cases on the docket that day.

Another problem facing the court is the large number of cases that feature sketchy documentation presented by a lender to prove ownership.  Added to this are the multiple transfers characterizing many mortgage transactions, each draped with a bewildering assortment of documentation

These problem are so bad, the Florida Attorney General recently announced an investigation of the three largest law firms in the state that represent foreclosing lenders.  Alleging that the firms are acting as foreclosure mills, the Florida AG has accused instances of document fabrication and post-dating.  One of the targeted firms, Law Offices of David J. Stern, filed more than 70,000 foreclosures last year.

Another practice that distorts the identity of home-ownership in foreclosure court is the use of bank affidavits when a particular document can no longer be located or produced for the court.  Borrowers' attorneys assert this common practice is improper when the bank official has a stake in the outcome of the case.

For many of the residents of these homes, foreclosure is just one stop on the way to bankrutpcy.  These folks would probably not see the humor in the name of Attorney Stern's new $20 million dollar yacht: Miss Understood.

March 2011 Update:  Attorney David Stern announces that his law firm was suspending foreclosure operations, effectively immediately.  The firm has apparently been losing some of its flagship clients since the Florida AG's investigation grinds on; also, going public has not worked-out very well for anyone except Stern.

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Posted in: David J. Stern,Florida,Florida Attorney General,foreclosure,Judge Belvin Perry Jr.,mortgage