Global Research – Landmark Decision: Massive Relief for Homeowners and Trouble for the Banks:
A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.
MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal. The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a “security.” The lender has been paid in full and has no further legal interest in the claim. Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement. They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief.
Freaky. Not being a law-talkin’ guy I’m not sure if the ruling is good law or how likely this is to stand on appeal. Paging Ace of Spades, Instapundit, Countertop, and XRLQ!
P.S. I do know that a number of lawyers have challenged their clients foreclosures by demanding to see the original mortgage paperwork. In many cases the mortgage has changed hands so many times – and the mortgage originators were so sloppy – that the mortgage paperwork couldn’t be found and so foreclosure was stopped or delayed. (And some people are doing the same thing with credit card debt that’s been sold off to collection agencies.)
That’s a separate issue from this, legally, but it points to the many problems caused by having one entity originating loans and another entity ultimately holding the note expecting repayment. Mortgage-backed securities (MBS) were a large part of last year’s financial collapse and we haven’t heard the last of them. With foreclosures set to rise, option ARMs preparing to reset, and the Federal Reserve increasing its backing of these rotten securities it’s guaranteed that we haven’t heard the last bad news about mortgage-backed securities.
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I’ll have my secretary pull the decision up tomorrow and will review it. At first glance though, i think a basic assumption of the quoted text is wrong – that since the Kansas Supreme Court made this decision (if indeed it held what is being alleged) these mortgages won’t stand anywhere in the nation.
The Kansas Court can only speak to Kansas Law – separate decisions will need to be reached in every other state for that assumption to be true. And while the article acknowledges this – I suspect individual state law – and especially recording law and the actual terms of the mortgage contracts will dictate how this is resolved.
Generally, even if originals aren’t available, the recorded mortgage combined with an electronic copy is probably going to be sufficient in many states (especially those with more advanced electronic databases – this is sort of the same issue as electronic signatures).
But I reserve judgment on this until I read the actual decision.
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This strikes me as a non-issue. Far from calling into doubt the validity of ANY MERS notes, all the case does is say that if the party acquiring the note is too stupid or too lazy to record it, they’re in no position to complain if process is served on the former holder of the note rather than on them (and that MERS’s technical status as the nominee of each is irrelevant).
Tempest, meet teapot.
[rq=707204,0,blog][/rq]Landmark in Name Only?