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In a tour de force of dicta, a Long Island bankruptcy judge telegraphed the intention to rule against MERS in a whole bunch of pending motions.
The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. 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% 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.
[Source: In re: Ferrel L. Agard Case 8-10-77338-reg in the Bankruptcy Court in the Eastern District of New York.]
The results in this case are sadly ironic since the court finds that because there was an state court foreclosure judgment issued in favor of the bank BEFORE the debtor filed in bankruptcy court, the bankruptcy court is precluded by res judicata and by the Rooker-Feldman Doctrine (which says trial level federal courts cannot act as quasi appellate courts over state court decisions) from helping this homeowner.
So everything the court says about MERS in the largest part of the opinion has no binding effect on the immediate case before it involving Ms. Agard. . . .
The court says it has a backlog of cases where there is no preclusive state court decision and there has been an issue in the court’s mind about standing based on the MERS issue. MERS intervened in Agard and has had a fair opportunity to state its case about standing. The court finds its arguments unpersuasive and goes on at great length about why MERS created a model that ruins the banks standing as a secured creditor. Basically, the court adopts the theory I advanced so long ago that fractionalization — the process of separating ownership of the Promissory Note from ownership of the Mortgage Deed — ends the security interest. The debt still exists, but the house is no longer collateral for the debt.
The Movant’s failure to show that U.S. Bank holds the Note should be fatal to the Movant’s standing. However, even if the Movant could show that U.S. Bank is the holder of the Note, it still would have to establish that it holds the Mortgage in order to prove that it is a secured creditor with standing to bring this Motion before this Court. The Movant urges the Court to adhere to the adage that a mortgage necessarily follows the same path as the note for which it stands as collateral. See Wells Fargo Bank, N.A. v. Perry, 875 N.Y.S.2d 853, 856 (N.Y. Sup. Ct. 2009). In simple terms the Movant relies on the argument that a note and mortgage are inseparable. See Carpenter v. Longan, 83 U.S. 271, 274 (1872). While it is generally true that a mortgage travels a parallel path with its corresponding debt obligation, the parties in this case have adopted a process which by its very terms alters this practice where mortgages are held by MERS as “mortgagee of record.” By MERS’s own account, the Note in this case was transferred among its members, while the Mortgage remained in MERS’s name. MERS admits that the very foundation of its business model as described herein requires that the Note and Mortgage travel on divergent paths. Because the Note and Mortgage did not travel together, Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also that it is acting on behalf of the valid assignee of the Mortgage.
The court does not find that the mere fact of MERS involvement automatically terminates the security interest in the property; it leaves open the possibility that a note and mortgage could serendipitously travel together through the MERS system with all of correct parties giving the correct instructions in a valid way. However, the burden will be on the bank to prove that every step was completed correctly.
Now that MERS has had its chance to explain itself, there apparently are plans to clear up that backlog of undecided motions, based upon its analysis of MERS suckitude (sorry, I know that’s not a very professional sounding term, but it REALLY is apt).
62 Comments
Thanks for this very good news. It’s reassuring when a court insists on following the law no matter what consequences that produces. The Too Big To Fail contingent is depending on the ‘unintended consequences’ it has produced to keep the law from enforcement.
Thanks for this, Cynthia. I loved this: “… it leaves open the possibility that a note and mortgage could serendipitously travel together through the MERS system with all of correct parties giving the correct instructions in a valid way.”
I wonder how many notes and mortgages DID travel together ‘serendipitously’? It seems likely that Congress <i<will try some retroactive fixes, but they probably will also be full of suckitude.
Thanks Cynthia. I suspect that the Obama admin will end up coming to MERS rescue.
I guess there’s two seperate issues here. MERS history of lawlessness and MERS as an ongoing corporate institution. I wish they’d just shut it down and dismantle it. But that alone wouldn’t address the existing mortgage mess.
Good news that MERS is official declared “suckitudious” otherwise the banksters would continue to tout it as “supercalifragelisticespialidocious.” I am having heartburn over Ms. Agard’s loss. Meanwhile, I saw this: “CPAC Chief Is Partner In Law Firm Defending Foreclosure Mill, Served On Board Of Fannie Mae” (Zack Carter, HuffingtonPost.com, Feb. 11, 2011)
Thank you Cynthia. I am so happy that a few judges are getting educated about real estate and the legal documents required to secure the debt. I have maintained that this cannot be ‘fixed’. Congress can do all the enacting it wants but methinks they will just make it a bigger mess. Oh what tangled webs we weave….
I have to tell you, the bankruptcy judges–at least in NY–have really been stellar in trying to both do the right thing, build a body of case law, and educate the public and other braches of government.
Cram down would solve so many problems for the entire economy. They asked for, the keep asking for it, and they ought to have it.
It’s bizarre, they can use cram down on somebody’s 2nd vacay home, but not on a sole or primary residence? Nuts
“Too Corrupt To Fail”…..
Otherwise, 100%.
My understanding is that the county clerks and land office’s want MERS dead.
MERS is mostly a fiction. it has few employees, and little actual tangible stuff. It’s really more like a trade association, it was just sorta pretending to be a stand alone company
Cramdown–give the judges, both bankruptcy and foreclosure judges, cramdown powers and this whole mess will be over in a couple years.
And the housing market will stabilize overnight
This opens the door to considering NYSE “Rules” that contravene New York State law governing fraud.
Same for NYSE “Rules” that contravene Federal statute governing counterfeiting.
Yes, Virginia, counterfeiting. The scam called a “naked short” is a form of counterfeiting, because the money supply is altered with sale of a liquid asset that does not exist — affecting technical definitions of the total money supply.
A normal “short” involves borrowing shares and selling them today, hoping to buy them cheaper later on and returning the borrowed shares for a profit. Do this without actually borrowing shares first and that’s counterfeiting.
NYSE rewrote its rules so that certain insiders are now enabled to run naked short sales, blamelessly for years now. All hidden. All fraud. All of it Too Corrupt To Fail.
Yep. The financial institutions that caused the economic disaster seem to think they, alone, can escape its consequences. That looks like the worse that could happen, especially for future decisions.
YES!
Tangential– I’m very interested to know what the “invisible hand of the market” is up to regarding the NASDAQ OMX (see “Rove and Wallenberg Are At Heart Of Assange Case“).
OT– Cynthia, when you have time, will you cast your eyes over this material please? Thank you in advance.
Were MERS to seek equitable relief, it’s hard to see how it comes to court with clean hands. It is the puppet acting for its bankster puppeteers. It works according to a business model explicitly designed to avoid complying with state property laws and procedures – a risky business for a mortgage lender, one might observe – in order to vastly expand the profit potential of routine mortgage lending through securitization.
Banks should be made to live with the risks inherent in their business model. They knowingly incurred them. Any moral hazard here as nothing to do with debtors’ actions. It is solely the banks’. Any bail-out provided them, to give them a consequence-free pathway out of the sticky corner into which they’ve painted themselves, rewards their outrageous risk-taking by insulating them from its natural and logical consequences.
As you and others such as Elizabeth Warren have long preached, restoring cram down for first mortgages on residential properties would solve a host of problems for debtors and banks alike. But banks, and hence Congress and the administration, hate the idea that borrowers’ could make them incur small losses via cram downs – many of which were and could in future be dealt with through restoring underwriting standards.
Banksters, though, want the brass ring. Should they lurch for it and fall, they still want the government to hand it to them, as if it were a parent picking up a toddler that leaned over too far. That flies in the face of their paeans to the gods of small and laissez-faire government and “free markets”.
The banksters’ demands are a load of bollocks. If they insist on eating only cake, they should be made to assume the risk they if they screw up and violate the law, they eat crumbs instead.
L. Randall Wray wrote an article that shows that MERS’ own ‘State-by-State Recommended Foreclosure Procedures Manual ‘ directs that the notes be retained by the loan originators. This means that the notes were never entered into the MERS black box. It’s at this point, at the very beginning, that the note and deed of trust (mortgage) were separated.
The reason for this is because the (empty) MBS were manipulated to trigger CDS, by only transferring defaulting mortgages onto the spreadsheet that represented each (fictitious) MBS. Not until the particular loan is entered onto a particular spreadsheet does MERS know which trust’s (or bank’s) name to use in the foreclosure action. The only reason for registering mortgages in MERS’ name, is because government recordation is required. If the notes had to be recorded, then in all likelihood they would have travelled together with the mortgages into the MERS black box. But since the notes didn’t have to be recorded, and there was never, apparently, the intention to actually convey them into the MBS, they were retained in either the originators’ or sponsor/depositors’ warehouses, or an LPS warehouse in Mendota Heights, MN until needed for foreclosure.
We’ve also learned that many notes may have been destroyed after their images were entered into the database, and many foreclosures have been accomplished using ‘lost note affidavits.’ This is also evidence of the notes having been severed from the deeds of trust.
One wonders what will happen when they get to the synthetic CDO stage. Since it isn’t physically possible to subject the houses to a gaussian copula, or even plausibly say what that means, and therefore the collateral cannot possibly travel the same path or even be subject to the same approximation procedure as the note, will it be at all possible to say that there is any meaning to the debt obligation being attached to the collateral after that point?
Thanks, Cynthia.
I keep thinking that the murmurs in Congress to do away with the mortgage interest deduction is really being done in anticipation of this type of court finding.
If the mortgage debt becomes unsecured (and therefore the interest which the homeowners pay on that debt is now NOT tax deductible) then home owners will be pissed at the banks/MERS whose machinations caused the mortgages to become ‘unsecured debt.’ However if Congress eliminates the home mortgage interest tax deduction for ALL because of ‘belt tightening’ in a down economy, then homeowner anger is ‘redirected’ away from banks/MERS.
verry interesting
No way is this administration going to bat for the homeowner, and Congress appears to be too corrupted to do the right thing.
Hehe, pretending is the perfect word to describe our financial sector.
Do the county clerk and land office’s have enough collective power to effectively push back?
Was not familiar with the term ‘cram down’ but I have been saying the same thing. I was thinking more in terms of a clear chain of title. MERS was so busy skirting laws and getting away with it and now have been caught. Guess my question on ‘cram down’ would be, what investor, ie: Note holder, would sign off on the new terms since no one really knows who has the Note.
Thanks for this Cindy and for the other related posts. I have had a dialogue with the servicer of the mtg on my home regarding this issue. My mtg is not in default nor am I in bankruptcy. My servicer upon my request provided a copy of the original note and told me that Fannie Mae now owns the note. I requested all “endorsements/assignments and/or allonges attached to or a part of the mortgage note” and “recordings” of all deed transfers. I also requested “proof that Fannie Mae owns the mortgage note”. They responded to my request for documents stating there is a $10 fee for each document requested but refused to say how many documents there are. As to the second request they responded by refusing my request stating they “are not obligated to release this information”. They also stated that MERS was “created by the mortgage banking industry to streamline the transfers”, indicating that they do not have documentation.I also requested their servicing agreement so that I could determine if they are entitled to receive the payments I make. They refused to provide this information stating they are “not obligated to release this information”. I am going to pursue this further and if necessary I will file a quiet title action against them and obtain the information through discovery. I believe they are spooked that their right to collect the payments may be at risk as well as there may not be a legal owner of the note.
Exactly. The court should not accept ‘lost note affidavits’. The court should demand to see the original wet ink Note with all the assignments. No one can produce the Note. All loans recored in MERS name have to be taken back to the day of closing and all of the assignments recorded as the transfers began. No small feat, this.
The whole thing has been a scam from the beginning.
Too bad it is just dicta here, but it soon won’t be.
Enlightening, as always, Cynthia. Thank you and everyone who comments for shedding additional light on this subject.
I refinanced in 2008 and my “mortgage” has been through (???) MERS. Who knows who owns it?
Perfect. I believe they are ‘spooked’ right now also. They know they cannot provide you with the information you requested. I would love to be a fly on the wall watching this. From what I have heard most of the employees don’t have a clue about the process let alone the legal documents required in securing real estate debt. A friend of mine experiencing this has contact with an employee that yelled and hung up on them..so very professional…lol.
My personal prediction is that there will be something like telecom immunity passed by our corrupt legislators, forgiving these transgressions and somehow miraculously transforming this mutant illegal entity into a new legal business model and all the states and municipalities screaming for the fees that they were swindled out of will be told to go pound sand, likewise the holders of mortgage backed securities backed by no mortgages.
The states should fight that tooth and nail, since they are facing such huge budget shortfalls. Any Gov or Sec of State or State Treasurer or AG or mayor who does not go to bat for these monies, can be assumed, in MHO, as being bought off by the banksters.
Much of the world can see clearly the scam that this whole thing has been from the getgo. There is a cartoon in the New Yorker this week where one suit says to another, “I don’t have a business model, I have a business scheme.” And that about sums it up. Fraud has become a perfectly acceptable business model in our nation.
I read a story or post somewhere just recently that a homeowner who raised similar questions with their servicer ended up having their credit tanked because the servicer reported their mortgage as being “in dispute”, I guess due to the uncomfortable questions being raised, even though there was no actual financial dispute.
As you continue to pursue this, maybe you could consider keeping us posted in a diary?
I also read that story. If my servicer decides to take some action against me they will be held to account for it. I have had this mortgage since 2001 and never been late on a payment so if they decide to take an action against me in some form or the other then they do so at their own risk. What they are telling me is that I do not have any right to have the documentation to prove who owns the mortgage note on my loan and I have no right to have documentation that they have a right to collect on the note. We shall see if they are correct. Their last letter was a bit on the harsh side so I expect they are not liking me much right now. Too bad!!!
My fear also. The admin will trot out Geithner, Sperling, Bernanke, etc… to offer dire warnings why congress must immediately do so. Once again, we will see the Dems and Repubs rally together to protect their corporate benefactors in the name of pragmatism and bipartisanship.
“Fraud has become a perfectly acceptable business model in our nation.”
No truer words have ever been spoken. I first notice that this business model was taking shape in 1984. By 1990 fraud was rampant in business and there was no accountablility. The courts, especially the Supreme Court, has made it almost impossible to prove all the elements of fraud. In fact the Supreme Court has made it very difficult to even plead fraud because you need plausable near proof of the elements even to plead fraud. What a country!!!
“fractionalization — the process of separating ownership of the Promissory Note from ownership of the Mortgage Deed — ends the security interest. The debt still exists, but the house is no longer collateral for the debt.”
Love it!
So much to love in this decision, even without a good result for the homeowner.
Thanks for keeping on this and keeping us informed.
Here we have an excellent illustration of the reason the courts are a separate independent branch of government.
The balances are bogus. The balances are bogus. People need to understand that the balances are bogus. That’s all I got. I am tired of this conversation. They can add 10 to 15,000 to your loan, just because. No one makes them explain it or justify it without cram down.
The balances are bogus…and these balances pad THEIR bottom line and make them look profitable when all they have done is steal.
Ooops.
I did rather enjoy the in your face quality of that decision.
The way this works is that the Debtor in the Chapter 13 case gives notice to everyone the lawyer can find in the chain of title. That may include a demand to MERS to provide that list. The Chapter 13 Trustee can also make that demand, many of them are ready to help on this stuff.
All you have to do is give the best notice possible to get a binding order from the Bankruptcy Judge.
I would think that in a state like Florida that relies heavily on the transaction taxes from these real estate transfers the amount of the losses to the cities and counties would mount into millions of dollars and that it would be well worth it for the counties and the State Attorney General to explore a lawsuit to recover these monies on behalf of the various entities (read the rest of the taxpayers of Florida and other states who depend on these revenues) who were duped out of them.
I have a mortgage that is in default presently. The original bank that held the note was taken over by the FDIC. I received a letter from the FDIC that said the Note had been sold to some new entity and they would be the one I should send future payments to.
Then I was harassed by this new entity on the phone. I told them to produce a certified copy of the original Note along with a copy of all the transfer documents and the recording documents with the transfer taxes paid to the tax collector. They sent me a xerox copy of the Note and said they had complied with my request.
Then I got sued by the original bank. Ooops!
I sent a letter to the Court with a copy of the letter from the FDIC.
Next I got a Notice of substitution of Plaintiff from the same attorney substituting the new entity for the original bank.
Then a week later I got one of those “lost Note” affidavit things along with a document claiming that the Note had been transferred from the original bank to this new entitiy in 2009 – but it is asking for the Court to approve this now – in 2011, so they can go ahead with their foreclosure action.
They also amended the original suit to drop the other defendant, a party who holds a 2nd mortgage, and according to them now there is “no one else they know of who has any interest in the property that is held as collateral”.
Hmmmmm……
I will if I can figure out the mechanics of posting…tech challenged here.
There’s help here for the asking. It feels great to hear about people challenging the crooks.
Have you checked your County records to see what was recorded against your home. This is what title insurance companies due to establish chain of title. You pay for title insurance when you purchase your home (and why they can’t insure title on REO when they banks sell all these foreclosed homes). This is how the robo signers got caught I believe, backdating and forging, etc.
The fact you got two different answers regarding your ‘Note’ is an example of what I see as sure stupidity. I really believe the right hand has no clue what the left hand is doing. The sad part is that the people approving these foreclosures don’t know either and just go along with the mumbo jumbo. The bankers want you to believe they are right and are getting themselves in deeper when they keep changing things and that is exactly why I believe we need more lawyers that understand real estate law.
I am so happy when I read diaries like this that show the court is looking at this mess and seeing it for what it is. A lawyer can correct me if I am wrong but I believe the only person that can assign the original loan taken over by the FDIC is the bankruptcy judge if it was a bankruptcy.
Regardless, the ‘Assignment’ to the FDIC should be recorded at your courthouse. You have given a perfect example of why I believe the this cannot and will not be ‘fixed’. Your case of one of millions and now that people are figuring it out they are asking the right questions and I believe the banks are totally spooked.
We were all supposed to just ‘believe’ that they knew what they were doing and now the truth is out, the lawsuits beginning and hopefully the judges that are seeing these cases understand that they could also be victims as well. If I were approving the bogus paperwork foreclosures I would be very worried about my reputation and my home.
Intimidation works great on those that would be intimidated. I am sure that itimidation is all they have right now and unfortunately the uninformed will cave to it. I have heard so many times the ‘you have no right to know’ line…total b.s. Of course you have the right to know. I am sure that line is the standard answer because they don’t know and you had the audicity to ask. Do the people corresponding with you have any idea that they or their families could be next. This appears to me to be the biggest faux land grab since the land grab that started this nation.
Yes, this Judge is a Hero.
I’m afraid all that will happen now is rammed-through legislation to solve all these pesky problems with MERS. Remember, our President feels we need to keep business interests happy.
Not just the uninformed. There’s a very real fear factor that you can’t ignore.
There must be something about the name Mary and a love for clean chains with properly recorded docs. ;)
A big reason MERS exists is to avoid recordation fees.
I’m not sure, though, that there aren’t some better trust arguments than have been made so far that could be garnered for MERS to act as the holder of the mortgages, but they will still have problems. And the flip side of the transaction – the notes – is just as problematic because of the mishandling of the files.
In the end, though, I’m still not sure that requiring everyone to get on board and fix their recordings and clean up their files really will help the debtors out that much (cramdown would do that more). OTOH, counties could sure use the funds they might get from the multiple recordations.
If the MERS situation did result in something like older mortgage interest deductions not being truly and technically deductible, that would mostly stay an on the books, technical problem unless someone in gov started an enforcement mechanism to go back and start seeking back taxes.
Hell of it is, the dire warnings will be accurate. If this mess is allowed to unravel, following the actual, uh… law, there will truly be hell to pay. Somehow or another, the American taxpayer will be on the hook for about 90 trillion in derivatives built up from ten trillion or so in fraud-impaired mortgages.
These crooks were allowed to literally gamble away our national wealth and indebt our grandchildren’s grandchildren.
Now we will all be required to “put our shoulders to the wheel” so the MOTU (and no one else) can be made whole.
Pardon my cynicism, but this will inevitably wind up in the Supreme Court, which, as currently constituted, has no respect for justice, precedent, the law, or the actual constitution. And they have yet to make a pro-consumer ruling.
I have faith in the Supreme Court – to do the wrong thing.
It may turn out to be a combination, however; congress to pass the ex post facto fix, and the Supremes to say that the constitution doesn’t apply.
Was meant as a reply to gesneri.
Mary, I never even thought about the fact that all the interest deductions to date would be retroactively nondeductible. I was thinking going foreward, that homeowners would have a dollar amount to point to as “damages” suffered as a result of MERS screw ups with the registration of the homeowners’ secured debt. If Congress eliminates the interest deduction, going forward, then it also eliminates a potential homeowner’s “damages” against MERS.
But your point is well taken. Chances are the government will not try to collect on a homeowner’s old mortgage interest tax deductions because this would add to a bank’s/MERS’ cost of settling with any homeowner trying to sue for damages.
Does this mean anything in California / to a nonjudicial state?
I could never understand shorts and the whole whole whole of it all. Plus Rove? {{Shudder}}
Pleased to meet you Mary :)
I am obsessed with clean titles that is for sure! I really like the idea of cramdowns but to me it just legitimizes an illegitimate process. Kind of like these HAMP loans that BofA touts on the loans acquired from Countrywide. They have no interest by way of assignment so how can they negotiate. Again, I want to see the wet ink note, not some forged document or ‘missing note affidavit’, not acceptable to me. I am old school, I can’t fathom just going to the court house and filing a Reconveyance or Satisfaction just because I can :)
I still like this one:
Which inspired me to dream:
Dammit! Dream! Come! True! Now!
You are right gesneri and I tend to forget that because this was my profession for so many years. I talk facts and I apologize if I have offended anyone. I detest what has happened and I want everyone to stay in their homes. I want to put a sign on my fence saying “DON’T MOVE”! The only way to fix this is for people to stay put until we see how this plays out. I want we the people to win this one, and I truly believe that this may be the case.
Mortgage Fraud? So easy even Al Qaeda does it.
Instead of revealing this financial terror network, the Government is concealing the methods and techniques and banks that collaborated with Al Qaeda.
That’s basically what the bankruptcy court said, and what I hypothosized way back in 2009, when you split the note from the mortgage deed, the debt may continue as unsecured debt (therefore dischargable in abnkruptcy) but the ability to levy against the real estate is gone.
Primary residences are exempt property in personal bankrpucty. they are usually reached only through the mortgage security.
So, the systematic splitting of the mortgage deed from the note, shoud have eradicated all those secuirity interests.
I hope you are able to fight this in court. You sound like a classic foreclosure fraud case.
Who are the signatories of this alleged assignment. Lynn Sizmoniak has a hugh list of the names of proven robo signers at her website. You should check
http://stopforeclosurefraud.com/2010/03/07/mortgage-assignments-as-evidence-of-fraud/
MERS is essentially “owed” by its memeber banks. It has small executive staff, but the “work” done by MERS is actually done by employees of the member banks. That includes the data entry and the “assignments”