In Landmark National Bank v. Kesler (full ruling), 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.Ellen Brown
As attorney and homeowner advocate Neil Garfield said, the implications cannot be overstated here. What I love about this ruling is that it takes a seemingly indecipherable morass like the mortgage market of the last twentyish years and boils it down to the simplest of contract law principles. Garfield explains, “the splitting of the note and mortgage creates an immediate and fatal flaw in title.”
“The splitting of the note and mortgage creates an immediate & fatal flaw in title.”
Bam. Done. Case Closed. Thank you, Kansas Justice! Or as Matt Taibbi puts it, “It seems that a court has ruled that about half of the mortgage market has been run as a criminal enterprise for years, which would invalidate any potential foreclosure proceedings for about, oh, 60 million mortgages.”
Now, for those of you that want a bit more of the mucky-muck, I’ve got more detail from Ellen Brown after the jump and it is still quite digestible. Also, what does this mean for actual human beings, you ask?
If you live in the state of Kansas, this is controlling law right now. That means if the faceless monolith named MERS has been foreclosing on you, you should definitely get in touch with your attorney, your sheriff, a judge, someone in authority in your locale and mention this ruling because odds are good your foreclosure could be stopped. The only way they might still be able to foreclose is by accepting a great deal of liability, including criminal liability, which isn’t likely to happen (see Garfield’s full quote)
As for the rest of the country, this is now a very powerful and solid legal precedent that you should be discussing with your counsel.
Matt Taibi has more on this coming soon in Rolling Stone and I’m following this closely, so I’ll keep you posted as I know more.
I am not an attorney and this should not be construed as legal advice.
Via Matt Taibi
This is an extended excerpt from Ellen Brown’s article at Global Research. Her piece isn’t that long and is worth reading, but here you go:
Eliminating the “Straw Man” Shielding Lenders and Investors from Liability
The development of “electronic” mortgages managed by MERS went hand in hand with the “securitization” of mortgage loans – chopping them into pieces and selling them off to investors. In the heyday of mortgage securitizations, before investors got wise to their risks, lenders would slice up loans, bundle them into “financial products” called “collateralized debt obligations” (CDOs), ostensibly insure them against default by wrapping them in derivatives called “credit default swaps,” and sell them to pension funds, municipal funds, foreign investment funds, and so forth. There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically. MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name. MERS not only facilitated the rapid turnover of mortgages and mortgage-backed securities, but it has served as a sort of “corporate shield” that protects investors from claims by borrowers concerning predatory lending practices. California attorney Timothy McCandless describes the problem like this:
“[MERS] has reduced transparency in the mortgage market in two ways. First, consumers and their counsel can no longer turn to the public recording systems to learn the identity of the holder of their note. Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again. But more importantly, all across the country, MERS now brings foreclosure proceedings in its own name – even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home. . . . So imposing is this opaque corporate wall, that in a “vast” number of foreclosures, MERS actually succeeds in foreclosing without producing the original note – the legal sine qua non of foreclosure – much less documentation that could support predatory lending defenses.”
The real parties in interest concealed behind MERS have been made so faceless, however, that there is now no party with standing to foreclose. The Kansas Supreme Court stated that MERS’ relationship “is more akin to that of a straw man than to a party possessing all the rights given a buyer.” The court opined:
“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” [Citations omitted; emphasis added.]
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.Ellen Brown