in, of all places, Kansas.
Landmark Decision: Massive Relief for Homeowners and Trouble for the Banks
by Ellen Brown
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 â€“ 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. …..
California attorney Timothy McCandless describes the problem like this:
â€œ[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 â€“ 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 consumersâ€™ 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 consumerâ€™s home. . . . So imposing is this opaque corporate wall, that in a â€œvastâ€ number of foreclosures, MERS actually succeeds in foreclosing without producing the original note â€“ the legal sine qua non of foreclosure â€“ much less documentation that could support predatory lending defenses.â€
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 MERSâ€™ relationship â€œis more akin to that of a straw man than to a party possessing all the rights given a buyer.â€ The court opined:
â€œBy 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.â€
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 â€œsecurity.â€ 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.
Or, in the vernacular of the Chinese laundry, “no tickee, no housee.”
Basically what the court found was that because of their crap documentation practices the banks are out of luck because they sold their interest. MERS is out of luck because they’re just middlemen who screwed up the paperwork. The Wall Streeters are out of luck because they weren’t the parties to the original contract.
Middle men here, middle men there, middle men everywhere sinking the economic ship.
See what I mean when I say the electron is an unreliable quantity? Maybe we should call it the revenge of the bureau drawers.
Virtual mortgages are the emperor’s new clothes.