Foreclosure Defenses and MERS
When a borrower closes on a mortgage loan he usually signs a promissory note and a mortgage. The Mortgage is a pledge agreement. The note is the legal document proving the debt is owed, and is a fancy I.O.U. It can be sold (negotiated) to another bank. The right to foreclose depends on who owns the Note.
Historically, banks were able to buy and sell mortgage loans, and when they did, a legal document called an Assignment of Mortgage was always filed in the local Clerk's office to prove the loan had changed hands. Filing an Assignment was cheap, costing less than $10, and it created a paper trail. When the loan changed hands several times, a new Assignment was recorded each time to show who the new owner was.
The Assignment process was little more than a boring paper trail "formality" until the housing boom but it has taken on huge ramifications. The way to link ownership ( and the right to sue to foreclose) with the mortgage was through an Assignment, but there is not always an Assignment.
Why? Because the ownership of the loans which were held by MERS "as nominee" cannot be proven, and without knowing who owns the loan, the mortgage lien is unenforceable. One of the boilerplate mortgages during the housing boom often named MERS "as Nominee." If your mortgage names MERS "as nominee" you may very well have a good defense to stop a foreclosure.
The system may seem archaic, but it worked for centuries. Trouble is that some on Wall Street felt it was too slow and costly. In an era of electronic banking, Wall Street wanted a system allowing the instantaneous electronic transfer of entire mortgages, or just pieces of them.
As part of the housing boom Wall Street created a huge electronic swap meet to allow banks to buy and sell their loans electronically. Bundles of mortgages were called Collateralized Backed Securities. They were insured by Credit Default Swaps. The entity which acted as the electronic clearing house and filing system keeping track of the loans which were sold is called MERS, short for "Mortgage Electronic Recording System." It was meant to be a modern day substitute for the clerk's office by eliminating filing fees, and speeding up the trading of mortgage loans. Banks saved over a billion dollars in fees by not paying to have Assignments of Mortgage recorded. The system does not fit in with the legal jigsaw puzzle and is causing some cases in the foreclosure process to crumble apart. Hats off to LivingLies for reporting the recent Kansas supreme court decision which shot down MERS.
April Charney, a Jacksonville, Florida attorney was recently credited by the New York Times for her excellent efforts in raising this defense. She has alerted other consumer lawyers what it means and how to defend a case when MERS as nominee is involved. It took a long time for the Courts to start recognizing this defense. So far there is no legal precedent in Florida like the Kansas Supreme court decision, but it is not far from coming.
In the meantime MERS means MESS if the bank is trying to foreclose.
