I was wondering how long this would take…. it appears that all the crooners that have appeared in front of Congress and elsewhere have finally had their heads cut off by…. as I expected….. a bankruptcy Judge.
Bankruptcy Judges are federal judges. The Federal bench tends to have a very low tolerance for bullcrap, although they do get bamboozled and fall prey to political arguments from time to time, like any body composed of humans. Nonetheless if you want to find justice, you usually will have a better shot at it in a Federal courtroom than in a State one. This means that if you’re trying to play a game, you want to be in State court – but if you’re looking for facts and logical analysis, you want to be in Federal court.
The case at bar here is one in which the debtor actually lost his motion to debar the creditor from lifting a bankruptcy stay. How, you might ask, can MERS get cornholed from a win? Simple: The debtor lost not on the merits but on res judicata, the legal principle that says “what’s decided is decided.” In this case (if I’m reading this correctly; I don’t have the entire case history) the foreclosure hearing was held and decided before the debtor filed bankruptcy.
But the judge was obviously pissed off and tired of the games. He could have issued a one-page order saying “go away.” He didn’t. Instead, he analyzed the entire MERS edifice and found that it does not comply with NY State Property Law.
From the memorandum, at the top:
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.
In other words, take your “too big to be judged unlawful” argument and shove it up your arse!
On to the body of the decision:
By MERS’s own account, it took no part in the assignment of the Note in this case, but merely provided a database which allowed its members to electronically self-report transfers of the Note. MERS does not confirm that the Note was properly transferred or in fact whether anyone including agents of MERS had or have physical possession of the Note. What remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note.
Here is the beginning and end of the problem. MERS cannot prove that the note was transferred properly because it doesn’t have it, never had it, and never touched it. It is simply a database.
Therefore, any “assertion” that the note was assigned is hearsay and inadmissible. MERS cannot form the foundation to be able to admit these alleged facts as evidence as you can’t lay a foundation without the physical evidence necessary to do so and MERS is bereft of actual knowledge, since once again it never saw the note, never held the note and never negotiated the note. Therefore, all it has is a database entry which under long-standing legal precedent is a nearly-perfect example of hearsay and is thus inadmissible.
However, there is nothing in the record to prove that the Note in this case was transferred according to the processes described above other than MERS’s representation that its computer database reflects that the Note was transferred to U.S. Bank. The Court has no evidentiary basis to find that the Note was endorsed to U.S. Bank or that U.S. Bank has physical possession of the Note. Therefore, the Court finds that Movant has not satisfied its burden of showing that U.S. Bank, the party on whose behalf Movant seeks relief from stay, is the holder of the Note.
And that’s exactly what the court held.
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.
Oh oh. Here’s the argument I’ve repeatedly raised – that MERS, by its very operation, intends to and does severs the linkage between the mortgage and the note, and once that has happened it is generally impossible to re-join them!
The primary problem MERS has here is that as a “nominee” it must have a specific agency right in order to act. In this case, in order to assign a mortgage it must have some sort of power of attorney specific to the note in question. But MERS has no such thing, as it’s just a database. As the court explains:
In LaSalle Bank, N.A. v. Bouloute the court concluded that MERS must have some evidence of authority to assign the mortgage in order for an assignment of a mortgage by MERS to be effective. Evidence of MERS’s authority to assign could be by way of a power of attorney or some other document executed by the original lender. See Bouloute, 2010 WL 3359552, at *1; Alderazi, 900 N.Y.S.2d at 823 (“‘To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage.’”) (quoting HSBC Bank USA, NA v. Yeasmin, 866 N.Y.S.2d 92 (N.Y. Sup. Ct. 2008)).
The problem, of course, is that most of the “original lenders” are out of business! Oops.
And as I’ve repeatedly noted due to the time periods involved in these agreements and the fact that they deal with real property….
Because MERS’s members, the beneficial noteholders, purported to bestow upon MERS interests in real property sufficient to authorize the assignments of mortgage, the alleged agency relationship must be committed to writing by application of the statute of frauds.
No “reading between the lines” folks – it has to be on paper.
Finally, the court serves up the piece-de-resistance, quoting the Kansas Supreme Court in Landmark, which I have previously discussed was likely to come and bite these jackals in the arse:
This Court finds that MERS’s theory that it can act as a “common agent” for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged “nominee” status was appropriately described by the Supreme Court of Kansas as follows: “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant – their description depended on which part they were touching at any given time.”
This decision is of course not at an appellate level (yet) but it certainly will form the body of opinion used in the NY Bankruptcy courts. It also confirms the findings of The Supreme Court of Kansas and others. Unlike some of the state court systems (hello Florida?) that have chosen to ignore the issues I and others have laid upon the table, most-specifically that there are likely no actual contemporaneous assignments with the alleged transfers and that all alleged actions relating to these matters must be in writing due to the requirements of The Statute of Frauds, bankruptcy Judges appear to be “getting it” in increasing numbers and refusing to be walked over with the excuse that we’ve managed to get away with this to the point that half of all the mortgages are held in a defective manner, so now you must retroactively approve what we did.
In a word: Nope.