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Saturday, April 30, 2011

Has MERS Met its Match in MIchigan? Maybe.

A national company name Mortgage Electronic Registration Systems or MERS is both the holder of record of many mortgages across the country and the major filer of foreclosure actions in most states. There have been several law suits involving MERS and many headlines claiming that they used robo-signers and had no authority to foreclose anyway.


Some of the suits were probably brought by the same clowns who loudly proclaim that the U. S. Government has no legal right to collect taxes. There will always be a vocal cadre of ignorant people shouting nonsense about legal issues for about which they don't have a clue. MERS has prevailed in most cases, but they now face a series of cases in Michigan in which the Michigan Court of Appeals has rules that they did not have standing under Michigan law to file for foreclosure.

Read the details below, which contain the comments from Dan Elsea, President of Brokerage operations for Real Esatate One, Michigan's largest real estate company.

MERS Michigan Case Details


The general theme of this case is the interpretation of the statue as it applies to the entity Mortgage Electronic Registration Systems, Inc. (MERS) and their legal ability to act as the nominee for the lender in the foreclosure action, even if named as the mortgagee. In spite of the opposite ruling in the two prior courts, the Michigan Court of Appeals recently held that MERS is not "the owner of the indebtedness, or of an interest in the indebtedness secured by the mortgage, or the servicing agent of the mortgage" 9MCL 600.32 04(1)(d). The court also held that MERS as the mortgagee only held an interest in the property as security for the note, not an interest in the note itself. (remember that the note is the promise to pay)


The Michigan statute requires that ALL of the provisions of the statute must be met to permit foreclosure by advertisement versus judicial. Specifically, it requires that the party foreclosing is 'THE OWNER' of the debt , or the OWNER of an INTEREST in the debt secured by the mortgage or the SERVICING agent of the mortgage. In MERS case, they acted on behalf of many lenders as nominee or mortgagee of record. Their role was to supervise and report on the moving around of the beneficial ownership interest or servicing rights which were often transferred amongst members. It appears there were never any specific recordings of these transfers in a public forum, only electronic tracking services. In Michigan the opinion is that the Legislature REQUIRES ownership of an interest in the NOTE before permitting foreclosure by advertisement.


One reason the Michigan Legislature wrote the language the way it did was to prevent the possibility that borrowers would be obligated under the note to more than one entity and potentially be subject to double exposure. In other words, one could potentially lose the property through MERS, and still be sued by the NOTE HOLDER for the amount of the debt because MERS technically does not have the authority to discharge the NOTE.


The conclusion of this case (3 judges-1 dissenting) was that MERS did not OWN the indebtedness, did not OWN and interest in the INDEBTEDNESS SECURED BY THE MORTGAGE OR EVEN SERVICED THE MORTGAGE. The court concluded that MERS' inability to comply with the statutory requirements renders the foreclosure proceedings in the cases VOID ---ab initio. (For example, if something is said to be void ab initio,the thing was never created or valid to begin with) Remember-- there was a dissenting opinion from one judge and there are options for another hearing that may reverse this current opinion or uphold it.

Until the case winds its way to the Michigan Supreme Court, we won't know for sure whether the Appelate Courts decision will represent the law in Michigan. Clearly this is a mess in Michigan, as it is elsewhere, and will need to be resolved. Like Dan, I believe that homeowners might have at best a temporary moral victory. Whether it be by MERS or the banks directly, the deadbeat homeowners will eventually be foreclosed and evicted. Of course, many of these same deadbeats see this as a way to get another 6-8 months of free housing, which is the kind of mind set and thinking that got them into this situation in the first place.

The victory, however temporary the stay of foreclosure might be, it to be found in the principal that the banks cannot treat the system of recording and maintaining a documented trail of evidence of ownership as lightly as they have been. A recent article in Bloomberg Businessweek by Hernando deSoto. a renowned Peruvian economist, makes a convincing case that the recent financial meltdown was caused as much as anything by the breakdown of the public record keeping and transparency for debt of all kinds, not just mortgages. Mr. deSoto explores the lack of transparency and accountability in several sectors of what he claims has become a $15 Trillion underground parallel economy. The MERS scenario. along with huge pools of risk in arcane derivatives that were not understood by anyone and largely undocumented (at least in public), just set the stage for the eventual worldwide financial meltdown.

Let's hope that someone or some state eventually prevails against the lunacy of MERS and other attempts to obliterate the trail of documented ownership that is critical to the concept of begin able to pass "clear title" to a new owner. As it stands, the MERS mess gives title companies pause when considering the issuance of title insurance for homes that have mortgages that have been included in these bundled mortgage instruments. It might be difficult for a homeowner to prove that he really owns the property and has the right to sell it.

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