Taibbi: Potentially Huge Decision On Mortgages In Kansas
Matt Taibbi has a blog post up about a recent ruling in Kansas regarding foreclosure on mortgages. MERS is a middleman in the mortgage trading business, it would buy mortgages from banks and participate in bundling mortgages for the securities market. The Kansas Supreme Court ruled that MERS had no standing to foreclose on a house, since it didn’t hold the note and wasn’t a signatory on the original contract. What I wonder is this – did the lending banks just get screwed by their own greed? I hope that judges in other states will look at this decision more closely.
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 – 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.
via Landmark Decision: Massive Relief for Homeowners and Trouble for the Banks.
This is a potentially gigantic story. 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 forelosure proceedings for about, oh, 60 million mortgages. The court ruled that the electronic transfer system used by the private company MERS — a clearing system for mortgages, similar to a depository, that is used for about half the mortgage market — is fundamentally unreliable, and any mortgage sold and/or transferred through MERS can’t be foreclosed upon, at least not in Kansas.
Tags: Bush's Fubar Economy, Foreclosure, Kansas, Matt Taibbi
not as monumentios as some bloggers are making it out to be.
the case was a fight between first mortgage holder (Landmark) and other lien/note holders (second mortgages). MERS was in the case arguing that they were a party entitled to “Notice”, the court found that as an information clearing house (and not a note holder), MERS was not entitled to notice.
A bigger impact will be felt by jurisdictions that require the Foreclosing Bank present original mortgage documents in court. Thats a lot of paper to keep track of in this age of electronic commerce.
Rico, did you read the same article as I did? What I read was that the original note holder SOLD the mortgage to MERS and was PAID for that mortgage. MERS now holds the note with no original mortgage documents to back up their foreclosure process. The original mortgage lender sold the note and no longer has an action to foreclose because they were already PAID. How does that translate into the poor banks having to keep alot of paper. They SOLD their rights. This doesn’t affect me because my mortgage company doesn’t sell their mortgages, but good for the 60 million who just stuck it to the man.
Fran,
Probably not. I skimmed the actual court decision. I have seen several “articles” that are simply blog posts that make a wide range of claims about the impact of this case.
I don’t believe that MERS buys or sells mortgages, they are a tracking system.
from the website http://www.mersinc.org
MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.
in some states MERS does act as agent for the mortgage holder and does Foreclose. It is not clear if Kansas is one of those states.
I think the ruling could potentially be a big one. The judge basically ruled that the bank has to produce the mortgage note to have standing. If MERS paperwork was as shoddy as is being implied this could mean a whole lot of problems in foreclosing. I’m sure smart lawyers are already all over this. Even if the lawyers don’t succeed in court, they certainly have a delaying tactic to make the foreclosing company come up with the note.
It seems to me that the mortgage is generally recorded with a government entity (like the recorder of deeds) and that the question is not that the money is owed to someone (otherwise, we could all stop paying our mortgages and see if they can find the paperwork). The problem will be to identify the chain of ownership of the particular mortgage. I find it hard to believe that the documentation for that is really that hard to produce.
Must read further.
lg,
Here’s the first person account. Very interesting. Their contention is that MERS skipped the necessary government entity transferring, to make the mortgages easier to bundle. Here’s an excerpt:
Housing Wire also talks about this decision. Apparently the right notices went to the lien-holders, but not to MERS. It looks to me like the court said that notices go to the lienholders of record, and notice to MERS (not a lienholder) isn’t necessary.
I read that KS court document and the Kos diary, but there are still a lot of questions in my mind. I get the “produce the note” strategy of delaying the inevitable (someone is going to get paid), but the Kos link actually confuses the hell out of me. If there are such issues about who holds the mortgage, how is it even possible to sell the property as he states he is in 2 weeks? Who does he write a check to in order to satisfy the loan?
This is why I have stayed clear of real estate investment.
Yes, I think everyone finds this incredibly complicated. I think that was part of the problem – no one really understands the whole picture. I think some really smart lawyers could make real hay with this decision though. One commenter in the kos thread suggested that the subsequent sales of the property could be considered fraudulent, so the mortgage company could be squeezed on both sides.
most forclosures happen without the (soon to be former) homeowner ever returning the banks calls or stepping foot in court… so I don’t see this case having a big impact in Kansas and zero impact in the other 49 states.
It does expose a problem that was talked about in the early days of the “Banking Crisis” (a registered trademark of Rahm Emanuel). That is, how does a borrower identify the Note Holder in order to negotiate an outcome other than forclosure? MERS can’t make any changes to your morgage, the Servicer can make only limited accomidations. Only the Note Holder (the owner of your loan) can agree to make changes like: extending the term, waiving penalties & fees, reducing the interest rate…
a year has passed and no progress has been made.
Interesting. I know of people that are having no luck in renegotiating. I wonder if that is a cause…
LG
I am not a lawyer and I don’t play one on TV (or the internet).
The best I can suggest is ask the servicer:
” I propose we do X, Y, and Z changes to the loan to keep me out of forclosure. Do you have the authority to aprove these changes? If not, who does? can we include him/her in this phonecall? can we schedule a conference call whith him/her?”
Depending on how extreme a change you are looking for, you may get to someone who says that they will have to take the proposal to the workout committee. That just means that to prevent fraud, one person cant approve the changes, but you are speaking to the correct person.
Gee, this sounds really complicated for the average person. Wouldn’t it be great if there was a not for profit, community-based organization where people could go to get help figuring out the laws, their mortgage status and what to do? It would be especially useful to lower income people, who are also more likely to be in mortgage distress.
Wouldn’t that be something?
(snark off…)
PM,
try this link,
http://www.attorneygeneral.delaware.gov/consumers/protection/mortgageforclosures.shtml