There has been a lot of buzz about a strongly worded decision by the New York Second Appellate Division in the Bank of New York v. Silverberg. This is yet another ruling against MERS, but its implications are narrower than some commentators have suggested.
It is critical to note that MERS in theory is a mortgage registry, which means whatever authority it has (a matter still being sorted out), it extends to the lien only. MERS has repeatedly said in depositions it was not a lender and has no rights to the note, the borrower IOU. Thus since in most states the note is the critical instrument (the lien is a “mere accessory”), the party foreclosing needs to be a holder of the note (that actually means more than mere possession, you need to be a party of interest, in some states).
MERS advised last year that servicers stop filing foreclosures in the name of MERS. However, there appear to be quite a few foreclosures undertaken in the name of MERS grinding their way through the system; this was one of them (I’m a bit puzzled that more in states with MERS-unfavorable precedents have not been withdraw and refiled, but that is over my pay grade).
You have to love New York judges. The ruling begins: “This matter involves the enforcement of the rules that govern real property and whether such rules should be bent to accommodate a system that has taken on a life of its own.” It’s not hard to guess where this one is going.
The ruling is short and worth reading. This is the first ruling in New York to consider the question of whether MERS “can assign the right to foreclose” when it has neither rights in or possession of the note. Most courts that have considered whether MERS can make assignments of its rights have taken a dim view of the idea (note that courts that have made MERS favorable rulings in similar circumstances have typically ignored the issue). Note that this court said explicitly that if MERS had had possession of the note, it could have initiated foreclosed in its name (as suggested above, other states have ruled that possession alone does not confer the right to foreclose). But getting its hands on the note after foreclose was in motion was an impermissible fix.
Bank of New York v Silverberg NY Appellate Ruling June 7, 2011
16 comments
Comments are closed.
Received this insight from a lawyer friend.
MERS rules prohibit them from holding any interest(s) in notes however for a number of reasons not the least of which I suspect is that it interferes with the securitization of the notes and the “investors” therein, it requires possession of the original note(s) which MERS does not want and cannot practically manage, implicates tax considerations, etc.
This decision follows and builds on a bankruptcy decision several months ago called In re Agard – it is attached.
The important thing here is that all of the MBS trusts are formed under NY law. It is axiomatic therefore that all MBS Trusts wherein there are MERS mortgages – have essentially become unsecured debt.
which is why Karl Denninger has been going on for years that MBS investors were sold an empty box – that used to be called fraud didn’t it?
Thanks for making this available, though it’s like looking through a keyhole.
First the defendents take out a mortgage (450K), less than a year later they double down, then consolidate, and then 6 months later default. The consolidation agreement omits Countrywide and in March 2008 MERS assigns the consolidation to Bank of New York in a “corrected assignment”. A week later Bank of New York begins foreclosure. In both the first and second mortgages originated by Countrywide defendents agree that MERS “purportedly” has the right to foreclose. That is only possible, according to the court, if it has both the mortgage and the note. The mortgage and note were separated however and MERS assigned only the mortgage to BofNY.
Where’s the note? In a storage shed in southern California? Where are the defendents? How can you get a second mortgage 6 months after the first?
Compare the New York judges to the Florida foreclosure mills. Is it going to be a North versus South civil war again before this country finally turns around?
This ruling makes me think back to the transcript posted the other day. The MERS assignment purports to transfer the mortgage and note. Hopefully they preserved the same issue for appeal.
MERS was clearly the brainchild of very smart lawyers who were so overwhelmed by their own cleverness they forgot about the law.
I’ve seen this happen before in other areas of the law. All it takes to bring everything tumbling down is a judge who believes in fairness and the rule of law. Unfortunately, that kind of judge is becoming rare, in large part due to the encroachment of the neoliberal “economics and the law” dogma that permeates the legal profession and the judiciary.
MERS’ status as to mortgages really seems to be coming down to a divide between title theory and lien theory states.
If you look at the major state court decisions that have found MERS cannot assign or foreclose, you’ll note they happened in lien theory states, such as New York; Kansas; Arkansas; Indiana. In title theory states, the state courts appear to be relying on contract principles and comprehensive non-judicial foreclosure schemes to find that MERS does have authority to assign mortgages (i.e. Gomes v. Countrywide (2011) 192 Cal.App.4th 1149). Then there’s Minnesota, which is a lien theory state where the legislature has basically given its seal of approval to MERS.
I think that rather than call them “title theory” states, we might want to refer to them as “fraud theory” states.
They are more like self-help foreclosure states. Help yourself to foreclosure the gov’t ain’t watchin!
You need positive evidence against them. The burden of proof is automagically on the homeowner.
You have to be extremely proactive with what lies in the public record in the non-judicial foreclosure states.
The California homeowner can fight the foreclosure in two court settings:
First, in bankruptcy, when the lender tries to get relief from stay;
Second, in an unlawful detainer proceeding, which allows the defendant to try the issue of title.
In the first instance, the downside is that one must first go bankrupt. In the second, the defendant must be prepared to act quickly (as in prepared to propound discovery on the day he or she answers the complaint), since an unlawful detainer can go to trial within 3 weeks of service of the summons.
Interesting to learn that about Minnesota. What an obvious coincidence that one of Lender Processing Services main offices is located there? (The other is in Florida).
@greggp
Please allow me to rephrase…
Interesting to learn that Minnesota is a lien theory state acting like a title theor state.
Is it a coincidence that one of Lender Processing Services main offices is located there? (The other is in Florida).
Things that make you go hmmmmm.
Minnesota passed legislation favorable to MERS. My understanding is they are the only state to have done so.
Yves, do you know when that happened? As a Minnesotan, I am interested.
At this point, its clear that there are problems with foreclosure that resulted from very sloppy practices at the banks.
So you have these courses of action:
(1) The banks can pretend there is no problem, continue trying to battle it out in court and pay the clowns that got the bank into this mess big bonuses;
(2) Take a big writedown for the estimated amount that the banks will have to pay the homeowners to agree to let the bank sell the house and just cut out the bonuses to pay for it.
The banks will probably go with #1 because the management just wants to loot the bank. However, there clearly is a way that the banks can avert total disaster by just negotiating with the persons whose houses are being foreclosed.
“At this point, its clear that there are problems with foreclosure that resulted from very sloppy practices at the banks.” That’s not it at all – bank robbers are attempting to cover their tracks. Dismissed!
I don’t think they are covering their tracks. Just making new ones.
The problem with the Wall Street banks is that they pull all kinds of stunts to delay writeoffs so that they can squeeze more money out in bonuses and make it look like the bank is profitable. That is what led to the disaster in 2008.
Look, my view is that most of the people who are going to be foreclosed upon can be bought off cheaply. Suppose you held the mortgage loan on a 400K home and you would like to foreclose but you knew there were problems with the mortgage. What do you do? You pay off the person who wants to challenge the foreclosure so that you can go through with it.
Suppose you give the person 12K to leave now, get their things out and drop the challenge to the foreclosure. How many people in foreclosure are going to turn that down?
Do the people having their homes foreclosed upon deserve the money? No.
But the banksters don’t deserve their bonuses either. Why won’t the banksters do this? Because its going to result in a current loss. And that will hurt or eliminate their bonuses. So that’s why the banks have this huge problem. The problem is the lack of integrity of the people who work in these institutions. If they were working for the benefit of the shareholders, they would take the writeoffs, pay off the homeowners and the problems would be resolved. But because they are trying another con to rip off their own shareholders, they won’t do this.