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Bankruptcy Judge Rules Mortgage Electronic Registration Systems Cannot Assign Loans

February 17, 2011

As Redlands foreclosure defense lawyers, we were very interested in a recent ruling out of New York that could have national implications. As the Wall Street Journal reported Feb. 14, a federal bankruptcy court judge in New York has ruled that the Mortgage Electronic Registration Systems, the huge electronic mortgage database company created by a group of major lenders, has no right to transfer mortgages under New York law. This could have implications for all of the 65 million mortgages in the MERS database, because its standard procedures may not be valid in every state, which could in turn invalidate foreclosures. However, the ruling came too late for the bankruptcy filer, whose foreclosure had already been decided in New York state court.

In the case before the bankruptcy court, Ferrel Agard of Westport, N.Y. filed for Chapter 7 bankruptcy in September of 2010. This automatically stopped new action on the foreclosure of his home, which had been approved in November of 2008. The mortgage servicer asked the court to let it bypass the automatic stay and continue the foreclosure, which was on behalf of a bank that was trustee for a security that included the loan. Bankruptcy judge Robert Grossman ruled that he couldn't stop the mortgage, since it had already been approved in court.

But Grossman took the opportunity to address the issue of whether MERS procedures gave the loan servicer a right to foreclose, a potential issue in dozens of cases before that court - and likely thousands across the United States. He said emphatically that MERS does not have the right to assign mortgages under New York law, at least as it was done in the Agard case. Because banks need to own both the mortgage and the note to foreclose in New York, that meant the lender's right to foreclose on Agard's home could have been challenged if it hadn't already occurred. Grossman disagreed with MERS that banks' membership agreements with MERS was enough to assign the mortgage, because authority has to be granted explicitly and transfers done in writing. Thus, the mortgage remained in MERS's name. He also dismissed as "absurd at best" the argument that MERS is both the owner of the mortgage and the assignee of that owner.

This case is interesting to us as Placentia foreclosure defense attorneys because it could invalidate thousands of foreclosures throughout the United States, or at least make them more difficult. This is not the first case discussing whether MERS has standing to foreclose, but it may be the first to emerge since the robo-signing scandal raised awareness that sloppy paperwork from lenders could create invalid foreclosures. MERS was created in the mid-1990s as a national mortgage database that replaces the county land offices that recorded land deals. Rather than filing with those offices in writing, lenders now transfer properties through MERS, a process that requires them to give MERS some amount of ownership. If more courts agree that this process doesn't conform to their own state laws, the system itself may be in trouble.

Howard Law PC represents borrowers who are fighting to save their homes from foreclosures they believe they can avoid with a loan modification or more careful paperwork from lenders. We have practiced in this area of the law from the beginning of the mortgage crisis. During that time, our Aliso Viejo foreclosure defense lawyers have heard many, many stories of lenders and loan servicers that seem to be grossly incompetent, unwilling to correct mistakes or arbitrary in their decisions. That's why articles about robo-signing and other shoddy paperwork problems don't surprise us in the least. We help our clients fight back, negotiating aggressively for a reasonable loan modification or, when necessary, suing the lender to ensure that clients get fair consideration.

If your home is in foreclosure or will soon be, and your loan servicer seems determined not to help, stop calling them and call Howard Law instead. To set up a free, confidential evaluation of your case, send us a message online or call toll-free at 1-800-872-5925.