The biggest issue? The notes and trust deed have been physically separated by MERS, and according to the U.S. Supreme Court ruling in 1872, a mortgage has no separate existence from the note. It sounds like the money owed would then convert to being unsecured…or will it extinguish?
It’ll be a long road, so let’s just digest in smaller pieces – excerpts from this Bloomberg article sent in by SM that also cites several court cases, mostly favoring MERS:
1. About 60 percent of newly originated loans are on the MERS system, Lejarde said. Since its inception in 1995, it has carried 66 million loans and currently has between 23 million and 25 million active loans, she said.
2. A big selling point for the company is its cost savings. It charges $6.95 for every loan registered, Lejarde said. With an average cost of about $40 for filing a mortgage assignment with local counties, MERS has saved the industry about $2.4 billion, Merscorp Chief Executive Officer R.K. Arnold said in a September 2009 deposition in an Alabama suit.
3. The company is accused in two whistleblower suits filed this year of cheating California and Nevada counties out of millions of dollars in recording fees. In 2006, New York State’s highest court told one county it had to record MERS mortgages against its wishes. The county said MERS cost it $1 million a year.
4. Eventually high courts in states with judicial oversight of foreclosures will have to review MERS’s role, Patrick A. Randolph, a professor at the University of Missouri-Kansas City specializing in real-estate law, said in an interview. “It’s a question of state law,” Randolph said. “The problem is simply confusion about a word the courts are not used to seeing in this context — the word ‘nominee.’”
5. MERS says it has the right to foreclose because the borrower grants the company legal title to the mortgage and it forecloses as agent for the promissory-note holder. “Courts around the country have repeatedly upheld and recognized this right,” MERS said in an Oct. 4 e-mailed statement.
Since March 2009, supreme courts in Arkansas, Kansas and Maine have found that MERS had no standing in foreclosure proceedings under their states’ laws. The company lends no money and suffers no injury, the panels said.
MERS’s relationship to the bank that owned a loan in question was “more akin to that of a straw man than to a party possessing all the rights given a buyer,” the Kansas Supreme Court wrote. “What stake in the outcome of an independent action for foreclosure could MERS have?”