The War On Error: Bankruptcy Attorneys Take Aim Against MERS

May 7, 2010

Around the country courts are questioning the standing of MERS to assert legal rights in
foreclosure or bankruptcy proceedings. Many courts are finding that Mortgage Electronic
Registration System, or “MERS,” is not a legal mortgage holder for lenders, investors
and their loan servicers, and are invalidating bankruptcy claims or foreclosure processes.

On its website MERS describes itself:

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.

Since the mortgage bubble burst, MERS has come under increasing attack in state and
federal courts. Some courts (most notably in Kansas, Florida, and New York) have found
that MERS does not have standing to assert mortgage rights because it is a mere nominee,
and not a mortgage assignee (an assignment of a mortgage without the debt transfers
nothing. 55 Am. Jur. 2d, Mortgages § 1002). Additionally, MERS routinely skips legally
required processes when a mortgage is transferred.

MERS is not the beneficiary of a Deed of Trust, and has no ownership or possession of a
promissory note. Therefore, many courts are finding noncompliance with state laws.
Recently one bankruptcy court in the State of New York invalidated a bankruptcy claim
by MERS when the company could not show how it had standing in the case.

Many bankruptcy attorneys are demanding proof of assignment and documents
establishing a paper trail for their client’s mortgage. In many cases MERS is unable to
provide this information; much like collection companies often cannot prove a debt.
Original documents, recorded deeds, payment history, and executed assignments seem to
be inconsequential matters to the MERS powerhouse. Fortunately, MERS is now under
attack and accused of not following legal processes. It will be very interesting to see how
the state and federal appellate courts address the MERS debacle.

If you are dealing with an uncooperative mortgage company and need assistance saving
your home, speak with an experienced bankruptcy attorney and discuss your options.
There are many legal options available and your bankruptcy attorney can help you
determine the best choice for your family.

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