Thursday, June 28, 2012

MERS survives another round in California, to fight again.

Like a punch drunk fighter staggering through another round in the ring, the Mortgage Electronic Registration System, or "MERS," has survived another court challenge to it's ability to make mortgage assignments on behalf of various lenders.

On May 17, 2012, the Court of Appeals for the State of California decided Herrera v. Federal National Mortgage Association, a case where a homeowner tried to invalidate a foreclosure by arguing MERS had no authority to make various assignments of recorded deeds of trust, and that this failure invalidated the current note holder's attempt to foreclose.

I've shared my thoughts, before, on why the popular attacks on MERS won't gain traction in Maryland's courts, since the Maryland Court of Appeals decision in Anderson v. Burson. But I have found one snippet within the Herrera opinion that is worth a moment of thought (and then you can get back to surfing Youtube videos of "Simon' Cat"--hilarious, by the way), and it is here (and the court's internal reference to" Fontenot" is to a prior case involving similar claims against MERS):

Furthermore, since the assignment of the debt (the promissory note), as opposed to the security (the DOT), commonly is not recorded, the lender could have assigned the note to the beneficiary in an unrecorded document not disclosed to plaintiffs. ... This is why in Fontenot the court rejected the plaintiff's claim to set aside the foreclosure as void based solely on the alleged invalidity of the MERS assignment of the note and DOT. The Fontenot court stated: "plaintiff was required to allege that [the bank] did not receive a valid assignment of the debt in any manner. Plaintiff rests her argument on the documents in the public record, but assignments of debt, as opposed to assignments of the security interest incident to the debt, are commonly not recorded. The lender could readily have assigned the promissory note to [the bank] in an unrecorded document that was not disclosed to plaintiff. 
 And there it is. This is the core of Marylands' Anderson v. Burson analysis. And it highlights the threshold issue in any case involving an attack on the lender's standing to foreclose, transfer servicing rights, file proofs of claim in bankruptcy, etc.--does the entity attempting to enforce any term in the debt or security instrument have rights in the unrecorded note?  And that means phsycial possession with a contractual right to enforce.

And this leads to another thought. Avoid the forensic loan audit scam. There is nothing in the generic 20 page "audit report" you purchase from these charlatans that will undercut the law.  If the entity enforcing the lien instrument has physical possession of the note, and has the contractual right to enforce it's terms, gaps in the chain of assignments just don't matter.  Save your money.