A brilliant Clearwater, Florida attorney (Greg Clark) has been making a complex and sophisticated argument against the Plaintiffs of foreclosure cases that I frankly struggled to understand. Boiled down to simple points, the argument is that a mortgage transaction is based on two documents, 1) a note or the obligation to repay the money; 2) the mortgage which secures the obligation to repay the money to real property. Clark’s argument is that ownership of those two documents must remain united in order for any subsequent party to enforce a mortgage foreclosure. He argues that when a mortgage is transferred to one party, (in most cases Mortgage Electronic Registration Systems), but the note or the obligation to repay is transferred to another party (like a securitized trust), subsequent transfers of the mortgage (assignment) are invalid. The argument goes that when the “chain of title” of a mortgage is broken, you must go back and fix the broken link before the chain can be reconnected and foreclosure pursued.
Clark is a title attorney and he, and others (myself included) have real concerns about the validity of title to property when the chain of mortgage ownership does not appear of public record. When I perform a title search, I can see every mortgage that is recorded against the property. The problem with the MERS system, where a mortgage went one way and the foreclosing lender comes in from another is I have no way of knowing how that foreclosing lender came into position to foreclose…the public record only shows that the originating lender holds an interest. We know from depositions and other information, that agents of MERS and lenders are falsifying assignments of mortgages. Now that this knowledge is becoming widespread, it cannot be ignored. (Read my next post on Lender Processing Services.)
A Mortgage is a Mere Incident to The Debt
A related inquiry that I struggle with is why the two forms of foreclosure? If a lender has an original note, courts rely on antiquated case law (Johns v. Gillian, 184 So. 140, 143 (Fla. 1938)) which stands for the proposition that “a mortgage is a mere incident to the debt” and a person in possession of the note can proceed with the separate and distinct count to foreclose the mortgage even without an assignment of mortgage. Other times, the lenders will obtain an assignment of mortgage….even when they are in possession of the original note. So if the Johns line of reasoning is correct, why bother to ever obtain an assignment of mortgage? Even if the lender cannot obtain the original note, if the note is re-established it has the same power as the original. Why fool around with assignments in any case?
A landmark case from the Kansas Supreme Court, (Kessler v. Landmark) delves into these issues…..
The mortgagee is so well understood as the lender that Black’s Law Dictionary defines a “foreclosure” as an action brought by the lender/mortgagee: a foreclosure is a “legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.” Black’s Law Dictionary 674. Similarly, the tie between a mortgage and an underlying debt is so intrinsic that Kansas law provides that “[t]he assignment of any mortgage . . . shall carry with it the debt thereby secured.” K.S.A. 58-2323. Indeed, an assignment of a mortgage without the debt transfers nothing. 55 Am. Jur. 2d, Mortgages § 1002. Thus, the mortgagee, who must have an interest in the debt, is the lender in a typical home mortgage.
But for reasons thought beneficial by a group of lenders who trade mortgages, the form of mortgage used in this case designates an entity that is not the lender as the mortgagee. See MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 96, 828 N.Y.S.2d 266, 861 N.E.2d 81 (2006) (MERS was established by large lenders to allow easy electronic trading and tracking of mortgages). Specifically, the mortgage says that the mortgagee is MERS, though “solely as nominee for Lender.” Does this mean that MERS really was the mortgagee, even though it didn’t lend money or have any rights to loan repayments? Assuming so, MERS argues that it was a necessary party to the foreclosure and that the foreclosure must be set aside. But the premise upon which MERS bases this argument is flawed. What is MERS’s interest? MERS claims that it holds the title to the second mortgage, not the real estate. So it does, but only as a nominee. In terms of the roles that we’ve discussed in the mortgage business, MERS holds the mortgage but without rights to the debt. The district court found that MERS was merely an agent for the principal player, Millennia. While MERS objects to its characterization as an agent, it’s a fair one.
MERS had no right to the underlying debt repayment secured by the mortgage; MERS did not even act as the servicing agent to receive the payments and remit them to the lender. MERS’s right to act to enforce the mortgage was strictly limited: if “necessary to comply with law or custom,” MERS could foreclose the mortgage or enter a release of the mortgage. MERS certainly could not act at odds to its principal, the lender. Its role fits the classic definition of an agent: one “‘authorized by another to act for him, or intrusted with another’s business.'” In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 534, 920 P.2d 947 (1996) (quoting Black’s Law Dictionary 85 [4th ed. 1968]).