Wednesday, September 23, 2009

Show me the note

It looks like the financial “wizards” on Wall Street may have outsmarted themselves and inadvertently struck a blow for the little guy. Of course, they may have slashed and burned the entire economy for personal short-term gain in the process, but so what? That's Capitalism, right? What are you, some kind of America-hating Commie pinko Socialist Fascist?

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.


MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal. The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a “security.” The lender has been paid in full and has no further legal interest in the claim. Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement. They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief.
If this stands up nationally or in your state, could this mean that you might be able to stop paying your mortgage? The aforementioned financial “wizards” may have sliced and diced and packaged and re-sold mortgages so many times that nobody knows who owns your mortgage anymore, and if the holder is known, that holder may have no legal standing to foreclose. And if the party you are sending your mortgage payments to can’t prove it holds the note on your home and/or lacks the standing to foreclose, you might as well be sending your mortgage payments to me.

I've been thinking about this since I read about it at Susie's place because, based on personal experience tracking down a mortgage holder when I sold a home a few years ago, I tell friends that if they ever face forclosure, demand that the foreclosing party produce the note and prove they have the legal standing to foreclose. If nothing else, it will buy you time. But now it looks like that demand also might be able to buy you a home.

Of course, I am not advising you to simply stop paying your mortgage. What I am offering is a layman's view of a recent ruling in the Kansas Supreme Court and wondering out loud, so to speak, about its ramifications. Consult an attorney who is an expert in real estate law for more information. (Let's see, bold, italic and underline. Could I have added any more stress to that last sentence? What if I repeat it? OK, sure!) Consult an attorney who is an expert in real estate law for more information. And don't even think about blaming me if you stop paying your mortgage and lose your home.

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