February 1, 2010

The Rutland, Vermont Superior Court has expressly rejected any authority of MERS to foreclose either in its own name or as “nominee”. The 19-page decision in MERS v. Johnston et al., Rutland Superior Court Docket No. 420-6-09, is a literal treatise of MERS law from recent decisions around the United States including the Kansas decision in Landmark National Bank v. Kesler (which opinion was previously posted on this blog). The decision highlights the inconsistent positions taken by MERS in litigation against its representations in mortgage documents, and thoroughly dispenses of the “agent” position taken by other courts (such as the U.S. District Court for the District of Arizona in the Blau case, although the Vermont decision does not cite Blau by name).

Significantly, even after granting MERS a default judgment, the Vermont Court raised the issue of MERS’ standing “sua sponte” (on its own), after the Landmark (Kansas) decision was issued and vacated its prior default judgment which had been entered in favor of MERS. The Court discussed, in detail, who can enforce a mortgage and who can foreclose; cited the pertinent portions of the mortgage document which identified MERS and what its alleged authority was; and set forth how MERS purported to expand its otherwise limited authority without legal authority.

The Court held that “Importantly, MERS and the lender WMC purposely chose to use the specific legal term ‘nominee’, and not  ‘agent’ or ‘power-of-attorney’. MERS also chose not to define the term “nominee”. Furthermore, the mortgage deed consistently referred to the Lender’s rights in the property, and not MERS’s”.

Rejecting MERS’ standing to foreclose either in its own right or as “nominee” for some other entity, the Vermont Court relied not only the Landmark (Kansas) decision, but also on the In Re Sheridan decision from the Bankruptcy Court of Idaho which held that “if MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right”.

The Court went on to hold, in discussing the language in mortgage instruments which gives MERS “only legal title” to the mortgage that “legal title does not necessarily signify full and complete title or a beneficial interest”, and that ”solely as nominee”, with all rights as to notice, payment and interest in the property being kept with the lender, that there was no indication that MERS was an agent or power-of-attorney for the lender. The Court thus declined to accept the “agent” logic utilized by some other courts (e.g. the Arizona Federal Court) ”as it ignores black letter mortgage law”.

The Court found that “MERS and the lender intentionally split the obligation and the mortgage deed” as “This split was necessary to create the MERS system and facilitate the growth of the secondary mortgage market”, citing an article from the Idaho Law Review which stated that “for mortgages sold into the secondary market, legal title and equitable ownership are commonly severed. Mortgage servicers retain bare legal title to facilitate mortgage servicing; equitable interests are transferred to the investor”.

As MERS has no authority because it lacks an ownership in the mortgage instrument (which ownership interest was, on a massive scale, transferred into tranches of securitized mortgage loan trusts in connection with the creation of mortgage-backed securities, a/k/a “mortgage pass-through certificates”), MERS cannot “assign” anything as it never owned the thing which it purports to assign. The Vermont decision thus provides support for the attack upon the validity of any MERS assignment, for if MERS cannot foreclose either in its own right or as “nominee”, it certainly cannot undertake any action to foreclose by indirect action which would include a purported “assignment” of either the mortgage or the Note for purposes of instituting or maintaining a foreclosure. (MERS also cannot assign the Note for other reasons previously discussed on this blog in connection with the Idaho U.S. District Cout decision in the Wilhelm case).    

Vermont has thus done what the states of Kansas, Arkansas, Idaho, Washington, South Carolina, and others have done: hold MERS to its affirmative representations in mortgage instruments and nullify its purported attempt to expand its stated limited authority. It is hoped that other states will adopt this well-reasoned opinion just as the Vermont opinion adopted well-reasoned decisions from Kansas, New York, Idaho and other jurisdictions.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com