December 7, 2011

A Cuyahoga County, Ohio Court has issued a 9-page opinion which ultimately held that the foreclosing bank did not have standing to foreclose and was not the real party in interest, denying the Bank’s Motion for Summary Judgment and granting the homeowners’ MSJ. The Court’s reasoning is based on exactly what we have been and continue to argue as to MERS in cases all over the United States: that MERS, not being the payee on the Note and having no ownership rights in the Note, cannot transfer it.

This decision now joins the legion of cases which have similarly held MERS to its very limited position as “nominee”, notwithstanding MERS’ inconsistent attempt to anoint itself with additional powers which are not permitted by MERS’ own Terms and Conditions. MERS’ consistent violation of its own self-imposed internal restrictions is part of the recent action filed by the Delaware Attorney General against MERS.

In the Cuyahoga County, Ohio case (Huntington National Bank v. Brown, Case No. CV-09-702894), as with literally millions of other foreclosure cases filed nationally, the original Note was made payable to a third party. Huntington purported to claim entitlement to summary judgment on the basis of a MERS assignment, in this case where there was no endorsement in blank on the Note as well. The opinion states:

     It is beyond peradventure that one cannot transfer rights in property that one does not own. Since MERS was not the original payee on the note, and since the note was never endorsed to MERS or endorsed in blank, MERS had no legal rights by the tenor of the note and therefore was not legally capable of transferring the note to anyone.” The opinion also states that without the blank endorsement, Huntington could not claim status as a “holder” of the Note.

Significantly, the opinion also states that “Possession alone of a negotiable instrument does not establish that a party has the right to receive payments under it”, citing Ohio case law. This statement exemplifies the misleading nature of the argument consistently made by foreclosing banks, servicers, and securitized “trustees”: “we have possession of the Note, therefore we are entitled to enforce it and foreclose.” The question which is not answered by this position is “How did you come into possession of the Note and how did you acquire the rights to enforce it and the mortgage instrument?”. This, of course, implicates potentially numerous questions, especially in an securitization case.

A promissory note executed in connection with a mortgage instrument is not a simple “negotiable instrument” transaction. As the Court held in the recent In Re Veal case from the 9th Circuit Bankruptcy Appellate Panel, a promissory note tied to a mortgage instrument implicates Article 9 of the UCC (which governs secured transactions) in addition to Article 3 (which governs negotiable instruments). Thus, a foreclosing party should have to prove not only proper possession and ownership of the Note and the rights under it, but also intent of delivery, manner of delivery, and actual delivery of the mortgage instrument under Article 9 of the UCC. Those of you who have reviewed PSAs know that the Mortgage Loan Conveyance Provisions of the PSA set forth the requirements to prove intent of delivery, manner of delivery, and actual delivery of the mortgage instrument, and that these requirements are consistently ignored in securitization cases.

Congratulations to Ohio for getting it right as to MERS. We would hope that those jurisdictions which have not yet addressed the issue realize the true fallacy in MERS assignments and what MERS really is: that is, nothing more than a simple “nominee” without the power to transfer a Note which it did not, does not, and can never own.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com