MERS and Standing to Sue

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MERS is listed as the 'nominal' owner of more than 50% of all mortgages in the USA. What is MERS and how does it play in the increasingly complex foreclosure system?

Mortgage Electronic Registration System (MERS) consists of three separate legal entities, the first created by William Hultman in 1996.  The initial entity was the idea of a group of the largest US banks, Fannie Mae, and Freddie Mac and several mortgage bond insurance companies.  MERS was likely an effort to evade county real property recording fees, reduce the legal and logistical burden of actually and physically endorsing promissory notes and mortgages and, perhaps, to frustrate the ability of borrowers to contest foreclosure actions by disguising the real parties in interest, if such parties still exist.

There are three MERS entities: (1) MERS Corp., (2) MERS, Inc., a wholly owned subsidiary and 'bankruptcy remote entity' and (3) MERS System.

All MERS entities are incorporated in Delaware.  MERS Corp. is located in Reston, Virginia and has approximately 37 employees and more than 20,000 unpaid "vice presidents" who are neither employees of, or compensated by MERS Corp., and who become vice presidents by filling out a web-based form.

As a result of ongoing litigation in several states, MERS has agreed to do none of the following:

  1. Foreclose in its own name
  2. Bring a proof of claim in the bankruptcy court
  3. File a motion for relief from stay in the bankruptcy court

MERS describes itself in mortgage litigation variously as agent, nominee and until recently as the actual mortgagee.  MERS operates by the decisions or resolutions of its Board of Directors.  However, it does not have a Board of Directors and this nonexistent Board, so far as it appears, has never met.  Notwithstanding this, the Secretary of MERS claims to have been authorized by the Board of Directors to both draft and approve and then ratify its resolutions.

Until late 2010, William Hultman was the Secretary of MERS.  Recently MERS general counsel Sharon Holzman was appointed Secretary of MERS , apparently by Mr. Hultman who was able to accomplish this by the authority of the Board of Directors, which does not exist and which has never met.

What Does MERS Have to do with Foreclosure?

MERS has been involved in various ways in foreclosure actions since the financial crisis began.  Sometimes MERS is the actual party bringing the foreclosure.  When it does so, sometimes it claims to be the owner of the mortgage, sometimes the agent of the mortgagee, other times the nominee of the mortgagee, and in a recent bankruptcy case called In re Agard, US Bankruptcy Court, Eastern District of New York, No. 10-77338.  MERS claimed to be both the mortgagee and the mortgagee's agent at the same time.

On February 18, 2011, the California Court of Appeal held that MERS does have standing to foreclose because the borrower consented to allowing MERS to foreclose in the deed of trust.  Gomes v. Countrywide Home Loans, Cal. App. 4th Case. No. D057005, 02/18/2011.

There are enormous conflicts evolving between states and even between jurisdictions within states as to what rights MERS has to foreclose, to assign notes and to assign mortgages.  It is too early to tell how the law will evolve, but it is clear that California is fast becoming the most MERS-friendly jurisdiction in the United States.

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