Bain v Mers Wa Amicus Brief 2 12

8/3/2019 Bain v Mers Wa Amicus Brief 2 12

1/19

Case No.: 86206-1

SUPREME COURTFOR THE STATE OF WASHINGTON

KRISTIN BAINv .

METROPOLITAN MORTGAGE GROUP, INC. ET AL

AMICUS CURIAE BRIEF BYORGANIZA nON UNITED FOR REFORMOUR - WASHINGTON

Shawn Timothy Newman, WSBA 14193Attorney at Law, Inc. P.S.2507 Crestline Dr., N.W.Olympia, W A 98502PH: 360.866.2322FAX: 1.866.800.9941

Attorney for Amicus Curiae Organization United for ReformOUR - Washington


2/19

TABLE OF CONTENTSI. INTRODUCTION 1II. ISSUES 3

I. Did MERS violate the unity of the note and securitynecessary to have standing to foreclose?

2. Is MERS the "person entitled to enforce"! under itslimited agency authority and the fact it never heldor possessed the note?

3. Do changes in MERS's foreclosure rules confirm itlacks standing to foreclose?IV. SUMMARY ARGUMENT 4V. ARGUMENTS , , .. 4

1. MERS violated the unity of the note and security bypurporting to negotiate, transfer and securitize notes itnever held , , . , , , , .". . . . . . . . .. . . . . . . .. 4

2 . MERS is not the "person entitled to enforce,,2 the notebecause it never held the note. MERS's common agencyauthority is limited to registering and tracking transfers inmortgage loans.' , 5

3. Changes in MERS's foreclosure rules confirm it lacksstanding to foreclose 11

VI. CONCLUSION 14

ii

IRCW 62A .3-30 12 RCW 62A .3-30 1~See MERS Resp. Sr. 13.


3/19

TABLE OF AUTHORITIESFEDERAL CASES:Carpenter v. Longan, 83 U.S. 271 (1873) 4, 10In re Allman. 2010 WL 3366405, U.S. Bkptcy. Ct., Oregon (2010) ... 8-9Moore v. MERS, CV-10-241-JL (D.N.H. Jan. 27,2012) 8OTHER STATE CASES:Bank of New York v. Silverberg, 926 N.Y.S.2d 532,86 A.D.3d 274 (2011).................................................................................. 12-13Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo.App.E.D.2009) 4, 8Bevilacqua v. Rodriguez, 460 Mass. 762 (2011) 10Landmark Nat'l Bank v. Kesler, 289 Kan. 528,216 P.3d 158, 167 (2009).8u . s . Bank National Ass'n v. Ibanez, 458 Mass. 637 (2011) 2STATUTES:WASHINGTON:RCW 36.18.010 IRCW 36.22.170 IRCW 36.22.175 1RCW 36.22.178 1RCW 36.22.179 1RCW 36.22.181 1RCW 6.23.020(2) 3RCW Ch. 61.24 14RCW 61.24.005 (2) 10, 14RCW Ch. 62A.3 5, 10RCW 62A.3-201(a) 10RCW 62A.3-203(a) 10RCW 62A.3-301 5-7

iii


4/19

RCW 62A.3-309 6RCW 62A.3-418(d) 6OTHER AUTHORIT IES:

About MERS http://www.mersinc.org/about/index.aspx 1

iv

American Law Institute and the National Conferenceof Commissioners on Uniform State Laws, Report of the PermanentEditorial Board/or the Uniform Commercial Code -Application of theUniform Commercial Code to Selected Issues relating to Mortgage Notes(Nov. 14,2011), provided as Appendix A-2 5-7Black's Law Dictionary (9th ed. 2009) 2, 8Brady Dennis, MERS morass is hanging up negotiations onforeclosuresettlement, Washington Post (Aug. 24, 2011) 2Christopher L. Peterson, Predatory Structured Finance, 28 Cardozo L.Rev. 2185 (2007) 3Dale Whitman, How Negotiability Has Fouled Up the SecondaryMortgage Market, and What To Do About It, 37 Pepp. L. Rev 738 (2010)....................................................................................... 10Dale Whitman, Mortgage Drafting: Lessons/rom the Restatement ofMortgages, 33 Real Prop. Prob. &Tr. J. 415,439 (1998) 1Dave Krieger, Clouded Titles (Law Bulletin Publishing Co. 2012) 2, 8Diane E. Thompson, Foreclosing Modifications: How Servicer IncentivesDiscourage Loan Modifications, 86 Wash. L.Rev. 755 (2011) 3Ellen Brown, Why all the roho-signing? Securitization and the shadowhanking system, San Francisco Bay View National Black Newspaper ..... 3Freddie Mac Bulletin No. 2011-5 (March 23, 2011), provided as AppendixA-3 , , .. , 11Gretchen Morgenson, A Mortgage Tornado Warning, Unheeded, NewYork Times (Feb. 4, 2012) 2
http://www.mersinc.org/about/index.aspxhttp://www.mersinc.org/about/index.aspx


5/19

l.Opie and P. Opie, The Oxford Dictionary of Nursery Rhymes (Oxford:Oxford University Press, 1951, 2nd ed., 1997) 12MERS website http://www.mersinc 1, 12MERS website for Mortgage Identification Number [MIN] 3MERSCORP, Inc. Rules of Membership, Rule 8, p. 25 (Feb. 2012),provided as Appendix A-I I, 11-12Michelle Conlin and Curt Anderson, Mortgage system sued overrecording fees: Banks accused of cheating counties out of billions (Nov.14,2010) 1Nolan Robinson, The Case Against Allowing Mortgage ElectronicRegistration Systems, Inc. (MERS) 10 Initiate Foreclosure Proceedings,32 Cardozo Law Review 101, 103 (2011) " 1,2,8, 11OCR 86.720 9Powell on Real Property: Michael Allan Wolf Desk Edition 37.27 [2](LexisNexis Matthew Bender 2010) 4Restatement (Third) of Property: Mortgages (1997) 10Walter Hamilton and E. Scott Reckard, Angelo Mozilo. otherformerCountrywide execs settle fraud charges, Los Angeles Times (Oct. 26.2010) 3www.merriam-webster.com!dictionary Ikafkaesq ue , , 3

v
http://www.merriam-webster.com%21dictionary/http://www.merriam-webster.com%21dictionary/


6/19

_ ..- --- -- ----

I. INTRODUCTION

MERS serves as the "nominee"! for the mortgagee in the landrecords for loans registered on the MERS system' According to MERS'swebsite,

MERS acts as nominee in the county land records for thelender and servicer. Any loan registered on the MERSSystem is inoculated against future assignments becauseMERS remains the mortgagee no matter how many timesservicing is traded. 3

This claim helped to fuel the mortgage-backed securities (MBS) market4by allowing "lenders to circumvent the process or recording assignmentsand paying recording fees' to the county clerk's office." 6 In so doing,

1 See MERS Resp. Br. App. A-5 (Friedman on COIlt.& Cony. Real Prop. 6: 1.5)("sometimes called a 'dummy,' 'straw,' or 'straw rnan'" or "limited agent."); see alsoMERSCORP, Inc. Rules of Membership. Rule 8, p. 25 (Feb. 2012), provided asAppendix A- I2 See MERS Resp. Br. App. A-I.3 AbDUl MER"r:;,http://www.mersinc.org/aboutlindex.aspx(last visited Feb. 8,2012).4 Referred to as the "secondary mortgage market" since the sellers and securitizers are notthe loan originators. See Dale A. Whitman, Mortgage Drafting: Lessons from 'heRestatement of Mortgages, 33 Real Prop. Prob. & Tr. J. 415, 439 (1998).5The "recording fee" in Washington State for a Deed of Trust is $63 for the first page andan additional $1 for every page thereafter. The $63 includes the following: $5 filing fee(RCW 36.18.010); $2 Auditors O&M (RCW 36.22.170); $2 State Centennial (RCW36.22. 170); $1 Commissioner's Preservation (RCW 36.22.170); $2 State Archives -Grants (RCW 36.22.175); $2 State Archives - Regional (ReW 36.22.175); $10Affordable Housing (RCW 36.22.178); $38 Homeless Prevention I & 2 (ReW36.22.179); and $ I Mortgage Fraud (ReW 36.22.181). An assignment and aresignation/substitution does not pay the $48 housing surcharge so their price is $ I4 forthe first page and $1 for every page thereafter (but since most are only I page, the mostcommon price is $14 per doc). In reality, the lending industry already gets a $48 breakfrom the State for every transaction that is an assignment or resignation/substitution.(,Michelle Conlin and Curt Anderson. Mortgage system sued over recording fees: Banksaccused a/cheating counties out of billions (Nov. 14,2010), available athttp://www.lmoxnews.com/news/20 I0/nov/14/mortgage-system-sued-over-recording-fees-recording (last visited Feb. 10,2012); see also Nolan Robinson, The Case Against
http://www.lmoxnews.com/news/20http://www.lmoxnews.com/news/20


7/19

MERS clouded the title 7 and identity of the real party in interest: theowner of the note.'

The problem is compounded by the facts that roughly 65 millionmortgages have been registered on the MERS system 9 and "over ninety-five percent of residential mortgages are securitized." 10 The problem wasid if d 111 enti ie years ago.

Yet, the "housing shell game"l2 continues. A Kafkaesque+' gamethat forces homeowners interested in challenging predatory lending

Allowing Mortgage Electronic Registration Systems. Inc. (MERS) to Initiate ForeclosureProceedings, 3 2 C ard oz o L. R ev . 101 ,103 (2011).7 A "cloud on title" refers to a "defect or potential defect in the owner's ti tle to a piece ofland arising from some claim or encum brance, such as a lien, an easement, or a courtorder." B lack's Law D ictionary 291 (9th ed . 2009; See generally, Dav e K ri eg er,Clouded Titles (Law Bulletin Publishing Co. 2012 ) at 90; see also u.s. Bank NationalAss 'n v. Ibanez, 458 M ass. 637 (20 II). In Ibanez, the court held that a non-jud icialforeclosure was v oid because the foreclosing party d id not hav e a recorded interest in themortgage.S Robinson, supra at 102 ; see P I . ' s Op, Br. II, 14.9 B ra dy D en ni s, MERS morass is hanging up negotiations onforeclosure settlement,W ashington Post (A u g. 2 4,2 01 1), available athttp://www.washingtonpost.com/bus i ne ss /e co nomy l m ers -m ora ss- is- h an gi n g-u p-neg otiat ion s-on- forec Io su re-settl em en t/2 0 I l1 08 /2 4/gJ Q AX 6jN cJ _ sto ry. ht m I (last v i s itedF eb . 1 0, 2 01 2).10 Robinson, supra at 114 n. 72 . "S ecuritization" refers to the process of conv erting assetsinto securities, such as bonds, "for resale in the financial m arket, allow ing the issu ingfinancial institu tion to rem ov e assets from its books, and thereby im prov e its capital ratioand liquid ity , and to m ake new loans w ith the security proceeds ifi t so chooses." B lack'sLaw D ictionary 1475 (9th ed . 2009)."G re tc he n M or ge nso n, A Mortgage Tornado Warning, Unheeded, New York Times(Feb. 4. 20 12 ), available at http://www.nytimes.com/2012/02/05Ibusiness/mortgage-tornad o-w arnin g-u nh eed ed .htm (last v isi ted F eb. 1 0,2 01 2).12 "The housing shell game was made possib le because it was all concealed behind anelectronic sm okescreen called M ER S (an acronym for M ortgage E lectronic R egistrationS ystem s. Inc.), M ER S allow ed houses to be shuffled around am ong m ultiple, rapid lychanging owners while circumv enting local record ing laws. T itle would be recorded inthe name ofMERS as a place holder for the inv estors, and M ERS would foreclose onbehalf of the inv estors. Payments would be receiv ed by the mortgage serv icer, which was

2
http://www.washingtonpost.com/bushttp://www.washingtonpost.com/bus


8/19

practices, 14 or interested in avoiding foreclosure via direct negotiation withd 1 . h . 15 hose i fl i 16 . h h 1the lender, to ea WIt servrcers W ose mterests con ret WIt t e rea

b fici 17ene iciary,II. ISSUES

1. Did MERS violate the unity of the note and securitynecessary to have standing to foreclose?

ty pi ca lly th e b an k th at sig ned th e m ortg ag e w ith th e h om eown er. T he h om eown er u su allythinks the serv icer is the lend er, but in fact i t is an am orpho us group of inv estors."E ll en B rown, Why all the robo-signing? Securitization and the shadow banking system,S an Francisco B ay V iew N ation al B lack N ew spaper (last m od ified Jan. 2 5, 2 012 ),available at http://sfbayview.com/2012/why-all-the-robosigning (last v isi te d F eb . 1 0,2012).IJ " ha v in g a n ig htm ari sh ly c omp le x, b iz arre , o r i llo gi ca l q ua li ty ." www.merri am -webs te r . co rn /d i c ti ona ry Ika tkaesq ue14 See, e.g., Christopher L. Peterson, Predatory Structured Finance, 28 Ca rdozo L. Rev .2 18 5,2 26 6 (2 00 7) ("[A ] II ac ro ss th e c ou ntry , MERS n ow b rin gs fo rec lo su re p ro ce ed in gsin i ts ow n nam e .... This is problem atic because M ER S is not prepared for or equippedto p ro vi de re sp on se s to c on sume rs' d isco very req uests w ith re sp ec t to p re da to ry le nd in gclai ms an d d efe nses. In effe ct, th e sec uritiz ati on c on du it a tte mp ts to u se a fac eless a ndseemin gly in no cen t p ro xy w ith n o k nowle dg e o f p re da to ry o ri gin atio n o r serv ic in gbehav io r to d o th e d irty w ork of seizing the consum er's hom e."). S ee, e.g. W alterH ami lto n a nd E. Sco tt Recka rd , Angelo Mozilo. other former Countrywide execs settlefraud charges, L os A n geles Tim es (O ct. 2 6,2 0 I 0). Compare with MER S R esp. B r. A p p.A - 7 [ A n ge lo R. Mozilo, A Century's Milestones in Residential Lending MortgageBank ing ( Ja n. 2 0 00 )] .

15 MERS u ses a n 1 8-d ig it M ortg ag e Id en ti fi ca ti on N umb er (M IN ) to id en tify servicers,n ot th e b en efic ia ry o r own er. https:llwww.mers-servicerid.orglsis/16 S ee D ian e E. Thompson, Foreclosing Modifications: How Servicer IncentivesDiscourage Loan Modifications, 86 W ash . L. Rev . 7 55 (2 01 1).[ S] er v ic er i nc ome gener all y e ncou ra ge s servicers t o p er fo rm sho rt -te rm

w orkou t ag reem ents, to pile on fees, and to d elay (but no t av oida lto ge th er) fo re clo su re s. S erv i ce r e xp en di tu re s, o n th e o th er h an d,e nc ou ra ge a q ui ck re so lu ti on o f d ef au lt, p ri m ari ly th ro ug h fo re clo su re .Id . . a t 8 1417 Plaintiffs O pening S r. at 14 [A s U .S . D istrict C ourt Judge C oughenour noted in hisord er, "A n d the harm Plaintiff m ay h av e su ffered b ecau se ofM E RS 's co nd uct m ayi nc lu de e xp en di ng re so urc es to a v ert a n u nlawfu l fo re clo su re a nd p re v en ti ng P la in ti fffrom id en tify in g th e rea l b en efi ci ary a nd n eg otia ti ng a n ew a rra ng em en t to a vo idfo re c lo su re." (D kt. 1 55 p . II )]; see also RCW 6 .2 3.0 20 (2 ) (b orrowe r's rig ht o fredemption).

3
http://sfbayview.com/2012/why-all-the-robosigninghttp://sfbayview.com/2012/why-all-the-robosigning


9/19

2. Is MERS the "person entitled to enforce" IS under itslimited agency authority and the fact it never heldor possessed the note?

3. Do changes in MERS's foreclosure rules confirm itlacks standing to foreclose?III. SUMMARY ARGUMENT

MERS is not "the person entitled to enforce the note"19 because itnever received, held, or possessed the note.IV. ARGUMENTS:

1. MERS violated the unity of the note and security bypurporting to negotiate, transfer and securitize notes itnever held.According to Powell on Real Property,20Itmust be remembered that the mortgagee has twointerests: (l) the debt or obligation which is owned to him,and (2) the security interest in land represented by themortgage .... In fact, the primary interest is the personaltydebt obligation. The interest in land which is available incase security is necessary because of the debtor's default isconsidered as collateral interest. Much trouble has beencaused by mortgagees attempting to transfer only one ofthese two interests. Where the mortgagee has "transferred"only the mortgage, the transaction is a nullity and his"assignee," having received no interest in the underlyingdebt or obligation, has a worthless piece of paper.

This maxim was adopted by the U.S. Supreme Court in 1873.21

1 8 RCW 62A.3.30 119 RCW 62A.3.30120 Powell on Real Property: Michael Allan Wolf Desk Edition 37.27 (2] (LexisNexisMatthew Bender 2010).21 Carpenter v. Longan, 83 U.S. 271, 274. 21 L. Ed. 313 (1873); See also, Bellistri v,Ocwen Loan Servicing. LLC 284 S.W.3d 619, 623 (Mo.App. E.D.2009):

4


10/19


11/19

Commercial Code to Selected Issues relating to Mortgage Notes (Nov. 14,Boardfor the Uniform Commercial Code =Application of the Uniform

2011),26In the context of mortgage notes that have been sold orused as collateral to secure an obligation, the centralconcept for making that determination is identification ofthe "person entitled to enforce" the note. Several issues areresolved by that determination, Most particularly:(i) the maker's obligation on the note is to pay the

amount of the note to the person entitled to enforcethe note,(ii) the maker's payment to the person entitled to

enforce the note results in discharge of the maker'sobligation, and(iii) the maker's failure to pay, when due, the amount of

the note to the person entitled to enforce the noteconstitutes dishonor of the note.Thus, a person seeking to enforce rights based on thefailure of the maker to pay a mortgage note must identifythe person entitled to enforce the note and establish thatthat person has not been paid."vee Section 3_30128 defines the Person entitled to enforce

instrument as:0) the holder of the instrument,(ii) a nonholder in possession of the instrument

who has the rights of a holder, or(iii) a person not in possession of the instrument

who is entitled to enforce the instrument pursuant toRCW 62A.3-309 or 62A.3-418(d). A person maybe a person entitled to enforce the instrument even

26 ALI Report, supra, at 4, provided as Appendix A-2.27 ALI Report, supra, at 4, provided as Appendix A-2 [emphasis in original].2 & RCW 62A.3-30 1

6


12/19

though the person is not the owner of the instrumentor is in wrongful possession of the instrument.

Each of these are defined and illustrated in the ALI Report." Illustration#430 explains how an agent in possession of the note can enforce it.

Agent is the agent of Transferee for purposes of possessingthe note and (ii) it is Agent, rather than Transferee, towhom actual physical possession of/he note is given hyPayee. In the facts of Illustration 2, Transferee is a holderof the note and a person entitled to enforce it. In the contextof Illustration 3, Transferee is a person entitled to enforcethe note. Whether Agent may enforce the note or mortgageon behalf of Transferee depends in part on the law of~Fency and, in the case of the mortgage, real property law.

Unlike this example, MERS never takes actual physical possession of the

7

note.MERS operates as the common limited agent for its members. The

beneficiary member appoints MERS to be its agent to hold the mortgagelien interest, not to hold any interest in the note itself. MERS holdsmortgage liens in a "nominee" capacity and, through its electronicregistry. tracks changes in the ownership of mortgage loans and servicingrights related thereto. MERS is not the mortgagee. MERS is not a partyto the note underlying the security instrument. MERS "lent no moneyand received no payments from the borrower." MERS does not originate

29 ALI Report, supra, at 5-7, provided as Appendix A-2.J{J ALI Report, supra, at 5-7, provided as Appendix A-2.,1 ALI Report, supra, at 7, provided as Appendix A-2.


13/19

or claim any independent ownership interest in the note or the mortgage.VMERS has no rights to transfer, assign or collect payments made by thedebtor on such note." MERS does not process, service, hold, own or sellthe mortgage loans. MERS never takes possession" of the note so isnever the holder.35

The U.S. Bankruptcy Court for Oregon summed this up recently inthe case of In re Allman. 36 The threshold question in that case waswhether or not the title insurance company was required to give notice to32 Robinson, supra at 124; See generally, Krieger, Clouded Titles, supra at 67-98.33 Landmark Nat'l Bank v. Kesler, 289 Kan. 528, 216 P.3d 158, 167 (2009).

What stake in the outcome of an independent action for foreclosurecould MERS have? It did not lend the money to Kesler or to anyoneelse involved in this case. Neither Kesler nor anyone else involved inthe case was required by statute or contract to pay money to MERS onthe mortgage. See Sheridan, 2009 WL 631355, at *4 (" MERS is not aneconomic' beneficiary' under the Deed of Trust. It is owed and willcollect no money from Debtors under the Note, nor will it realize thevalue ofthe Property through foreclosure of the Deed of Trust in theevent the Note is not paid." ). IfMERS is only the mortgagee, withoutownership of the mortgage instrument, it does not have an enforceableright. See Vargas, 396 B.R. at 517 (" [w]hile the note is ' essential,' themortgage is only' an incident' to the note" [quoting Carpenter v.Longan, 16 Wall. 271, 83 U.S. 271, 275, 21 L.Ed. 313 (1872)]).

34 The idiom Possession is nine-tenths of the law is based on the fact that "possessionraises a prima facie title or a presumption of the right of property in the thing processed."Black's Law Dictionary (9th ed. 2009).35 See, B ellis tr i v . O cw en Loan Servicing, 284 S.W. 3d 619 (Mo. App. E.D. 2009):

MERS never held the promissory note, thus its assignment of the deedof trust to Ocwen separate from the note had no force. As Ocwen holdsneither the promissory note, nor the deed of trust, Ocwen lacked alegally cognizable interest in the property, and therefore, it has nostanding to seek relief.

See also, Moore v. MERS, CV-1O-241-JL (D.N.H. Jan. 27, 2012). In that case,the court held "defendants do not possess the note, and it is enforcement of thenote which the Moore's seek to avoid." The court allowed fraud and otherclaims under both the Real Estate Settlement Procedures Act and the Fair DebtCollection Practices Act to proceed. Id., at 3. See generally, ALI Report, supra,at 5-7 (provided as Appendix A-2).362010 WL 3366405, U.S. Bkptcy. Ct., Oregon (2010)

8


14/19

.,. _ ... _._-_._- .

MERS under ORS 86.720(3).37 That statute requires that, before a title

insurance company releases a trust deed, notice be given to the lender andthe beneficiary." The court concluded that MERS was not entitled tonotice.

The relationship of MERS to CIT "is more akin to that of astraw man than to a party possessing all the rights given abuyer." See Landmark Nat'l Bank v. Kesler, 289 Kan. 528,539 (2009) (court considered relationship of MERS toparties to a secured real estate transaction). As in Kesler,here the trust deed "consistently refers only to rights of thelender, including rights to receive notice of litigation, tocollect payments, and to enforce the debt obligation." Id . at539. The trust deed "consistently limits MERS to acting'solely' as the nominee of the lender." ld. at 539-540. It isapparent that the listing of MERS as beneficiary in the deedof trust is merely to facilitate its ownership trackingfunction. It is not in any real sense of the word, particularlyas defined in ORS 86.705(1), the beneficiary of the trustdeed. Accord Southwest Homes of Ark., 301 S.W.3d at 4(MERS was not the beneficiary, even though designated asbeneficiary in the trust deed). Thus, notice to CIT met thestatutory re~uirement that notice be given to thebeneficiary. 9Under the UCC 40 delivery is required to transfer possession of any

negotiable instruments (e.g, promissory note) and become a holder.41

~7 "OCR 86.720. Reconveyance upon performance; liability for failure to reconvey;release of trust deed .... (3) Prior to the issuance and recording of a release pursuant tothis section, the title insurance company or insurance producer shall give notice of theintention to record a release of trust deed to the beneficiary a/record and, if different, theparty to whom the full satisfaction payment was made. The notice shall: .... " [Emphasisadded].3R ORS 86.720(3) [Emphasis added]39 In Re Allman, supra [Emphasis added}40 62A.3 (Negotiable instruments).

9


15/19

Transfer of the securityf does not transfer the note. 43 Since MERS does

not take delivery of the note," it cannot claim to be the beneficiary underWashington law.45 Therefore, MERS cannot pass title to subsequenttransferees.46

Professor Dale Whitman addressed the "delivery" issue in hisarticle, How Negotiability Has Fouled Up the Secondary MortgageMarket, and What To Do About /(,47

While delivery of the note might seem a simple matter ofcompliance, experience during the past several years hasshown that, probably in countless thousands of cases,promissory notes were never delivered to secondary marketinvestors or securitizers, and, in many cases, cannotpresently be located at all. The issue is extremely

41 RCW 62A.3-20 1(a) (,"Negotiation' means a transfer of possession, whether voluntaryor involuntary, of an instrument by a person other than the issuer to a person who therebybecomes its holder."); RCW 62A.3-203(a) ("An instrument is transferred when it isdelivered by a person other than its issuer for the purpose of giving to the personreceiving delivery the right to enforce the instrument.") (emphasis added).42 E.g. mortgage, deed of trust or security deed.43 "A transfer of the mortgage automatically transfers the obligation, except when thevee prevents that result (as it does with a negotiable note)." Restatement (Third) ofProperty: Mortgages (1997) at sec. 5.4(a) and (b) (emphasis added),44 See MERS Resp. Br. 3 ("For the reasons set forth below, MERS respectfully requeststhat the Court hold that MERS is a lawful 'beneficiary' under the Act, even if it neverholds the promissory note secured by the deed oftrust that it has legal interest in.")MERS argues that it is "indisputably the 'holder' of the Deed of Trust." Id., at 22. Thispresumes the Deed of Trust is a negotiable instrument and that the note follows the Deed.This is not correct. See discussion infra and Carpenter v . Longan, 83 U.S. 271 (1873).45 RCW 61.24.005(2).46 See Bevilacqua v . Rodriguez, 460 Mass. 762 (2011). There the plaintiff argued that hehad recorded title to the property by virtue ofa quitclaim deed granted to him by U.S.Bank as a result of the foreclosure sale. Id. at 891. However, MERS failed to assign themortgage to U.S. Bank prior to executing foreclosure. Id., at 888. The Court held thatthe plaintiff holds no title to real properly and lacks standing to bring a quiet title actionwhere the foreclosure sale was conducted by someone other than the actual mortgagee orits assigns.4737 Pepp. L. Rev 738, 757-758 (2010)

10


16/19

widespread, and, in many cases, appears to have been theresult of a conscious policy on the part of mortgage sellersto retain, rather than transfer, the notes representing theloans they were selling.

This policy creates fundamental problems with any foreclosure. This

II

policy is embedded in MERS' Rules of Membership which now requireassignments of the security instrument from MERS to the "note owner orthe note owner's servicer".48

3. Changes in MERS's foreclosure rules confirm it lacksstanding to foreclose.

Until recently, one of the benefits ofMERS membership was "thelegal right to foreclose on a defaulting homeowner in MERS's name ratherthan the name of the entity who actually owns the rnortgage.?" However,"since July 2011 MERS no longer acts as foreclosing entity." 50 Now

MERS prohibits members from initiating foreclosure proceedings in thename of MERS and requires assignments for foreclosure andbankruptcy. 5 I Those new rules mandate:

The note owner or the note owner's servicer shall cause theCertifying Officer to execute the assignment of the SecurityInstrument from MERS to the note owner's servicer, or tosuch other party expressly and specifically designated bythe note-owner before initiating foreclosure proceedings or

48 A-I [Rule 8(a)].49 Robinson, supra, at 104 n. 16 .50 A-I. In addition, Freddie Mac eliminated the option of servicers to foreclose in thename of MERS. Freddie Mac Bulletin No. 201 1-5 (March 23, 201 I), provided asAppendix A-3.51 A-I [Rule 8(d)].


17/19

filing Legal Proceedings and promptly send the assignmentof the Security Instrument (in recordable form) forrecording in the applicable public land records. 52

This effort to "put Humpty together again,,53(i.e. reunite securitized loanswith their corresponding security instruments) would be unnecessary ifMERS was the note owner, holder or assignee. 54

In Bank of New York v. Silverbergi? the court addressed an issuesimilar to the certified question before this courr'":

This matter involves the enforcement of the rules thatgovern real property and whether such rules should be bentto accommodate a system that has taken on a life of itsown. The issue presented on this appeal is whether a partyhas standing to commence a foreclosure action when thatparty's assignor- in this case, Mortgage ElectronicRegistration Systems, Inc. (hereinafter MERSb- was listedin the underlying mortgage instruments as a nominee andmortgagee for the purpose of recording, but was never the

521d . [Rule 8(e)(i)].53 L Opie and P. Opie, The Oxford Dictionary of Nursery Rhymes (Oxford: OxfordUniversity Press, 1951, 2nd ed., 1997). The most common modem text is:

Humpty Dumpty sat on a wall,Humpty Dumpty had a great fall.

All the king's horses and all the king's menCouldn't put Humpty together again54This contradicts how MERS markets itself on its website:

MERS is an innovative process that simplifies the way mortgageownership and servicing rights are originated, sold and tracked. Createdby the real estate finance industry, MERS eliminates the need toprepare and record assignments when trading residential andcommercial mortgage loans.

Available at http://www.mersinc.org (last visited Feb. 10, 2012) (emphasis added).55926 N.V.S.2d 532, 86 A.D.3d 274 (2011).56 "Whether Mortgage Electronic Registration Systems, Inc., a corporation formed toprovide a national electronic registry to track the transfer of ownership interests andservicing rights in mortgage loans, and nominated by many lenders as mortgagee ofrecord and beneficiary under deeds of trust, may lawfully Serve as beneficiary under theWashington Deed of Trust Act." PI.'s Op. Br. 3.

12
http://www.mersinc.org/http://www.mersinc.org/


18/19

actual holder or assignee of the underlying notes. Weanswer this question in the negative. 57The Silverberg court concluded:

In sum, because MERS was never the lawful holder orassignee of the notes described and identified in theconsolidation agreement, the corrected assignment ofmortgage is a nullity, and MERS was without authority toassign the power to foreclose to the plaintiff. Consequently,the plaintiff failed to show that it had standing to foreclose.MERS purportedly holds approximately 60 millionmortgage loans ( see Michael Powell &GretchenMorgenson, M ERS? II M ay H ave Sw allow ed You r Loan,New York Times, March 5, 2011), and is involved in theorigination of approximately 60% of all mortgage loans inthe United States ( s ee Peterson at 1362; Kate Berry,Foreclos ures Tu rn U p H eat on M ERS, Am. Banker, July10, 2007, at 1). This Court is mindful of the impact that thisdecision may have on the mortgage industry in New York,and perhaps the nation. Nonetheless, the law must notyield to expediency and the convenience of lendinginstitutions. Proper procedures must be followed to ensurethe reliability of the chain of ownership, to secure thedependable transfer of property, and to assure theenforcement of the rules that govern real property. 58

13

These same considerations are echoed by Judge Coughenour in his Order:A ruling favorable to Plaintiff in this case and others like i tcannot and should not create a windfall for all homeownersto avoid upholding their end of the mortgage bargain -paying for their homes. But a homeowner's failure to makepayments cannot grant lenders trustees and so-calledbeneficiaries like MERS license to ignore the law andforeclose using any means necessary. 59

57 Silverberg. supra, at 533 (emphasis added).58 Id.. at 539-540 (emphasis added).59 PI. 's Op. Br. 14-15.


19/19

V. CONCLUSION

Therefore, because MERS was never the lawful holder or assigneeof the notes, it is not the "beneficiary't'" under the Washington Deed ofTrust Act6 1 and cannot initiate any foreclosures or appoint any trustee.Dated: 2113/12 Newman [#1 193

A omey for Amicus Curiae

60 RCW 61.24.005(2) ('" Beneficiary' means the holder of the instrument or documentevidencing the obligations secured by the deed of trust, excluding persons holding thesame as security for a different obligation.")6161.24 RCW.

14

Date post:	06-Apr-2018
Category:	Documents
Upload:	patrick-wani
View:	217 times
Download:	0 times

Bain v Mers Wa Amicus Brief 2 12

Documents