In a Bankruptcy case handed down 6 days ago, MERS took a big hit. Even though the Bankruptcy Court upheld the foreclosure, they said it wouldn’t be business as usual for MERS there anymore.
Before anyone jumps for joy about this, consider the following. This was a case decided by a Federal Bankruptcy Judge, so New York State Courts do not have to follow it, let alone Courts in other States. Even other Bankruptcy Judges in the same Federal District in New York don’t have to follow it. So what makes it so special?
It’s the legal reasoning. And although the case is complicated, Bankruptcy Judge, Robert E. Grossman takes the MERS bull by the horns and finds that MERS just doesn’t work, either legally or logically and says that in the future, in his Court, MERS cases will be treated differently.
And don’t think that this was just a (pro se) homeowner representing herself and a country lawyer doing his first foreclosure. The Homeowner had a lawyer in Bankruptcy Court, and the Banks were represented by one of the largest Foreclosure Law Mills in the State of New York. Stephen J. Baum, PC, initially represented the banks. His law firm filed 12,551 foreclosure actions in the New York area last year. That averages out to 48 per day. However, when the Banks saw this thing starting to go nuclear, MERS itself intervened, and the Banks brought in top New York City Law Firms. MERS Vice-President, William C. Hultman submitted a written declaration, and it was all out war.
It also wasn’t a case where the bank couldn’t come up with the right documents, the Foreclosing bank had the Original Promissory Note and Mortgage when they foreclosed, unlike many of the other cases we have talked about here. What the Judge keyed on, was the business model of MERS, how it is supposed to work, and whether or not it is legally sufficient to allow a bank to Foreclose using it.
It clearly appears that although the Banks and MERS won this battle, (at least in terms of the outcome) it may well spell the beginning of the end for MERS. Judge Grossman’s opinion was harsh. He said that “Aside from the inappropriate reliance upon the statutory definition of ‘mortgagee,’ MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.”
That’s tough language from a Judge who’s talking about an entity that holds about 50% of the country’s mortgages. This position that MERS is both the actual Mortgagee and the Agent of the Mortgagee is at the heart of the MERS business model. And although he upheld the foreclosure (on procedural grounds) he stated in summary:
For all of the foregoing reasons, the Court finds that the Motion in this case should be granted. However, in all future cases which involve MERS, the moving party must show that it validly holds both the mortgage and the underlying note in order to prove standing before this Court.
A close reading of Judge Grossman’s opinion will, I suspect, make that a very difficult thing to do, at least in Judge Grossman’s Bankruptcy Court. The real question here, is are other State Judges, and Bankruptcy Judges going to adopt Judge Grossman’s reasoning, or will they just take the position that these banks and institutions involved are just too big to fail?