MERS: No Agency with Undisclosed Rotating “Principals”


The Stunning clarity of the decision rendered by the Washington Supreme Court, sitting En Banc, corroborates the statements I have made on this blog and under oath that they might just as well have put the name “Donald Duck” in as the mortgagee or beneficiary.

The argument, previously successful, has been that even if the entity MERS had nothing to do with financial transaction and even if they didn’t know about the transaction because the “knowledge” was all contained on a database that nobody at MERS checked for authenticity or veracity, the instrument was still valid. This coupled with a “public policy”argument that if the courts were to rule otherwise none of the MERS “mortgages” would be valid thus making the creditor unsecured.

The Washington Supreme court rejected that argument and further added that if such was the result, then it was through no fault of the borrower. SO now we have a situation where the law in the State of Washington is that MERS beneficiary instruments do not establish a perfected lien and therefore there is no opportunity to foreclose using either non-judicial or judicial means. A word of caution here is that this applies right now as law only in that state but that it closely follows the Landmark decision in Kansas Supreme Court. But the decision is extremely persuasive and reinvigorates the fight over whether the loans were secured loans or unsecured — especially powerful in bankruptcy courts.

It should be noted that the Washington Supreme Court has wider application than might appear at first blush. This is because the question was certified not from a state judge but from a federal court. Thus in Federal Courts, the decision might be all the more persuasive that MERS, which never had anything to do with the financial transaction, never handled a dime of the money going in or out of the loan receivable account, and never had any person with personal knowledge who could identify and verify that there was a disclosed principal for whom they were acting should be identified as a non-stakeholder with bare (naked) title recited in a fatally defective instrument.

This does not mean the obligation vanishes. It just means that they can’t foreclose through non-judicial foreclosure and probably can’t foreclose even through judicial means unless they accompany it with a request that the court reconstruct the mortgage — in which case they would need to allege and prove that the disclosed parties were the sources of funds for the origination of the loans, which in most cases, they were not.

The actual parties who were the source of funds either still exist or have been settled or traded out into new investment vehicles. This is why putting intense pressure to move the discovery along is so powerful. You are demanding what they should have had when they started the foreclosure timeline with a defective notice of default signed by a person who had no idea what the loan receivable account looked like or even the identity of the party or entity that had the loan booked as a loan receivable.

You’ll remember that MERS issued a proclamation to everyone that nobody should use its name in foreclosures in 2011. But that doesn’t address the underlying fatal defect of the MERS business model and the instruments that recite MERS as the mortgagee or beneficiary.

Th reasoning behind the rejection of the “Agency” argument is also very important. The court states that “While we have no reason to doubt that the lendersand their assigns control MERS, agency requires a specific principal that is accountable for the acts of its agent. If MERS is an agent, its principals in the two cases before us remain unidentified.12 MERS attempts to sidestep this portion of traditional agency law by pointing to the language in the deeds of trust that describe MERS as “acting solely as a nominee for Lender and Lender’s successors and assigns.” Doc. 131-2, at 2 (Bain deed of trust); Doc. 9-1, at 3 (Selkowitz deed of trust.); e.g., Resp. Br. of MERS at 30 (Bain). But MERS offers no authority for the implicit proposition that the lender’s nomination of MERS as a nominee rises to an agency relationship with successor noteholders.13 MERS fails to identify the entities that control and are accountable for its actions. It has not established that it is an agent for a lawful principal.” Hat tip again to Yves Smith on picking up on that before I did.

And the court even went further than that on the issue of modification that I have been pounding on for so long — how can you submit a request for modification with a proposal unless you know the identity of the secured party and the identity of any party or stakeholder who is unsecured? Hoe can anyone settle or modify a claim without knowing the identity of the claimant or the actual status of the claim as affected by payments of co-obligors? “While not before us, we note that this is the nub of this and similar litigation and has caused great concern about possible errors in foreclosures, misrepresentation, and fraud. Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult.”

BUT WAIT! THERE IS MORE! The famed Deutsch bank acting as trustee ruse is also exposed by the court, leaving doubt ( a question of material fact that is in dispute) as to the identity and character of the creditor and the status of the loan. Without those nobody can state with personal knowledge that the principal due is now this figure or that and that the following fees apply. The Supreme Court in the footnotes takes this on too, although it wasn’t argued (but will be in the future I can assure you): “It appears Deutsche Bank is acting as trustee of a trust that contains Bain’s note, along with many others, though the record does not establish what trust this might be.”

The Court also is not shy. It also takes on the notion that the borrower is not entitled to know the identity of the creditor or principal and that the borrower only has a right to know the identity of the servicer. This of course is patently absurd argument. If it were true anyone could assert they were the servicer and you could not look behind that assertion to determine its veracity.

“MERS insists that borrowers need only know the identity of the servicers of their loans. However, there is considerable reason to believe that servicers will not or are not in a position to negotiate loan modifications or respond to similar requests. See generally Diane E. Thompson, Foreclosing Modifications: How Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 755 (2011); Dale A. Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It, 37 Pepp. L. Rev. 737, 757-58 (2010). Lack of transparency causes other problems. See generally U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) (noting difficulties in tracing ownership of the note).”

And lastly, about making the rules up as you along, and moving the goal posts around, the Court challenges the argument and rejects the MERS position that the parties are free to contract as they choose despite any statutory language. Specifically the question what is what is the definition of a beneficiary. In Washington as in other states, the definitions of the Act apply to all transactions described and there is no room for anyone to change the law by contract. “Despite its ubiquity, we have found no case—and MERS draws our attention to none—where this common statutory phrase has been read to mean that the parties can alter statutory provisions by contract, as opposed to the act itself suggesting a different definition might be appropriate for a specific statutory provision.”

And again corroborating my work and manuals on the livinglies store. the Court finally addresses for the first time that I am aware, the essential reason why all this is so important. It is the auction itself and the acceptance of the credit bid from a non-creditor. Besides the challenges as to whether the substitution of trustee and instructions to trustee are valid, nobody can claim title suddenly born as a result of a “transfer” or assignment” or other document from MERS, an entity that had specifically claimed any interest in the obligation. The Court concludes that you either have the proof of being the actual creditor to whom the obligation is owed, in which case you can submit a credit bid if it is properly secured, or you must pay cash.

“Other portions of the deed of trust act bolster the conclusion that the legislature meant to define “beneficiary” to mean the actual holder of the promissory note or other debt instrument. In the same 1998 bill that defined “beneficiary” for the first time, the legislature amended RCW 61.24.070 (which had previously forbidden the trustee alone from bidding at a trustee sale) to provide:
(1) The trustee may not bid at the trustee’s sale. Any other person, including the beneficiary, may bid at the trustee’s sale.
(2) The trustee shall, at the request of the beneficiary, credit toward the beneficiary’s bid all or any part of the monetary obligations secured by the deed of trust. If the beneficiary is the purchaser, any amount bid by the beneficiary in excess of the amount so credited shall
Bain (Kristin), et al. v. Mortg. Elec. Registration Sys., et al., No. 86206-1
be paid to the trustee in the form of cash, certified check, cashier’s check, money order, or funds received by verified electronic transfer, or any combination thereof. If the purchaser is not the beneficiary, the entire bid shall be paid to the trustee in the form of cash, certified check, cashier’s check, money order, or funds received by verified electronic transfer, or any combination thereof. Laws of 1998, ch. 295, § 9, codified as RCW 61.24.070. As Bain notes, this provision makes little sense if the beneficiary does not hold the note.”

Thus this court has now left open the possibility of challenging wrongful foreclosures both in equity and at law for damages (slander of title etc.) It would be hard to believe that Washington State Attorneys won’t pounce on this opportunity to do some good for their clients and themselves.

21 Responses

  1. @concerned re your last sentence: it certainly is and any assgt would be void since the asset was property of the bk estate. Further, any transfer within a certain amt of time prior to the bk petition may be set aside as a “preference”. Think that’s the word. The problem is determining if one’s loan were still held by the debtor company when it filed bk. Somewhere in a bk there is a list of assets. I don’t know if any loans would be listed separately or an aggregate amt given. Or then there’s the poss they just sort of “skipped” disclosure of some assets. Bears investigation for those impacted. You might find an ally in the bk trustee. But for starters, one could look at the date of alleged assignment v the bk petition date. I don’t recall the “look-back” period, but it’s in the bk rules somewhere and could probably be found with a google search. or yahoo search.
    thumbs up on what else you said

    btw, I was talking about a transcript from a trial and I remembered something else. AT one point, the judge started discussing the FACT
    that even tho recordation of an assgt is not itself statutorily mandated,
    enforcement requires recordation. He app thought better of it and zipped it. Maybe because the issue wasn’t before him or his bent. I don’t know.

  2. Some of us have loans in which the named lender did not exist. This has further ramifications since there also would not be a membership in MERS for the named, but non-existent entity. Nor can there be corporate resolutions with MERS for that named entity, nor lists of any appointed signers who could sign for the non-existent lender.

    One step that several of the document examiners fail to check on is the status of the original lender both at the time of the loan origination and later, at the time of any attempt to use MERS as the nominee attempting to take any action relating to the mortgage.

    Loans need to be checked to see if the ‘lender’ really existed at the time of origination and also they need to have the status of that lender or any already-recorded assignee verified at the time that any assignment is or was attempted.

    An example of a lender CORPORATION that did not exist when loans were originated in it’s name is “America’s Wholesale Lender CORPORATION”.

    Other lenders have declared BANKRUPTCY and did not acknowledge the loans as assets for the creditors. For these to later be assigned from the bankrupted entity some other entity outside of the BK court control is actually a fraud upon the BK courts.

  3. […] Unsecured Business Loans – Safe Time and Aggravation – Apply for a Unsecured Business Loans HereMERS: No Agency with Undisclosed Rotating “Principals” […]

  4. or zur – somewhere in this country is the document(s), probably an Act, and legislation from which stem state statutes regarding deeds of trust or ‘trust deeds’. We might look at those as well as any committee notes. Attorneys are generally better equipped to find that stuff, and I wish they would. If a particular state did not define a “beneficiary”, say, in its statutes, it might be possible to go back to the Act which created/authorized the dot as a collateral instrument and see how beneficiary is defined therein and argue accordingly.

  5. @ JenninGA!
    Thanks too for that! I’ll read the case today.

  6. @ Frank –
    Maybe this is helpful – another GA one w/ same att as Reese v. Ellis
    Michael Bourff v. Rubin Lublin US court of appeals eleventh circuit March 15 2012.

  7. @ Steve
    Thanks a bunch for posting the case from Carroll County and the Georgia court of Appeals. I just got home and saw them …. they’re highly relevant to my case in DeKalb county, GA. may I ask what source gave you a heads up on them?

  8. @ENRAGED;
    I wish it were not just a trial court—especially in cuyahoga—which doesnt have a great deal of weight —unless it was appealed of course—what happened to it?

    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.,

  9. Something is up. Take notice.

    Soros sells equities and buys gold even as stock markets reach four year highs

    George Soros
    August 17, 2012
    By: Kenneth Schortgen Jr

    There is a truism in investing that says if you want to succeed, then follow the money and invest in what the rich invest in. Therefore, it is very interesting to American investors when on Aug. 16, a new report on George Soros, global investor and consulting adviser to the Obama administration, sold his stake in U.S. financial stocks and with the proceeds, purchased $130 million in gold. This move is also coming at a time when the Dow just crossed over 13000, and is touching its highest levels since April of 2008.

  10. Kristin Bain v. Metropolitan Mortgage Group, Inc., et al.
    Case Number – 86206-1

    Amicus of Homeowners’ Attorneys

    Amicus of Nclc

    Amicus of Our

    Amicus of Wba

    Bain’s Reply to Response

    Plaintiff’s Opening Brief

    Response Brief of Regional Trustee Services Corp

  11. In the Court of Appeals of Georgia
    A12A0619. REESE et al. v. PROVIDENT FUNDING
    MILLER, Judge.
    Izell and Raven Reese filed the underlying lawsuit against Provident Funding
    Associates, LLP (“Provident”), seeking damages for wrongful foreclosure.1 Both
    parties sought summary judgment, which the trial court granted in favor of Provident
    and denied in favor of the Reeses. On appeal, the Reeses contend that the trial court
    erred in granting Provident’s motion for summary judgment on the wrongful
    foreclosure claim, and in denying the Reeses’ cross-motion for summary judgment
    on that issue, because (1) Provident’s June 2009 foreclosure notice did not comply
    with the requirements of OCGA § 44-14-162.2; and (2) Provident’s notice of default
    did not comply with the terms of the security deed. For the reasons set forth below,
    we reverse the judgment of the trial court and remand this case with direction to the
    trial court to enter summary judgment in favor of the Reeses.

  12. DCB,

    If I recall, Ohio came up with a good one too a few months back: Huntington v. Brown, which states that MERS not being the payee on the note, it may not legally transfer it (duh!)

  13. In The Superior Court of Carroll County
    Otis Wayne Phillips vs U.S. Bank, NA Case # 11 CV 00504
    November 2, 2011
    Order Denying Defendant’s Motion to Dismiss
    Sometimes, only the courts of law stand to protect the taxpayer.
    Somewhere, someone has to stand up. Well, sometimes is now, and the place is the Great State of Georgia. The defendant’s motion to dismiss is hereby denied.
    The court finds the following to be the facts and law applicable to this motion:
    – Otis Phillips is behind on his house payments and is in grave danger of foreclosure.
    -The United States Government paid taxpayer dollars to the largest of our financial institutions, and to the European Union Banks, in order to prop up those poorly run organizations.
    -Twenty Billion of those dollars were handed over to the defendant, U. S. Bank.
    -U. S. Bank agreed to participate in the U. S. Government’s HAMP program to help struggling homeowners.
    -D. S. Bank signed a Service Participation Agreement (SPA), in which the bailed out bank agreed to comply with the HAMP Guidelines for loan modification.
    -The HAMP guidelines require U. S. Bank to perform modification services for all mortgage loans it services.
    -Otis Phillips applied to modify his mortgage with U. S. Bank.
    -U. S. Bank denied the request, without numbers, figures, or explanation, reasoning, comparison to the guidelines, or anything. U. S. Bank would not reveal to Mr. Phillips how his income, or his house, or his expenses would make him ineligible according to HAMP guidelines.
    (This court cannot imagine why U. S. Bank will not make
    known to Mr. Phillips, a taxpayer, how his numbers put him
    outside the federal guidelines to receive a loan modification.
    Taking $20 Billion of taxpayer money was no problem for U. S.
    Bank. A cynical judge might believe that this entire motion to
    dismiss is a desperate attempt to avoid the discovery period,
    where U. S. Bank would have to tell Mr. Phillips how his
    financial situation did not qualify him for a modification. Or,
    perhaps he was qualified, yet didn’t receive the modification, in
    violation of U. S. Bank’s Service Participation Agreement
    (SPA). A cynical judge might think that, if the guidelines
    clearly prevented Mr. Phillips from getting his modification,
    then U. S. Bank would have trotted out that fact in mathematic
    equations, pie charts, and bar graphs, all on 8 by 10 glossy
    photo paper, with circles and arrows and paragraphs on the
    back explaining each winning number. U. S. Bank’s silence
    on this issue might heighten the suspicions of such a cynical
    jurist. I, on the other hand, am sure that nothing of the sort
    could be true. Maybe U. S. Bank no longer has any of the $20
    billion dollars left, and so their lack of written explanation
    might be attributed to some kind of ink reduction program to
    save money. I’m sure there is a perfectly reasonable
    explanation for why the U. S. Bank will not print out the ONE
    page of figures that show Mr. Phillip’s financial’s compared to
    the HAMP guidelines to clear all this up.)
    -Otis Phillips claims to have suffered as a result of U. S. Bank’s actions, and
    -Otis Phillips wishes to avoid foreclosure.
    Georgia law allows third party beneficiaries to sue on contracts that
    are clearly intended to benefit a third party. Multiple courts from a variety of jurisdictions have extended such standing to third parties harmed as a result of HAMP violations. (HAMP is not old enough to have generated a huge volume of cases.) Clearly, U. S. Bank cannot take the money, contract with our government to provide a service to the taxpayer, violate that agreement, and then say no one on earth can sue them for it. That is not the law in Georgia. In fact, since no administrative review is provided within HAMP, the courts are the only recourse. The Bank claims that the intended
    beneficiaries of HAMP are the very people who CAN’T sue. Such argument· is absurd.
    Georgia law allows a third party to sue for negligence. Negligently
    implementing HAMP could sustain a claim in Georgia.
    Georgia law allows claims for breach of a duty of good faith and fair
    dealing. Here, there are two contracts, the SPA and the loan with Mr. Phillips. U. S. Bank, like all parties to any contract, has a duty of good faith and fair dealing. While difficult to define, jurors know good faith and fair dealing when they see it, and jurors can spot the absence of same.
    Georgia allows claims for Negligent Infliction of Emotional Distress
    by persons who are victim’s of malicious, willful, or wanton conduct
    specifically directed at them, even if not a party to the contract whose breach causes such injury. This is a question for the jury.
    Georgia prohibits wrongful foreclosures. In fact, Federal law also
    prohibits wrongful foreclosures. Mr. Phillips claims that U. S. Bank is not the proper party to pursue such an action, and is merely the servicer of the loan, not the holder. Further, Mr. Phillips asserts that compliance with HAMP guidelines is a condition precedent to foreclosure.
    There is no merit to Defendant’s motion to dismiss, and same is
    hereby denied.
    Judge Dennis Blackmon

  14. Carie; see typical civil rule 60———-as a procedural device to set aside a judgment [if there was a judicial case] for want of jurisdiction–ab intio—no standing equals no jurisdiction —even sett,ents can be voided arguably—but certainly a mess with uncertain outcomes–treacherous procedural

  15. This is very enlightening—would someone be so kind as to put up the case citations of this Washingtoon state and Kansas state Supreme court cases–in a manner suitable for briefing?

  16. How would someone in Washington State use this ruling to sue to get thier house back after foreclosure?

  17. Thanks, Jan! But if I remember correctly, Black’s doesn’t define the term in the context of a note/DOT. In my opinion, such context isn’t really necessary as the term is essentially self-defining. The problem is, MERS always argues that it does stand to benefit is some way and is therefore technically a “beneficiary,” even though it clearly isn’t. And frankly was never meant to be.

  18. To Zurenarrh: Where you have a situation where a specific term [“beneficiary”] seems to have no Statutory definition, then go to the one found in Black’s Law Dictionary, a definition universally accepted in all courts. A copy of Black’s will be in any law library, typically you have these in your state-law court houses.

  19. What about states like mine where there is no staute that defines “beneficiary?” I mean, it is still true that MERS isn’t a beneficiary, but how does one get that across to a judge?

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