Just how ugly does this thing have to get before The Voyeur Channel takes a hit for continuing to air it?
September 23, 2009
Via Les Jones, attorney Ellen Brown argues that the recent Kansas Supreme Court decision of Landmark National Bank v. Kesler calls into question the validity of 60 million mortgages. Perhaps it does, if you put two and two together, get 1.2 million, and then assume 49 more Supreme Courts will follow suit. Otherwise, probably not.
Here’s what happened in Landmark. The borrower, Boyd Kesler, secured a first mortgage from Landmark National Bank, and a second mortgage from Millenia Mortgage Corporation. The second mortgage named Millennia as the “lender,” but identified Mortgage Electronic Registration Systems, Inc. (MERS) as acting “solely as nominee for [Millennia], and [its] successors and assigns.” The second mortgage was later transferred to Sovereign Bank, which diligently, brilliantly and competently forgot to record the transfer. So when Kesler defaulted on the first mortgage (probably the second as well, though the court doesn’t say), Landmark served notice on the two defendants it could reasonably expect to have to serve notice on: (1) Millennia, as the lender it reasonably believed to hold the note on the second mortgage (as the real holder had been too lazy, stupid and/or incompetent to record the subsequent assignment) and (2) Kesler himself.
Kesler, the borrower, knew he was in default and filed no answer. Neither did Millennia, who had sold the note to Sovereign and could therefore give a flying fig how this case turned out. Sovereign cared, of course, by they weren’t served because they had been too stupid/lazy/incompetent to record their ownership of the note when they bought it from Millennia, and had also been too stupid/lazy/incompetent to start paying attention when Kesler filed for bankruptcy 3 1/2 months earlier, naming Sovereign as a creditor. By the time Sovereign got around to answering, the foreclosure sale was over.
In a rational world, Sovereign would have simply owned up to the reality that it had screwed up royally, and was now paying for it big time. Instead, Sovereign took the concept of chutzpah to ACORN-esque levels, and effectively argued that their own failure to record the transfer of the deed meant that MERS – who, I might remind you, had never had any role on the second mortgage except as nominee for Millennia before it sold the note to Sovereign – was entitled to service of process as a nominal party independent of both Sovereign (the real party in interest now, who had no relationship to MERS) and Millennia (who, as previously noted, could now give a flying fig about the note it no longer owned), and that Landmark’s failure to serve process on MERS somehow prejudiced the rights of Sovereign, which had no relationship to MERS in this transaction except perhaps as its unrecorded nominee (or as the recorded nominee of the original lender, which was served).
If that last paragraph is a bit hard to follow, and strikes you as an aggrieved second mortgagee’s answer to the Chewbacca defense, it’s because that’s precisely what it is. Maybe if Millennia had given a flying fig about a note they no longer owned, and had wanted to help Sovereign out of the goodness of its corporate heart, it could have notified Sovereign as soon as it were served. Maybe if MERS had been served, and given a flying fig about the note they may or may not even have servicing rights to, and which had since been transferred to a lender they never had any dealings with in the first place, they too could have notified Sovereign immediately. Or maybe monkeys would have flown out of my butt. All three scenarios are distinct possibilities; none are terribly likely.
Brown rightly notes that MERS’s role as a “straw man” precluded it from being a contingently necessary party to a foreclosure action it had not brought, from which she wrongly concludes that this means MERS would not have had standing to bring a foreclosure action of its own, either. She then goes completely off the rails by arguing that no one else has standing to enforce the note, reasoning that:
MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal.
Wrong, on two counts. First, this case is about who has “standing” (so to speak) to set aside an existing default judgment on theory that they were a “contingently necessary party” to the original action who had to have been served for the original judgment to stand, and not about who would have had standing to bring an action of their own in the first place. Big difference. Second, and more importantly, the Supremes did not rule that it was unnecessary to serve the original lender on the second mortgage (Millennia) but instead relied on the fact that process had been timely served on them. Not because they were the original lender, of course, but because they were the last recorded one.
The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a “security.” The lender has been paid in full and has no further legal interest in the claim.
This case said absolute squat about the securitization of anything. Brown simply made that up out of whole cloth. Either that, or she confused security interests with securitization, two wholly unrelated concepts. I’m not sure which is worse.
Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement.
Again, Brown simply made this up. The note was transferred from one lender to another, not securitized (i.e., packaged together with many other loans and converted into a security that trades much like a stock). The court made it clear that the reason the transferee was not entitled to intervene in the case (again, not the same as lacking standing to enforce on their own) was because it had failed to record itself as the new holder of the note, not because they weren’t the signatories to the original agreement.
They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief.
Sure they can, if they have the note in hand, which as far as we can tell from this decision, both Sovereign and MERS did. It seems that Brown herself has missed a pretty basic provision of contract law, namely that any contract that does not specifically forbid assignment, may be assigned to third parties, who will then have all the same rights to enforce the contract as the assignor did prior to the assignment.
UPDATE: Apparently I was a bit too hard on Sovereign for failing to record the transfer. MERS advertises on its web site that their clever arrangement “eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Perhaps it does, but not in Kansas.