The Kansas Supreme Court has ruled that a company named Mortgage Electronic Registration Systems has no standing to file for foreclosures. MERS acts as a front for banks and investors, registering mortgages electronically and tracking changes in ownership, according to Ellen Hodgson Brown, JD at Web of Debt.com.
Brown reports that 60 million securitized mortgages are tracked by MERS. She writes:
"That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound."
Because MERS has registered mortgages and recorded them in its name without having ownership, a legal standing does not exist for representing a financial interest, according to the Kansas ruling. Furthermore, the court has found that mortgage originators, once the mortgage is sold, also has no financial interest or liability.
Brown states:
"MERS, as straw man, lacks standing to foreclose, but so does original lender, although it was a signatory to the deal. 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. 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. 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."
The way I read this, the ruling holds that a mortgage can not be sold to a third party without the contractual endorsement of the mortgagor (homeowner). To do so otherwise means that the third party and the mortgagor do not have a legally binding agreement. Perhaps an attorney knowledgeable in contract law can clarify this point.
Could this situation be simply corrected by changing the wording of mortgage contracts? Could these contracts simply identify the mortgagee and all successors as signatories to the mortgage agreement? Would this then maintain liability for the mortgage originators? Again a contract law expert is welcome to weigh in.
Taking this issue to another level, does this ruling have implications for all securitized debt? Does a direct contract need to exist between the holder of a debt security and the debtor? Are Wall Street smoke and mirrors about to be blown away on the basis of simple contract law?
