Professor Christopher Peterson on MERS

Professor Peterson has written many important articles including Predatory Structured Finance and the still developing The Two Faces of MERS.  This is his full post on the foreclosure documentation scandal and the role of MERS, and here is an excerpt:

“This is, of course, not to say that the MERS folks cannot win on this question. Many judges will be willing to look at the occasional case MERS’ lawyers drag up and hold that: “yes, behold, the land title laws DO allow one shell company to be the national mortgage proxy.” My own impulse is that a judge that takes this route is either clueless or a wee-bit intellectually dishonest. But maybe that’s too harsh. I suppose I could understand a judge saying to herself, “Well, … I’m going to let them interpret the statute this way because I don’t want to cause a crisis—and let the legislature’s original meaning of the land title act be damned.” I suppose there is something of a cynical virtue in this position. The thing I don’t like about that is that Supreme Courts ought not to get in too far into the business of macro economics. Their job is to enforce transparent rule of law. We are counting on them to do that. Plus, they are lousy economists. The truly conservative position on these cases will be to insist that radical changes to the legislatures’ land title acts be made by legislatures, not by bank sponsored financial snake oil salesmen. I actually think that the greatest exposure of the industry on this question could be in republican, civic virtue oriented courts that are not particularly impressed by Fannie Mae or Goldman Sachs bling-bling. There are smart judges in Wyoming, in Kansas, in Oregon, in Ohio, in Florida that will resent turning over the county recorders democratically maintained recording system enshrined in law by the democratically elected legislature to this bank owned short cut made for the convenience of the Wall Street investment banks out of control GSEs that trashed our economy.”

. . .

The security agreements used in MERS registered loans state: “MERS is the mortgagee.” Three state supreme courts have now held that MERS is not a mortgagee. The ultimate outcome of this basic legal discrepancy is not yet known and has the potential to be different in various states. Just focusing on one potential implication from this very basic discrepancy, it is legally unclear that recording a mortgage with MERS listed as a mortgagee is sufficient to create a perfected security interest. A basic objective in recording mortgages is to establish priority vis-à-vis other lenders, lienors, and buyers. With the exception of Minnesota, every state land title act—the statutes that set out the rules granting priority through recording—was written before MERS came into being. The legislatures that drafted these statutes did not contemplate the possibility that every lender in the country would record their loans in the name of one shell company owned by banks. Any state supreme court (except for Minnesota) is currently free to decide that recording in the name of this proxy-mortgagee-shell-company does not perfect the mortgage. Will any state supreme court have the guts to insist on transparent real-party-in-interest recording? Unfortunately, there is no crystal ball on my desk. Before the financial crisis and all of the documentation problems I probably would have guessed that the industry would get away with this power grab that privatizes the record keeping system. But now….? I’m not so sure.”

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2 thoughts on “Professor Christopher Peterson on MERS

  1. Beth,

    In my lawsuit in Tennessee, where I have alleged that the MERS lien is invalid, if it goes to our Supreme Court, which is likely, I probably will take the approach that the MERS lien is a radical departure from the present land title system.

    Allowing a strawman to have lien rights, transforms a public, transparent, and open, deed recording system, into a private secretive system. With a strawman lienholder, no person can go to the deed records and determine who the creditor is who needs to be paid to release the lien. No one can ever be sure that the right party was paid and no one can really be sure that the release is valid.

    The only proof that a release of lien was satisfactory, would be the surrender of the note, which of course, most lenders are not doing. When I paid off my second lien, the lender never surrendered my lien, and when I asked why I was told: “We don’t do that anymore.”

    If the judges can be made to understand what a strawman lienholder does to the title recording system, I am confident most will hold the liens invalid. I can’t see them privatizing this system.

    How can title ever be guaranteed, with such a gap in the title record? I have to believe the courts will not allow it.

    David G. Mills

    Like

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