New Case Debunks MERS: In re Agard, New York Bankruptcy Court Well Reasoned Opinion

A great new case is out as of Feb. 10, 2011.  This judge analyzes all of the MERS arguments, incuding the Membership Rules, the Hultman and RK Arnold affidavits, and the agency and nominee arguments, and holds that MERS does not have the authority it claims.  Excerpts below.  Full case NY BK In re Agard Feb 2011.Case No. 810-77338-reg

MERS asserts that it has authority to act as agent for each and every MERS member which claims ownership of a note and mortgage registered in its system.  This authority is based not in the statutes or caselaw, but rather derives from the terms and conditions of a MERS membership agreement

. . .

The Court agrees with the reasoning and the analysis in Bouloute and Alderazi, and the other cases cited herein and finds that the Mortgage, by naming MERS a “nominee,” and/or “mortgagee of record” did not bestow authority upon MERS to assign the Mortgage.

. . .

According to MERS, in addition to the alleged authority granted to it in the Mortgage itself, the documentation of the Assignment of Mortgage comports with all the legal requirements of agency when read in conjunction with the overall MERS System.  MERS’s argument requires that this Court disregard the specific words of the Assignment of Mortgage or, at the very least, interpret the Assignment in light of the overall MERS System of tracking the beneficial interests in mortgage securities.  MERS urges the Court to look beyond the four corners of the Mortgage and take into consideration the agency relationship created by the agreements entered into by the lenders participating in the MERS System, including their agreement to be bound by the terms and conditions of membership.

MERS has asserted that each of its member/lenders agrees to appoint MERS to act as its agent.  In this particular case, the Treasurer of MERS, William C. Hultman, declared underpenalty of perjury that “pursuant to the MERS’s Rules of Membership, Rule 2, Section 5. . . First Franklin appointed MERS to act as its agent to hold the Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and assigns.”  (Affirmation of William C. Hultman, ¶7).  However, Section 5 of Rule 2, which was attached to the Hultman Affirmation as an exhibit, contains no explicit reference to the creation of an agency or nominee relationship.Consistent with this failure to explicitly refer to the creation of an agency agreement, the rules of membership do not grant any clear authority to MERS to take any action with respect to the mortgages held by MERS members, including but not limited to executing assignments.  The rules of membership do require that MERS members name MERS as “mortgagee of record” and that MERS appears in the public land records as such.  Section 6 of Rule 2 states that “MERS shall at all times comply with the instructions of the holder of mortgage loan promissory notes,” but this does not confer any specific power or authority to MERS.  

 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. Adding to this absurdity, it is notable in this case that the Assignment of Mortgage was by MERS, as nominee for First Franklin, the original lender.  By the Movant’s and MERS’s own admission, at the time the assignment was effectuated, First Franklin no longer held any interest in the Note.  Both the Movant and MERS have represented to the Court that subsequent to the origination of the loan, the Note was assigned, through the MERS tracking system, from First Franklin to Aurora, and then from Aurora to U.S. Bank.  Accordingly, at the time that MERS, as nominee of First Franklin, assigned the interest in the Mortgage to U.S. Bank, U.S. Bank allegedly already held the Note and it was at U.S. Bank’s direction, not First Franklin’s, that the Mortgage was assigned to U.S. Bank.  Said another way, when MERS assigned the Mortgage to U.S. Bank on First Franklin’s behalf, it took its direction from U.S. Bank, not First Franklin, to provide documentation of an assignment from an entity that no longer had any rights to the Note or the Mortgage.  The documentation provided to the Court in this case (and the Court has no reason to believe that any further documentation exists), is stunningly inconsistent with what the parties define as the facts of this case.

However, even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as “nominee” or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal.

This Court finds that MERS’s theory that it can act as a “common agent” for undisclosed principals is not supported by the law.  The relationship between MERS and its lenders and itsdistortion of its alleged “nominee” status was appropriately described by the Supreme Court ofKansas as follows: “The parties appear to have defined the word [nominee] in much the sameway that the blind men of Indian legend described an elephant – their description depended onwhich part they were touching at any given time.”  Landmark Nat’l Bank v. Kesler, 216 P.3d158, 166-67 (Kan. 2010).

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