The Michigan Court of Appeals recently handed MERS some more bad news here in Michigan: they cannot foreclose by advertisement because the COA ruled they do not hold an interest in the indebtedness under the applicable Michigan statute.
In the 2-1 decision in Residential Funding Corp v Saurman, two cases were consolidated which posed the same legal question: whether the mortgagee, MERS, could foreclose by advertisement rather than filing a foreclosure lawsuit (a "judicial foreclosure").
The respective home owners in these consolidated cases each defaulted on their mortgages. MERS instituted non-judicial foreclosures by advertisement, as permitted by statute. The properties were then purchased by MERS at sheriffs' sales. At this point, the respective homeowners from Kent and Jackson Counties, challenged the foreclosures on the basis that MERS could not foreclose via advertisement as they did not fall within the definition of a "mortgagee" under the statute.
Just what is MERS? The Saurman opinion provides a good clean glimpse. According to the Court of Appeals:
In the 1990s, the early challenges from county officials throughout the nation to the MERS system of high-speed and cheap securitization went unnoticed in favor of the mortgage lending industry. Remember Andy Jacobs and his World Wide Financial ads?MERS was developed as a mechanism to provide for the faster and lower cost buying and selling of mortgage debt. Apparently, over the last two decades, the buying and selling of loans backed by mortgages after their initial issuance had accelerated to the point that those operating in that market concluded that the statutory requirement that mortgage transfers be recorded was interfering with their ability to conduct sales as rapidly as the market demanded. By operating through MERS, these financial entities could buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even though the loans were changing hands. MERS would purportedly track the mortgage sales internally so as to know for which entity it was holding the mortgage at any given time and, if foreclosure was necessary, after foreclosing on the property, would quit claim the property to whatever lender owned the loan at the time of foreclosure.
As the MERS system of speed collateralization took off, it developed a process of instant deputization, where thousands of loan officers received “certifying resolutions” in minutes via the Internet. These financial deputies or, in some cases "agents", were authorized to process mortgage transfers and foreclosures on behalf of MERS.
As usual, all good things come to an end. This blog chronicled the unraveling of MERS in an earlier post. This Michigan Court of Appeals' decision, published thus binding on circuit courts, is just the latest in a series of legal losses for the corporation.
All this has the board of directors of the Virginia-based MERS Corporation very nervous. MERS is a private mortgage registry database that has essentially replaced our nation’s tradition of publicly stored land ownership records. MERS’ CEO, R.K. Arnold, among the founders of the corporation, jumped ship in January.
Like the banking system, however, the mortgage lending system cannot simply fall apart. This is a developing problem you will be hearing more about in the months and years to come.
In the meantime, if you are experiencing mortgage payment difficulties in Oakland County, the Oakland County Treasurer has partnered with GreenPath Debt Solutions, the United Way and others to establish the Oakland County Foreclosure Prevention Initiative. Simply click on this link or call (888) 350-0900 for assistance with the eviction process or to speak with a certified housing counselor.
For the scholars among our loyal readers, the University of Cincinnati Law Review has published a comprehensive article on MERS' intimate relationship to the mortgage industry and the contemporary foreclosure process.
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