The Note and the Deed are inseparable
Newscast Media HOUSTON, Texas — One of the most innovative ways banks have avoided paying county clerks fees for transferring titles from one property owner to another is by the use of Mortgage Electronic Registration System, or MERS. The problem with MERS is that its operational model requires a bifurcation or separation of the Deed of Trust from the promissory note. In almost every MERS loan, the note names a different entity, while the Deed names MERS as the beneficiary. To perfect a lien, the holder of the note should be the same entity that holds the Deed. However, with the securitization of most mortgages, and the use of MERS, it is almost impossible for that to happen.
MERS realized it hada problem and in February this year released a memo asking all entities to stop foreclosing in its name. The memo in part reads: “To comply with this guidance, MERS Members should implement the following practices, effective immediately.
. . . In recent months legal challenges have arisen regarding alleged inadequacies and improprieties in the foreclosure process including allegations of insufficient or incorrect supporting documentation and challenges to the legal capacity of parties’ right to foreclose . . . MERS is planning to shortly announce a proposed amendment to Membership Rule 8. The proposed amendment will require members to not foreclose in MERS’ name. Consistent with the Membership Rules there will be a 90-day comment period on the proposed Rule. During this period we request that Members do not commence foreclosures in MERS’
name.” The announcement can be viewed here.
MERS realized it could not demonstrate an agency relationship between itself and the note holder that gives MERS the authority to transfer assignments from one entity to another. Furthermore, it would be against MERS’ procedure of operation to make an assignment yet MERS acknowledges in its very own Procedures Manual that it cannot make any transfer of assignments to another. MERS’ own admission: “MERS cannot transfer the beneficial rights to the debt. The debt can only be transferred by properly endorsing the promissory Note to the transferee.” (page 63). You may read or download the entire manual here.
So if MERS cannot transfer the assignments, how is it possible that in foreclosure actions judges are presented with pre-dated documents that purport to transfer the assignment from MERS to another entity, usually a bank? Since MERS doesn’t do the assignments, in most cases, it is the foreclosure mills that create these documents themselves and pretend MERS transferred the assignment. It is the reason why MERS is prohibiting these firms and banks from foreclosing in its name.
MERS has itself to blame because it is peddling its corporate seal on its Website for $25. Virtually any foreclosure mill can purchase the seal, create and notarize an alleged Deed of Trust, present it to a judge and proceed to foreclose, if the homeowner does not object the documents. The MERS corporate seal being peddled can be seen here. There is also a live link, which I suspect they may disable soon. http://www.mersinc.org/mersproducts/pricing.aspx?mpid=4
The Note and the Deed are inseparable
Because the MERS system separates the note and the Deed which is evident since both documents name different entities, the Deed of Trust is rendered unenforceable because it is in violation of Carpenter v. Longan. In 1872, The United States Supreme Court announced this classic statement in this rule:
“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” (quoting Carpenter v. Longan, 83 U.S. (16 Wall) 271, 274 (1872))).
Also In re BNT Terminals, Inc., 125 B.R. 963 (Bankr. N.D. Ill. 1990) (“An assignment of a mortgage without a transfer of the underlying note is a nullity. . . . It is axiomatic that any attempt to assign the mortgage without transfer of the debt will not pass the mortgagee’s interest to the assignee.”
In another ruling, First Nat’l Bank of SACO v. Vagg, 212 P. 509, 511 (Mont. 1922) “A mortgage, as distinct from the debt it secures, is not a thing of value nor a fit subject of transfer; hence an assignment of the mortgage alone, without the debt, is nugatory, and confers no rights whatever upon the assignee. The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while the assignment of the latter alone is a nullity. The mortgage can have no separate existence.”
In Southerin v. Mendum, 1831 WL 1104, at * 7 (N.H. 1831) (“[T]he interest of the mortgagee is not in fact real estate, but a personal chattel, a mere security for the debt, an interest in the land inseparable from the debt, an incident to the debt, which cannot be detached from its principal.”)
Another ruling was in Barton v. Perryman, 577 S.W.2d 596, 600 (Ark. 1979) and also in Kelley v. Upshaw, 246 P.2d 23 (Cal. 1952) (“In any event, Kelley’s purported assignment of the mortgage without an assignment of the debt which is secured was a legal nullity.”)
The Deed of Trust problem
The biggest problem MERS Deeds of Trust face is that there is no Grantor, Grantee or what has been Granted that was named. Many lawyers are on the lower end of the learning curve when it comes to these issues because MERS and securitization are fairly new. However, many courts have held that a document attempting to convey an interest in realty fails to convey that interest if the document does not name an eligible Grantee or Grantor.
Courts around the country have long held, “There must be, in every Grant, a Grantor, a Grantee and a thing Granted, and a deed wanting in either essential is absolutely void.”
Look at any MERS Deed of Trust, you’ll see that most of them violate this rule. In the case of Richey v. Sinclair, 47 N.E. 364, 365 (Ill. 1897) the court ruled, (“The law is well settled that a deed without the name of a Grantee is invalid. It is said there must be in every Grant a Grantor, a Grantee, and a thing Granted; and a deed wanting in either essential will be void.”).
In Disque v. Wright, 49 Iowa 538, 540 (1878) (“It has been frequently held that slight omissions in the acknowledgment of a deed destroy the effect of the record as constructive notice. A fortiori, it seems to us, should so important and vital an omission as that of the name of the Grantee have that effect.”)
In Allen v. Allen, 51 N.W. 473, 474 (Minn. 1892) (omission of name of Grantee invalidated conveyance because “[a] legal title to real property cannot be established by parol.”)
The most memorable is by the NY Supreme Court in in Chauncey v. Arnold, 24 N.Y. 330, 338 (1862) (“No mortgagee or obligee was named in [a mortgage], and no right to maintain an action thereon, or to enforce the same, was given therein to the plaintiff or any other person. It was, per se, of no more legal force than a simple piece of blank paper.”)
Back-dated or retroactive assignments of the Deed
Most cases that you read about, homeowners claim that they were presented with a back-dated assignment of the Deed of Trust after a foreclosure action had commenced. The problem is that if the assignment happened after court papers were filed, then the foreclosing entity never had standing to begin with therefore can’t foreclose.
In order to commence a foreclosure procedure, the party must have a legal or equitable interest in the mortgage (Katz v East-Ville Realty Co., 249 AD2d 243, 243).
A “foreclosure of a mortgage may not be brought by one who has no title to it.”
(Kluge v Fugazy, 145 AD2d 537, 538).
An assignee cannot maintain an action for any part of a claim which has not been assigned to him. (Works v. Winkle , 234 S.W.2d 312, 315 (Ky. App. 1950)).
A mere expectancy is not enough to establish standing, a party must prove a “present or substantial interest.” Plaza B.V. v. Stephens, 913 S.W.2d 319, 322 (Ky.1996)(quoting Ashland v. Ashland F.O.P. No.3, Inc., 888 S.W.2d 667 (Ky. 1994).
In this particular case, defendants did not have an interest in the mortgage at the time the foreclosure action was commenced (LaSalle Bank Natl. Assn. v Ahearn, 59 AD3d at 911).
The Court in L aSalle found that: “The written assignment submitted by plaintiff was indisputably written subsequent to the commencement of this action and the record contains no other proof demonstrating that there was a physical delivery of the mortgage prior to bringing the foreclosure action.” (LaSalle Bank Natl. Assn. v Ahearn,59 AD3d 912).
As such, a retroactive assignment cannot be used to confer standing upon the assignee in a foreclosure commenced prior to the execution of the assignment.(LaSalle Bank Natl. Assn.,59 AD3d 912).
It now makes sense that MERS took a close look at its Deeds and recognized this problem, however almost 60 percent of American homes have Deeds in MERS name. It is up to homeowners and their attorneys to challenge the enforceability of these documents, if they find themselves in court fighting to keep their homes. http://www.newscastmedia.com/mers-factor.html
