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Soured on Saurman

posted by Adam Levitin

Elected justice moves swiftly. The Michigan Supreme Court handed down its opinion in Residential Funding Co. v. Saurman on Wednesday, a couple of weeks after oral argument. They were in a rush to get the opinion out, it seems. Unfortunately, it's a terrible opinion. The Michigan Supreme Court reversed the appellate court to hold that MERS has the power to conduct non-judicial foreclosures (foreclosure by advertisement) in Michigan.

To reach this conclusion, the Michigan Supreme Court had to conclude that MERS had an interest in the indebtedness--that is an interest in the note.  MERS, however, expressly disclaims any interest in the note. So it took some acrobatics and legerdemain and outright tautology to get no to mean yes. Here's how they did it:

The Michigan Supreme Court argued that MERS had an interest in the indebtedness not via an ownership interest in the note, but because as record holder of the mortgage MERS owned a lien that it could foreclosue on if there was a default on the mortgage. 

We clarify, however, that MERS’ status as an “owner of an interest in the indebtedness” does not equate to an ownership interest in the note. Rather, as record- holder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness. This interest in the indebtedness — i.e., the ownership of legal title to a security lien whose existence is wholly contingent on the satisfaction of the indebtedness — authorized MERS to foreclose by advertisement under MCL 600.3204(1)(d).

Note the tautology of the reasoning. MERS can only foreclose on the mortgage because the Michigan Supreme Court says it can:  MERS can foreclose because it has an interest in the indebtedness because it is the record holder of the mortgage which gives it a right to foreclose on the mortgage when there is a default---but only because the Michigan Supreme Court says MERS has a right to foreclose on the mortgage.  The Michigan Supreme Court's conclusion depends on the Michigan Supreme Court's conclusion.  If the Michigan Supreme Court said that MERS didn't have a right to foreclose in its own name--that MERS could be the record holder of the mortgage, but not actually foreclose in its own name--then MERS wouldn't have an interest of any sort in the note, which would, well, mean that it couldn't foreclose by advertisement. 

Well, as Holmes noted, "[t]he life of the law has not been logic: it has been experience." And maybe Michiganders experience with foreclosures will be reflected in the next judicial election cycle. 

 

Comments

"Well, as Holmes noted, "[t]he life of the law has not been logic: it has been experience." And maybe Michiganders experience with foreclosures will be reflected in the next judicial election cycle. "

Is that the only remedy here? What about treasonous Barratry & Suborned Perjury??

Let's see how the SJC treats the Eaton case here in Mass.

The bad decisions, and there are a number of them, tend to sidestep the issue of the ambiguities and contradictions in the boilerplate mortgage language by which MERS can be both "nominee" disclaiming any interest beyond the purely legal (on behalf of the lender only, mind you) while also essentially claiming power of sale where local law and custom so require.

That translates to MERS (Does the "S" stand for "Straw"? It should.) then having an agency as mortgagee that automatically follows the note, except in jurisdictions where it doesn't, in which case the resort is to tautology.

I read this too and I am simply blown away. The might as well just wrote "f**k you" as their legal opinion. I never thought I would see the day were fiat interests in land existed!!!

To answer another poster , the remedy here and in other instances where MERS suddenly has an "interest" is Scire Facias.

The grantor in all these cases did not construct the DOT. Combine that with the fact that they were induced into granting a third party (stranger) an interest was never revealed. I think these circumstances could be considered a grant based on a false suggestion/inducement.

My opinion is that anyone with a MERS DoT should attack it via Scire Facias to vacate or annul the DoT.

Scire Facias used to be the method in which DoT were used to foreclose on property . I still think that is the method in Delaware.


AFAIK it has not been abolished in Michigan. I can not find a reference to on their legislature's website but this is what an old version says.

MFI-Miami's Steve Dibert on the MSJC ruling:

http://www.mfi-miami.com/2011/11/michigan-supremes-rule-mers-can-foreclose-will-create-a-nightmare-for-foreclosure-mills/

"Contrary to what some people may initially think, this is not a devastating defeat for the homeowner. This ruling actually makes MERS more vulnerable. MERS’ power according to the Michigan Supreme Court is now limited to being nothing more than an agent for the lender. This role is dictated in the Pooling and Servicing Agreement (PSA) that governs the Mortgage Backed Security. In other words, it will force the foreclosure mills into arguments about securities law they do not understand and force them to admit things in court that will damage the credibility of their clients.

The Supreme Court’s ruling will now allow Michigan attorneys to argue New York Trust law in Michigan foreclosures case when the loan was pooled into mortgage backed security on Wall Street essentially ending a foreclosure mill’s ability argue Livonia Property Holdings, L.L.C., v. 12840-12976 Farmington Road Holdings, L.L.C. A ruling they like to invoke in order to convince a judge the homeowner lacks standing to question assignments.

The ruling also raises a very interesting question. If “pursuant to MCL 600.3204(1)(d), MERS is ‘the owner . . . of an interest in the indebtedness secured by the mortgage,’” then what becomes of MERS’ capacity and legal right to act as mortgagee (in its capacity as nominee for lender and lender’s successors and assigns) under this statute when the only power MERS really ever had per the “law or custom” limitations in the mortgage (with the “law” in play being the PSA), expires or is terminated stated in the PSA or a bankruptcy?"

Let me see if I have this straight:

1) Lender hands its mortgage over to MERS for safekeeping but keeps the note. Either MERS is just warehousing the mortgage and can only foreclose under the authority of Lender, OR the note and the mortgage have just been severed, and the mortgage is a dead letter in about every jurisdiction in the U.S., including Michigan if the court's pontificating in the second paragraph is to be believed. What MERS considers itself to be at this point depends on which way the wind is blowing (See below.).
2) Instead, the court goes for what's behind door number three, severing the mortgage and note while ignoring the severance issue while paying the issue great lip service.
3) The court then gets MERS in the back door by holding that it has an interest in the indebtedness. In other words, Lender's transfer to MERS made MERS a third-party beneficiary of the note between Borrower and Lender. Pardon? Setting aside the absurdity of creating a third-party interest that way, exactly what claim does MERS have to any proceeds under the note? If MERS does exercise its foreclosure authority, I expect Lender would be demanding the results, either proceeds of a sale or a deed for a credit bid.

What a load of crap this opinion is.

Exactly what MERS is has been a topic of debate for some time on the DIRT list-serv maintained by Professor Randolph at Missouri-Kansas City. With the issuance of this opinion, though, civility has really been kicked to the curb. This last week Dale Whitman got really snotty with April Charney. Ms. Charney had been getting a bit huffy, but I think she was plain fed up with repeatedly telling the MERS backers such as Mr. Whitman and Prof. Randolph that MERS is talking out of both sides of its mouth (Again, see below.) and having her statements discounted.

As I've been saying for probably a half-dozen years now, I think MERS is a great idea as a tax/fee-avoidance mechanism. But as any tax practitioner can tell you, if you mix your tax strategy with anything else, you end up with an ungodly mess, which is exactly what the MERS members have done with MERS, and I've been pointing this out for awhile, too. All I've ever wanted is for MERS to come clean on what it is, an owner or a warehouse. Instead, it claims both, depending on which position is more advantageous at the moment, and routinely without producing paperwork to back either.

Last week I commented that the court was allowing MERS to continue its ambiguity game. Prof. Randolph said he did not believe MERS had ever claimed to be the owner of the note. I held my tongue on the direct refutation and the severance issue and simply asked how MERS can be the foreclosing entity. Prof. Randolph said he believed MERS was only acting as nominee of the beneficiary. At this point I was compelled to go there, again, and point out that MERS was taking whichever position was convenient, frequently to the borrower's detriment. That comment has yet to be posted, and frankly I doubt it will be, because whenever I've stated flat out on DIRT that MERS is talking out of both sides of its mouth, the comment has not seen the light of day, and the MERS supporters continue to act as if that behavior doesn't happen. Denial is a very big river in Africa.

My real problem is that MERS really IS just a warehouse, and it can not be doing this unless instructed to do so by its members.

Oh, by the way, Steven Sacks-Wilner just posted this entry on DIRT.

"...frequently to the borrower's detriment."

Knute, I'm right there with you brother. MERS could have been an interesting innovation -- had they created a national network with a simple presence in each state to handle occasional recording updates as notes changed hands and were captured within the MERS electronic system. But instead, we had an entity that had only a handful of employees a couple of years ago -- a straw, plain and simple.

As I'm sure you've read, severance isn't an issue here in Mass., but a disunity of mortgage and note prior to foreclosure may be an issue. We shall see. That is now being decided by the SJC in Eaton, and the status of MERS mortgages appears to be in play.

How an agent can be a third-party beneficiary is ... well, it's silly. The MBA and affiliated groups will run the tripartite mortgage theory up the flag pole and see which courts salute. They'll be agents over here and owners over there. Hell, in some courts the judges accept BOTH roles simultaneously without questioning the inconsistency.

Isn't it interesting that no courts are considering the merits of the Bernie Madoff Business Model. By contrast, the GSE Business Model, which has cost us $ 180 billion to date, along with its brainchild MERS (and other players) has tied the judicial system in knots.

I wonder if Bernie now thinks he spoke up too soon?

I saw this opinion when it came out and was really disappointed and horrified by it. Maybe just maybe I will go to a bank one of these days and present them a letter from a friend of mine saying that another friend owes me money and ask the teller to cash it. Sounds like a good idea. EH? But we cant complain, we voted for this idiots.

It's not an opinion on the merits, its an order denying an application for leave to appeal. Think "cert. denied." It's also on a straight party-line vote, the four Republicans who were elected on a non-partisan ballot voting to deny leave to appeal, the three Democrats, also elected on a non-partisan ballot (though nomination by A party is required--one was the "Charles Levin for Supreme Court" party) voting to grant leave to appeal. Unlike cert petitions, leave to appeal requires a majority vote. Welcome to what those of us who practice here in Michigan have to put up with all the time.

This opinion was great. Finally, we have a short and sweet opinion that describes how a party may hold a mortgage while not owning the note. The mortgagor signed the agreement. Your tautological argument is completely flawed: "but only because the Michigan Supreme Court says MERS has a right to foreclose on the mortgage." No, the mortgage also says MERS has the power of sale. The mortgagor specifically granted MERS the power. The opinion merely interprets a Michigan statute, which is something, I believe is within the ambit of the Michigan Supreme Court's power. And the Michigan Statute also provides that a servicing agent may foreclose a mortgage.

MERS isn't a servicing agent. And the opinion didn't revolve on the language in the contract, which is a problem if it is not MERS as original mortgagee (MOM). The mortgage doesn't grant a sham mortgagee the power to foreclose.

The problem here is that Michigan law is quite clear that the mortgage follows the note. See Atwood v. Schlee, 269 Mich. 322 (Mich. 1934), Dougherty v. Randall, 3 Mich. 581 (1855). And "a transfer of a mortgage without the underlying obligation 'is a mere nullity.' " Prime Fin. Servs. LLC v. Vinton, 279 Mich. App. 245, 257 (Mich. App. 2008) (quoting Ginsburg v. Capital City Wrecking Co., 300 Mich. 712 (1942)). So, when the note is transferred, the mortgage goes with it. Not sure how MERS ever owns the mortgage when there is almost always at least one transfer of the note.

Kevin, I began reading your comment as a fine twist of sarcasm. Well spun and witty sarcasm is a particular Irish delicacy. Alas, I was disappointed.
"Power of Sale" and "Foreclose" are two very independent ideas and functions. MERS as nomiminee can "initiate" "foreclosure", but only the lender/creditor/note holder holds or can assign that power. Show me I'm amiss and I'll gladly apologize. Yes, the Mortgagee signed the DOT and granted to the LENDER as grantee.....
Show me how MERS in that transaction assumes the role of Grantee with power of sale. I believe the 9th Circuit will clarify it well for you soon if you aren't able to show otherwise.

Line 4 scrivenor error: nominee.
Line 5 scrivenor error: Mortgagor.

2nd glass of wine after a long monday error.

If MERS has an interest in the indebtedness what would happen if MERS filed bankruptcy? Would 60 million mortgages be included in its bk estate? The Court tried to look at the big picture but it didn't look hard enough. This opinion could be very problematic on a national scale if county recording offices are successful in suing MERS and MERS looks to bk if it can't pay.

Brad.......

Do I hear three mortgagors coming forth in placing MERS into involuntary bankruptcy?

How bout the someone alert the IRS that MERS has billions of dollars in undeclared unclaimed interests?

The Michigan Supreme Court just made MERS one of the wealthiest corporations in America by way of a gift.

See how ridiculous this decision becomes once taken to it's logical conclusions?

If the conveyance creates a separate interest in MERS, then contrary to the original intent of creating MERS (avoiding recording taxes/fees), the conveyance doubles the cost in mandatory recording jurisdictions. Where doe Michigan find its supreme court justices, auto company boardrooms?

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