There has been a lot of buzz about a strongly worded decision by the New York Second Appellate Division in the Bank of New York v. Silverberg. This is yet another ruling against MERS, but its implications are narrower than some commentators have suggested.
It is critical to note that MERS in theory is a mortgage registry, which means whatever authority it has (a matter still being sorted out), it extends to the lien only. MERS has repeatedly said in depositions it was not a lender and has no rights to the note, the borrower IOU. Thus since in most states the note is the critical instrument (the lien is a “mere accessory”), the party foreclosing needs to be a holder of the note (that actually means more than mere possession, you need to be a party of interest, in some states).
MERS advised last year that servicers stop filing foreclosures in the name of MERS. However, there appear to be quite a few foreclosures undertaken in the name of MERS grinding their way through the system; this was one of them (I’m a bit puzzled that more in states with MERS-unfavorable precedents have not been withdraw and refiled, but that is over my pay grade).
You have to love New York judges. The ruling begins: “This matter involves the enforcement of the rules that govern real property and whether such rules should be bent to accommodate a system that has taken on a life of its own.” It’s not hard to guess where this one is going.
The ruling is short and worth reading. This is the first ruling in New York to consider the question of whether MERS “can assign the right to foreclose” when it has neither rights in or possession of the note. Most courts that have considered whether MERS can make assignments of its rights have taken a dim view of the idea (note that courts that have made MERS favorable rulings in similar circumstances have typically ignored the issue). Note that this court said explicitly that if MERS had had possession of the note, it could have initiated foreclosed in its name (as suggested above, other states have ruled that possession alone does not confer the right to foreclose). But getting its hands on the note after foreclose was in motion was an impermissible fix.
Bank of New York v Silverberg NY Appellate Ruling June 7, 2011
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Received this insight from a lawyer friend.
MERS rules prohibit them from holding any interest(s) in notes however for a number of reasons not the least of which I suspect is that it interferes with the securitization of the notes and the “investors” therein, it requires possession of the original note(s) which MERS does not want and cannot practically manage, implicates tax considerations, etc.
This decision follows and builds on a bankruptcy decision several months ago called In re Agard – it is attached.
The important thing here is that all of the MBS trusts are formed under NY law. It is axiomatic therefore that all MBS Trusts wherein there are MERS mortgages – have essentially become unsecured debt.