Opinion ID: 2329317
Heading Depth: 1
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Heading: mers background

Text: ¶ 4 Mortgage Electronic Registration Systems, Inc., is a private corporation that administers the MERS system, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Mortgage Electronic Registration Systems, Inc. v. Nebraska Dept. of Banking & Fin., 270 Neb. 529, 704 N.W.2d 784, 785 (2005). In 1993, the MERS system was created by several large participants in the real estate mortgage industry. Matter of MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 828 N.Y.S.2d 266, 861 N.E.2d 81, 83 (2006). Although at first MERS was only able to attract the participation of Fannie Mae and Freddie Mac, private label subprime mortgage securitizers began using MERS in 1999. (emphasis original) [3] Today, [o]ver half the nation's mortgage loans are now recorded under MERS name. [4] . . . MERS is legally involved in the origination of approximately 60% of all mortgage loans in the United States. [5] MERS's mission is to register every mortgage loan in the United States on the MERS System. [6] ¶ 5 Any explanation or description of the MERS system must begin with an understanding of traditional mortgage lending and the American real property recording systems. Public land title records have been a fundamental feature of American law since the founding of the Republic. [7] They have been adopted in all fifty states and an analogous recording system has been adopted for personal property interests under Article 9 of the Uniform Commercial Code (UCC). The early colonial objective of these laws was, as it is today, to prevent disputes over property rights and to facilitate the use of land as collateral by creating a transparent public record that provides certainty in private bargains. [8] ¶ 6 In traditional mortgage lending, mortgages were recorded in the public land records so that mortgagees would not risk losing the ability to enforce their contract as against a subsequent purchaser for value. [9] Any transfer of the Lender's rights was accomplished through the process of assignment and recorded in the public record. ¶ 7 The legal foundation of traditional mortgage lending is the longstanding rule that the mortgage follows the note. Courts are virtually unanimous in holding that where a mortgage lender with a promissory note negotiates that note to a holder, the holder of the promissory note also obtains any mortgage securing that note. [10] Over one hundred years ago, the United States Supreme Court held: 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. Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 274, 21 L.Ed. 313 (1872). ¶ 8 Oklahoma law is in accord. In Oklahoma, ownership of the note is controlling, and assignment of the note carries with it assignment of the mortgage. . . . An assignment of the mortgage to one other than the holder of the note is of no effect. BAC Home Loans Serv'g, L.P. v. White, 2011 OK CIV APP 35, ¶ 10, 256 P.3d 1014, 1017, citing Gill v. First Nat. Bank & Trust Co. of Oklahoma City, 1945 OK 181, 159 P.2d 717, 719. A mortgage securing the payment of a negotiable note is merely an incident and accessory to the note, and partakes of its negotiability. The indorsement and delivery of the note carries with it the mortgage without any formal assignment thereof. Chase v. Commerce Trust Co., 1923 OK 676, 224 P. 148 (syl. n. 1 by the Court). ¶ 9 Time-honored conservative mortgage lending practices changed beginning in the early 1990's as loans, many of them subprime, were sold and resold, often multiple times, on the secondary market. The loans were transferred among banking institutions to be pooled into trusts. Mortgage-backed securities were then sold to investors, a process known as securitization. ¶ 10 MERS was [e]stablished to facilitate the residential loan securitization markets,. . . [11] MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. [12] MERS essentially privatized part of the mortgage recording system, namely the portion that records mortgage assignments. Jackson v. MERS, Inc., 770 N.W.2d 487, 490 (Minn.2009). ¶ 11 Under the MERS system, MERS is named the mortgagee in the security instrument either at closing or by subsequent recorded assignment. At the same time, it is termed the nominee of the lender. According to MERS: [N]o mortgage rights are transferred on the MERS system. The MERS system only tracks the changes in servicing rights and beneficial ownership interests. Servicing rights are sold via a purchase and sale agreement. Beneficial ownership interests are sold via endorsement and delivery of the promissory note. [13] MERS considers both events to be non-recordable. [14] MERS remains the mortgagee of record without regard to which entity holds the note so long as the note holder is a MERS member. MERS maintains that [a]ny loan registered on the MERS system is inoculated against future assignments because MERS remains the mortgagee no matter how many times servicing is traded. [15] ¶ 12 The perceived advantage of the MERS system for mortgage lenders is twofold. First, lenders avoid the filing fees associated with the recording of each assignment of the note. [16] Second, until recently, MERS would bring foreclosure proceedings in its own name rather than the name of the actual owner of the loan, which is often a trust owned by investors. [17] That authority has been questioned in several jurisdictions. ¶ 13 The appellate courts of several states have addressed the impact of the MERS designation on later foreclosures of the pledged property. For example, in Landmark Nat. Bank v. Kesler, 289 Kan. 528, 216 P.3d 158 (2009), MERS, as nominee of the second mortgagee, assigned the second mortgage to Sovereign Bank. The first mortgagee foreclosed, naming the borrower and second mortgagee as defendants, and took a default judgment. The trial court denied the motion of MERS and Sovereign Bank to set aside the default judgment. The Kansas Supreme Court affirmed, reasoning MERS lacked any enforceable rights because there was no evidence MERS owned the promissory note secured by the mortgage. Landmark Nat. Bank v. Kesler, supra, at 167-168. Similarly, appellate courts in Arkansas, Missouri, Maine and Vermont have refused to allow MERS or its assignee to assert rights against the mortgagor because it did not hold the note secured by the mortgage. Mortgage Elec. Registration System v. Southwest Homes of Arkansas, 2009 Ark. 152, 301 S.W.3d 1; Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo.App. E.D., 2009); Mortgage Electronic Registration Systems, Inc. v. Saunders, 2 A.3d 289 (Me.2010); and U.S. Bank National Association v. Kimball, 27 A.3d 1087, 75 UCC Rep.Serv.2d 100, 2011 VT 81 (VT 2011).