This page will discuss MERS Loans and the types of issues that may be raised in Bankruptcy matters, including fighting motions to lift the automatic stay, challenging proof of claims in bankruptcy matters, and filing adversary proceedings in a bankruptcy court to challenge the validity of alleged liens. There are procedural issues in a bankruptcy court including constitutional “standing” issues and “real party in interest” considerations.
IN THIS DAY AND AGE OF “MERS LOANS” (WHERE THE MORTGAGE ELECTRONIC REGISTRATION SYSTEMS – A MERE SOFTWARE COMPANY – POSES AS A BENEFICIARY OF A LOAN), CAN WE TRULY ACKNOWLEDGE ANY ALLEGED BENEFICIARY OF A LOAN AS BEING A “CREDITOR” IN A BANKRUPTCY SETTING?
Attorney Steve Vondran can be reached at firstname.lastname@example.org or (877) 276-5084. Mr. Vondran is licensed to practice law in California and Arizona and is currently assisting homeowners in foreclosure defense, predatory lending, bankruptcy, and loan modification (Arizona only). The following is general legal information only, and not legal advice.
MY NAME IS MERS AND I AM THE BENEFICIARY OF YOUR LOAN, NO I MEAN THE NOMINEE OF YOUR LENDER AND ITS SUCCESSORS AND ASSIGNS, I CAN LIFT THE AUTOMATIC STAY IN BANKRUPTCY – DO NOT CHALLENGE ME! RESPECT MY AUTHORITY.
Yes, to a certain degree we have been calling this “produce the note” bankruptcy style (or to be more accurate, “prove you are a creditor”). Here is a general overview of what we are talking about here. If you have a MERS loan (check your deed of trust see if it lists MERS as the nominee of the lender and its successor and assigns and the beneficiary of the loan), and you are thinking of filing Bankruptcy Chapter 7, give this article a close review.
We are a debt relief agency and we help people file for Bankruptcy Protection under the Bankruptcy Code. The following article is general legal information only and may not be current, up-to-date or accurate as law can be subject to interpretation and is constantly evolving. In addition, this article is not legal advice and not to be construed as a substitution for legal advice. If you have specific legal questions, please contact a bankruptcy lawyer or real estate lawyer or foreclosure lawyer as your case may require.
MERS IN BANKRUPTCY – RIP OPEN THE CURTAIN AND LETS SEE THE “WIZARD OF OZ” STANDING THERE WITH NOTHING BUT SMOKE AND MIRRORS.
WHAT IS MERS?
MERS stands for the Mortgage Electronic Registration System. They are essentially a software company that was set up to track the transfer (sale) of loan ownership rights, and loan servicing rights where loans are originated and transferred (sold) on the secondary market.
Where you see MERS pop up in the loan context is look on your deed of trust, if you see it say something similar to the following you have a MERS loan:
“MERS is the nominee of the lender, its successors and assign. MERS is the beneficiary.”
That is typically what you will see. Yes, you may be scratching your head like we do in our foreclosure defense work and asking yourself the following question, HOW IS IT THAT MERS IS BOTH A NOMINEE OF THE LENDER AND THE BENEFICIARY? It is a bit strange, but basically MERS is trying to hedge its bets. Where it needs to be an agent (nominee) it will act as an agent. Where they want to pretend to be the beneficiary, it will put the beneficiary hat on. Yes, MERS gets to be whoever it wants to be, or at least we should say that MERS can pretend to be whoever it wants to be in regard to loan foreclosure, trying to life a stay in bankruptcy etc.
Yes, MERS is assuming you will not challenge them, or that you do not have the money to challenge them, and/or that the judge will go right along with them in a civil lawsuit or allow them to lift the automatic stay in a bankruptcy setting.
Alas, there is the rub, people are starting to learn about MERS, and trying to find ways to challenge them. Our firm is also putting forth some new strategies to take on MERS, and MERS-related loans.
The analogy for MERS (pretender lenders) can also be extended to Trustees of Securitized trusts (as pointed out in California State bar MCLE units taught by Neil Garfield, a lawyer who can probably be called the “father of produce the note theory”). The point being that a trustee of a securitized trust who does not have the original promissory note, transferred and endorsed, along with an assignment of the note and deed of trust (the note and deed of trust are supposed to be assigned together for “the note without the deed of trust is a legal nullity” according to some legal cases. For example, where a trustee of a securitized trust cannot show proper transfer of the note and deed of trust, no one in their right mind should just assume that because the Trust claims to hold the loan, that they should be treated as a legitimate “creditor” in a bankruptcy case.
The point becomes, in this day and age, we are finding it increasingly difficult to find out WHO THE HOLDER OR OWNER OF YOUR LOAN IS. WHO IS ENTITLED TO PAYMENTS? WHO IS ENTITLED TO FORECLOSE ON YOU? WHO IS REQUIRED TO CONTACT YOU PURSUANT TO CALIFORNIA CIVIL CODE SECTION 2923.5 TO TRY TO WORK OUT LOAN MODIFICATIONS WITH YOU BEFORE THEY FORECLOSE? WHO DO YOU SUE WHEN YOU ARE FILING A TRUTH IN LENDING RESCISSION CASE TO FORCE THEM TO GIVE BACK THE MONEY THEY MADE AS PART OF THEIR TENDER OBLIGATION.
What we have found to be absolutely amazing in our work as a foreclosure defense and loss mitigation law firm is that when you contact your lender as ask them what should be a relatively simple and straight-forward question such as “WHO IS THE OWNER OF MY LOAN I WANT TO TALK TO THEM ABOUT A LOAN MODIFICATION” many California and Arizona homeowners will typically get the same answer: NONE OF YOUR BUSINESS……OR SORRY, WE CANNOT TELL YOU…….OR SORRY, WE DO NOT KNOW……OR, YES WE OWN IT, WHEN IN FACT THEY DONT.
If you think I am kidding, call your lender or more likely, your loan servicer and ask them who owns your loan. They may insist that Fannie Mae or Freddie Mac owns your loan. Both fannie and freddie have a loan lookup tool and you can google this to see of they “own your loan.” Of course, the result you will get you will have to take on faith, because you will not be able to download a copy of your note assigned to them, or a copy of your deed of trust assigned to them. Instead, Fannie Mae and Freddie Mac will be asking you to take it for granted that when they tell you they are the owner of your loan, that that is true and indisputable. If you ask for proof however, they will likely tell you to “pound sand.”
The rationale of many lenders seems to be this: “you took out a loan……you know you owe somebody……..that somebody might as well be us…….and there is no obligation for us to “show the note” in order to conduct a private trustee sale in California and Arizona (unfortunately the case law backs them up on this wild assertion) and if you try to file for an injunction to stop the foreclosure sale, we will point out the case law that says an original copy of the promissory note is not required in seeking to foreclosure in a non-judicial foreclosure sale. THAT MY FRIENDS IS BASICALLY WHAT YOU ARE UP AGAINST.
Meanwhile, Attorneys like me would like you to know that things are not always as they seem to be. Remember the Wizard of OZ? The guy behind the curtain that wanted you to believe he was the ultimate authority and not subject to challenge? Well, the lenders, loan servicers and MERS like to do the same thing when in comes to acting like they have all the credentials to prove their right to ACT IN RESPONSE TO REQUESTS FOR LOAN MODIFICATIONS, SHORT SALES, DEED-IN-LIEU OR FORECLOSURE, IN PRIVATE NON-JUDICIAL FORECLOSE SALES, TRYING TO LIFT AUTOMATIC STAYS IN BANKRUPTCY COURTS, AND EVEN EVICT PEOPLE FOLLOWING AN UNLAWFUL SALE BY A PRETENDER LENDER AS NEIL GARFIELD CALLS THEM.
In short, it is time to start asking the tough questions, and making these guys answer them with honesty, and in accordance with commercial law and other legal standards and making them PROVE they are the true creditor, or an agent of the true creditor when them come pushing people around in loss mitigation settings (even after they got their real nice bailout that saved their asses from bankruptcy and embarrassment).
IS MERS THE BENEFICIARY OF A LOAN?
As mentioned above, MERS is NOT A LENDER…….NOT A BENEFICIARY OF ANY LOAN. They did not lend you any money; they do not accept your loan payments, they do not discuss loan modifications or short-sales with you. Again, MERS is nothing more than a software company that is essentially made up of its member banks who like to hide behind the “MERS Curtain.” The use of MERS allows the TRUE OWNER of the loan to remain anonymous. That way, nobody knows who to go sue, unless and until a borrower goes into a default in which case MERS will ask one of its members to step forward and act as the creditor of the loan and move to foreclose. Until that day, you will never likely learn who “holds your loan or who “holds your loan” or who “the creditor or beneficiary of your loan is.” Again, the big banks, lenders, and wall street investors (who typically are the loan beneficiary as they are the ones seeking your loan payments after the servicer takes its cut) do not want you to know about them, because they do not want to answer for any predatory lending claims you may have. They would rather hide in the shadows for 4 or 5 years until statutes of limitations run, collecting your loan payments, trading your loan as many times as possible, and basically just living covertly off your interest payments.
Court cases have come down that have basically stated that MERS is NOT A BENEFICIARY OF A LOAN JUST BECAUSE IT CALLS ITSELF A BENEFICIARY UNDER YOUR DEED OF TRUST (CALLING A PIG A HORSE DOES NOT MAKE IT SO). AT BEST, COURTS WHO HAVE HEARD “MERS CASES” HAVE NORMALLY HELD THAT MERS MAY BE AN AGENT (NOMINEE) BUT THEIR CLAIM TO CREDITOR OR BENEFICIARY STATUS IS NOT MUCH MORE THAN SMOKE AND MIRRORS. We have discussed the Arkansas MERS case and Kansas Supreme Court Case on other blogs. We have also addressed “MERS BANKRUPTCY CASES” which have held that MERS does not have “standing” to lift an automatic stay in a bankruptcy court and that MERS is not a “real party in interest” in a BK case.
MERS hates these cases, even though it touts some of their alleged “successes” and the MERS TRIAL STRATEGY AND MERS LEGAL PRIMER on their website (assuming the article is still up there).
At any rate, do not expect MERS to stop, and as we discussed above, TRUSTEES OF A SECURITIZED LOAN TRUST (who like MERS cannot produce the note and assignment of deed of trust properly endorsed and transferred) should also not be acknowledged as TRUE CREDITORS who can do whatever the heck they want in private foreclosure sale settings, short sales, loan modifications, deed-in-lieu-of-foreclosure and in bankruptcy courts in California and Arizona where we are licensed to practice law. Note, we only serve loan modification clients in Arizona since California passed SB94 which essentially was the lenders way of putting loss mitigation representative out of business. That being said, we still file lawsuits seeking money damages, injunctions, TILA rescission, elder abuse cases, file lis pendens, file trial plan breach of contract cases seeking specific performance of the trial plan agreement, and force them to prove their creditor status (standing and real party in interest) in a BK Chapter 7 case where a debtor has legitimate debts (including deficiency judgment liability) that they seek to wipe out.
IF MERS IS NOT THE BENEFICIARY OF THE LOAN, THEN WHO IS?
This is the million dollar question. The Beneficiary is normally the party entitled to payment on your loan. Recall in the normal loan situation you have the Trustor (who is the borrower) and the Trustee (who has the power of sale given to them by the borrower) and the Trustee (who is the beneficiary of the loan, and the one who loaned the money).
This is the typical arrangement in a deed-of-trust setting. Mortgages are different and have only a mortgagor (the borrower) and the mortgagee (again, the bank that normally lends its own money).
It used to be the case (before securitized loans, and the secondary loan market) that banks would lend their money and then hold the loan, servicing it, and foreclosing on it if need be. The would, of course, hang on to your promissory note (which is evidence of the debt obligation) and would record the deed of trust in the local County Recorder’s office as evidence of the security interest in the loan. If you went into default on the loan, the bank would send you a notice of default or a notice of sale, and eventually they would foreclose on you. You never really had any reason to question who the owner or your loan was, or who your creditor was under this type of arrangement (which is often called “portfolio loans” or “whole loans.”).
Fast forward to the present, where you have loan brokers and “lenders” involved in many transactions, and the “lenders” typically do not loan any of their own money (yes, this sounds strange) but typically they will have entered into an agreement with another company who has agreed to buy, or otherwise fund your loan perhaps through a credit line, or perhaps by another agreement linking to a wall street investor.
WHAT? Yes, this means when you though your lender was “lending you money” often times there was no money lent by the original “lender” and your loan (at least the note part of it) was assigned or transferred through the secondary loan market where investment banks would carve up your note with other notes (called fractionalized notes) and create investment products for investors on wall streets to invest in (the products can essentially be called “tranches” and your loan, or a fractionalized portion of your loan is in one or more tranches). The tranches would be rated by Moody’s or Standard and Poor and investors on wall street (such as pension funds, foreign investors, insurance companies, and even investment bankers themselves) would purchase these up, thereby purchasing the right to your payments.
If you are savvy, you may be asking yourself, BUT WHAT ABOUT THE DEED OF TRUST – THE SECURITY FOR THE LOAN, WAS THAT TRANSFERRED TOO? Recall, we said the note and deed of trust has to be transferred together or it could be construed as a “legal nullity.” Well, as we discussed above, MERS often records the Deed of Trust and this is never assigned along with the promissory note to the investment trust that now supposedly holds your loan. So, they were separated.
This is one of the main points of contention, if it is a “legal nullity” to separate the note and deed of trust, doesn’t this mean that they securitized trust, or even the wall street investor who may have purchased an interest in your loan payments, does not have a right to enforce the debt they claim is owed (even though they may use the services of a specialized “loan servicer” who gets paid a percentage of each loan payment to act as if they work as the “agent of the beneficiary?”). Doesn’t this mean that neither the loan servicer (who has also tried to act as beneficiary on occasions), nor the trustee of the securitized trust, nor the wall street investor, nor MERS is a true “creditor” if they cannot produce both the transferred and endorsed promissory note, and the assigned deed of trust? Well, that seems to be a fair proposition.
So, if you are filing a bankruptcy petition (again, you must have bona fide good faith debts to discharge) and you are LISTING YOUR CREDITORS ON YOUR BK SCHEDULES(BOTH SECURED AND UNSECURED CREDITORS) WHAT EXACTLY ARE YOU SUPPOSED TO DO? List these companies and entities as “creditors” or list their alleged debts as “disputed” and list their alleged debts as “unsecured? Is it malpractice to grant these types of entities “creditor status” merely because they say they are a horse, and act like a horse, and their notice of default says they are a horse and their notice of sale say they are a horse, and their loss mitigation documents and HAMP agreements state they are the horse, when in fact, because they do not have the note properly endorsed and assigned along with the deed of trust they are just a pig? Should we take everything for granted, and give the Wizard of Oz the status they seek?
This is the question, this is the legal issue. These guys should be FORCED to prove they are legitimate and valid creditors given what we know of securitized loans.
WHY IS MERS SHIELDING THE IDENTITY OF THE TRUE BENEFICIARY OF THE LOAN?
Again, MERS was setup to assist its member banks to track loan servicing and ownership rights. They also help hide the identity of the true holder of the loan (the true beneficiary) as these parties only want an interest in your loan payment stream, and certainly do not want to end up a Plaintiff in a Truth in Lending rescission case (where they may actually have to give you your money back). So MERS helps aid this function, and MERS also allows members to buy, sell, and trade your loan without ever having to RECORD THE TRANSFERS OF THE NOTE AND DEED OF TRUST in the County Recorder.
Yes, this can deprive a County of essential revenues it needs for valuable social services) but it aids the bank in saving money so of course that is of paramount importance, at least to the banks.
MERS does other things as well, like advising its member banks on who to win lawsuits, and join MERS as a party when litigation ensues. They have it all planned out. It is only recently when MERS has started losing a few cases that its power, or lack of power, is coming to light, and the curtain is being pulled back. For now, they still feel they have power over the estimated 60 MILLION MERS LOANS THAT WERE ORIGINATED IN THE PAST DECADE OR SO.
CAN THE TRUSTEE OF A TRUST BE A BENEFICIARY OF A LOAN?
Again, this is a good question, under Commercial law standards, the note and the deed of trust would need to be assigned to the trust and as we know, this rarely appears to happen. In our foreclosure defense work, we will often hear “the trust owns the loan” or “Duetsche Bank as Trustee of the trust is the owner of the loan.” Again, they want you to take this on face value, admit you are in default of your loan, and give way to them because they are the entity billowing smoke up into the air, and angling the mirrors to blind your sight. As we have stated, in the past maybe you would give them credence for this type of ownership assertion. In this day and age of MERS, securitized loans, mortgage backed securities, CDO’s, etc., you have to ask questions and demand proof before you believe a word you hear. This is especially true in a BK filing.
There was a good Arizona bankruptcy Case that came down that talked about how a Securitized Trust could own a loan if the note and deed of trust were securitized, and if that occurs, then a loan servicer (GMAC in that case) would be able to claim standing in a Bankruptcy Court, and would be a real party in interest. We will be posting our brief of the Arizona case shortly. Google “Vondran Arizona Bankruptcy Lawyer Prove you are a Creditor” that should take you there. This is a pretty nice case that talks about what is legally required to prove standing in a Bankruptcy Court in a manner that would allow an entity to lift a foreclosure stay in bankruptcy court. In that case GMAC was basically told to go home as they had no standing in the Bankruptcy Court and was NOT a REAL PARTY IN INTEREST. So yes, these things CAN be challenged, and SHOULD be challenged in a Bankruptcy Court. The game playing, although allowed to be perpetrated in a private trustee sale, may have to come to a halt in a federal bankruptcy court, as it should.
ARE THERE ANY WAYS TO DETERMINE WHO THE OWNER OR HOLDER OF MY LOAN IS?
Sure, you can try using some of the ways we do to “ferret out the true holder of the loan….the true creditor…..the true beneficiary. You have to ask questions, and ASK THE LENDER OR LOAN SERVICERS IN WRITING. Here are a few of the things we do in our “Creditor Validation” and “Debt Validation” efforts.
Send in a Qualified Written Request under RESPA Section 6 (we have talked about QWR’s in other blog posts) where a bona fide billing or accounting dispute exists.
Send a request to identify the holder of the loan or master loan servicer under 15 U.S.C. 1641(f)
Send a debt validation letter demanding the “lender” validate their alleged debt, including identifying the holder of the loan, and producing the note and assignment of deed of trust.
Send in beneficiary demand letters.
If these letters go unanswered, or not answered in detail, of course this would raise suspicion, and doubt (again, what do they have to hide except the truth, namely that they are not valid legal creditors, and cannot prove such in some cases). This would also potentially create legal violations under TILA and RESPA and may turn them into potential defendants in a civil lawsuit if a proper predatory lending, or wrongful foreclosure case is brought. We call this MAKING THEM DO WORK TO JUSTIFY THEIR EXISTENCE AND JUSTIFY THEIR ASSERTIONS. Again, if they cannot answer these relatively simple questions and producing the proper documentation of their creditor status, how can we as bankruptcy lawyers treat them as legitimate secured creditors in a bankruptcy setting?
IF WE CANNOT ASCERTAIN THE IDENTITY OF THE TRUE HOLDER OF MY LOAN, AND IF WE ARE FILING CHAPTER 7 BANKRUPTCY SHOULD THE ALLEGED LENDER OR LOAN SERVICER BE TREATED AS A “CREDITOR” (EITHER SECURED ON UNSECURED) ON MY BANKRUPTCY CHAPTER 7 PETITION?
This is what we are saying above. Where good faith, bona fide legal challenges exist, although you may not be able to raise these in private non-judicial trustee sale settings (i.e. “there is no obligation to produce the note to pursue a private trustee sale”), I have not seen any requirement that says YOU MUST TREAT YOUR LENDER AS A BONA FIDE SECURED CREDITOR ON YOUR BANKRUPTCY APPLICATION FOR YOU KNOW YOU OWE SOMEBODY MONEY AND IT MIGHT AS WELL BE BANK OF AMERICA, OR CHASE, OR WELLS FARGO, ETC.
Consult with your bankruptcy Attorney to ask them how they handle MERS loans. You can also contact Attorney Steve Vondran’s office (offices in Phoenix, Arizona and Newport Beach, California servicing the Greater Phoenix / Scottsdale area and all areas of California) to discuss your case.
WHAT HAPPENS IF WE LIST THE ALLEGED LOAN CREDITOR / BENEFICIARY AS UNSECURED AND CHALLENGE THE DEBT AS DISPUTED?
This is another important issue, if they are not the true creditors, and their debt is challenged on a bankruptcy petition, then what happens next? How is this handled in a BK Court? Contact our office to setup a attorney consultation. Toll Free (877) 276-5084.
ARE THERE ANY CASES THAT TALK ABOUT MERS LOANS AND PRETENDER LENDERS?
Yes, there are a good number of MERS cases that come out of Bankruptcy Courts. Our office, and its BK clerk are working to brief these cases and present a discussion on our blogs located at www.LoanModRadio.com,www.AdversaryProceeding.com, www.ForeclosureDefenseResourceCenter.com, and www.BKAttorneys.net.
Please check these sites for more information. There are also some good cases that have come out of California, Arizona, Kansas, and Arkansas that we will be highlighting on our foreclosure defense blogs. So stay posted or subscribe to our newsletter at Loan Mod Radio (the foreclosure defense show we used to air on California Angels Radio).
IS IT MALPRACTICE NOT TO CHALLENGE YOUR ALLEGED CREDITOR IN A BK SETTING WHERE THE LOAN AT ISSUE IS A MERS LOAN?
Again, for now this is an open question. If you are a BK attorney, perhaps you should be challenging MERS loans and demanding true creditors, lenders and beneficiaries prove such before allowing them to lift a stay in bankruptcy Court. Perhaps you should be charging an extra fee (whether your client can afford it or not – yes there are extra costs above and beyond your normal BK Chapter 7 fee), and perhaps you can use an outside firm like mine to conduct PROOF OF CLAIM CHALLENGES, ENGAGE IN STAY LITIGATION, OR TO FILE ADVERSARY PROCEEDINGS TO CHALLENGE THE EXTENT OR VALIDITY OF A LIEN. To those BK attorneys in California or Arizona (where we are licensed to practice law) who want to discuss co-counseling MERS cases, we are available for discussion at (877) 276-5084.
CONCLUSION – MERS (AND OTHER “PRETENDER LENDERS” AS NEIL GARFIELD CALLS THEM) IN BANKRUPTCY COURT.
In the world of securitized loans where the note and deed of trust is often separated by the use of MERS (the software company) and where it is often not clear who holds your loan or who your lender might be (this is often kept a big secret), it may be time to consider whether you should challenge these entities claims that they are your true creditor who is owed the money, and who has the right to foreclose on your loan, or lift your automatic stay in a bankruptcy court. The ramifications of taking such a position may threaten the “Wizard of Oz” hiding behind the loan curtain, but it also may work to your ultimate benefit. It is not clear who Bankruptcy Judges will treat such claims, but where you have a good faith belief the alleged “creditor” is just trying to pull a fast one because “you owe somebody it just might as well be me” and where you have bona fide debts, including potential deficiency judgment liability you want to discharge, perhaps the Bankruptcy Court may be your “court of last resort” to “make them produce the note.” These are strategies our firm is willing to investigate, consider, and allege where appropriate.
Also, you may want to bookmark a good reference site for Produce the Note issues - http://www.ProduceTheNoteAttorney.com.