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A New York appeals court has thrown out a foreclosure proceeding involving MERS, the national registry for mortgages that tracks millions of individual loans behind mortgage-backed securities. The case sets a bad precedent for MERS in New York, but may not cause upheaval nationwide.
In a 7-page ruling issued Friday, the New York appellate court threw out Bank of New York’s foreclosure suit against Stephen and Frederica Silverberg, who were allegedly behind on $479,000 in loans. Bank of New York is the trustee for the trust containing mortgages, one them presumably the Silverberg’s, that were bundled together and sold to investors as bonds. Unfortunately for the bank, the court ruled that MERS, the bookkeeping entity set up to keep track of those mortgages in land-records offices around the country, couldn’t give BONY the authority to foreclose because it didn’t possess the underlying note, or Silverberg’s promise to pay.
“A transfer of the mortgage without the debt is a nullity, and no interest is acquired by it,” the court ruled.
Public Citizen said the decision could have “far reaching consequences,” but not everyone agrees this is a big deal. Even the lawyer for the Silverbergs, Stephen Silverberg himself, acknowledged his was an unusual situation. Bank of New York “admitted it didn’t have the note” proving it was the rightful owner of the collateral, Silverberg told me.
“They’ve had three years to find it and they haven’t,” he said. Without both the note and the mortgage, or legal document establishing the home as collateral for the note, the court said a lender can’t foreclose.
Judges in other states have made similar rulings, but in states with non-judicial foreclosure rules the courts aren’t involved. MERS was formed in 1993 by lenders to track mortgages and serve as a nominee in land records. That way, the lenders would have a central registry and wouldn’t have to pay transfer fees each time the underlying loans were sold and packaged into pools. The pools, in turn, are managed by a trustee who processes the payments and routes the money to holders of various securities created from them.
The New York appeals court acknowledged it could be creating trouble for those investors.
This Court is mindful of the impact that this decision may have on the mortgage industry in NewYork, and perhaps the nation. Nonetheless, the law must not yield to expediency and the convenienceof lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules thatgovern real property.
Silverberg, who represents other homeowners in foreclosure actions, was similarly unapologetic. He declined to say whether he was paying his mortgage, or intended to do so.
“The question here is some bank is coming forward saying the homeowner owes them hundreds of thousand of dollars but can’t present any evidence of ownership,” he said. “In New York, in order to evict the owner you must prove you have right to do so. This is the law and no apologies for enforcing your rights. They really pushed when they had nothing behind them.”
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