Landmark National Bank v. Kesler
Encyclopedia
On August 28, 2009, the Kansas Supreme Court
issued a landmark ruling regarding the standing, rights and interests of Mortgage Electronic Registration Systems MERS
in Landmark Nat’l Bank v. Kesler, 2009 Kan. LEXIS
834 (Aug 28, 2009). The court followed the path of the note arguments than have been espoused by national consumer advocates such as April Charney
, Max Gardner, Nye Lavalle
, Chris Hoyer, and Neal Garfield that all indispensable parties must be identified and that the actual lender identified in foreclosure
actions to protect each party's rights. The decision also addressed the role MERS
plays in providing an opaque veil that clouds not only the actual real ownership of the promissory note
, but title to the property.
In Landmark Nat’l Bank v. Kesler, MERS, the appellant sought to invoke due process
rights which it said were violated when MERS failed to get notice of the fact that their “interest” was being wiped out via a prior foreclosure it did not receive notice of. The Court said simply that MERS — or any nominee” didn’t have any interest and proves its point by reference to simple statements in the documents and the simplest of laws and interpretation of the role of MERS and the requirements of recordation. The splitting or bifurcation of the promissory note or mortgage note
and mortgage or deed of trust creates an immediate and fatal flaw in title.
The Kansas Supreme Court went on to cite several other case across the nation and stated: “When the role of a servicing agent [MERS] acting on behalf of a mortgagee is thrown into the mix, it is no wonder that it is often difficult for unsophisticated borrowers to be certain of the identity of their lenders and mortgagees.” In re Schwartz, 366 B.R. 265, 266 (Bankr. D. Mass. 2007) and then cited the Supreme Court of New York (Kings County) that said: “[T]he practices of the various MERS members, including both [the original lender] and [the mortgage purchaser], in obscuring from the public the actual ownership of a mortgage, thereby creating the opportunity for substantial abuses and prejudice to mortgagors . . . , should not be permitted to insulate [the mortgage purchaser] from the consequences of its actions in accepting a mortgage from [the original lender] that was already the subject of litigation in which [the original lender] erroneously represented that it had authority to act as mortgagee.” Johnson, 2008 WL 4182397, at *4, 873 N.Y.S.2d 234 (2008).
The court viewed MERS as simply a "straw man
" when it stated: "The relationship that MERS has (to holder of a loan) is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is “[o]ne to whom property is mortgaged: the mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting “solely” as the nominee of the lender."
The Missouri
court found that, because MERS was not the original holder of the promissory note and because the record contained no evidence that the original holder of the note authorized MERS to transfer the note, the language of the assignment purporting to transfer the promissory note was ineffective. "MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force." 284 S.W.3d at 624; see also In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (standard mortgage note language does not expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal. 2008) ("[I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner."); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. 2008) (unpublished opinion) ("[F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned. . . . MERS purportedly assigned both the deed of trust and the promissory note. . . . However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority . . . to assign the note.").
The Court challenged MERS standing in any foreclosure action when it stated: "What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. [citation omitted](”MERS is not an economic ‘beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid.”). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right."
"The mortgage instrument states that MERS functions "solely as nominee" for the lender and lender's successors and assigns. The word "nominee" is defined nowhere in the mortgage document, and the functional relationship between MERS and the lender is likewise not defined. In the absence of a contractual definition, the parties leave the definition to judicial interpretation. What meaning is this court to attach to MERS's designation as nominee for Millennia? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant—their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage "in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not." He later stated that the nominee "is the mortgagee and is holding that mortgage for somebody else." At another time he declared on the record that the nominee "is more like a trustee or more like a corporation, a trustee that has multiple beneficiaries. Now a nominee's relationship is not a trust but if you have multiple beneficiaries you don't serve one of the beneficiaries you serve the trustee of the trust. You serve the agent of the corporation."
In the end, the court summarized that MERS had no standing or right to assert a claim when it stated: "MERS's contention that it was deprived of due process in violation of constitutional protections runs aground in the shallows of its property interest. As noted in the discussion of the first issue above, MERS did not demonstrate, in fact, did not attempt to demonstrate, that it possessed any tangible interest in the mortgage beyond a nominal designation as the mortgagor. It lent no money and received no payments from the borrower. It suffered no direct, ascertainable monetary loss as a consequence of the litigation. Having suffered no injury, it does not qualify for protection under the Due Process Clause of either the United States or the Kansas Constitutions."
This case has major reverberations in that as Judge Gordon stated in the case cited above, if it was ever determined that MERS never had a right or standing to bring about a foreclosure action. Judge Gordon stated: I'm not certain with the satisfaction of mortgages that have been filed on behalf of MERS how good those are and I am not certain how good title to property is that people bought at these foreclosure sales if it turns or becomes established that MERS was indeed not only not the right party but misrepresented by way of their pleadings and affidavits that they held something they didn't own, so I'm not certain of the consequences but it seems vast."
's decision. Since the Court determined that MERS
acted as a straw man
that has no rights, is was not a real party in interest to the case, and could not assert any claims, constitutional or otherwise. The ruling, while it only sets precedent
in Kansas cases, can be cited as dicta by legal practitioners across the nation in an effort to exclude MERS' standing in bankruptcy and foreclosure cases as well as voiding default judgments or prior court judgments for fraud on the court.
Florida Appellate courts have found, contrary to the holding in Landmark, supra, that MERS has been granted through the loan documents the rights of a non-holder in due course under the UCC including the right to collect and assign the mortgage and note to another lender from the originating lender. See Taylor v Deutsche Bank, 44 So. 3d 618 (Fla. 5th DCA 2010) and the cases cited therein.
Kansas Supreme Court
The Kansas Supreme Court is the highest judicial authority in the state of Kansas. Composed of seven justices, led by Chief Justice Lawton Nuss, the Court supervises the legal profession, administers over the judicial branch, and serves as the state court of last resort in the appeals...
issued a landmark ruling regarding the standing, rights and interests of Mortgage Electronic Registration Systems MERS
MERS
Mortgage Electronic Registration Systems, Inc. is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States...
in Landmark Nat’l Bank v. Kesler, 2009 Kan. LEXIS
Lexis
Lexis may refer to:*Lexis , the total bank of words and phrases of a particular language, the artifact of which is known as a lexicon*Lexis *Lexis.com, part of the LexisNexis online information database-People with the name:...
834 (Aug 28, 2009). The court followed the path of the note arguments than have been espoused by national consumer advocates such as April Charney
April Charney
April Charney is an American consumer advocate and consumer attorney who has served Jacksonville Area Legal Aid since 2004. Charney has been at the forefront of the legal fight against home foreclosures in America and has successfully argued a number of foreclosure defense legal strategies...
, Max Gardner, Nye Lavalle
Nye Lavalle
Nye Lavalle is an American sports marketing executive, futurist, and social scientist turned consumer and investor advocate and activist. He is known for his studies on American sports, culture, charities, and media conducted during the 1980s and 1990s...
, Chris Hoyer, and Neal Garfield that all indispensable parties must be identified and that the actual lender identified in foreclosure
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
actions to protect each party's rights. The decision also addressed the role MERS
MERS
Mortgage Electronic Registration Systems, Inc. is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States...
plays in providing an opaque veil that clouds not only the actual real ownership of the promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
, but title to the property.
In Landmark Nat’l Bank v. Kesler, MERS, the appellant sought to invoke due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...
rights which it said were violated when MERS failed to get notice of the fact that their “interest” was being wiped out via a prior foreclosure it did not receive notice of. The Court said simply that MERS — or any nominee” didn’t have any interest and proves its point by reference to simple statements in the documents and the simplest of laws and interpretation of the role of MERS and the requirements of recordation. The splitting or bifurcation of the promissory note or mortgage note
Mortgage note
In the US a mortgage note is a promissory note associated with a specified mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise...
and mortgage or deed of trust creates an immediate and fatal flaw in title.
The Kansas Supreme Court went on to cite several other case across the nation and stated: “When the role of a servicing agent [MERS] acting on behalf of a mortgagee is thrown into the mix, it is no wonder that it is often difficult for unsophisticated borrowers to be certain of the identity of their lenders and mortgagees.” In re Schwartz, 366 B.R. 265, 266 (Bankr. D. Mass. 2007) and then cited the Supreme Court of New York (Kings County) that said: “[T]he practices of the various MERS members, including both [the original lender] and [the mortgage purchaser], in obscuring from the public the actual ownership of a mortgage, thereby creating the opportunity for substantial abuses and prejudice to mortgagors . . . , should not be permitted to insulate [the mortgage purchaser] from the consequences of its actions in accepting a mortgage from [the original lender] that was already the subject of litigation in which [the original lender] erroneously represented that it had authority to act as mortgagee.” Johnson, 2008 WL 4182397, at *4, 873 N.Y.S.2d 234 (2008).
The court viewed MERS as simply a "straw man
Straw man
A straw man is a component of an argument and is an informal fallacy based on misrepresentation of an opponent's position, twisting his words or by means of [false] assumptions...
" when it stated: "The relationship that MERS has (to holder of a loan) is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is “[o]ne to whom property is mortgaged: the mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting “solely” as the nominee of the lender."
The Missouri
Missouri
Missouri is a US state located in the Midwestern United States, bordered by Iowa, Illinois, Kentucky, Tennessee, Arkansas, Oklahoma, Kansas and Nebraska. With a 2010 population of 5,988,927, Missouri is the 18th most populous state in the nation and the fifth most populous in the Midwest. It...
court found that, because MERS was not the original holder of the promissory note and because the record contained no evidence that the original holder of the note authorized MERS to transfer the note, the language of the assignment purporting to transfer the promissory note was ineffective. "MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force." 284 S.W.3d at 624; see also In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (standard mortgage note language does not expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal. 2008) ("[I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner."); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. 2008) (unpublished opinion) ("[F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned. . . . MERS purportedly assigned both the deed of trust and the promissory note. . . . However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority . . . to assign the note.").
The Court challenged MERS standing in any foreclosure action when it stated: "What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. [citation omitted](”MERS is not an economic ‘beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid.”). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right."
"The mortgage instrument states that MERS functions "solely as nominee" for the lender and lender's successors and assigns. The word "nominee" is defined nowhere in the mortgage document, and the functional relationship between MERS and the lender is likewise not defined. In the absence of a contractual definition, the parties leave the definition to judicial interpretation. What meaning is this court to attach to MERS's designation as nominee for Millennia? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant—their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage "in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not." He later stated that the nominee "is the mortgagee and is holding that mortgage for somebody else." At another time he declared on the record that the nominee "is more like a trustee or more like a corporation, a trustee that has multiple beneficiaries. Now a nominee's relationship is not a trust but if you have multiple beneficiaries you don't serve one of the beneficiaries you serve the trustee of the trust. You serve the agent of the corporation."
In the end, the court summarized that MERS had no standing or right to assert a claim when it stated: "MERS's contention that it was deprived of due process in violation of constitutional protections runs aground in the shallows of its property interest. As noted in the discussion of the first issue above, MERS did not demonstrate, in fact, did not attempt to demonstrate, that it possessed any tangible interest in the mortgage beyond a nominal designation as the mortgagor. It lent no money and received no payments from the borrower. It suffered no direct, ascertainable monetary loss as a consequence of the litigation. Having suffered no injury, it does not qualify for protection under the Due Process Clause of either the United States or the Kansas Constitutions."
This case has major reverberations in that as Judge Gordon stated in the case cited above, if it was ever determined that MERS never had a right or standing to bring about a foreclosure action. Judge Gordon stated: I'm not certain with the satisfaction of mortgages that have been filed on behalf of MERS how good those are and I am not certain how good title to property is that people bought at these foreclosure sales if it turns or becomes established that MERS was indeed not only not the right party but misrepresented by way of their pleadings and affidavits that they held something they didn't own, so I'm not certain of the consequences but it seems vast."
Legal implications of decision
There are several ramifications and implications of the Kansas Supreme CourtKansas Supreme Court
The Kansas Supreme Court is the highest judicial authority in the state of Kansas. Composed of seven justices, led by Chief Justice Lawton Nuss, the Court supervises the legal profession, administers over the judicial branch, and serves as the state court of last resort in the appeals...
's decision. Since the Court determined that MERS
MERS
Mortgage Electronic Registration Systems, Inc. is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States...
acted as a straw man
Straw man
A straw man is a component of an argument and is an informal fallacy based on misrepresentation of an opponent's position, twisting his words or by means of [false] assumptions...
that has no rights, is was not a real party in interest to the case, and could not assert any claims, constitutional or otherwise. The ruling, while it only sets precedent
Precedent
In common law legal systems, a precedent or authority is a principle or rule established in a legal case that a court or other judicial body may apply when deciding subsequent cases with similar issues or facts...
in Kansas cases, can be cited as dicta by legal practitioners across the nation in an effort to exclude MERS' standing in bankruptcy and foreclosure cases as well as voiding default judgments or prior court judgments for fraud on the court.
Florida Appellate courts have found, contrary to the holding in Landmark, supra, that MERS has been granted through the loan documents the rights of a non-holder in due course under the UCC including the right to collect and assign the mortgage and note to another lender from the originating lender. See Taylor v Deutsche Bank, 44 So. 3d 618 (Fla. 5th DCA 2010) and the cases cited therein.