By Christine Dunn, The Providence Journal, R.I.
Oct. 25--A Providence lawyer, George E. Babcock, said his entire practice is now devoted to challenging the legal standing of a private mortgage registration service, the Mortgage Electronic Registration Systems, Inc., known as MERS, to foreclose under Rhode Island law.
Formed in 1995 by the mortgage finance industry, MERS was created to increase profits and efficiency by eliminating the need to record changes in mortgage ownership at local government property registries. MERS is a corporation that also acts as a nominee for lenders and their successors.
Babcock said he wonders why local governments and county deed registries have never challenged the MERS system before, because by allowing lenders to bypass the process of recording mortgage transfers with government entities, "millions and millions" in fees to local government have been lost.
But it took the foreclosure crisis to shine the light on MERS, which some have blamed for enabling the mortgage securitization craze and the questionable lending practices that preceded the housing bust.
Despite being on the losing end of an Aug. 25 decision by Providence Superior Court Judge Michael A. Silverstein, which he has appealed to the Rhode Island Supreme Court, Babcock said he is still filing "two or three" MERS lawsuits a week for clients hoping to stop foreclosure proceedings. Babcock estimates he is pursuing a total of about 100 MERS cases.
His clients who are the plaintiffs in the Aug. 25 Providence Superior Court decision, Anthony and Stephanie Bucci, are still in their Cranston home, according to Babcock. "I'm very confident in the appeal," he said.
The defendants in the case are Lehman Brothers Bank, FSB, a federal savings bank, MERS, and Aurora Loan Services, LLC.
Judge Silverstein ruled that Rhode Island law "does not prohibit MERS from invoking the Statutory Power of Sale [foreclosure] " because "statutes should not be construed to reach an absurd result."
To rule for the Buccis, Silvertein wrote, "would be an absurd result because named mortgagees and lenders would be precluded from employing servicers to service and collect obligations secured to real estate mortgages. Clearly, the General Assembly envisioned a role for mortgage servicers in the mortgage lending industry."
MERS lawsuits have been filed in a number of states, with varying results, and case law appears to be evolving.
An Aug. 28 decision by the Kansas Supreme Court "completely undoes Judge Silverstein's ruling," Babcock said. "The tide has completely turned in favor of the homeowner."
In the Kansas case, a $93,100 second mortgage registered in MERS' name was apparently sold by Milennia Mortgage Corp. to Sovereign Bank.
The first mortgage holder, Landmark National Bank, which had a $50,000 mortgage on Boyd A. Kesler's home, foreclosed, selling the house for $87,000 and giving Kesler the proceeds after keeping what they were owed.
The court said that because Sovereign Bank failed to register its interest in the property -- the $93,100 second mortgage -- with the county clerk, it had lost the legal standing to claim its mortgage rights after the foreclosure judgment was entered.
Providence lawyer Jeffrey Gladstone, of Partridge, Snow & Hahn, represented the defendants' in the Rhode Island lawsuit brought by the Buccis.
Gladstone said the Kansas case is narrow in scope and is unlikely to influence the Rhode Island case under appeal.
Nationally, "the vast majority of the courts ... have upheld MERS' rights to foreclose," he said.
In the Rhode Island Bucci MERS case, and in most of the MERS cases, "MERS is [named as] the mortgagee ... from the very beginning" when homebuyers sign their mortgage forms, Gladstone said.
MERS spokeswoman Karmela Lejarde also downplayed the import of the Kansas ruling, which said that "the relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer."
If the courts were ultimately to strip MERS of the right to foreclose, it could throw millions of titles into question and cause massive losses for lenders, Gladstone said.
He attributed the MERS cases to "a movement, and it's a small movement" of "people looking for ways to attack the mortgage holder" and stave off foreclosures.
"They're grasping at straws," he said.
He said a number of the MERS lawsuits are brought by people who are trying to drag out the foreclosure process and stay in their houses "without even paying a dime" on their mortgage.
In addition to the legal battle against MERS, two local municipalities in Rhode Island have taken action to halt rampant foreclosures. The City of Providence established an ordinance requiring lenders to attempt to mediate and modify loans before foreclosing on a property, and Cranston is now considering a similar measure.
cdunn@projo.com
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