8.48 F. Mers

• Jurisdiction: New York

F. MERS

In an attempt to resolve issues arising from overwhelmed recording offices and increasing delays in recording documents, a number of title companies and real estate industry participants created the Mortgage Electronic Registration System, commonly known as MERS, to act as an independent third party for tracking mortgage assignments and assignment chains. MERS participants would appoint MERS as their agent and nominee for purposes of recording mortgages. Subsequent assignments among MERS participants could then be tracked electronically.

The recession that began in 2008 brought with it a rise in mortgage foreclosure actions and, correspondingly, defenses to same. Among these were defenses challenging the standing of the lender to foreclose in instances where MERS acted as the nominee for the lender. An early challenge in Bankruptcy Court questioned MERS’ “legal authority to assign a valid and enforceable interest in the subject mortgage.”¹²³¹ To foreclose a mortgage in New York, a foreclosing lender must enter into evidence the promissory note, the mortgage and evidence of default.¹²³² Further, the foreclosing party must show that, at the time the foreclosure proceeding commenced, it was the holder of the underlying promissory note (either through a written assignment or by having taken physical possession thereof).¹²³³ In In re Agard, the U.S. Bankruptcy Court for the Eastern District of New York found MERS did not have the authority to assign a mortgage where MERS could not show ownership of the underlying promissory note, notwithstanding MERS’ status of record as the mortgagee.¹²³⁴ This rule was further expounded upon by a New York State Appellate Division court in a similar holding, where the Court noted “[once] a promissory note is tendered to and accepted by an assignee, the mortgage passes as an incident to the note.”¹²³⁵ The Court then compared instances, such as with MERS, where the mortgage is transferred without the note and noted, “[a] transfer of a mortgage without the debt is a nullity, and no interest is acquired by it.”¹²³⁶ The foreclosing lender was thus found not to have standing to foreclose.¹²³⁷

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Notes:

^[1231] . In re Agard, 444 B.R. 231, 235 (E.D.N.Y. 2011).

^[1232] . See Nationstar Mtge., LLC v. Medley, 168 A.D.3d 959, 960, 93 N.Y.S.3d 69 (2d Dep’t 2019); Deutsche Bank Trust Co. Ams. v. Garrison, 147 A.D.3d 725, 726, 46 N.Y.S.3d 185 (2d Dep’t 2017); Deutsche Bank Nat’l Trust Co. v. Abdan, 131 A.D.3d 1001, 1002, 16...