Bankers Hit Jackpot in Nevada, Supreme Court Rules 7-0… YES ON MERS

Mortgage bankers hit the jackpot in Nevada last week, but not while gambling at any of the state’s casinos.  The bankers’ winnings came in the form of a decision by the state’s Supreme Court on MERS, the Mortgage Electronic Registration System Inc.

Get copy of court’s decision here.

According to the mortgage bankers, MERS, is a database that tracks mortgages as they pass among different owners.  In many cases, the mortgages are packaged into mortgage-backed securities that bundle hundreds or thousands of loans.  As such, MERS eliminated the requirement that papers be filed with a county recorder every time a loan changes hands.

Borrowers say that MERS should not be allowed to foreclose because it has no interest in the loans on which it forecloses, because it hides the loan’s true owner, which makes it difficult to negotiate any sort of modification of a mortgage’s terms in the event the borrower suffers a financial hardship, and because of poor or missing records of loan ownership.

Under Nevada law, a home loan consists of a promissory note, which is the actual loan… and a deed of trust, which is the security for repayment.  The lender is supposed to hold both the note and the deed to foreclose.

MERS members, however, assign control of the deed to MERS, which makes MERS its agent… or in legal terms, a beneficiary.  No matter how many times a loan changes hands, MERS remains the agent or beneficiary, and therefore is able to act on the lender’s behalf.

Attorney Jacob Hafter, representing Nevada homeowner David Edelstein, in Edelstein v. Bank of New York Mellon, argued that once a loan has been split to have different holders of the note and deed, it is permanently flawed and cannot be used to foreclose.  But all seven justices on the high court ruled that by returning the deed to the lender that holds the note you correct any defect, and that’s precisely what occurred in Edelstein’s case.

In Edelstein’s case, MERS assigned the deed of trust to Bank of New York Mellon as trustee for Countrywide.  The court ruled that once the trust had both the promissory note and the assignment, it possessed the standing to foreclose.

The high court wrote…

“Because nothing in Nevada law prohibits MERS’ actions, we reject Edelstein’s argument.”

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