INC. v. Romaine - FORECLOSURE FRAUD

Tag Archive | "INC. v. Romaine"

High Court Opinions Anticipated MERS Suit

High Court Opinions Anticipated MERS Suit


Read the case: The Conclusion…If we could only turn back time: IN THE MATTER OF MERSCORP, INC. v. Romaine, 2005 NY Slip Op 9728 – NY: Supreme Court, Appellate Div., 2nd Dept. 2005

NYLawJournal.com-

More than five years ago, two worried judges on the New York Court of Appeals described the emerging electronic mortgage recording industry as a potential nightmare for consumers and local governments, and urged the Legislature to make sure old statutes conformed to modern realities.

But nothing was done in Albany, and the concerns raised by then Chief Judge Judith S. Kaye and current senior associate Judge Carmen Beauchamp Ciparick are now allegations in a lawsuit Attorney General Eric T. Schneiderman filed last week targeting the Mortgage Electronic Registration System (MERS) and the financial industry that created and uses it.

In recent days, as settlement discussions in the nationwide mortgage servicing agreement intensified, the banks demanded the elimination of the MERS claims as a settlement condition, but Mr. Schneiderman refused to yield.

[NYLAWJOURNAL.COM]

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Critics call Michigan Supreme Court ruling on foreclosures ‘intellectually dishonest’

Critics call Michigan Supreme Court ruling on foreclosures ‘intellectually dishonest’


I think we all can agree with this post… but those who benefit from real estate.

Where is Bill Hultman these days?

MLive-

A ruling this week by the Michigan Supreme Court put an end to some uncertainty in the real estate market, but it was a disappointment to local housing advocates.

The high court reversed an April state Court of Appeals decision that prevented the Mortgage Electronic Registration System, or MERS, from bringing foreclosures against Michigan homeowners.

The system was widely used by the lending industry to streamline the packaging and selling of mortgages as securities without recording the deeds at county offices. In that role, it also started countless foreclosure proceedings.

The appeals court ruled that MERS did not own legal title to the properties and could not be the foreclosing party. That decision called into question the validity of thousands of foreclosures across the state, wreaking havoc in the housing market. Closings were canceled and homeowners who had purchased foreclosed houses wondered whether they had clear title to the property.

[MLIVE]

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Adam Levitin | Soured on Saurman

Adam Levitin | Soured on Saurman


Credit Slips –

Elected justice moves swiftly. The Michigan Supreme Court handed down its opinion in Residential Funding Co. v. Saurman on Wednesday, a couple of weeks after oral argument. They were in a rush to get the opinion out, it seems. Unfortunately, it’s a terrible opinion. The Michigan Supreme Court reversed the appellate court to hold that MERS has the power to conduct non-judicial foreclosures (foreclosure by advertisement) in Michigan.

To reach this conclusion, the Michigan Supreme Court had to conclude that MERS had an interest in the indebtedness–that is an interest in the note.  MERS, however, expressly disclaims any interest in the note. So it took some acrobatics and legerdemain and outright tautology to get no to mean yes. Here’s how they did it:

[CREDIT SLIPS]

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Ingham County Register of Deeds, Curtis Hertel Jr. statement on Michigan Supreme Court’s MERS decision

Ingham County Register of Deeds, Curtis Hertel Jr. statement on Michigan Supreme Court’s MERS decision


“The Michigan Supreme Court decision on Mers is an embarrassment, to those of us who care about the property records of this state, and more importantly the citizens who are affected by these foreclosures. Mers created a shadow registry system that makes it impossible for individual citizens and their government officials to track who owns a mortgage. At the Michigan Chambers request, they now have the right to masquerade as a bank and take a citizen’s home . It is unfortunate that Justices Young, Markman, Zahra and Mary Beth Kelly decided to side with special interest groups instead of Michigan citizens.“

– Curtis Hertel Jr.

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MI Supreme Court “Persons or Groups may move the Court for permission to file briefs amicus curiae, to be filed no later than October 21, 2011 for RESIDENTIAL FUNDING CO. LLC v. SAURMAN

MI Supreme Court “Persons or Groups may move the Court for permission to file briefs amicus curiae, to be filed no later than October 21, 2011 for RESIDENTIAL FUNDING CO. LLC v. SAURMAN


RESIDENTIAL FUNDING CO., L.L.C., f/k/a RESIDENTIAL FUNDING CORPORATION, Plaintiff-Appellant,
v.
GERALD SAURMAN, Defendant-Appellee.
BANK OF NEW YORK TRUST COMPANY, Plaintiff-Appellant,
v.
COREY MESSNER, Defendant-Appellee.

.

No. 143178-9 & (104)(108)(109)(111)(112)(113)(114).

Supreme Court of Michigan.

September 28, 2011.

Robert P. Young, Jr., Chief Justice, Michael F. Cavanagh, Marilyn Kelly, Stephen J. Markman, Diane M. Hathaway, Mary Beth Kelly, Brian K. Zahra, Justices.

Order

On order of the Court, the motion for expedited consideration of the application for leave to appeal is GRANTED. The application for leave to appeal the April 21, 2011 judgment of the Court of Appeals is considered, and we direct the Clerk to schedule oral argument, during the November 2011 session, on whether to grant the application or take other action. MCR 7.302(H)(1). At oral argument, the parties shall address whether Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee and nominee of the note holder is an “owner … of an interest in the indebtedness secured by the mortgage” within the meaning of MCL 600.3204(1)(d), such that it was permitted to foreclose by advertisement. The parties may file supplemental briefs no later than October 21, 2011. They should not submit mere restatements of their application papers.

The motions of the Michigan Association of Realtors, Legal Services Association of Michigan/Michigan Poverty Law Program/State Bar of Michigan Consumer Law Section Council/National Consumer Law Center, State Bar of Michigan Real Property Law Section, Mortgage Electronic Registration Systems, Inc./Mortgage Bankers Association, Michigan Bankers Association/Michigan Mortgage Lenders Association, and the American Land Title Association for leave to file brief amicus curiae are GRANTED. Other persons or groups interested in the determination of the issues presented in this case may move the Court for permission to file briefs amicus curiae, to be filed no later than October 21, 2011.

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MERS legal case delaying home sales in Jackson, Possibly headed to State Supreme Court

MERS legal case delaying home sales in Jackson, Possibly headed to State Supreme Court


Michigan law states that whoever forecloses on a property must own the debt, and MERS did not.

MLive-

A family was expecting to close on a house on a Friday. On Thursday night, the sale had to be scuttled.

Fifteen to 20 pending home sales fell apart that one Jackson title company was preparing to handle. Banks started pulling homes for sale off the market.

First, Jackson County’s real estate market suffered from the foreclosure crisis. Lately, it has been going through another convulsion due to a little-known company that has its name all over mortgage documents in Jackson and around the state.

Continue reading [MLIVE]

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WHOA! MERS Ruling Forces HUD to Reforeclose on Michigan REO

WHOA! MERS Ruling Forces HUD to Reforeclose on Michigan REO


What about those already sold?


Mortgage National News-

The Department of Housing and Urban Development will re-foreclose on all its REO properties in Michigan where the original foreclosure was conducted in the name of MERS using the state’s nonjudicial process.

read the ruling below…

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

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[VIDEO] MI Rep. Hansen Clarke Discusses Making Lenders Prove Ownership to Foreclose, Supports $100M Class Action Against MERS

[VIDEO] MI Rep. Hansen Clarke Discusses Making Lenders Prove Ownership to Foreclose, Supports $100M Class Action Against MERS


Make this go VIRAL!!

Contact: https://hansenclarke.house.gov/contact-me

Uploaded by on May 16, 2011

Rep. Hansen Clarke discusses home foreclosures on WJR’s The Law Show

[image: VoiceofDetroit.net]

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MICHIGAN CLASS ACTION | DEPAUW v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. “MERS”

MICHIGAN CLASS ACTION | DEPAUW v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. “MERS”


UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

* * * * * * * *

MARLYA DEPAUW and SHARON & TERRANCE LAFRANCE, Individually and as Representatives of a Class of Individuals Similarly Situated,
Plaintiffs,

v.

MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.
c/o The Corporation Trust Company,
as Statutory Agent
Corporation Trust Center
1209 Orange Street
New Castle, DE 19801,
Defendant.

Case Number: 2:11-cv-12032

JUDGE:
Magistrate Judge:


______________________________________________________________________________

CLASS ACTION COMPLAINT WITH DEMAND FOR JURY
TRIAL ENDORSED HEREON

EXCERPT:

16. In many of the actions filed by MERS, mortgagor homeowners responded by filing pleadings arguing that MERS did not have the capacity to foreclose by advertisement as they did not own or have any interest in the underlying indebtedness.

17. In response to these challenges, MERS would normally answer by providing confusing loan documents and claiming an interest in the underlying debt, even though they knew this was not true and that they were not complying with the requirements of MCL 600.3201, et seq.

18. Even in the face of these challenges, MERS did, and continued for a period of years, to knowingly, fraudulently and illegally foreclose using a State law upon which they had no authority or right to utilize.

19. In these cases, MERS lacked the authority to foreclose by advertisement pursuant to MCL 600.3201, et seq., as MERS was never either the owner of the underlying indebtedness or loan and was not the servicing agent of the mortgage.

20. On April 21, 2011, the State of Michigan, Court of Appeals in the consolidated case of Residential Funding Co., LLC v. Gerald Saurman, (Residential Funding Co, LLC v. Saurman, 290248, 291443 (MICA)), issued a ruling stating in pertinent part that in cases where MERS did not own the underlying indebtedness, did not own an interest in the indebtedness secured by the mortgage, or did not service the mortgage, MERS was therefore unable to comply with the statutory requirements of MCL 600.3201(1)(d), and subsequently had no right to foreclose by advertisement.

21. The Court of Appeals continued, and ruled that in those such cases where MERS did foreclose by advertisement upon the foregoing conditions rendered those foreclosure proceedings void ab initio.

Continue below…

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Merscorp Mortgage Registry Sued Over Non-Judicial Foreclosures in Michigan

Merscorp Mortgage Registry Sued Over Non-Judicial Foreclosures in Michigan


Now we SAW this baby coming across miles away, and this will not be the last. Just yesterday, Fannie said MERS poses a significant risk…no DOUBT!

BLOOMBERG-

Mortgage Electronic Registration Systems Inc. “illegally prosecuted” non-judicial foreclosures in Michigan and owes more than $100 million to people who lost their homes, lawyers for three homeowners said in a lawsuit.

The homeowners said Merscorp Inc.’s MERS, which runs an electronic registry of mortgages, used Michigan’s so-called foreclosure by advertisement process illegally and “misappropriated” their homes. Any foreclosures by MERS using this process in Michigan should be voided, they said in their complaint filed in federal court in Detroit.

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Title agencies running scared, canceling closings after Michigan Appeals Court rules against MERS

Title agencies running scared, canceling closings after Michigan Appeals Court rules against MERS


DETROIT FREE PRESS-

Local Realtors say title companies are canceling closings on some bank-owned homes after a recent Michigan Court of Appeals decision made it more risky to insure them.

Late last month, the court ruled the Mortgage Electronic Registration System lacks authority to foreclose by advertisement in Michigan. The system is an electronic record-keeper of mortgages.

read the ruling below…

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

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[VIDEO] Michigan Court of Appeals ruling could halt some foreclosures due to MERS

[VIDEO] Michigan Court of Appeals ruling could halt some foreclosures due to MERS


See link below for appeal ruling of 2 consolidated cases…

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

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Homeowners, counties battle bank loan system

Homeowners, counties battle bank loan system


New York Post-

The $2 billion battle has begun.

When the Suffolk County Legislature meets again next week, the county’s share of an estimated $2 billion in fees big banks saved with their electronic record-keeping system — bypassing paper mortgage records in county clerks’ offices — will top the agenda for legislator Ed Romaine.

In his previous job as county clerk, Romaine fought in court against the Mortgage Electronic Registration System, or MERS, for several years in the early 2000s and lost. But he’s taking another run at it now as the firm’s shaky legal foundation is cracking and so many ordinary homeowners are suffering from questionable foreclosure actions involving MERS.


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Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose


H/T to MFI-Miami


S T A T E  O F  M I C H I G A N

C O U R T  O F  A P P E A L S

RESIDENTIAL FUNDING CO, LLC, f/k/a

RESIDENTIAL FUNDING CORPORATION,

Plaintiff-Appellee,

v.

GERALD SAURMAN, LC

_______________________________

BANK OF NEW YORK TRUST COMPANY,

v.

COREY MESSNER, LC

Before: WILDER, P.J., and SERVITTO and SHAPIRO, JJ.

SHAPIRO, J.

These consolidated cases each involve a foreclosure instituted by Mortgage Electronic Registration System (MERS), the mortgagee in both cases. The sole question presented is whether MERS is an entity that qualifies under MCL 600.3204(1)(d) to foreclose by advertisement on the subject properties, or if it must instead seek to foreclose by judicial process. We hold that MERS does not meet the requirements of MCL 600.3204(1)(d) and, therefore, may
not foreclose by advertisement.

I. BASIC FACTS AND PROCEDURAL HISTORY

In these cases, each defendant purchased property and obtained financing for their respective properties from a financial institution. The financing transactions involved loan documentation (“the note”) and a mortgage security instrument (the “mortgage instrument”). The original lender in both cases was Homecoming Financial, LLC.

Each note provided for the amount of the loan, the interest rate, methods and requirements of repayment, the identity of the lender and borrower and the like. The mortgage instrument provided for rights of foreclosure of the property by the mortgagee in the event of default on the loan. The lender, though named as the lender in the mortgage security instrument, was not designated therein as the mortgagee. Instead, the mortgage stated that the Mortgage Electronic Registration Systems, Inc (“MERS”) “is the mortgagee under this Security Instrument” and it contained several provisions addressing the relationship between MERS and the lender including:

“MERS” is Mortgage Electronic Registration Systems Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this Security Instrument.

* * *

This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, warrant, grant and convey to MERS (solely as nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of MERS, with the power of sale, the following described property . . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

Defendants defaulted on their respective notes. Thereafter, MERS began non-judicial foreclosures by advertisement as permitted under MCL 600.3201, et seq., purchased the property at the subsequent sheriff’s sales and then quit-claimed the property to plaintiffs as respective successor lenders. When plaintiffs subsequently began eviction actions, defendants challenged the respective foreclosures as invalid, asserting, inter alia, that MERS did not have authority under MCL 600.3204(1)(d) to foreclose by advertisement because it did not fall within any of the three categories of mortgagees permitted to do so under that statute. The district courts denied defendants’ assertions that MERS lacked authority to foreclose by statute and their conclusions were affirmed by the respective circuit courts on appeal. We granted leave to appeal in both cases.1

II. ANALYSIS
A. STANDARD OF REVIEW

We review de novo decisions made on motions for summary disposition,2 Coblentz v Novi, 475 Mich 558, 567; 719 NW2d 73 (2006), as well as a circuit court’s affirmance of a district court’s decision on a motion for summary disposition. First of America Bank v Thompson, 217 Mich App 581, 583; 552 NW2d 516 (1996). We review all affidavits, pleadings, depositions, admissions and other evidence submitted by the parties in the light most favorable to the party opposing the motion, in this case, defendants. Coblentz, 475 Mich at 567-568.

We also review de novo questions of statutory interpretation and application. Id. at 567. The primary goal of statutory interpretation is to give effect to the intent of the Legislature. This determination is accomplished by examining the plain language of the statute. Although a statute may contain separate provisions, it should be read as a consistent whole, if possible, with effect given to each provision. If the statutory language is unambiguous, appellate courts presume that the Legislature intended the meaning plainly expressed and further judicial construction is neither permitted nor required. Statutory language should be reasonably construed, keeping in mind the purpose of the statute. If reasonable minds could differ regarding the meaning of a statute, judicial construction is appropriate. When construing a statute, a court must look at the object of the statute in light of the harm it is designed to remedy and apply a reasonable construction that will best accomplish the purpose of the Legislature. [ISB Sales Co v Dave’s Cakes, 258 Mich App 520, 526-527; 672 NW2d 181 (2003) (citations omitted).]

B. MERS BACKGROUND

The parties, in their briefs and at oral argument, explained that MERS was developed as a mechanism to provide for the faster and lower cost buying and selling of mortgage debt. Apparently, over the last two decades, the buying and selling of loans backed by mortgages after their initial issuance had accelerated to the point that those operating in that market concluded that the statutory requirement that mortgage transfers be recorded was interfering with their ability to conduct sales as rapidly as the market demanded. By operating through MERS, these financial entities could buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even though the loans were changing hands. MERS would purportedly track the mortgage sales internally so as to know for which entity it was holding the mortgage at any given time and, if foreclosure was necessary, after foreclosing on the property, would quit claim the property to whatever lender owned the loan at the time of foreclosure.

As described by the Court of Appeals of New York, in MERSCORP, Inc v Romaine, 8 NY3d 90, 96; 861 NE2d 81(2006):

In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.

The initial MERS mortgage is recorded in the County Clerk’s office with “Mortgage Electronic Registration Systems, Inc.” named as the lender’s nominee or mortgagee of record on the instrument. During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (MERS assignments), but these assignments are not publicly recorded; instead they are tracked electronically in MERS’s private system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the mortgage. [Footnotes omitted.]

The sole issue in this case is whether MERS, as mortgagee, but not noteholder, could exercise its contractual right to foreclose by means of advertisement.

C. MCL 600.3204(1)(d)

Foreclosure by advertisement is governed by MCL 600.3204(1)(d), which provides, in pertinent part:

[A] party may foreclose a mortgage by advertisement if all of the following circumstances exist:

* * *

(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.


The parties agree that MERS is neither the owner of the indebtedness, nor the servicing agent of the mortgage. Therefore, MERS lacked the authority to foreclose by advertisement on defendants’ properties unless it was “the owner . . . of an interest in the indebtedness secured by the mortgage.” MCL 600.3204(1)(d).

The question, then, is what being the “owner . . . of an interest in the indebtedness secured by the mortgage” requires. According to Black’s Law Dictionary, to “own” means “[t]o have good legal title; to hold as property; to have a legal or rightful title to.” Black’s Law Dictionary (6th ed). That text defines an “interest” as “the most general term that can be employed to denote a right, claim, title or legal share in something”. “Indebtedness” is defined as “[t]he state of being in debt . . . the owing of a sum of money upon a certain and express agreement.”

In these cases, a promissory note was exchanged for loans of $229,950 and $207,575, respectively. Thus, reasonably construing the statute according to its common legal meaning, ISB Sales Co, 258 Mich App at 526-527, the defendants’ indebtedness is solely based upon the notes because defendants owed monies pursuant to the terms of the notes. Consequently, in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in the note.

Plaintiffs’ suggestion that an “interest in the mortgage” is sufficient under MCL 600.3204(d)(1) is without merit. This is necessarily so, as the indebtedness, i.e., the note, and the mortgage are two different legal transactions providing two different sets of rights, even though they are typically employed together. A “mortgage” is “[a] conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms.” The mortgagee has an interest in the property. See Citizens Mtg Corp v Mich Basic Prop Ins Assoc, 111 Mich App 393, 397; 314 NW2d 635 (1981) (referencing the “mortgagee’s interests in the property”). The mortgagor covenants, pursuant to the mortgage, that if the money borrowed under the note is not repaid, the mortgagee will retain an interest in the property. Thus, unlike a note, which evidences a debt and represents the obligation to repay, a mortgage represents an interest in real property contingent on the failure of the borrower to repay the lender. The indebtedness, i.e., the note, and the mortgage are two different things.

Applying these considerations to the present case, it becomes obvious that MERS did not have the authority to foreclose by advertisement on defendants’ properties. Pursuant to the mortgages, defendants were the mortgagors and MERS was the mortgagee. However, it was the plaintiff lenders that lent defendants money pursuant to the terms of the notes. MERS, as mortgagee, only held an interest in the property as security for the note, not an interest in the note itself. MERS could not attempt to enforce the notes nor could it obtain any payment on the loans on its own behalf or on behalf of the lender. Moreover, the mortgage specifically clarified that, although MERS was the mortgagee, MERS held “only legal title to the interest granted” by defendants in the mortgage.3 Consequently, the interest in the mortgage represented, at most, an interest in defendants’ properties. MERS was not referred to in any way in the notes and only Homecomings held the notes. The record evidence establishes that MERS owned neither the notes, nor an interest, legal share, or right in the notes. The only interest MERS possessed was in the properties through the mortgages. Given that the notes and mortgages are separate documents, evidencing separate obligations and interests, MERS’ interest in the mortgage did not give it an interest in the debt.

Moreover, plaintiffs’ analysis ignores the fact that the statute does not merely require an “interest” in the debt, but rather that the foreclosing party own that interest. As noted above, to own means “to have good legal title; to hold as property; to have a legal or rightful title to.” None of these terms describes MERS’ relationship to the note. Plaintiffs’ claim that MERS was a contractual owner of an interest in the notes based on the agreement between MERS and the lenders misstates the interests created by that agreement. Although MERS stood to benefit if the debt was not paid—it stood to become the owner of the property—it received no benefit if the debt was paid. MERS had no right to possess the debt, or the money paid on it. Likewise, it had no right to use or convey the note. Its only “right to possess” was to possess the property if and when foreclosure occurred. Had the lender decided to forgive the debt in the note, MERS would have had no recourse; it could not have sued the lender for some financial loss. Accordingly, it owned no financial interest in the notes. Indeed, it is uncontested that MERS is wholly without legal or rightful title to the debt and that there are no circumstances under which it is entitled to receive any payments on the notes.

The dissent relies on the language in the mortgage instrument to suggest a contractual basis to find that MERS has an ownership interest in the loan. However, the fact that Homecomings gave MERS authority to take “any action required of the Lender” did not transform MERS into an owner of an interest in the notes. Trustees have the authority to take action on behalf of a trust; they can even be authorized to take “any” action. Nevertheless, such authority does not give them an ownership interest in the trust. Moreover, the provision on which the dissent relies (but does not fully quote) contains language limiting MERS to taking action on behalf of the lender’s equitable interest in the mortgage instrument.4 The relevant language provides that the borrower “understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument” (emphasis added) and gives MERS “the right: to exercise any or all of those interests . . . and to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument . . . .” (emphasis added). Thus, the contract language expressly limits the interests MERS owns to those granted in the mortgage instrument and limits MERS’ right to take action to those actions related to the mortgage instrument. Nothing in this language permits MERS to take any action with respect to the debt, or provides it any interest therein.

Finally, even assuming that the contract language did create such a right, Homecomings cannot grant MERS the authority to take action where the statute prohibits it. Regardless of whether Homecomings would like MERS to be able to take such action, it can only grant MERS the authority to take actions that our Legislature has statutorily permitted. Where the Legislature has limited the availability to take action to a specified group of individuals, parties cannot grant an entity that falls outside that group the authority to take such actions. Here, the Legislature specifically requires ownership of an interest in the note before permitting foreclosure by advertisement.

The contention that the contract between MERS and Homecomings provided MERS with an ownership interest in the note stretches the concept of legal ownership past the breaking point. While the term may be used very loosely in some popular contexts, such as the expression to “own a feeling,” such use refers to some subjective quality or experience. We are confident that such a loose and uncertain meaning is not what the Legislature intended. Rather, the Legislature used the word “owner” because it meant to invoke a legal or equitable right of ownership. Viewed in that context, although MERS owns the mortgage, it owns neither the debt nor an interest in any portion of the debt, and is not a secondary beneficiary of the payment of the debt.5

The dissent’s conclusion, that MERS owns an interest in the note because whether it ultimately receives the property depends on whether the note is paid, similarly distorts the term “interest” from a legal term of art to a generalized popular understanding of the word. It may be that MERS is concerned with (i.e., interested in) whether the loans are paid because that will define its actions vis-à-vis the properties, but being concerned about whether someone pays his loan is not the same as having a legal right, or even a contingent legal right, to those payments.

Plaintiffs are mistaken in their suggestion that our conclusion that MERS does not have “an interest in the indebtedness” renders that category in the statute nugatory. We need not determine the precise scope of that category, but, by way of example, any party to whom the note has been pledged as security by the lender has “an interest in the indebtedness” because, under appropriate circumstances, it owns the right to the repayment of that loan.

Plaintiffs also argue that MERS had the authority to foreclose by advertisement as the agent or nominee for Homecomings, who held the note and an equitable interest in the mortgage. However, this argument must also fail under the statute because the statute explicitly requires that, in order to foreclose by advertisement, the foreclosing party must possess an interest in the indebtedness. MCL 600.3204(1)(d). It simply does not permit foreclosure in the name of an agent or a nominee. If the Legislature intended to permit such actions, it could have easily included “agents or nominees of the noteholder” as parties that could foreclose by advertisement.Indeed, had the Legislature intended the result suggested by plaintiffs, it would have merely had to delete the word “servicing.” The law is clear that this Court must “avoid construction that would render any part of the statute surplusage or nugatory.” Wickens v Oakwood Healthcare Sys, 465 Mich 53, 60; 631 NW2d 686 (2001). Thus, the Legislature’s choice to permit only servicing agents and not all agents to foreclose by advertisement must be given effect.

Similarly, we reject plaintiffs’ reliance on Jackson v Mortgage Electronic Registration Sys, Inc, 770 NW2d 487 (Minn, 2009). Jackson, a Minnesota case, is inapplicable because it interprets a statute that is substantially different from MCL 600.3204. The statute at issue in Jackson specifically permits foreclosure by advertisement if “a mortgage is granted to a mortgagee as nominee or agent for a third party identified in the mortgage, and the third party’s successors and assigns.” Id. at 491. Thus, the Minnesota statute specifically provides for foreclosure by advertisement by entities that stand in the exact position that MERS does here. Indeed, the Minnesota statute is “frequently called ‘the MERS statute.’” Id. at 491. Our statute, MCL 600.3204(1)(d) makes no references to nominees or agents. Rather, it requires that the party foreclosing be either the mortgage servicer or have an ownership interest in the indebtedness. The Jackson statute also revolves around the mortgage, unlike MCL 600.3204(1)(d), which uses the term indebtedness, which, as discussed previously, is a reference to the note, not the mortgage. Thus, Jackson has no application to the case at bar. Moreover, the Minnesota statute demonstrates that if our Legislature had intended to allow MERS to foreclose by advertisement, they could readily have passed a statute including language like that included in Minnesota.

D. ANALYSIS BEYOND THE LANGUAGE OF THE STATUTE

Plaintiffs suggest that, despite the plain language of the statute, the Legislature did not create three discrete categories of entities that could foreclose by advertisement. Instead, plaintiffs assert that the Legislature envisioned a continuum of entities: those that actually own the loan, those that service the loan, and some ill-defined category which might be called “everything in between.” However, courts may not “rewrite the plain statutory language and substitute our own policy decisions for those already made by the Legislature.” DiBenedetto v West Shore Hosp, 461 Mich 394, 405; 605 NW2d 300 (2000). Thus, without any language in the statute providing for a “continuum,” let alone an analysis of what it constitutes, we find no merit in this position.

Plaintiffs also raise a straw man argument by citing this Court’s decision in Davenport v HSBC Bank USA, 275 Mich App 344; 739 NW2d 383 (2007) where we observed that “[o]ur Supreme Court has explicitly held that ‘[o]nly the record holder of the mortgage has the power to foreclose’ under MCL 600.3204.” Davenport, 275 Mich App at 347, quoting Arnold v DMR Financial Services, Inc (After Remand), 448 Mich 671, 678; 532 NW2d 852 (1995). However, the facts in Davenport do not reflect that the party who held the note was a different party than the party who was the mortgagee. Davenport, 275 Mich App at 345. Indeed, the fact that the Court used the term “mortgage”  interchangeably with “indebtedness,” id. at 345-347, rather than distinguishing the two terms, indicates that the same party held both the note and the mortgage. Because the instant cases involve a situation where the noteholder and mortgage holder are separate entities, the general proposition set forth in Davenport does not apply. There is nothing in Davenport holding that a party that owns only the mortgage and not the note has an ownership interest in the debt. 6
We also note that Arnold, the Supreme Court case relied upon in Davenport, was interpreting a previous version of MCL 600.3204, which was substantially revised when the Legislature adopted the version we must apply in this case. The statute as it existed when Arnold was decided included a provision stating:

To entitle any party to give a notice as hereinafter prescribed, and to make such a foreclosure, it shall be requisite:

* * *

(3) That the mortgage containing such power of sale has been duly recorded; and if it shall have been assigned that all the assignments thereof shall have been recorded. [Arnold, 448 Mich at 676.]

This requirement, that a noteholder could only foreclose by advertisement if the mortgage they hold is duly recorded, is no longer part of the statute and does not apply in this case. The version of the statute interpreted in Arnold also lacked the language, later adopted, and operative in this case, specifically permitting foreclosure by advertisement of the owner of the note. Moreover, the language the Legislature chose to adopt in the amended language appears to reflect an intent to protect borrowers from having their mortgages foreclosed upon by advertisement by those who did not own the note because it would put them at risk of being foreclosed but still owing the noteholder the full amount of the loan.

Under MCL 440.3602, an instrument is only discharged when payment is made “to a person entitled to enforce the instrument.” Those parties listed in MCL 600.3204(1)(d)—the servicer, the owner of the debt, or someone owning an interest in the debt—would all be persons entitled to enforce the instrument that reflects the indebtedness. As previously noted, MERS is not entitled to enforce the note. Thus, if MERS were permitted to foreclose on the properties, the borrowers obligated under the note would potentially be subject to double-exposure for the debt.
That is, having lost their property to MERS, they could still be sued by the noteholder for the amount of the debt because MERS does not have the authority to discharge the note. MERS members may agree to relinquish the right of collection once foreclosure occurs, but even if they were to do so within MERS, that would not necessarily protect the borrower in the event a lender violated that policy or the note was subsequently transferred to someone other than the lender.7

These risks are, however, not present in a judicial foreclosure. MCL 600.3105(2) provides:

After a complaint has been filed to foreclose a mortgage on real estate or land contract, while it is pending and after a judgment has been rendered upon it, no separate proceeding shall be had for the recovery of the debt secured by the mortgage, or any part of it, unless authorized by the court.

Thus, once a judicial foreclosure proceeding on the mortgage has begun, a subsequent action on the note is prohibited, absent court authorization, thereby protecting the mortgagor from double recovery. See Church & Church Inc v A-1 Carpentry, 281 Mich App 330, 341-342; 766 NW2d 30 (2008), aff’d in part, vacated in part, and aff’d on other grounds in part, 483 Mich 885 (2009); United States v Leslie, 421 F2d 763, 766 (CA6, 1970) (“[I]t is the purpose of the statute to force an election of remedies which if not made would create the possibility that the mortgagee could foreclose the mortgage and at the same time hold the maker of the note personally liable for the debt.”).

Given that this risk of double-exposure only occurs where the mortgage holder and the noteholder are separate, the Legislature limited foreclosure by advertisement to those parties that were entitled to enforce the debt instrument, resulting in an automatic credit toward payment on the instrument in the event of foreclosure.8

While MERS seeks to blur the lines between itself and the lenders in this case in order to position itself as a party that may take advantage of the restricted tool of foreclosure by advertisement, it has, in other cases, sought to clearly define those lines in order to avoid the responsibilities that come with being a lender. For example, in MERS v Neb Dep’t of Banking and Fin, 270 Neb 529; 704 NW2d 784 (2005), the Nebraska Department of Banking and Finance asserted that MERS was a mortgage banker and, therefore, subject to licensing and registration requirements. Id. at 530. MERS successfully maintained that it had nothing to do with the loans and did not even have an equitable interest in the property, holding only “legal title to the interests granted by Borrower.” Id. at 534. The court accepted MERS argument that it is not a lender, but merely a shell designed to make buying and selling of loans easier and faster by disconnecting the mortgage from the loan. Id. at 535. Having separated the mortgage from the loan, and disclaimed any interest in the loan in order to avoid the legal responsibilities of a lender, MERS nevertheless claims in the instant case that it can employ the rights of a lender by foreclosing in a manner that the statute affords only to those mortgagees who also own an interest in the loan. But as the Nebraska court stated in adopting MERS argument, “MERS has no independent right to collect on any debt because MERS itself has not extended any credit, and none of the mortgage debtors owe MERS any money.” Id. at 535

The separation of the note from the mortgage in order to speed the sale of mortgage debt without having to deal with all the “paper work” of mortgage transfers appears to be the sole reason for MERS’ existence. The flip side of separating the note from the mortgage is that it can slow the mechanism of foreclosure by requiring judicial action rather than allowing foreclosure by advertisement. To the degree there were expediencies and potential economic benefits in separating the mortgagee from the noteholder so as to speed the sale of mortgagebased debt, those lenders that participated were entitled to reap those benefits. However, it is no less true that, to the degree that this separation created risks and potential costs, those same lenders must be responsible for absorbing the costs.

III. CONCLUSION

Defendants were entitled to judgment as a matter of law because, pursuant to MCL 600.3204(1)(d), MERS did not own the indebtedness, own an interest in the indebtedness secured by the mortgage, or service the mortgage. MERS’ inability to comply with the statutory requirements rendered the foreclosure proceedings in both cases void ab initio. Thus, the circuit courts improperly affirmed the district courts’ decisions to proceed with eviction based upon the
foreclosures of defendants’ properties.

In both Docket No. 290248 and 291443, we reverse the circuit court’s affirmance of the district court’s orders, vacate the foreclosure proceedings, and remand for further proceedings consistent with this opinion. We do not retain jurisdiction. Defendants, as the prevailing parties, may tax costs. MCR 7.219(A).

/s/ Douglas B. Shapiro
/s/ Deborah A. Servitto

Footnotes

1 Residential Funding Co, LLC v Saurman, unpublished order of the Court of Appeals, entered May 15, 2009 (Docket No. 290248); Bank of New York Trust Co v Messner, unpublished order of the Court of Appeals, entered July 29, 2009 (Docket No. 291443).

2 In Docket No. 290248, the district court granted summary disposition under MCR 2.116(C)(10). In Docket No. 291443, the district court granted summary disposition under MCR 2.116(I)(2) (“If it appears to the court that the opposing party, rather than the moving party, is entitled to judgment, the court may render judgment in favor of the opposing party.”).

3 We note that, in these cases, MERS disclaims any interest in the properties other than the legal right to foreclose and immediately quitclaim the properties to the true owner, i.e., the lender.

4 Though the lenders do not hold legal title to the mortgage instrument, they do have an equitable interest therein. See Alton v Slater, 298 Mich 469, 480; 299 NW 149 (1941); Atwood v Schlee, 269 Mich 322; 257 NW 712 (1934). The lender’s equitable interest in the mortgage does not, however, translate into an equitable interest for MERS in the loan.

5 The dissent’s analogy between MERS’ ability to “own an interest” in the note and an easementholder’s ownership of an interest in land without owning the land is unavailing. An easement holder owns rights to the land that even the landholder cannot infringe upon or divest him of, see Dobie v Morrison, 227 Mich App 536, 541; 575 NW2d 817 (1998) (noting that a fee owner cannot use the burdened land in any manner that would interfere with the easement holders’ rights), while the interest the dissent contends MERS “owns” would be equal to or less than that of the noteholder and the noteholder could completely divest MERS of the alleged interest by forgiving the note without MERS having any recourse. Accordingly, the analogy fails.

6 In addition, while we reject plaintiffs’ overly broad reading of Davenport for the reasons just stated, we note that even under that reading, plaintiffs would merely have to obtain assignment of the mortgage from MERS prior to initiating foreclosure proceedings.

7 The dissent’s observation that, had Homecomings remained the mortgagee, it would have had the right to foreclose by advertisement does not change the outcome because the statutory language provides that it is Homecomings’ additional status as the noteholder that would give it that right. The question before us is whether a mortgagee that is not a noteholder has the right to foreclose by advertisement.

8 The dissent’s assertion that MCL 600.3105(2) provides for an election of remedies that prevents this double recovery is erroneous, because that statute governs only judicial foreclosures, not foreclosures by advertisement. MCL 600.3105(2) requires the filing of a complaint, something that does not occur in foreclosure by advertisement. Absent the complaint, there is no time during which a complaint would be “pending” or any judgment that could be “rendered upon it” that would prohibit the filing of any “separate proceeding . . . for the recovery of the debt secured by the mortgage.” See also Cheff v Edwards, 203 Mich App 557, 560; 513 NW2d 439 (1994) (holding that “foreclosure by advertisement is not a judicial action”).  Consequently, the prohibitions expressed in MCL 600.3105(2) would not apply to foreclosure by advertisement and, therefore, would not protect borrowers from double recovery is MERS were permitted to foreclose by advertisement.

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[VIDEO] NBC Discusses MERS, Counties Seek Millions From Mortgage Giant

[VIDEO] NBC Discusses MERS, Counties Seek Millions From Mortgage Giant


MERS under fire for unpaid fees

By CHRIS GLORIOSO
Updated 7:08 AM EST, Tue, Mar 8, 2011

Most Americans have never heard of it, but this mortgage industry holds interests in 50 percent of all U.S. home loans.

No, not Fannie Mae, or Freddie Mac either.

Mortgage Electronic Registration Systems, otherwise known as MERS, is a private firm that tracks ownership in hundreds of thousands of home loans.  The computerized network allows banks to buy and sell mortgages without having to record the transfers at the county level.

An added bonus for the banks is the avoidance of county fees.  When MERS is used to turn a regular mortgage into an investment, financial institutions don’t pay “recording fees,” which are usually small charges of between $50 and $100, to the counties where the underlying properties are physically located.

Full Article HERE

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Posted in STOP FORECLOSURE FRAUDComments (1)

In the Matter of Merscorp, Inc., et al., Respondents, v Edward P. Romaine, & c., et al., Appellants, et al., Defendant.

In the Matter of Merscorp, Inc., et al., Respondents, v Edward P. Romaine, & c., et al., Appellants, et al., Defendant.


NEW YORK COURT OF APPEALS

2006 NY Int. 167


This opinion is uncorrected and subject to revision before publication in the Official Reports.


2006 NY Slip Op 09500

Decided on December 19, 2006

No. 179

In the Matter of Merscorp, Inc., et al., Respondents,

v

Edward P. Romaine, & c., et al., Appellants, et al., Defendant.

Richard C. Cahn, for appellants.

Charles C. Martorana, for respondents.

Mortgage Bankers Association; American Land Title

Association; Federal National Mortgage Association et al.;

South Brooklyn Legal Services et al.; County Clerks of the

Counties of Albany, & c., amici curiae.

PIGOTT, J.

We are asked to decide on this appeal whether the Suffolk County Clerk 1 is compelled to record and index mortgages, assignments of mortgage and discharges of mortgage, which name Mortgage Electronic Registration Systems, Inc. the lender’s nominee or mortgagee of record.

Petitioners, Merscorp, Inc. and Mortgage Electronic Registration Systems, Inc.(collectively “MERS”), commenced this hybrid proceeding in the nature of mandamus to compel the Clerk to record and index the instruments, and to declare them acceptable for recording and indexing.

Supreme Court denied in part petitioners’ motion for summary judgment and granted in part the cross-motion of respondents, the Suffolk County Clerk and the County of Suffolk (collectively “the County”), holding that although the Clerk must record and index the MERS mortgage when presented, the Clerk may refuse to record a MERS assignment and discharge, because those instruments violate the “factual mandates” of section 321 (3) of the Real Property Law.

The Appellate Division reversed so much of Supreme Court’s ruling as relates to the assignments and discharges, finding “no valid distinction between MERS mortgages and MERS assignments and discharges for purposes of recording and indexing” (24 AD3d 673 [2nd Dept 2005]). This Court granted leave and we now affirm.

In 1993, the MERS system was created by several large participants in the real estate mortgage industry 2 to track ownership interests in residential mortgages. Mortgage lenders and other entities,3 known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.

The initial MERS mortgage is recorded in the County Clerk’s office with “Mortgage Electronic Registration Systems, Inc.” named as the lender’s nominee or mortgagee of record on the instrument. During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (“MERS assignments”), but these assignments are not publicly recorded; instead they are tracked electronically in MERS’s private system 4. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the mortgage.

In April 2001, in response to an informal opinion of the Attorney General, which concluded that recording a MERS instrument violates Real Property Law § 316 and frustrates the legislative intent of the recording provisions (2001 Ops Atty Gen No. 2001-2), the Suffolk County Clerk ceased recording the MERS instruments. This proceeding ensued.

The County contends that the MERS mortgage is improper because that mortgage names MERS, an entity that has no interest in the property or loan, as the “nominee” for the lender. Thus, the County contends MERS is not a proper “mortgagee” and the document created cannot be considered a proper “conveyance” for purposes of the recording statute. We disagree.

Section 291 of the Real Property Law provides, in pertinent part, that:

“a conveyance of real property, within the state, on being duly acknowledged by the person executing the same, or proved as required by [the Real Property Law], and such acknowledgment or proof duly certified when required by [such law], may be recorded in the office of the clerk of the county where such real property is situated, and such county clerk shall, upon the request of any party, on tender of the lawful fees therefor, record the same in his said office”

[emphasis added].

Real Property Law § 316-a, which pertains exclusively to Suffolk County, provides that “[e]very instrument affecting real estate or chattels real, situated in the county of Suffolk, which shall be, or which shall have been recorded in the office of the clerk of said county on and after the first day of January, nineteen hundred fifty-one, shall be recorded and indexed pursuant to the provisions of this act”(emphasis added).

Thus, sections 291 and 316-a of the Real Property Law impose upon the Suffolk County Clerk the ministerial duty of recording and indexing instruments affecting real property (see Real Property Law §§ 290[3], 291, 316-a[1, 2], 321 [1]; County Law § 525[1]). The Clerk lacks the statutory authority to look beyond an instrument that otherwise satisfies the limited requirements of the recording statute (see Putnam v Stewart, 97 NY 411 [1884]). Therefore, the County Clerk must accept the MERS mortgage when presented for recording.

With respect to the MERS assignments and discharges of mortgage, the County argues that by requiring the Clerk to record the instrument, the Clerk is recording a document that ignores the mandates prescribed by Real Property Law § 321.

Section 321(1)(a) provides that where it does not appear from the record that any interest in a mortgage has been assigned, a certificate of satisfaction must be signed by the mortgagee or the mortgagee’s personal representative in order for the recording officer to mark the record of the mortgage as “discharged.” Where it appears from the record that a mortgage has been assigned, the recording officer cannot mark the record of that mortgage with the word “discharged” unless a certificate is signed by “the person who appears from the record to be the last assignee” of the mortgage, or his or her personal representative (Real Property Law § 321[1][b]). As the nominee for the mortgagee of record or for the last assignee, MERS acknowledges the instrument and therefore, the County Clerk is required to file and record the instruments.

Other provisions are not to the contrary. Under section 321 [2], the Clerk is required to record “every other instrument relating to a mortgage,” if that instrument is properly acknowledged or proved in a manner entitling a conveyance to be recorded. Such instruments include “certificates purporting to discharge a mortgage” that are signed by persons other than those specified in Real Property Law § 321(1).

Further, section 321 (3) of the Real Property Law provides:

“Every certificate presented to the recording officer shall be executed and acknowledged or proved in like manner as to entitle a conveyance to be recorded. If the mortgage has been assigned, in whole or in part, the certificate shall set forth the date of each assignment in the chain of title of the person or persons signing the certificate, the names of the assignor and assignee, the interest assigned, and, if the assignment has been recorded, the book and page where it has been recorded or the serial number of such record; or if the assignment is being recorded simultaneously with the certificate of discharge, the certificate of discharge shall so state. If the mortgage has not been assigned of record, the certificate shall so state”

[emphasis added].

Notably, section 321 (3) does not call for the unrecorded MERS assignments to be listed on the MERS discharge. Rather, under the statute, the discharge is required either to list the assignment by the name of the assignor and assignee, the interest assigned, and the book and page number, where recorded, or, if the assignment has not been recorded, to “so state.”

The legislative history of the statute supports this interpretation. In 1951, Real Property Law section 321 (3) was amended to, among other things, insert the term “of record” (L 1951, c 159, § 1). The relevant memoranda submitted to the Legislature in connection with the amendment indicate that the term was inserted to “correct a difficulty” in complying with the statute (see e.g. Memorandum by the Executive Secretary and Director of Research of the Law Revision Committee in support of Bill in Senate). Prior to the amendment, the statute required that a discharge certificate presented to the County Clerk either list all of the assignments in the chain of title or state that the mortgage was unassigned 5. However, problems developed when an assignment, known to the person executing the discharge, was not in the chain of title. In those situations, the person executing the discharge would make the untrue statement that the mortgage was unassigned. Thus, the Legislature amended the statute allowing the discharge certificate to either list the assignments in the chain of title or to state that the assignment has not been made “of record”. The MERS discharge complies with the statute by stating that the “[m]ortgage has not been further assigned of record” and, therefore, the County Clerk is required to accept the MERS assignments and discharges of mortgage for recording.

Accordingly, the order of the Appellate Division should be affirmed with costs.

CIPARICK, J.(concurring):

I am constrained to agree with the result reached by the majority opinion. However, I write independently to highlight the narrow breadth of this holding and to point out that this issue may be ripe for legislative consideration.

I concur with the majority that the Clerk’s role is merely ministerial in nature and that since the documents sought to be recorded appear, for the most part, to comply with the recording statutes, MERS is entitled to an order directing the clerk to accept and record the subject documents. I wish to note, however, that to the extent that the County and various amici argue that MERS has violated the clear prohibition against separating a lien from its debt and that MERS does not have standing to bring foreclosure actions, those issues remain for another day (see e.g. Merritt v Bartholick, 36 NY 44, 45 [1867][“a transfer of the mortgage without the debt is a nullity, and no interest is acquired by it”]).

In addition to these substantive issues, a plethora of policy arguments have surfaced during the pendency of this proceeding. For instance, if MERS succeeds in its goal of monopolizing the mortgage nominee market, it will have effectively usurped the role of the County Clerk that inevitably would result in a county’s recording fee revenue being substantially diverted to a private entity. Additionally, MERS’s success will arguably detract from the amount of public data available concerning mortgage ownership that otherwise offers a wealth of statistics that are used to analyze trends in lending practices. Another concern raised is that, once an assignment of the mortgage is made, it can be difficult, if not impossible, for a homeowner to find out the true identity of the loan holder. Amici who submitted briefs in favor of the County argue that this can effectively insulate a note holder from liability and further that it encourages predatory lending practices.

Unquestionably there is considerable public value in allowing seamless assignments of mortgages in a secondary market. However, whether this benefit will outweigh the negative consequences cannot be ascertained by this Court. Thus, as the recording act, which as relevant here has not been substantially amended in the last 50 years, could not have envisioned such a system nor its ancillary impacts, I feel that such a decision is best left in the hands of the Legislature.

M/O Merscorp. v Romaine

No. 179

KAYE, Chief Judge (dissenting in part):

In 1993, members of the real estate mortgage industry created MERS, an electronic registration system for mortgages. Its purpose is to streamline the mortgage process by eliminating the need to prepare and record paper assignments of mortgage, as had been done for hundreds of years. To accomplish this goal, MERS acts as nominee and as mortgagee of record for its members nationwide and appoints itself nominee, as mortgagee, for its members’ successors and assigns, thereby remaining nominal mortgagee of record no matter how many times loan servicing, or the mortgage itself, may be transferred. MERS hopes to register every residential and commercial home loan nationwide on its electronic system.

But the MERS system, developed as a tool for banks and title companies, does not entirely fit within the purpose of the Recording Act, which was enacted to “protect the rights of innocent purchasers . . . without knowledge of prior encumbrances” and to “establish a public record which would furnish potential purchasers with notice, or at least ‘constructive notice’, of previous conveyances” (Andy Assocs. v Bankers Trust Co., 49 NY2d 13, 20 [1979]; see Witter v Taggert, 78 NY2d 234, 238 [1991]). It is the incongruity between the needs of the modern electronic secondary mortgage market and our venerable real property laws regulating the market that frames the issue before us.

The Suffolk County Clerk, pursuant to the Recording Act, has a duty to record conveyances that are “entitled to be recorded” (Real Property Law § 316-a [5]), and to discharge mortgages when presented with a validly executed and acknowledged certificate of discharge (Real Property Law § 321). Thus, as part of this ministerial duty, the Clerk is called upon to examine an instrument to see that it is, facially, a “conveyance” of real property or to see that the certificate of discharge complies with the statutory mandates. “The performance of his uniform clerical duty requires him to compare the instruments which come to his possession for record . . . and certify as to the identity of their physical contents. Such a certificate does not involve the expression of an opinion, but calls for the statement of a fact capable of absolute demonstration” (Putnam v Stewart, 97 NY 411, 418 [1884]).

When presented with a MERS mortgage to record, the Clerk is able to discern from the face of the instrument that MERS has been appointed, as nominee, “mortgagee of record.” As the instrument appears to reflect a valid conveyance (Real Property Law § 290 [3]), the Clerk is required to record the instrument in MERS’ name “as nominee for lender” (Real Property Law § 291). Given that the identity of the actual lender is ascertainable from the mortgage document itself — indeed, the use of a nominee as the equivalent of an agent for the lender is apparent, and not unusual — I concur with the majority that the Clerk is obligated to record MERS mortgages.1

When presented with a certificate of discharge, however, the Clerk has the duty to examine the mortgage’s prior assignments. The Clerk collects fees precisely for this purpose (Real Property Law § 321 [3] [“the fee or fees which the recording officer is entitled to receive for filing and entering a certificate of discharge of a mortgage and examining assignments of such mortgage shall be payable with respect to each mortgage”]). Section 321 (3) of the Real Property Law further provides:

“Every certificate presented to the recording officer shall be executed and acknowledged or proved in like manner as to entitle a conveyance to be recorded. If the mortgage has been assigned, in whole or in part, the certificate shall set forth the date of each assignment in the chain of title of the person or persons signing the certificate, the names of the assignor or assignee, the interest assigned, and, if the assignment has been recorded, the book and page where it has been recorded or the serial number of such record; or if the mortgage is being recorded simultaneously with the certificate of discharge, the certificate of discharge shall so state. If the mortgage has not been assigned of record, the certificate shall so state”

(emphasis added).

“[W]here the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used” (Raritan Dev. Corp. v Silva, 91 NY2d 98, 107 [1997][emphasis and citations omitted]). Plainly, the statute requires all assignments of the mortgage to be listed on the certificate of discharge, whether recorded or not. The statute first sets out this general requirement, then it addresses each possible scenario in turn: if the assignment was recorded, the Clerk must enter the book and page; if the assignment of mortgage is being recorded simultaneously, the certificate shall so state; if the assignment was not recorded, the certificate similarly shall so state. To read the statute as providing that the certificate “either” list the recorded mortgage “or” simply state that the assignment has not been recorded renders the language of the preceding sentences superfluous and the clause regarding the listing of recording details “if recorded” nonsensical.

“[T]he clearest indicator of legislative intent is the statutory text” (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]). The Court need not look to legislative history when the plain meaning of the statute is clear, and

surely should not look to legislative history to override the plain meaning of the statute, as the majority now does.

Here, moreover, the legislative history of § 321 is inapposite. Real Property Law § 321 was amended in 1951 to ameliorate the situation “where assignments are known by the signing party to have existed but are not in his chain of title because the mortgage has been reassigned to the assignor,” such as when “a mortgage has been pledged to secure a loan and on repayment . . . has been reassigned to the mortgagee without the assignment ever having been recorded” (Recommendation of the Law Revision Comm, Bill Jacket, L 1951, ch 159, at 20; see also Mem of Law Revision Comm, Bill Jacket, L 1951, at 11). Thus, the situation the amendment addressed was when a mortgagee’s assigned, unrecorded mortgage was reassigned back to the mortgagee, and the mortgage was then transferred by the mortgagee to a subsequent holder or discharged by the original mortgagee himself. In such a case, “there appears to be no reason for requiring a statement that the mortgage has not been assigned [as] the certificate is executed by the original mortgagee” (Recommendation of the Law Revision Comm, Bill Jacket, L 1951, ch 159, at 20 [emphasis added]), or transferred by the original assignor after it had been assigned back to him (see Report of Comm on Real Property Law, Bill Jacket, L 1951, at 9).

Under the MERS system, by contrast, assignments are made from one lender, to another lender, to another lender, and so on down the line. The 1951 amendment, which assumed that the mortgagee would be discharging the reassigned mortgage, or that a subsequent holder would discharge it unaware that the previous owner had assigned away and been reassigned the mortgage, is thus inapplicable to the issue under review.

The MERS system raises additional concerns that should not go unnoticed.

The benefits of the system to MERS members are not insubstantial. Through use of MERS as nominee, lenders are relieved of the costs of recording each mortgage assignment with the County Clerk, instead paying minimal yearly membership fees to MERS. Transfers of mortgage instruments are faster, allowing for efficient trading in the secondary mortgage market; a mortgage changes hands at least five times on average.

Although creating efficiencies for its members, there is little evidence that the MERS system provides equivalent benefits to home buyers and borrowers — and, in fact, some evidence that it may create substantial disadvantages. While MERS necessarily opted for a system that tracks both the beneficial owner of the loan and the servicer of the loan, its 800 number and Website allow a borrower to access information regarding only his or her loan servicer, not the underlying lender. The lack of disclosure may create substantial difficulty when a homeowner wishes to negotiate the terms of his or her mortgage or enforce a legal right against the mortgagee and is unable to learn the mortgagee’s identity. Public records will no longer contain this information as, if it achieves the success it envisions, the MERS system will render the public record useless by masking beneficial ownership of mortgages and eliminating records of assignments altogether. Not only will this information deficit detract from the amount of public data accessible for research and monitoring of industry trends, but it may also function, perhaps unintentionally, to insulate a note holder from liability, mask lender error and hide predatory lending practices. The County Clerks, of course, are concerned about the depletion of their revenues — allegedly over one million dollars a year in Suffolk County alone.

Admittedly we do not know, at this juncture, the extent to which these concerns will be realized. But it would seem prudent to call to the attention of the Legislature what is at least a disparity between the relevant statute — now 55 years old — and the burgeoning modern-day electronic mortgage industry.

* * * * * * * * * * * * * * * * *

Order affirmed, with costs. Opinion by Judge Pigott. Judges Rosenblatt, Graffeo, Read and Smith concur. Judge Ciparick concurs in result in an opinion. Chief Judge Kaye dissents in part in an opinion.

Decided December 19, 2006


Notes

1 Edward P. Romaine resigned as County Clerk December 31, 2005. Judith A. Pascale is currently the Acting County Clerk.

2 Among the entities creating MERS were the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, and the Mortgage Bankers Association of America.

3 Members of the MERS system also include entities such as insurance companies, title companies and banks.

4 If a MERS member transfers servicing interests in a mortgage loan to a non-MERS member, an assignment from the MERS member to the non-MERS member is recorded in the County Clerk’s Office and the loan is deactivated within the MERS system.

5 The purpose of such requirement was to facilitate the work of the recording officer in marking the record of the mortgage.

1 I also agree that the issues concerning the underlying validity of the MERS mortgage instrument — in particular, whether its failure to transfer beneficial interest renders it a nullity under real property law, whether it violates the prohibition against separating the note from the mortgage, and whether MERS has standing to foreclose on a mortgage — are best left for another day. Although MERSCORP initially requested a declaratory judgment that the MERS instruments were “lawful in all respects” (which Supreme Court denied) the instruments’ validity has not yet been addressed.

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Posted in concealment, conflict of interest, conspiracy, foreclosure, foreclosures, MERS, MERSCORP, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., non disclosureComments (0)

The Conclusion…If we could only turn back time: IN THE MATTER OF MERSCORP, INC. v. Romaine, 2005 NY Slip Op 9728 – NY: Supreme Court, Appellate Div., 2nd Dept. 2005

The Conclusion…If we could only turn back time: IN THE MATTER OF MERSCORP, INC. v. Romaine, 2005 NY Slip Op 9728 – NY: Supreme Court, Appellate Div., 2nd Dept. 2005


If we can only turn back time!

2005 NY Slip Op 09728

IN THE MATTER OF MERSCORP, INC., ET AL., appellants-respondents,
v.
EDWARD P. ROMAINE, ETC., ET AL., respondents-appellants.

2004-04735.

Appellate Division of the Supreme Court of New York, Second Department.

Decided December 192005.

Hiscock & Barclay, LLP, Buffalo, N.Y. (Charles C. Martorana of counsel), for appellants-respondents.

Cahn & Cahn, LLP, Melville, N.Y. (Richard C. Cahn and Daniel K. Cahn of counsel), for respondents-appellants.

Bainton McCarthy, LLC, New York, N.Y. (J. Joseph Bainton of counsel), for American Land Title Association, amicus curiae.

Decher, LLP, New York, N.Y. (Joseph P. Forte and Kathleen N. Massey of counsel), for Mortgage Bankers Association, amicus curiae.

Howard Lindenberg, McLean, VA., for Federal Home Loan Mortgage Corporation, amicus curiae, and Kenneth Scott, Washington, D.C., for Federal National Mortgage Association, amicus curiae (one brief filed).

Brigitte Amiri, Brooklyn, N.Y., for South Brooklyn Legal Services, amicus curiae, April Carrie Charney, Jacksonville, FL., for Jacksonville Area Legal Aid, Inc., amicus curiae, and Daniel P. Lindsey, Chicago, IL, for Legal Assistance Foundation of Metropolitan Chicago, amicus curiae (one brief filed).

Before: ROBERT W. SCHMIDT, J.P., BARRY A. COZIER, REINALDO E. RIVERA, STEVEN W. FISHER, JJ.

DECISION & ORDER

ORDERED that the order and judgment is modified, on the law, by (1) deleting the provision thereof denying that branch of the petitioners’ motion for summary judgment which was to compel the Suffolk County Clerk to record and index the subject assignments and discharges, and substituting therefor a provision granting that branch of the motion, and (2) adding thereto a provision declaring that the mortgages, assignments, and discharges which name Mortgage Electronic Registration Systems, Inc., as the lender’s nominee or the mortgagee of record are acceptable for recording and indexing; as so modified, the order and judgment is affirmed insofar as appealed and cross-appealed from, with one bill of costs to the petitioner.

The petitioners, MerscorpInc. (hereinafter Merscorp), and its subsidiary, Mortgage Electronic Registration Systems, Inc. (hereinafter MERS), operate a national electronic registration system (hereinafter the MERS System) for residential mortgages and related instruments (hereinafter MERS Instruments). In essence, lenders who subscribe to the MERS System (hereinafter MERS Members) designate MERS as their nominee or the mortgagee of record for the purpose of recording MERS Instruments in the county where the subject real property is located. The MERS Instruments are registered in a central database, which tracks all future transfers of the beneficial ownership interests and servicing rights among MERS Members throughout the life of the loan.

Merscorp and MERS commenced this hybrid proceeding and action in response to the announcement by the Suffolk County Clerk (hereinafter the Clerk) that, as of May 1, 2001, he would no longer accept MERS Instruments that listed MERS as the mortgagee or nominee of record unless MERS was, in fact, the actual mortgagee. In June 2002 this court granted the motion by Merscorp and MERS to preliminarily compel the Clerk to record MERS Instruments and list MERS as the mortgagee in the County’s alphabetical indexes pending the SupremeCourt’s determination of the hybrid proceeding and action on the merits (see Matter ofMerscorp, Inc. v. Romaine, 295 AD2d 431).

The Supreme Court properly compelled the Clerk to record MERS mortgages (seeKlostermann v. Cuomo, 61 NY2d 525, 539). In short, the Clerk has a statutory duty that is ministerial in nature to record a written conveyance if it is duly acknowledged and accompanied by the proper fee (see Real Property Law §§ 290[3], 291; County Law § 525[1]). Accordingly, the Clerk does not have the authority to refuse to record a conveyance which satisfies the narrowly-drawn prerequisites set forth in the recording statute (see People ex rel. Frost v. Woodbury, 213 NY 51; People ex rel. Title Guar.& Trust Co. v. Grifenhagen, 209 NY 569;Matter of Westminster Hgts. Co. v. Delany, 107 App Div 577, affd 185 NY 539; Putnam v. Stewart, 97 NY 411).

Similarly, Real Property Law § 316-a (1), which only applies to the Suffolk County indexing system, provides that the Clerk must record and index “[e]very instrument affecting real estate or chattels real, situated in the county of Suffolk, which shall be, or which shall have been recorded in the office of the clerk of said county . . . pursuant to the provisions of this act.” Pursuant to Real Property Law § 316-a(2), the Clerk must maintain the indexes so they “contain the date of recording of each instrument, the names of the parties to each instrument and the liber and page of the record thereof” (see also Real Property Law § 316-a[4] and [5]). Thus, the Clerk’s duty to index recorded instruments is mandatory and ministerial in nature.

Contrary to the Supreme Court’s determination, there is no valid distinction between MERS mortgages and MERS assignments or discharges for the purpose of recording and indexing. Pursuant to Real Property Law § 321(1), the discharge document may be signed either by the mortgagee, the person who appears from the public record to be the last assignee, or their personal representatives.

As the proponents of a motion for summary judgment, Merscorp and MERS made a prima facie showing that they were entitled to judgment as a matter of law by tendering sufficient evidence to establish that they complied with the applicable recording statutes (see Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851, 853Artistic Landscaping v. Board of Assessors,303 AD2d 699). Once this showing was made, the burden shifted to the Clerk, who failed to raise a triable issue of fact in opposition to the motion (Alvarez v. Prospect Hosp., 68 NY2d 320, 324Zuckerman v. City of New York, 49 NY2d 557, 562).

Since this is a declaratory judgment action, the order and judgment must be modified, inter alia, by adding a declaration that the mortgages, assignments, and discharges which name MERS as the lender’s nominee or the mortgagee of record are acceptable for recording and indexing (see Lanza v. Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied372 US 901).

SCHMIDT, J.P., COZIER, RIVERA and FISHER, JJ., concur.

Posted in case, MERS, Mortgage Bankers Association, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., reversed court decision, securitizationComments (0)

This case might have put MERS in the SPOT LIGHT: MATTER OF MERSCORP, INC. v. Romaine, 295 AD 2d 431 – NY: Supreme Court, Appellate Div., 2nd Dept. 2002

This case might have put MERS in the SPOT LIGHT: MATTER OF MERSCORP, INC. v. Romaine, 295 AD 2d 431 – NY: Supreme Court, Appellate Div., 2nd Dept. 2002


295 A.D.2d 431 (2002)

743 N.Y.S.2d 562

In the Matter of MERSCORP, INC., et al., Appellants,
v.
EDWARD P. ROMAINE et al., Respondents.

Appellate Division of the Supreme Court of the State of New York, Second Department.

Decided June 10, 2002.

S. Miller, J.P., Krausman and Cozier, JJ., concur.

Ordered that the order is reversed, without costs or disbursements, and the motion for a preliminary injunction is granted pending the Supreme Court’s determination of the hybrid proceeding and action on the merits.

The petitioners, Merscorp, Inc. (hereinafter Merscorp), and its subsidiary, MortgageElectronic Registration SystemsInc. (hereinafter MERS), operate a national electronicregistration system (hereinafter the MERS System) for residential mortgages and related instruments (hereinafter MERS Instruments). In essence, lenders who subscribe to the MERS System (hereinafter MERS Members) designate MERS as their nominee or the “mortgagee of record” for the purpose of 432*432 recording MERS Instruments in the county where the subject real property is located. The MERS Instruments are registered in a central database, which tracks all future transfers of the beneficial ownership interests and servicing rights among MERS Members. As of May 2001, the MERS System had recorded more than four million MERS Instruments in more than 3,000 counties in all 50 states, including more than 16,000 MERS Instruments in Suffolk County.

On April 5, 2001, the Attorney General issued Informal Opinion No. 2001-2 (2001 Atty Gen [Inf Ops] 2001-2) in response to two questions posed by the Nassau County Clerk regarding the latter’s obligation to record and index MERS Instruments. Although the Attorney General concluded that the Nassau County Clerk had a statutory duty under Real Property Law § 291 to record MERS Instruments if they were duly acknowledged and accompanied by the proper fee, he advised the Nassau County Clerk to list the MERS Instruments in the County’s alphabetical indexes under the names of the actual lenders. Based in part on the Attorney General’s Informal Opinion, the Suffolk County Clerk announced that as of May 1, 2001, he would no longer accept MERS Instruments which listed MERS as the mortgagee or nominee of record unless MERS was, in fact, the actual mortgagee.

Simultaneously with commencing this hybrid proceeding and action, Merscorp and MERS moved, inter alia, for a preliminary injunction to compel the Suffolk County Clerk to record MERS Instruments and list MERS as the mortgagee in the County’s alphabetical mortgagee-mortgagor indexes for recorded conveyances. Although the Supreme Court, Suffolk County (Bivona, J.), granted the request of Merscorp and MERS for a temporary restraining order on May 2, 2001, the same court (Catterson, J.), subsequently denied their request for a preliminary injunction on May 22, 2001.

It is well established that the decision to grant or deny a preliminary injunction lies within the sound discretion of the Supreme Court (see Doe v Axelrod, 73 NY2d 748, 750). In exercising that discretion, however, the Supreme Court must consider several factors, including whether the moving party has established (1) a likelihood of success on the merits, (2) irreparable harm if the injunction is denied, and (3) a balance of the equities in favor of the injunction (see CPLR 6301, 6312 [a]; Grant Co. v Srogi, 52 NY2d 496, 517Clarion Assoc. v Colby Co., 276 AD2d 461). Upon our review of the record, we find that the Supreme Court failed to set forth specific findings with respect to the tripartite test for injunctive relief and 433*433 improvidently exercised its discretion in denying the motion for preliminary injunctive relief.

Merscorp and MERS demonstrated a reasonable probability of success on the merits of its claim for a writ of mandamus to compel the Suffolk County Clerk to record MERS Instruments (see Klostermann v Cuomo, 61 NY2d 525, 539). Contrary to the contention of the Suffolk County Clerk, he has a statutory duty that is ministerial in nature to record a written conveyance if it is duly acknowledged and accompanied by the proper fee (see Real Property Law § 290 [3]; § 291; County Law § 525 [1]). Accordingly, the Clerk does not have the authority to refuse to record a conveyance which satisfies the narrowly drawn prerequisites set forth in the recording statute (see People ex rel. Frost v Woodbury, 213 NY 51; People ex rel. Title Guar. & Trust Co. v Grifenhagen, 209 NY 569; Matter of Westminster Hgts. Co. v Delany, 107 App Div 577, affd 185 NY 539; Putnam v Stewart, 97 NY 411).

This Court notes that the Suffolk County index is governed exclusively by Real Property Law § 316-a. Real Property Law § 316-a (1) provides that the Suffolk County Clerk shall record and index “[e]very instrument affecting real estate or chattels real, situated in the county of Suffolk * * * which shall have been recorded in the office of the [C]lerk of said county * * * pursuant to the provisions of this act” (emphasis supplied). Pursuant to Real Property Law § 316-a (2), the Suffolk County Clerk must maintain the indexes so they “contain the date of recording of each instrument, the names of the parties to each instrument and the liber and page of the record thereof and shall be substantially the forms of the schedules hereto annexed” (emphasis supplied; see also Real Property Law § 316-a [5]).

Therefore, in light of Real Property Law § 316-a, Merscorp and MERS also demonstrated a reasonable probability of success on the merits of their claim to compel the Suffolk County Clerk to perform his ministerial duty to index MERS Instruments as the language of Real Property Law § 316-a is mandatory and not permissive (see Klostermann v Cuomo, supra at 539).

Moreover, to the extent that the Suffolk County Clerk has recorded approximately 16,000 MERS Instruments before May 1, 2001, MERS established irreparable harm to its business operation, the mortgage lending industry, and the general public, in the absence of a preliminary injunction compelling the Suffolk County Clerk to record and index MERS Instruments (see Clarion Assoc. v Colby Co., supraMcLaughlin, Piven, 434*434 Vogel v Nolan & Co., 114 AD2d 165, 174), particularly since Real Property Law § 316-a (8), (9) and (10) sets forth a mechanism for correcting any mistakes in the indexes.

Under these circumstances, a preliminary injunction should be granted to maintain the status quo while the legal issues are determined in a deliberate and judicious manner (see Moody v Filipowski, 146 AD2d 675, 678Incorporated Vil. of Babylon v Anthony’s Water Cafe, 137 AD2d 791, 792Tucker v Toia, 54 AD2d 322, 326).

Goldstein, J., concurs in the result, with the following memorandum:

Although I do not necessarily agree with my colleagues that there is a likelihood of success on the merits, I nevertheless concur in granting a preliminary injunction, as the Supreme Court failed to take into consideration and address the other factors which must be taken into account, namely, irreparable harm to the movant absent the granting of a preliminary injunction, and a balancing of the equities (see Melvin v Union Coll., 195 AD2d 447, 448). Where, as here, the case involves issues of first impression in the courts, it is appropriate to grant a preliminary injunction, “`to hold the parties in status quo while the legal issues are determined in a deliberate and judicious manner'” (Time Sq. Books v City of Rochester, 223 AD2d 270, 278,quoting Tucker v Toia, 54 AD2d 322, 326State of New York v City of New York, 275 AD2d 740Sau Thi Ma v Xuan T. Lien, 198 AD2d 186).

Posted in case, MERS, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC.Comments (2)


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