photo: davidshankbone via Flickr

In a take-no-prisoners decision late last week, a Long Island federal bankruptcy judge ruled that MERS system does not conform to the law and does not provide for valid assignments of mortgages. The decision also suggests that the mere fact of MERS registration very likely destroys the security interests in the property; meaning you would still owe the debt, but the bank has no claim to your house. I have dubbed this Mortgage Fractionalization.

In the same week, a federal Bankruptcy judge in Kansas ruled the opposite way and appears to think that MERS transfers are just peachy. So, if you are MERS and you split decisions you maintain the status quo ante , don’t you?

Well, it appears they are not so confident any more. MERS sent out a memo telling its members not to foreclose using the name MERS as the plaintiff. According to,

MERS suggested that members bring foreclosures “only in the name of the holder of the note, in the name of the trustee or the servicer of record acting on behalf of the trustee.”

Of course if the judge on Long Island and I are right, and the mortgage fractionalization destroys the right to levy against the house, it won’t matter much what name they use for the plaintiff. I would like to point out that the banks who created and participated in MERS were all headed by sophisticated Masters of the Universe, had access to some of the highest priced legal talent on the planet and undertook the risks of going outside the Torrens title system of land registration. Whatever risk of loss might flow from that decision was well known to those MOTU and they and their banks must face the losses they incurred by their own decisions to use MERS instead of the county clerks and local land offices. This is classic moral hazard analysis.

Allow me to quote Barry Ritholtz:

MERS is an abomination, a legal blasphemy that should be destroyed before it unleashes the four horsemen of the apocalypse.

Amen, brother Ritholtz.