Sacramento Bankruptcy Lawyer Blog

The Supreme Court ruled that MERS, the Mortgage Electronic Registration System, can foreclose on a Deed of Trust.

During the housing boom, many lenders sold their loans on the market. When a lender sells its loans, the new owner of the loans is generally assigned a Note and Deed of Trust. Lenders got clever and established a new entity called MERS, which would be assigned the Deed of Trust but not the Note. When a home owner would default on a loan, whoever owned the Note would contact MERS and instruct them to foreclosure on the home owner.

Can MERS, the holder of the Deed of Trust, and not the Note foreclose?

Many law firms have advised home owners who are desperately trying to save their homes that they can stop their foreclosure by arguing that MERS has no "Standing", no legal right under the law to foreclose on the home owner's property.

When a home owner files for bankruptcy protection under Chapter 13, a home owner can reorganize and restructure their mortgage arrears over a 5 year term instead of having to come up with a lump sum payment generally being demanded by many banks. A Chapter 13 bankruptcy gives home owners time to get caught up on their mortgage payments. Also, Chapter 13 allows home owners time to seek a modification on their home loan.

Many law firms have been preying on home owners by offering to stall their foreclosures by arguing that MERS is prohibited from foreclosing because MERS is not the holder of the Note. Home owners have been mis-lead into thinking that they no longer owe the mortgage loan because of the difficulty in determining who owns the Note

The bankruptcy judges in the Eastern District have been concluding that although MERS may not own or be the holder of the Note, the Note still exist. The Courts have concluded that someone does hold the Note and the home owner does in fact owe someone - It may not be MERS, but there is a secured lender that has a security interest in the home owners' real property.