Kansas Supreme Court finds that MERS has no tangible interest in note and mortgage and was thereof not entitled to notice of foreclosure by senior lienholder

In Landmark Nat. Bank v. Kesler, No. 98,489 (Kan., August 28, 2009) the senior mortgagee filed a foreclosure action but neglected to notice MERS or Sovereign, who held the junior mortgage. After the trial court entered judgment for the senior mortgagee, the property was sold at sheriff’s sale. Sovereign and MERS later appeared and asserted their interest in the property. They moved to set aside the default judgment on the grounds that MERS was a contingently necessary party under K.S.A. 60-219(a) and was entitled to notice of the proceedings. The trial court found that MERS was not a real party in interest and that Sovereign’s failure to register its interest with the Register of Deeds precluded it from asserting rights to the mortgage after judgment had been entered. The Kansas high court agreed that the trial court did not abuse its discretion in denying MERS’s motion to vacate the default. It acknowledged that MERS functions solely as nominee for the lender and its assigns. Finding no definition for nominee in the mortgage it looked to judicial interpretation and determined that the relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer. It found that the mortgage gives it no rights; it refers only to the rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. Consequently, MERS had no stake in the outcome of an independent action for foreclosure and therefore lacked a meritorious defense to warrant vacating the default. MERS’s contention that it was deprived of due process in violation of constitutional protections failed for the same reason: it lacked a tangible interest in the mortgage beyond a nominal designation as the mortgagor. The court observed that it lent no money and received no payments from the borrower. It suffered no direct, ascertainable monetary loss as a consequence of the litigation.

Five months earlier a Missouri court reached the same conclusion in Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo.App. E.D. Mar 03, 2009) (NO. ED91369). There a tax sale purchaser brought an action to quiet title after the mortgagee’s assignee claimed it did not receive notice. The mortgage on the property was made by BNC Mortgage Inc. and BNC was the payee on the promissory note. BNC, however, was not the beneficiary on the deed of trust. MERS was identified as the beneficiary but solely as BNC’s nominee. MERS then purportedly assigned the loan to the assignee, Ocwen, who recorded the assignment. The court held that when MERS assigned the deed of trust it attempted to transfer to the assignee rights it did not possess. There was no evidence in the record that MERS held the promissory note or that BNC gave MERS the authority to transfer the promissory note. The court also observed that the promissory note did not make any reference to MERS. The note and the deed of trust both required payments to be made to the lender, not MERS. MERS therefore could not transfer the promissory note and the language in the assignment of the deed of trust purporting to transfer the promissory note was ineffective. As it held neither the promissory note, nor the deed of trust, the assignee lacked a legally cognizable interest and therefore lacked standing to seek relief from the trial court.

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