The MERS Bowl: A Two-Faced Foreclosure Game of Mirrors

Imagine if on the first tackle of Sunday's super bowl the game, the jersey of defensive lineman Ray Lewis blends into the jersey of running back LaMicheal James like a poorly photo-shopped video.

This scene may appear to be something out of a science fiction novel, but is in fact analogous with the MERS business model which splits, blends, and reduces mortgages like body parts in a bad horror flick.

MERS (Mortgage Electronic Registration Systems) in practice is a far greater deviant than its purported role of tracking and recording agent to the mortgage industry. When MERS is done with a mortgage, its dissembled parts end up in a field that at times only a forensic audit can identify.

Ray Lewis will retire after super bowl Sunday for certain, but MERS' business model will not. However, its infrastructure has been compromised to some extent as courts have ruled in many instances in favor of its demise. Pronouncing MERS' business model dead at this point is still grossly premature.

The MERS "mortgage splitting" business model has become the main focus of the foreclosure controversy. MERS' model is riddled by allegations of fraud, lack of legal standing to foreclosure, challenges of improper loan assignments, and as amplified herein,the indebtedness to the homeowner for a legal defense.

The latter may sound out of bounds but here's why MERS' defense of homeowners in foreclosure is well rooted.

In the MERS foreclosure game of mirrors, MERS straddles both sides of the foreclosure. MERS assigns the foreclosing lender, hires the bank attorneys at the local level, and makes itself a co-defendant with the homeowner in the foreclosure action. As co-defendant, MERS partially paralyzes the homeowner's attempt to affirm its defense while retaining its loan originator-like title of "mortgagee".

In a traditional scenario, the mortgagee - the party that extends credit demonstrates its security interest in the loan as a plaintiff in the foreclosure action. However, when the mortgagee makes its self a defendant, it redefines the dynamic of the foreclosure and restricts the basis upon which [MERS] would otherwise prevail.

MERS' most critical mistake when hedging the defendant side of the lawsuit is its voluntary abandonment of the mortgagor-mortgagee covenant which although most courts have held is "coincidental" to the loan - is still an inseparable component. The covenant has value and is a recognized part of the mortgage.

No covenant, no loan. No ticket - no laundry.

The covenant is essentially the promise made by the homeowner to the lender that the loan will be paid back. That promise although abstract in concept, takes on a tangible form when it's recorded by MERS [the nominated mortgagee] at the county level.

Upon foreclosure, MERS in recognition of the veracity of that covenant [which it's in fact a party to], seeks to abrogate that "coincidental" promise by instructing the bank attorney it assigns to name MERS a defendant.

The repossession of the property cannot be effectuated without the covenant's dissolution which should only occur after facts are introduced through discovery. MERS essentially sues itself, by pitting its interest as mortgagee against its broader interest of managing "ghost" agent of the foreclosure process.

The homeowner, has as opportunity to seek a defense from MERS for its abandonment of the mortgagee-mortgagor covenant since as a defendant, MERS has the obligation to defend that covenant until its decreed unenforceable by the court. MERS' ill-positioning as co-defendant actually gives the homeowner leverage it would not otherwise have.

Rather than living up to its obligation to defend that covenant, MERS is wrongfully complicit with the foreclosing plaintiff and exercises its complicity through its silence. As a self-assigned defendant, MERS neglects to challenge the foreclosure because its business interests weigh unilaterally with the foreclosing plaintiff.

MERS' peculiar maneuvering to the defendant side of the lawsuit does raise an obvious question. Why does MERS not name itself a plaintiff, since its interests are polarized with the foreclosing plaintiff?

One possible answer is that MERS never actually extends credit and therefore cannot demonstrate the security interest the courts require by the foreclosing bank. MERS is a mere mortgage nominee and not the party that is materially damaged by the alleged default - notwithstanding there are conflicting court rulings that recognize MERS' legal standing to foreclosure as a third party nominee.

This super bowl Sunday at kick-off, the nation will display perhaps no greater example of intensity for competition. There will be no confusion over which side either of the players fight for.

At the risk of their own peril and to the cheer of over 100 million spectators, the Ravens and 49'ers will defend their position without ambiguity like soldiers on a battle field until the end of time - well the clock.

Unlike MERS.

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