Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Dimon Lil

“Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is VOID under California Law.”

If you read that sentence and thought… “MERS,” then you’re already in the club.  If you’ve never heard of MERS, and have no idea what is meant by being “in the club,” don’t worry, this is a club that just about every homeowner is invited to join.  In fact, you may already be a member and not even know it.

MERS is the acronym used to describe Mortgage Electronic Registration Systems, Inc.  Best I can tell, our friends in the mortgage banking industry created MERS to make it easier for banks and servicers to sell and transfer our mortgages at the speed of light during the real estate bubble. According to the company’s Website:

MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Our mission is to register every mortgage loan in the United States on the MERS® System.

MERS acts as nominee in the county land records for the lender and servicer.  Any loan registered on the MERS® System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded.

I have to tell you… I hate these guys already.  Their attitude alone bothers me.  I looked at pictures of their three top executives on their Website and thought to myself… “No way I’d be friends with these guys.”  Probably not very fair of me, but as far as I’m concerned, when it comes to anything that talks like that and was created by the mortgage banking industry… “fair,” is where you go on Sunday to have popcorn and cotton candy.  Just so we’re clear.

MERS, which is a company that I hear doesn’t even have employees, has been about as controversial as you get ever since houses started dropping like flies into foreclosure back in 2007-08.  God forbid you find yourself losing your home to foreclosure, you’ll very likely find a representative from MERS looking smug and acting like the owner of your mortgage.  But, MERS is not the owner of your mortgage, of course, and now a bankruptcy court judge in the Eastern District of California has officially said that he agrees.

MERS is a relatively new development in the mortgage world, and as the foreclosure crisis began the courts pretty much let them do whatever they wanted to do, as the party in interest in a foreclosure action.

But, that was before the foreclosures became a full fledged tsunami, and homeowners watched the bankers first get bailed out, and then pay out billions in bonuses before treating every single American homeowner/taxpayer who applied for a loan modification like insignificant garbage.

In response, homeowners, having been trained for over 200 years in the fine art of pushing back when shoved, went to their lawyers, and those lawyers started asking questions, as they are prone to do.  Many started with questions like: “Who the heck is this MERS guy and why does he think he has any right to be foreclosing on my client’s home?”

For almost two full years, it seemed to me that judges, who frankly weren’t used to foreclosures being challenged, basically yawned and gave the house back to the bank.  Then, starting about a year ago, give or take, things started to change.  Judges started to listen to the points being raised as related to MERS showing up as the party in interest ready to foreclose, and the more the judges learned, the more they saw problems with what MERS was doing.  As time went on the tide seemed to shift a bit and several decisions weren’t falling as MERS would have liked for one reason or another.

According to the company’s Website, MERS “is a proper party that can lawfully foreclose as the mortgagee and note-holder of a mortgage loan.”  Here’s what it says on the MERS Website:


(“MERS”) is In mortgage foreclosure cases, the plaintiff has standing as the holder of the note and the mortgage. When MERS forecloses, MERS is the mortgagee and it is the holder of the note because a MERS officer will be in possession of the original note endorsed in blank, which makes MERS a holder of the bearer paper.

But, in this latest decision, the bankruptcy judge in California didn’t agree, writing in his opinion:

“Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.”

Did you get that?  Since MERS didn’t own the underlying note, it couldn’t transfer the beneficial interest of the Deed of Trust to Citibank.

According to several attorneys, this opinion should serve as legal basis to challenge a foreclosure in California that has been based on a MERS assignment.  It could also be used when seeking to void any MERS assignment of the Deed of Trust, or the note, to a third party for purposes of foreclosure; and should be sufficient for a borrower to obtain a TRO against a Trustee’s Sale, and a Preliminary Injunction preventing any sale, pending litigation filed by the borrower that challenges a foreclosure based on a MERS assignment.

In this decision the court found that MERS was acting “only as a nominee,” under the Deed of Trust, and that there was no evidence of the note being transferred. The judge’s opinion in this case also said that “several courts have acknowledged that MERS is not the owner of the underlying note and therefore could not transfer the note, the beneficial interest in the deed of trust, or foreclose on the property secured by the deed”, citing cases of: In Re Vargas, California Bankruptcy Court; Landmark v. Kesler, Kansas decision as to lack of authority of MERS; LaSalle Bank v. Lamy, a New York case; and In Re Foreclosure Cases, the “Boyko” decision from Ohio Federal Court.

And the court concluded by stating:

“Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.”

Oh my… well, that really is something.  MERS can’t foreclose and Citibank can’t collect?  I believe you would have to say that MERS and Citibank were already in a hard place when the judge inserted a rock.  MERS can’t foreclose and Citi can’t collect… I am absolutely loving this, I have to say, but I suppose giddy would be an inappropriate response, so I’ll just say, “how interesting”.

This decision means that if a foreclosing party in California, that is not the original lender, claims that payment is due under the note, and that they have the right to foreclose on the basis of a MERS assignment, they’re wrong… based on this opinion.  The bottom line is that MERS has no authority to transfer the note because it never owned it, and that’s a view that even seems to be supported by MERS’ own contract, which says that “MERS agrees not to assert any rights to mortgage loans or properties mortgaged thereby”.

What this may mean to California’s homeowners in bankruptcy court…

  • It should serve as a legal basis to challenge any foreclosure in California based on a MERS     assignment.
  • It should serve as the legal basis for voiding a MERS assignment of the Deed of Trust, or the     note, to a third party for purposes of foreclosure.
  • It should be an adequate basis for obtaining a TRO against a Trustee’s Sale
  • It should be the basis for a Preliminary Injunction barring any sale pending litigation filed by the borrower that challenges a foreclosure based on a MERS assignment.

In addition, some lawyers believe that this ruling is relevant to borrowers across the country as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because this opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

I don’t know about you, but I feel like watching a marching band.  76 trombones, baby, 76 trombones.

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MERS can't forclose and Citi can't collect...

Like the saying goes...Karma bites!!!

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I am not an attorney and nothing in this post should be construed or mistaken as legal advice or counsel. If you can't read the law and understand it, get an attorney. The code is available online at

I have a loan that is on its 3rd LPS. The originating lender was taken over by the FDIC. It's successor LPS was taken over by the FDIC. The current LPS indicated a bogus charge for an inspection that isn't described in my copy of the Trust Deed (TD). When I requested a copy of the TD, I was informed it was unavailable. That's when I started reading about 'produce the note' defense. And I stopped making payments when their collectors could not name the originating lender which would be on the note. The collectors also refused to inform me who the current beneficiary of the was.

So I sent a letter in conformance with Cal Civ Code § 2943 (b)(1,2). The lender has 21 days to respond or they owe you $300. When they filed a Notice of Default I sent them a second request which included a request for a copy of the DT and the note and any accompanying allonges. Again, 21 days have passed and still no response. So if I read the law correctly, they are now liable for actual damages as well as the $600. And they may not be the legitimate holders of the note!

The tough part of this is finding an attorney who will buck the prevailing practice in this county where the judges typically pass off the 'produce the note' defense with a 'we will have the lender post a bond' and go forward with the foreclosure.

But with the results of sending the letters and getting no response, the court can be asked to have the LPS prove their standing by providing evidence they are entitled to collect on the note. And they already have 2 strikes against them that can be entered into evidence. If a copy of the note was 'not available' earlier when lawfully requested, and suddenly available by order of the court, any judge should wonder when and where the fraud lies.

There is a clause in the law that excludes you from rights you may have to loan modification programs if you associate or join a group that advises you on foreclosure defense. The fact that you read this forum may be sufficient evidence if your LPS could find out. This means that your incumbent state legislators have worked against your interests. Be careful how you vote.

With that understanding I suggest that anyone with a pending foreclosure action IN CALIFORNIA who is no longer being serviced by the original lender and has no possible hope of loan modification should find the form letter for the request and take that positive step to start a defense. BUT YOU MAY BE ON YOUR OWN IF YOU DO!

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