Kansas Supreme Court Ruling Unfavorable To MERS Getting National Attention?

In Topeka, Kansas, The Lawrence Journal World reports:

• Some are touting a recent Kansas Supreme Court decision as a major development in the protection of people facing foreclosures. In Landmark National Bank v. Kesler, the court ruled unanimously that Mortgage Electronic Registration Systems had no standing to bring action in a foreclosure case.(1) According to some reports MERS holds some 60 million mortgages, over half of all new U.S. mortgages. While the case applies only to Kansas, folks who defend homeowners are saying courts in other states could take note of the ruling.

For more, see Kansas court ruling in foreclosure case getting national attention.

(1) While some (see, for example, Waking up to discover the mortgage market was a giant criminal enterprise) have apparently interpreted this case as holding that MERS had no standing to bring action in a foreclosure case, this is simply an incorrect interpretation. Nowhere in the court's ruling did it "hold" or "find" that MERS lacked standing in the case. It simply ruled that the lower court did not abuse its discretion in denying the motions to vacate a default judgment entered in the case and for joinder in a foreclosure action brought by a prior mortgage holder, and in holding that MERS (putatively representing, and asserting the legal rights of, the 2nd mortgage holder) was not denied due process when a foreclosing 1st mortgage holder failed to serve it with notice of the foreclosure action.

In order for MERS to vacate the default judgment entered in this case, it would have to demonstrate to the court that it had a tangible interest in the mortgage, and demonstrate any injury it suffered because it did not receive service of the foreclosure action from the first mortgage holder. In this regard, the court observed:

• Counsel for MERS explicitly declined to demonstrate to the trial court a tangible interest in the mortgage. Parties are bound by the formal admissions of their counsel in an action. Dick v. Drainage District No. 2, 187 Kan. 520, 525, 358 P.2d 744 (1961). Counsel for MERS made no attempt to show any injury to MERS resulting from the lack of service; in fact, counsel insisted that it did not have to show a financial or property interest.

Given that the attorney for MERS made no attempt to either establish a tangible interest in the second mortgage, or show any injury suffered due to the lack of service, there was no need for the court to make any finding that MERS, generally, lacks standing, is a real party in interest, or (in cases like this one where it is a defendant as a putative second mortgage holder in a foreclosure action brought by the first mortgagee) is a necessary party in foreclosure actions. The court simply made the following finding, explicitly leaving unanswered the question of whether or not MERS was entitled to notice of the foreclosure action from the 1st mortgage holder:

• Even if MERS was technically entitled to notice and service in the initial foreclosure action--an issue that we do not decide at this time--we are not compelled to conclude that the trial court abused its discretion in denying the motions to vacate default judgment and require joinder of MERS and Sovereign. The record lacks evidence supporting a claim that MERS suffered prejudice and would have had a meritorious defense had it been joined as a defendant to the foreclosure action. We find that the trial court did not abuse its discretion and did not commit reversible error in ruling on the postdefault motions.

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• We find that the district court did not abuse its discretion in denying the motions to vacate and for joinder and in holding that MERS was not denied due process.

Presumably, the next time MERS finds itself in a foreclosure action like this one in Kansas in which it seeks to vacate a default judgment, its legal counsel won't fail to make a vigorous attempt to demonstrate that MERS has a tangible interest in the second mortgage, and attempt to establish the injury it suffered by failing to receive service of a first mortgagee's foreclosure action. Only at that point will a Kansas court have the opportunity to consider whether or not MERS, generally, has a sufficient interest in the mortgages it attempts to foreclose so as to make it a real party in interest in the litigation, and whether it has legal standing to be heard in said litigation. EpsilonMissingDocsMtg