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Where's The Note? Ownership of Mortgage Note Key in MERS Cases: Comparing Sachar and Agard

I wrote on March 9 about the Agard bankruptcy decision by the Easterd District of New York Bankruptcy Court, issued February 10, finding that MERS (Mortgage Electronic Registration Systems. Inc.) did not have thge authority, under New York law, to assign a mortgage.

Since then, another New York court has written on the issue: Bank of New York v. Sachar (Bronx County Supreme Court case #0380904/2009; Hon. Lucindo Suarez, decision March 3, 2011.) In Sachar, the Court did find that MERS had the authority to assign a mortgage, and permitted a foreclosure to go forward. I wish to acknowledge my appreciation to Karmela Lejard of MERS for providing me with a copy of the Sachar case.

The legal issues in both cases are approximately the same. As Sachar put it, on page 2 of the decision, the bank "must establish that it is the holder or assignee of both the mortgage and the note, as an assignment of the mortgage without an assignment of the underlying debt is a nullity."

Two differences - one factual, one legal - differentiated Agard from Sachar. First the factual difference. In Sachar, the foreclosing bank, The Bank of New York Mellon Trust Co., apparently proved that it owned the mortgage note. "Plaintiff has also provided sufficient documentation that it was (and is) the holder of the underlying mortgage documentation at the time of the commencement of this action. . . Although the assignment refers only to an assignment of the mortgage, physical delivery of the note is sufficient to transfer the obligation [citation omitted] and plaintiff has established that the note was delivered to it prior to the commencement of this action."

In contrast, the noteholder status in Agard is unclear: "However, the record demonstrates that the Movant has produced no evidence, documentary or otherwise, that U.S. Bank is the rightful holder of the Note." (At page 21.)

Besides evidentiary differences, the two courts disagree over the significance of language in the mortgage document showing that MERS was acting as an agent of the bank. The mortgages in both cases included identical language: "[The Borrower] understand[s] and agree[s] that MERS holds only legal title to the rights granted by [the Borrower] in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lenders's successors and assigns) has the right: (A) to exercise any or all those rights, including, but not limited to, the right to foreclose and sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument." Agard at page 28; see also Sachar at page 3.

For the court in Agard, this language confers nothing on MERS. "There are several published New York state trial level decisions holding that the status of "nominee" or "mortgagee of record" bestowed upon MERS in the mortgage documents, by itself, does not empower MERS to effectuate an assignment of the mortgage. These cases hold that MERS may not validly assign a mortgage based on its nominee status, absent some evidence of specific authority to assign the mortgage." (At page 29; see cases cited there.)

Sachar, on the other hand, cites the same language and concludes the plaintiff bank "has shown that the mortgage contract confers broad powers upon MERS as nominee to act on the original lender's behalf." (Page 2.) The Sachar decision cites an arlier New York State Supreme Court decision, US Bank, NA v. Flynn, 127 Misc, 3d. 802; Suffolk County Supreme Court, March 12, 2010), while Agard follows another NY Supreme Court case, Bank of New York v. Alderazi, 28 Misc. 3d 376, Kings County Supreme Court, April 19, 2010.)

Whether Agard (and Alderazi) or Sachar (and Flynn) prevail as the New York law interpretation of the rights of MERS to assign mortgages is unclear at this point. In my analysis, though, the ownership of the mortgage note will be an important piece of evidence in foreclosure and bankruptcy proceedings.

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