1 Gray, Marisa Business Law, MGMT 525, Fall 2011 Instructor: Douglas W.

McNett

Using the format suggested in the Appendix of Chapter 1 (pg.24-25) draft case briefs for the holdings of the Kansas Supreme Court Decisions in Landmark Nat'l Bank v. Kesler, 289 Kan. 528 (2009) and Mortgage Elec. Registration Systems v. Graham, 44 Kan. App. 2d 547 (2010).

1. Case Name: Kansas Supreme Court Landmark National Bank v. Kesler 289 Kan. 528 (2009) Mortgage Electric Registration Systems v Graham, 44 Kan. App 2d 547 (2010) 289 Kan. 528 (2009) 44 Kan. App 2d 547 (2010)

2. Statement of Facts The Supreme Court of Kansas issued a ruling that has implications for the mortgage industry.

The authority of Mortgage Electronic Registration Systems, Inc. (MERS) as listed as the actual owner of the registered loans.

2 In March 2004, Boyd Kesler secured a loan from Landmark National Bank with a mortgage registered in Kansas. The following year, he secured a loan from Millennia Mortgage Corporation (Millennia), which was registered in MERSa name and subsequently transferred to Sovereign Bank (Sovereign) but there is not record of the transfer. In 2006, Kesler filed for bankruptcy and Landmark filed a petition to foreclose on its mortgage.

Sovereign then filed a motion to set aside or vacate the default judgment shortly thereafter because MERS was a statutorily necessary party to the suit. Since MERS was not named as a defendant as the mortgagee of record, Sovereign did not receive notice of the proceedings. The trial court determined Sovereign was barred from asserting rights to the mortgage because it had not properly registered its ownership interest with the county clerks office. Additionally, the court determined that even though MERS was named as a mortgagee, it had no interest in the underlying property.

In the second case, the Plaintiff, Michelle Martinez now Graham, filed the complaint to determine secured status pursuant in objection to the proof of claim filed by Countrywide. She feels she is entitled to judgment against MERS because she owes no debt to MERS. She claims she is entitled to, an ordering sustaining her objection to the Proof of Claim filed by Countrywide, which was a secured claim. Country is effectively unsecured, and is not the holder of the

3 mortgage originally intended to reserve.

The question becomes whether the identities of mortgages and lenders are so intertwined and if separated they might invalidate the mortgage. Michelle Graham delivered a promissory note to Countrywide where she promised to pay Countrywide the sum of $140,000.00 plus interest. The loan was made to Graham to purchase real property located in Topeka, Kansas. Countryside has remained the holder of the Note since Graham signed it.

3. The body of the courts decision. The court ruled that if MERS is only the mortgagee, without ownership, it had no enforceable right because it was not entitled to any property. The court affirmed the Kansas Court of Appeals, saying that the trail court did not abuse its discretion in denying the motions to vacate the default judgment because the record lacked evidence. In the second case, Countryside appointed MERS to act as its agent to hold the Mortgage as nominee on Countrywide S behalf, and on behalf of Countrywides successor and assigns. MERS was created to hold legal title to mortgages (or deeds of trust in non-judicial foreclosure states. Its intent was to eliminate the need for mortgage assignees to record assignments to protect their interest and facilitate the purchase and sale of mortgages in the secondary market.

4 4. The policy issue, however, is the most far-reaching. In discussing the amicus curiaes argument that MERS provides a cost-efficient method of tracking mortgages without needing a county-by-county search, the court raised the concern that a single entity holding a multitude of mortgages made it difficult to identify the current note holder. Further, the court stated MERS was attempting to circumvent the statutory registration requirement for notice, leaving the public with no notice of who holds the obligation on a mortgage. This decision is notable because it weakens the MERS system. While the ruling is only binding in Kansas, the outcome could mean other jurisdictions will take a harder look at whether MERS has adequate standing as a creditor in a bankruptcy or foreclosure proceeding. The wider impacts could be felt as courts push for more transparency in the ownership of mortgages, which would require the registration of many deeds previously recorded only in MERS.

5. Procedural History MERS filed a foreclosure action against Debtor in state court because the last regular payment Graham had made was in May 2004. In February 2005, the bankruptcy was dismissed prior to confirmation when Debtor failed to timely file and amended plan, as the Court required. Three months later, May 2005, Debtor filed a second bankruptcy petition, but again she failed to make timely pay the amounts due on the Note. During the litigation, Debtor asserted that because MERS was Countrywides agent, it should be responsible for the same acts as Countrywide.

5 6. The body of the courts opinion In February 2008, the court granted summary judgment to MERS on its foreclosure claim, and to both MERS and Countrywide on Debtors counterclaims and third party claims, against them.

7. Courts Decision The Court finds the summary judgment should be entered in favor of the Defendants in this case. Although the Mortgage was held by MERS and the Note was held by Countrywide, evidence demonstrates that MERS was acting as an agent for Countrywide and no fatal splitting of the Note and Mortgage occurred. The wider impact was a push for more transparency in the ownership of mortgages, which would require the registration of many deeds previously recorded only in MERS.

References: www.ksb.uscourts.gov/images/ksb_opinions/JMK_10-07027-58.pdf www.landmark-natl-bank-v-kesler