The Mortgage Electronic Registration Service (MERS), which was set up to facilitate the quick transfer of mortgages between lenders and the inclusion of the loans in mortgage-backed securities, may not hold water legally in foreclosure proceedings. The Kansas Supreme Court earlier this month affirmed a lower court ruling that denied MERS any standing when it sought to reverse a foreclosure judgment that left out the bank it was standing in for. MERS is often listed as the “mortgagee of record” as a nominee of the actual mortgage-holder. The service was designed to avoid the slow and clumsy process of recording deeds at a county registrar and was similar to a broker serving as stockholder of record for a client. In the Kansas case, the original lender for a second mortgage, Millennia Mortgage Corp., had sold the mortgage to Sovereign Bank. The transaction was registered through MERS, which was then listed as the mortgagee, as it is in millions of other transactions. However, when Landmark National Bank, the lender for a primary mortgage on the property, filed for foreclosure after the homeowner declared bankruptcy, Millennia, which no longer had an interest, did not respond and neither MERS nor Sovereign were involved. After a default judgment that led to the sale of the house and Landmark recovering the full amount of its loan, MERS and Sovereign filed suit for reversal of the judgment, arguing that MERS should have been involved in the foreclosure proceeding.

The lower court rejected the claim and denied the motion, and these decisions were upheld on appeal. The Kansas Supreme Court concluded: • “A party is not contingently necessary in a mortgage-foreclosure lawsuit when that party is called the mortgagee in a mortgage but is not the lender, has no right to the repayment of the underlying debt, and has no role in handling mortgage payments.” • “In a mortgage-foreclosure lawsuit, a district court does not abuse its discretion when it denies a motion to intervene that is filed by an unrecorded mortgage holder or its agent after the mortgage has been foreclosed and the property has been sold.”