As of July 3, 2014 Maine might be the hardest place in America for a bank to foreclose on a residential mortgage. On that day, the Maine Supreme Judicial Court released an opinion in Bank of America v. Greenleaf. Though no one disputed that Greenleaf failed to make $70,000 in mortgage payments, Justice Ellen Gorman, writing for the unanimous court, held that Bank of America could not sue for foreclosure.
The loan and mortgage
In November of 2006, Scott and Kristina Greenleaf got a $385,000 loan for a property in Casco, Maine. The lender was Residential Mortgage Services or RMS. Countrywide, which later became BAC Home Loans Servicing, acquired the loan and then Bank of America bought Countrywide/BAC. RMS was named as the lender on the Mortgage, but the mortgage itself was granted to Mortgage Electronic Registration Systems Inc., or MERS.
MERS is not a bank, it’s just a registration system that allows banks to easily buy and sell home loans without needing to file papers in the county registry every time. The mortgage is granted to MERS as a kind of straw man know as a “nominee.” They take no legal interest in the property, they just track the mortgages and facilitate their circulation through the markets. This is especially handy if you want to trade in mortgage backed securities. MERS went live in 1997 and some estimate that it’s the mortgagee in 70% of U.S. Home loans.
The case
When Greenleaf stopped paying, the bank filed a foreclosure suit. To succeed at trial, BAC / Bank of America, needed to show that they owned the loan and the mortgage. Proving the loan was no problem and to prove the mortgage, BAC presented an assignment from MERS. The trial court accepted this and entered a $560,000 foreclosure judgment against the Greenleafs.
Greenleaf appealed and now the high court has held that, since MERS was never the true owner of the mortgage, the assignment from MERS is not sufficient to pass ownership to BAC. The Court wrote:
When MERS then assigned its interest in the mortgage to BAC, it granted to BAC only what MERS possessed—the right to record the mortgage as nominee—because MERS could not have granted to another person or entity any greater interest in the mortgage than that enjoyed by MERS.
The court also found that certain bank records admitted at trial should not have been allowed in, and that the notice or loan default didn’t comply with Maine law.
This is a pretty major decision. I am not aware of any other state that holds MERS can’t assign a mortgage. The notice and records issues also have major implications and banks with cases pending are going to need to figure out if they have complied with Greeneleaf. Some cases might be dismissed fixed and refiled, others might just be dead.
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