OP-ED — The author of this post is a consultant to attorneys in quiet title actions and foreclosure defense matters involving chain of title. However, in this particular instance, I accidentally stumbled upon this federal circuit ruling that merits consideration as to why I believe that your MERS-originated mortgage loan NOTE (and potentially your security instrument that went along with it). You can read it here:
I customarily do not read the entire piece of litigation unless there are specific things regarding real property law I’m looking for; however, in this case, I found some interesting UCC citations specific to Illinois that were referenced by the 7th Circuit Court of Appeals (which I deem fairly conservative in their holdings on cases), in extrapolating what further happens when physical paper is converted into electronic paper, as noted here:
“…banks would drown in paper”
In this particular suit brought by First American Bank, it accused Citizens Bank of destroying a check; in other words, a spoliated (an albeit fraudulent) check, as it had been honored and then “truncated”. This term (in quotes) is important to understand. To clarify, I’ll use the Court’s own wording in the suit:
“The Federal Reserve Board’s Regulation J, 12 C.F.R. § 210.6(b)(3)(i)(A), provides that when a Federal Reserve Bank presents an electronic check (such as the check drawn on First American) for pay- ment, “the electronic image … [must] accurately represent all of the information on the front and back of the original check as of the time that the original check was truncated.” By “truncated” is just meant that an electronic image is substituted for the original paper check.” Id. at 3.
Since your mortgage promissory note is also considered in the realm of debt as a negotiable instrument (even the banks will agree with me on this), the MERS® System relies on the conversion (or truncation) of the note into electronic form in order to be stored on its system. However, you and I both know that MERS does not do the conversions, right? The users of the MERS® System do the conversions and then upload those conversions into individual files within the database known as Mortgage Electronic Registration Systems, Inc. That is what this database was created for, for the storage of electronic files.
Now for the truth of the matter … here is the Court’s own wording:
“There is no duty to retain paper checks after an electronic substitute has been made—otherwise banks would drown in paper—provided there’s a record of the contents of the paper check, as there is of course in this case; we know what the electronic check omitted, and knowing that, we know the information that the original, the paper check, contained.” Id at 5.
I hope you caught the highlighted phrase as to my realization that spoliation of the original note and mortgage (or deed of trust) happened in all MERS-related cases. When you compare how banks used to do business, when you borrowed money from a bank, they would issue a check payable to the seller on your behalf, store the hard documents in their vault … and at least you’d know WHO you were making your payments to every month.
Caveat to this story …
There was also another interesting notation I picked up on while reading through the opinion of the Court:
“Some information that was on the original check was missing from the electronic version, but unavoidably so be- cause it was information consisting of characteristics of the check, such as watermarks, microprinting, or other physical security features that cannot survive the imaging process,” and their absence from the electronic image, being inevita- ble, was not actionable. See Regulation CC, 12 C.F.R. Part 229, App. E, § 229.51(A)(3).” Id at 3
If you continue reading onto page 4 of the Opinion, First American Bank could have demanded a “substitute check”, which is a paper printout “is deemed the legal equivalent of the original paper check.”
The foregoing statement would clearly tell me that a challenge is necessary to all promissory notes contained within the MERS® System because there is no “paper printout” or “substitute check” other than a copy of the electronic note downloaded by the foreclosing entity (most likely a REMIC), which in most cases is clearly missing certain items not found within the original note. Let’s revisit one of the previous mentions of items that cannot survive the imaging process. One of them could seriously be an indorsement on the note, if you consider the current round of “indorsement-in-blank” arguments as to their lack of dating. This is another one of the key reasons I believe that servicers, working in conjunction with the foreclosure mills, deliberately and purposefully create documents out of thin air for the purposes of manufacturing standing.
Also revisit the statement the Court made about what the electronic image must accurately represent (all of the information from the front and back of a check). Why do you think that when you access your online banking checks, you see both sides of the check’s image? You never see that with a promissory note, do you?
A promissory note operates just like a check!
It has to be endorsed among the parties to show the custody of the chain of the note; otherwise, someone could come in at a point in time uncertain to a future borrower and attempt foreclosure upon their home because the chain of custody of the note was not preserved, especially in a “failed beta system” like MERS, which relies on its user-subscribers to “do the right thing” in managing their online transfers; however, there is no requirement by MERS that its user=subscribers even use the MERS® System, so long as they sign an executory contract naming MERSCORP Holdings Inc. (its parent), as the “electronic agent” in the transaction.
And you never see MERSCORP Holdings, Inc. anywhere on your paperwork, do you? Further, once you realize that MERS and MERSCORP require its user-subscribers to indemnify MERS and MERSCORP from all liability for the errors and atrocities in its “system”, you’d also have to believe that MERS and MERSCORP have little (if any) idea what transactions are submitted by its user-subscribers unless they are actually made aware of it. How then can MERS come into Court and say they have an interest in a promissory note they don’t even know is in their own database (or not) or was traded out of its database, when MERS itself did NOT input said data into the database? How’s that possible? Plainly, it doesn’t appear to be the case.
Mortgage States versus Deed of Trust States
Sadly, the difference between the two is that in a Mortgage State, you at least get your day in court. In Deed of Trust States, all foreclosures are deemed to be legal unless otherwise legally challenged.
So the next time you’re looking at your promissory note that you managed to retrieve from the Servicer in a Qualified Written Request, remember what “version” of the promissory note you’re likely to get back. If you lost or destroyed your copy of the files you got at closing, we need to go no further because you have no physical proof of any of the items that could or could have not reproduced on the electronic version. This entire sham process is as bad as the sham check that was tendered to the attorney in this story.
This case does represent a mild test of the Uniform Commercial Code, at least as far as Illinois was concerned. It merits further analysis by your attorney of record, especially when it comes to evaluating what is and isn’t contained within your promissory note.
How then can allonges (as well as indorsements) be attached AFTER the note has been scanned and uploaded into the MERS® System? I don’t see too many attorneys revisiting that angle. Even though I predominantly deal in chain of title issues, this case tells a story of proportions equal to the sum of many promissory notes and merits further research for your understanding into the flow of promissory notes and what you’re actually presented with in Court, especially when MERS is involved.