The United States Bankruptcy Court for the Eastern District of California has issued a ruling dated May 20, 2010 in the matter of In Re: Walker, Case No. 10-21656-E-11 which found that MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp. The Court’s opinion is headlined stating that MERS and Citibank are not the real parties in interest.
The court found that MERS acted “only as a nominee” for Bayrock under the Deed of Trust and there was no evidence that the note was transferred. The opinion also provides that “several courts have acknowledged that MERS is not the owner of the underlying note and therefore could not transfer the note, the beneficial interest in the deed of trust, or foreclose on the property secured by the deed”, citing the well-known cases of In Re Vargas (California Bankruptcy Court), Landmark v. Kesler (Kansas decision as to lack of authority of MERS), LaSalle Bank v. Lamy (New York), and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court).
MERS was the 'nominee' (really, a bundle-and-transfer) outfit which pipelined a lot of mortgages from brokers and small Banks up to larger outfits like Bear and Citi.
This will be a helluva mess. Yes, the BigBanks do NOT have to write off the mortgage. But then, they also have to take the asset off their books because (according to this opinion) it is NOT their asset.
And what of Little Broker who wrote the deal? Well, he'll have to eat the losses. But then, he'll be able to recover the P&I payments made to BigBank, right?