District Court Partially Overturns Bankruptcy Court Decision Concerning MERS Authority

On March 28, 2012, U.S. District Court Judge Joanna Seybert vacated part of the decision made by Bankruptcy Court Judge Robert E. Grossman in In re Ferrel L. Agard, 444 B.R. 231 (Bankr.E.D.N.Y. 2011), wherein he concluded that MERS’s “nominee” status did not confirm upon it authority to assign mortgages.  A copy of the decision may be found here.

In Agard, Judge Grossman granted a motion for relief from stay because the movant mortgagor had been determined to be secured to the residence by the state court that issued judgment of foreclosure in its favor.  In addition to granting relief from stay, Judge Grossman concluded that “in all future cases which involve MERS, the moving party must show that it validly holds both the mortgage and the underlying note in order to prove standing before this Court.”  Id at 254.

Subsequent to the issuance of the decision in Agard, Agard appealed Judge Grossman’s order granting stay relief.  MERS moved, as an intervening party, for reconsideration and cross-appealed the order granting relief from the automatic stay.  Judge Grossman denied MERS motion for reconsideration on April 8, 2011.  MERS appealed the denial of its motion for reconsideration.  Agard later withdrew her appeal.

On appeal, MERS argued that to the extent that Judge Grossman’s decision addresses issues beyond the application of the Rooker-Feldman doctine and res judicata, the Agard decision was an unconstitutional advisory opinion requiring vacatur.   Judge Seybert agreed and observed that once Judge Grossman determined he was barred from revisiting the movant’s status as a secured creditor as a result of the judgment of foreclosure entered by the state court, the Bankruptcy Court lacked subject matter jurisdiction over the dispute.  She determined, accordingly, that Judge Grossman’s conclusion that MERS lacked authority to assign the subject mortgage had no effect on the parties before him.   As a result, she directed that his decision in Agard addressing the hypothetical question concerning the standing of the movant to seek relief from stay, in the absence of a judgment of foreclosure, be vacated as to his ruling on this issue.

While the vacatur of part of the Agard decision prevents the case from being cited as authority for the proposition that MERS, in its capacity as nominee, lacks standing to assign mortgages, it should not dissuade practitioners from taking up the issue in a future case where judgment of foreclosure has not been entered or from using Judge Grossman’s observations as grounds to object to relief from the automatic stay.

Judge Seybert’s decision was entered in the consolidated appeals before the District Court in Agard v. Select Portfolio Servicing, Inc., case no. 11-cv-1826 and Mortgage Electronic Registration Systems Inc. v. Ferrel L. Agard, et al, case no. 11-cv-2366, both arising out of Ferrel L. Agard’s Chapter 7 bankruptcy case, case no. 10-77338-REG.

The views expressed on this post are mine and do not necessarily reflect the views of LH&M.

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