Containing Distressed Home Listing May Be Possible
A Kansas bankruptcy judge has issued a ruling that gives hope to Nevada homeowners who want to save their properties from distressed home listing. The judge said that in many foreclosure cases resulting from bankruptcy proceedings, the repossession is being set off by a lender’s representative.
The judge questioned the legal right or equity stake of a surrogate in the bankruptcy proceedings. As a result of the ruling, it is quite conceivable that homeowners who are filing for bankruptcy protection may save their properties from distressed home listing.
Nevada homeowners, who are planning to file a class action lawsuit, have learned about the argument that a lender’s representative could not trigger foreclosure. They are now seeking a preliminary injunction to stop lenders from foreclosing their distressed homes.
Law and custom dictate that property deals be recorded with county clerks, together with necessary information about individuals who hold the mortgage. In the case of multiple mortgages, information about each creditor is required.
For major lenders, tracking the information in various jurisdictions across the United States was burdensome. This led the Federal Home Loan Mortgage Corp, and Federal National Mortgage Association to establish a company tasked to do the tracking electronically. This electronic tracking is called Mortgage Electronic Registration Systems or MERS.
The MERS produced millions of mortgages, with over 987,000 loans in Nevada. This means that once homeowners started missing their loan payments, the system would announce the defaults on behalf of bank clients. Lawyers of distressed homeowners and consumer activists have questioned whether the system, which represents lenders but do not have direct financial interest on loans could legally set off foreclosure. However, many judges do not fully accept the argument.
Some industry experts questioned the existence of MERS and the legitimacy of loans recorded under its name. They argued that MERS do not have the ownership interest, adding that MERS name is used instead that of the lenders.
A class action lawsuit has been filed by several distressed homeowners who are seeking to invalidate MERS’ right to trigger foreclosure. The case of homeowners will rely on a recent Kansas Supreme Court decision that MERS does not have the right to underlie repayment of debts secured by the mortgage.




