MORTGAGE ELCTRONIC REGISTRATION SYSTEMS, INC. V LISA MARIE CHONG, LENARD E SCHWARTZER, BANKRUUPTCY TRUSTEE, ET AL

Dist Ct. Case No. 2-09-CV-00661-KJD-L

Bankr. Ct Case No. BK-S-07-16645-LBR

MERS_Hawkins-DistCtAffirmsBK

Appeal by MERS from Bankruptcy Court decision denying MERS’ motion for lift of automatic stay in 18 cases. Affirmed by District Court.

The significance of this decision is that it gives a simple explanation for the findings by dozens of other judges. Here are the salient points of this decision:

1. Just because the document SAYS that an entity is the beneficiary doesn’t mean that is either true or dispositive. It is merely an allegation that is subject to the test of judicial process. The courts look to”Substance over form” rather than the other way around. Otherwise ANYONE could come in with paperwork of any kind and whether it was right or not, make a successful claim against you. [Litigation Hint: You only want to pay your real creditor, not some imposter. So you raise the question in a credible way and seek expedited discovery to show you are not trying to delay anything. After all the answers and paperwork you are seeking should have been in the possession of the forecloser before they initiated proceedings.)
2. In the context of a motion for lift from stay, the burden is on the movant (MERS in this case) to establish to prove it is the real party in interest. This is a standing issue and can be raised at any time because standing is jurisdictional. In order to prove their status as real party in interest they must now file a pleading that contains the story of how they got to be the real party in interest.
3. The Judge ruled that since MERS, by design, neither took in any money nor paid it out it could not be the real party in interest. A real party in interest is one who has advanced actual money in the transaction, while MERS serves only as a “bookkeeping” service in a shell game designed to confuse or obscure the identity of the real party in interest.
4. The same logic applied to its claim that it was a beneficiary. MERS produced no evidence that they ever advanced any money to fund the loan, admitted that they would not lose money if the obligation not was paid and could not show that they were in fact (as counsel had represented to the court) an authorized agent for the real creditor. An essential background or context to this ruling is that MERS refused to identify the real party in interest, who would be the real beneficiary of the promise to pay, or obligation.
5. The breakthrough of this opinion was that a statement in a document, whether recorded or not, is not a proof of the matter asserted. The matter asserted was that MERS was a beneficiary and their only reason for saying so is that the deed of trust said it. While the Judge would give the benefit of a reputable presumption that a recitation in a document is true, the presumption is eviscerated merely by challenge based upon (a) information to the contrary, like a expert written signed and perhaps notarized report and (b) and references to the MERS’ Website where it quite explicitly says it will take no interest in the obligation,note or mortgage.
   1. At that point it is the burden of MERS to file a pleading that tells the story of why it is the real party in interest.
   2. Even before that pleading is filed, you seek expedited discovery and an expedited evidentiary hearing on this issue alone. Here is where the rubber meets the road. An attorney’s rhetoric is neither information nor evidence. An objection to the lawyer’s comments is appropriate seeking to have the lawyer contain his comments to either matters that are already in evidence (I.e, accepted by the judge and stamped as such by the clerk) or legal matters that would effective the quality or credibility of the evidence. Instead he will try to replace their burden of proof with rhetoric — the old two-step. If the lawyer wants his rhetoric treated as true, then he must become a factual witness, and probably quit the case because he is a material witness. In any event, if he chooses to represent facts to be accepted by the court into evidence, then like any other witness he must take the witness stand, be sworn in,establish his first hand knowledge (personal knowledge) of the events, how he came into possession of this knowledge and who else has knowledge regarding these documents. He would be subject to cross examination which is the subject to the lessons I am preparing for laymen and lawyers.

PRACTICE NOTE: Here was a Judge who “got it.” He was alarmed that the wrong party was in court and curious as to why the right party was not present. That is the nub of your strategy and tactics. The potential invalidity or enforceability of the obligation, note or mortgage is a secondary, deeper issue that should arise only after it is clear that, as here, MERS did not have the note or other documents to show any standing and even admitted it, tried to withdraw its motion but was NOT ALLOWED TO WITHDRAW THE MOTION TO LIFT STAY ON THE TRUSTEE’S OBJECTION. 27 cases went down with this ruling. Why did MERS try to withdraw the motion? In my opinion it was because the argument had shifted from theoretical legal argument to hard facts.

EVIDENCE NOTE: There are substantial differences between rhetoric (argument), information, and evidence. Those who know the differences are more likely to prevail than those who don’t.

Of particular note is the Court’s mention that while the Deed of Trust NAMED MERS as beneficiary of the note, there was no mention of the identity of the CURRENT beneficial owner of the note. And perhaps of even greater significance is the failure to identity any successors in interest. This is the case in securitized obligations, notes, and mortgages even where MERS is NOT involved.

Tags: bankruptcy court, MERS, motion to lift stay, realparty in interest, standing
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