484 B.R. 783
10th Cir. BAP2012Background
- Debtors Trierweiler executed a note to First Interstate Bank and a mortgage naming MERS as mortgagee/nominee; the Mortgage was recorded March 20, 2009.
- FIB sold the Note to Fannie Mae by blank endorsement; Fannie Mae held the Note through Bank of New York while FIB continued servicing.
- Because both FIB and Fannie Mae were MERS members, no assignment of the Mortgage to Fannie Mae was recorded; MERS held the Mortgage for Fannie Mae’s behalf.
- Debtors filed Chapter 7 in May 2010; FIB sought relief from stay to foreclose; an assignment of the Mortgage to FIB occurred the day before the RFS hearing but was not recorded and later withdrawn.
- Bankruptcy court denied relief from stay in August 2010, finding FIB lacked standing/authority to foreclose as real party in interest; Note was in Fannie Mae’s possession.
- Trustee filed adversary December 2010 seeking avoidance of the Mortgage under § 544(a)(3) based on a split-note theory; after trial, the court held no split and that the Mortgage remained properly recorded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does MERS create a split-note and avoid the mortgage under § 544? | Trustee contends split-note doctrine bifurcates Note and Mortgage via MERS. | Appellees argue no split; MERS acts as nominee for lender; Wyoming law follows the note with the mortgage. | No split; mortgage remains valid and enforceable. |
| Does Wyoming law on notice and MERS affect enforceability of the Mortgage under § 544? | Wyoming statute 34-2-122/123 makes MERS’s capacity unrecorded; leads to nonnotice and unenforceability. | Statutes are notice provisions; the Mortgage identifies MERS and lender; notice satisfied; no enforcement defect. | Wyoming statutes are notice statutes; notice satisfied; no unenforceability. |
| May the Trustee avoid the transfer of the Note and Mortgage to Fannie Mae under § 544? | Transfer could render Mortgage unenforceable and avoidable. | Note/Mortgage were transfers between creditors, not transfers of debtor property; § 544 only reaches debtor’s property. | Cannot avoid transfer to Fannie Mae; not a transfer of debtor's property. |
| Did law of the case require finding the Mortgage unenforceable? | RFS order implied FIB lacked standing; law of the case compels unenforceability. | Different issues; RFS ruling concerns standing, not Mortgage validity; law of the case not controlling. | Law of the case did not mandate unenforceability. |
Key Cases Cited
- Commonwealth Property Advocates, LLC v. Mortgage Electronic Registration Systems, Inc., 680 F.3d 1194 (10th Cir. 2011) (rejected split-note theory when MERS is named mortgagee in a deed of trust)
- Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011) (addressed MERS authority and foreclosure standing considerations)
- Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487 (Minn. 2009) (recognizes MERS structure and authority in some contexts)
- In re Halabi, 184 F.3d 1335 (11th Cir. 1999) (limited to transfers of debtor property; note/mortgage transfers between creditors not debtor property)
- In re Lieurance, 458 B.R. 757 (Bankr. D. Kan. 2011) (note secured as a matter of law; assignment timing effects applicability of 544)
- Kasparek (In re Kasparek), 426 B.R. 332 (Bankr. BAP 2010) (trustee cannot avoid unrecorded but debtor-held interests under § 544)
- Colon v. Washington Mutual Bank, 563 F.3d 1171 (10th Cir. 2009) (lien avoidance under § 544 is a mixed question; constructive notice considerations)
- Martinez v. Mortgage Electronic Registration Sys., Inc., 444 B.R. 192 (Bankr. D. Kan. 2011) (discusses MERS and related issues in bankruptcy context)