The Proper Role of MERS in Kansas

MERS: A Non Necessary Party to Foreclosure in Kansas Landmark National Bank (Plaintiff/Appellee) v. Kesler

Case Law
(Appellee/Cross-Appellant) Millennia Mortgage Corporation
(Defendant), MERS (Appellants/Cross-Appellees) and Bristow and
Woydziak (Intervenors and Appellees)
September 9, 2008

A foreclosure proceeding was brought against Kesler by Landmark National Bank. Millennia Mortgage Corporation was joined by Landmark as a defendant because of a second mortgage on a loan between Kesler and Millennia. Landmark sought for a default judgment when both defendants failed to appear. The Court granted and issued a default judgment and recorded such entry. It also ordered the property to be sold at an auction so that proceeds of sale can be applied to the judgment debt as secured by the mortgage.

After sometime, Sovereign Bank filed a motion to set aside the default judgment claiming that it has an interest and title over the Kesler's obligation to pay the debt to Millennia. On the other hand, Mortgage Electronic Registration Systems, Inc. (MERS) filed also a motion to set aside judgment on the ground that it also held legal title over the mortgage, initially on behalf of Millennia then later on behalf of Sovereign. Both claim that MERS should have been joined as a necessary party as a defendant and therefore, its non inclusion would have the effect of setting aside the judgment as it did not give a complete relief on all issues raised.

The trial court refused to reconsider and set aside its decision. Hence, the parties filed an appeal before the Court of Appeals of the State of Kansas.

Bristow and Woydziak are the buyers of the foreclosed property at the public auction. Both joined with Kesler on cross appeal to raise the issue of preventing them from finalizing the sale of the property.

The two issues that must be resolved by the appellate court are: a) Whether or not MERS was a necessary party; and b) whether the claims of Kesler, Bristow and Woydziak can be properly raised before the instant appeal.

Anent the first issue, the appellate court explained that under Kansas law any assignment of mortgage carries with it the debt or loan secured by the mortgage, therefore an assignment of mortgage must necessarily transfer the debt to. However, due to the need of a group of lenders who trade mortgages, the MERS was established for efficient electronic trading and tracking of mortgages whereby MERS is the mortgagee but only as a nominee for the lender. MERS therefore holds title over the mortgage but not title or rights to the debt. Thus, it is logical to conclude that MERS merely acts as agent to Millennia as it is authorized to do so by it. MERS cannot act against or contrary to the will or authority of Millennia and since it chose not to appear before the trial court to assert its title or rights, MERS as agent cannot also do so since this will run counter to the action of Millennia. Moreover, MERS as a nominee for the lender is merely a nominal necessary party to the case. A necessary party is one who is so situated in the circumstances of the case that without him there would substantially impair or impede the ability to protect an interest. In the instant case, MERS is not so situated considering that it is not even assigned ownership or rights that may be impaired if it is not joined as a party to the case.

Based on the foregoing discussion, the trial court did not abuse its discretion in refusing the setting aside to the judgment by reason of the absence and non inclusion of MERS in the instant complaint.

Anent the second issue, the appellate court ruled that Bristow, Kesler and Woydziak raise new issues not raised and passed upon by the court in the original case and therefore it is not proper to take them up for the first time on appeal. An appeal is basically a review by a higher court of the findings of fact and law involved in a case before the trial court.

Lesson Learned: This case was originally heard by the Ford District Court of Kansas and was appealed later on to the Court of Appeals of the State of Kansas.

The Court had the occasion to clarify and define the role played by MERS in cases or complaints for foreclosure. MERS is created out of necessity for efficiency of the trading and tracking of mortgages by a group of lenders. MERS is a mere nominal party and agent of the lender and therefore cannot assert rights or perform acts that are not authorized by the principal/lender.

This case is significant considering that it reminds us of the importance of knowing the distinctions between proper indispensible parties to a lawsuit and necessary parties without which, a judgment already rendered may be set aside.

Written by Kevin Levonas and Giselle G