Mastering Loan Modifications, Mortgages, & Foreclosures

Mastering Loan Modifications, Mortgages, & Foreclosures

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Electronic copy available at: http://ssrn.com/abstract=1958645

Zacks Final Edit 9/5/2011 4:34 PM

551

Articles

STANDING IN OUR OWN SUNSHINE: RECONSIDERING

STANDING, TRANSPARENCY, AND ACCURACY

IN FORECLOSURES

Dustin A. Zacks

―Most of the shadows of this life are caused by our standing in

one‘s own sunshine.‖

—Ralph Waldo Emerson1

I. INTRODUCTION

Mortgage Electronic Registration Systems, Inc. (MERS) appears

across the nation in thousands of court actions as the party seeking to

foreclose a mortgage or lift an automatic stay in bankruptcy court.2

MERS‘s name is also brought into such actions when an assignment of a

mortgage is produced from MERS to the foreclosing or moving entity.3

MERS is an entity that is listed on millions of loans as the mortgagee or

Dustin A. Zacks is an associate at Ice Legal, P.A. B.A., University of Michigan,

2004; J.D. University of Michigan Law School, 2007. I am immensely grateful to Enrique

Nieves, III and Eric Zacks for their comments and suggestions on earlier drafts. The views

expressed herein are solely those of the author and should not be attributed to the author‘s

firm or its clients.

1. WISDOM FOR THE SOUL 644 (Larry Chang ed., 2006).

2. See, e.g., Mike McIntire, Tracking Loans Through a Firm That Holds Millions,

N.Y. TIMES, Apr. 24, 2009, at B1 (noting that ―[i]n the last few years, banks have initiated

tens of thousands of foreclosures in the name of MERS—about 13,000 in the New York

region alone since 2005‖).

3. Robo-Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage

Servicing: Hearing Before the Subcomm. on Hous. and Cmty. Opportunity H. Fin. Servs.

Comm., 111th

Cong. 105 (2010) (statement of R.K. Arnold, President and CEO of

MERSCORP, Inc.) [hereinafter Mortgage Servicing Hearing], available at

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_house_hearings&docid=

f:63124.pdf.

Electronic copy available at: http://ssrn.com/abstract=1958645


552 Q U I N N I P I A C L A W R E V I E W [Vol. 29:551

beneficiary under a deed of trust, but explicitly only in its capacity as

nominee for the original lender and the lender‘s assigns.4 As the

mortgagee or beneficiary on the mortgage or deed of trust, the company

often appears as the foreclosing entity on delinquent loans or as the party

seeking to lift an automatic bankruptcy stay when a homeowner has filed

a personal bankruptcy.5 When MERS does not foreclose or move for

relief from an automatic stay, it assigns the mortgage to the entity taking

such action.6

The basis upon which MERS has the right to foreclose, lift a stay,

or assign a mortgage is newly developing, and courts of all levels have

wrestled with exactly why MERS possesses or lacks standing.7 Even

though in 2006, 99.7% of loans registered on the MERS system were not

in foreclosure, MERS has recently gained some measure of notoriety

over the skyrocketing number of foreclosures in which its name

appears.8 In light of this young company‘s recent explosion into the

nation‘s legal system, courts have taken a variety of positions on

MERS‘s standing, and indeed MERS‘s own positions in different courts

are often directly contradictory on the issue. One of the core criticisms

of this Article is that MERS‘s arguments to courts are so numerous and

contradictory as to make pinning down one core theory of standing

impossible. In this way, foreclosing or appearing in court in the name of

MERS provides an immense amount of flexibility to argue for its

standing, regardless of the underlying merit or veracity of those theories.

MERS has drawn fire not only for its varying theories of standing,

but also for the implications of its widespread use in mortgages and

deeds of trust.9 Loans originated in MERS‘s name list MERS as the

mortgagee or beneficiary, and the public records list MERS in that

4. See McIntire, supra note 2; FREDDIE MAC, FLORIDA—SINGLE FAMILY—FANNIE

MAE/FREDDIE MAC UNIFORM INSTRUMENT (MERS) FORM 3010 (2011) available at

http://www.freddiemac.com/uniform/mers/doc/MERS3010FL.doc. This language states that:

“„MERS‟ is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation

that is acting solely as nominee for Lender and Lender‟s successors and assigns.” Id. For a

more thorough description of MERS, see discussion infra Part II.

5. See discussion infra Part II.

6. See discussion infra Part II.

7. See, e.g., Mortg. Elec. Registration Sys., Inc. v. Sw. Homes, 301 S.W.3d 1 (Ark.

2009); Chase Home Fin., LLC v. Fequiere, 119 Conn. App. 570, 989 A.2d 606 (2010);

Landmark Nat‘l Bank v. Kesler, 216 P.3d 158 (Kan. 2009).

8. David F. Borrino, MERS: Ten Years Old, USFN

http://usfn.org/AM/Template.cfm?Section=Home&template=/CM/HTMLDisplay.cfm&Conte

ntID=3888 (last visited Aug. 8, 2011).

9. See, e.g., Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and

the Mortgage Electronic Registration System, 78 U. CIN. L. REV. 1359, 1374–97 (2010).

http://www.freddiemac.com/uniform/mers/doc/MERS3010FL.doc


2011] STANDING IN OUR OWN SUNSHINE 553

capacity—despite the fact that MERS does not own the equitable interest

in the loans, meaning that it is not entitled to the proceeds of a

foreclosure action, whether in terms of property or in terms of proceeds

from auction.10

In the public records, MERS remains the mortgagee or

beneficiary for the life of the loan, regardless of how many times the

original lender transfers the underlying interest.11

Thus, some

commentators have argued that MERS obfuscates the informational

goals of public recording statutes.12

This informational disparity created

by MERS means that, for example, homeowners cannot look to the

public records to determine who currently owns the beneficial interest in

their loan, as they could before the ascendancy of MERS.

Commentators have maligned MERS for this change in the information-

bearing capacity of the public records on the additional grounds that the

changes in recording practices have not been affirmed by democratic

changes in recording laws.13

Part II of this Article provides a brief overview of MERS‘s

creation, development, and usage. Part III explains when MERS might

appear in courts around the country. Part IV explores the different

theories of MERS‘s standing, including: 1) actual ownership of a note, a

mortgage, or both; 2) Uniform Commercial Code (UCC) statuses, e.g.,

being a holder of a negotiable mortgage note; 3) status as ―nominee‖ of

the entity with the beneficial ownership in the loan; 4) having a form of

agency that is different from nominee status; and 4) legal title, equitable

title, or both as mortgagee. Part V engages the nascent jurisprudence

under which courts have examined different theories of MERS‘s

standing to foreclose, lift a stay, and assign mortgages, deeds of trust,

and notes. Part VI examines the most common public-policy criticisms

of MERS, including the information disparities it created without

democratic input, and the contradictory theories regarding its standing to

foreclose that it has asserted to various courts. Part VII examines

possible solutions to problems presented at MERS by altering disclosure

at origination, by changing MERS‘s burden of proof in courts, or by

MERS deciding unilaterally to cease foreclosing in its own name. Part

VIII proceeds to examine possible legislative and unilateral responses to

MERS emanating from state legislatures, Congress, lenders, and the

Government Sponsored Entities. Part VIX proposes that MERS be

10. Id. at 1361.

11. Id. at 1361–62.

12. See, e.g., id. at 1400–04.

13. See, e.g., Peterson, supra note 9, at 1404–06.



strengthened and further regulated to create a nationwide alternative

recording system.

Through an examination of the current state of the law, this Article

argues that MERS‘s amorphous nature creates innumerable

inconsistencies in MERS‘s arguments for standing from case to case.

The varying choices of theories of MERS‘s interests in loans result in

the majority of courts granting MERS standing to foreclose, lift a

bankruptcy stay, or transfer rights to mortgages via assignment. The

Article further explores the numerous problems inherent in both

legislation supporting MERS‘s legality and in legislation outlawing

MERS‘s current way of proceeding through courts. Although MERS

announced that it will cease from foreclosing in its own name in the near

future,14

the issues surrounding MERS that confront courts, the public,

and legislatures will remain prominent through the many cases already

filed in MERS‘s name, through the voluminous MERS assignments still

filed daily in courts, and through mortgages still being originated in

MERS‘s name.

This Article proposes that the best solution to the problems raised

by widespread use of MERS is to neither outlaw MERS nor to explicitly

ratify its appearance in court actions and in mortgages, but rather to

bolster its information-providing capacity by forcing it to store actual

electronic documents that were previously recorded at the local

recording level, such as mortgages and assignments. The Article further

argues that providing more regulatory oversight of the accuracy of such

a bolstered MERS system would eliminate many concerns regarding the

accuracy of its records. In this way, we can preserve local jurisdictions‘

judicial autonomy to make their own decisions about the validity of

MERS‘s standing in courts, while allowing MERS to grow into a

modern alternative to outdated and inefficient recording practices that is

MERS‘s very raison d’être.

II. WHO THE BLEEP DID I MARRY?: MORTGAGE ELECTRONIC

REGISTRATION SYSTEMS, INC.‘S APPEARANCE ON THE

NATIONAL SCENE

The Investigation Discovery channel currently airs Who the Bleep

14. MERSCORP, INC., RULES OF MEMBERSHIP 8(d) (2011), available at

http://www.mersinc.org/files/filedownload.aspx?id=172&table=ProductFile (prohibiting

MERS members from foreclosing in MERS‘s name after July 22, 2011). See discussion infra

Part VI.F.



Did I Marry?, a program that recounts harrowing tales of people who are

happily married, only to find out that their spouse is, for example, a spy

or a bank-robber.15

Attorneys defending against foreclosures or filing

personal bankruptcies will no doubt encounter similarly bewildered

expressions when an average homeowner asks them: ―Who the bleep is

MERS, and why are they appearing against me in court?‖

The reason for the confusion is that MERS is a separate and distinct

company from any original lender or servicer that is the party with

whom a mortgagor is most likely to have had dealings. It is highly

unlikely that mortgagors signing a MERS mortgage when buying a

home understand exactly to whom they are granting a mortgage, or why.

MERS, incorporated in 1995, was created to eliminate the need for

written and recorded assignments every time the ownership rights in

loans are transferred.16

Recording a mortgage in the name of MERS as

nominee for the lender and its assigns means that lenders do not have to

deal with the lengthy, error-prone, and expensive process of drafting and

recording assignments every time the underlying ownership of the

mortgage changes.17

Regardless of how many times the underlying

ownership in the loan is transferred, MERS remains the mortgagee of

record.18

This reduction in the need for assignments led MERS to

predict yearly savings of $200 million for lenders and servicers.19

Since

1997, sixty-six million loans have been registered on the MERS

system.20

These loans, as long as they remain in the MERS system, will

continue to have MERS listed as the mortgagee on the public records of

the county in which the property is located.

MERS is a subsidiary of MERSCORP, Inc., which is ―a privately

held stock company. [MERSCORP Inc.‘s] principal owners are the

Mortgage Bankers Association, Fannie Mae, Freddie Mac, Bank of

America, Chase, HSBC, CitiMortgage, GMAC, American Land Title

15. See Who the (BLEEP) Did I Marry?, INVESTIGATION DISCOVERY,

http://investigation.discovery.com/tv/who-the-bleep/ (last visited Aug. 8, 2011) (noting that

―these compelling and sometimes startling characters will have viewers shaking their heads in

disbelief and wondering how the truths behind these scandalous spouses were kept hidden for

so long‖).

16. R.K. Arnold, Yes, There is Life on MERS, PROB. & PROP., July/Aug. 1997, at 32,

33–34. In the interest of brevity, I have attempted to avoid an unnecessary duplication of the

many articles which already explain the genesis of MERS. For a more detailed explanation of

the development of MERS, see Peterson, supra note 9, at 1368–74.

17. Arnold, supra note 16, at 33.

18. Id.

19. Id. at 35.

20. Mortgage Servicing Hearing, supra note 3, at 102.

http://investigation.discovery.com/tv/who-the-bleep/



Association, and Wells Fargo.‖21

MERS‘s day-to-day functioning

depends on its members. These members consist of about 3000 lenders,

representing nearly all mortgage lenders.22

These members may certify

their employees to sign documents, such as assignments of mortgages,

on behalf of MERS.23

MERS itself has few employees but has over

20,000 ―certifying officers.‖24

It is from this unique structure that many

criticisms of MERS arise.

III. ENCOUNTERS WITH MERS

MERS‘s interests in notes and mortgages are examined in a number

of different settings. First, state courts have reviewed extensive

challenges to MERS‘s standing to foreclose under state law.25

Next,

state and U.S. federal district courts have considered challenges of non-

judicial foreclosures26

conducted by MERS.27

Third, U.S. bankruptcy

courts have examined MERS‘s status when the company moves to lift an

automatic bankruptcy stay so that foreclosure proceedings at the state

court level may proceed.28

Finally, courts of all levels have encountered

21. Id. at 96 n.1.

22. Id. at 92, 96.

23. See id. at 103.

24. Mortgage Servicing Hearing, supra note 3, at 170 (―As of November 15, 2010,

MERS has 20,302 certifying officers who work with the more than 31 million active loans

registered on the MERS system.‖).

25. See, e.g., Landmark Nat‘l Bank v. Kesler, 216 P.3d 158, 164–69 (Kan. 2009);

Mortg. Elec. Registration Sys., Inc. v. Johnston, No. 420-6-09 Rdcv, 2009 Vt. Super. LEXIS

15, at *18–29 (Sup. Ct. Rutland County Oct. 28, 2009).

26. For a succinct explanation of the distinction between judicial and non-judicial

foreclosure, see Dan Immergluck, et al., Legislative Responses to the Foreclosure Crisis in

Nonjudicial States, at 3–5 (Jan. 2011) (unpublished manuscript), available at

http://ssrn.com/abstract=1749609. Non-judicial foreclosures are distinct from judicial

foreclosures in that judicial foreclosures incorporate judicial supervision over all steps of the

foreclosure process. Id. at 3. In most judicial states, the judicial foreclosure process proceeds

much the same as any other traditional lawsuit. Id. Lenders or servicers appear as plaintiffs

and sue defendant-homeowners. Id. In non-judicial foreclosure states, by contrast, lenders

and servicers can proceed directly to a foreclosure sale without judicial fiat after filing an

initial notice, unless the homeowner files a lawsuit as a plaintiff alleging, for example,

wrongful foreclosure based upon lack of standing or lack of proper notice. Immergluck, et al.,

supra at 3. For purposes of this Article, because MERS appears in judicial as well as non-

judicial states, a discussion of both types of MERS litigation is necessary.

27. See, e.g., Champlaie v. BAC Home Loans Servicing, 706 F. Supp. 2d 1029, 1047–

51 (E.D. Cal. 2009).

28. See, e.g., In re Huggins, 357 B.R. 180, 184 (Bankr. D. Mass. 2006).



class action or wrongful foreclosure suits against MERS filed by

homeowners who have lost their homes through foreclosure.29

This Article focuses primarily on the first three scenarios described

above. In all of those scenarios, the principal owner of the note and

mortgage directs servicers to file the suit, foreclosure, or motion in the

name of the owner, the servicer, or MERS itself.30

If the action is to be

undertaken in the name of the actual note holder or owner rather than

MERS, MERS makes an assignment to the owner.31

These assignments

have become yet another focal point in MERS litigation, despite the fact

that, in those cases, MERS will not be the named plaintiff or defendant.32

IV. GENERAL THEORIES OF MERS‘S RIGHT TO FORECLOSE OR LIFT

A STAY

Assuming that MERS has filed an action or motion in its own

name, under what theory does MERS have a right to foreclose a

mortgage or lift a bankruptcy stay?33

Substantially clouding the issue

are MERS‘s own contradictory positions. MERS has acted under a

number of different theories, using whatever theory its local counsel has

deemed appropriate.34

Usually, MERS will not plead that it owns the

underlying beneficial interest. Its terms and conditions of membership

29. See, e.g., Cheryl Rosenblum & Matthew Cardinale, Fulton Class Action Challenges

Foreclosures Involving MERS, ATLANTA PROGRESSIVE NEWS (Dec. 2, 2010),

http://www.atlantaprogressivenews.com/interspire/news/2010/12/02/fulton-class-action-

challenges-foreclosures-involving-mers.html.


31. Id. at 105.

32. See infra Part V.D.

33. This Article will refer to MERS undertaking activities in court, making legal

arguments, or drafting assignments. To be entirely clear, MERS only acts through its

members: servicers and lenders. Thus, when the Article says that MERS files an action in

court or makes a claim, the person actually filing the lawsuit or arguing a legal point is an

attorney, on behalf of a servicer or lender, who told the attorney to file in the name of MERS.

No single employee of MERS actually goes to court to argue in favor of a foreclosure.

Nonetheless, in the interest of brevity, in the above mentioned situations, the Article will

simply relay the message that ―MERS argued‖ or ―MERS filed.‖ Even though MERS has

ceased foreclosing in its own name, see MERSCORP, Inc., supra note 14, MERS foreclosures

already initiated will continue to pose conceptual problems for courts across the country for

the foreseeable future. Further, the necessity of MERS members to produce voluminous

assignments means that many of the same accuracy concerns raised in Part VI, infra,

remain apropos.

34. See, e.g., Mortg. Elec. Registration Sys., Inc. v. Sw. Homes, 301 S.W.3d 1, 4 (Ark.

2009); Mortg. Elec. Registration Sys., Inc. v. Johnston, No. 420-6-09 Rdcv, 2009 Vt. Super.

LEXIS 15, at *18–19 (Sup. Ct. Rutland County Oct. 28, 2009).

http://www.atlantaprogressivenews.com/interspire/news/2010/12/02/fulton-class-action-challenges-foreclosures-involving-mers.html

http://www.atlantaprogressivenews.com/interspire/news/2010/12/02/fulton-class-action-challenges-foreclosures-involving-mers.html



instruct members not to allege that MERS owns the note and mortgage.35

Similarly, MERS instructs its members not to list MERS as a

co-plaintiff.36

Nonetheless, a wide variety of law firms from state-to-state are

suing in the name of MERS. It is only natural that sometimes attorneys

appearing on behalf of MERS make a mistake and plead or argue at

some stage of litigation that MERS owns the beneficial interest in the

loan.37

Despite these attorneys who ignore MERS‘s own rules and make

such arguments, MERS admits that there is little oversight of what

attorneys are saying, signing, and arguing on behalf of MERS.38

Even if

MERS did not have internal rules, however, the plain language of a

typical MERS mortgage or deed of trust, as discussed below, should

normally serve to dissuade even the bravest attorneys from arguing that

MERS owns a beneficial underlying interest in a loan. Given the plain

language of the security instruments and MERS‘s own rules, therefore, it

is unlikely that a practitioner will commonly encounter full ownership

arguments from MERS‘s attorneys. In general, MERS‘s theories of

standing are based on its status as nominee, agent, holder, or legal or

equitable titleholder. This Article will give a general description of what

these terms denote in the MERS context and will describe some of the

inherent pitfalls MERS faces when pleading such terms.

35. MERSCORP, INC., supra note 14 at 25–26 (2011), available at

http://www.mersinc.org/files/filedownload.aspx?id=172&table=ProductFile.

36. Id. at 26.

37. See, e.g., Mortg. Elec. Registration Sys., Inc. v. Revoredo, 955 So. 2d 33, 33 n.1

(Fla. Dist. Ct. App. 2007) (noting, cynically, that MERS claimed at the lower circuit court

level that MERS was the actual mortgagee, rather than an agent, nominee, or mere holder of

the note).

38. Transcript of Videotaped Deposition of William C. Hultman at 150, Henderson v.

MERSCORP, Inc., No. CV 2008-900805 (Ala. Circ. Ct. Nov. 11, 2009) [hereinafter Hultman

Deposition], available at http://www.scribd.com/doc/43093523/November-11-2009-

Deposition-of-William-Hultman-MERSCORP. William Hultman, then a Senior Vice

President of MERS, testified as follows:

Q: . . . . And so again my question is there are 16 people designated to look at that

issue, and you have thousands of certifying officers; correct?

A: Are you asking me if I have thousands of certifying officers?

Q: Yes.

A: Yes.

Q: You have 16 people who look at their compliance with this resolution?

A: Generally, yes.

Q: And do you have any idea daily how many transactions are taken in the name of

MERS by these thousands of corporate certifying officers?

A: Generally, no.



A. Plain Language—Nominee, Agent, or Both?

Examining the plain language of a MERS Originated Mortgage can

require mental acrobatics to determine which different theory of

standing might apply.39

MERS‘s form mortgages state, nearly always in

bold print, that ―MERS is the mortgagee under this security

instrument.‖40

The deeds of trust in non-judicial foreclosure states state

that MERS is named as the beneficiary or grantee. These clear

descriptions of MERS‘s rights, if examined out of context, give rise to

questions about whether the MERS device separates the mortgage

interest from the note, given that the lender is a wholly separate party

from MERS.

Courts have ruled that a mortgage may not have a separate

existence apart from the note.41

The consequence of this rule is that a

mortgage may be deemed unenforceable by MERS if MERS has

impermissibly severed the note from the mortgage.

In Mortgage Electronic Registration Systems, Inc. v. Johnston, a

Vermont court ruled that the MERS pathway was indeed an

impermissible separation of the note and mortgage.42

Johnston is

atypical of recent MERS jurisprudence, not only because of its result,

but also because the court actually attempted to wrestle with the

theoretical underpinnings of a MERS mortgage‘s existence. Most

MERS cases do not even consider whether the MERS device is a threat

to the unity of the note and mortgage.43

Nonetheless, as a threshold

issue, MERS is clearly concerned about the possibility that remaining

designated as the mortgagee while the note is in another company‘s

hands constitutes such a severance.44

In an effort to avoid similar

judicial rulings such as those in Johnston, MERS often points to other

language in its mortgages, which contains the following limitation:

―MERS is a separate corporation that is acting solely as nominee for

Lender and Lender‘s assigns.‖45

At least one court has agreed with MERS‘s arguments on this point

39. See FREDDIE MAC, supra note 4.

40. See, e.g., id.

41. Mortg. Elec. Registration Sys., Inc. v. Johnston, No. 420-6-09 Rdcv, 2009 Vt.

Super. LEXIS 15, at *22 (Sup. Ct. Rutland County Oct. 28, 2009).

42. Id.

43. See, e.g., Crum v. LaSalle Bank, No. 2080110, 2009 Ala. Civ. App. LEXIS 491

(Ala. Civ. App. Sept. 18, 2009).

44. Mortgage Servicing Hearing, supra note 3, at 155. Even MERS concedes that

―[w]ithout the note, the mortgage has no effect.‖ Id.

45. See, e.g., FREDDIE MAC, supra note 4.



and has ruled that the language regarding a nominee relationship is proof

that no disconnect between the note and mortgage exists.46

Thus,

cautious counsel for MERS may choose to file a lawsuit as ―MERS, as

nominee for [Lender or beneficial interest holder],‖ rather than as MERS

alone. The nominee relationship as envisaged by courts is discussed at

length below.

A similar grant of authority to MERS concerns the language that

although MERS is the mortgagee, it:

―[h]olds only legal title to the interests granted by Borrower in this Security

Instrument, but, if necessary to comply with law or custom, MERS (as

nominee for Lender and Lender‘s successors and assigns) has the right: to

exercise any or all of those interests, including, but not limited to, the right

to foreclose and sell the Property; and to take any action required of

Lender including, but not limited to, releasing and canceling this

Security Instrument.‖47

This language presumably serves to clarify the nominee

relationship often alleged by MERS between itself and the lender.

Considering the various analyses and approaches courts have used to try

to pin down exactly what constitutes the nominee relationship and to

what MERS is entitled as a result of such relationship, it was wise for

MERS to specify examples of the grants of power conceptualized by the

nominee language. In fact, courts have relied upon the paragraph cited

above, and its similar incarnations, extensively, as discussed below.

Such definitional extrapolation, however, might not be necessary if

MERS mortgages would simply include intended definitions of terms

such as ―nominee.‖ On the other hand, defining MERS‘s interests too

narrowly would restrict its valuable dexterity in arguing various theories

of standing in litigation.

For all the plain language contained in mortgages and security

instruments ripe for MERS to adapt as needed in court, the notes are

correspondingly deficient. MERS is usually not referred to on

promissory notes, other than perhaps the placement of the MERS

Identification Number on the note.48

Accordingly, although MERS

might deftly argue that courts should rely on the explicit right to

foreclose granted by the security instrument, the right to enforce a note

46. In re Huggins, 357 B.R. 180, 184 (Bankr. D. Mass. 2006).


48. See, e.g., Bucci v. Lehman Bros. Bank, No. PC-2009-3888, 2009 R.I. Super. LEXIS

110, at *15 (Super. Ct. Aug. 25, 2009) (discussing the lack of any mention of MERS on the

promissory note).



is a different matter. Despite the ambiguity of MERS‘s relationship to

notes, courts usually describe MERS mortgages as establishing some

form of a nominee or agent relationship between MERS and the

owner of the underlying interest in notes and mortgages. The nature of

this relationship, as examined by courts, is described more fully in Part

V.A below.

B. Holder

When MERS does not plead that it is the owner, nominee, or agent

of the owner, it can seek to enforce the note and mortgage using the

UCC definition of a ―person entitled to enforce an instrument.‖49

MERS‘s status as a holder of notes is one of the more disputed theories

of MERS‘s standing. UCC Article 3, governing negotiable instruments,

provides the following:

―Person entitled to enforce‖ an instrument means (i) the holder of the

instrument, (ii) a nonholder in possession of the instrument who has the rights

of a holder, or (iii) a person not in possession of the instrument who is entitled

to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may

be a person entitled to enforce the instrument even though the person is not the

owner of the instrument or is in wrongful possession of the instrument.50

Several reasons exist for MERS commonly asserting holder status.

By claiming that it is merely a holder, rather than an owner of any

beneficial interest, MERS can avoid sticky questions about whether it

actually owns the underlying notes and mortgages and whether its

possession of the note is wrongful. In practice, this means that MERS

can often merely file an endorsed note with the court that it alleges is the

original instrument. In the vast majority of cases discussed below,

possession of an alleged original note with an endorsement in blank

alone will suffice to show that MERS can foreclose on the mortgage and

note as a holder.

Courts examining MERS‘s holder status rarely step beyond the

question of possession of an original document.51

MERS‘s status as a

holder, however, implicitly references other definitional thresholds

49. See U.C.C. § 3-301 (2002).

50. Id.

51. Indeed, in some non-judicial jurisdictions, courts rule that possession of an original

note is entirely unnecessary to initiate foreclosure proceedings. See, e.g., Morgera v.

Countrywide Home Loans, No. 2:09-cv-01476-MCE-GGH, 2010 U.S. Dist. LEXIS 2037, at

*19–20 (E.D. Cal. Jan. 11, 2010).

../../tjplumridge/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/6P2TLM3L/%20/%20Instrument

../../tjplumridge/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/6P2TLM3L/%20/%20s3-418d



within the UCC that are too often ignored. For instance, MERS‘s status

as a holder under section 3-301 must necessarily mean that MERS

believes that the notes it is enforcing are negotiable.52

In the MERS

jurisprudence analyzed below, though, it is rare to see a comprehensive

discussion of negotiability or non-negotiability of a note. Professor Dale

A. Whitman, speaking about negotiability of mortgage notes generally,

observes that ―cases are quite rare in which courts analyze the

negotiability of a mortgage note carefully, and even when they do, the

quality of the analysis is often unsatisfying.‖53

Negotiability, however,

may simply be irrelevant to MERS cases.

Whitman ―attempted to identify every reported case, state and

federal, decided in the past twenty years, in which the negotiability of a

mortgage note was in issue.‖54

It appears that the most common

instances in which negotiability of a mortgage note is found relevant

were in cases discussing: 1) holder in due course status; 2) competing

claims to the note; 3) claims under consumer protection statutes; or 4)

―set-offs or counterclaims against the note-holder.‖55

In the cases analyzed below, MERS rarely, if ever, plead holder in

due course status. Apparently, MERS is unconcerned with

counterclaims from mortgagors brought under, for example, the Truth in

Lending Act56

or the Act‘s state counterparts. Alternatively, MERS may

be unimpressed that holder in due course status adds any extra protection

against counterclaims, given that investors and servicers are supposed to

conduct their due diligence to protect against such claims.57

Similarly,

since some courts have found that MERS is not required to plead that it

is the holder in due course,58

negotiability issues have not arisen.

Nonetheless, the implications of non-negotiability have not been

fully played out in the MERS litigation context. Whitman‘s critique of

the very concept of negotiability suggests that, at the very least, anyone

can make a cogent argument that a note is non-negotiable.59

But to

plead mere holder status, as MERS often does, one must assume that the

52. U.C.C. § 3-104(b) (2002) (―‗Instrument‘ means a negotiable instrument.‖).

53. Dale A. Whitman, How Negotiability Has Fouled up the Secondary Mortgage

Market, and What to Do About It, 37 PEPP. L. REV. 737, 752 (2010) (footnote omitted).

54. Id. at 754 (footnote omitted).

55. Id. at 755–56.

56. Truth in Lending Act, 15 U.S.C. §§ 1601–1667f (2010).

57. Whitman, supra note 53, at 746. Whitman notes that ―the protection provided by

the holder in due course status doctrine is, by itself, completely inadequate.‖ Id.

58. Hilmon v. Mortg. Elec. Registration. Sys., Inc., No. 06-13055, 2007 U.S. Dist.

LEXIS 29578, at *8–9 (E.D. Mich. Apr. 23, 2007).

59. Whitman, supra note 53, at 747–51.



mortgage note is negotiable, because Article 3 of the UCC only applies

to negotiable instruments.60

Since this argument has apparently not been

made by mortgagors‘ attorneys, however, non-negotiability‘s effect on

MERS foreclosures remains to be seen.

Even if a party could prove that a note MERS was seeking to

enforce was non-negotiable, it is unclear what benefit a homeowner

would gain. Whitman postulates that the right to enforce a non-

negotiable note can be obtained by virtue of physical possession of the

note, but that an assignment of a mortgage is also likely to enable such a

right to enforce.61

If an issue of non-negotiability arose, it is entirely

foreseeable that MERS would simply produce such an assignment.

Much of the jurisprudence discussed below concerns MERS‘s rights

indirectly, through dissection of its assignments of mortgages. From

courts‘ proscriptions on MERS‘s ability to transfer a mortgage, a note,

or both, we can try to pin down exactly what rights MERS has in the

first place.

The raging debate about whether MERS assignments of mortgages

can also transfer notes is most curious, considering that MERS has taken

the public position that it does not have authority to transfer notes in its

assignments. In In re Cartier, MERS explained the nature of its

business, stating that ―[a]lthough mortgage assignments sometimes

include language purporting to assign the promissory note as well, such

assignments of the note have no legal effect.‖62

Despite the mortgage

industry‘s agreement with this statement,63

at least one court has found

that MERS assignments do validly transfer notes.64

Given that this issue

is at least questionable, attorneys for homeowners would do well to

contest the negotiation aspect of UCC section 3-301 so as to make the

suspect assignments from MERS a key issue. Common sense dictates

60. Id. at 762–63.

61. Id. at 758–59.

62. Mortgage Electronic Registration Systems, Inc.‘s Statement Explaining the Nature

of Its Business and Providing a Status Report on Its Case Audits at 7 n.20, In re Cartier, Case

No. 04-15754 (Bankr. N.D. Ohio 2008), ECF No. 105 [hereinafter MERS Statement],

available at http://www.scribd.com/doc/49789469/7/VII-BANKRUPTCY.

63. Patrick Crook, In Connecticut: Defending MERS as Plaintiff, USFN (Apr. 2006),

http://www.usfn.org/AM/Template.cfm?Section=Home&template=/CM/HTMLDisplay.cfm&

ContentID=2321 (stating that ―separate assignments were necessary because MERS, of

course, did not own the note and could not assign it‖).

64. See, e.g., Taylor v. Deutsche Bank Nat‘l Trust Co., 44 So. 3d 618, 623 (Fla. Dist.

Ct. App. 2010) (―The written assignment filed as part of the summary judgment documents in

the case before us specifically recites that MERS assigned to the appellee, Deutsche Bank,

‗the Mortgage and Note, and also the said property unto the said Assignee forever, subject to

the terms contained in the Mortgage and Note.‘‖).

http://www.usfn.org/AM/Template.cfm?Section=Home&template=/CM/HTMLDisplay.cfm&ContentID=2321

http://www.usfn.org/AM/Template.cfm?Section=Home&template=/CM/HTMLDisplay.cfm&ContentID=2321



that some courts will find that MERS cannot assign away what it does

not own.

One unmistakable implication of the UCC‘s holder requirements in

MERS litigation, and indeed all foreclosure litigation concerning a

holder, is the necessity of producing the original instrument.

Homeowners around the country have become attuned to this

requirement, and will often ask the court to force MERS to produce the

original document.65

Whitman notes that this is often difficult for many

foreclosure plaintiffs to do.66

This requirement may be especially

burdensome on MERS.

First, MERS does not have a repository where it can search for

original notes to be filed in court.67

MERS has very few employees, as

mentioned above, so it would be difficult for MERS to search for

thousands of promissory notes in a repository even if it existed. Second,

despite the fact that MERS has no such storage facility, MERS often

claims to be in actual possession of a note.68

This claim is, to be

charitable, a legal fiction. MERS apparently does not have any qualms

about claiming that it can possess notes, even noting that this is the

―preferred practice.‖69

The reality is that when MERS states that a note has been

transferred to it, it is referring to a servicer or custodian ostensibly

transferring the note within its company to a certifying officer of

MERS.70

In practical terms, this does not appear to mean that the note

actually changes location. Again, MERS admits that it only has sixteen

employees checking on certifying officers‘ transactions.71

MERS does

not even retain records of how many documents are being filed on its

behalf by such certifying officers.72

The alleged transfers that move

notes from a servicer to certifying officers of MERS (who are also

65. See Julie Schmit, Homeowners Use ‘Show Me the Note’ to Fight Foreclosure, USA

TODAY (Dec. 21, 2010 8:06 AM), http://www.usatoday.com/money/economy/housing/2010-

12-21-mortgagenote21_CV_N.htm; Whitman, supra note 53, at 758–66.

66. Whitman, supra note 53, at 758.

67. Transcript of Hearing on Corrected Order to Show Cause at 39, Mortg. Elec.

Registration Sys., Inc. v. Cabrera, No. 05-02425 CA 05 (Fla. Cir. Ct. 2005), available at

http://mattweidnerlaw.com/blog/wp-content/uploads/2010/12/MERS11-Transcript.pdf (part

I), http://mattweidnerlaw.com/blog/wp-content/uploads/2010/12/MERS21-Transcript.pdf

(part II).

68. Id. at 29, 49.

69. Id. at 29.

70. Hultman Deposition, supra note 38, at 215.

71. Id. at 150.

72. Id. at 153.



employees of the same servicer) are therefore uncertain propositions ripe

for dispute.

Before MERS prohibited all members from foreclosing in MERS‘s

name, MERS used to instruct its members not to foreclose in the name

of MERS when a note could not be found.73

This was presumably

because, in that case, MERS could not execute a lost note affidavit

pursuant to its internal rules.74

But MERS‘s certifying officers execute

all kinds of other affidavits on behalf of MERS. Further, MERS

commonly alleges that it acquires possession of notes even when the

physical locus of the note never changed upon MERS‘s supposed

acquisition. It remains unclear why, if MERS‘s certifying officers can

―hold‖ a note at the servicer‘s vault, the same certifying officer could not

certify that he or she attempted to locate the note.

If MERS cannot, in fact, prove possession of the note to assert its

status as holder, other possibilities arise. First, the servicer may request

an assignment of mortgage from MERS, so that the servicer may

foreclose in its own name or in the name of the beneficial owner.

Secondly, in a non-judicial state, MERS might not worry about physical

possession of the note if the beneficial owner is not seeking to get a

judgment of deficiency.75

Regardless of the above mentioned

difficulties, MERS will often plead holder status.76

C. Legal Versus Equitable Title

Determinations about MERS‘s standing often hinge upon courts

deciphering what kind of title, aside from nominee, agent, or holder,

MERS had in the mortgage in the first place. Standard MERS security

instruments in judicial foreclosure jurisdictions state that MERS has

legal title to the mortgage.77

MERS, however, couches this interest in

terms of ―only‖ having legal title.78

In MERS jurisprudence, as

discussed below, courts must often examine the nature of this legal title,

and contrast it with equitable title. More than one court has had to resort

73. MERSCORP, INC., supra note 14, at 26.


75. See Champlaie v. BAC Home Loans Servicing, 706 F. Supp. 2d 1029, 1047–51

(E.D. Cal. 2009).

76. See, e.g. Mortg. Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151, 154 (Fla.

Dist. Ct. App. 2007) (noting that MERS ―alleged that it is the owner and holder of the note

and mortgage‖ (emphasis added)).


78. Id.



to Black’s Law Dictionary to make sense of what MERS means by

―only‖ having legal title.79

The core distinction between legal and equitable title is that bare

legal title is less than full ownership. This theory of legal title is another

method used by MERS to indicate that it does not have a beneficial

interest in the underlying loans it forecloses. Similar to the language

regarding nominee status, MERS can massage the theory of bare legal

title to provide yet another justification for courts to find a right to

foreclose, lift a stay, or assign a mortgage.

Although the difference between legal title and equitable title may

seem minute, the difference between being a legal titleholder and being

an equitable titleholder may determine MERS‘s success or failure on the

threshold issue of standing.

V. COURTS EXAMINE MERS‘S THEORIES OF STANDING

A. Nominee

In many instances, courts around the country have assumed that if

MERS can prove its status as a nominee for the loan owner, then MERS

will naturally have the right to foreclose in its own name.80

Getting

to the heart of nominee status, however, is more difficult than might

be imagined.

To begin with, ―nominee‖ can have different meanings in different

lawsuits.81

Adding to the confusion over nominee status is the lack of a

definition of the term ―nominee‖ in MERS mortgages. More than one

court has noted the lack of such a definition.82

As such, nominee is yet

another term where some courts have had to resort to Black’s Law

Dictionary as a starting reference point.83

The applicable Black’s Law Dictionary definitions of ―nominee‖

are: ―(2) A person designated to act in place of another, usu. in a very

limited way,‖ and ―(3) A party who holds bare legal title for the

79. See, e.g., Mortg. Elec. Registration Sys., Inc. v. Johnston, No. 420-6-09 Rdcv, 2009

Vt. Super. LEXIS 15, at *22 (Sup. Ct. Rutland County Oct. 28, 2009).

80. See, e.g., In re Huggins, 357 B.R. 180, 184 (Bankr. D. Mass. 2006).

81. See Landmark Nat‘l Bank v. Kesler, 216 P.3d 158, 166 (Kan. 2009) (―In common

parlance the word ‗nominee‘ has more than one meaning.‖ (quoting Thompson v. Meyers, 505

P.2d 680, 684 (Kan. 1973))).

82. See Johnston, 2009 Vt. Super. LEXIS 15, at *8; Landmark, 216 P.3d at 165.

83. See, e.g., Landmark, 216 P.3d at 166.



benefit of others or who receives and distributes funds for the benefit

of others.‖84

After starting from the Black’s Law definition, courts diverge in

their analysis of what exactly a nominee is in the sense of MERS

foreclosures. For instance, the Johnston court reasoned that MERS‘s use

of the term nominee, rather than referencing status as agent or any

applicable power of attorney, suggested that MERS did not intend to

encompass those additional meanings.85

Other courts have stated their belief that the Black’s Law definitions

encompass some agency duties.86

In Gomez v. Countrywide Bank, the

plaintiffs sued for wrongful foreclosure, alleging that MERS had no

right to take any actions as a mere nominee of the beneficiary under a

deed of trust.87

The court disagreed, asserting that the second definition

of ―nominee‖ in Black’s ―indicates that a nominee is a limited agent.‖88

Thus, in Gomez, the court ruled that MERS could substitute in a

different trustee on the deed of trust for the purpose of initiating the

foreclosure action.89

The Gomez court failed, however, to consider

that in many states, nominee or agent status must be recorded in

a document produced to the court, such as a corporate resolution or

other document.90

Aside from definitional questions of what a nominee is, courts

sometimes ask whether MERS is, in fact, a nominee for the actual owner

of loans.91

Despite the plain language of most uniform mortgages and

deeds of trust, MERS occasionally must prove it is the nominee not only

of the mortgagee, but also of the owner of the note.

The reasons for not simply assuming that MERS is the nominee for

the lender or current note owner as well as the mortgagee delve to the

84. BLACK‘S LAW DICTIONARY 1149 (9th ed. 2009).

85. Johnston, 2009 Vt. Super. LEXIS 15, at *18–19.

86. See, e.g., Gomez v. Countrywide Bank, No. 2:09-cv-01489-RCJ-LRL, 2009 U.S.

Dist. LEXIS 108292, at *2–4 (D. Nev. Oct. 26, 2009).

87. Id. at *2. Much of the emerging MERS jurisprudence is being developed similarly

in non-judicial foreclosure states. In those jurisdictions, homeowners must assume the role of

a plaintiff to ask the court for redress against foreclosure by parties, such as MERS, who are

alleged to not be the rightful parties to foreclose. See, e.g., Immergluck et. al., supra note 26.

88. Id. at *4.

89. Id. at *4–5.

90. See, e.g., DGG Dev. Corp. v. Estate of Capponi, 983 So. 2d 1232, 1234 (Fla. Dist.

Ct. App. 2008) (noting that a deed of transfer executed by an officer other than a president,

vice-president or CEO must be evidenced by a recorded corporate resolution).

91. In re Mitchell, 423 B.R. 914, 917 (D. Nev. 2009) (―Here, MERS was unable to

produce either the promissory note underlying the debtor‘s obligation or written authority

from the holder of that note.‖).



very core of MERS‘s theory of legal existence. First, litigants have

argued that MERS cannot be a nominee for the lender because MERS is

never mentioned in promissory notes.92

Furthermore, although MERS is

mentioned as nominee of the lender on mortgages, the lender might not

have assented to such status because lenders typically do not sign

mortgages to signal their assent to MERS‘s nominee status.

The court in Bucci v. Lehman Bros. Bank, discussed this very

argument and agreed that MERS had the ability to be the nominee for

the lender, despite the lender not signing the mortgage.93

The Bucci

court reasoned that Lehman, the original lender, would not have

disbursed the proceeds to the mortgagors had Lehman not assented to

MERS‘s nominee status as enunciated on the subject mortgage.94

It is

reasonable, albeit unremarkable, to assume that a bank would be aware

that a home loan it was approving would have the related mortgage

granted to MERS. What is notable about the Bucci reasoning is that it

assumes, without examination, that no other possibility could exist.

MERS did not have to prove anything regarding its nominee status. But

a second concern regarding MERS‘s status as nominee should give

courts pause to consider whether lenders truly know what they are

supposedly assenting to by disbursing money in connection with MERS

mortgages and deeds of trust.95

This second concern is whether MERS, as nominee, can ever fully

represent a note owner or holder in court. Michigan‘s Court of Appeals,

in an unpublished decision in Fair v. Moody, affirmed MERS‘s

substitution out of a case in favor of the holder of the note, LaSalle

Bank.96

The court remarked that ―LaSalle‘ [sic] interest would not have

adequately been represented by MERS.‖97

Thus, although the Fair and

Bucci courts both ruled in favor of MERS‘s nominee status for the

holder or lender by virtue of the terms of the mortgage, the courts raised

issues that ought to, in fairness, have been considered more thoroughly.

92. See, e.g., Bucci v. Lehman Bros. Bank, No. PC-2009-3888, 2009 R.I. Super. LEXIS

110, at *15 (Super. Ct. Aug. 25, 2009).

93. Id.

94. Id.

95. The obvious counterargument to any questioning of a lender or holder‘s knowledge

or assent to MERS‘s nominee status is that to originate or hold MERS loans, lenders must be

MERS members, implying informed consent to MERS‘s conduct in these lawsuits. But that

counterargument must be tempered with the knowledge that servicers, and not always owners

or holders, dictate the strategy of litigation.

96. Fair v. Moody, No. 278906, 2008 Mich. App. LEXIS 2542, at *40 (Mich. Ct. App.

Dec. 23, 2008).

97. Id. at *19 (citing MICH. CT. R. 2.209(A)(3)).



The mere fact that lenders commonly use MERS is no reason to assume

that lenders or owners or holders of notes (or their assigns and

successors) know, assent to, or fully understand the ramifications of

MERS‘s purported nominee status.

When a court assumes that MERS is a lender‘s nominee or

examines the concept of nominee status, courts next must deal with the

ramifications of such a status. In Morgera v. Countrywide Home Loans,

the court seemed to expand the concept of MERS‘s apparent nominee

status, going so far as to say that language in the mortgage contract

meant that ―MERS is the owner and holder of the note as nominee

for the lender, and thus MERS can enforce the note on the

lender‘s behalf.‖98

The Morgera court did not take care to examine, however, exactly

how the limited basis of nominee status means that MERS can own

anything in a foreclosure case. In practical terms, the only ownership it

seems MERS possesses is ownership of a right to foreclose at the behest

of someone else. Even then, someone else dictates MERS‘s decisions to

foreclose. Such reckless throwing about of terms, as the court in

Morgera did, does little to clarify MERS‘s true status.

Contrarily, some courts find inherent problems with the MERS

model, even assuming that MERS has properly been designated as

nominee. For example, in Johnston, the court held that the note and

mortgage had been severed, resulting in the unenforceability of the note

and mortgage by MERS.99

The Johnston court noted that nominee status

denotes very limited duties on behalf of another, i.e., holding only legal

title, rather than full equitable title.100

The court thus reasoned that

MERS, holding only legal title when a separate lender held equitable

title to the note, could not reconnect the severed note and mortgage by

virtue of such limited nominee status.101

A different approach was taken in In re Huggins, however. In

Huggins, the court made the bold, unsupported statement that ―MERS is

acting as nominee for Spectrum, which holds the Note, and therefore

there is no disconnection between note and mortgage.‖102

The court did

98. Morgera v. Countrywide Home Loans, No. 2:09-cv-01476-MCE-GGH, 2010 U.S.

Dist. LEXIS 2037, at *22 (E.D. Cal. 2010) (citing Mortg. Elec. Registration Sys., Inc. v.

Azize, 965 So. 2d 151, 153–54 (Fla. Dist. Ct. App. 2007)).


Super. LEXIS 15, at *24 (Sup. Ct. Rutland County Oct. 28, 2009).

100. Id. at *22.

101. Id.

102. In re Huggins, 357 B.R. 180, 184 (Bankr. D. Mass. 2006).



not elaborate or even provide any reasoning on why it felt this way.

Rather, the court seemed to indicate that it held as it did merely because

to not allow MERS to foreclose would lead to ―anomalous and perhaps

inequitable results‖103

whereby MERS would not have standing to

foreclose even though named as nominee and mortgagee.

It is unfortunate that the court ignored a meaningful consideration

of the possible severance of the note and mortgage. The court gave great

deference to the inconvenience it would cause MERS and the lender if

they could not foreclose although MERS was named as nominee in the

mortgage. The court, however, did not consider the obvious

counterargument, namely that MERS and the lender voluntarily chose to

draft the note and mortgage as they did.

The court‘s reticence to hold the parties accountable for language of

their own choosing is disappointing, and unfortunately, all too common.

It is unlikely that courts in other arenas are so cavalier about ignoring

potentially unenforceable language in contracts merely to avoid

inconveniencing one side. In addition, as the Johnston court noted, the

potential inconvenience to MERS and lenders is easily overcome: all

MERS has to do is assign its rights in the mortgage.104

Nonetheless, it

seems that courts that rely on MERS‘s nominee status, on the whole, do

so to support MERS‘s contentions that it is has standing to foreclose and

lift bankruptcy stays.

The next issue confronting courts examining MERS‘s nominee

status is the relationship between MERS and the beneficial or true owner

of loans. In other words, should courts look beyond the plain language

of mortgages or deeds of trust to determine if MERS remains nominee

for the owner of a loan or its successors? With the exponential growth

in the securitization of mortgages, it would seem that MERS‘s

representations to a court that it remains the nominee of the true owner

should be examined in greater depth.

One approach is to merely assume this issue away. In Athey v.

Mortgage Electronic Registration Systems, the court held that the subject

deed of trust gave MERS the right to foreclose.105

In Athey, HomEq

submitted an affidavit claiming that it was the ―mortgage servicer for

MERS.‖106

Despite the fact that MERS never owns loans and therefore

103. Id.

104. Johnston, 2009 Vt. Super. LEXIS 15, at *25.

105. Athey v. Mortg. Elec. Registration Sys., Inc., 314 S.W.3d 161, 166 (Tex.

App. 2010).

106. Id. at 165.



does not employ servicers, the court did not examine the homeowners‘

claims that MERS could not own or hold the note.107

The plain language

of the deed of trust appointing MERS as nominee, giving it the power to

initiate foreclosure actions, was enough to override any concerns about

ownership disputes.108

In Athey, however, there was no claim that the

original lender had sold the note.

Even in cases with transfers of the note, many courts will assuredly

mimic the reasoning of the Bucci court. In Bucci, as mentioned, the

court reasoned that the original lender would not have disbursed the loan

funds if it had not assented to MERS being named as nominee on the

related mortgage.109

Similarly, many courts will correctly assume that a

lender or successor owner would not buy a MERS loan if it did not

assent to MERS remaining its nominee with the associated rights to

foreclose. Uniform mortgages, after all, typically state that MERS will

be nominee for lender and its assigns and successors in interest.

Other courts, however, have thoroughly examined the underlying

ownership of the loans, regardless of nominee status, and have stated

that mere allegations by MERS of who owns the note will not be

sufficient to show MERS‘s standing. For example, in In re Sheridan,

MERS asserted that it was the nominee of a securitized trust that was the

true owner of the underlying note and deed of trust.110

The court still

demanded proof that the party for whom MERS was bringing its motion

owned the note.111

Thus, the court reasoned:

[E]ven if a ―nominee‖ such as MERS could properly bring a motion for stay

relief in the name of and on behalf of the real party in interest—the entity that

has rights in and pecuniary interest under the Note secured by the Deed of

Trust—nothing of record adequately establishes who that entity actually is.112

B. Holder

In contrast to parsing out ramifications of whether MERS is a

nominee or agent of a beneficial owner, some cases present the argument

that MERS is the holder of the promissory note under the UCC. As

107. See id.

108. Id. at 166.

109. See Bucci v. Lehman Bros. Bank, No. PC-2009-3888, 2009 R.I. Super. LEXIS 110,

at *15 (Super. Ct. Aug. 25, 2009).

110. In re Sheridan, No. 08-20381-TLM, 2009 WL 631355, at *4 (Bankr. D.

Idaho 2009).

111. See id. at *5.

112. Id. at *6.



such, some courts have held that on this basis alone, MERS has standing

to foreclose or to move to lift a bankruptcy stay.

Despite the fact that MERS has no central repository where it

physically ―holds‖ notes, courts may find that mere production of the

original note in court is sufficient to establish MERS‘s holder status. In

this way, MERS may establish its standing while avoiding the messy

question of underlying beneficial ownership.

In establishing holder status under the UCC, MERS has taken a

variety of positions. In at least one case, a court found that MERS never

made any pretense at being a holder.113

In others, MERS has stated that

notes are frequently transferred to it.114

If MERS adopts the tactic of

claiming holdership, what hurdles might it face?

At least one court has held that the ―key question‖ is ―[w]ho was

the holder of the Note at the time of the Motion [for relief from

stay]?‖115

One can extrapolate the Sheridan court‘s logic to all instances

where MERS appears as holder and assume that MERS must be able to

show holdership at the time it is seeking relief.

Next, MERS will usually need to present evidence that the note has

been endorsed. In most cases, it seems that a blank endorsement on the

note will assuage courts‘ concerns. In Johnston, for instance, the court

explicitly concluded that ―the ‗holder‘ option is not available to MERS

because the note is not payable to MERS, nor has it been indorsed, either

specifically to MERS or in blank.‖116

Although this second prong, endorsement, may seem easy to show

in practice, Sheridan provides a cautionary tale for MERS. There,

although MERS was eventually able to produce a copy of an endorsed

note, it was not able to do so at the time it filed its original motion. The

court in Sheridan found that MERS was bound by its earlier allegation

that the copy of the note attached to its motion was ―true and correct.‖

As that earlier filed copy of the note was unendorsed, MERS was

precluded from using a subsequently filed note, which was endorsed, as

evidence of its standing.117

113. In re Vargas, 396 B.R. 511, 520 (Bankr. C.D. Cal. 2008).

114. Mortg. Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151, 153–54 (Fla. Dist. Ct.

App. 2007).

115. Sheridan, 2009 WL 631355, at *5.


Super. LEXIS 15, at *11 (Super. Ct. Rutland County Oct. 28, 2009). It is notable, however,

that in Johnston, MERS did not even claim to have holder status. Id. at *12. Nonetheless, the

court considered and rejected that theory. Id.

117. Sheridan, 2009 WL 631355, at *5–6.



When MERS can produce a note endorsed in blank, this will

usually suffice to establish its ability to demonstrate holder status.

Similar to the establishment of nominee status, establishing holdership

appears to lead courts towards the same disregard for who the

underlying beneficial owners of the note and mortgage are. In Mortgage

Electronic Registration Systems, Inc. v. Azize, for example, the court

explicitly disagreed with the trial court‘s opinion that MERS could not

bring a foreclosure action because it ―was not the owner of the beneficial

interest in the note.‖118

There, the trial court had stated that, even if

MERS could establish a case for being a holder (e.g., ―based on a

transfer by the lender or a servicing agent‖), MERS could never

establish standing.119

The District Court of Appeals disagreed, in a case

that has been widely cited for MERS‘s ability to maintain foreclosure

actions as holder.120

It must be noted, however, that even in the Azize case, which is one

of the most explicitly pro-MERS-as-holder decisions, MERS‘s standing

in the case should rightfully be questioned. In that case, the homeowner-

defendant never once contested MERS‘s standing as holder, owner, or

any other status.121

Rather, the court conceded, ―the issue of MERS‘s

ownership and holding of the note and mortgage was not properly before

the trial court for resolution at this stage of the proceedings.‖122

Although it appears at this stage that a note endorsed in blank,

taken in tandem with MERS‘s allegations that it is the holder, may be

enough to make a prima facie showing of standing, MERS still has

reason to worry in certain instances. First, the Sheridan court noted that

some bankruptcy courts will not accept solely an endorsement, but may

demand a demonstration of the entire chain of title of the subject note.123

MERS might be warier, then, of claiming holder status in certain

bankruptcy courts.

Moreover, in Landmark National Bank v. Kesler, the court stated

that even if MERS could establish holder status, it could not foreclose

without demonstrating a ―tangible interest in the mortgage.‖124

Thus, in

118. Azize, 965 So. 2d at 153.

119. Id. at 154.

120. See, e.g., Trent v. Mortg. Elec. Registration Sys., Inc., 288 F. App‘x 571, 572 (11th

Cir. 2008).

121. Azize, 965 So. 2d at 152.

122. Id. at 154.

123. In re Sheridan, No. 08-20381-TLM, 2009 WL 631355, at *5 n.15 (Bankr. D.

Idaho 2009).

124. Landmark Nat‘l Bank v. Kesler, 216 P.3d 158, 167 (Kan. 2009).



some jurisdictions, MERS may be unable to foreclose solely with a note

endorsed in blank. MERS may also be required to adduce evidence of

something more than agent, nominee, or holder status.

In addition, as the Landmark case points out, MERS‘s ability or

inability to demonstrate holder status may impede future litigants‘

abilities to foreclose based on the invalidation of MERS assignments

that purport to transfer notes along with mortgages.125

The reasoning

goes that if MERS never proved its interest as holder of a note to begin

with, then it cannot prove its right to further transfer the note. Thus,

MERS assignments of mortgages, which often include language

purporting to transfer the mortgage together with the note, may be held

ineffective. As such, parties further down on the chain of title from

MERS may have problems proving their own claims of holdership if

they are based on MERS‘s questionable right to assign the note.

Lastly, the discussion in Part V.B must lead to questions about

possession of notes. MERS, servicers, and their attorneys face a

multitude of problems based on the sheer number of foreclosure and

bankruptcy cases being filed in many states. MERS and its attorneys

around the country can be well assured that even a basic amount of

diligence would lead most homeowners‘ attorneys to argue that MERS

never has possession of notes, and in this context, can, therefore, never

be the holder of those notes under the UCC.

As a final note to the MERS-as-holder discussion, the discussion

about possession in this Part may prove irrelevant in non-judicial

foreclosure states. At least one court in a non-judicial foreclosure

jurisdiction has held that possession of an endorsed note may not matter

at all. In Champlaie v. BAC Home Loans Servicing, the court stated

that, not only is possession of the note irrelevant, but even production of

a copy of the note is unnecessary.126

Although this discussion was made

without reference to holder status under the UCC, it nonetheless appears

that MERS will be able to avoid such thorny issues as actual possession

of notes in non-judicial states. Furthermore, in Hilmon v. Mortgage

Electronic Registration Systems, Inc., the court analyzed the plaintiff‘s

claims that MERS could not foreclose because MERS was not the

―holder in due course of the promissory note because it cannot produce

the original note.‖127

The court simply noted that the applicable

125. Id.

126. Champlaie v. BAC Home Loans Servicing, 706 F. Supp. 2d 1029, 1047–51 (E.D.

Cal. 2009).

127. Hilmon v. Mortg. Elec. Registration Sys., Inc., No. 06-13055, 2007 U.S. Dist.



Michigan statutes did not require a named mortgagee to be a holder in

due course.128

As such, the court closed off another avenue of contesting

MERS‘s standing using UCC strictures, because the mortgage

―specifically identifie[d] MERS as the mortgagee and specifically [set]

forth that MERS [was] acting solely as nominee for the lender.‖129

The UCC also provides that a party can be a nonholder in

possession of the note who has the rights of a holder.130

Jurisprudence

on this particular theory as it pertains to MERS is sparse. One reason

may be because MERS simply does not choose to utilize this theory.131

Another rationale may be that MERS would face additional proof issues

about how it came to acquire the rights of the holder. For example, in In

re Wilhelm, the court noted that MERS would still need to prove

possession of the note.132

As noted above, actual possession presents

thorny issues of fact for a body such as MERS, which ―possesses‖ notes

only through appointed officers at servicing companies. Furthermore,

the Wilhelm court stated that aspiring nonholders with the rights of

holders ―must prove the transaction by which they acquired [possession

of] the note[s].‖133

In Wilhelm, this requirement was fatal to the

foreclosing entities‘ cases, as their MERS assignments did not transfer

any rights in the note.134

C. Legal Title Versus Equitable Title

In addition to arguing nominee, agent, and holder status, MERS has

also argued that its legal title in mortgages gives it the right to appear in

court as a foreclosing entity or as a party seeking to lift a bankruptcy

stay. As discussed above, typical MERS mortgages or deeds of trust

provide that MERS holds legal title to the mortgage or deed. Because of

the varying interpretations of the concept of legal title, it is useful to

begin with the Black’s Law definition of legal title, as the court in

LEXIS 29578, at *8 (E.D. Mich. 2007).

128. Id.

129. Id. at *10.

130. U.C.C. § 3-301 (2002).

131. See, e.g., Mortg. Elec. Registration Sys., Inc. v. Johnston, No. 420-6-09 Rdcv, 2009

Vt. Super. LEXIS 15, at *12–13 (Super. Ct. Rutland County Oct. 28, 2009) (noting that

MERS did not plead the theory of being a non-holder in possession with the rights of

a holder).

132. In re Wilhelm, 407 B.R. 392, 401–03 (Bankr. D. Idaho 2009).

133. Id. at 401 (emphasis omitted) (citing IDAHO CODE ANN. § 28-3-203 cmt. 2

(West 2009)).

134. Id. at 403–05.



Johnston did: ―[a] title that evidences apparent ownership but does not

necessarily signify full and complete title or a beneficial interest.‖135

MERS meets the prong of apparent ownership clearly enough, as its

mortgages are recorded on the public records of counties around the

country. This can, however, lead to public-policy arguments,136

that

MERS improperly conceals the true owners of mortgages and notes.

In contrast, MERS‘s legal counsel inconsistently argues the prong

of full and complete title or a beneficial interest. In Sheridan, MERS

conceded that it had no economic benefit, or beneficial interest, under

the deed of trust.137

Likewise, in Landmark, MERS tried to persuade the

court that its economic benefit under the mortgage, or lack thereof, was

irrelevant because of its status as mortgagee.138

In Revoredo, however,

the court noted that although it was perhaps ―disingenuous,‖ MERS

nonetheless had argued that it held the ―status of a conventional ‗actual‘

mortgagee.‖139

Such inconsistency undoubtedly results from the fact

that it is servicers, and not MERS, who are in charge of day-to-day

foreclosure and bankruptcy litigation.140

Accordingly, different

attorneys nationwide are receiving different instructions on how exactly

to argue MERS‘s standing. Further such inconsistencies in MERS‘s

positions will be examined in Part VI of this Article.

Some courts have held that examination as to whether legal title

confers standing upon MERS is unnecessary. As discussed above,

courts may ignore substantive examinations of MERS‘s actual title due

to plain language regarding nominee status.141

Furthermore, other courts

will undoubtedly reason that regardless of whether MERS‘s interest is

legal or equitable, any such interest would be subordinate to the interest

in the note. This logic was spelled out explicitly by the U.S. Supreme

Court in Carpenter v. Longan, when it found that ―[w]hether the title

of the assignee is legal or equitable is immaterial . . . All the

135. BLACK‘S LAW DICTIONARY 1622 (9th ed. 2009); see also Mortg. Elec. Registration

Sys., Inc. v. Johnston, No. 420-6-09 Rdcv, 2009 Vt. Super. LEXIS 15, at *9 (Sup. Ct. Rutland

County Oct. 28, 2009).

136. See discussion infra Part VI.

137. In re Sheridan, No. 08-20381-TLM, 2009 WL 631355, at *4 (Bankr. D. Idaho

2009).

138. Landmark Nat‘l Bank v. Kesler, 216 P.3d 158, 167–68 (Kan. 2009).

139. Mortg. Elec. Registration Sys., Inc. v. Revoredo, 955 So. 2d 33, 34 n.1 (Fla. Dist.

Ct. App. 2007).

140. Mortgage Servicing Hearing, supra note 3, at 105 (―The foreclosure is managed

entirely by the member institution‘s MERS certifying officer.‖).

141. See Athey v. Mortg. Elec. Registration Sys., Inc., 314 S.W.3d 161 (Tex. App.

2010); see also discussion supra Part IV.A.



authorities agree that the debt is the principal thing and the mortgage

an accessory.‖142

From the author‘s own experience, it is commonplace for banks‘

attorneys to downplay inconsistencies in MERS ownership interests by

endlessly repeating the mantra that ―the mortgage follows the note,‖ and

therefore that mere possession of an endorsed note may entitle a party to

proceed in foreclosure. One can reasonably assume that MERS‘s

attorneys are doing the same all around the country. Nonetheless,

various courts have wrestled with the idea of MERS‘s titles in mortgages

and deeds of trust and have come to differing conclusions about the

resulting implications.

First, MERS has encountered arguments that holding legal title to

the mortgage, while at the same time remaining unmentioned on the

note, will result in the separation of the note and mortgage.143

In

Johnston, the court acknowledged that MERS only held legal title to the

mortgage, and not the note.144

Thus, the court held that the nominee

language failed to ―connect the severed note and mortgage.‖145

Next, when MERS argues that it holds bare legal title, courts are

faced with the incongruous result of awarding a foreclosure sale in favor

of MERS, which would ostensibly deliver the proceeds to the beneficial

interest in the mortgage. The Johnston court noticed this inconsistency,

pointing out that awarding MERS full title to the property when it is

only named as legal titleholder in the mortgage document itself would be

an incongruous result.146

The decision rendered in LaSalle Bank National Association v.

Lamy echoes this viewpoint, opining that MERS has no beneficial

ownership in notes or mortgages.147

Accordingly, the Lamy court held

that a MERS assignment was ineffective to transfer anything.148

Lamy

marks one instance where a court used MERS‘s own language against it:

because MERS was only a nominee and was recorded in the public

records as such, it could not hold any beneficial interest in the mortgage

142. Carpenter v. Longan, 83 U.S. 271, 275 (1872).

143. See, e.g., Peterson, supra note 9, at 1379.


Super. LEXIS 15, at *23 (Super. Ct. Rutland County Oct. 28, 2009).

145. Id. at *22.

146. Id. at *28–29.

147. LaSalle Bank Nat‘l Ass‘n v. Lamy, No. 030049/2005, 2006 WL 2251721, at *2

(N.Y. Sup. Ct. Aug. 7, 2006).

148. Id.



or note.149

Accordingly, the court implicitly held that anything less than

full ownership, e.g., legal title, would not be sufficient to have the right

to transfer the underlying rights to the note and mortgage.

Similarly, in Landmark, the court held that because MERS could

not show any economic interest (read: equitable title) in the loan,

whether by lending money or bearing a loss upon default, it did not have

standing as a necessary party to a foreclosure action.150

Landmark, as

with Lamy, implicitly rejected the theory that bare legal title confers

standing, stating that MERS‘s inability to demonstrate a ―tangible

interest‖ in the mortgage precluded it from claiming any independent

right to appear in the underlying foreclosure proceedings. Cited in the

Landmark decision is the Arkansas Supreme Court decision in Mortgage

Electronic Registration Systems, Inc. v. Southwest Homes.151

The court

there held that MERS was not a necessary party to underlying

foreclosure proceedings.152

The court held that despite the language in

the subject deed of trust, MERS ―could not obtain legal title.‖153

This

was because a) even though the deed of trust named MERS as

beneficiary, MERS received no payments on the debt, and b) MERS

held ―no property interest in the mortgaged land.‖154

Southwest, then,

goes even further than Landmark, by holding that MERS never had legal

title. The court essentially ruled that the language in the deed of trust

was a fiction.

Although they are, at first glance, groundbreaking, the Lamy,

Landmark, and Southwest decisions may be limited in their scope. First,

they are just three cases in which the distinguishing factor, legal versus

equitable title, led to a decision contrary to MERS‘s interests. Lamy,

Landmark, and Southwest are probably the exception rather than the

rule. Second, MERS‘s other available theories of standing, such

as nominee, agent, or holder, appear to be having great success at all

levels of courts nationwide. It is doubtful that MERS will couch its

standing arguments strictly in terms of its legal title except as an

absolute last resort.

Finally, MERS will undoubtedly argue to those who cite the

aforementioned three cases that they are limited in their scope and

distinguishable from the typical scenario in which MERS appears in

149. Id.

150. Landmark Nat‘l Bank v. Kesler, 216 P.3d 158, 167–68 (Kan. 2009).

151. Mortg. Elec. Registration Sys., Inc. v. Sw. Homes, 301 S.W.3d 1 (Ark. 2009).

152. Id. at 6.

153. Id.

154. Id. at 7.



courts: Landmark and Southwest are cases where underlying litigation

proceeded at some length without MERS‘s participation. Thus, the

cases concerned only whether MERS was a necessary party. When

another party has initiated and concluded an entire foreclosure action,

courts will understandably look with skepticism towards MERS‘s rights.

But the gulf between necessary party status and initiating a foreclosure

action or moving for a relief from a bankruptcy stay is wide. If courts

are confronted with MERS as the foreclosing entity from the start, it

appears unlikely, judging from the other cases examined herein, that the

average trial court will go as far as the Landmark and Southwest cases

did in examining MERS‘s legal title claims.

The import of Lamy may be similarly limited based upon the fact

that the court may have been induced to take a cynical view towards

MERS‘s assignment in the case due to the plaintiff-bank‘s apparent

missteps in the case. The plaintiff presented the court with an undated

allonge to the note after the case was filed.155

The allonge, however,

was not permanently affixed to the note, as required by the UCC.156

It is

unclear whether the court would have even considered MERS‘s

underlying interests in the note and mortgage if the court had not been

forced to examine the MERS assignment due to the deficient nature of

the allonge. If the court could simply have relied on the bank‘s holder

status with a properly endorsed note, the unfavorable ruling as to

MERS‘s interests may not have emerged at all.

D. MERS’s Right to Assign Anything

Although much of the emerging MERS jurisprudence deals with

MERS‘s standing, MERS‘s murky status can cause problems for all

kinds of litigants down the stream of ownership. Most notably, this can

emerge from MERS assignments of mortgages, which are being filed

by the thousands. This Part will explore the various interpretations,

both pro- and anti-MERS, that courts have given to MERS assignments

of mortgages.

MERS assignments of mortgages emerge any time a servicer

desires a foreclosure to proceed in its own name, rather than in

MERS‘s.157

MERS also produces assignments any time a loan is sold to

155. LaSalle Bank Nat‘l Ass‘n v. Lamy, No. 030049/2005, 2006 WL 2251721, at *1

(N.Y. Sup. Ct. Aug. 7, 2006).

156. Id. at *2.




a non-MERS member.158

Because of the unique nature of MERS, these

assignments of mortgage also have unique characteristics.

To begin, the same processes that produced documents purportedly

signed by officers of MERS are in play when considering MERS

assignments of mortgages. That is, it is employees of servicers, not

employees of MERS itself, who are executing the assignments.159

The

same considerations therefore apply to MERS assignments as those in

the most outrageous cases of ―robo-signing.‖ Escalating numbers of

foreclosures resulted in shortcuts and outright fraud when servicers

produced perjurious affidavits as evidence around the country.160

Thus,

it is paramount to remember that these same servicers (and admitted

robo-signers) executed and supposedly verified MERS assignments for

their truthfulness and accuracy. Although this does not appear to have

gained nationwide traction as a defense against banks‘ use of MERS

assignments, the author has found that, quite often, the MERS officers

signing the assignments have no idea what did or did not happen on the

dates of transfer alleged in the assignment itself. At least one court,

however, has become suspicious of MERS assignments and the fact that

servicers‘ employees sign on behalf of MERS and other companies on

such assignments.161

Second, MERS assignments are unique in that they do not purport

to memorialize any physical transfer from MERS to anyone. In the pre-

MERS era, an assignment of mortgage would typically signify a transfer

of possession.162

MERS admits, however, that it does not physically

transfer any documents to anyone.163

MERS assignments are therefore a

novel way of showing a supposed transfer in ownership interest.

158. See id. at 156.

159. Id. at 103 (―It is important to note that the certifying officers [of MERS] are the

same officers whom the lenders and servicers use to carry out these functions even when

MERS is not the mortgagee.‖).

160. See, e.g., Thomas E. Ice & Dustin A. Zacks, Slaying Goliath: Fighting Fraud and

Contesting Standing in Residential Foreclosures in Judicial States, PRACTISING L. INST. (Jan.

26, 2011), http://www.pli.edu/Content.aspx?dsNav=Rpp:1,N:4294940396-167&ID=123003.

161. Cf. Deutsche Bank Nat‘l Trust Co. v. Maraj, No. 25981/07, 2008 WL 253926, at *1

(N.Y. Sup. Ct. Jan. 31, 2008). In Maraj, an employee of IndyMac Bank signed an assignment

as an officer of MERS on July 3, 2007, and an assignment as an officer of Deutsche Bank

on July 31, 2007. Id. The court wondered, ―Did Ms. Johnson-Seck change employers from

July 3, 2007 to July 31, 2007, or does she engage in self-dealing by wearing two corporate

hats?‖ Id.

162. See, e.g., Phyllis K. Slesinger & Daniel Mclaughlin, Mortgage Electronic

Registration System, 31 IDAHO L. REV. 805, 810 (1995).

163. Mortgage Servicing Hearing, supra note 3, at 99 (―MERS does not receive or

maintain either the mortgage or the promissory note.‖).



In addition, assignments from MERS are often drafted with

superfluous language, such as the allegation that the mortgage was being

transferred ―together with the Note and indebtedness secured

thereby.‖164

Apparently, many foreclosure plaintiffs‘ lawyers did not

recognize that MERS‘s ownership interest is unique. MERS itself

admits that the language is superfluous,165

yet lawyers continually draft

assignments with such language on behalf of MERS.

MERS assignments of mortgages also do not always correspond

with MERS‘s own internal records. In the pre-MERS era, assignments

of mortgage, even when they memorialized some earlier transfer,

ostensibly made some good-faith attempts at being accurate. MERS

assignments, however, and the dates of transfer represented on them,

often do not even match up with MERS‘s own internal records.166

Thus,

it is not at all uncommon for the author to find the date of alleged

transfer on the assignment to be totally absent on MERS‘s internal

records of the tracking of beneficial ownership.167

Finally, MERS assignments are unique in that they usually do not

reflect the intervening transfers that occurred when loans were pooled

together as mortgage-backed securities. For that matter, the MERS

assignments do not reflect any intervening transfers whether the loan

was securitized or not.168

Indeed, the time and money saved in reducing

the need for recording such intervening assignments was one of the most

elemental goals of establishing MERS.169

Thus, a securitized loan may

travel from the original lender to several parties before being placed in a

trust. Yet the only assignment recorded in the county records or

produced in foreclosure litigation might be from MERS to the eventual

foreclosing entity. Therefore, MERS assignments of mortgages present

novel characteristics that have been confronted in different ways by

various courts.

Some of the harshest assessments made regarding MERS

assignments stem from the third point discussed above—that MERS

164. MERS Statement, supra note 62, at 7 n.20; Deposition of Erica A. Johnson-Seck at

Ex. D, IndyMac Fed. Bank v. Debenedetti, No. 50 2008 CA 036505 XXXX MB (Fla. Cir. Ct.

July 17, 2009) [hereinafter Johnson-Seck Deposition].

165. MERS Statement, supra note 62, at 7 n.20.

166. See, e.g., Johnson-Seck Deposition, supra note 164 at Ex. F (records produced by

MERS did not reflect any transfer activity on the date of the assignment).

167. See id.

168. See id. at Ex. D (assignment of mortgage did not reflect any intervening transfers

from the original lender and MERS to the eventual mortgage backed security trustee).

169. See, e.g., Slesinger & Mclaughlin, supra note 162 at 811–12.



assignments often purport to transfer notes as well as mortgages. In

Wilhelm, the movants were trying to establish that they possessed the

applicable promissory notes.170

They were relying on MERS

assignments of mortgages to show a ―transaction by which they acquired

possession of the notes.‖171

Yet the court did not merely assume that the

assignments alone established the movants‘ ability to enforce the notes.

Rather, the court noted the bank‘s argument with skepticism: ―Movants

seem to presume that the assignments, standing alone, entitle them to

enforce the underlying notes. Such a presumption is unfounded,

however, because Movants have not established MERS‘s authority to

transfer the notes at issue.‖172

The Wilhelm court drew the conclusion

that MERS deeds of trust do not authorize MERS to transfer promissory

notes, whether explicitly or implicitly.173

Thus, in the context of

bankruptcy, Wilhelm stood for the proposition that MERS assignments

could not establish that an ownership interest in the note was transferred

by MERS, despite the fact that the movants might have been able to

establish possession of the physical notes themselves.

A United States district court agreed with the reasoning of Wilhelm

in Saxon Mortgage Services, Inc. v. Hillery.174

There, the court held that

the MERS assignment of mortgage was not proof of a transfer of the

note, because 1) no evidence established the MERS ever held the note,

and 2) no proof of authority from the original lender was submitted to

show that MERS had the authority to transfer the note.175

The above decisions, however, are likely in the minority. By way

of contrast, the court in Chase Home Finance, LLC v. Fequiere,176

downplayed the very issue of the validity of MERS assignments. There

the court held that even if the MERS assignment were invalid, the

plaintiff had established physical possession of an endorsed note, and

therefore that the MERS assignment was irrelevant.177

From the

author‘s experience,178

this is the most common argument made by

banks to get around attacks on MERS‘s ability to transfer notes. The

170. See In re Wilhelm, 407 B.R. 392, 401 (Bankr. D. Idaho 2009).

171. Id. at 404.

172. Id.

173. Id.

174. Saxon Mortg. Servs., Inc. v. Hillery, No. C-08-4357 EMC, 2008 U.S. Dist. LEXIS

100056 (N.D. Cal. Dec. 9, 2008).

175. Id. at *16.

176. Chase Home Fin., LLC v. Fequiere, 119 Conn. App. 570, 989 A.2d 606 (2010).

177. Id. at 576–77, 989 A.2d at 610–11.

178. Admittedly, this is from a foreclosure practice with many hundreds of clients, but in

a relatively small geographic section of Florida, a judicial foreclosure state.



mere fact that the foreclosing bank or servicer now has possession of an

alleged original note is enough for many courts to ignore the finer

distinctions of MERS assignments. Accordingly, it is most probable that

nationwide, MERS assignments purporting to transfer notes along with

mortgages may prove to be a stumbling block in some instances, but not

an impossible hurdle to overcome for banks. Many judges will ignore

the purported transfer by MERS of notes via assignment.179

Even if courts do examine MERS‘s supposed transfer of notes, it is

not at all certain that courts will rule that MERS cannot transfer notes,

whether via assignment or via any other legal document. In Crum v.

LaSalle Bank, for example, the Alabama Court of Civil Appeals found

that because ―MERS was authorized to perform any act on the lender‘s

behalf as to the property, including selling the note and the mortgage to a

third party,‖ the MERS assignment was valid to transfer the legal and

equitable title to the note and mortgage.180

The Crum court did not ask

the corollary question: Even if MERS were given explicit authority to

transfer notes, did that actually occur? The court took the MERS

assignment at face value, pointing to its ―consideration that included a

$10 payment to MERS.‖181

The court did not, however, ask whether the

events alleged on the face of the assignment and apparently allowed by

the mortgage language actually occurred. As we have seen from

MERS‘s own admissions, no physical transfer of the note occurs from

MERS to any other company.182

179. For a slightly distinct viewpoint, consider CitiMortgage, Inc. v. Bischoff, No. 255-

4-09 Rdcv, 2009 Vt. Super. LEXIS 2 (Sup. Ct. Rutland County Oct. 28, 2009). There, the

court held that, although proof of possession alone would entitle the foreclosing bank to sue

on the note as a holder under the UCC, the note and mortgage had been separated by the

parties at origination: ―Flagstar Bank retained the Note, which it later indorsed to

CitiMortgage, while MERS held the mortgage deed, becoming the mortgagee of record.‖ Id.

at *4. Thus, because the note and mortgage were separated, the mortgage did not follow the

note when the note was transferred to CitiMortgage—an assignment of mortgage was needed.

This situation, factually distinct from Hillery, Wilhelm, and Fequiere, runs against banks‘

frequent argument that assignments of mortgage are not needed when the note is endorsed and

the plaintiff is in possession of the note. But it will often be a hurdle simply to get a court to

rule that an assignment is needed, much less to take the further step to see if the facts on the

assignment, such as consideration and physical transfer, have occurred.

180. Crum v. LaSalle Bank, No. 2080110, 2009 Ala. Civ. App. LEXIS 491, at *7 (Ala.

Civ. App. Sept. 18, 2009).

181. Id.

182. MERS Statement, supra note 62, at 7 n.20. The Crum court also refused to take a

more in-depth look at MERS, which may have resulted in a sweeping ruling against it. One

point of law that the court examined was the defendant–homeowner‘s argument that under

Alabama law, ―an agent of [a mortgage] holder to whom the mortgage is delivered merely for

the purpose of foreclosure, having no ownership of the debt, is not authorized to foreclose in



Aside from the reasons above, MERS assignments have been

challenged on other grounds. Prominent among these is the

circumstance discussed in Carter v. Deutsche Bank National Trust Co.,

where a plaintiff–homeowner argued against the validity of a MERS

assignment based upon the fact that, at the time of the assignment,

MERS was a suspended corporation in California.183

The Carter court

held that MERS was not exempt from state registration requirements in

order to transfer a deed of trust.184

Accordingly, because MERS was not

properly registered at the time of the assignment, the assignment was

held invalid.185

MERS‘s standing and right to assign mortgages and notes is

therefore in flux. Although it appears from the wide survey of cases

above that a majority of courts recognize the right of MERS to foreclose

in its own name, to lift bankruptcy stays, and to assign mortgages,

MERS remains threatened by daily attacks from homeowners regarding

its standing. Given that MERS appears on over half of all residential

mortgage loans in the United States,186

it is imperative to examine the

emerging public-policy ramifications of this company whose exact

his own name, and execute a deed in his name to the purchaser.‖ Crum, 2009 Ala. Civ. App.

LEXIS 491, at *6 (alteration in original) (quoting Carpenter v. First Nat‘l Bank of

Birmingham, 181 So. 239, 240 (Ala. 1938)). The Crum court neatly considered this argument

with one sentence: ―MERS and the assignee were not delivered a mortgage instrument by a

mortgagee ‗merely for‘ the purpose of effecting a ‗foreclosure,‘ as was apparently the case in

Carpenter.‖ Id. at *6–7.

Just as many court decisions give MERS the benefit of the doubt as to its murky legal

status, the court could have enumerated several arguments that would have tilted the benefit

against it. The Crum court could have held that, in fact, the primary reason for MERS‘s

existence was for expediency in foreclosure cases. Clearly some of the impetus behind

establishing MERS in the first place was to assist lenders with ease of producing paperwork

that would allow a successor mortgagee or holder to establish standing in foreclosure cases.

Although this too would assume away some of the alleged benefits of MERS, the ruling

would not have been outlandish. This is especially so when we consider that the Crum court

assumed away some of the other facts about MERS, namely, that it never transfers mortgage

notes, and that just because it is given the power ―to take any action required of‘ the lender,‖

that it actually does so. Id. at *7.

183. Carter v. Deutsche Bank Nat‘l Trust Co., No. C09-3033 BZ, 2010 U.S. Dist. LEXIS

6473, at *3–4 (N.D. Cal. Jan. 27, 2010).

184. See id. at *7.

185. Id.; accord Champlaie v. BAC Home Loan Servicing, 706 F. Supp. 2d 1029, 1046–

47 (E.D. Cal. 2009). Other grounds to invalidate MERS assignments include the lack of a

recorded corporate resolution or power of attorney authorizing the signor to assign anything

from MERS. See, e.g., HSBC Bank USA v. Yeasmin, No. 34142/07, 2010 WL 2089273, at

*6 (N.Y. Sup. Ct. May 24, 2010) (questioning the fact that the law firm filing for the

foreclosure plaintiff represented both the assignor (MERS), and the assignee).




relationship to notes and mortgages is so difficult to define with

complete accuracy.

VI. PUBLIC POLICY RAMIFICATIONS OF MERS

Part VI of the Article will discuss the public-policy ramifications of

the widespread use of MERS mortgages and deeds of trust and the

consequences of the emerging jurisprudence. First, this Part will

consider the informational deficit created by the use of the MERS device

nationwide. One of the key MERS talking points about the positive

benefits of MERS is that it creates transparency for homeowners and the

public at large.187

This is so, MERS claims, because MERS makes the

name of the servicer available to all on its website.188

In some instances,

the name of the investor in a homeowner‘s loan is available as well.189

In fact, MERS goes so far as to assert that ―[m]ost contested foreclosure

and bankruptcy cases boil down to a lack of understanding of MERS‘s

role, and the more attorneys know about the relationship between MERS

and its members, the fewer complications should be encountered.‖190

After even a cursory glance at the emerging jurisprudence dealing with

MERS issues, however, it immediately becomes apparent that MERS

actually muddies the waters of home ownership and rights to foreclose,

contributing to the very ―lack of understanding‖ MERS laments.

In the aggregate, this is evidenced by the innumerable inconsistent

statements MERS has made in courts. Professor Christopher Peterson

notes that MERS‘s theory of existence is akin to the two-faced Roman

Deity Janus.191

Upon examination, however, MERS‘s directly

contravening statements to courts evoke a creature more akin to a many-

tentacled squid. The most basic issues confronting courts when dealing

with MERS are simply not uniform across the nation.

187. Id. at 92 (―The MERS database is important to individual borrowers because it

provides a free and accessible resource where borrowers can locate their servicers, and in

many cases, learn who their note-owner is as they change over time.‖). R.K. Arnold also

argued that the MERS database aids code enforcement officers by making identificat ion of

owners easier and aids law enforcement in detecting mortgage fraud. Id.

188. Id. at 101.

189. Mortgage Servicing Hearing, supra note 3, at 101 n.9.

190. MERSCORP, INC., MERS CORE LEGAL CONCEPTS 83 (2010), available at

http://www.scribd.com/doc/49789469/7/VII-BANKRUPTCY.

191. Christopher L. Peterson, Two Faces: Demystifying the Mortgage Electronic

Registration System’s Land Title Theory, 46 REAL PROP. TRUST & EST. L.J. (forthcoming

2011), available at http://ssrn.com/abstract=1684729.

http://ssrn.com/abstract=1684729



Possession of Promissory Notes

MERS‘s former President and CEO has admitted that MERS has no

central repository where it can hold notes.192

Yet in court, MERS has

not been afraid to claim that, frequently, notes are transferred to it.193

Likewise, in sworn deposition testimony, MERS‘s president stated that,

indeed, MERS does sometimes have physical possession of notes.194

Beneficial Ownership

MERS admits that MERS does not hold beneficial ownership in

notes and mortgages.195

Yet MERS has claimed in court that it does, in

fact, hold full ownership.196

Furthermore, William Hultman, the former

Senior Vice President of MERSCORP, Inc., does not agree with the

statement that MERS is never owed money by borrowers.197

Pleading Individually or as Nominee

MERS has filed cases in its own name, and it has filed cases in its

own name, as the nominee of other companies. Likewise, servicers have

filed lawsuits in their own name when no assignment from MERS was

in existence. The apparently random choice of whether a servicer sues

in its own name or in MERS‘s name, as nominee, led to a situation in

one of the author‘s cases where a forty-four year veteran of litigation

representing the foreclosing entity admitted to a judge that he had no

idea whether he represented MERS or the servicer.198


193. Mortg. Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151, 153 (Fla. Dist. Ct.

App. 2007).

194. Transcript of Hearing on Corrected Order to Show Cause, supra note 67, at 49; see

also Hultman Deposition, supra note 38, at 215.

195. Mortgage Servicing Hearing, supra note 3, at 166 (―A MERS mortgage makes

clear that MERS is acting as the nominee (agent) of the lender—the original owner of the

beneficial interest in the mortgage . . . .‖).

196. See, e.g., Mortg. Elec. Registration Sys., Inc. v. Revoredo, 955 So. 2d 33, 34 (Fla.

Dist. Ct. App. 2007).

197. See Hultman Deposition, supra note 38, at 54.

198. Transcript of Hearing on Plaintiff‘s Motion for Extension of Time at 3–4, Mortg.

Elec. Registration Sys., Inc. v. Persten, No. 50 2008 CA 034713 XXXX MB (Fla. Cir. Ct.

Aug. 5, 2009) (on file with author).



What Does MERS Assign?

MERS assignments are routinely drafted to contain language that

purports to transfer the mortgage, ―together with the Note and

indebtedness secured thereby.‖199

Yet MERS itself admits that that

language has no legal effect.200

Who Assigns Mortgages?

Very rarely do courts tackle the fact that MERS assignments are

actually prepared, requested by, and signed by people who do not work

for MERS, and who often have no knowledge of even the most

rudimentary facts about MERS. Yet despite foreclosing entities

presenting assignments as supposedly ―from MERS,‖ the truth is that the

servicers, not MERS, assign mortgages out of the MERS system.201

For whom is MERS Serving as Nominee?

MERS has claimed in court that, on the basis of language in MERS

mortgages and deeds of trust, it is the mortgagee or the beneficiary,

respectively, on behalf of the lender.202

Yet courts have recognized that

MERS might not ever know who has the beneficial interest in notes.203

MERS’s Allegations of Default

MERS, as a foreclosure or bankruptcy party, will naturally claim in

199. Johnson-Seck Deposition, supra note 164 at Ex. D.

200. MERS Statement, supra note 62, at 7 n.20.

201. Id. at 10 (―If the beneficial owner of the loan or its designated servicer decides to

bring a foreclosure action or other action in the name of a party other than MERS, then the

loan servicer is required to assign the mortgage from MERS to the appropriate party.‖).

202. Reply Memorandum of Law in Support of Motion to Dismiss by Mortgage

Electronic Registration Systems, Inc. & MERSCORP, Inc. at 6, Dalton v. CitiMortgage, Inc.,

No. 3:09-cv-00374 (D. Ariz. Dec. 23, 2009), ECF No. 10 [hereinafter MERS Reply

Memorandum] (―MERS became the beneficiary, as nominee for the Lender, by operation of

the Deeds of Trust agreed to and signed by the Plaintiffs, which are contracts whereby the

Plaintiffs granted secured interests in the legal title of property to MERS, as the beneficiary,

as nominee for the Lender.‖).

203. In re Mortg. Elec. Registration Sys., Inc., No. 3:06-cv-00374-TJC-HTS (Fla. Cir.

Ct. Aug. 18, 2005), ECF No. 21-3 (―Based upon information gained at the return hearing, it

appears that the real party in interest in many of these cases is not known at the time

Complaint for mortgage foreclosure is filed. The concept is foreign to this Court.‖). The

order was overruled on appeal. Mortg. Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151

(Fla. Dist. Ct. App. 2007).



court that a homeowner is in default and has missed certain payments.

Yet MERS‘s President and CEO admits that the MERS system has no

information on the status of the loan or what payments were or were

not missed.204

MERS Assignments and Consideration in Connection Thereto

MERS assignments, as with all assignments, make some statement

about valuable consideration being paid in exchange for the assignment.

Yet R.K. Arnold admits that MERS does not receive any consideration

from the new holder of the note when the new holder gets possession of

the note.205

MERS Officers—By whom Are They Authorized to Act?

The MERS officers who sign assignments of mortgages are

supposed to be an officer of the MERS member who has the authority to

bind that member.206

Yet there is no policeman or regulator that verifies

that the officer signing on behalf of MERS is, in fact, an officer of a

servicer or bank.207

MERS Officers—Do They Have Any Knowledge of MERS at All?

MERS officers sign as Vice President, Assistant Vice President, or

Assistant Secretary of MERS. Yet such officers routinely admit that

they do not have basic knowledge about what MERS is, and that they do

not owe any duties to MERS.208

Under congressional scrutiny, R.K.

Arnold claimed that such officers have to pass a test.209

But upon

deposition, MERS officers have admitted that this is, or at least was not

previously, the case.210

204. Transcript of Videotaped Deposition of R.K. Arnold at 103–04, Henderson v.

MERSCORP, Inc., No. CV-08-900805.00 (Ala. Cir. Ct. Sept. 25, 2009) [hereinafter Arnold

Deposition], available at http://www.scribd.com/doc/43093118/September-25-2009-

Deposition-of-R-K-Arnold-MERSCORP.

205. Id. at 171, 175.

206. Id. at 105.

207. Id. at 188.

208. See, e.g., Johnson-Seck Deposition, supra note 164, at 22. At this deposition, the

author asked: ―[Y]ou would agree that you‘re not vice president of MERS in any sense of the

word other than just being authorized to sign this one, correct?‖ to which the witness

responded, ―That‘s correct.‖ Id.


210. See Deposition of Patricia Arango at 76, Countrywide Home Loans Servicing LP v.



Accuracy of MERS Transactions

MERS has stated that the purpose of its system is to ―track both

beneficial ownership interests in, and servicing rights to, mortgage loans

as they change hands throughout the life of the loan.‖211

MERS cites its

system as a benefit in terms of accurately recording such transfers,

noting that ―error rates as high as 33% were common‖ in the pre-MERS

era.212

Yet MERS admits that its attitudes about accuracy in ownership

transfer records are blasé: when asked how MERS verifies that

certifying officers were signing accurate documentation, MERS‘s

President and CEO remarked, ―Well, if nobody challenges it, then it‘s

probably true.‖213

When that attitude is combined with the facts that

MERS 1) is not aware every time a certifying officer executes

documents on behalf of MERS,214

2) has no idea how many affidavits,

assignments, deeds, endorsements, or proofs of claim are done in its

name,215

3) has no employees to verify such documents,216

and 4)

indemnifies MERS members for the faulty acts of its members,217

it is

doubtful that MERS has any factual basis upon which to allege that its

system of tracking ownership is any more accurate than the previous

way of tracking note and mortgage transfers.

Accordingly, MERS is not merely a two-faced organization.

Rather, it is an almost incomprehensibly amorphous company that

changes its legal positions as necessity and jurisdictional requirements

dictate. The only logical conclusion to draw, therefore, is that

MERS‘s claims of making ownership of loans more transparent and

accurate ring incredibly hollow. More than one court has agreed with

this conclusion.218

Polanco, No. CACE 09 001184 (Fla. Cir. Ct. Jan. 7, 2011) (including a statement by

deponent, who had signed on behalf of MERS in the past, that she had never heard of any

examination or qualification process).

211. MERS Statement, supra note 62, at 4.

212. Id.

213. Arnold Deposition, supra note 204, at 200–01.

214. Id.

215. Hultman Deposition, supra note 38, at 153–55.

216. Id. at 79. Hultman later claimed that sixteen people track the transactions initiated

by documentation signed by the thousands of MERS officers. Id. at 150.

217. Arnold Deposition, supra note 204, at 197–98.

218. See, e.g., Landmark Nat‘l Bank v. Kesler, 216 P.3d 158, 168 (Kan. 2009)

(acknowledging that with MERS, it is harder to tell who the note holder is); see also

MERSCORP, Inc. v. Romaine, 861 N.E.2d 81, 88 (N.Y. 2006) (Kaye, J., dissenting in part)

(―[MERS‘s] 800 number and Web site allow a borrower to access information regarding only

his or her loan servicer, not the underlying lender. The lack of disclosure may create



VII. POSSIBLE CHANGES AT THE STAGES OF ORIGINATION, LITIGATION,

OR RECORDING TO SOLVE THE INFORMATIONAL DEFICIT CREATED

BY MERS

Now that MERS is the mortgagee of record on over sixty-six

million loans,219

it is not easy to prescribe solutions for the informational

problems inherent in the MERS model. This Part describes and analyzes

specific remedies for the information disparities presented by MERS.

A. More Disclosure to Borrowers at Origination

As mentioned above, one of the most troubling facets of the MERS

model is that it can conceal the true owners of loans as well as eliminate

from the public record the tracking of changes in ownership. The

resulting confusion to distressed homeowners upon receiving a

summons from MERS may be eliminated or reduced by more disclosure

at the origination stage. Lenders could be required to provide a page or

two, separate and distinct from the note, mortgage, or deed of trust, with

explanations of what the MERS system is, what it means that a borrower

is granting a mortgage to MERS, how it may affect future transfers in

ownership and servicing rights to their loan, and how it could affect

foreclosure procedures. It is not likely, however, that a more explicit

statement of what MERS is and does would provide additional benefits

to homeowners.

First, considering the enormous stack of documentation with which

homeowners are presented at a closing, it is unclear that an additional

page or two of disclosures about MERS would be read at all.220

In the

substantial difficulty when a homeowner wishes to negotiate the terms of his or her mortgage

or enforce a legal right against the mortgagee and is unable to learn the mortgagee‘s identity.

Public records will no longer contain this information as, if it achieves the success it

envisions, the MERS system will render the public record useless by masking beneficial

ownership of mortgages and eliminating records of assignments altogether. Not only will this

information deficit detract from the amount of public data accessible for research and

monitoring of industry trends, but it may also function, perhaps unintentionally, to insulate a

noteholder from liability, mask lender error and hide predatory lending practices.‖); James

Carlson, Note, To Assign, or Not to Assign: Rethinking Assignee Liability as a Solution to the

Subprime Mortgage Crisis, 208 COLUM. BUS. L. REV. 1021, 1047 (2008) (noting that

determining who to sue in the context of assignee liability is rendered more difficult with

MERS loans, which impedes victims from bringing claims).


220. Michael I. Meyerson, The Reunification of Contract Law: The Objective Theory of

Consumer Form Contracts, 47 U. MIAMI L. REV. 1263, 1269 (1993) (―It is no secret that

consumers neither read nor understand standard form contracts.‖).



author‘s experience, it is far more likely than not that a homeowner will

freely admit to not reading all the documentation presented to him or her

at a closing.

Given the complex legal structure of MERS, it also is doubtful that

a layperson would understand the ramifications that a MERS loan could

have in the future. Many borrowers do not understand even the most

basic terms of their loan, such as payment terms or interest rates.221

If

the average borrower cannot understand the difference between a fixed

or variable interest rate, it is unlikely they will grasp the concept of

MERS, which all at once in a mortgage claims to be 1) mortgagee, 2) of

record, 3) with bare legal title, 4) but solely as nominee for the lender

and its assigns, 5) with the power to foreclose, or 6) to execute

documents as dictated by law or custom.222

In addition, even if the potential frustrations of a MERS loan were

made known to perspective borrowers, it is unlikely that borrowers

would appropriately evaluate the potential costs that the MERS system

could cause them to incur. Consumers incurring debt typically are

overoptimistic about their ability to pay back loans, which can lead to

underestimating the risks of default and the associated events.223

If

consumers are unable to accurately project the possibility of a default,

they will likely downplay the possibility that MERS‘s masking of

transfers of interest will somehow harm them.

Moreover, the practical problems of designing a satisfactory

disclosure would be immense. To make a MERS disclosure statement

acceptable to both MERS and consumer advocates would be a Herculean

task. MERS‘s own statements in courts across the country, as we have

seen, often directly conflict with each other. It would therefore be

immensely difficult to pinpoint which core facets of MERS‘s existence

are fact and which are not. Likewise, when spelling out what the day-to-

day effect of a loan given to MERS as mortgagee might be for a

borrower, MERS and consumer advocates are likely to disagree.

Furthermore, it would be impossible to state with any certainty how

being a MERS Originated Mortgage loan (MOM loan) could play out in

court, because MERS jurisprudence is only now emerging, and, as we

221. Ellen Harnick, The Crisis in Housing and Housing Finance: What Caused It? What

Didn’t? What’s Next?, 31 W. NEW ENG. L. REV. 625, 630 (2009) (―It is doubtful that most

borrowers fully understood the actual cost of these loans—the rate increases were expressed

as LIBOR . . . plus a margin.‖).

222. FREDDIE MAC, supra note 4.

223. Eric A. Zacks, Unstacking the Deck? Contract Manipulation and Credit Card

Accountability, 78 U. CIN. L. REV. 1471, 1482 (2010).



have seen, the resulting decisions are, in large part, an incoherent

jumble. Therefore, additional disclosure regarding a loan‘s MERS status

at origination is unlikely to significantly change borrowers‘ decisions.

B. Opt-in/Opt-out Provision

As a corollary to any disclosure-at-origination scheme, legislation

or regulation could mandate an opt-in or opt-out provision. Currently,

mortgage origination documents are essentially contracts of adhesion.224

Borrowers could be presented with the choice to accept the loan as a

MOM loan (a mortgage originated listing MERS as mortgagee) or not.

Such a requirement, however, would evince many practical problems.

First, it is unlikely that mere disclosure that a loan is a MOM loan, along

with a right to opt out, would signify the actual, informed consent of

borrowers.225

After traversing the time-consuming path of obtaining

financing, a disclosure that is unlikely to be understood, as discussed

above, is unlikely to stop a borrower from going through with a final

closing. Secondly, MERS claims that because its system saves lenders

money, those savings are passed on to consumers in terms of more loans

being made and better terms being given.226

There may be some truth to

the idea that savings to lenders are passed on to consumers. It can be

hypothesized, for example, that non-judicial foreclosure states, which

presumably present less cumbersome procedures for lenders to

foreclose, may have more money per average loan and better terms in

the average loan when compared to those loans underwritten in judicial

foreclosure states.227

Even assuming that this proposition would hold true for MOM

versus non-MOM loans, it would be hard to quantify on a per-loan basis

how much the lender would stand to save if the loan were maintained on

the MERS system, contrasted with having to record any assignment

should the loan eventually be sold. Even if that amount of savings could

be quantified, it is unlikely that an individual borrower would choose to

224. See Carter v. Deutsche Bank Nat‘l Trust Co., No. C09-3033 BZ, 2010 U.S. Dist.

LEXIS 6473, at *5 (N.D. Cal. Jan. 27, 2010) (noting that the contracts are contracts

of adhesion).

225. Zacks, supra note 223, at 1488 (noting that the CARD Act‘s disclosure provisions

do not imply meaningful assent to altered credit card agreement terms).


227. See, e.g., Karen M. Pence, Foreclosing on Opportunity: State Laws and Mortgage

Credit (FEDS Working Paper No. 2003-16 May 13, 2003), available at

http://papers.ssrn.com/abstract=410768.



opt-out of the MERS system if they were presented with an additional up

front charge, given that the optimism bias cited above would likely lead

borrowers to the conclusion that they do not stand to lose very much

from their loan being a MOM loan.

We could also consider a more consumer-protective standpoint, and

propose an opt-in requirement, as opposed to an opt-out clause. In this

way, a MERS disclosure could protect against the passive consent that

does not always signify informed, considered consent.228

But one can

easily imagine the following scenario: A borrower is presented with 100

pages of documents, and is told that if he checks the opt-in box, his

closing costs will be $50 or $100 less expensive than they would be if he

should choose not check the box. Furthermore, the borrower is told that

the note and mortgage themselves are already drafted as if he has opted

in to a MOM loan. Thus, should he elect not to check the box, the

closing will have to be postponed for another day while the documents

are re-drafted. It is unlikely that such an opt-in proposal would have any

teeth or provide any more meaningful choice for borrowers. Indeed,

MERS itself has argued that ―[i]t is not plausible to suggest that

Plaintiffs [homeowners] would not have entered into the loans had they

known MERS (as compared to some other entity) was not serving as the

beneficiary on the deed of trust.‖229

Therefore, the informational

disparities created by MERS are unlikely to be solved by additional

disclosures to borrowers or by requiring an opt-in or opt-out provision

at origination.

C. Disclosure of Transfers in Ownership to Homeowners

Given that the standing of MERS is constantly in flux, one solution

for MERS‘s masking of beneficial owners of loans could be to inform

homeowners every time the beneficial ownership of their loans changes,

despite MERS remaining the mortgagee of record on the public records.

This approach has been firmed up by the federal regulations

implementing section 131(g) of the Truth in Lending Act (TILA), to

which Congress made changes as part of the Helping Families Save

Their Homes Act.230

As part of TILA and the corresponding regulation,

any change in beneficial ownership of loans must be disclosed to

228. Zacks, supra note 223, at 1505–06.

229. MERS Reply Memorandum, supra note 202, at 4.

230. Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, § 404, 123

Stat 1632, 1658 (2009).



borrowers.231

Unfortunately, this does not solve all of the informational

disparities created by MERS and creates some additional difficulties.

First, requiring lenders to disclose the loan every time it was sold is

unwieldy. Loans that are securitized often go through several changes in

ownership. Requiring lenders to disclose each and every such

transaction eliminates some of the cost savings of not having to record

the assignments in the public records. Subsequently, as discussed,

lenders may pass those increased costs onto homeowners. MERS could

still retain some cost savings benefit to lenders, however: MERS still

remains a useful database for lenders and servicers to track such

changes, rendering full title searches unnecessary before sales of loans;

MERS still retains the clearinghouse function it maintains now, enabling

a single servicer‘s employees, appointed as officers, to track ownership

changes; and MERS still does not have to record every transaction in the

public records or pay the associated fees.

Notifying homeowners of beneficial ownership transfers only

eliminates the information deficit as to those individual homeowners.

The public, in many cases, remains unaware of any transfers in

ownership, as MERS usually remains the mortgagee on the public

records during securitization.232

Any requirement that MERS record all

transfers of underlying ownership would negate the very reason for its

existence. A letter to a homeowner does nothing to inform the public at

large about who actually owns some form of lien on a property. Indeed,

MERS continues to list many investors on its public loan lookup website

as ―private.‖233

Finally, and perhaps most significantly, enforcement and regulation

is difficult. The only time a homeowner with a MERS loan would have

occasion to wonder if the underlying ownership of their note had

changed were if someone sued them in the name of some underlying

party the homeowner had never heard of. Ownership of their loan could

change twenty times without the average homeowner having any

notice.234

Reliance is thus upon MERS and its members to accurately

231. Id.; 15 U.S.C.A. § 1641 (2009).

232. The author‘s experience is that, although pooling and servicing agreements may call

for assignments to be delivered to the trustee or custodian of a trust upon the formation of the

trust or within a certain time period, the assignments are usually not drafted and recorded until

needed for foreclosure proceedings.

233. R.K. Arnold claims in his testimony that ―97% agreed to disclose the identity of

the note-owner through the MERS system.‖ Mortgage Servicing Hearing, supra note 3, at

101 n.9.

234. See, e.g., Peterson, supra note 9, at 1401 (―For example, in loans where MERS is



disclose when a loan is sold. Given MERS‘s utter lack of diligence in

ensuring accuracy in documentation filed in its name, it is difficult to

see how the regulation implemented is going to be enforced except

post facto.

D. Disclosure of Transfers in Ownership to Courts

Another possibility for narrowing the information gap created by

the use of the MERS system could be remedied by an across-the-board

requirement in foreclosure and bankruptcy proceedings that MERS be

able to document each and every previous transfer in ownership. In

theory, MERS already tracks every such transfer on its system, but

because of the questionable accuracy of such records, judicial oversight

could help eliminate any doubts homeowners have about who owns

their loans.

This approach, however, does not seem reasonably practicable nor

worth its costs. First, such an approach would only solve the

informational problems created by MERS at the time of default and

related proceedings. The lack of information about who presently owns

loans would not be solved by court mandated disclosure once

foreclosure has started, presumably years after a loan has been

originated. Second, creating such a requirement would contradict the

UCC and states‘ statutes regarding holder status. The vast majority of

court rulings that this Article examined above found that, for someone to

prove holder status, all that is needed is physical possession of an

endorsed note, or at least a copy thereof.235

Requiring a full and

complete tracking of the chain of ownership is simply not part of the

statutory requirements. Thus, such an across-the-board mandate would

eviscerate much of the current law on negotiable instruments.

Furthermore, the mandated disclosure, if enacted federally, would

eliminate the freedom of individual jurisdictions to dictate what

documentation is needed and what is not.

Finally, much has been written about the fact that foreclosure can

be a long, expensive process for banks and servicers.236

Producing

listed as the mortgagee, virtually any company can show up, claim to own the note, and

proceed to foreclose on a family that is in arrears.‖).

235. See, e.g., Chase Home Fin., LLC v. Fequiere, 119 Conn. App. 570, 576–77, 989

A.2d 606, 610–11 (2010).

236. See Yuki Noguchi, Foreclosures: A Busted System or Veiled Opportunity?, NAT‘L

PUB. RADIO (Oct. 6, 2010), http://www.npr.org/templates/story/story.php?storyId=130376768

(noting the immense paperwork involved in a judicial foreclosure).

http://www.npr.org/templates/story/story.php?storyId=130376768



proper documentation has been a major challenge for banks.237

Initiating

a new requirement that the foreclosing entity produce the entire chain of

ownership in cases where it was previously not required could create

more delay, which some observers believe will ultimately forestall a

resolution to the housing crisis.238

E. Changing Recording Systems

Many commentators have remarked about how MERS itself is not

the problem and how antiquated recording systems are, in fact, adversely

affecting modern processes.239

One solution, these voices claim, is to

reform the land registry title systems themselves.240

It can be argued that

if the recording requirements would go paperless, the need for a system

such as MERS could be eliminated. One major problem with this idea is

that it does not account for the severe lack of funding to which many

states have fallen victim.241

Courts and clerks alike have had to deal

with reductions in funding. The lack of funding renders the ability to

improve searching and readability capabilities for earlier records a

difficult task unlikely to be resolved quickly.

In addition, reforming land recording processes does not

completely meet the goals behind the MERS system. Even if records

were user-friendly to file, were easily searchable, and were inexpensive

to file and retrieve, fees and costs would still inevitably be borne by the

recording party. Assuming that MERS assignments were prohibited

under such a proposal,242

(using the reasoning that the update in

technology would render MERS obsolete and unnecessary, and that land

registry reform would not accept the lack of transparency inherent in

237. Id.

238. Id. (citing Rick Sharga, Vice President of RealtyTrac, for the proposition that

paperwork problems in foreclosure cases, causing delays, ―will simply prolong an already

protracted housing crisis‖).

239. See Mortg. Elec. Registration Sys., Inc. v. Revoredo, 955 So. 2d 33, 34 (Fla. Dist.

Ct. App. 2007) (―[T]he problem arises from the difficulty of attempting to shoehorn a modern

innovative instrument of commerce into nomenclature and legal categories which stem

essentially from the medieval English land law.‖); Tanya D. Marsh, Foreclosures and the

Failure of the American Land Title Recording System, 111 COLUM. L. REV. SIDEBAR 19, 20

(2011), http://www.columbialawreview.org/assets/sidebar/volume/111/19_Marsh.pdf (―Little

has changed since colonial days in the process by which title is recorded.‖).

240. For a more detailed examination of this issue, see Marsh, supra note 239, at 24–26.

241. See News Release, Court Leaders to Address ABA Task Force About Court Funding

Crisis, NAT‘L CTR. FOR STATE COURTS (Feb. 8, 2011), http://www.ncsc.org/newsroom/news-

releases/2011/aba-task-force.aspx.

242. Marsh, supra note 239, at 26.

http://www.ncsc.org/newsroom/news-releases/2011/aba-task-force.aspx

http://www.ncsc.org/newsroom/news-releases/2011/aba-task-force.aspx



MERS), all assignments would once again find their way to the public

records. The time and expense of recording such assignments, even if

done through a hassle-free electronic system, would be borne by lenders

and banks. Those costs, inevitably, would be passed on to consumers.

Because it is difficult at this juncture to quantify the impact of requiring

such costs to be borne by lenders, one cannot say whether consumers

would rather live with some lack of transparency in public records or

with the prospect of facing higher costs associated with obtaining a

home loan. Nonetheless, on an individual basis, prospective

homeowners are unlikely to opt for more transparency if it means higher

costs to them at origination.243

It is unlikely that the public at large

necessarily would feel any differently.

Finally, even if consumers were willing to pay more for home loans

in exchange for more transparency in the public records, that does

nothing to address the status of current MERS loans. If MERS loans

were prohibited, as proposed by Marsh,244

someone would have to foot

the bill for assigning all the loans out of the MERS system. This rush to

produce assignments would undoubtedly result in more hastily prepared

and error-prone documents being filed in our public records, whether

electronic or not.245

F. MERS Itself Reforms

On February 16, 2011, MERS announced that it proposed to cease

from foreclosing in its own name.246

MERS stated that it would require

assignments out of the MERS system for all future foreclosures.247

MERS adopted this policy in July 2011.248

Although this represents a

significant change in MERS‘s practices, it is not altogether

unprecedented. In response to adverse decisions in Florida, MERS

prohibited members from foreclosing in its name in Florida in 2006.249

Although in practical terms this has meant that practitioners are not able

to raise directly the standing of MERS to foreclose at the trial level in

243. See discussion supra, Part VII.A–B.


245. See author‘s critique of H.R. 6460, infra Part VIII.A.

246. Announcement, Foreclosure Processing and CRMS Scheduling, MERS, (Feb. 16,

2011), http://www.mersinc.org/files/filedownload.aspx?id=678&table=ProductFile.

247. Id.

248. MERSCORP, INC., supra note 14 at Rule 8(d).

249. Id., at 25.

http://www.mersinc.org/files/filedownload.aspx?id=678&table=ProductFile



Florida, challenges about the accuracy and validity of MERS

assignments are still routinely made.

As noted above, courts have yet to resolve fully whether a MERS

assignment can transfer a note as well as a mortgage, and courts have yet

to resolve whether the certifying officer regime is valid under state laws.

Nonetheless, it has been noted that if MERS does indeed stop

foreclosing in its own name, such a change would represent a

―significant concession.‖250

Even though MERS eventually stopped filing foreclosures in its

own name, ending the practice will do little to eliminate the problems

this Article has sought to elucidate. First, the thousands of cases already

filed in the name of MERS around the country will continue, along with

the disputes regarding MERS‘s standing. Given the length of the

foreclosure process, especially in judicial foreclosure states, appellate

decisions regarding MERS‘s standing are sure to continue being

rendered for years to come.

Next, the MERS assignments of mortgages will continue to be

disputed as they are produced in even greater quantities to transfer

mortgages to the foreclosing entity. Finally, whether MERS forecloses

or not does not resolve the lack of transparency its widespread use has

created in the nation‘s public records. MERS‘s refusal to foreclose in its

own name will not clear up the dearth of information regarding previous

mortgage transfers.

VIII. POSSIBLE DEMOCRATIC OR UNILATERAL RESPONSES TO MERS

The other public-policy issue commonly raised in protest to the use

of MERS is the fact that its elimination of the previous system of

recording assignments for every ownership transfer deprives counties of

direly needed funds generated by recording fees.251

Furthermore, this

change in the process by which ownership is tracked has been called

antidemocratic, given that the creation of MERS effectively rewrote the

rules of public recording.252

Barring consistent nationwide judicial

decisions rendering MERS impotent, few alternatives to this problem

exist: 1) legislators may enact legislation expressly permitting or

250. Thom Weidlich, Merscorp May Stop Members Foreclosing in Its Name,

BLOOMBERG (Feb. 17, 2011), http://www.bloomberg.com/news/2011-02-17/merscorp-may-

stop-members-foreclosing-in-its-name-update1-.html.

251. See MERSCORP, Inc. v. Romaine, 861 N.E.2d 81, 88–89 (N.Y. 2006) (Kaye, J.,

dissenting in part).

252. Peterson, supra note 9, at 1404–06.

http://www.bloomberg.com/news/2011-02-17/merscorp-may-stop-members-foreclosing-in-its-name-update1-.html

http://www.bloomberg.com/news/2011-02-17/merscorp-may-stop-members-foreclosing-in-its-name-update1-.html



denying MERS the right to practice recording as it has been doing, or, 2)

lenders and the quasi-governmental agencies, concerned at public

outrage and potential documentation problems, could stop using the

MERS system. This Part will consider each of these options in turn.

A. Legislation

Legislative responses would presumably eliminate the argument of

many commentators that MERS antidemocratically altered public

recording laws. Citizens would have a say in how the recording statutes

of their state are to be written and enforced. Nonetheless, legislative

action on recording statutes is unlikely to generate public fervor. Public

awareness of MERS has only been recently evoked.253

It would not be

an entirely true statement to say that a bill passed in a state house would

accurately reflect public opinion, given that much of the public is

still uninformed.

A case in point is the Minnesota ―MERS statute.‖254

The bill

proposing the statute was passed unanimously by both houses of the

Minnesota legislature.255

Yet one would be skeptical of any claim that

Minnesota voters are unanimous in their indulgence of MERS.

The Minnesota MERS statute explicitly entitles assignments,

satisfactions, releases, or power of attorneys to be recorded, and allows

foreclosures if the mortgagee is nominee or agent for a party identified

in the mortgage and its assigns, if the document recorded is executed by

the mortgagee, and if the document recorded is in recordable form.256

The statute explicitly instructs county recorders to rely on any

document so filed.257

The bill was aptly dubbed the MERS statute, as it

appears to be tailored exactly to the activities that MERS undertakes in

connection with delinquent loan litigation. The same critics of MERS

on the basis of its antidemocratic changes to recording law will probably

not be satisfied with the bill. One can presume that such critics did not

envision democratic action that would explicitly give approval to the

MERS foreclosure pathway.

253. See, e.g., McIntire, supra note 2.

254. MINN. STAT. ANN. § 507.413 (West 2010).

255. SF1621 Status in Senate for Legislative Session 83, MINN. ST. LEGISLATURE,

https://www.revisor.mn.gov/revisor/pages/search_status/status_detail.php?b=Senate&f=SF16

21&ssn=0&y=2004 (last updated May 5, 2011).

256. MINN. STAT. ANN. § 507.413(a) (West 2010).

257. Id., § 507.413(b).



Even if the statute did satisfy concerns about the clandestine

metamorphosis of recording laws, the statute does not solve many of the

other fundamental public policy issues regarding MERS raised in this

Article. First, the Minnesota statute does not make any headway into

clarifying what it means for a document such as an assignment to be

―executed by the mortgagee.‖258

As discussed above, when a document

is executed by MERS as a mortgagee, the officer of MERS is actually

an employee of the MERS member, which in most instances is

the servicer.259

The Minnesota statute also does not clarify if the process of

appointing MERS officers—printing out a corporate resolution from its

website—is valid under other Minnesota laws regarding corporate

appointments. Rather, the statute simply assumes away the problem,

requiring any document recorded by the mortgagee to be accepted by the

county recorder and registrar of titles. One can only assume that

attorneys for homeowners will continue to dispute this process to say

that the recorded documents are fraudulent or invalid.

The Minnesota statute also does not solve the information gap so

widely lamented. By giving approval to the MERS modus operandi of

nominee foreclosures and assignments, the legislature did not address,

and even eliminated the old ways of disclosure in the public records

when a loan was sold. MERS does not have to address the chain of title;

instead, it can remain the mortgagee on the public records for the life of

the loan, despite any underlying transfers.

The Minnesota Supreme Court relied upon the statute in Jackson v.

MERS, wherein the court recognized that ―[b]y passing the MERS

statute, the legislature appears to have given approval to MERS‘

operating system for purposes of recording.‖260

The court went further,

saying that assignments of notes do not have to be recorded, so long as

the security instrument was not transferred.261

Recognizing that legal

and equitable title can be separated, the court held that MERS could

foreclose in its own name without recording any transfer of the

underlying note.262

Although the court indicated that a better public

258. Id., § 507.413(a)(2).

259. See, e.g., Mortgage Servicing Hearing, supra note 3, at 103–04.

260. Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487, 494 (Minn. 2009).

For a more detailed analysis of Jackson, see Robert E. Dordan, Comment, Mortgage

Electronic Registration Systems (MERS), Its Recent Legal Battles, and the Chance for a

Peaceful Existence, 12 LOY. J. PUB. INT. L. 177 (2010).

261. Jackson, 770 N.W.2d at 500–01.

262. Id. at 500, 503.



policy would be to require such transfers of the underlying debt to be

recorded, it recognized that a ruling on that issue would be outside the

scope of its authority.263

The great irony, of course, is that those arguing for democratic

input into changes in recording practices by MERS would likely be in

favor of the exact opposite of the result found in Jackson. Yet, in a case

of ―be careful what you wish for,‖ the Minnesota statute has solidified

MERS‘s standing arguments in that state. Democratic action has failed

to resolve the public policy problems created by MERS.

On the opposite end of the spectrum, lawmakers in Virginia are

currently debating a bill that would severely restrict MERS‘s abilities to

foreclose.264

House Bill 1506 sets forth numerous requirements that

would hamper the typical MERS foreclosure tactics. First, the bill

provides that any party asserting holder status must be able to ―trace his

interest through the duly recorded assignments to the original grantee or

mortgagee.‖265

This requirement, along with its corollary requiring all

assignments to be recorded, might not be as big a leap as it seems at first

glance. MOM loans state that MERS is the mortgagee, although as

nominee only. Thus, a single assignment from MERS to the party

asserting holdership would arguably be sufficient to meet the

requirements of the bill—a situation not unlike the present.

Secondly, and more significantly, the bill provides that ―[a]

nominee of a grantee, mortgagee, or beneficiary for a deed of trust or

mortgage has no authority to request that the trustee, or any substitute

trustee, proceed with any sale of the property.‖266

The proposed statute

would define a nominee as ―a person who is designated in the deed of

trust or mortgage, or who is subsequently designated to act on behalf of

the grantee, mortgagee, or beneficiary. The term ‗―nominee‘ does not

include an agent or other fiduciary.‖267

We must first examine whether

the statute would apply to MERS.

As discussed above, MERS has often described itself or has been

described by courts essentially as an agent.268

One can presume that

MERS might simply amend its pleadings to state that it is an agent in

fact for the lender, holder, or owner, instead of a nominee. In that case,

it is not immediately clear whether Virginia courts would preclude

263. Id. at 502.

264. H.R. 1506, Gen. Assemb., 2011 Reg. Sess. (Va. 2010).

265. Id.

266. Id.

267. Id.

268. See discussion supra Part V.A.



MERS from foreclosing in its own name, because the proposed statute

does not parse out the difference between an ―agent‖ and a person

―designated to act on behalf of the grantee, mortgagee, or

beneficiary.‖269

If MERS could not prove its status as agent, though, it

appears that the statute would preclude MERS from filing a foreclosure

action in its own name. The loophole for MERS to plead agency status

is yet another example of how MERS being defined in so many different

ways in courts around the nation makes democratic action to limit its

abilities unwieldy. Just as in court MERS often argues that it is an

agent, nominee, or owner, so too could it argue in response to this bill.

The inability of the public and lawmakers to pin down an exact

definition of MERS renders drafting statutory language sufficient to

encapsulate all of MERS‘s activities very difficult.

Finally, Virginia House Bill 1506 provides for increased penalties

for fraudulent statements and documentation filed in foreclosure

actions.270

The bill, therefore, speaks directly to the problems of which

MERS has often been accused. Servicers‘ employees, including those

signing as officers of MERS, would face penalties of up to $5000 for

each instance of filing false documentation.271

On the federal level, lawmakers have proposed additional action

directed towards MERS. The Transparency and Security in Mortgage

Registration Act of 2010 seeks ―to prohibit Fannie Mae, Freddie Mac,

and Ginnie Mae from owning or guaranteeing any mortgage that is

assigned to [MERS] or for which MERS is the mortgagee of record.‖272

The bill would prohibit any of these government-sponsored enterprises

(GSEs) from purchasing, acquiring, making new loans on the security

of, making new investments in securities consisting of, or otherwise

entering new deals with MERS mortgages.273

Furthermore, the bill

prescribes that within six months of passage, all MOM loans ―owned,

guaranteed, or securitized‖ by the GSEs must ―be assigned to the

servicer, holder, or creditor.‖274

First, the proposed changes, if enacted, will have an enormous

effect on lending practices in the future. In 2009, the GSEs ―financed

three-quarters of new mortgages originated.‖275

If MOM loans were

269. H.R. 1506.

270. Id.

271. Id.

272. H.R. 6460, 111th Cong. (2d Sess. 2010).

273. Id.

274. Id.

275. CONGRESSIONAL BUDGET OFFICE, FANNIE MAE, FREDDIE MAC, AND THE



prohibited from being owned or guaranteed by the GSEs in the future,

one can presume that lenders would no longer offer such loans if they

were seeking GSE backing. Given the huge chunk of lending that this

represents, the enactment of the bill would drastically, if not totally,

reduce the industry practice of originating mortgages and deeds of trust

in the name of MERS. The bill would also reduce the marketability of

MOM loans on the secondary market. The GSEs, not permitted to invest

in new MOM loans, would be precluded from obtaining securities that

contained any such loans.

Furthermore, as to existing loans owned or guaranteed by the GSEs,

the proposed requirement that currently owned GSE mortgages be

transferred out of the MERS system would represent a gargantuan task

for the banking industry. In 2009, Fannie Mae and Freddie Mac ―owned

or guaranteed roughly half of all outstanding mortgages.‖276

For each

and every one of these loans granted in favor of MERS, the mortgages

would have to be assigned to the ―servicer, holder, or creditor.‖277

The

paperwork required to accomplish this would be almost unfathomable.

This Article has already discussed some of the problems foreclosing

entities have in producing such paperwork in relation to delinquent

loans. Given that delinquent loans are a small percentage of all loans, a

six-month window in which to accomplish assignments or transfers in

half of all loans in the country seems impossible.

Additionally, the pressure to accomplish the task within six months

might ruin the desire for transparency that critics of MERS so ardently

wish for. Fraudulent documentation in mortgage foreclosures is already

rampant.278

The radical escalation in the scale of documentation needed,

combined with a tight time frame in which to produce it would only

increase pressure to push out assignments with no consideration for

accuracy. On a more practical note, the bill provides that the GSEs will

not be responsible for the costs of assigning mortgages out of the MERS

system.279

The cost of the bill‘s passage, then, would be enormous.

Requiring the lender or servicer to foot the bill would eliminate some of

the cost saving benefits behind writing those mortgages in the name of

MERS initially.

FEDERAL ROLE IN THE SECONDARY MORTGAGE MARKET, at VIII–IX (2010), available at

http://www.cbo.gov/ftpdocs/120xx/doc12032/12-23-FannieFreddie.pdf.

276. Id. at VIII.

277. H.R. 6460.

278. See, e.g., Ice & Zacks, supra note 160.

279. H.R. 6460 (―The corporation shall not reimburse the servicer, holder, or creditor for

any expense incurred in the carrying out or recording such an assignment.‖).



The withdrawal of the GSEs from the MERS way of conducting

business would thus be a stepping stone toward the death knell for

MERS. The GSEs were a major part of sponsoring MERS‘s birth.280

Their explicit disapproval and withdrawal would perhaps play a

leading role in pushing the lending industry toward another form

of electronically tracking mortgages and trying to evade county

recording fees.

As we have seen, legislation can take many forms. The fact that

some form of democratic action through legislation takes place, though,

is not necessarily a panacea for the problems created by MERS.

B. Lender or GSE Responses

JPMorgan Chase & Company (Chase) received some of the most

negative publicity regarding fraudulently filed foreclosure

documentation.281

In response, it instituted a temporary halt on

foreclosures while it reviewed processes for verifying such

documentation.282

While news of Chase‘s malfeasance was emerging,

its CEO announced that the company had not originated MERS loans

since 2008.283

Chase‘s CEO noted that ―some courts won‘t accept

MERS for foreclosures.‖284

No other major lender has since come

forward to state that it has ceased using MERS.285

This does not,

however, preclude the possibility that other lenders are simply not

publicly announcing their decision.

What is notable about Chase‘s decision to stop using MERS is that

it is the first major lender to publicly express doubts about the viability

of MERS in courts. Clearly, although homeowners face an uphill battle

280. See Peterson, supra note 9, at 1370.

281. Alistair Barr, ‗Robo-Signer’ Controversy Spreads, MARKET WATCH (Sep. 29, 2010

6:39 PM), http://www.marketwatch.com/story/robo-signer-controversy-spreads-2010-09-29;

Lorraine Woellert & Dakin Campbell, JPMorgan Based Foreclosures on Faulty Documents,

Lawyers Claim, BLOOMBERG (Sep. 27, 2010 12:00 AM),

http://www.bloomberg.com/news/2010-09-27/jpmorgan-based-home-foreclosures-on-faulty-

court-documents-lawyers-claim.html (noting that a Chase Home Finance operation supervisor

admitted in a deposition that she did not look at any documentation prior to signing affidavits

in support of foreclosure).

282. Jim Zarroli, JPMorgan Suspends Some Foreclosures, NAT‘L PUB. RADIO (Sep. 30,

2010), http://www.npr.org/templates/story/story.php?storyId=130247584.

283. Diana Olick, JP Morgan Chase Drops Electronic Mortgage Clearing House, CNBC

(Oct. 13, 2010 2:37 PM), http://www.cnbc.com/id/39655299.

284. Id. (quoting Tom Kelly, JP Morgan Chase spokesman).

285. Wells Fargo apparently also only registers loans that it plans to sell. Mortgage

Servicing Hearing, supra note 3, at 96 n.2.

http://www.bloomberg.com/news/2010-09-27/jpmorgan-based-home-foreclosures-on-faulty-court-documents-lawyers-claim.html

http://www.bloomberg.com/news/2010-09-27/jpmorgan-based-home-foreclosures-on-faulty-court-documents-lawyers-claim.html

http://www.cnbc.com/id/39655299



in courts, their challenges to MERS have echoed throughout the lending

industry. It remains to be seen, however, if other lenders take the

challenges so seriously. Nonetheless, if the very same bankers behind

the creation of MERS begin to doubt its viability, it may sound a death

knell for MERS without the need for democratic action.

Similarly, the GSEs may take the initiative and begin to scale down

their support for MERS mortgages without waiting for legislative

direction such as H.R. 6460. In an ideal world, the GSEs would be as

concerned about fraud in foreclosure litigation as Chase is. The

GSEs, however, have shown a significant lag in recognizing and

rectifying fraud.286

It is unlikely, therefore, that the GSEs, part-founders

of the MERS system, would take a proactive stance and eliminate

their association with MERS without a clear legislative, judicial, or

regulatory mandate.

One of the more prominent points this Article sought to develop is

that MERS takes many positions in many different jurisdictions. It has

many different theories of ownership interests, enforcement of those

interests, and transfers of its rights in loans. This patchwork quilt of

theories does not sit well with many commentators.287

If we get beyond

the fact that lawyers for MERS are saying different things to judges in

different jurisdictions, a case can be made that MERS can actually be the

groundwork for a new nationwide recording system.

286. For example, the GSEs waited until news broke about fraudulent documents being

filed in foreclosure courts before sending out letters to servicers regarding properly verifying

such documents. Ariana Eunjung Cha, Bank of America Latest to Put Hold on Foreclosures

Amid Paperwork Concerns, WASH. POST (Oct. 1, 2010 11:40 PM),

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/01/AR2010100106678.html.

This was despite the fact that some of the depositions exposing faulty practices, such as the

deposition by the author of a OneWest Bank official took place months, and in other cases,

years before lenders enacted their temporary foreclosure moratorium in response to publicity.

See id. Another example is Fannie Mae and Freddie Mac continuing to retain plaintiff‘s firms

who are under investigation by the State Attorney General of Florida. See, e.g., Harriet

Johnson Brackey, Congressional Leaders Question Fannie Mae over Law Firms Under

Investigation, SUN SENTINEL (Sept. 27, 2010), http://articles.sun-sentinel.com/2010-09-

27/business/fl-foreclosure-fannie-mae-0928-20100927_1_shapiro-fishman-foreclosure-

proceedings-law-firms.

287. For perhaps the most virulently anti-MERS view, see Peterson, supra note 191.

http://articles.sun-sentinel.com/2010-09-27/business/fl-foreclosure-fannie-mae-0928-20100927_1_shapiro-fishman-foreclosure-proceedings-law-firms





VIX. MERS—A USEFUL INCREMENTAL STEP TOWARD AN

ALTERNATIVE NATIONWIDE RECORDING SYSTEM

A. Addressing Recording Practices

As seen above, MERS presents several difficult policy and

regulatory issues that have yet to be addressed. This Article suggests,

however, that MERS can be regulated to generate some positive

outcomes by upgrading antiquated and outdated public recording

practices. One possibility is to enhance MERS so that it forms or

provides the basis of a standardized recording system.

The system would be similar to Professor Marsh‘s proposal noted

above in many respects. Professor Marsh, however, proposes that we

replace MERS and local land title systems with a federalized electronic

system.288

Arguing that we should ―start from scratch,‖ Marsh believes

that lenders and banks should be able to opt out of local recording

statutes to an alternative, electronic federal recording system.289

Marsh‘s

proposal, however, fails to consider one obvious solution: MERS

already constitutes a type of nationwide alternative recording system.

Furthermore, the costs of creating and adopting such a system would not

be a minor undertaking. Local recording statutes have not changed since

colonial times,290

so it remains unlikely that any nationwide recording

system created by the federal government would or could be formed

quickly and without great expense.

As modified, a MERS-based system could actually help eliminate

many of the problems critics of the current recording statutes lament.

Professor Marsh, for example, notes that grantor/grantee indexes can be

difficult to search.291

Furthermore, local recording is also an error-prone

process, and no standard nationwide system exists.292

MERS, on the

other hand, already has developed a standardized, easy-to-search

identifier for all MERS mortgages: the MERS Identification Number,

or ―MIN.‖293

This number, unique to every loan, facilitates

searching for information regarding a loan.294

MERS has also already

288. See Marsh, supra note 239, at 24.

289. Id.

290. Id. at 20.

291. Id. at 21.



294. Id. at 159–60.



developed its searchable website to search by homeowner‘s name or

property address.295

Although MERS currently only reveals the servicer and sometimes

the investor in loans, it is not difficult to see that this easy-to-use lookup

interface could become richer with data, such as the storing and indexing

of actual documents. Given that over half of the nation‘s mortgages are

MERS loans, lenders and servicers apparently approve of the MERS

system‘s ease of use as well.296

Thus, the ease of uploading information

onto the MERS system has apparently already been demonstrated. To

simply make the leap and envisage lenders and servicers using MERS as

the new nationwide alternative recording system proposed by Marsh is

not difficult. This is especially so given the fact that MERS already

exists and is functioning, in contrast to some completely new recording

system yet to be contemplated.

B. Transparency and Accuracy

To address transparency concerns, as outlined in this Article, a

MERS recording database could be forced to reveal the identity of all

investors. In light of the fact that federal legislators have already

proposed that the GSEs eliminate dealing in MERS loans, significant

pressure could be brought to bear on lenders and MERS in exchange for

this small concession.297

Similarly, if MERS were simply required to

disclose to the public on its electronic registry or website each and every

time beneficial ownership in loans was transferred, many other

transparency concerns about MERS would vanish. Many people would

not care if an assignment were recorded in local records as long as they

felt that MERS was not trying to hide the transfer and as long as the

information regarding the transfer were easily accessible.

Accuracy of the disclosures made on the MERS system would

remain a paramount concern. A more robust system of oversight would

be required to ensure that transactions reflected on the MERS system

were accurate. Given that over 20,000 people around the country sign

documents as ―officers‖ of MERS,298

the current employees of MERS

simply do not have the capacity to ensure that information is being

295. See MERS Servicer Identification System, MERS, http://www.mers-

servicerid.org/sis/ (last visited Aug. 11, 2011).

296. See Mortgage Servicing Hearing, supra note 3, at 101.

297. MERS stated that only a small percentage of investors chose not to reveal

themselves on the MERS Servicer ID Website. Id. at 101 n.9.

298. Id. at 170.



inputted accurately into the MERS system. Furthermore, it is clear that

local recorders, courts of all levels, and GSEs have been slow to

recognize frauds being perpetrated in foreclosures around the country.

Accordingly, some agency must take responsibility for ensuring the

reliability of the records on the new system.

Finally, allowing lenders to record on the MERS database would

maintain some of the benefits sought by lenders and the GSEs when they

created MERS. Although uploading information onto the MERS system

is not free, it currently does not cost lenders or servicers anything to

update a loan‘s information on the MERS system. If lenders or servicers

choose to risk contravening state notice and foreclosure laws and not

upload actual assignments, e.g., only submitting data reflecting a transfer

rather than uploading the assignment itself, that would be up to them.

They would still retain the cost savings from not having to pay a

recording fee at local recording offices.

C. Benefits and Drawbacks

The benefits to this public/private hybrid model of the MERS

system as the basis for a new alternative recording database are not

difficult to imagine. Lenders would enjoy the same cost savings they do

now from the MERS system, borrowers and the public would enjoy the

newly updated and easy-to-search MERS-based interface, and regulators

would be enabled to ensure the accuracy of records. States and their

constituents also would retain their autonomy to determine, for example,

whether lenders must to record all intervening assignments or whether

MERS could foreclose in its own name. In this way, states can remain

the incubator of new ideas in recording laws and can also retain

autonomy to determine how they view the murky legal status of MOM

loans. Forcing MERS to reveal investors‘ or true owners‘ names would

address many of the transparency concerns raised in this Article.

Furthermore, allowing states to remain the ultimate arbiter of MERS‘s

standing in foreclosure actions would eliminate much of the anti-

democratic criticism brought against MERS. Voters would remain free

to enact anti-MERS legislation, such as that proposed in Virginia, or to

enact legislation ratifying MERS‘s standing in courts, such as that

in Minnesota.

Even for loans not originated in the name of MERS, lenders and

servicers, if permitted to use the proposed MERS-based system, would

still get the benefit of being able to complete previously burdensome

tasks electronically and inexpensively. The public would gain an easy-



to-use standardized interface rather than the patchwork system local

recording offices currently offer.

One drawback to this proposal is that the current conflicting MERS

jurisprudence would not be solved in one thrust. Litigants would remain

subject to the many varying interpretations courts give MERS, as

discussed in this Article. Although bolstering MERS‘s transparency and

accuracy would help concerns raised earlier about public records, it

would do little to provide certainty about how courts interpret MERS‘s

standing. If those standing concerns were not resolved with uniformity,

the continuing contradictory theories of MERS would continue to be

asserted on its behalf around the nation.

X. CONCLUSION

This Article examined the various theories of MERS‘s standing to

appear in foreclosures and bankruptcies. Through analyzing a number

of illustrative judicial decisions, the Article suggested that most courts

will allow MERS to appear in court as nominee or agent for the

beneficial owner of loans, or as the legal titleholder or mortgagee.

Similarly, on these bases, many courts will hold MERS assignments of

mortgage valid, should they be filed as evidence of a transfer of the

mortgage, the note, or both.

MERS‘s own theories of standing, however, widely vary from

jurisdiction to jurisdiction and from case to case. This is, in part,

because different lawyers represent MERS in different cases, because

different servicers and lenders dictate how litigation in the name of

MERS proceeds, and because MERS has so many different theories of

standing from which to choose.

The Article argued that it is MERS‘s amorphous structure and the

non-exact language in MERS-originated loans that allow it to propound

so many different arguments in favor of its standing. Likewise, the

Article suggested that courts‘ different choices for finding in favor of

MERS result in a greater number of decisions in favor of MERS‘s

standing. As a result, MERS presents a number of public-policy issues,

notably including MERS‘s information-restricting effect on data

previously available in public records and MERS‘s alteration of

longstanding recording laws and practices without democratic input. The

Article examined various solutions, including legislative resolutions for

and against MERS, court procedural rules affecting MERS‘s burden of

proof in courts, and unilateral solutions, such as lender, GSE, or MERS-

initiated responses.



In light of the many difficulties presented by the above-mentioned

solutions, this Article proposed a possible solution for the problems

MERS presents—MERS itself could be strengthened and regulated to

form the foundation for a new, alternative national recording system.

The MERS system already in place is user-friendly and easy to access.

Adding requirements for disclosing transfers as they occur and for

disclosing the true owners of loans would eliminate some of the

information-masking concerns MERS has evoked. Similarly, regulatory

oversight of the MERS database would help reduce concerns about

accuracy in the MERS records. Accordingly, the Article suggested that

if the much-maligned MERS system were strengthened to actually store

records and documents, and if those records were more firmly regulated,

MERS would retain many of the cost-saving benefits for lenders while,

at the same time, producing a valuable public good—a modern, updated,

electronic registry of public land records.

The proposal would not, however, solve the problem of conflicting

arguments being made before courts and the problem of conflicting

judicial opinions being handed down from state to state. Given that

federal legislation or a Supreme Court decision affirming or rejecting

MERS‘s right to appear in foreclosures and bankruptcy cases seems

exceedingly remote, however, strengthening the MERS system and

mandating more oversight of its records would provide a step towards

transparency and accuracy.

NO BRAKES: LOAN ACCELERATION AND DIMINISHING

FORECLOSURE DEFENSES

Eric A. Zacks & Dustin A. Zacks

Wayne State University Law School Legal Studies Research Paper Series

No. 2018-45

Wake Forest Journal of Business and Intellectual Property Law Volume 18, Spring 2018, Number 3

Papers posted in the Wayne State University Law School Legal Studies Research Paper

Series can be downloaded at the following url: http://www.ssrn.com/link/Wayne-State-U-LEG.html

Electronic copy available at: https://ssrn.com/abstract=3196805

�

WAKE FOREST JOURNAL OF BUSINESS AND INTELLECTUAL PROPERTY LAW

� �� !�� "��

NO BRAKES: LOAN ACCELERATION AND DIMINISHING

FORECLOSURE DEFENSES

Eric A. Zacks & Dustin A. Zacks†

I. INTRODUCTION .......................................................... 390�II. STATE LAW TREATMENT OF ACCELERATION

CLAUSES, RES JUDICATA AND THE STATUTE OF

LIMITATIONS ................................................................ 396�A.�ONE BITE AT THE APPLE ......................................... 398�B.�MULTIPLE AND NEARLY UNLIMITED BITES AT THE

APPLE....................................................................... 410�III. UNDERSTANDING ACCELERATION AND RES

JUDICATA AND STATUTE OF LIMITATION CASES ........ 427�A.�THE FRAME OF THE FORECLOSURE STORY .............. 428�B.�A NEW “SYSTEMIC” FRAME OF FORECLOSURE ........ 432�C.�AN EQUITABLE APPROACH WHERE EQUITY DOES

NOT APPLY............................................................... 434�D.�INEFFICIENT EFFICIENCY ......................................... 440�

IV. CONCLUSION ........................................................... 442�

† © 2018 Eric A. Zacks is an Associate Professor of Law, Wayne State

University Law School. B.A., University of Michigan, 1998; J.D., Harvard Law School, 2002. Dustin A. Zacks is a member of King, Nieves, & Zacks PLLC in West Palm Beach, Florida. B.A., University of Michigan, 2004; J.D., University of Michigan Law School, 2007. The authors are grateful to Charles Roarty for superlative research assistance.


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The high volume of foreclosures during and following the Great Recession in the United States led to the revelation of many troubling lending practices. It also led to problematic judicial decisions that erode borrower protection by curtailing or eliminating procedural requirements and substantive defenses with respect to foreclosure. This Article examines the treatment of statute of limitation and res judicata defenses after a loan has been accelerated following a borrower default. Some courts ignore the traditional rule that acceleration under a contract starts the clock for statute of limitation purposes or that acceleration consolidates the loan instrument into a single obligation as opposed to an installment obligation. Instead, these courts have permitted lenders to accelerate loans repeatedly without triggering the statute of limitations or res judicata defenses. Consequently, lenders are permitted to assert foreclosure claims with respect to the same underlying debt amount over and over again. Rather than being used as a last resort, acceleration and the subsequent foreclosure process can now be wielded as a significant threat to borrowers throughout the life of their home loan. Consistent with favoritism demonstrated in our prior research, we argue that creating exceptions for lenders in the application of statutes of limitation and res judicata defenses provides little incentive for banks and servicers to reform questionable lending and collection practices.

I.�INTRODUCTION

This Article examines the treatment of statute of limitation and res judicata defenses after a loan has been accelerated following a default and is in foreclosure. The Great Recession resulted in a sizable wave of foreclosures that led commentators to compare the era (and the policy responses) to the Great Depression.1 The enormous amount of cases filed placed a strain on courts, court administrators, legislators, and of course the parties to these suits.2 This strain meant delayed resolutions for thousands of cases.3 This increased caseload meant that many state

1 See, e.g., Monica D. Armstrong, From the Great Depression to the Current

Housing Crisis: What Code Section 108 Tells Us About Congress’s Response to Economic Crisis, 26 AKRON TAX J. 69, 97, 105 (2011).

2 See generally Aleatra P. Williams, Foreclosing Foreclosure: Escaping the Yawning Abyss of the Deep Mortgage and Housing Crisis, 7 NW. J.L. & SOC. POL’Y 455, 470–71 (2012) (discussing the effects of the large amount of foreclosure cases on courts and legislatures following the Great Recession).

3 Krista Franks Brock, Moody’s: Foreclosure Timelines on the Rise; More Losses to RMBS, DSNEWS, http://dsnews.com/news/foreclosure/03-23-2012/moodys-foreclosure-timelines-on-rise-more-losses-to-rmbs-2012-03-23 (last

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court systems were inundated with an untenable number of cases that few judges wanted to hear.4 With many court systems’ funding tied to case clearance numbers, courts and court administrators attempted numerous changes in an effort to process thousands of cases efficiently and fairly.5

Some of these procedures were aimed at diverting parties from litigation and, for example, encouraging or even mandating early mediation.6 Although some scholars have argued that certain efforts were successful,7 other research suggests that these programs were not a panacea because banks and their representatives attending mediations often lacked the authority to settle, basic information about the given case at hand, and basic flexibility, such as the ability to contemporaneously review borrower financial information as a basis to provide an offer of settlement.8

Aside from diversion programs aimed at moving parties towards settlement early in the foreclosure process, courts also set up additional court procedures and structures to process the large number of foreclosures.9 These procedures included, for example, temporarily rehiring additional retired judges to help process the cases and setting up trial and summary judgment calendars with hundreds of cases scheduled during a single day or afternoon. 10 While such actions undoubtedly assisted in reducing the number of pending foreclosure

visited Mar. 27, 2018) (noting that judicial foreclosure timelines average 654 days, whereas non-judicial foreclosures age an average of 297 days).

4 See, e.g., Andrew J. Kazakes, Protecting Absent Stakeholders in Foreclosure Litigation: The Foreclosure Crisis, Mortgage Modification, and State Court Responses, 43 LOY. L.A. L. REV. 1383, 1401 (2010) (describing how this overwhelming increase in caseload has led to rubber stamping and an abbreviated foreclosure process).

5 See, e.g., Greg Allen, Fast-Paced Foreclosures: Florida’s ‘Rocket Docket’, NPR (Oct. 21, 2010, 4:17 PM), http://www.npr.org/templates/story/story.php?storyId=130729666 (describing a Florida court which hears about 200 foreclosure cases a day).

6 Alan M. White, Foreclosure Diversion and Mediation in the States, 33 GA. ST. U. L. REV. 411, 412, 415 (2017).

7 See id. at 412, 416. 8 Adolfo Pesquera, State Mediation Program Helps Few Homeowners, DAILY

BUS. REV. (June 29, 2011, 12:00 AM), https://www.law.com/dailybusinessreview/almID/1202498811107/State-mediation-program-helps-few-homeowners/ (“There were 63,019 mortgage holders eligible for mediation between the program’s launch in March 2010 and the end of the year. Of those, there were 26,150 reported contacts and 8,669 mediations conducted. Mediations leading to some sort of agreement totaled 2,309, or 3.7 percent of the eligible population.”).

9 Allen, supra note 5. 10 Id.

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cases, the creation of parallel or shadow court systems strictly for foreclosure matters meant that borrowers’ counselors were met with immense judicial skepticism, with pressure to conduct trials in extremely short amounts of time, and with limited judicial consideration of cases.11 The lack of safeguards for litigants triggered harsh criticism, including accusations of implementing procedures that “almost uniformly disadvantage homeowners.”12

At a bare minimum, faster foreclosure case processing times meant that judges often ignored or did not have sufficient time to devote to accusations of fraud and other unethical behavior by foreclosing entities and their attorneys.13 Furthermore, research suggests that courts across the country, and not merely in the states with the highest number of foreclosures, have systematically reduced the availability of debtor defenses, debtor discovery, and consequences to banks for fraud upon courts.14 Not only that, but even years into the foreclosure crisis, some courts lack basic understanding of how modern mortgage developments function.15

The judicial practice of “previewing” foreclosure cases, discussed in our previous research, also creates additional problems. 16 Previewing occurs where judges begin a foreclosure case or decision, regardless of the actual issue being appealed or argued, by noting that a default under a note has not been disputed, or that a certain party has not made a mortgage payment in a certain amount of time.17 This

11 Petition for Writ of Certiorari or Writ of Prohibition at 2, Merrigan v. Bank of

N.Y. Mellon, 64 So. 3d 685 (Fla. Dist. Ct. App. 2011) (No. 09–CA–055758), 2011 Fla. App. LEXIS 11139.

12 Id. at 13. 13 See id. at 16, 33–34. 14 See Eric A. Zacks & Dustin A. Zacks, Not a Party: Challenging Mortgage

Assignments, 59 ST. LOUIS U. L.J. 175, 179–83 (2014) [hereinafter Not a Party]. 15 In the case of Mortgage Electronic Registration Systems, Inc. (“MERS”), for

example, a company expressly created not to physically possess, store, or hold promissory notes has repeatedly explained that it is never the holder of promissory notes. See Frequently Asked Questions, MERS, https://www.mersinc.org/about/faq (last visited Apr. 3, 2018). Despite MERS itself admitting it does not hold notes, this has not dissuaded courts from proclaiming exactly the opposite. See, e.g., Taylor v. Deutsche Bank Nat’l Tr. Co., 44 So. 3d 618, 623 (Fla. Dist. Ct. App. 2010) (concluding that MERS could arguably be a holder of promissory notes).

16 See Dustin A. Zacks, Standing in Our Own Sunshine: Reconsidering Standing, Transparency, and Accuracy in Foreclosures, 29 QUINNIPIAC L. REV. 551, 571 (2011) [hereinafter Standing in Our Own Sunshine] (“[M]any courts will correctly assume that a lender or successor owner would not buy a MERS loan if it did not assent to MERS remaining its nominee with the associated rights to foreclose.”).

17 See generally Eric A. Zacks & Dustin A. Zacks, A Standing Question: Mortgages, Assignment, and Foreclosure, 40 J. CORP. L. 706, 727 (2015)

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previewing almost always is followed by a rejection of the borrowers’ legal arguments. The judicial reaction to the foreclosure crisis thus appears largely disinterested in procedural safeguards for debtors and generally disposed toward the interests of banks and lenders.18

Mixed empirical data shows the possibility that reducing case numbers at the expense of basic due process might still be seen as a net gain for the wellbeing of the public and of the economy. For example, some research offers that additional foreclosure processing time results in lenders making future credit offers more expensive. 19 Similarly, other data produced during the Great Recession shows that greatly elongated foreclosure time frames, by providing an opportunity for continuing dilapidation of properties and neighborhoods, might increase crime and decrease surrounding property values.20

Whatever economic and societal benefits have been made by the acceleration of foreclosure procedures and the short attention given to foreclosure cases, quicker judicial foreclosures gave cover to a wide variety of bank and lender malfeasance. 21 Courts largely failed to address or remedy the many allegations of robo-signing, service of process deficiencies, forced-placed insurance scams, and other problematic practices that came to light during the foreclosure boom.22 The lack of oversight, whether willful or not, reflected poorly on courts when it was revealed that thousands of fraudulent or perjured documents had been filed in litigation around the country, when attorneys general instituted revealing investigations into high volume foreclosure law firms, when national banks and government-sponsored enterprises were forced to halt foreclosures to internally assess their foreclosure practices, and when certain lenders ultimately paid millions in fines arising from their foreclosure practices.23

As mentioned, a corollary to, or perhaps an outgrowth from, court

[hereinafter A Standing Question] (explaining how “previewing” is not unique to a particular type of claim).

18 See Not a Party, supra note 14, at 179, 182, 186. 19 Dustin A. Zacks, The Grand Bargain: Pro-Borrower Responses to the

Housing Crisis and Implications for Future Lending and Homeownership, 57 LOY. L. REV. 541, 562 (2011).

20 Id. at 546–54. 21 A Standing Question, supra note 17, at 706. 22 See, e.g., Dustin A. Zacks, Robo-Litigation, 60 CLEV. ST. L. REV. 867, 891–

92 (2013) [hereinafter Robo-Litigation] (examining judges’ muted reactions to misconduct in response to the foreclosure crisis).

23 See id. at 875–76, 878, 884–90, 904–05 (describing multiple instances of attorney misconduct in light of the foreclosure crisis); David Dayen, Another Slap on the Wrist for a Company That Abused Homeowners, NEW REPUBLIC (Dec. 20, 2013), https://newrepublic.com/article/116010/ocwen-mortgage-fraud-settlement-servicer-fined-homeowner-abuse.

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systems’ general orientation towards speeding up foreclosure cases has been the systematic narrowing of borrower defenses.24 In response to debtor defenses related to Mortgage Electronic Registration Systems, Inc. (“MERS”) and its capacity to foreclose, or to assign, transfer, or negotiate mortgage notes, courts largely deferred to whatever argument MERS sought to assert. 25 Again, this occurred despite publicly available evidence that MERS and its attorneys were propounding diametrically opposing positions to courts around the country regarding exactly what ownership or agency interest, if any, MERS held. 26 Courts, accordingly, generally acceded to MERS’s ascendance as a prominent placeholder on the public record of millions of homes and to the detriment of hundreds of years of traditional recording rules, despite the fact that MERS was created undemocratically by private parties (including banks and lenders) expressly for the purpose of avoiding statutory recording requirements.27

In other related areas of contentious foreclosure litigation, courts also tended to downplay or ignore borrower defenses based on faulty assignments of notes and mortgages.28 Although standing is a primary defense against a foreclosing entity that did not make the original loan, many courts not only downplayed such defenses based on assignment issues, but they also refused to allow discovery on assignments and transfers of their mortgage loan.29 Again, this general trend appears to have ignored the readily available evidence that thousands of assignments were fraudulent or otherwise problematic.30

This Article extends this previous body of research to yet another area of defense to foreclosure and debt in which judges appear to proceed along the same continuum described above. We examine the treatment of statute of limitation and res judicata defenses after a loan has been accelerated following a default. Some courts have ignored the traditional rule that acceleration under a contract starts the clock for statute of limitation purposes or that acceleration consolidates the loan instrument into a single obligation as opposed to many separate installment obligations.31 Instead, these courts have permitted lenders to accelerate loans repeatedly without triggering the statute of

24 See A Standing Question, supra note 17, at 708–11. 25 See, e.g., Standing in Our Own Sunshine, supra note 16, at 570. 26 Id. 27 Id. 28 A Standing Question, supra note 17, at 708. 29 See id. at 711. 30 See id. 31 See, e.g., Allen, supra note 5 (describing “shortcuts” that some courts have

taken to “hear[] as many as 200 foreclosure cases each day” that “deny many homeowners their right to due process”).

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limitations or res judicata defenses. 32 Consequently, lenders are permitted to assert foreclosure claims with respect to the same underlying debt amount over and over again.33 Rather than being used as a last resort, acceleration and the subsequent foreclosure process can now be wielded as a significant threat to borrowers throughout the life of their home loan.34

When presented with new and novel statute of limitations and res judicata defenses to foreclosure, courts have again shown their propensity to preview and predict the ultimate outcome of a lender’s claim before wrestling with whatever legal issue is actually being appealed or argued.35 Such previews inevitably damage homeowners and result in exceptions and special treatment for banks, lenders, servicers, and other foreclosing entities. 36 Such decisions provide another powerful example of courts ignoring longstanding procedural and substantive rules in favor of foreclosing entities in the name of judicial expediency.37

As we have done in previous research, we argue that this continuation of courts’ general anti-homeowner orientation, even in the face of years of lender malfeasance, produces serious negative externalities.38 Just as judicial refusal to entertain robo-signing claims or to grant discovery on such issues gave cover to high-volume foreclosure firms and their clients and kept questionable ethical practices in the dark for years, new exceptions for banks and lenders in the application of statutes of limitation and res judicata defenses have provided little incentive for banks and servicers to reform questionable

32 See Singleton v. Greymar Assocs., 882 So. 2d 1004, 1006–07 (Fla. 2004). 33 See id. at 1007–08 (“[A]n acceleration and foreclosure predicated upon

subsequent and different defaults present a separate and distinct issue . . . . The ends of justice require that the doctrine of res judicata not be applied so strictly as to prevent mortgagees from being able to challenge multiple defaults on a mortgage.”).

34 See David Hahn, The Roles of Acceleration, 8 DEPAUL BUS. & COM. L.J. 229, 244 (2010) (“Acceleration is the means of action. Through its right to accelerate the debt, the creditor can materialize the consequences of a covenant violation and inflict severe harm to the borrower's operations and survival as a viable entity. It is the ultimate threat of a creditor against the borrower . . . .”).

35 Joseph K. Gilligan, Note, Acceleration Clauses in Notes and Mortgages, 88 U. PA. L. REV. 94, 107–10 (1939).

36 Id. at 109. 37 Id. 38 Id.; see generally A Standing Question, supra note 17, at 730 (“Encouraging

more settlements benefits society as a whole, particularly those jurisdictions that have had higher numbers of foreclosures. This is because preventing foreclosures can help eliminate significant negative externalities. The normal neighborhood-level effects of foreclosed homes are significant in terms of crime, blight, and reduced property values.”).

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lending or foreclosure practices. 39 Because these court-created exceptions can revive a bank’s claim that was previously dismissed in part because the foreclosure was questionable, we again argue that courts have continued to contribute to the many problematic ways in which banks litigate foreclosure cases.

II.�STATE LAW TREATMENT OF ACCELERATION CLAUSES, RES

JUDICATA AND THE STATUTE OF LIMITATIONS

Acceleration clauses are contractual provisions designed to provide lenders with additional protection in the event that a borrower repeatedly fails to pay.40 These clauses provide, either automatically or at the option of the lender, for the entire loan amount to become due and payable following a default under the note, such as a borrower’s failure to make a monthly payment.41

In the absence of an acceleration clause, a lender would be forced to bring separate claims against the borrower each time the borrower failed to make an additional monthly payment (since each monthly payment would not otherwise be due until the stated due date in the promissory note).42 An acceleration clause also is helpful to lenders because it provides them with an opportunity to exit the transaction immediately (by accelerating the loan and foreclosing) once the borrower’s ability to pay is threatened.43 This could be more advantageous than waiting until

39 See Robo-Litigation, supra note 22, at 869. 40 See Gilligan, supra note 35, at 95 (describing the evolution of acceleration

clauses during the nineteenth century). 41 Mitchell v. Fed. Land Bank of St. Louis, 174 S.W.2d 671, 676–77 (Ark.

1943) (describing various formulations of acceleration clauses); Gilligan, supra note 35, at 109 (“They contend that the acceleration clause is for the benefit of the creditor—it is another arrow in his quiver. The debtor has done wrong. He has defaulted.”).

42 Gilligan, supra note 35, at 94 (“It is universally accepted that the failure of a mortgagor to meet installments of principal or interest, or to pay taxes, assessments and insurance will not cause the whole debt to mature at once upon default, absent a provision in the bond or mortgage to that effect.”); Hahn, supra note 34, at 231 (“A priori, acceleration may be conceived as an enforcement clause, facilitating the collection of the loan. By modifying the original terms of the agreement and making the entire amount payable on demand, the creditor may move forward and use collection measures sanctioned by the applicable debtor-creditor law. In this sense, acceleration is an accessory of the contractual remedy of enforcement.”).

43 See, e.g., 9 ALFRED TARTAGLIA, WARREN’S WEED NEW YORK REAL

PROPERTY § 95.50[12] (Matthew Bender 2018) (“Acceleration clauses have been used in mortgage instruments and deemed valid and enforceable in a wide range of conditions. The most common provisions for acceleration of the mortgage debt result from the mortgagor’s failure to pay an installment of principal or interest; or the failure to pay taxes, water rates, or assessments; or the failure of the mortgagor to keep the premises insured.” (citations omitted)); Hahn, supra note 34, at 231 (“A

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the borrower breaches each monthly payment obligation before the entire loan amount is due, at which point the borrower may have no ability to pay and the underlying property may be worth less.44

The implicit threat of acceleration is also important with respect to deterring borrower default.45 Borrowers know that if they breach one monthly installment, the entire loan may become due and they could lose the house in foreclosure.46 This provides borrowers with incentives to pay regularly.47 The threat of loan acceleration can also be useful in pre-foreclosure negotiations with buyers who are delinquent with respect to their monthly payment obligations.48 Disclosures mandated in many form mortgages attempt to dull the sharp blade of acceleration, including specific language that informs borrowers that the entire amount of the loan might be demanded presently at once if a default is not cured.49

One issue that has divided courts is how to rule on attempts by lenders to accelerate the loan and bring foreclosure proceedings in repetitive fashion.50 This Article addresses two approaches regarding how particular defenses should apply once a loan has been accelerated but the original claim for breach of the promissory note is dismissed or otherwise lost. For example, if a first action on a note accelerated by

second entity a creditor must worry about, which has been widely neglected by the financial literature, are other self-interested creditors who rush to dismantle the common debtor upon the latter’s financial distress. Creditors whose claims are payable in the future lack the fundamental legal tools to practically protect their interests against a run on the debtor's assets.”).

44 SCOTT T. TROSS, NEW JERSEY FORECLOSURE LAW & PRACTICE 4–5 (N.J. Law Journal Books 2001) (“Most mortgages contain acceleration clauses, which give the mortgagee the right to foreclose the entire indebtedness in the event the mortgagor defaults under the loan documents. Where the mortgage contains such a clause, the mortgagee is authorized to require payment of the entire mortgage debt upon default. Absent an acceleration clause, the mortgagee is without power to alter the maturity date of the outstanding principal balance of the loan upon default.”).

45 Hahn, supra note 34, at 244 (“Acceleration is the means of action . . . . Absent the creditor’s contractual power to call the entire loan back the force of the covenants would diminish. A borrower who is aware of the limited enforcement options of its creditors would attach a lower price tag to a potential covenant violation. Acceleration is, thus, the complementary measure that adds credibility to the covenants’ intended deterrence. It perfects the threat by signaling to the borrower that it better not dare even think about violating the covenants.”).

46 See id. 47 See id. 48 See id. 49 See, e.g., FANNIE MAE, MORTGAGE UNIFORM INSTRUMENT ¶ 22,

https://www.fanniemae.com/singlefamily/security-instruments (last visited Apr. 3, 2018).

50 See U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 990 (Ohio 2008); see also Singleton v. Greymar Assocs., 882 So. 2d 1004, 1005–06 (Fla. 2004).

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the lender was dismissed, but the borrower subsequently breaches again, should the lender be permitted to accelerate and sue on the note again? Ordinarily, claims litigated and lost on the merits cannot be brought again under the doctrine of res judicata.51 Secondly, if the party accelerated the note but took too long to file or attempt to refile its claim, the applicable statute of limitations could prevent a claim from being brought.52

In the foreclosure context, the issue often turns on whether the earlier and subsequent claims for breach and acceleration are treated as one and the same.53 If the two claims for breach are deemed to be the “same,” then the doctrine of res judicata may apply and prevent the lender from attempting to collect on the loan “again” if the lender lost the first claim on the merits.54 Similarly, if the lender accelerated the loan but did not pursue its claim in a timely fashion, the statute of limitations may bar subsequent claims for breach and acceleration.55 If the two claims are treated as separate and distinct claims, however, then neither res judicata nor the statute of limitations will apply, and the lender will be permitted to accelerate the entire loan again based upon subsequent breaches of the promissory note and pursue foreclosure.56 This section describes how different courts approach this issue.

A.� One Bite at the Apple

The traditional rule in installment contracts, such as home loans, is

that individual breaches of installment obligations are treated separately, but that acceleration of the entire amount due following a breach under the installment contract changes that treatment.57 Many cases hold that once acceleration of the entire home loan occurs, the entire outstanding indebtedness under the promissory note should be treated as becoming due (by nature of the acceleration clause) and, more

51 RESTATEMENT (FIRST) OF JUDGMENTS § 48 (AM. LAW INST. 1942). 52 H. A. Wood, Annotation, Acceleration Provision in Note or Mortgage as

Affecting the Running of the Statute of Limitations, 161 A.L.R. 1211 (1946). 53 See Singleton, 882 So. 2d at 1008. 54 See Stadler v. Cherry Hill Developers, Inc. 150 So. 2d 468, 471 (Fla. Dist. Ct.

App. 1963). 55 See Deutsche Bank Tr. Co. Ams. v. Beauvais, No. 3D14–575, 2014 Fla. App.

LEXIS 20422, at *20 (Fla. Dist. Ct. App. Dec. 17, 2014), rev’d on reh’g en banc, 188 So. 3d 938 (2016).

56 See Singleton, 882 So. 2d at 1008. 57 9 TARTAGLIA, supra note 43, § 95.50[1] (“An acceleration clause in a

mortgage, bond or note will generally provide that all unpaid principal, along with any accrued interest and other charges, becomes immediately due and payable upon the happening of any condition or conditions specified in the instrument.”).

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importantly, as indivisible.58 This means that if a lender accelerates the loan and loses on the merits, then the lender cannot sue again, even if the borrower subsequently “defaults” by not making a monthly payment.59 Courts so holding have relied upon res judicata, which provides that:

[T]he judgment of a court of concurrent jurisdiction directly upon a matter is conclusive between the same parties as to that matter when drawn in question in another court. The rule rests on the ground that once a party has litigated, or has had the opportunity to litigate, the same matter in a court of competent jurisdiction, that party or its privy should not be permitted to litigate it

again to the harassment and vexation of its adversary.60

Res judicata, then, exists to prevent harassment of a person when a claim was already litigated or could have been litigated in another court.61 Without it, claimants could simply attempt to bring their claims in different jurisdictions until finding one that agrees with them.62 This is particularly important with regard to mortgage contracts, where the disparity in bargaining power and litigation resources is vast. 63

58 See U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 990 (Ohio 2008); see

also Johnson v. Samson Constr. Corp., 704 A.2d 866, 869 (Me. 1997). 59 See Johnson, 704 A.2d at 869; see also Stadler, 150 So. 2d at 472–73. 60 John F. Wagner, Jr., Annotation, Proper Test to Determine Identity of Claims

for Purposes of Claim Preclusion by Res Judicata Under Federal Law, 82 A.L.R. Fed. 829, Art. 1 § 2(a) (1987); see also, e.g., LA. STAT. ANN. § 13:4231 (2017) (“A judgment in favor of either the plaintiff or the defendant is conclusive, in any subsequent action between them, with respect to any issue actually litigated and determined if its determination was essential to that judgment.”); VA. SUP. CT. R. 1:6 (2018) (“A party whose claim for relief arising from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence . . . .”).

61 1 RICHARD W. BOURNE & JOHN A. LYNCH, JR., MODERN MARYLAND CIVIL

PROCEDURE § 12.2(a) (3d ed. 2017) (“[A] judgment between the same parties and their privies is a final bar to any other suit upon the same cause of action, and is conclusive not only as to all matters that have been decided in the original suit, but as to all matters which with propriety could have been litigated in the first suit . . . .” (citation omitted)).

62 Wagner, Jr., supra note 60, § 2(a) (“Claim preclusion will therefore apply to bar a subsequent action on res judicata principles where parties or their privies have previously litigated the same claim to a valid final judgment. In most cases, the key question to be answered in adjudging the propriety of a claim preclusion defense appears to be whether in fact the claim in the second action is ‘the same as,’ or ‘identical to,’ one upon which the parties have previously proceeded to judgment.”).

63 See Frank S. Alexander et al., Legislative Responses to the Foreclosure Crisis continued . . .


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Typically, res judicata analysis turns on a court’s determination regarding whether the subsequent claim arises out of the same transaction that was the subject of the earlier claim.64

Accordingly, under traditional application, once the entire indebtedness had been accelerated and had become due, then the borrower only had one contractual obligation: to pay the entire loan amount.65 The lender’s failure to prevail with respect to the borrower’s breach of that singular contractual obligation could therefore doom future claims against the borrower, even if those future claims related to subsequent monthly installment obligations.66

Res judicata traditionally may also be invoked through the “two-dismissal” rule, which treats the second voluntary dismissal of a claim as a loss on the merits.67 Accordingly, if the debt is treated as indivisible once accelerated, then the second voluntary dismissal can prevent lenders from bringing a third claim based upon a subsequent breach of the note, even if the original two claims were dismissed voluntarily and were not disposed of on the merits.68 In this instance, it would not

in Nonjudicial Foreclosure States, 31 REV. BANKING & FIN. L. 341, 360 (2011) (noting the financial restraints that often bar borrowers from obtaining proper legal counsel in foreclosure litigation).

64 See Hamlin v. Peckler, No. 2005–SC–000166–MR, 2005 WL 3500784, at *1 (Ky. Dec. 22, 2005) (“The only difference between the 1999 claim and the 2004 claim was that MERS asserted a subsequent default on the note. Significantly, however, the 1999 complaint and the 2004 complaint allege that the entire debt became due on the same date, May 23, 1998. Hamlin pled res judicata and the trial court initially sustained this plea in open court and dismissed the subsequent action. Under authority of CR 60.02, however, the trial court, sua sponte, vacated its dismissal order and reinstated the 2004 claim.”).

65 United States v. Boozer, 732 F. Supp. 20, 22 (N.D.N.Y. 1990) (“By contrast, defendant contends that the government’s right of action accrued upon defendant's initial default on each loan. . . . This court’s review of the case law reveals that the government’s right of action accrues in a case such as this when the government first makes a demand for payment in full.”).

66 U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 992 (Ohio 2008) (“The obligations to pay each installment merged into one obligation to pay the entire balance on the note.”); Stadler v. Cherry Hill Developers, Inc., 150 So. 2d 468, 472 (Fla. Dist. Ct. App. 1963) (“The essential question is whether the election to accelerate put the entire balance, including future installments at issue. . . . There can be no doubt that the accelerated balance was at issue and that the prayer of the complaint sought, not one interest installment, but the entire amount due. Accordingly, it seems clear that the actions are identical.”).

67 Gullotta, 899 N.E.2d at 991 (“Because the second dismissal here functioned as an adjudication on the merits, res judicata would bar an action ‘based upon any claim arising out of the transaction or occurrence that was the subject of the previous action.’” (quoting Grava v. Parkman Twp., 653 N.E.2d 226, 227 (Ohio 1995))).

68 Cadle Co. II v. Fountain, No. 49488, 2009 WL 1470032, at *1 (Nev. Feb. 26, 2009) (“Because an affirmative act is necessary to accelerate a mortgage, the same is

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matter that the relief sought in the original two claims were different or based on subsequent actions.69

In addition, the lender only has a certain amount of time to bring a claim for acceleration and foreclosure following a breach of the mortgage.70 The statute of limitations in each state sets this amount of time and can vary. 71 Typically, the statute of limitations for foreclosures is tied to a breach of the underlying promissory note that the mortgage secures.72 This is because the mortgage usually provides for foreclosure rights in the event that the borrower breaches the promissory note.73 For example, in New York, the statute of limitations

needed to decelerate. Accordingly, a deceleration, when appropriate, must be clearly communicated by the lender/holder of the note to the obligor. Here, if CIT intended to revoke the acceleration of the debt due under the note, it should have done so in a writing documenting the changed status. The voluntary dismissal did not decelerate the mortgage because it was not accompanied by a clear and unequivocal act memorializing that deceleration.”); Beneficial Ohio, Inc. v. Lemaster, No. 2008 CA 0100, 2009 WL 2457710, at *4 (Ohio Ct. App. July 30, 2009) (“In the case sub judice, all of the complaints arose from the same note, the same mortgage and the same default. From the time of appellants’ original default, the entire principal became due as a result of the acceleration clause in the note. The terms of the note and/or mortgage were never changed. As in the Gullotta case, from the time of appellants’ original breach, appellant’s [sic] owed the entire amount of the principal because of the acceleration clause.”).

69 Gullotta, 899 N.E.2d at 993 (“Although U.S. Bank’s complaint changed, the operative facts remained the same. Plaintiffs cannot save their claims from the two-dismissal rule simply by changing the relief sought in their complaint. Allowing U.S. Bank to do so would be like allowing a plaintiff in a personal-injury case to save his claim from the two-dismissal rule by amending his complaint to forgo a couple of months of lost wages.”); Parish, 2012 WL 966640, at *6 (“[W]e agree with the Parishes’ position that when a borrower defaults on a note and the holder invokes an acceleration clause, the holder cannot file and dismiss an unlimited number of lawsuits solely because the borrower makes payments after the holder files each suit. In this scenario all claims would still arise from ‘the same note, the same mortgage, and the same default.’” (quoting Gullotta, 899 N.E.2d at 991)).

70 10 ARTHUR L. CORBIN ET AL., CORBIN ON CONTRACTS § 53.9 (Matthew Bender 2017) (“No doubt there is much authority for the statement that where separate actions would lie for a series of such breaches, the statute operates against each one separately as of the time when each one could have been brought, and that this rule is not affected by the fact that after two or more such breaches have occurred the plaintiff must join them all in one action. Of course, if an action for a first installment is barred by the statute, it cannot properly be included in an action for later installments that are not yet barred.”).

71 Id. 72 Id. (“The period fixed by a statute of limitations begins to run from the

‘accrual of the cause of action.’”). 73 12 KARL B. HOLTZSCHUE, PURCHASE AND SALE OF REAL PROPERTY § 36.07

(Matthew Bender 2017) (“The most important feature of the mortgage relationship is the power of the mortgagee to force the sale of the mortgaged land. The proceeds of the sale are first used to cover any loss the mortgagee may have incurred because of

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to bring a foreclosure action following failure to pay on the underlying promissory note is six years.74 This means that if the borrower fails to make a payment on the note, then the lender only has six years from the borrower’s breach of the obligation to make that payment to bring a foreclosure action, or it essentially waives the claim.75

For statute of limitation purposes, treating the debt as indivisible following acceleration means that the statute of limitations with respect to all claims for payment under the promissory note begins to run once the loan has been accelerated.76 If the lender fails to pursue all claims for payment under the promissory note before the statute of limitation expires (as triggered by the loan acceleration), then the lender will be barred from bringing future claims under the promissory note or from foreclosure under the mortgage.77 This is in fact the traditional rule.78

the debtor’s default in meeting the terms of the mortgage obligation. ‘Foreclosure’ became the process for transferring title to the mortgaged interest out of the mortgagor—or the successor—to the purchaser at the mortgagee’s foreclosure sale, which may be, and in most cases is, the mortgagee itself.”).

74 Fed. Nat’l Mortg. Ass’n v. Mebane, 618 N.Y.S.2d 88, 89 (N.Y. App. Div. 1994) (citing the applicable statute).

75 35 JEFFERSON JAMES DAVIS & CHARLES J. NAGY, FLORIDA JURISPRUDENCE § 73 (West 2d ed. 2013) (“This rule is consistent with the policy behind the statute of limitations, which is to prevent unreasonable delay in the enforcement of legal rights and to protect against the risk of injustice.”).

76 In re Bennett Funding Grp., Inc., 292 B.R. 476, 480 (N.D.N.Y 2003) (“[In addressing a line of credit claim], causes of action seeking to recover the entire contractual amount on installment contracts containing an optional acceleration clause do not accrue until the option is exercised.” (alteration in original)); Loiacono v. Goldberg, 658 N.Y.S.2d 138, 139 (N.Y. App. Div. 1997) (“The law is well settled that with respect to a mortgage payable in installments, there are ‘separate causes of action for each installment accrued, and the Statute of Limitations [begins] to run, on the date each installment [becomes] due’ unless the mortgage debt is accelerated.” (alteration in original) (quoting Pagano v. Smith, 608 N.Y.S.2d 268, 270 (N.Y. App. Div. (1994); then citing Khoury v. Alger, 571 N.Y.S.2d 829, 830 (N.Y. App. Div. 1991))); Mebane, 618 N.Y.S.2d at 90 (“Once the mortgage debt was accelerated, the borrowers’ right and obligation to make monthly installments ceased and all sums became due and payable. Therefore, the six-year Statute of Limitations began to run at that time. Consequently, this foreclosure action is time-barred.” (citations omitted)).

77 Hamlin v. Peckler, No. 2005–SC–000166–MR, 2005 WL 3500784, at *2 (Ky. Dec. 22, 2005) (“No Kentucky case appears to squarely address whether there can be subsequent defaults after suit is brought on an accelerated debt. However, the answer would appear to be ‘no’ as one of the principal purposes of pleadings is to develop the precise point in dispute by formulating the true issues. Thus, when the mortgagee sought recovery of the entire unpaid indebtedness and sought to subject the real property upon which the mortgage lien had been granted to payment of the indebtedness, a default was asserted with respect to every installment of the debt, foreclosing assertion of some subsequent claim of default.”).

78 There does, however, appear to be a split in jurisdictions when the continued . . .


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U.S. Bank National Ass’n v. Gullotta, an Ohio Supreme Court case, is an illustrative example of the traditional application of contract law principles and res judicata with respect to acceleration clauses and foreclosure.79 In 2003, Giuseppe Gullotta had taken out a mortgage from MILA, Inc. to buy a home in Canton, Ohio. 80 As in many mortgages, Gullotta’s contained an acceleration clause that could be exercised upon default of a monthly installment payment. 81 After Gullotta missed several payments, U.S. Bank accelerated the loan in April 2004 and demanded the entire amount due under the note, seeking interest from November 1, 2003.82 Three months later, U.S. Bank voluntarily dismissed this first case against Gullotta.83

In late 2004, U.S. Bank once again filed for foreclosure by accelerating the debt and asked for interest from December 1, 2003, one month apart from the allegation or demand in the first suit.84 U.S. Bank dismissed this second case in 2005.85 U.S. Bank filed for foreclosure a third time, in October 2005, seeking foreclosure of the entire loan amount with interest from November 1, 2003, as in the first attempted foreclosure case.86 Gullotta’s motion to dismiss, treated as a motion for summary judgment,87 argued that under the two-dismissal rule, U.S.

acceleration clause operates automatically, as opposed to by the voluntary election of the mortgagee. 55 AM. JUR. 2D Mortgages § 428 (1973); see also Cook v. Merrifield, 335 So. 2d 297, 299 (Fla. Dist. Ct. App. 1976) (holding that a mortgage-acceleration clause providing that “failure to pay any installments herein promptly when due shall cause the entire indebtedness to become immediately due and payable” is self-executing and acceleration was automatic upon default); Miles v. Hamilton, 189 P. 926, 927–28 (Kan. 1920). But see Atkinson v. Kirby, 117 So. 2d 392, 395–96 (Ala. 1960); Fed. Land Bank of Omaha v. Wilmarth, 252 N.W. 507, 511–12 (Iowa 1934); Lawman v. Barnett, 177 S.W.2d 121, 123 (Tenn. 1944) (holding that the rule that a provision for acceleration of the maturity of a debt secured by mortgage upon default of payment of an installment does no more than confer an option upon the holder of the indebtedness is applicable where a statute provides for an acceleration); Walker Bank & Tr. Co. v. Neilson, 490 P.2d 328, 328–30 (Utah 1971).

79 U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987 (Ohio 2008). 80 John Weber, Ohio Lenders Precluded from Bringing Third Complaint on

Same Note, REAL EST. ADVISOR L. BLOG (May 11, 2009), http://www.realestateadvisorlawblog.com/2009/05/articles/ohio-lenders-precluded-from-bringing-third-complaint-on-same-note/.

81 ‘Two Dismissal Rule’ Applies to Mortgage Foreclosure Suit When Dismissed Actions Based on Same Default, SUP. CT. OHIO & OHIO JUD. SYS. (Dec. 10, 2008), https://www.supremecourt.ohio.gov/PIO/summaries/2008/1210/071144.asp.

82 Id. 83 Id. 84 Id. 85 Id. 86 Id. 87 U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 989 (Ohio 2008).

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Bank had already failed to prevail on the same claim twice and could not bring another suit. 88 U.S. Bank maintained each missed loan payment was a separate actionable claim.89

U.S. Bank argued that its third claim was different from the first two cases, insofar as: (i) U.S. Bank alleged and sought interest starting from different default dates (November 2003 in the first foreclosure case, December 2003 in the third foreclosure case, and April 2005 in its Amended Complaint in the third foreclosure case); and (ii) each suit contained and encapsulated new payments that had become due in the time since the previous cases were filed.90 Gullotta, naturally, argued that each suit contained a common nucleus of facts that would preclude the third suit from being maintained.91

The trial court found for U.S. Bank, stating that when the first case was voluntarily dismissed the note decelerated, and U.S. Bank’s second claim involved a different timeline (December 2003 in the second suit; November 2003 in the first) not litigated in the first action and therefore res judicata did not apply.92 Accordingly, U.S. Bank’s motion for summary judgment was granted.93 The Ohio Fifth District Court of Appeals affirmed the trial court, but did note conflict with previous case law regarding res judicata in installment note claims.94 The Ohio Fifth District Court of Appeals stated that it disagreed with previous case law and that “each new missed payment on an installment note is a new claim.”95 Therefore, the Ohio Fifth District Court of Appeals held the two-dismissal rule and res judicata did not apply.96

In explaining the public policy grounds for its decision, the appellate court argued that if Gullotta were to escape judgment, lenders would

88 See id. 89 See id. 90 See id. at 988–89. 91 Id. at 989 (“On February 10, 2006, the trial court converted Gullotta’s motion

to dismiss into a motion for summary judgment because the motion was ‘founded on matters outside the pleadings.’ The trial court also granted U.S. Bank's motion for leave to file an amended complaint. In its amended complaint, U.S. Bank brought alternative claims. First, the bank sought judgment against Gullotta in the amount of $164,390.91 plus interest at the rate of 7.35 percent per year from December 1, 2003. In the alternative, the bank sought judgment against Gullotta in the amount of $164,390.91 plus interest at the rate of 7.35 percent per year from April 1, 2005. That April 1, 2005 date moved the start date for the collection of interest on the overall debt to a time after U.S. Bank’s second dismissal.”).

92 Id. 93 Id. 94 Id. at 990; see also EMC Mortg. Co. v. Jenkins, 841 N.E.2d 855, 862–63

(Ohio Ct. App. 2005). 95 U.S. Bank Nat’l Ass’n v. Gullotta, No. 2006CA00145, 2007 WL 1248407, at

*5 (Ohio Ct. App. Apr. 30, 2007), rev’d, 899 N.E.2d 987 (Ohio 2008). 96 Id.

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have less incentive to try and settle foreclosure suits with borrowers, as dismissal of the action upon settlement would require a full examination of whether the foreclosing entity waives all future foreclosure rights.97 Gullotta subsequently filed a motion to certify the conflict between the Ohio District Courts of Appeals.98

The Ohio Supreme Court disagreed with the lower court rulings and instead determined that U.S. Bank had in fact made the same claim each time it accelerated the debt and brought a case.99 The court held that the entire note was due upon the breach due to acceleration, not just the installment payments missed.100 In other words, once acceleration of a debt occurs, the entire debt then becomes indivisible and all of the individual installments merged into one balance.101 All of U.S. Bank’s claims were the same, and trying to skirt around res judicata by adding interest charges would not change the “common nucleus of operative facts.”102 The court analogized this situation to a personal injury case: if U.S. Bank could avoid res judicata or the two-dismissal rule merely by amending its damages demand by a few months, then a personal injury plaintiff presumably could avoid res judicata simply by reducing his or her demand for future lost wages by a couple of months, a seemingly nonsensical result.103 The court clarified, though, that should a renegotiation of the loan and its terms occur, causing a material change after a default and foreclosure action, then the next claim would not be the same.104

Subsequent Ohio courts have struggled to deal with Gullotta’s open-ended statement about whether a mortgage loan had materially changed. 105 Lower courts have found ways to avoid the extreme application implications of Gullotta and the double dismissal defense, particularly when a subsequent payment is made by the debtor or if acceleration is not automatic.106 Similar to the reasoning discussed in

97 See id. 98 Gullotta, 899 N.E.2d at 990. 99 See id. at 990, 993–94. 100 Id. at 992. 101 Id. 102 Id. at 993. 103 Id. 104 Id. 105 See, e.g., Beneficial Ohio, Inc. v. Parish, No. 11CA3210, 2012 WL 966640,

at *6–7, *9 (Ohio Ct. App. Mar. 16, 2012) (finding that, in a third foreclosure action, the trial judge erred in awarding summary judgment to the holder because genuine issues of material fact existed as to whether the complaints arose from the same transaction or occurrence, and as to whether res judicata applied based on the double dismissal rule).

106 See, e.g., Bridge v. Ocwen Fed. Bank FSB, No. 1:07 CV 2739, 2013 WL 4784292, at *9 (N.D. Ohio Sept. 6, 2013) (“The facts of Gullotta could not be more

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Stadler v. Cherry Hill Developers, Inc., subsequent payments on the mortgage or materially altering the mortgage contract may result in a new claim.107

It should be noted, however, that courts wrestling with these questions often expressly state that making an additional payment alone is not enough to prevent res judicata.108 In Bank of America v. Gaizutis, for example, the Ohio Eleventh District Court of Appeals held that Gaizutis’s subsequent payment on the debt reworked the contract and decelerated the loan at that point. 109 The only material difference between Gaizutis and Gullotta was that in the former, the debtor made a payment on the debt which included a letter stating it would bring the loan up to date and the initial suit could be dismissed, which according

dissimilar than the facts presently before the Court. In this case, after the initial default, the Lisa Bridge cured and Deutsche Bank did not accelerate the loan. Further, Lisa Bridge made numerous additional payments after the initial default, and at times, was current on her payments. Moreover, in this lawsuit, Deutsche Bank does not demand the same principal payment as it would have demanded in foreclosure based upon the cured 2002 default.”).

107 See id.; Stadler v. Cherry Developers, Inc., 150 So. 2d 468 (Fla. Dist. Ct. App. 1963); see also Deutsche Bank Nat’l Tr. Co. v. Smith, No. C–140514, 2015 WL 4508449, at *3 (Ohio Ct. App. July 24, 2015) (“The court would have also been right to deny amendment on the basis that it would be a futile act. In support of her argument that res judicata applies, Ms. Smith relies upon [Gullotta], a case in which the two-dismissal rule was applied to dismiss a foreclosure action. But in Gullotta, the court explained that ‘Civ. R. 41(A) would not apply to bar a third claim if the third claim were different from the dismissed claims.’ In fact, ‘[h]ad there been any change as to the terms of the note or mortgage, had any payments been credited, or had the loan been reinstated res judicata would not be in play.’ Here, Ms. Smith admits that she paid Deutsche Bank $4,755.56 to cure any default in 2007. Because a payment had been credited, the present claim is different than the previously dismissed claims, and the two-dismissal rule would not apply.” (alteration in original) (quoting Gullotta, 899 N.E.2d at 993)).

108 See Parish, 2012 WL 966640, at *6 (“[T]he holder cannot file and dismiss an unlimited number of lawsuits solely because the borrower makes payments after the holder files each suit. In this scenario all claims would still arise from ‘the same note, the same mortgage, and the same default.’” (quoting Gullotta, 899 N.E.2d at 991)).

109 See Bank of America, N.A. v. Gaizutis, No. 2014–G–3176, 2014 WL 4825371, at *8 (Ohio Ct. App. Sept. 30, 2014) (“Instead of filing the agreed judgment entry of dismissal signed by appellant’s attorney, appellee’s then-attorney filed a unilateral dismissal, pursuant to Civ. R. 41(A)(1). However, if there was a claim that a material term of the letter agreement had been breached, no such claim appears in this record. The one thing that is clear from the correspondence is that the parties agreed to have the suit dismissed upon payment of a significant lump sum that would be applied to the amount due on the loan. While the documentation suggests a clear intention to ‘reinstate’ the loan, based on the discussion from the Supreme Court in Gullotta, supra, whether it was actually reinstated or not matters little.”).

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to the Gaizutis court materially changed the contract.110 As a result, the Gaizutis court affirmed the lower court’s ruling for the bank.111

Although the Ohio Fifth Circuit District Court of Appeals suggested that harsh rules on dismissal might dissuade lenders from renegotiating with borrowers, the traditional Gullotta approach to res judicata and the two-dismissal rule described above arguably would provide more encouragement to lenders to negotiate with borrowers.112 Banks and servicers would have to seriously consider settling with borrowers before accelerating and suing on the loan, because any action on that acceleration may only be permitted once.113 Similarly, the higher stakes for bearing a dismissal on the merits might mean that lenders will act

110 See id. 111 Id. (“The amount of the payment and documentation contained in the record

reflects the parties’ desire to have the foreclosure dismissed and the appellants back to a position where they could remain in their home. Further, the mortgage at issue contemplates the right of a borrower to reinstate the mortgage after acceleration contingent upon the borrower meeting certain conditions outlined in the mortgage. The mortgage further states that upon reinstatement by the borrower, ‘this Security Instrument and obligations secured hereby shall remain fully effective as if no acceleration had occurred.’”).

112 See U.S. Bank Nat’l Ass’n v. Gullotta, No. 2006CA00145, 2007 WL 1248407, at *5 (Ohio Ct. App. Apr. 30, 2007) (“In addition, the application of Rule 41(A) per the EMC case would discourage a lender, such as appellant, from working with a borrower, such as appellee, when the borrower defaults on a mortgage. Frequently, after filing a foreclosure action, a lender will work with the buyer so that the buyer can retain his or her property. The lender will then dismiss the foreclosure action. A lender would not be inclined to do so if a dismissal precluded a bank from eventually foreclosing on a borrower’s property after a default. As a result, the number of foreclosures would increase as would the number of individuals losing their homes.”), rev’d, 899 N.E.2d 987 (Ohio 2008).

113 See Parish, 2012 WL 966640, at *6 (“Nonetheless, we agree with the Parishes’ position that when a borrower defaults on a note and the holder invokes an acceleration clause, the holder cannot file and dismiss an unlimited number of lawsuits solely because the borrower makes payments after the holder files each suit. In this scenario all claims would still arise from ‘the same note, the same mortgage, and the same default.’” (quoting Gullotta, 899 N.E.2d at 991)); see also Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938, 969 (Fla. Dist. Ct. App. 2016) (Scales, J., dissenting) (“The expiration of a statute of limitations, however, generally results in a windfall for the escaping defendant. In my view, neither the moral imperative that borrowers pay their obligations, nor Singleton, has abrogated decades of Florida jurisprudence governing the statute of limitations in foreclosure cases.”); U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 993 (Ohio 2008) (“Although U.S. Bank’s complaint changed, the operative facts remained the same. Plaintiffs cannot save their claims from the two-dismissal rule simply by changing the relief sought in their complaint. Allowing U.S. Bank to do so would be like allowing a plaintiff in a personal-injury case to save his claim from the two-dismissal rule by amending his complaint to forgo a couple of months of lost wages.”).

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more conservatively in undertaking oft-criticized servicing activities.114 For example, some lenders have been accused of inducing missed payment defaults by fraudulently charging force-placed insurance policies and demanding large sums for escrow, or by telling homeowners that loss mitigation assistance will not be made available until they fall behind on their payments.115

In a jurisdiction where a dismissal on a fact dispute about default might preclude a future foreclosure action, perhaps lenders would be less likely to bring marginal cases to court. In this way, the risk of a dismissal on future actions may spur banks and servicers to be additionally diligent about following servicing guidelines before electing for the severe remedy of acceleration and foreclosure.

Justice Cardozo long ago recognized the blatant oppression that can occur to the mortgagor when the mortgagee is allowed to unsheathe its acceleration sword without considering external factors.116 In light of the many irregularities and abuses of lenders with respect to foreclosure practices we have noted elsewhere, it seems that such external factors remain relevant.117 Thus, while our research seems to suggest that some courts are creating exceptions to harsh rules like res judicata and the double dismissal rule, these exceptions only seem to engage with one side of Gullotta’s implications, specifically that banks might face harsh results.118 Such allowances, however, do not address potentially harsh results for other parties, namely that failure to strictly enforce longstanding principles like res judicata will encourage lenders to bring cases with flimsy or fraudulent evidence, to induce defaults with no ultimate consequences, and to otherwise repeatedly impair a

114 See Parish, 2012 WL 966640, at *6. 115 See id.; see also Beauvais, 188 So. 3d at 960 n.19. 116 Gilligan, supra note 35, at 94 n.3 (citing and quoting Graf v. Hope Bldg.

Corp., 171 N. E. 884, 889 (1930) (Cardozo, J., dissenting)) (“There, through an error in a bookkeeper’s arithmetic, payment of what should have been an installment of $6,121.56 was $401.87 short of the correct amount. Enforcement of the acceleration provision (as sustained by the majority) meant that because of the $401.87 deficiency, the mortgagor’s interest was foreclosed in a property mortgaged for $335,000. ‘In this case, the hardship is so flagrant . . . the oppression so apparent, as to justify a holding that only through an acceptance of the tender will equity be done. . . . The deficiency, though not so small as to be negligible within the doctrine of de minimis, was still slight and unimportant when compared with the payment duly made.’”).

117 A Standing Question, supra note 17, at 706 (“In the rush to originate and assign as many mortgages as possible, and in the face of an overwhelming volume of foreclosures to be processed, mortgagees and their assignees often failed to assign the mortgages properly and, in some instances, committed fraud or other unauthorized acts in order to correct the assignment paper trail.”).

118 See supra notes 106–07 and the accompanying text. continued . . .


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homeowner’s peace and wellbeing, regardless of the merits of the claims the lender repeatedly brings.119

It also bears mentioning that these exceptions that do not adapt the Gullotta reasoning ignore the fact that dismissals, whether voluntary or involuntary, are exceedingly avoidable in foreclosure litigation.120 In many judicial foreclosure jurisdictions, the burden of proof is low, court procedures have been enacted specifically for the benefit of banks and their attorneys, 121 and very few documents are needed to prove entitlement to foreclose.122 In light of such incredibly low litigation burdens, the fact that a bank even faces a two-dismissal rule bar, in the absence of renegotiation or other intervening circumstances, is an astonishing de facto admission of either basic incompetence by lender attorneys or the complete lack of pertinent evidence supporting foreclosure. It is unclear why courts feel obligated to reward such conduct in allowing repetitive successive actions. 123 While some scholars, and indeed judges, fear giving “free” houses to mortgagors,124 logic does not dictate that procedural predictability, longstanding precedent, and incentivizing good litigation practices should be totally abandoned. 125 Gullotta and similar cases recognize that while

119 See Parish, 2012 WL 966640, at *6. 120 Cf. Wells Fargo Bank, N.A. v. Drayer, No. CV–2015–105086, 2016 Ohio

Misc. LEXIS 10334, at *2 (Ohio C.P. Summit Cty. Oct. 19, 2016) (“Lenders like the Plaintiff would be more willing to discuss alternatives that require the dismissal of foreclosure if they had assurances that their dismissals would not threaten the long-term contractual relationship between the parties. Therefore, it is in the best interests of the parties to dismiss this action without prejudice.”).

121 Petition for Writ of Certiorari, supra note 11, at 17–19. 122 Id. at 27–28. 123 See infra Section III.A. 124 See, e.g., Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007–08 (Fla.

2004) (“If res judicata prevented a mortgagee from acting on a subsequent default even after an earlier claimed default could not be established, the mortgagor would have no incentive to make future timely payments on the note. The adjudication of the earlier default would essentially insulate her from future foreclosure actions on the note—merely because she prevailed in the first action. Clearly, justice would not be served if the mortgagee was barred from challenging the subsequent default payment solely because he failed to prove the earlier alleged default.”).

125 Even the mere fact that judges sometimes reference “free” houses is evidence of the previewing bias effect that we have covered in previous research and herein. See infra Part IV. Only reflexive, unthinking preconceptions could lead a fact-finder to enter a proceeding believing that a pro-homeowner ruling means a house is actually obtained for free, when many homeowners faced foreclosure after years of regular payments, when many put their life savings into the purchase of the home, when any homeowner asserting defenses undoubtedly will have to expend sums on attorneys, and when any such pro-homeowner ruling—even if ultimately successful—will likely result in appeal and more legal costs to the homeowner. See infra Section III.C. In the case of res judicata and the two-dismissal rule in

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exceptions should exist for real world application of a harsh remedy like res judicata or the statute of limitations, the opposite can also mean the harsh result of innumerable successive actions, regardless of the merits of the claims repeatedly litigated.

B.� Multiple and Nearly Unlimited Bites at the Apple

Over time, some courts have narrowed the application of res

judicata and the statute of limitations to permit lenders to bring multiple foreclosure claims after accelerations of the promissory note.126 For example, erosion of the traditional rules in Florida began with courts rejecting holdings that suggest acceleration of an installment obligation creates a single indivisible obligation, at least with respect to home mortgages.127 In this view, a lender’s earlier acceleration of a loan can be ignored because the lender’s subsequent voluntary dismissal of the earlier claim means that the lender actually elected not to accelerate and demand the full amount due under the note.128 Accordingly, res judicata may not bar future claims if they are based on different dates of default.129

particular, homeowners will have had to pay an attorney to defend more than one lawsuit. See U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 990–91 (Ohio 2008) (explaining that the two-dismissal rule requires repetitive litigation); see also Wagner, Jr., supra note 60, § 2(a) (explaining that res judicata rests on the existence of repetitive litigation).

126 See, e.g., Olympia Mortg. Corp. v. Pugh, 774 So. 2d 863, 866 (Fla. Dist. Ct. App. 2000).

127 See id. (finding that the decision to accelerate did not affect the lender’s ability to bring claims for subsequent defaults); see also Singleton, 882 So. 2d at 1006 (“While it is true that a foreclosure action and an acceleration of the balance due based upon the same default may bar a subsequent action on that default, an acceleration and foreclosure predicated upon subsequent and different defaults present a separate and distinct issue.”).

128 See Pugh, 774 So. 2d at 866 (“By voluntarily dismissing the suit, [the lender] in effect decided not to accelerate payment on the note and mortgage at that time.” (alteration in original)); see also Mitchell v. Fed. Land Bank, 174 S.W.2d 671, 677 (Ark. 1943) (“[T]he declaration of plaintiff’s election by bringing the first action did not put it out of his power to waive the penalty, which he did by accepting the interest and dismissing the action.” (quoting Cal. Sav. & Loan Soc’y v. Culver, 59 P. 292, 294 (Cal. 1899))).

129 See, e.g., Bartram v. U.S. Bank Nat’l Ass’n, 211 So. 3d 1009, 1012, 1023 (Fla. 2016) (“[W]hen a second and separate action for foreclosure is sought for a default that involves a separate period of default from the one alleged in the first action, the case is not necessarily barred by res judicata. . . . [A]n acceleration and foreclosure based upon subsequent and different defaults present a separate and distinct issue.” (quoting Singleton, 882 So. 2d at 1006–07)), reh’g denied, 2017 Fla. LEXIS 593 (Fla. Mar. 17, 2017); see also Afolabi v. Atl. Mortg. & Inv. Corp., 849 N.E.2d 1170, 1175 (Ind. Ct. App. 2006) (“[W]e conclude that . . . res judicata does

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This evolving exception to longstanding doctrine is said to “[rest] upon a recognition of the unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship.”130 If res judicata precluded a lender from bringing future lawsuits based upon future defaults, courts fear there would be no penalty for borrowers failing to pay amounts when due under the contract, which would lead to inequitable results.131 A “subsequent and separate alleged default”

not bar successive foreclosure claims, regardless of whether or not the mortgagee sought to accelerate payments on the note in the first claim.”). As discussed infra Part II, courts disagree on how and whether lenders can revoke acceleration. John A. Walker, Jr., Simple Real Estate Foreclosures Made Complex: The Byzantine Tennessee Process, 62 TENN. L. REV. 231, 242 (1995) (“Even if the deed of trust contains an acceleration clause, the mortgagor may be able to defeat it by properly tendering an overdue payment before the mortgagee actually accelerates the indebtedness. However, tendering the overdue amount after acceleration has occurred, even if done before the sale, will not revoke acceleration unless so agreed by the parties. The Tennessee Supreme Court succinctly posited the above rules in Lee v. Security Bank & Trust Co.” (citations omitted)); see also 1 BRUCE J. BERGMAN, BERGMAN ON NEW YORK MORTGAGE FORECLOSURES § 5.02 (Matthew Bender 2017) (“Thus, the mere acceptance of a post-acceleration partial payment does not represent an affirmative act revoking acceleration.”). But see In re Taddeo, 685 F.2d 24, 26 (2d Cir. 1982) (“First, we think that the power to cure must comprehend the power to ‘de-accelerate.’ This follows from the concept of ‘curing a default.’ A default is an event in the debtor-creditor relationship which triggers certain consequences -- here, acceleration. Curing a default commonly means taking care of the triggering event and returning to pre-default conditions. The consequences are thus nullified.”); Callan v. Deutsche Bank Tr. Co. Ams., 93 F. Supp. 3d 725, 734 (S.D. Tex. 2018) (discussing whether Texas law permits unilateral notices of rescission of acceleration, thereby restarting the statute of limitations); Fed. Nat’l Mortg. Ass’n v. Mebane, 618 N.Y.S.2d 88, 89 (N.Y. App. Div. 1994) (“It cannot be said that a dismissal by the court constituted an affirmative act by the lender to revoke its election to accelerate.”). The right to rescind acceleration may also be limited. See Coca-Cola Bottling Co. v. Citizens Bank of Portland, 583 N.E.2d 184, 190 (Ind. Ct. App. 1991) (“An election to accelerate a debt may become irrevocable if the election causes the defaulting party to rely and act upon the acceleration to its detriment.”). The mortgage itself also may address the issue and permit reinstatement of the installment nature of the contract. Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938, 962 (Fla. Dist. Ct. App. 2016) (en banc) (citing the reinstatement provisions of the mortgage as continuing the installment nature of the contractual obligations even after acceleration and filing of a foreclosure claim).

130 Singleton, 882 So. 2d at 1007 (alteration in original). But see FDIC v. Massingill, 24 F.3d 768, 777–78 (5th Cir. 1994) (discussing how various states determine whether acceleration has been properly rescinded); Johnson vs. Samson Constr. Corp., 704 A.2d 866, 869 (Me. 1997); Snyder v. Exum, 315 S.E.2d 216, 218 (Va. 1984) (“[W]e see no valid distinction between an acceleration clause in a lease and one contained in a note.”).

131 Singleton, 882 So. 2d at 1008 (“Clearly, justice would not be served if the mortgage was barred from challenging the subsequent default solely because he

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thus can provide “a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.”132

The two-dismissal rule can be defeated under this approach as well, since each claim made with respect to different default dates will be treated as separate and distinct, even if acceleration previously occurred. 133 Accordingly, lenders will not be prevented from repeatedly filing and dismissing claims as long as the claims involve subsequent defaults that are separate and distinct.134 As Part IV will discuss, this analysis is not compelled by traditional two-dismissal rule analysis and, in fact, would render the two-dismissal rule “meaningless in the context of foreclosure actions because every successive attempt to foreclose a mortgage could be construed as a new claim.”135

This exception to res judicata and the two-dismissal rule also potentially applies to statute of limitations analysis. If each default starts its own individual statute of limitations, then the expiration of the statute of limitations with respect to an earlier claim will have no bearing on whether the lender can bring other claims, even if the loan had been accelerated when the first claim was filed.136 This would

failed to prove the earlier alleged default.”). There is also a fear that borrowers could enter into settlement with the lender that, coupled with a dismissal with prejudice, would “insulate the mortgagor from the consequences of a subsequent default.” Fairbank’s Capital Corp. v. Milligan, 234 Fed. App’x 21, 24 (3d Cir. 2007). Again, these points of view completely ignore the light burden that foreclosing entities bear and the immediate questions and doubts that should arise when any foreclosing entity is forced to continually retry its cases. See supra notes 120–25 and accompanying text.

132 Singleton, 882 So. 2d at 1008. 133 See, e.g., Pugh, 774 So. 2d at 863 (finding that the decision to accelerate did

not affect the lender’s ability to bring claims based on different dates of default). 134 See id. 135 U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 992 (Ohio 2008). The

Ohio Supreme Court noted that nothing in the two-dismissal rule (as in effect in Ohio) “indicates that it should not apply to foreclosure actions.” Id.; see also Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938, 963 (Fla. Dist. Ct. App. 2016) (Scales, J., dissenting) (“Explicit in Singleton is that, in order to reinstate the parties’ previous contractual relationship so that subsequent defaults may occur, the trial court’s adjudication of the first foreclosure action must deny the lender’s acceleration. Otherwise . . . the lender’s affirmative, contractually prescribed acceleration remains unaffected.”).

136 10 CORBIN ET AL., supra note 70, § 53.9 (“[U]nder an installment contract the statute of limitations runs only against each installment at the time it becomes due. ‘In essence,’ the court explained, ‘this rule treats each missed or otherwise deficient payment as an independent breach of contract subject to its own limitations period.’” (quoting Pierce v. Metro. Life Ins. Co., 307 F. Supp. 2d 325, 328–29 (D.N.H. 2004)). But see Beauvais, 188 So. 3d at 965 (Scales, J., dissenting) (“[The majority holds] that payment default and not acceleration constitute the last element of a foreclosure cause of action. . . . [T]his holding marks an upheaval of well-

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apply even where the first claim, after acceleration of the loan and demand for the entire amount due on the note, had been lost on the merits.137

Recent cases in Florida illustrate how the traditional approach has been transformed in the foreclosure context so as to essentially eviscerate the protection of the statute of limitations and res judicata.138 In Singleton v. Greymar Associates, the Florida Supreme Court confronted an appellate circuit split regarding acceleration and foreclosure after a first foreclosure case was dismissed.139 On one side, the Florida Fourth District Court of Appeal held in Singleton that the earlier dismissal did not bar the present suit under res judicata.140 The Florida Second District Court of Appeal, by contrast, held in Stadler v. Cherry Hill Developers, Inc. that a mortgagee who had their first lawsuit dismissed with prejudice was barred from filing a future suit by res judicata.141

In Singleton, Gwendolyn Singleton had a mortgage on her home that

established Florida law.” (alteration in original)).

137 See Collazo v. HSBC Bank USA, N.A., 213 So. 3d 1012, 1013 (Fla. Dist. Ct. App. 2016) (“This Court’s decision issued on rehearing en banc in the case of [Beauvais], holds that the five-year statute does not bar a second foreclosure suit filed on a subsequent payment default occurring within the five-year statutory period preceding the commencement of the second suit. . . . The record in the present case discloses that HSBC asserted the same payment default date and basis for acceleration in both the 2008 and 2014 complaints, a date over five years preceding the commencement of the 2014 case in the circuit court. As a result, we reverse the final judgment of foreclosure and remand the case for dismissal without prejudice in accordance with this Court's recent opinion on rehearing en banc in Beauvais.” (alteration in original) (citations omitted)); see also Beauvais, 188 So. 3d at 938 (finding that each default has a separate statute of limitation, even if the loan had been previously accelerated and regardless of whether the claim was dismissed with or without prejudice); U.S. Bank Nat’l Assoc. v. Bartram, 140 So. 3d 1007, 1014 (Fla. Dist. Ct. App. 2014) (“Therefore, we conclude that a foreclosure action for default in payments occurring after the order of dismissal in the first foreclosure action is not barred by the statute of limitations found in section 95.11(2)(c), Florida Statutes, provided the subsequent foreclosure action on the subsequent defaults is brought within the limitations period.”), aff’d, 211 So. 3d 1009 (Fla. 2016), reh’g denied, 2017 Fla. LEXIS 593 (Fla. Mar. 17, 2017).

138 See Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004). 139 See id. 140 See id. at 1005 (“On appeal, the Fourth District affirmed the circuit court’s

decision, finding that ‘even though an earlier foreclosure action filed by appellee was dismissed with prejudice, the application of res judicata does not bar this lawsuit. . . . The second action involved a new and different breach.’” (alteration in original) (quoting Singleton v. Greymar Assocs., 840 So. 2d 356, 356 (Fla. Dist. Ct. App. 2003), aff’d, 882 So. 2d 1004 (Fla. 2004))).

141 See Stadler v. Cherry Hill Developers, Inc., 150 So. 2d 468, 473 (Fla. Dist. Ct. App. 1963).

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contained an acceleration clause.142 Greymar Associates brought an action alleging default that extended from nonpayment from September 1, 1999, to February 1, 2000.143 After Greymar failed to appear at a case management conference, the circuit court dismissed the case with prejudice.144 Greymar brought a second action and alleged different default dates, claiming damages from April 1, 2000, onward.145 The trial court rejected the mortgagor’s res judicata defense.146 The Florida Fourth District Court of Appeal affirmed the trial court’s decision because the second lawsuit alleged what the court termed a new and separate breach.147 Singleton then petitioned the Florida Supreme Court to deal with the “express and direct conflict between the Fourth District’s decision and the Second Circuit’s decision” in Stadler.148

In Stadler, the foreclosing Plaintiff, Cherry Hill Developers (“Cherry Hill”), missed a deadline to preserve testimony or set a trial under a later-expired Florida rule of procedure.149 As a result, the trial court granted Stadler’s motion for a final judgment.150 The second lawsuit filed by Cherry Hill was “essentially identical” to the claims made in the first lawsuit, except for allegations of a different default date.151 The default alleged against Stadler in the first case was May 1960, but the default date alleged in the second suit was August 1960.152 In the Florida Second District Court of Appeal, Cherry Hill argued that the dismissal of the first claim was not clearly on the merits and not related to default or acceleration, and that res judicata should therefore not apply.153 While recognizing longstanding exceptions to the harsh application of res judicata, such as unjust enrichment or possible misunderstanding of the finality and effect of the first order or judgment, the Florida Second District Court of Appeal reasoned:

The essential question is whether the election to accelerate put the entire balance, including future installments at issue. If it was at issue then the second action seeks the same relief under the same contract and

142 Singleton, at 1009. 143 Id. at 1005. 144 See id. 145 See id. 146 See id. 147 See id. 148 Id. 149 Stadler v. Cherry Hill Developers, Inc., 150 So. 2d 468, 469 (Fla. Dist. Ct.

App. 1963). 150 Id. 151 Id. 152 Id. 153 Id. at 470–72.

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is predicated on a failure to comply with the same requirement. There can be no doubt that the accelerated balance was at issue and that the prayer of the complaint sought, not one interest installment, but the entire amount due. Accordingly, it seems clear that the actions are identical.154

The Stadler court noted that this holding, as researched in its 1960 decision, was based on near unanimity among authorities determining the effect of acceleration. 155 That is, electing to accelerate a loan necessarily entails demanding the entire amount of the loan, which “puts all future installment payments in issue and forecloses successive suits.”156 Accordingly, the court upheld the dismissal of the second suit on res judicata grounds because the two foreclosure suits against Stadler were identical.157

Significantly, the Florida Supreme Court in Singleton did not describe how the Second District’s definition of acceleration and its legal effect was wrong or unfounded, or describe any development in jurisprudence or change in mortgage term definitions that would suggest acceleration does not mean that the entire agreement is integrated into one claim or demand or that future installments are necessarily part of any accelerated claim.158 Instead, the court merely noted discontent with Stadler’s “stricter and more technical” view of acceleration. 159 The support cited in favor of this novel view of acceleration, provided by the Florida Supreme Court, was a single citation to a Florida appellate opinion, which the Florida Supreme Court quoted as authority to suggest that acceleration does not place any future installments at issue.160

In this sole case cited for this brand-new conception of acceleration, Olympia Mortgage Corp. v. Pugh, the foreclosing entity, Olympia Mortgage Corporation (“Olympia Mortgage”), had filed three successive foreclosure actions.161 The first alleged a default date of April 1995 and was voluntarily dismissed.162 The appellate court noted that at the time of the first suit, Olympia Mortgage had not been

154 Id. at 472. 155 See id. at 472–73. 156 Id. at 472. 157 See id. at 473. 158 See Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007 (Fla. 2004). 159 Id. at 1006. 160 See id. at 1006 (citing Olympia Mortg. Corp. v. Pugh, 774 So. 2d 864, 866

(Fla. Dist. Ct. App. 2000)). 161 See Pugh, 774 So. 2d at 864. 162 See id. at 865.

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assigned the mortgage loan it sought to enforce.163 The second suit alleged a default date of May 1995 and was also voluntarily dismissed, as Olympia Mortgage again failed to complete basic pre-suit requirements necessary to maintain its claim.164 The third case alleged the same May 1995 default date as alleged in the second suit; and, even without the difference in the April and May 1995 default dates as described in the case history, the parties apparently stipulated that “the parties agreed that both [the first and second foreclosure] actions alleged April 1, 1995 as the initial date of default.”165

Confronting this set of confusing facts brought on by lack of proof and by incompetent litigation in the first two suits, the Pugh court hunted for a coherent reason to determine why the traditional definition of acceleration, in light of the authority that acceleration places future installments at issue, should not be respected.166 In a remarkable bit of trying to fit a square peg into a round hole, the Florida Fourth District Court of Appeal produced something akin to a verbal representation of an Escher painting:

[I]f we treat Olympia’s voluntary dismissal of the first foreclosure action as an adjudication on the merits against Olympia, then the payment on the note and mortgage could not have been accelerated. Although Olympia sought to accelerate, had Olympia gone through with the suit and lost on the merits, then the court would have necessarily found that the Pughs had not defaulted on the payments due to date. If the Pughs had not defaulted, then Olympia would not be entitled to accelerate payment on the note and mortgage. By voluntarily dismissing the suit, Olympia in effect decided not to accelerate payment on the note and mortgage at that time.167

The Pugh court thus opened the door to two concepts previously unknown in acceleration. First, it implicates that in every dismissal for whatever cause, any alleged default is necessarily disproven, rendering acceleration a factual impossibility.168 This is apparently so by virtue of the Fourth District’s judicial fiat, regardless of whether the actual

163 See id. 164 See id. 165 Id. at 865 n.1 (alteration in original). 166 Stadler v. Cherry Hill Developers, Inc., 150 So. 2d 468, 472 (Fla. Dist. Ct.

App. 1963). 167 Pugh, 774 So. 2d at 866. 168 See id.

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default date was a contested issue in the case.169 It is entirely unclear how a dismissal on the merits of a case seen through to a verdict, in the Pugh reasoning’s example above, would necessarily mean that default was disproven. Nothing inherent in a dismissal, whether voluntary or involuntary, means a default was disproven, because defeat of a foreclosing entity’s claims can be defeated on innumerable grounds not involving a default question that would be deemed “on the merits.”170

The second fiction in the Pugh court’s decision is that acceleration is only a fact if ratified by a court. In other words, the Pugh court declared that acceleration, the demand for all payments due under a note, only occurs if a court reaches a final judgment in favor of a bank or foreclosing entity.171 This, of course, is contradicted by longstanding jurisprudence on acceleration and res judicata, as noted above.172 In its supposition that “voluntary dismissal of a suit” always means that a foreclosing entity “in effect decided not to accelerate payment on the note and mortgage at that time,” 173 the Florida Supreme Court constructed the only possible legal reading that would give banks continual opportunities to file suit, regardless of the actual reason for dismissal.174 It is extremely rare for a voluntary dismissal to contain language that indicates mortgagors are thereafter not being demanded to pay the full amount of their loans, as would be implied by this artificial, automatic deceleration rule.175 Judicial dismissal under this theoretical approach actually performs a significant service to foreclosing banks’ claims, as courts consequently deem the note decelerated and the bank can continue to bring defective claims ad infinitum.176

169 See id. (emphasis added). 170 Id. These would include conditions precedent, standing, fraud, etc. For

example, a party may fail to comply with an order of court to produce discovery and have their case dismissed. See FLA. R. CIV. P. 1.420(b) (“Any party may move for dismissal of an action or of any claim against that party for failure of an adverse party to comply with . . . any order of court.”). Although such decision would be “on the merits” of the case, the Pugh court would apparently reason that a dismissal based upon failure to respond to discovery would also mean that default was disproven, even if it had never been at issue in the case and had never been litigated. See Pugh, 774 So. 2d. at 866.

171 See Pugh, 774 So. 2d at 867. 172 See supra notes 65–66 and accompanying text. 173 Pugh, 774 So. 2d at 866. 174 See id. at 867. 175 See id. at 866 (“[W]hether the mortgagor will make future installment

payments is not at issue in a foreclosure action.”). 176 Among other questionable propositions in the Pugh decision is the assertion

that “whether the mortgagor will make future installment payments is not the issue in a foreclosure action. The issue is whether there has already been a default.” Pugh, 774 So. 2d at 866. If payment of future installments is not at issue in

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The Pugh court’s liberalized judicial approach, then, laid the groundwork for the Florida Supreme Court in Singleton to overrule longstanding rules of acceleration and to declare that acceleration, in foreclosure or installment payment cases only, should not be given strict or technical enforcement as in Stadler.177 Unsurprisingly, the Singleton court, citing other cases that held that a second and separate action on a different alleged default date does not necessarily bar successive suits, ruled against the application of res judicata and ruled in favor of the foreclosing entity.178 In effect, the Singleton court eliminated the effect of res judicata in foreclosures in one decision: “acceleration and foreclosure predicated upon subsequent and different defaults present a separate and distinct issue.”179 Singleton thus implicitly opened the floodgates to the kind of slight, de minimis, variation in pleadings and claims the Gullotta court worried about.180 That is, the Singleton court decision authorizes foreclosing entities to file suit to claim 29 years or 348 months of payments, and then change their allegations to demand, for example, 347 months of payments, to create a “separate and distinct claim” necessary to avoid res judicata.181

The Singleton court attempted to minimize the implications of its ruling. Specifically, the court stated:

We conclude that the doctrine of res judicata does not necessarily bar successive foreclosure suits, regardless of whether or not the mortgagee sought to accelerate payments on the note in the first suit. In this case the subsequent and separate alleged default created a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action. Thus, we approve the Fourth District's decision in

foreclosure actions, then why do foreclosure judgments grant entitlement to the entire amount of the loan not due for 30 years? See, e.g., Beneficial Ohio, Inc. v. Lemaster, No. 2008 CA 0100, 2009 WL 2457710, at *4 (Ohio Ct. App. July 30, 2009). Indeed, the entire point of acceleration is to place future payments at front and center of any case—as banks should not have to file a separate action for every month a payment is missed. See Hahn, supra note 34. And, in actual fact, this results in the scenario presented by Beauvais: later courts have piggybacked on this absurd notion and opined that a dismissal not only means automatic deceleration, but also that the homeowners are placed back into a situation where they can resume their normal payments. See infra Part IV. This is highly dubious.

177 See Singleton v. Greymar Assocs., 882 So. 2d 1004, 1006–08 (Fla. 2004). 178 Id. at 1007. 179 Id. 180 See id. at 1006; U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 992–93

(Ohio 2008). 181 Singleton, 882 So. 2d at 1006–07.

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Singleton, and disapprove of the Second District's holding in Stadler.182

Again, given that the Singleton court ruled on a case where the difference in default date allegations was one month, it would seem that its assertion that res judicata “may, but does not necessarily” apply is misleading.183 The court phrased the ruling as an exception to res judicata, but the practical effect of this ruling means that the exception is now the rule. In other words, any competent attorney in a successive foreclosure suit now will allege a separate default date and thereby successfully avoid res judicata (even if the subsequent suit is the tenth successive attempted claim relating to the same loan). Although the court did pay lip service to the “tension” between the harsh remedy of res judicata and the equities of a given foreclosure case, it is patently clear the court felt the “ends of justice” lay with banks and lenders, not homeowners.184

Along the same lines, the Florida Supreme Court eradicated the effect of the statute of limitations in foreclosure actions in Deutsche Bank Trust Co. Americas v. Beauvais.185 Harry Beauvais took out a mortgage note from American Home Mortgage Servicing, Inc. (“AHMSI”) in February 2006.186 After Beauvais missed a few monthly payments, AHMSI initiated a foreclosure proceeding in January 2007 and accelerated the debt.187 AHMSI ignored a court order to appear at a case management conference and thus the case was dismissed in December 2010. 188 In a separate action, Beauvais’s condominium association, Aqua Master Association, Inc., commenced its own foreclosure proceeding and took title to the property in 2011.189 In December 2012, Deutsche Bank, the new putative owner of the mortgage loan, commenced a foreclosure action citing Beauvais’s initial default as well as every payment after.190 The condominium

182 Id. at 1008 (emphasis added). 183 Id. at 1007 (quoting Capital Bank v. Needle, 596 So. 2d 1134, 1138 (Fla. Dist.

Ct. App. 1992)). 184 Id. at 1008 (“We must also remember that foreclosure is an equitable remedy

and there may be some tension between a court’s authority to adjudicate the equities and the legal doctrine of res judicata. The ends of justice require that the doctrine of res judicata not be applied so strictly so as to prevent mortgagees from being able to challenge multiple defaults on a mortgage.”).

185 Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938 (Fla. Dist. Ct. App. 2016) (en banc).

186 Id. at 954–55. 187 Id. at 940. 188 Id. at 941. 189 Id. at 940. 190 Id.

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association raised an affirmative defense that the statute of limitations had run, as Deutsche Bank’s December 2012 filing date was at least five years past the date of the acceleration claim in AHMSI’s Complaint filed in January 2007.191 The condominium association thus argued that the debt was never decelerated.192 Deutsche Bank, taking the lead from Singleton, argued that each subsequent payment was a separate default and thus a separate claim, each with its own statute of limitations.193

The trial court granted the condominium association’s motion to dismiss, holding that the statute of limitations barred the claim.194 The trial court also stated that Singleton had no application to the present case because Singleton involved a decision based on res judicata and not the statute of limitations.195 On appeal, the Florida Third District Court of Appeal affirmed the trial court’s order barring the claim under the statute of limitations.196 The court distinguished earlier Florida law by stating in this case the initial claim was dismissed without prejudice, which meant that the debt was not decelerated.197 Therefore there were no “new payments” due because after acceleration there was only one payment due: the entire amount of the accelerated loan.198 This holding was consistent with Gullotta, which meant that after acceleration there would only be one claim for the entire debt, not one for each installment payment.199

On rehearing en banc, the Florida Third District Court of Appeal reversed, citing Singleton.200 The court expanded Singleton’s holding based on res judicata to apply to statute of limitations cases.201 Largely adopting the Singleton approach, the court held that each installment payment was a separate claim, and therefore it had its own statute of limitations as well.202 Thus, as in res judicata scenarios, the bank was

191 Id. 192 Id. at 940–41 (alleging once the debt was accelerated, the bank had five years

to pursue a foreclosure action, thus in essence stating the debt had never decelerated).

193 Id. at 941 (quoting the lower court’s opinion). 194 Id. (quoting the lower court’s opinion). 195 Id. (quoting the lower court’s opinion). 196 Deutsche Bank Tr. Co. Ams. v. Beauvais, No. 3D14–575, 2014 Fla. App.

LEXIS 20422, at *12 (Fla. Dist. Ct. App. Dec. 17, 2014), rev’d on reh’g en banc, 188 So. 3d 938 (2016).

197 Id. at *9–10. 198 Id. 199 Id. 200 Beauvais, 188 So. 3d at 941. 201 Id. at 944 (“Here we follow that choice. And, as have numerous post-

Singleton courts before us, we apply this determination, while made in the context of a res judicata defense, to a statute of limitations defense.”).

202 Id. continued . . .


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not precluded from seeking missed installment payments within the statute of limitations.203 Perhaps an even more explicit expansion of Singleton (and a not very subtle clue to the Beauvais court’s view of foreclosure litigation) is provided in the court’s express assertion that whether a prior foreclosure suit was dismissed with or without prejudice is irrelevant for res judicata and statute of limitations analysis purposes.204 In other words, in this 2016 decision, years after Florida’s courts and the state bar association were nationally embarrassed by exposure that the courts had permitted the filing of thousands of fraudulent documents and claims,205 the Florida Third District Court of Appeal essentially concluded that even a case of dismissal with prejudice for any reason, including fraud on the court, would not preclude a bad actor from continually refiling against a given homeowner.206

After concluding that the “foreclosure exception” to res judicata also applies to statute of limitations cases, and after ordering future courts to ignore the reasons a prior unsuccessful claim might have been dismissed, the Beauvais court cited factual statements of Fannie Mae, Freddie Mac, the Business Law Section of the Florida Bar, and the Real Property Probate and Trust Law Section of the Florida Bar in support of the court’s conclusions.207 While distinguishing and diminishing cases presented by borrower and consumer advocates, the court thus relied upon lending industry and lender bar statements as support for the proposition that dismissal of an action for any reason means automatic deceleration—the idea suggested by the earlier Pugh decision.208 The court, while finding that dismissal does act as an automatic deceleration without any affirmative act requirement on the part of banks or lenders, did not cite or discuss other decisions holding that an affirmative act was required to accelerate a loan.209 Thus, under

203 Id. 204 Id. at 945. 205 See generally Robo-Litigation, supra note 22, at 872–80, 884–88 (examining

the “sketchy” foreclosure practices of various Florida law firms and the responses from the Florida Attorney General and State Bar).

206 See Beauvais, 188 So. 3d at 946 (“[T]he ‘with’ or ‘without’ prejudice’ dismissal is a distinction without a difference.” (citations omitted)). Again, this appears to be a statement that the Third District only applies to foreclosure litigation. See U.S. Bank Nat’l Ass’n v. Bartram, 140 So. 3d 1007, 1012 (Fla. Dist. Ct. App. 2014), aff’d, 211 So. 3d 1009 (Fla. 2016), reh’g denied, 2017 Fla. LEXIS 593 (Fla. Mar. 17, 2017).

207 Beauvais, 188 So. 3d at 947–50. 208 Id.; see Olympia Mortg. Corp. v. Pugh, 774 So. 2d 863, 867 (Fla. Dist. Ct.

App. 2000) (confirming that voluntary dismissal of foreclosure action on an accelerated mortgage and note did not bar a subsequent action on a later default).

209 Beauvais, 188 So. 3d at 947–50. continued . . .


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the Beauvais court’s reasoning, a statute of limitations clock for acceleration does not occur until a foreclosing entity takes an affirmative act.210 Yet to decelerate, no such requirement is needed.211 Unsurprisingly, both of these inconsistent holdings are to the sole detriment of homeowners raising any sort of statute of limitations defense.212

The dissent of Judge Scales pointed out the many deficiencies in the majority’s decision and noted its singular expansion of Singleton—a case which the dissent notes does not even mention the statute of limitations once.213 Aside from disagreeing with this extension of a res judicata case to a statute of limitations issue, Judge Scales noted several compelling disagreements with the majority opinion. 214 First, the dissent understood Beauvais to improperly suggest that the installment nature of a contract is unaffected by the acceleration of the note.215 The majority opinion, in Judge Scales’s view, created a “court-imposed fiction that, after acceleration, subsequent monthly installment payments somehow continue to become due.”216 In other words, a loan could be accelerated, tied up in court for years, and a bank or lender could continuously demand the full accelerated amount. Yet upon dismissal, the same bank may sue for any one of the defaults during that same time period in which they demanded the full amount.217 This is “irreconcilable,” in Judge Scales’s view, with “decades of case law holding that a loan acceleration—whether automatic or exercised at the option of the lender—causes the entire indebtedness immediately to become due.”218

Aside from creating the “fiction” of continuous installment payments coming due regardless of acceleration, Judge Scales noted, as noted above, that the Beauvais majority extends to every dismissal, no matter the reason or the issues adjudicated in such dismissal, the presumption that acceleration and/or default has been disproven and that the installment payment duties are reinstituted automatically.219 Again, this simplistically “discounts the dramatic variances that can

210 Id. 211 Id. 212 Id. at 959; see Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007 (Fla.

2004). 213 Beauvais, 188 So. 3d at 966–68 (Scales, J., dissenting). 214 Id. at 959, 967. 215 Id. at 963. 216 Id. at 962. 217 Id. at 962–63 n.21. 218 Id. 219 Id. at 959.

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result from different dismissal orders.”220 Further, Judge Scales noted inconsistency between the majority’s view that acceleration does not end the installment nature of a loan and its view that dismissal automatically places parties back in their pre-acceleration places: “If acceleration does not terminate the installment nature of the loan, then dismissal is also irrelevant because acceleration has not altered the parties’ status quo in the first place.”221

Judge Scales also suggested that automatic reinstatement of the loan upon dismissal is not something that would be granted in the event a borrower moved for it at the end of a case where acceleration and default were not at issue.222 The majority, in what Scales deems a procedurally unfair fashion, nevertheless grants automatic reinstatement to lenders, which is a benefit when seeking to avoid the harsh statute of limitations preclusion.223

Finally, Judge Scales noted the incredible deference granted to lenders and foreclosing entities by the wholesale extension of Singleton to statute of limitations cases.224 He noted that “it seems that equitable considerations—rather than any explicit pronouncement in Singleton—fuel the majority opinion’s sweeping construction of Singleton.”225 Such equitable considerations may have been appropriate for a res judicata case like Singleton, but statutes of limitation are purely legislative processes predicated on public policy, not any judicially intuited sense of fairness. 226 Accordingly, Judge Scales posits, the majority’s equitable powers should not interfere with what is supposed to be a “province of the legislative branch.”227

Eventually, the Florida Supreme Court, in Bartram v. U.S. Bank National Ass’n, adopted the holding in Beauvais that the installment nature of the contract continued despite acceleration and that Singleton fully applies to statute of limitations cases.228 Lewis Bartram, obligated

220 Id. at 961 n.19. 221 Id. at 959 n.15. 222 Id. at 964. 223 See id. at 964–65 (“In my view, this conclusion turns procedural fairness on

its head by giving the sanctioned party (the lender) the after-the-fact benefit of reinstatement: a remedy that the prevailing party (the borrower) never would receive.”).

224 See id. at 966 (“[B]y allowing the lender’s acceleration and potential re-accelerations to keep delaying the operation of the statute of limitations, the majority establishes the note’s maturity date as the only date that can trigger application of the five-year statute of limitations.”).

225 Id. at 968. 226 Id. at 967. 227 Id. at 967. 228 Bartram v. U.S. Bank Nat’l Ass’n, 211 So. 3d 1009, 1022 (Fla. 2016), reh’g

denied, 2017 Fla. LEXIS 593 (Fla. Mar. 17, 2017). continued . . .


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to purchase his ex-wife’s interest in their property pursuant to a divorce agreement, obtained a loan through Finance America LLC in the amount of $650,000 in February 2005.229 That loan was subsequently assigned to U.S. Bank.230 On January 1, 2006, Bartram stopped making payments.231 In May 2006, U.S. Bank filed a foreclosure complaint and accelerated the debt. 232 Nearly five years later, the suit was involuntarily dismissed after the bank failed to appear at a case management conference.233

Following that dismissal, which occurred more than five years after acceleration, Bartram filed a motion to cancel the promissory note and to release the lien of the mortgage.234 The trial court denied this request due to lack of jurisdiction given that an adjudication on the merits had already occurred.235 Bartram filed a similar crossclaim against U.S. Bank a year later in a separate foreclosure action that his ex-wife had brought against U.S. Bank and Bartram.236 The trial court granted summary judgment and quieted title to Bartram.237 The court denied a rehearing and U.S. Bank appealed to the Florida Fifth District Court of Appeal, which essentially adopted Singleton wholesale.238

Accepting jurisdiction as a question of great public importance, the Florida Supreme Court held that subsequent suits were not barred and accepted Beauvais’s reasoning that the installment nature of the contract remained.239 The court, citing a number of state court and federal court

229 Id. at 1013. 230 Id. 231 Id. at 1014. 232 Id. 233 Id. 234 Id. 235 Id. at 1014–15. 236 Id. at 1015 (“Approximately a year later, after the dismissal of the

foreclosure action and almost six years after the Bank filed its foreclosure complaint, Bartram filed a crossclaim against the Bank in a separate foreclosure action Patricia had brought against Bartram, the Bank, and the HOA. Bartram’s crossclaim sought a declaratory judgment to cancel the Mortgage and to quiet title to the Property, asserting that the statute of limitations barred the Bank from bringing another foreclosure action.”).

237 Id. 238 U.S. Bank Nat’l Ass’n v. Bartram, 140 So. 3d 1007, 1014 (Fla. Dist. Ct. App.

2014), aff’d, 211 So. 3d 1009 (Fla. 2016), reh’g denied, 2017 Fla. LEXIS 593 (Fla. Mar. 17, 2017).

239 Bartram, 211 So. 3d at 1019 (“Consistent with the reasoning of Singleton, the statute of limitations on the balance under the note and mortgage would not continue to run after an involuntary dismissal, and thus the mortgagee would not be barred by the statute of limitations from filing a successive foreclosure action premised on a ‘separate and distinct’ default. Rather, after the dismissal, the parties are simply placed back in the same contractual relationship as before, where the

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decisions since Singleton, adopted the expansion and extension of res judicata analysis to statute of limitations questions.240

The Bartram court next wrestled with the many criticisms of Singleton’s singular disregard of the various effects that different dismissals can implicate. 241 Instead of describing the innumerable reasons dismissal could occur and the various implications of any such dismissal, the court broadly stated that whether a dismissal is with or without prejudice only affects a lender’s ability to collect on past defaults, not any future defaults. 242 Accordingly, it would not be hyperbole to say that under this interpretation, a bank can lie, cheat, and

steal243 during the pendency of a foreclosure case, receive a dismissal of its cause (which requires payment of all sums due under the entire note and mortgage for the life of the loan) with prejudice as a sanction for repugnant conduct, and emerge relatively unscathed with a new lawsuit based upon an arbitrarily picked later default date.244 And while the court relies upon uniform mortgages’ reinstatement provisions to assert that dismissal places the parties back in the positions they were in prior to the lawsuit, this is patently misleading—the reinstatement clause typically requires, for example, that borrower pay lenders all of their legal expenses in the first lawsuit before reinstatement can be given effect. 245 Again, this is without any regard to why the suit was dismissed in the first place and independent of the presence of fraud, disregard of court orders, or any other improper foreclosure litigation practices.246

Perhaps most remarkable is the Bartram court’s contention that its decision is in fact pro-borrower: failure to agree with its interpretations of the reinstatement clause would mean borrowers still owe the accelerated amount even after a dismissal, which could “[lead] to an unavoidable default.”247 Of course, this decision completely ignores

residential mortgage remained an installment loan, and the acceleration of the residential mortgage declared in the unsuccessful foreclosure action is revoked.”).

240 Id. at 1018–19. 241 Id. at 1020. 242 Id. 243 See Robo-Litigation, supra note 22, at 885. 244 Bartram, 211 So. 3d at 1020 (“Whether the dismissal of the initial

foreclosure action by the court was with or without prejudice may be relevant to the mortgagee's ability to collect on past defaults. However, it is entirely consistent with, and follows from, our reasoning in Singleton that each subsequent default accruing after the dismissal of an earlier foreclosure action creates a new cause of action, regardless of whether that dismissal was entered with or without prejudice.”).

245 Id. at 1013. 246 Id. at 1020. 247 Id. at 1021 (alteration in original).

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that in a dismissal scenario, months or years after a case was filed, many months of payments and expenses will be owed.248 Thus, there is no functional difference for the average distressed borrower (many of whom are too impoverished even to afford legal counsel) between demanding an accelerated sum and demanding a reinstatement sum of years of defaults and accompanying expenses. 249 Worse, the court describes a world in which banks might accept regular monthly payments immediately after a dismissal that, under the revised doctrine, automatically decelerates the loan.250 Again, reinstatement requires payment of all past due amounts and all expenses so far incurred by the bank.251 Accordingly, it is inconceivable that a bank would be required to, or would actually accept, a borrower’s regular monthly payment amount immediately after protracted litigation.

Each installment payment, the Bartram decision held, could be a separate default, meaning it was its own claim for res judicata purposes and thus each claim had its own statute of limitations.252 In so doing, the court implicitly rejected Stadler.253

Finally, the Bartram court held that whether an involuntary dismissal occurred with or without prejudice did not matter for purposes of the new lawsuit.254 The distinction only mattered if banks wanted to pursue the same defaulted payment as before.255 If the first lawsuit was dismissed with prejudice, then that default could not be pursued again, however any future payments were recoverable in future lawsuits.256 A dismissal without prejudice would allow the bank to pursue the same default as the first lawsuit.257

248 Id. at 1020. 249 Id. at 1021. 250 Id. at 1023. 251 Id. at 1020. 252 Id. at 1019. 253 Id. at 1016 (“Stadler also involved two successive foreclosure actions where

the first foreclosure action had been dismissed with prejudice. The mortgagee brought a second foreclosure action that was identical except for alleging a different period of default. That action was successful, and the mortgagor appealed. The Second District reversed the judgment of foreclosure entered on the basis of res judicata and concluded that the ‘election to accelerate put the entire balance, including future installments at issue.’ Therefore, even though different periods of default were asserted, the ‘entire amount due’ was the same and thus the ‘actions are identical.’ Accordingly, the Second District concluded that res judicata barred the second foreclosure action.” (quoting and citing Stadler v. Cherry Hill Developers, Inc., 150 So. 2d 468, 469, 472–73 (Fla. Dist. Ct. App. 1963))).

254 Id. at 1020. 255 Id. 256 Id. 257 Id.

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Judge Lewis’s concurrence in Bartram noted apprehension at the approach that gives any sort of dismissal, for any reason, the effect of automatic deceleration.258 This was particularly troubling where there are no facts in the record to show even a hint of “de facto reinstatement” following the initial dismissal.259 Judge Lewis echoed the dissent of Judge Scales in the Beauvais case, pointing out again that the equitable considerations that led courts in Florida to create exceptions for banks and lenders should not govern statute of limitations cases.260

III.�UNDERSTANDING ACCELERATION AND RES JUDICATA AND

STATUTE OF LIMITATION CASES

Our previous research has established a number of patterns in judicial treatment of foreclosure cases. 261 We have noted that an unceasing drive for faster foreclosure processing time resulted in less procedural and substantive due process protections for homeowners, and undoubtedly contributed to the impressive number of false and fraudulent documents filed in state courts around the country.262 We also described an overall trend of courts narrowing novel defenses to foreclosures that have arisen in the wake of the Great Recession.263 As a result, our research has painted a picture of a specific and narrow area of law in which the party with the most resources seems to largely receive the benefit of any judicial doubt. The virtual destruction of the statute of limitations and res judicata in Florida as to foreclosure cases, and the singularly expansive rulings given in favor of banks and foreclosing entities in the cases discussed supra fit neatly into the

258 Id. at 1023 (Lewis, J., concurring in the result) (“Given the procedural

posture of this matter and the relatively sparse record before this Court, the decision today fails to address evidentiary concerns regarding how to determine the manner in which a mortgage may be reinstated following the dismissal of a foreclosure action, as well as whether a valid ‘subsequent and separate’ default occurred to give rise to a new cause of action. See Singleton v. Greymar Assocs., 882 So. 2d 1004, 1008 (Fla. 2004). Instead of addressing these concerns, the Court flatly holds that the dismissal itself—for any reason—‘decelerates’ the mortgage and restores the parties to their positions prior to the acceleration without authority for support.”).

259 Id. (“In this case, there is no evidence contained in the record before this Court to show whether the parties tacitly agreed to a ‘de facto reinstatement’ following the dismissal of the previous foreclosure action. Further, despite the assumption of the majority of the Court to the contrary, the mortgage itself did not create a right to reinstatement following acceleration and the dismissal of a foreclosure action.”).

260 Id. at 1024. 261 See, e.g., A Standing Question, supra note 17, at 708–11. 262 See id. at 729; Not a Party, supra note 14, at 182–83. 263 See Not a Party, supra note 14, at 179–80, 182–83.

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pattern we have established. 264 Ultimately, as we have argued previously, the failures of the judiciary lead to negative externalities that were ignored or downplayed in the lender-friendly opinions we examined.265

A.� The Typical Frame of Foreclosure

We begin by attempting to shed light on why research seems to

show that judges are inclined to overlook irregularities in the foreclosure process or to modify doctrine to liberally permit foreclosures.266 As discussed in the sections above, courts often cite equitable concerns, particularly the desire to avoid awarding “free houses” to debtors that have defaulted on their mortgages.267 These equitable concerns, however, are necessarily rooted in a particular and narrow view of the mortgage and foreclosure process.268 Accordingly, it is important to discuss the “frames” themselves.

Upon examination, it is clear that judges may be predisposed to discount debtor defenses because of how foreclosure cases are situated within the judicial system. Given the backlog of foreclosures during the height of the housing crisis, judges were under apparent pressure to resolve these cases as expeditiously as possible.269 The courts’ ability to do so may even be tied to the funding for the courts.270 Judges unsurprisingly may be reluctant to seriously consider defenses, particularly those that merely act as a “stall” to an otherwise valid claim.271

264 See Singleton v. Greymar Assocs., 882 So. 2d 1004, 1005 (Fla. 2004);

Olympia Mortg. Corp. v. Pugh, 774 So. 2d 863, 866 (Fla. Dist. Ct. App. 2000) (illustrating recent cases in Florida that have essentially eviscerated the protections of the statute of limitations and res judicata); Stadler v. Cherry Hill Developers, 150 So. 2d 468, 469–70 (Fla. Dist. Ct. App. 1963).

265 See A Standing Question, supra note 17, at 730; see also infra text accompanying note 304.

266 A Standing Question, supra note 17, at 729. 267 Singleton, 882 So. 2d at 1008. 268 Id. 269 See, e.g., Foreclosure Initiative Workgroup, Foreclosure Backlog Reduction

Plan for the State Courts System, FLA. CTS. 6 (Apr. 10, 2013), http://www.flcourts.org/core/fileparse.php/251/urlt/RecommendationsForeclosureInitiativeWorkgroup.pdf (proposing a process to clear foreclosure backlogs).

270 See id. at 4 (discussing docket clearance rates and their link to court funding). 271 Allen, supra note 5 (describing shortcuts that some Florida courts took to

facilitate fast resolution at the expense of many homeowners); Adolfo Pesquera, Miami-Dade Aggressively Pushes Foreclosure Cases Through System, DAILY BUS. REV. (Aug. 2, 2013), http://www.dailybusinessreview.com/id=1202613700227/MiamiDade-Aggressively-Pushes-Foreclosure-Cases-Through-System?slreturn=20150028155007 (quoting one

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We have previously noted immense judicial skepticism to debtor defenses based on the assumed underlying culpability of debtors.272 For example, with rare exception courts were largely silent and unobtrusive amid the marching onslaught of MERS, the electronic placeholder that acts as nominal mortgagee for lenders for the life of loans, eliminating the need for many assignments of loans to be recorded.273 This new tracking system reduced recording revenues by millions, and reduced transparency in public records by lowering the likelihood of any given homeowner being able to access the correct current owner of his or her loan.274 Similarly, its development led to inaccurate and contradictory pleadings all across the nation.275 Yet it appears that in the majority of jurisdictions, judges have ruled that MERS will not face significant financial liability for its conduct and judges have largely accepted the arguments of MERS and its attorneys at face value.276

Similarly, we have noted that courts have tended to ignore debtor defenses based on standing.277 Again, with rare exception, many courts imply, or indeed occasionally express, the posture that to whom the debt is owed is largely irrelevant, as long as a given case seems plausible.278 Discovery may also be routinely denied based upon the existence of the debtors’ default.279

judge as saying, “If you can’t do [the trial] within an hour, you’re not a trial attorney”).

272 A Standing Question, supra note 17, at 711. 273 Standing in Our Own Sunshine, supra note 16, at 551–52, 555. 274 Id. at 552. 275 Id. 276 Cf. Taylor v. Deutsche Bank Nat’l Tr. Co., 44 So. 3d 618, 623 (Fla. Dist. Ct.

App. 2010) (finding that MERS could arguably be a proper holder of promissory notes).

277 See, e.g., Not a Party, supra note 14, at 182; Pino v. Bank of N.Y. Mellon, No. SC11–697, 2011 WL 1537260, at *1 (Fla. Apr. 15, 2011).

278 Maraulo v. CitiMortgage, Inc., No. 12–CV–10250, 2013 WL 530944, at *7 (E.D. Mich. Feb. 11, 2013) (“Furthermore, none of the facts alleged indicate that the assignment may subject Plaintiffs to a risk of having to pay their mortgage twice. In fact, Plaintiffs’ complaint alleges that the assignor of the mortgage, American, went out of business in 2008 and ceased to exist as a corporate entity. Given that the assignor does not exist, Plaintiffs are not at any risk of paying the same claim twice, and have never alleged that they are at risk of such double payment.” (citations omitted)); Shumake v. Deutsche Bank Nat’l Tr. Co., No. 1:11–CV–353, 2012 WL 366923, at *3 (W.D. Mich. Feb. 2, 2012) (“Really, Shumake’s injury is fairly traceable to the fact that he failed to make his mortgage payments . . . whether Shumake made his mortgage payments on time had nothing to do with whether Chase validly assigned the mortgage to Deutsche Bank. Either way, Shumake still had to make the same payments-the assignment only altered to whom he made the payments; the assignment had no other consequence to Shumake.” (citations omitted)).

279 Consider, as one example, a sitting judge recently submitted an article to the continued . . .


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Such foreclosure decisions, as with other judicial decisions, are often framed and influenced by the perceived primary actor in the conflict.280 In other words, judges often appear to imagine the most likely counterfactual scenario that would have avoided the foreclosure situation and thereby determine the “but for” cause of foreclosure.281 It may seem obvious, then, that judges would perceive debtors’ default to be the primary cause for the situation and therefore be inclined to be more sympathetic to the mortgagee, the aggrieved party in this instance.

For example, in many states, there are judges assigned to particular areas of the law, such as foreclosures.282 Their repeated exposure to similar cases perhaps causes cynicism and skepticism regarding borrower defenses. Judges consequently choose to frame the issues as one of “deadbeat” borrowers that are seeking to take advantage of a bank that inadvertently failed to follow up on a claim after acceleration within the statute of limitations.283 There may be some truth to this stereotype, of course; homeowners may readily admit that they are seeking legal counsel in order to gain as much time as possible before having to settle, whether through a loan modification or a short sale.284 This can be particularly true of investors in rental property, who may

Florida bar that suggests that all notes are negotiable. See William H. Burgess, III, Negotiability of Promissory Notes in Foreclosure Cases: Ballast Is Not Luggage, 88 FLA. B.J., 8, 10, 18 (2014). This is troubling on a number of levels, (1) that a sitting judge—and the previous head of all foreclosure cases for a Florida county––felt impelled to dissuade others from attempting to assert a defense based on failure to meet holder status under the Uniform Commercial Code in foreclosure cases, and (2) that he also would clearly attempt to influence other judges to preclude any inquiry in individual cases regarding whether or not a given note is a negotiable instrument by making broad pronouncements about all uniform promissory notes based largely on out-of-state cases. See id. at 18.

280 See A Standing Question, supra note 17, at 708. 281 See id. at 725–26. 282 See, e.g., Alison Fitzgerald, Homeowners Steamrolled as Florida Courts

Clear Foreclosure Backlog, CTR. FOR PUB. INTEGRITY (Sept. 10, 2014), https://www.publicintegrity.org/2014/09/10/15463/homeowners-steamrolled-florida-courts-clear-foreclosure-backlog; Juan Gonzales, Brooklyn Court Overwhelmed by Way of Foreclosures, N.Y. DAILY NEWS (Mar. 8, 2016), http://www.nydailynews.com/new-york/brooklyn/brooklyn-court-overwhelmed-wave-foreclosures-article-1.2557744.

283 See In re Washington, No. 14–14573–TBA, 2014 WL 5714586, at *1 (Bankr. D.N.J. Nov. 5, 2014) (“No one gets a free house.”), rev’d sub nom., Specialized Loan Servicing, LLC v. Washington, 2:14–CV–8063–SDW, 2015 WL 4757924 (D.N.J. Aug. 12, 2015), aff’d sub nom., In re Washington, 669 Fed. App’x 87 (3d Cir. 2016).

284 See generally Lambros Politis, How Can I Slow or Stop the Foreclosure Process?, ARK L. GROUP (Nov. 25, 2013), https://www.arklawgroup.com/blog/how-can-i-slow-or-stop-the-foreclosure-process (providing general advice on foreclosure delay tactics).

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heavily leverage to finance the initial purchase of the real estate and then lease it to tenants.285 The investors have very little skin in the game and may collect rent while delaying an otherwise valid foreclosure claim, with very little downside.286

Judges also are undoubtedly aware of the financial arrangements for many foreclosure defense attorneys, which can contribute to reluctance to seriously consider debtor defenses.287 When foreclosure proceedings have begun, many foreclosure defense attorneys in judicial foreclosure states offer to defend the proceedings for a monthly fee that is substantially less than the mortgage payment.288 In other words, one way of conceptualizing foreclosure defense is as an inexpensive option to lengthen proceedings and stall the inevitable. Any delay by virtue of defending a cause, however, is valuable to debtors that consequently will be permitted to stay in their homes for a monthly fee that is a fraction of their monthly mortgage payment.289 Judicial distaste for the stalling of an otherwise valid claim, particularly in light of the underlying financial arrangement that benefits both the debtor and the debtor’s attorney the longer the claim is stalled, may affect the reception of asserted foreclosure defenses. In some instances, this distaste has even manifested itself in the court’s willingness to rely on the unsworn amici of the banking bar as to the proper interpretation of the contract and acceleration rights.290

Confirming this assertion, in response to debtor assertions of defenses or even at the outset of the case, judges often seek to confirm that the debtor did not in fact pay as required (e.g., “But your client did

285 See A Standing Question, supra note 17, at 727–28 n.114. 286 See id. 287 See generally id. at 705 (providing examples of judges’ skepticism toward

debtor defenses). 288 See How Much Will a Foreclosure Attorney Charge?, NOLO,

https://www.nolo.com/legal-encyclopedia/how-much-will-foreclosure-attorney-charge.html (last visited Mar. 29, 2018).

289 Id. 290 Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938, 948 (Fla. Dist. Ct.

App. 2016) (en banc) (“Adding support to our conclusion, both The Business Law Section of The Florida Bar and The Real Property Probate & Trust Law Section of The Florida Bar confirm that the custom and practice in Florida is to treat a dismissal of a foreclosure action as ‘decelerating’ an acceleration made in a foreclosure action.”); see Cooke v. Commercial Bank of Miami, 119 So. 2d 732, 735 (Fla. Dist. Ct. App. 1960) (“Although customs and usages of the banking business may have a binding force as between banks, and between a bank and the person with whom it deals in the absence of an express agreement to the contrary.”); see also Sabatino v. Curtiss Nat’l Bank of Miami Springs, 446 F.2d 1046, 1053 (5th Cir. 1971) (“Absent instructions or an express agreement to the contrary, general customs and usage of the banking business may have a binding effect between banks, and between a bank and the person with whom it deals.”).

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not actually pay, correct?”) or to express a concern about awarding free houses to someone that defaulted (e.g., “We are not going to be awarding free houses”).291 While this sentiment may seem appropriate, it actually is misplaced in that it unfairly previews the case outcome. In other civil contexts, it would be intuitively inappropriate for a judge at the outset (or in response to an asserted defense) to assert the propriety or likelihood of victory of the plaintiff’s claim.292 In a more extreme example, it would clearly strike us as improper if a judge blithely dismissed or ignored access to counsel or discovery in a criminal case because “your client committed the crime, right?”293 This is not, of course, to suggest that previewing does not occur in these other circumstances but instead to assert that it is improper in each instance.

B.� A New “Systemic” Frame of Foreclosure

In light of this Article’s discussion of yet another longstanding

substantive area of law being changed, modified, or amended post-Great Recession for the benefit of banks and lenders, another frame must also be discussed. Separate and apart from individual judges “previewing” a case’s merits before making substantive decisions, in the manner we have discussed above and in previous research, we may also posit that judicial systems and court administration create what we may call a new “systemic” frame in which judges view foreclosure. In this new conception of a systemic frame, we posit that judicial systems as a whole, in response to the Great Recession, created structures, procedures, and requirements that were largely to the detriment of borrowers. Accordingly, we may say that court systems, before a given case is even assigned to a judge, have primed the judiciary, or framed the proceedings, for what the “optimal” reaction to foreclosure litigation should be.

In some jurisdictions, special foreclosure procedures, rules, and

291 See, e.g., Michael Corkery, Foreclosure to Home Free, as 5-Year Clock

Expires, N.Y. TIMES (Mar. 29, 2015), https://www.nytimes.com/2015/03/30/business/foreclosure-to-home-free-as-5-year-clock-expires.html (“‘No one gets a free house,’ Judge Michael B. Kaplan of the United States Bankruptcy Court in Trenton wrote in an opinion late last year, reflecting what he characterized as a longstanding ‘admonition’ he and others made during the foreclosure crisis.”); Fox 4 News Investigates Lee County’s “Rocket Docket” Program, 4CLOSUREFRAUD (Sept. 16, 2010), http://4closurefraud.org/2010/09/16/fox-4-news-investigates-lee-countys-rocket-docket-program/ (“I was specifically told by one judge, counselor stop. I have 180 cases on my docket this morning. I’ve heard all the evidence I’m going hear. The defendant didn’t pay the mortgage, we’re done here.”).

292 See MODEL CODE OF JUDICIAL CONDUCT r. 2.10 (Am. Bar Ass’n 2011). 293 See id.

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even court divisions were created, wherein cases would be sent to trial en masse, leaving little time for each individual case, even for a judge so inclined to hear cases on their merits.294 Pejoratively termed the “rocket docket,” the American Civil Liberties Union (“ACLU”) challenged one instance of such a mass foreclosure docket, noting that the special procedures were not authorized by “statute, local rule, or administrative order.”295 The ACLU’s brief exposed what many have argued: that judges facing immense caseloads, in the face of what are seen as “simple” cases of defaulting homeowners, may disregard application of what may be seen as technicalities. One judge in particular is cited as saying, “I have 180 cases on my docket this morning. . . . The defendant didn’t pay the mortgage, we’re done here.”296

While this is obviously an example of an individual judge framing an entire case and its proof on one anti-homeowner fact (“didn’t pay the mortgage”), we suggest that the court system already framed the case by virtue of scheduling it at once with 179 other cases. In other words, before a given case reaches a judge’s desk, court administration has already framed the case so as to be by necessity tilted against any effective defense to foreclosure.297 Similarly, creating entire divisions dedicated solely to foreclosure cases may contribute to the inherent idea that such cases are less important than other divisions, especially when such divisions often employ retired, unelected judges to assist in processing large numbers of cases.298 Such judges were not presumably called up by the court system to assist in discovering the truth of each individual case or to sniff out possible fraud or misconduct on either side––rather, they were explicitly called in to assist in closing cases.299

294 See, e.g., Allen, supra note 5. 295 Petition for Writ of Certiorari, supra note 11, at 1–2. 296 Id. at 16. 297 It should also be posited here that in facing unprecedented numbers of

foreclosures, it was by no means clear that the court system would take the sharp turn towards pro-lender overtures. In light of the credible accounts of thousands of false documents soiling court records, courts surely could have taken a different tack and forced procedures and requirements on banks to ensure that cases with lack of proof are not brought to court. Faced with thousands of complaints that falsely claimed original notes were lost, for example, Florida required lenders to begin having their complaints verified under penalty of perjury by their clients. See FLA. STAT. § 702.015 (2017). While this requirement could have created a systemic frame of priming judges to be aware and vigilant towards possible bank misconduct, it may have actually contributed to the further “ghettoization” of foreclosure litigation in the sense that any reputable practice area worth expending time upon would not have required such a new rule of procedure.

298 See Allen, supra note 5. 299 See id. (“[J]udges [were] brought back from retirement specifically to hear

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Thus, while we have previously posited that judges preview the merits of individual foreclosure claims and discount homeowner claims accordingly,300 we now suggest that the overall systemic frame of court administration responses to the foreclosure crisis enforced and created an atmosphere of almost ministerial enforcement or of a collection mechanism rather than serving any truth-seeking function.

Framing lawsuits primarily in terms of efficiency rather than fact-finding renders foreclosure a foregone conclusion, especially when judges have an incentive to clear a large backlog of foreclosure cases such as those pending after the 2008 financial crisis.301 While perhaps easier or faster than dealing with every case as it should be, this type of thinking can be crushing for debtors when there are many other options for lenders that promote an efficient mortgage market. 302 It is particularly bad for society in the long haul, whether it leads to increased crime rates in neighborhoods, blight, or other negative externalities.303 Within these two frames, therefore, the story of the creation of brand new exceptions to res judicata and the statutes of limitation solely for foreclosure cases are altogether unsurprising.

C.� An Equitable Approach Where Equity Does Not Apply

Almost ninety years ago, then-Chief Judge Cardozo protested, to no

avail, a formalistic approach to mortgage enforcement that ignored the

foreclosures in Fort Myers.” (alteration in original)).

300 See A Standing Question, supra note 17, at 727. 301 Id. at 729 (“What is clear, though, is that foreclosure is desirable from a

judicial perspective. Judges have been, implicitly or explicitly, charged with the task of clearing the backlog of foreclosures and have accordingly carved a legal path that enables foreclosures to occur more quickly and with less attorney effort.”).

302 Id. at 727 (“Under these lines of analysis, if the foreclosure is inevitable because the debtor is in default and the lender would necessarily desire a foreclosure, then the courts should not put up unnecessary roadblocks to foreclosure by permitting procedural challenges. These approaches, however, are deeply flawed because they are both predicated on an underlying assumption that foreclosure would and should occur whenever the debtor is in default.”).

303 Id. at 730 (“Yet this approach, as with the other housing crisis issues driven largely by a demand for faster results, is ultimately shortsighted. First, although a longer foreclosure process costs lenders and servicers more, these costs may help incentivize servicers to settle more cases, rather than enduring a long slog through the court system. Similarly, the longer time period may assist borrowers in bolstering their financial resources or in weathering a financial hardship, again making settlement more likely. Encouraging more settlements benefits society as a whole, particularly those jurisdictions that have had higher numbers of foreclosures. This is because preventing foreclosures can help eliminate significant negative externalities. The normal neighborhood-level effects of foreclosed homes are significant in terms of crime, blight, and reduced property values.”).

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impact of foreclosure.304 In Graf v. Hope Building Corp., through an error in a bookkeeper’s arithmetic, payment of what should have been an installment of $6,121.56 was $401.87 short of the correct amount.305 Enforcement of the acceleration provision (as sustained by the majority) meant that because of the $401.87 deficiency, the mortgagor’s interest was foreclosed in a property mortgaged for $335,000.306 The majority chose to permit acceleration and foreclosure based on the clear terms of the contract.307 In his dissent, Chief Judge Cardozo argued:

In this case, the hardship is so flagrant, the oppression so apparent, as to justify a holding that only through an acceptance of the tender will equity be done. . . . The deficiency, though not so small as to be negligible within the doctrine of de minimis, was still slight and unimportant when compared with the payment duly

made.308

As Chief Judge Cardozo’s view did not prevail, one would expect the formalism that was used to justify foreclosure would also be employed when lenders fail to comply with statutory, common law, or contractual requirements with respect to mortgage assignment, enforcement, acceleration, or foreclosure.

In each instance, however, lenders are often instead protected by a contextual or equitable approach that seeks to preserve their right to foreclose.309 As we have suggested elsewhere, courts use a formalistic approach with respect to debtor accountability, but not mortgagee accountability, under the contract. 310 Mortgagees are permitted to enforce loan and mortgage instruments under virtually all circumstances, even where the contracting circumstances are suspect or where the mortgagee’s title to the underlying instruments is questionable.311

304 Graf v. Hope Bldg. Corp., 171 N.E. 884, 886 (N.Y. 1930) (Cardozo, C.J.,

dissenting). 305 Id. at 884 (majority opinion). 306 Id. at 885. 307 Id. (“We feel that the interests of certainty and security in real estate

transactions forbid us, in the absence of fraud, bad faith or unconscionable conduct, to recede from the doctrine that is so deeply imbedded in equity.”).

308 Id. at 889 (Cardozo, C.J., dissenting). 309 See Basil H. Mattingly, The Shift from Power to Process: A Functional

Approach to Foreclosure Law, 80 MARQ. L. REV. 77, 92–93 n.76 (1996). 310 A Standing Question, supra note 17, at 707 (“In somewhat counterintuitive

fashion, however, courts have permitted mortgagees and their assignees to subvert, supplant, and circumvent the very formalities that they utilize to foreclose upon the debtors in the first place.”).

311 Id. continued . . .


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In the context of res judicata and the statute of limitations, courts have pursued a contextual or equitable approach to preserve the ability of mortgagors to foreclose.312 As seen in Beauvais, courts create a legal fiction that all dismissals, voluntary or not, of foreclosure of an accelerated debt, represent a judicial adjudication that acceleration was improper or ineffective, thereby permitting mortgagors to accelerate and seek foreclosure innumerable times.313 As seen in Bartram, courts permit a contractual vagueness with respect to the deceleration of a debt to be construed in favor of the drafter, despite the disparity in bargaining power or the inability of a debtor to negotiate the underlying contracts.314

One way to understand the inclination of some courts to permit the erosion of res judicata and statute of limitations defenses is ensuring consistency with their equitable inclination in other doctrinal contexts to liberalize the foreclosure process and to prevent debtors in default from being awarded “free houses.” 315 This equitable inclination, however, is particularly problematic in the context of the defenses of res judicata, double-dismissal rules and statute of limitations. Equity

312 Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938, 943 (Fla. Dist. Ct.

App. 2016) (en banc). 313 Id. at 947 (“Stated another way, despite acceleration of the balance due and

the filing of an action to foreclose, the installment nature of a loan secured by such a mortgage continues until a final judgment of foreclosure is entered and no action is necessary to reinstate it via a notice of ‘deceleration’ or otherwise.”).

314 Bartram v. U.S. Bank Nat’l Ass’n, 211 So. 3d 1009, 1024 (Fla. 2016) (Lewis, J., concurring in the result) (“The majority opinion rewrites the parties’ note and mortgage to create a reinstatement provision—i.e., reinstating the installment nature of the note, as if acceleration never occurred, upon any dismissal of any lawsuit—that the parties did not include when drafting their documents. Singleton does not say this; the parties’ contract documents certainly do not say this; and Florida law is repugnant to the majority’s insertion of a provision into the parties’ private contract that the parties themselves most assuredly omitted.” (quoting Beauvais, 188 So. 3d at 963)), reh’g denied, 2017 Fla. LEXIS 593 (Fla. Mar. 17, 2017).

315 Fairbank’s Capital Corp. v. Milligan, 234 F. App’x 21, 24 (3d Cir. 2007) (“If we were to so hold [that dismissal of a former lawsuit prevented the bank from going after the mortgagor later], it would encourage a delinquent mortgagor to come to a settlement with a mortgagee on a default in order to later insulate the mortgagor from the consequences of a subsequent default. This is plainly nonsensical.” (alteration in original)); Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007–08 (Fla. 2004) (“If res judicata prevented a mortgagee from acting on a subsequent default even after an earlier claimed default could not be established, the mortgagor would have no incentive to make future timely payments on the note. The adjudication of the earlier default would essentially insulate her from future foreclosure actions on the note—merely because she prevailed in the first action. Clearly, justice would not be served if the mortgagee was barred from challenging the subsequent default payment solely because he failed to prove the earlier alleged default.”).

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should not be relevant in these instances because it is the very nature of such defenses to create inequitable results.316 The proper application of res judicata or the double-dismissal rules will result in instances where a valid substantive claim will be dismissed. 317 That is indeed inequitable. Similarly, the proper application of the statute of limitations will necessary result in the dismissal or preclusion of valid substantive claims.318 It is unclear why a court would understand the inequitable result arising from a disallowed foreclosure to be more compelling than the inequitable results arising in other circumstances, such as criminal acts or intentional torts that cannot be prosecuted or pursued because of res judicata or statute of limitations defenses.

Further, upon examination and analysis of the preceding cases and their development, it seems clear that many judges tend to see equity lying with only one side of foreclosure litigation. In the majority opinions we have discussed supra, the decisions consistently note the “free house” scenario and warn against the inequities if homeowners behaved opportunistically in the face of strict claim preclusion rules.319 These same decisions often accept at face value whatever factual proclamation bank and lender industry groups pronounce.320 Yet, these same decisions neither discuss––nor mention in their concurring or dissenting opinions––the inequities that their pro-lender expansions may produce.321

The conception of “free houses” suggests a lack of practical knowledge of foreclosure litigation and, indeed, homeownership in general. The cases we have discussed herein have been decided only

316 Beauvais, 188 So. 3d at 969 (Scales, J., dissenting) (“The expiration of a

statute of limitations, however, generally results in a windfall for the escaping defendant. In my view, neither the moral imperative that borrowers pay their obligations, nor Singleton, has abrogated decades of Florida jurisprudence governing the statute of limitations in foreclosure cases.”).

317 See Ronald D. Weiss, Who Wants a Free House? Applying Res Judicata to Foreclosure Cases, RONALD D. WEISS P.C. (Mar. 24, 2017), http://www.ny-bankruptcy.com/who-wants-a-free-house-applying-res-judicata-to-foreclosure-cases-2/.

318 Tyler T. Ochoa & Andrew J. Wistrich, The Puzzling Purposes of Statutes of Limitation, 28 PAC. L.J. 453, 465 (1997) (“[I]t may be more unjust to permit an old claim to be revived than it would be to extinguish it.” (citation omitted)).

319 See Bartram, 211 So. 3d at 1017; Beauvais, 188 So. 3d at 943–44; Singleton, 882 So. 2d at 1007.

320 See Bartram, 211 So. 3d at 1007; Beauvais, 188 So. 3d at 945; Singleton, 882 So. 2d at 1012.

321 See Bartram, 211 So. 3d at 1025–26 (Lewis, J., concurring in the result) (noting that the majority’s holding may lead to inequities to borrowers); Beauvais, 188 So. 3d at 964–65 (Scales, J., dissenting) (stating that the majority gives the lender a benefit the borrower would never receive); see generally Singleton, 882 So. 2d at 1008 (discussing only inequities to the lender).

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after years of protracted litigation, multiple lawsuits, and presumably extensive legal bills.322 The homeowner will have borne the costs of the litigation and the deleterious health effects of foreclosure.323 And, in many cases, the homeowner will have paid their loan faithfully for years before any financial difficulties caused default, and others will have been induced into default by servicers informing them that loss mitigation assistance will not be available until they actually stop making regular payments.324

In addition, in light of the case law development we have discussed, it appears that banks and foreclosing entities will have nearly unlimited chances to attempt foreclosure in those jurisdictions that have adopted multiple-bites-at-the-apple positions.325 In such jurisdictions, while it now appears nearly impossible to win an actual “free” house through a dismissal, we hold little hope that judges will suddenly stop believing and asserting that a “free house” is the ultimate outcome of any dismissal, and that therefore homeowner defenses must be viewed with skepticism.

Likewise, we do not expect courts to suddenly demand foreclosing entities cease filing lengthy cases that are ultimately dismissed for malfeasance or lack of proof––the very cases which, when refiled, can sometimes implicate res judicata and statute of limitations considerations. That is to say, having expanded the exceptions to claim preclusion and the statute of limitations to give banks nearly unlimited chance to foreclose without regard to the effects on homeowners, courts still remain unlikely to change their allegiance to more thoroughly consider the equities that lie with a given homeowner.326 In light of our previous research and the continuing points made in this Article, we do

322 See Bartram, 211 So. 3d at 1014–15; Beauvais, 188 So. 3d at 940–41;

Singleton, 882 So. 2d at 1005. 323 See Foreclosure Process Takes Toll on Physical, Mental Health, ROBERT

WOOD JOHNSON FOUND. (Oct. 21, 2011), https://www.rwjf.org/en/library/articles-and-news/2011/10/foreclosure-process-takes-toll-on-physical-mental-health.html (identifying a link between foreclosure and a decline in overall health); What Will a Foreclosure Lawyer Cost Me?, LEGALMATCH.COM, https://www.legalmatch.com/law-library/article/how-much-will-a-foreclosure-lawyer-cost.html (last updated Jan. 31, 2017) (stating that usually each party pays its own costs but that in some cases homeowners must pay the lender’s legal fees as well).

324 See, e.g., Aldo Svaldi, Foreclosure Paperwork Miscues Piling Up, DENVER

POST, https://www.denverpost.com/2010/11/12/foreclosure-paperwork-miscues-piling-up/ (last updated May 5, 2016, 3:46 AM) (identifying foreclosures brought on by injury and misleading statements by the lender).

325 See Bartram, 211 So. 3d at 1012 (following the Singleton rule); Beauvais, 188 So. 3d at 944 (following the Singleton rule).

326 See supra Section III.C. continued . . .


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not expect judges to begin to recognize the extensive damage that repetitive successive lawsuits can cause. 327 Indeed, in this new landscape where foreclosure appears inevitable––even in the face of a previous dismissal with prejudice for severely troubling conduct—one may well expect forthcoming opinions to say it is inequitable to force a foreclosing entity, who might otherwise win a suit, to have to refile for the same relief later, despite any wrongdoing in the present case.

Finally, and again as we have discussed in prior research, we note that foreclosing entities cannot be said to have earned the sympathies of foreclosure courts to merit such one-sided examinations of the equities of a given case.328 In other words, one cannot reasonably say that strategic homeowners knowingly and wittingly created a backlog on court systems in an effort to bilk lenders out of money despite banks’ best efforts to assist. 329 While ample evidence certainly exists to suggest that many homeowners defaulted strategically,330 the far more accurate scenario writ large is that millions of Americans faced financial hardship through no fault of their own.331

Banks, lenders, and their attorneys, by contrast, have earned every bit of disapprobation received in the past decade.332 Even if courts ignored the substantial research on bank misconduct in the years before the great recession, courts would have to be exceptionally inattentive not to have noticed a similar amount of reportage on attorney misconduct in foreclosure litigation:

Among a host of problematic practices, foreclosure attorneys have been cited for signing documents on behalf of servicers without having the authority to do so, changing affidavits without knowledge of servicers, filing a myriad of false or inappropriate claims in pleadings, filing documents signed by attorneys who had already left the firm, signing blank documents with information to be filled in later, repeatedly missing hearings without notifying other parties or the court, and

ignoring notarization requirements.333

327 See supra Section III.C. 328 See A Standing Question, supra note 17, at 711. 329 Id. at 710. 330 Brent T. White, Underwater and Not Walking Away: Shame, Fear, and the

Social Management of the Housing Crisis, 45 WAKE FOREST L. REV. 971, 979 (2010).

331 Id. at 976–77. 332 See generally Robo-Litigation, supra note 22, at 888–90 (listing numerous

examples of misconduct by attorneys representing banks and servicers). 333 Id. at 869–70 (citations omitted).

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Yet, despite these many documented problematic practices, it appears that recent jurisprudence clings to the notion that precluding a bank or servicer’s ability to collect on a loan is the most serious equitable consideration courts face in foreclosure.334 This ignores the pertinent and troubling issues of whether or not a bank or servicer is the proper party to sue, is seeking unsubstantiated damages or charges, or is bringing a claim when previous suits were dismissed for flagrant misconduct.335

Even in cases specifically discussing acceleration, res judicata, and statutes of limitation, banks and foreclosing entities behave opportunistically and have done so for as long as cases have been reported on such issues.336 Again, even though in these specific sub-areas of foreclosure litigation jurisprudence, it is homeowners who are not seen to have equity on their side.337 The expansion of the exceptions to res judicata, the double dismissal rule, and statutes of limitation are simply more evidence of the pervasive view among the judiciary that equities in foreclosure cases only lie with banks and lenders.338

D.� Inefficient Efficiency

As we have noted here and in previous research, judges and court

administrators seem to be wedded to the idea that speeding up foreclosure cases is the only optimal policy.339 Yet, we have noted, this approach, as with the other housing crisis issues driven largely by a demand for faster results, is ultimately shortsighted.340 Although a longer foreclosure process costs lenders and servicers more, these costs may help incentivize servicers to settle more cases, rather than enduring a long slog through the court system.341 Similarly, the longer time period may assist borrowers in bolstering their financial resources or in weathering a financial hardship, again making settlement more likely.342

Even if a more efficient foreclosure system were recognized as the most important goal of foreclosure litigation, rather than fact finding, the efficiency arguments are completely undercut by the factual circumstances that give rise to the burgeoning foreclosure statute of

334 See Fairbank’s Capital Corp. v. Milligan, 234 F. App’x 21, 24 (3d Cir. 2007);

Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007–08 (Fla. 2004). 335 See supra text accompanying notes 318–19. 336 See supra text accompanying notes 305–06, 312–13. 337 See supra text accompanying notes 314–19. 338 See supra text accompanying notes 314–19. 339 Robo-Litigation, supra note 22, at 867. 340 A Standing Question, supra note 17, at 730. 341 Id. 342 Id.

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limitations jurisprudence.343 On one hand, we have noted that judges may give little attention to borrower defenses or discovery because of this unceasing drive for speed and efficiency in court systems.344 On the other hand, the mere fact that a foreclosure action faces a five-year statute of limitations bar potentially signals a significant level of incompetence, nonfeasance, or malfeasance on the part of banks and their attorneys. A typical judicial state foreclosure may only produce one or two witnesses and five to ten exhibits, and such trials typically do not entail jury selection.345 It is unclear then, in this fact pattern, why the efficiency argument would lie in favor of the party that was not prepared for trial or had its case dismissed after years and years of litigation.

Allowing banks to continuously refile these cases only incentivizes the leisurely and cavalier manner in which their attorneys have prosecuted actions in the past.346 If banks were certain that statute of limitations defenses would apply in a dismissal of a cause proceeding for longer than five years, one would expect banks to wait to file their cases until absolutely ready to prosecute, and would not require more than five years to obtain a judgment or dismissal.

Similarly, affording foreclosing banks the exceptions to claim preclusion we have explored herein further incentivizes the shoddy work that created such large numbers of dismissals.347 As with the statute of limitations, if banks knew that they would not be able to bring unlimited lawsuits, they would be less apt to file questionable suits based on questionable documents that get dismissed and ultimately waste the time and resources of the court and all parties. Ultimately, however, it seems that the fact that a foreclosure case might take more than five years is seen more as a result of homeowners’ dilatory tactics (which should not be rewarded), rather than incompetence on the part of foreclosing entities (which for practical purposes is ignored when creating exceptions for the statute of limitations and res judicata).348

343 See supra Section III.C. 344 See Allen, supra note 5; supra text accompanying note 294. 345 See Petition for Writ of Certiorari, supra note 11, at 24. 346 See supra notes 332–33 and accompanying text. 347 See, e.g., Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938, 969 (Fla.

Dist. Ct. App. 2016) (Scales, J., dissenting) (“The expiration of a statute of limitations, however, generally results in a windfall for the escaping defendant. In my view, neither the moral imperative that borrowers pay their obligations, nor Singleton, has abrogated decades of Florida jurisprudence governing the statute of limitations in foreclosure cases.”).

348 See generally Petition for Writ of Certiorari, supra note 11, at 16 (arguing that the mass foreclosure docket has revealed judicial bias against mortgagors).

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IV.�CONCLUSION

We have described elsewhere the myriad of actors who either ignored, downplayed, or incentivized problematic practices in foreclosure litigation. 349 These include the government-sponsored entities retaining attorneys for foreclosure based on speed ratings, state bar associations ignoring misconduct for years, and state attorneys general completing showpiece settlements with banks and servicers that did not require substantial reforms.350 In theory, at least in judicial foreclosure states, judges might be, or ought to be, the preeminent disciplinarian in the foreclosure process. It is judges who see daily the human misery in-part created by banks’ lending policies leading up to the Great Recession, and it is judges who see the questionable, and in many cases, outrageous conduct in the prosecution of foreclosure claims.351 And it is only judges’ orders, rulings, and jurisprudence that could eliminate the most common malfeasance in foreclosure litigation. Yet, we have posited here and in previous research that judges largely previewed foreclosure cases to the detriment of borrowers, set up a system to process foreclosure cases in a less scrutinizing fashion than other comparable civil litigation that encourages that very previewing, and have narrowed borrower defenses and expanded anti-bank exceptions to longstanding rules.352

We note that the fact that a state provides judicial review of foreclosures or is a power-of-sale state is a product of the state legislature.353 We also note that the applicable statute of limitations is created by the legislature.354 Yet, by individually previewing cases, creating a system designed for efficiency rather than truth-seeking, and downplaying debtor defenses while expanding exceptions for banks so as to be meaningless, the judiciary in many instances has short-circuited these legislative creations. Our findings lead us to believe that, if given a choice, many judges overseeing foreclosure cases in judicial-foreclosure jurisdictions would simply do away with the legislative creation of judicial foreclosure altogether, and, to some extent, they may already have substantively succeeded.

349 See, e.g., White, supra note 6, at 414. 350 See, e.g., A Standing Question, supra note 17, at 730. 351 Matt Taibbi, Invasion of the Home Snatchers, ROLLING STONE (Nov. 10,

2010), http://www.rollingstone.com/politics/news/matt-taibbi-courts-helping-banks-screw-over-homeowners-20101110.

352 See, e.g., A Standing Question, supra note 17, at 727. 353 See Alexander et al., supra note 63, at 342–43. 354 See FLA. STAT. § 95.281 (2017).

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You simply won’t find someone with more relevant and extensive experience in the area of law firm marketing than Matt Starosciak. Since 2011, he has been responsible for the marketing success of some of the nation’s top law firms. For eight years prior to that, he was a top sales rep for one of the largest law firm marketing product vendors in the U.S. And early in his career, he practiced law in both small and large firm environments.

Over the years, Matt has enjoyed a front row seat to thousands of decisions related to law firm client development, including product purchases, campaign implementation, intake protocol, ROI evaluation and more. Today, he shares his knowledge as an author and speaker with law firms that want to achieve the very highest levels of success.

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Comprehensive, clear, and concise.Finally a marketing book for the modern law practice. William J. Stemberger, Jr.

Stemberger & Cummins, P.C.

[email protected](678) 877-7975

Written in an engaging and conversational tone, The Lawyer Marketing Book covers the most important aspects of attorney marketing through 60+ real-world stories. Readers learn how to implement best practices for successfully generating high-value clients and maximizing revenue, while also learning the skills for avoiding the most costly law firm marketing mistakes.

Published in 2017, The Lawyer Marketing Book is the most current and comprehensive resource on attorney business development available today.

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Doesn’t aspire to be like the mega-advertiser

Is composed of more skilled attorneys

Obtains superior financial results for their clients

Provides a much higher level of client service

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The Lawyer Marketing Book

“I have a long-standing history of respecting artists’ wishes.”AL YANKOVIC

Singer

Premise

Any law firm that does the same kind of work you do in the same region is your competition. It’s a mistake to think they are not simply because of di�erences in skill, compassion, structure, or ability to deliver exceptional results for clients.

Story

Over the years, I have heard many personal injury lawyers say that a particular mega-advertiser isn’t their competition. It typically sounds something like this: “We aren’t trying to be (insert firm name).”

I’ve come to realize that what they really mean is that their own firm:

They Most Certainly Are Your Competitionexcerpt

firm’s intake personnel. Many high quality law firms believe this is tacky, and frown upon the practice. However, there are many prospective clients who view this approach as an incredible display of great customer service. They don’t want to travel to a lawyer’s o�ice if they don’t need to do so, pay for parking, and navigate an intimidating o�ice building.

Do you see the disconnect? The law firm that looks down on the mega-advertiser assumes their client sees the world through the same lens as they do. That’s a critical error in marketing.

Define your competition as everyone who does your same case types within a 50-mile radius.

Realize that the fact that you are di�erent from another firm in your own mind doesn’t make them less of a competitor.

Prospective clients typically see only a tiny bit of information before picking up the phone or sending an email. Make sure your messaging hits home, and also that your intake personnel are ready to provide a very strong client experience.

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Takeaways

Related Reading

Your New Client Intake Must Be Perfect, page 89.Smaller-budget advertisers want to believe that the big spenders aren’t their competition, and it’s natural to feel this way. What these attorneys fail to understand, however, is that none of the above di�erences are obvious to a prospective client who is looking at a list of law firms on a Google results page.

In order to achieve marketing success, you have to put yourself in your prospective client’s shoes. Recognize that they will not be as discriminating as you would be when looking for legal representation. Di�erentiate your firm as much as possible from those who can outspend you. For example, if you are competing with a big-budget advertiser on a legal directory such as Lawyers.com, be sure your tagline is more impactful. A competitor may say, “We’ll Get ‘Er Done!” You can say, “Our AV Rated firm has a 30-year history of representing individuals and families injured in serious car accidents. In Wichita, call (678) 877-7975.”

Here is another quick example of how the perceptions of clients and lawyers can di�er. It’s very common for personal injury mega-advertisers to send a sta� member to a prospective client’s home to complete the consultation and execute a retainer agreement. And many of these firms can have their representative to the prospect’s home within one hour of the initial phone conversation with the

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