Another Lower Court Reversal: NY Appeals Court Slams MERS In Rejecting Standing-Lacking Suit Against Pro Se Foreclosure Defense Attorney

Forbes reports:

• A New York appeals court has thrown out a foreclosure proceeding involving MERS, the national registry for mortgages that tracks millions of individual loans behind mortgage-backed securities. The case sets a bad precedent for MERS in New York, but may not cause upheaval nationwide.
• In a 7-page ruling issued Friday, the New York appellate court threw out Bank of New York’s foreclosure suit against Stephen and Frederica Silverberg, who were allegedly behind on $479,000 in loans. Bank of New York is the trustee for the trust containing mortgages, one them presumably the Silverberg’s, that were bundled together and sold to investors as bonds. Unfortunately for the bank, the court ruled that MERS, the bookkeeping entity set up to keep track of those mortgages in land-records offices around the country, couldn’t give BONY the authority to foreclose because it didn’t possess the underlying note, or Silverberg’s promise to pay.
• “A transfer of the mortgage without the debt is a nullity, and no interest is acquired by it,” the court ruled.
• Public Citizen said the decision could have “far reaching consequences,” but not everyone agrees this is a big deal. Even the lawyer for the Silverbergs, Stephen Silverberg himself, acknowledged his was an unusual situation. Bank of New York “admitted it didn’t have the note” proving it was the rightful owner of the collateral, Silverberg told me.
• “They’ve had three years to find it and they haven’t,” he said. Without both the note and the mortgage, or legal document establishing the home as collateral for the note, the court said a lender can’t foreclose.

***

• The New York appeals court acknowledged it could be creating trouble for those investors.
  
  This Court is mindful of the impact that this decision may have on the mortgage industry in NewYork, and perhaps the nation. Nonetheless, the law must not yield to expediency and the convenienceof lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules thatgovern real property.
• Silverberg, who represents other homeowners in foreclosure actions, was similarly unapologetic. He declined to say whether he was paying his mortgage, or intended to do so.
• “The question here is some bank is coming forward saying the homeowner owes them hundreds of thousand of dollars but can’t present any evidence of ownership,” he said. “In New York, in order to evict the owner you must prove you have right to do so. This is the law and no apologies for enforcing your rights. They really pushed when they had nothing behind them.”(1)

For the story, see New York Appeals Court Rejects MERS Foreclosure.

For the appeals court ruling, see Bank of N.Y. v. Silverberg, 2011 NY Slip Op 05002 (NY Sup. Ct. App. Div. 2nd Dept. June 7, 2011).

See also:

• Naked Capitalism: New York State Appellate Court MERS Smackdown: Another Nail in the Coffin,
• Public Citizen Consumer Law & Policy Blog: MERS cannot foreclose unless it is the holder of the underlying note.

(1) For aficionados of appellate procedure, it should be noted that, until the New York Court of Appeals, the state's highest court pronounces a contrary rule on this issue, and absent any conflicting ruling by a sister intermediate appellate court, existing New York case law suggests that this ruling may be binding on all trial courts throughout the state (both inside and outside the jurisdiction of the Second Department) presiding over cases involving substantially the same legal issues. See:

• People v. Turner, 840 NE 2d 123 (NY 2005): The New York high court referenced the binding effect of an intermediate court ruling on all trial courts (both inside and outside the appeals court jurisdiction) throughout the state in this passing comment:
  
  Appellate counsel's apparent conclusion that Di Pasquale was not worth citing was not a reasonable one, even by the undemanding standard we apply in ineffective-assistance cases. Di Pasquale, though old, was still a valid precedent, binding on all trial-level courts in the state (see Mountain View Coach Lines v Storms, 102 AD2d 663, 664-665 [2d Dept 1984]) and entitled to respect by appellate courts.
• Mountain View Coach v. Storms, 102 AD 2d 663 (NY Sup Ct. App. Div. 2nd Dept. 1984):
  
  At the outset, we note that if the Third Department cases were, in fact, the only New York authorities on point, the trial court followed the correct procedural course in holding those cases to be binding authority at the nisi prius level.
  
  The Appellate Division is a single State-wide court divided into departments for administrative convenience (see Waldo v Schmidt, 200 N.Y. 199, 202; Project, The Appellate Division of the Supreme Court of New York: An Empirical Study of its Powers and Functions as an Intermediate State Court, 47 Ford L Rev 929, 941) and, therefore, the doctrine of stare decisis requires trial courts in this department to follow precedents set by the Appellate Division of another department until the Court of Appeals or this court pronounces a contrary rule (see, e.g., Kirby v Rouselle Corp., 108 Misc 2d 291, 296; Matter of Bonesteel, 38 Misc 2d 219, 222, affd 16 AD2d 324; 1 Carmody-Wait 2d, NY Prac, § 2:63, p 75).
  
  This is a general principle of appellate procedure (see, e.g., Auto Equity Sales v Superior Ct. of Santa Clara County, 57 Cal 2d 450, 455; Chapman v Pinellas County, 423 So 2d 578, 580 [Fla App]; People v Foote, 104 Ill App 3d 581), necessary to maintain uniformity and consistency (see Lee v Consolidated Edison Co., 98 Misc 2d 304, 306), and, consequently, any cases holding to the contrary (see, e.g., People v Waterman, 122 Misc 2d 489, 495, n 2) are disapproved.
• Nachbaur v. American Transit Insurance Company, 300 A.D.2d 74; 752 N.Y.S.2d 605 (NY Sup. Ct. App Div., 1st Dept. 2002):
  
  We particularly disapprove of the failure of plaintiff's attorney to cite adverse authority. The failure is especially glaring in this case since plaintiff's attorney represented the losing appellant in Bettan (supra), a Second Department case issued a matter of weeks before plaintiff's reply brief on the instant appeal was submitted, which precisely addresses five out of six of plaintiff's causes of action as well as the issue of class certification (see Amazon Coffee Co. v Trans World Airlines, 111 AD2d 776, 778) and, unless and until overruled or disagreed with by this Court, is "controlling" authority that plaintiff's attorney was obligated to bring to the attention of this Court (see Matter of Cicio v City of New York, 98 AD2d 38; Merl v Merl, 128 AD2d 685; see also Mountain View Coach Lines v Storms, 102 AD2d 663, 664-665).

See also these lower court New York rulings:

• Bush v. Cobble Hill Health Ctr., Inc., 2007 NY Slip Op 52268(U) (NY Sup. Ct. Kings County, 2007):
  
  "The rule in New York is that the trial courts must follow an Appellate Division precedent set in any department in the State until its own appellate division decides otherwise (see Mountain View Coach Lines, Inc. v. Storms, 102 AD2d 663 [2d Dept 1984])." (Stewart v. Volkswagen of America, Inc., 181 AD2d 4, 7 [2d Dept 1992]).
• In The Matter Of SS, 2007 NY Slip Op 50218, (Fam. Ct. Nassau County, 2007):
  
  Regarding decisions from an Appellate Division other than our own in the Second Department, those decisions are just as binding upon this Court as if they were Second Department cases, unless the Court of Appeals or the Second Department has decided any issue differently.
  
  This is because the Appellate Division is a single state-wide Court, which is divided into departments solely for administrative convenience. Mountain View Coach Lines v. Storms, 102 AD2d 663 (2d Dept 1984), cited approvingly in People v. Turner, 5 NY3d 476 (2005).
  
  The First Department also has the same fiat: Nachbaur v. American Transit Insurance Co., 300 AD2d 74 (1st Dept 2002), appeal den'd 99 NY2d 576 (2003), cert. den'd sub nom Moore v. American Transit Insurance Co., 538 US 987 (2003).

Go here for links to a few other cases that have applied this rule.