IN THE DISTRICT COURT OF DOUGLAS COUNTY, KANSAS CIVIL COURT DEPARTMENT

BAC HOME LOANS SERVICING, L.P. ) f/k/a Countrywide Home Loans Servicing, L.P., )

)

Plaintiff, )

)

v. ) )

ROBBIE J. STEWART and )

ALICE STEWART, et al., )

)

Defendants, pro se. )

Case No. 10CV206

Court Div.l

Pursuant to K.S.A. Chapter 60

PLAINTIFF'S SUPPLEMENTAL OPPOSITION TO DEFENDANTS' MOTION TO VACATE

At approximately 6:50 p.m. on the evening of Labor Day, September 6, 2010, Kelly L.

Hansen, a non-attorney, fax filed a thirty-eight (38) page document purportedly on behalf of pro

se defendants Robbie 1. Stewart and Alice Stewart. Although this pleading is entitled

"Defendants Motion to Exceed Page Limit Defendants Motion to Vacate," it fails to address the

facts and arguments set forth in Plaintiffs Memorandum in Opposition to Defendants' Motion to

Vacate that was filed on August 13, 2010, but instead raises an entirely new and different

purported defense to the foreclosure, namely that the involvement of Mortgage Electronic

Registration Systems, Inc. purportedly split the Promissory Note from the Mortgage, thus

precluding foreclosure by the Plaintiff. Defendants' claim is not supported by the facts or the

law.

Plaintiffs have filed a Motion to Strike Defendants' latest pleading because it was filed in

violation of K.S.A. § 60-211. Plaintiff, however, is compelled to address the legal argument

raised that the promissory note and mortgage were somehow split, thus precluding foreclosure by

Plaintiff.

DB04/S03461.0022/3317261.1 PF06

I. FACTUAL BACKGROUND

1. On June 18, 2008, Robbie J. Stewart executed and delivered a promissory note

(the "Note") to Countrywide Bank, FSB, in exchange for good and valuable consideration, in the

principal sum of $275,115.00, together with interest. A copy of the Note is attached as Exhibit

"A" to the Petition. The Note provides that the principal and interest are payable in monthly

installments until fully paid. Petition, ~ 4. The Note attached to the Petition is a genuine copy of

the Original Note. See Exhibit 2, Affidavit of Tom Garcia, ~ 5.

2. On June 18, 2008, Robbie J. Stewart and Alice Stewart executed and delivered a

mortgage (the "Mortgage") to Mortgage Electronic Registration Systems, Inc., solely as

nominee for lender Countrywide Bank, FSB, to secure repayment of the Note. A copy of the

Mortgage is attached as Exhibit "B" to the Petition. The Mortgage was secured by real estate

legally described as:

The East Half of the Southwest Quarter of the Southeast Quarter of Section 11, Township 15 South, Range 19 East of the 6th P.M., in Douglas County, Kansas, LESS the following: Beginning at the Southeast corner of the Southwest Quarter of the Southeast Quarter of Section 11, Township 15 South, Range 19 East of the 6th P.M., thence North along the East line of the Southwest Quarter of said Southeast Quarter 1 ,329.35 feet, more or less, to the Northeast corner of the Southwest Quarter of said Southeast Quarter; thence West along the North line of the Southwest Quarter of said Southeast Quarter 165.42 feet; thence South 1,329.35 feet, more or less, to a point of the South line of said Southeast Quarter, said point of being 166.30 feet West of the point of beginning; thence East 166.30 feet to the point of beginning, in Douglas County, Kansas. Also less and except that portion conveyed by deed to the State of Kansas recorded in Deed Book 1034, Page 3605, commonly known as 1266 N. 100 Road, Baldwin City, KS 66006 (the "Property"). Petition, ~ 5.

3. The Mortgage was recorded on June 24, 2008, in Book No.1 038, at Page 1790, in

the office of the Register of Deeds of Douglas County, Kansas. The mortgage registration tax

was paid in full. Petition, ~ 6.

2

DB04/S034610022/3317261.1 PF06

4. Pursuant to K.S.A. § 60-217, BAC Home Loans Servicing, L.P. f/k/a

Countrywide Home Loans Servicing, L.P. has the authority to enforce the terms of the Note and

Mortgage referenced above. The Mortgage constitutes a first and prior lien against the Property.

Petition, ~ 7.

5. The original Note has at all times since the origination of the loan been in the

possession of BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P.

The physical possession of the Note has not been transferred or otherwise conveyed to any other

entity. Exhibit 2, Garcia Affidavit, ~ 10.

6. The physical location of the original Note is 1800 Tapo Canyon Rd., Simi Valley,

California 93065. BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing,

L.P. has physical control, custody and possession of the Note, and the Note has not been

assigned, negotiated, or otherwise conveyed to any successor or assignee by BAC Home Loans

Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P. as of the filing of this

Supplemental Memorandum. Exhibit 2, Garcia Affidavit, ~ 11.

7. The Assignment of Mortgage was recorded March 15, 2010 in the Recorder of

Deeds Office of Douglas County, Kansas in Book 1059 at Page 4388. The Assignment of

Mortgage is attached as Exhibit "C" to the Petition. Petition, ~ 8; Hultman Affidavit, ~~ 11-12.

8. The Mortgage executed by Robbie J. Stewart and Alice Stewart, Husband and

Wife ("Borrower") provides:

This Security Instrument is given to Mortgage Electronic Registration Systems, Inc. ("MERS"), (solely as nominee for Lender, as hereinafter defined, and Lender's successors and assigns), as mortgagee. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679-MERS.

COUNTRYWIDE BANK, FSB ("Lender") is organized and existing under the laws of THE UNITED STATES, and has an address of 1199 North Fairfax St. Ste. 500, Alexandria, VA 22314. Borrower owes Lender the principal sum of

3

DB04/S03461.0022/3317261.1 PF06

TWO HUNDRED SEVENTY FIVE THOUSAND ONE HUNDRED FIFTEEN and 0011 00 Dollars (U.S. $275,115.00). This debt is evidenced by Borrower's note dated the same date as this Security Instrument ("Note"), which provides for monthly payments, with the full debt, if not paid earlier, due and payable on JULY 01,2018. This Security Instrument secures to Lender: (a) the repayment of the debt evidenced by the Note, with interest, and all renewals, extensions and modifications of the Note; (b) the payment of all other sums, with interest, advanced under paragraph 7 to protect the security of this Security Instrument; and (c) the performance of Borrower's covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, grant and convey to MERS (solely as nominee for lender and Lender's successors and assigns) and to the successors and assigns of MERS, the following described real proper located in Douglas County, Kansas:

[legal description omitted]

9. MERS® System accurately reflects that the beneficial interests and rights to the

loan were transferred to Government National Mortgage Association (hereinafter "GNMA")

from Countrywide Bank, FSB without any change in the possession or servicing rights of the

Note, which BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P.

retained as servicing agent for GNMA. A record of this transfer was registered on the MERS®

System. Exhibit 2, Garcia Affidavit, ~ 7; Exhibit 1, Hultman Affidavit, ~ 10.

10. GNMA subsequently transferred all beneficial interests and rights to the loan to

Bank of America, N.A., parent corporation and controlling owner of BAC Home Loans

Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P. A record of this transfer was

registered on the MERS® System. Exhibit 2, Garcia Affidavit, ~ 8; Exhibit 1, Hultman

Affidavit, ~ 10.

4

D804/503461.0022/3317261.1 PF06

II. ARGUMENTS AND AUTHORITIES

A. The Mortgage is Enforceable Because the Note and Mortgage Have Never Been Split.

Defendants assert that Plaintiff lacks standing to foreclose on the Mortgage because the

Note was split from the Mortgage. According to the Defendants, the Note was split from the

Mortgage at the inception of the transaction when the Note was given to Countrywide Bank, FSB

("Plaintiff') and the Mortgage was given to MERS as the nominee for Countrywide and

Countrywide's successors and assigns. The Defendants' assertion has absolutely no support either

factually or legally. The Defendants fail to cite any statute, case law, or other authority which

supports their argument that the Mortgage was split from the Note. Instead, both the facts set forth

above and all the relevant legal authority unequivocally support the determination that the Note has

not been split from the Mortgage. The detailed analysis undertaken by Judge Arthur Federman,

u.s. Bankruptcy Judge in the Western District of Missouri, on the identical issue presented to him

in the case of In Re Patricia Louise Tucker (Case No. 10-61004), demonstrates that the involvement

of MERS does not split the Note and the Mortgage. See Exhibit 3, Order Granting Relief from

Stay, dated September 20,2010, In Re Tucker (Case No. 10-61004, Bkty. W.D. Mo.).

The Defendants' inability to find any support for their argument is not surprising because the

Note was not split from the Mortgage as a result ofMERS holding the Mortgage as nominee of the

noteholder. There is not any statute, rule or regulation in any jurisdiction which prohibits MERS

from holding the mortgage as nominee of the noteholder or which provides that the note becomes

split from the mortgage if MERS holds the mortgage as nominee on behalf of the noteholder. Due

to the dearth of case law or statutory authority, the primary authority relied upon by the Defendants

is the Restatement (Third) of Property Section 5.4. However, contrary to the Defendants'

5

DB04/S03461.0022/3317261.1 PF06

assertions, the Restatement decisively supports the conclusion that the Note is not split from the

Mortgage.

1. The Restatement (Third) of Property Supports Determination that the Note Has Not Been Split From the Mortgage.

Section 5.4 of the Restatement establishes the following two rules regarding the separation

of a note from a mortgage. First, a note can be separated from a mortgage if, and only if, the parties

to the transfer affirmatively agree that the note will be separated from the mortgage. Restatement

(Third) of Property (Mortgages) § 5.4(a). Second, when the mortgage is owned by one person and

the note is owned by another person, the note is not separated from the mortgage, and the mortgage

is enforceable by the mortgagee or the noteholder, if the mortgagee is the agent or trustee of the

noteholder or otherwise has authority to foreclose on behalf of the noteholder. Id. at 5.4 cmt. c. As

further discussed below, the facts stated above establish that the parties did not intend to split the

Note from the Mortgage and MERS was appointed to hold the Mortgage as the agent of the

noteholder.

a. The Parties Did Not Intend to Split the Note from the Mortgage.

Section 5.4(a) of the Restatement provides that "[a] transfer of an obligation secured by a

mortgage also transfers the mortgage unless the parties to the transfer agree otherwise." (Emphasis

added). The Comment explains further:

It is conceivable that on rare occasions a mortgagee will wish to disassociate the obligation and the mortgage, but that result should follow only upon evidence that the parties to the transfer so agreed. The far more common intent is to keep the two rights combined. Ideally a transferring mortgagee will make that intent plain by executing to the transferee both an assignment of the mortgage and an assignment, indorsement, or other appropriate transfer of the obligation. But experience suggests that, with fair frequency, mortgagees fail to document their transfers so carefully. This section's purpose is generally to achieve the same result even if one of the two aspects of the transfer is omitted.

6

OB04/5034610022/3317261.1 PF06

Id. at 5.4 cmt. a (emphasis added). The rule is clear that upon transfer of a note the note will continue to be secured by the mortgage unless it is established that the parties to the transfer affirmatively agreed that the note would be split from the mortgage. Therefore, to prevail on their argument, the Defendants must offer some affirmative evidence that the parties to the Note and Mortgage transaction=.i.e., Robbie J. Stewart, Alice Stewart, Countrywide and MERS-intended to split the Note from the Mortgage. The Defendants have submitted absolutely no evidence to support a conclusion that the parties to the transaction intended to split the Note from the Mortgage. In fact, all of the evidence supports the opposite conclusion-that the parties intended the Note to be secured by the Mortgage.

"Promissory notes and mortgages are contracts between the parties, and ordinary rules of construction applicable to contracts apply to them." Foundation Prop. v. CTP, 37 Kan. App. 2d 890, Syl. ~ 5 (2007). "The cardinal rule of contract construction requires courts to determine the parties' intent from the four comers of an instrument by construing all provisions together and in harmony with each other rather than by critical analysis of a single or isolated provision." Town Ctr. Shopping Center v. Premier Mortgage Inc., 37 Kan. App. 2d 1, Syl. ~ 5 (2006).

In the present case, both the Note and the Mortgage unambiguously establish that the parties intended the Note to be secured by the Mortgage. The Note provides that "Borrower's promise to pay is secured by a Mortgage, Deed of Trust or similar security instrument that is dated the same date as this Note and called the 'Security Instrument.' That Security Instrument protects the Lender from losses which might result if Borrower defaults under this Note." See, Petition, Exhibit A, Note, Section 3. Thus, Mr. Stewart acknowledged his intent that the Note was to be secured by the Mortgage. To further fulfill and document that intent, the Stewarts executed the Mortgage. The Mortgage provides that "[T]his Security Instrument is given to Mortgage Electronic Registration

7

D804/503461.0022/3317261.1 PF06

Systems, Inc. ("MERS"), (solely as nominee for Lender, as hereinafter defined, and Lender's

successors and assigns), as mortgagee. II See Petition, Exhibit B, Mortgage, Page 1. The Mortgage

goes on to identify the Lender as Countrywide Bank, FSB, which is also the Lender identified in the

Note, and the amount of the Mortgage is the identical amount borrowed under the Note. Therefore,

based on the language appearing in the four comers of the Note and Mortgage, the parties to the

transaction intended for the Note to be secured by the Mortgage.

The Note and Mortgage are unambiguous and do not require the Court to examine parol

evidence to determine the parties' intent. However, even if the Court determines that parol evidence

is necessary to determine the parties' intent, the Defendants have not offered any evidence to

support the conclusion that the parties intended to split the Note from the Mortgage. The only

evidence before this Court is that the parties intended for the Note be secured by the Mortgage as

reflected by the documents. Therefore, the only conclusion that can be reached by this Court is that

the parties intended for the Note to be secured by the Mortgage and did not have the intent to split

the Note from the Mortgage.

b. MERS Was Appointed as the Agent of Countrywide and its Successors and Assigns and Was Given the Authority to Foreclose the Mortgage and Such Authority Was Assigned to Plaintiff.

The second rule established by Restatement Section 5.4 is that where the mortgage is owned

by one person and the note is owned or held by another person, the note is not separated from the

mortgage, and the mortgage is enforceable by the mortgagee or the noteholder, if the mortgagee is

the agent or trustee of the noteholder or otherwise has authority to foreclose on behalf of the

noteholder. Restatement, at § 5.4 cmt. c. The uncontroverted evidence is that MERS was appointed

as the agent of Countrywide and its successors and assigns and was given the authority to foreclose

8

DB04/503461.0022/3317261.1 PF06

the mortgage on behalf of the noteholder. Thus, the Note was not separated from the Mortgage

because MERS held the Mortgage as agent for the noteholder.

Section 5.4(c) of the Restatement provides that "[ a] mortgage may be enforced only by, or in

behalf of, a person who is entitled to enforce the obligation the mortgage secures." The Comment

explains the rule as follows:

It is possible for a mortgagee to assign the mortgage while retaining full ownership of the obligation, but only if the parties so agree .... The practical effect of such a transaction is to make it impossible to foreclose the mortgage, unless the transferee is also made an agent or trustee of the transferor or otherwise has authority to foreclose in the transferor's behalf. See Comment e.

ld. Comment e. provides this example and further explanation:

For example, [the mortgagee] may be a trustee or agent of [the noteholder] with responsibility to enforce the mortgage at [the noteholder's] direction. [The mortgagee's] enforcement of the mortgage in these circumstances is proper .... The trust or agency relationship may arise from the terms of the assignment, from a separate agreement, or from other circumstances. Courts should be vigorous in seeking to find such a relationship, since the result is otherwise likely to be a windfall for the mortgagor and the frustration of [the noteholder'sl expectation of security.

ld., at cmt. e (emphasis added).

In the present case, the parties documented their intention to appoint MERS as the agent for

the noteholder both through the plain language of the Mortgage and through additional agreements

between the noteholder and MERS. The Mortgage identifies MERS as the mortgagee as nominee

for Countrywide and its successors and assigns. The Mortgage goes on to further define MERS'

role as mortgagee and MERS' relationship with Countrywide, and its successors and assigns, as

nommee:

Borrower understands and agrees that MERS holds 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

9

DB04/S03461.0022/3317261.1 PF06

right to foreclose and sell the Property; and to take any action required of Lender, including, but not limited to, releasing or cancelling this Security Instrument.

See Petition, Exhibit B, Mortgage, p.2.

The Mortgage identifies MERS as the agent for Countrywide and its successors and assigns

and also grants MERS the authority to foreclose on behalf of Countrywide or the current noteholder.

MERS' relationship as nominee for the noteholder as defined in the Mortgage is consistent with the

ordinary legal definition of "nominee." Black's Law Dictionary defines nominee as "a person

designated to act in place of another, usually in a very limited way" or "a party who holds bare legal

title for the benefit of others or who receives and distributes funds for the benefit of others." Black's

Law Dictionary (8th ed. 2004). Thus, through the appointment of MERS as the nominee for the

noteholder, the parties created written evidence of the agency relationship of MERS with

Countrywide.

This exact issue was recently addressed in Ciardi v. The Lending Company, Inc., et al., 2010

WL 2079735 (D. Ariz. May 24,2010). In Ciardi, the plaintiffs alleged that the note had been split

from the deed of trust because MERS was the beneficiary of the deed of trust as nominee for the

holder of the note. Id. at *3. The Court flatly rejected this argument.

Plaintiffs argue that the deed of trust has been "rendered fatally defective" because it was severed from the promissory note ... Plaintiffs, however, fail to allege any facts in their amended complaint that would support such a theory. Indeed, the very language of the deed of trust, which Plaintiffs quote in their amended complaint, states that MERS will serve as the nominee for the original lender as well as the original lender's successors and assigns. Thus, from the very language of the deed of trust, to which Plaintiff Bianca Ciardi agreed to in entering into the home loan transaction, MERS is still acting as the nominee for the current holder of the promissory note.

Id. The plaintiffs further argued that MERS could not establish its agency relationship with the

lender and its successors and assigns. The Court also rejected this argument. "[T]he language in the

deed of trust confers an agency relationship between MERS and the original and successive lenders

10

DB041S0346 1.0022/3317261.1 PF06

without the need to produce a separate agency contract each time the promissory note is sold. II Id. at *4. The Court granted defendants motion to dismiss and dismissed plaintiffs' complaint for failure to state a claim. Id.

Although evidence of the agency relationship is sufficiently established in the Mortgage itself, as determined by the Court in Ciardi, the agency relationship between MERS and Countrywide and its successors and assigns -- Government National Mortgage Association ("GNMA") and Bank of America, N.A. ("Bank of America") -- is further evidenced by the respective agreements between MERS and Countrywide, GNMA and Bank of America. As of the date of the Note and Mortgage, Countrywide was a MERS member. See Exhibit 1, Affidavit of William C. Hultman, ~ 7. Pursuant to the MERS Rules of Membership, Countrywide appointed MERS to act as its agent to hold the Mortgage as nominee on Countrywide's behalf. ld. Countrywide remained a MERS member during the entire time that it was the holder of the Note. Id. The MERS System shows that the beneficial interests and rights to the loan were transferred from Countrywide to Government National Mortgage Association ("GNMA"). Id. at ~ 10. As of the date this transaction was reported to MERS, GNMA was a MERS member. Based on how GNMA conducts its business, there was no change in the possession or servicing rights of the Note as a result of this transaction from Countrywide to GNMA. Id. at ~ 10. Pursuant to the MERS' Rules of Membership, GNMA appointed MERS to act as its agent to hold the Mortgage as nominee of GNMA and its successors and assigns. GNMA remained a MERS member during the entire time it held an interest in the Note. (Attached as Exhibit C is GNMA's Membership Agreement.) ld. at ~ 10. The MERS System further shows that GNMA subsequently transferred all its beneficial interest and rights to the loan to Bank of America, N.A. ("Bank of America"). Id. at ~ 10. Pursuant to MERS' Rules of Membership, Bank of America appointed MERS to act

11

DB04/S03461.0022/3317261.1 PF06

as its agent to hold the Mortgage as nominee of Bank of America. Bank of America remains a

MERS member. (Attached as Exhibit D is Bank of America's Membership Agreement.) Id. at

~ 10. Accordingly, the evidence establishes that MERS acted as the agent of Countrywide,

GNMA and Bank of America, respectively, during the time that MERS held the Mortgage.

MERS then assigned the Mortgage to Plaintiff, Id. at ~~ 11-12, who filed this action.

2. The Cases Relied Upon by the Defendants Do Not Support Determination that the Note Was Split from the Mortgage.

The Defendants rely primarily on two cases which purportedly support their argument that

the Note was split from the Mortgage. Contrary to the Defendants' arguments, the cases do not

stand for the proposition asserted by the Defendants. A closer review of the holdings in each of

these cases reveals that none of the cases hold that the mortgage was split from the note. In fact, all

of the cases support the conclusion that the note is not split from the mortgage when the mortgagee

is the agent of the noteholder.

The first case cited by the Defendants is Landmark National Bank v. Kesler, 289 Kan. 528,

216 P.3d 158 (Kan. 2009). The Landmark Court did not address the issue of whether the note was

split from the mortgage. The issue decided by the Landmark Court was whether the trial court

abused its discretion in denying MERS' motion to vacate a default judgment and allow MERS to

intervene in the foreclosure action. Landmark at 542. The Court held that the trial court did not

abuse its discretion in denying the motion to vacate. Id. The Landmark decision briefly discussed

the issue of splitting the note from the mortgage during its analysis of the various rights that

MERS possessed as mortgagee. Id. at 539. The Court acknowledged the general rule set forth in

the Restatement that the holder of a note cannot foreclose on the mortgage if it is not the holder

of the mortgage, unless the holder of the mortgage is the agent of the holder of the note. As

already discussed above, MERS did hold the Mortgage as the agent of the noteholders and thus

12

DB04/S03461.0022/331726I.1 PF06

the Note was not split from the Mortgage. Therefore, Landmark does not support the conclusion that the Note was split from the Mortgage.

The second case cited by the Defendants is Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo. App. 2009). In Bellistri, BNC Mortgage, Inc. was the original lender on a promissory note secured by a deed of trust in which MERS was named the beneficiary as nominee ofBNC Mortgage, Inc. Id at 619. Bellistri purchased the property secured by the deed of trust at a tax sale. Id at 620. As required by statute, Bellistri provided notice to BNC Mortgage of its redemption rights, but Bellistri did not provide any notice to MERS. After issuance of the collector's deed, MERS assigned the deed of trust to Ocwen Loan Servicing, LLC ("Ocwen"). Bellistri filed a quiet title action and named Ocwen as a party. Id at 62l. Ocwen argued that the collector's deed was not valid because MERS did not receive notice of its redemption rights as required by statute. Id at 622.

As with Landmark, the Bellistri Court did not address the issue of whether the note was split from the mortgage. The issue in Bellistri was whether Ocwen Loan Servicing, LLC had standing to challenge the issuance of a collector's deed to the purchaser of a property at a tax sale. The Court held that Ocwen lacked standing because Ocwen was unable to produce evidence that it was the holder of the note or the deed of trust. Id at 624. The Court did discuss the issue of splitting the note from the mortgage in the context of addressing the various rights of holders of the note and holders of deeds of trust. Just as in Landmark, the Court acknowledged the general rule set forth in the Restatement. Therefore, Bellistri also does not support the conclusion that the Note was split from the Mortgage.

As discussed above, the authority cited by the Defendants does not support their argument that the Note was split from the Mortgage. Both of the cases cited by the Defendants acknowledge

13

D804/503461 0022/33172611 PF06

the general rule that a mortgage is not split from the note if the mortgagee is the agent of the

noteholder. The uncontroverted evidence is that MERS was the agent of the respective noteholders

during the entire time that MERS held the Mortgage and subsequently, when MERS assigned the

mortgage to Plaintiff. Therefore, the Note was not split from the Mortgage. This analysis and

conclusion was recently confirmed in the decision of Judge Arthur Federman in the case of In Re

Tucker, attached as Ex. 3.

It is noteworthy that the Kansas Legislature recently implicitly affirmed a nominee's right

to hold a mortgage and reinforced a nominee's statutory right to notice of a lawsuit relating to the

property upon which the nominee holds a mortgage. In 2009, the Kansas Supreme Court issued

its opinion in Landmark Nat'l Bank v. Kesler in which the Court was asked to determine whether

MERS as a nominee holding the mortgage on behalf of the noteholder was entitled to notice of a

foreclosure proceeding pursuant to K.S.A. § 60-219. Landmark, 289 Kan. 528. The Court

declined to rule on that issue thus leaving many to question whether a nominee of a mortgage has

the right to notice ofa lawsuit pursuant to K.S.A. § 60-219. Id. at 535. The Kansas Legislature

immediately acted to address this issue by adding the following subsection to K. S.A. § 60-219:

(e) Nominee. In an action in which any relief sought would determine title or affect a security interest in real property, a person who is subject to service of process must be joined as a party if the person is a nominee of record on behalf of a beneficial owner of a claimed interest in the property that is the subject of the action. The nominee need not be a party required to be joined under subsection (a)(1).

2010 Kan. Sess. Laws, Ch. 135, sec. 86, P. 1215. Thus, the Kansas Legislature clearly

acknowledges the right of a nominee to hold a mortgage on behalf of the beneficial owner of the

note.

14

DB04/5034610022/3317261.1 PF06

C. MERS Possessed Proper Authority to Assign the Mortgage.

The next argument asserted by the Defendants is that MERS did not have authority to assign the Mortgage to Plaintiff and therefore Plaintiff does not have standing to foreclose on the Mortgage. The Defendants' argument is without merit. MERS possessed the proper authority to assign the Mortgage and thus Plaintiff is the holder of the Mortgage.

The Defendants have not presented any evidence that MERS did not possess the authority to assign the Mortgage. The facts establish that MERS possessed the proper authority to assign the Mortgage. See Exhibit 1, Affidavit of William Hultman. The Defendants' argument simply does not withstand scrutiny. See 1. James Rogan, Trustee v. CitiMortgage, Inc., et al., Case No. 09-5229 (Bankr. E.D. Ky., 2010 WL 2926050, July 22, 2010) (holding that affidavit of MERS' officer affirming the authority of the MERS' officer that signed the mortgage assignment was sufficient evidence to establish that MERS had authority to execute the mortgage assignment); Bain v. Metropolitan Mortgage Group, Inc., et al, 2010 WL 891585 (W.D. Wash. March 11, 2010) (holding that defendant's employees had authority as officers of MERS to execute assignments); US Bank Nat'l Assoc. v. Flynn, 897 N.Y.S.2d 855, 858, 27 Misc.3d 802, 2010 N.Y. Slip Op. 20093,20093 (N.Y.Sup. March 12,2010) (NO. 4215/2008) (holding that a written assignment of the note and mortgage by MERS, in its capacity as nominee confers good title to the assignee and is not defective for lack of an ownership interest in the note at the time of assignment); HSBC Bank Nat'l Assoc. v. MacPherson, et al, (N.Y. Sup. January 28,2010 (No. 08-29742) (holding that MERS had authority to assign the note and mortgage to HSBC).

CONCLUSION

The documentary evidence before the Court establishes that all of the parties to the loan transaction agreed that the Note would be secured by the Mortgage and that MERS would hold the Mortgage as nominee on behalf of the original lender and its successors and assigns. MERS

15

DB04/S03461.0022/3317261.1 PF06

held the Mortgage as the agent of the noteholder during the entire time that it held the Mortgage

and that it assigned the Mortgage to Plaintiff. The Defendants have not presented any evidence

to the contrary.

The Defendants' argument also flies in the face of the purpose and intent of the

Restatement (Third) of Property Section 5.4 which encourages "[c]ourts [to] be vigorous in

seeking to find [an agency] relationship [between the noteholder and the mortgagee], since the

result is otherwise likely to be a windfall for the mortgagor and the frustration of [the

noteholder's] expectation of security." The inequitable result envisioned in the Restatement is

the exact result encouraged by the Defendants in the present case. The Defendants are asking

this Court to vacate a foreclosure in violation of the clear intent of the parties, thus giving a

windfall to the Debtors and eliminating the noteholder's expectation of security in the Mortgage.

The Court should not sanction this inequitable result.

Respectfully submitted,

STINSON MORRISON HECKER LLP

By: ~ c. d-!'-tft~

J frey A. efort KS #24072

1201 Walnut Street

Kansas City, MO 64106-2150 Phone: (816) 842-8600

Fax: (816) 691-3495

ATTORNEYS FOR BAC HOME LOANS SERVICING, L.P. f/kla Countrywide Home Loans Servicing, L.P.

16

DB04/S03461.0022/33172611 PF06

CERTIFICATE OF SERVICE

I do hereby certify that on this 14th day of October, 2010, a copy of the above and foregoing was sent via e-mail and U.S. mail to:

Robbie 1. and Alice Stewart 1266 North 100 Road Baldwin City, KS 66006 Howard, KS 67349

Phone: (785) 594-3457

E-Mail: alicestewart73@yahoo.com

DB04/S03461.0022/3317261.1 PF06

Brian R. Hazel, Esq. South & Associates, P.C.

6363 College Boulevard, Suite 100 Overland Park, KS 66211

Phone: (913) 663-7600

Fax: (913) 663-7899

E-Mail: Brian.Hazel@southlaw.com

Attorney BAL Home Loans Servicing, L.P. flk/a Countrywide Home Loans Servicing, L.P.

17

IN THE DISTRICT COURT OF DOUGLAS COUNTY, KANSAS CIVIL COURT DEPARTMENT

BAC HOME LOANS SERVICING, L.P. ) fIkIa Countrywide Home Loans Servicing, L.P., )

)

Plaintiff, )

)

v. ) )

ROBBIE J. STEWART and )

ALICE STEWART, et aI., )

)

Defendants, pro se. )

Case No. 10CV206

Court Div.1

Pursuant to K.S.A. Chapter 60

AFFIDAVIT OF WILLIAM C. HULTMAN

William C. Hultman, of lawful age and being first duly sworn, states as follows:

1. I am over the age of 18 years and am legally competent and able to make this

affidavit which is based upon my personal knowledge.

2. I am Secretary and Treasurer for Mortgage Electronic Registration Systems, Inc.

("MERS").

3. On June 18, 2008, Robbie J. Stewart ("Debtor") executed and delivered a

promissory note (the "Note") to Countrywide Bank, FSB ("Countrywide") whereby Debtor

promised to pay Countrywide the principal sum of$275,115.00 together with interest pursuant to

the terms of the Note.

4. On June 18, 2008, to secure to Countrywide and its successors and assigns the

repayment of the indebtedness evidenced by the Note, Robbie J. Stewart and Alice Stewart (the

"Stewarts") executed a Mortgage whereby the Stewarts granted a mortgage on the property

described in Mortgage to MERS, as the nominee for Countrywide and its successors and assigns.

See Petition, Exhibit B, Mortgage.

DB04/S03461.0022/3342243.1 0001

EXHIBIT 1

5. On June 24, 2008, the Mortgage was duly recorded in Book No. 1038 at Page

1790 in the office of the Register of Deeds of Douglas County, Kansas.

6. The essence of MERS' business is to hold legal title to the mortgages and deeds of

trust in the land records. The MERS System is designed to allow its members, which include

originators, lenders, servicers and investors, to accurately and efficiently track transfers of

servicing rights and beneficial ownership.

7. As of the date of the Note and Mortgage, Countrywide was a MERS member, and

pursuant to the MERS' Rules of Membership, Rule 2, Section 5, Countrywide appointed MERS

to act as its agent to hold the Mortgage as nominee on Countrywide's behalf. Countrywide

remained a MERS member during the entire time that it was the holder of the Note. (Attached as

Exhibits A and B respectively are the MERS Rules of Membership and Countrywide's

Membership Agreement that is now noted in the MERS Membership records under BAC Home

Loan Servicing, LP).

8. The Mortgage provides that "[tjhis Security Instrument is given to Mortgage

Electronic Registration Systems, Inc. (nMERsn), (solely as nominee for Lender, as hereinafter

defined, and Lender's successors and assigns), as mortgagee." See Petition, Exhibit B, Mortgage.

9. The Mortgage further states that:

"Borrower understands and agrees that MERS hold 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 ... n

See Petition, Exhibit B, Mortgage, p. 2.

10. The MERS System shows that the beneficial interests and rights to the loan were

transferred from Countrywide to Government National Mortgage Association ("GNMAn). As

DB04/S0346l.0022/3342243.l DOOl

2

of the date this transaction was reported to MERS, GNMA was a MERS member. It is my understanding based on my knowledge of how GNMA conducts its business that there was no change in the possession or servicing rights of the Note as a result of this transaction from Countrywide to GNMA. Pursuant to the MERS' Rules of Membership, GNMA appointed MERS to act as its agent to hold the Mortgage as nominee of GNMA and its successors and assigns. GNMA remained a MERS member during the entire time it held an interest in the Note. (Attached as Exhibit C is GNMA's Membership Agreement.) The MERS System further shows that GNMA subsequently transferred all its beneficial interest and rights to the loan to Bank of America, N.A. ("Bank of America"). As of the date the Note was transferred to Bank of America, Bank of America was a MERS member. Pursuant to MERS' Rules of Membership, Bank of America appointed NIERS to act as its agent to hold the Mortgage as nominee of Bank of America. Bank of America remains a MERS member. (See Exhibit B which is part of BAC Membership Agreement.)

11. On March 1,2010, MERS executed an Assignment of Mortgage, whereby MERS

assigned all of its interest in the Mortgage to BAC Home Loans Servicing, L.P. (See Petition, Exhibit C.)

12. The Assignment of Mortgage was executed by Ashley B. Osborn. At the time the

Assignment of Mortgage was executed, Ashley B. Osborn was, and still is, an assistant secretary and vice president of MERS and was authorized to execute the Assignment of Mortgage on behalf ofMERS.

OB04/S03461.0022/3342243.1 0001

3

FURTHER AFFIANT SA YETH NOT, this 2.. oth day of September, 2010.

WILLI C. HULTMAN

STATE OF VIRGINIA

) ) )

COUNTY OF FAIRFAX

Sworn to and subscribed before me this'~O~daY of September, 2010.

My commission expires:

OB04/503461.0022/3342243.1 0001

4

RULE 2

REGISTRATION ON THE MERS® SYSTEM

Section 1. MERSt in its sole discretion, shall determine the type and level of access

to the MER~ System permitted to each Member and the types of transactions that such Member may register on the MERS® System. No Member may register Or attempt to register any transaction not authorized under the Rules of Membership or the Procedures.

Section 2.

Subject to Section 1 above. each Member may register any mortgage loan

on the MERS® System in accordance with the Procedures.

Section 3. Each Member shall promptly. or as soon as practicable. register on the

MERS® System, in accordance with the Rules of Membership and the Procedures, any and all of the following transactions to which such Member is a party which involve a mortgage loan registered on the MERS® System until such time as the mortgage loan is deactivated from the MERS® System:

(a) the pledge of any mortgage loan or security interest therein and the corresponding release of such security interests;

(b) the pledge of any servicing rights or security interest therein and the corresponding release of such servicing rights or security interests;

vJunc2009

8

(c) the transfer of beneficial ownership of a mortgage loan by a Member to a

Member;

(d) the transfer of beneficial ownership of a mortgage loan by a non-Member to a

Member;

(e) the transfer of beneficial ownership of a mortgage loan by a Member to a non-

Member;

(t) the transfer of servicing rights with respect to a mortgage loan by a Member to

a Member;

(g) the registration of servicing rights with respect to a mortgage loan from a nonMember to a Member;

(h) the transfer of servicing rights with respect to a mortgage loan from a Member to a non-Member (requiring deactivation);

(i) the initiation of foreclosure of any mortgage loan registered 011 the MERS® System;

CD the release of a lien with respect to a mortgage loan registered on the MERS®

System;

vJunc2009

\)

(k) the creation of a sub-servicing relationship with respect to a mortgage loan registered on the MERS® System; and

(I) any renewal, extension or modification of a mortgage loan registered on the MERS@ System that involves the recording of a new security instrument and does not merely change the rate, principal balance or term.

Section 4.

(a)

The transfer to a non-Member of servicing rights with respect to a

mortgage loan registered on the MERS~D System shall require the deactivation of such mortgage loan from the MERS® System in accordance with these Rules and the Procedures. Upon the withdrawal 01' removal ofa Member, all mortgage loans for which such Member acts as servicer shall be deactivated from the MERS® System, provided. however, that the mortgage loans shall remain registered with MERS if the substitute servicer is a Member and all MERS fees relating to the servicing transfer to the substitute servicer are paid. The transfer to a non-Member of a beneficial interest in a mortgage loan registered on the MERS~-9 System shall not require the deregistration of such mortgage loan from the MERS® System unless: (i) the scrvlcer is a nonMember ofMERS or (ii) such non-Member beneficial owner shall require deactivation.

(b) As long as there are no contrary instructions, when the beneficial

ownership of a mortgage loan registered on the MERS® System is vested in a non-Member. MERS and Mortgage Electronic Registration Systems, Inc. shall at all times comply with the instructions of the Member shown on the MERS® System as the servicer of such mortgage loan

vJune2009

10

with respect to transactions relating to such mortgage loan. Such Member shall indemnify and hold harmless MERS, and any employee, director, officer or affiliate of MERS, for any and all liability incurred as a result of compliance by MERS with instructions given by such Member Oil behalf of the non-Member beneficial owner.

Section 5.

(a)

Each Member, at its own expense, shall cause Mortgage Electronic

Registration Systems, lnc., to appear in the appropriate public records as the mortgagee of record with respect to each mortgage loan that the Member registers on the MERS~ System. Mortgage Electronic Registration Systems, Inc. is a wholly owned subsidiary of MERS created for the purpose of serving as the mortgagee of record in the appropriate public records. The Member shall monitor the public records to verify that it has complied with the preceding sentence and shall maintain an adequate quality assurance program to ensure that its verification procedures are effective. The Member hereby warrants to MERS that either (i) an appropriate mortgage, or deed of trust, or other such instrument as may be required under applicable state law, naming Mortgage Electronic Registration Systems, Inc. as mortgagee, or (ii) an appropriate assignment of mortgage, or assignment of deed of trust, or other such instrument as may be required under applicable state law, naming Mortgage Electronic Registration Systems, Inc. as mortgagee. has been or as soon as practicable shall be, properly prepared and delivered to the appropriate recording office and (he Member shall promptly register on the MERS® System the date on which such instrument was delivered. As soon as practicable, the Member shall register 011 the MERS® System the specific recordation information provided by the custodian of public records which evidences that Mortgage Electronic Registration Systems, Inc. is mortgagee of record with respect to such mortgage loan. Upon the Member's becoming aware of any discrepancy between

vJunc200c)

II

the information shown on the MERSu.o System and the information in the public records, the Member shall promptly correct the information on the MERS® System.

(b) At or prior to the time a Member registers a mortgage loan on the MERS® System, such Member shall provide evidence reasonably satisfactory to MERS demonstrating that Mortgage Blectronic Registration Systems, Inc. is, or as soon as practicable shall be, properly recorded as mortgagee of record in the appropriate public records with respect to such mortgage loan.

(c) Mortgage Electronic Registration Systems, Inc. shall not act as mortgagee of record for the purpose of procuring borrowers for the Member 01' making mortgage loans on behalf ofthe Member.

(d) Reference herein to "mortgage(s)" shall include deed(s) of trust, and any other form of security instrument under applicable state law. References herein to "mortgagee of record" shall include the named beneficiary under a deed of trust in those jurisdictions WhCl'C deeds of trust arc used to secure loans, and any similar status as used in connection with any other form of security instrument under applicable slate law.

Section 6.

MERS shall at all times comply with the instructions of the holder of

mortgage loan promissory notes. In the absence of contrary instructions from the beneficial owner, MERS and Mortgage Electronic Registration Systems, Inc. may rely on instructions from the serviccr shown on the MERS® System in accordance with these Rules and the Procedures

v.lunc2009

12

with respect to transfers of beneficial ownership, transfers of servicing rights, and releases of security interests applicable to such mortgage loan. The beneficial owner shall give any such contrary instructions to MERS and Mortgage Electronic Registration Systems, [nco in writing and they may rely on such instructions until receipt of further written instructions from the beneficial

owner.

Sec/ion 7.

Each Member shall review for accuracy and completeness all information

shown on the MERS.iu System with respect to mortgage loans and related transactions registered by such Member, and promptly update any incorrect information.

Section 8.

Within ten (10) business days of receiving notice from the Member

servicing the loan that the mortgage loan has been paid in full, MERS shall give notice to all Members shown On the MERS® System as having interests in such mortgage loan. The Member servicing the mortgage loan shall be responsible, at its own expense, to:

(a) take, or cause to be taken, appropriate action, including delivery to the appropriate recording office of an instrument of satisfaction or release (which may be signed by a certifying officer of Mortgage Electronic Registration Systems, Inc.), to extinguish the lien of such mortgage in the proper manner within the applicable state imposed time frames, and register on the MERS® System the date of such action, or

(b) notify MERS that, in tact, the mortgage loan has not been paid in full. If MERS is notified that a lien release has 110t been executed in compliance with applicable state

vJullc2009

13

imposed time frames, and the Member fails to take such action or give MERS notice that the mortgage loan has not been paid in full, then MERS reserves the right to release such mortgage. Such Member, upon demand, shall reimburse Mortgage Electronic Registration Systems, Inc. for its out-of-pocket costs in connection with release of the mortgage, including any penalties for failure to release the mortgage or take other action in a timely manner, and shall pay an administrative fee determined by Mortgage Electronic Registration Systems, lnc., and

(c) indemnify MERS and Mortgage Electronic Registration Systems, Inc. with respect to any liability which may arise as a result of the failure of such Member to take such action or give MERS such notice in a timely and accurate manner. Without limiting the generality of the foregoing, such indemnification shall extend to circumstances in which a mortgage is released by Mortgage Electronic Registration Systems, Inc., but the mortgage loan has not been paid in full, or in which such Member wrongfully refuses to authorize Mortgage Electronic Registration Systems, Inc. to release the mortgage.

vJunc2009

14

EtfhB 11 13

AMENDMENT NUMBER FOUR TO SERVICES AGREEMENT NUMBER A4S17.0

Supplier Name: Mortgage Electronic Registration Systems Inc. (MERS)

Services Agreement A4S17.0 Number:

Supplier Address:

1818 Library Street, Suite 300 Amendment Number: CW187230 Reston VA. 20190

(800) 646-6377 Amendment Effective December 31,

Date: 2009

Supplier Telephone:

This AMENDMENT NUMBER FOUR TO AGREEMENT NUMBER A4517.0 (this "Amendment") is entered into as of December 31, 2009 (the "Amendment Effective Date") by and between BAC Home Loans Servicing, LP, formerly known as Countrywide Home Loans Servicing LP ("BAC HLS, LP"), and Merscorp, Inc. and Mortgage Electronic Registration Systems, Inc. (collectively tiMERS"), as an amendment to that certain Services Agreement A4517.0 dated as of August 1, 2006 (together with all other previous amendments to such agreement, collectively, the "Existing Agreement," and together with this Amendment, the "Agreement"). Capitalized terms used herein but not otherwise defined herein shall have the meanings set forth in the Existing Agreement.

NOW, THEREFORE, in consideration of the agreements, covenants, and conditions set forth herein, and intending to be legally bound, the parties hereto agree as foflows:

1. Provision 1, Term, is hereby amended to extend the effective date through December 31, 2010.

2. Paragraph 2 of Amendment Number Three to Agreement Number A4517.0 ("Amendment Number Three") is amended and restated·as follows:

The Value of Services under this Amendment shall be billed in accordance

to the Agreement The Invoice shall include Amendment number CW187230 on the invoice pertaining to the Agreement.

3. Paragraph 4 of Amendment Number Three is amended and restated as follows:

MERS agrees that other than to the extent set forth in paragraph 3 above, transfers of seasoned loan servidng rights between M ERS Org ID#s of Bank of America

and its affiliates or subsidiaries (including BAC HLS, LP. Countrywide, Merrill

;rsr;~~~~:~~:~:~~s~~~es~~~ni S:rvlcing) (inCIUdlnMarentichiid or i •

••••••• for a period of two years from the date of this Amendment.

4. Paragraph 5 of Amendment Number Three is hereby deleted.

Page I erz

5. To the extent that the terms and provisions of the Existing Agreement do not conflict with the terms and provisions of this Amendment, then such terms and provisions shall remain in full force and legal effect. To the extent that there is a conflict between the terms and provisions of the Existing Agreement and this Amendment, the terms and provisions of this Amendment shall govern for purposes of the subject matter of this Amendment only.

6. This Amendment and the Existing Agreement constitute the entire understanding and agreement with respect to its subject matter, and supersede any and all prior or contemporaneous representations, understandings, and agreements whether oral or written between the parties relating to the subject matter of this Amendment, all of which are merged in to this Amendment. Except as amended herein, all other terms and conditions of the Existing Agreement shall remain in full force and effect. No subsequent changes to the Terms and Conditions, the Procedural Manual, the Rules of Membership, or any other documents related to membership in MERS will modify the terms contained in this Amendment. This Amendment may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document.

IN WITNESS WHEREOF, the parties to this Amendment, by their duly authorized representatives, have executed this Amendment as of the date first written above.

MERSCORP~ By:-bJ

Tille:_S--"-"W_,_tfl __ rJ_p _

oate: __ ,-'-.I f_~--,-I ~_-=-;"_a-,-J _O __

Page 2 of2

fIJ Countrywide~

HOME LOANS

MPA# A4S11.0

SERVICES AGREEMENT

This SERVICES AGREEMENT and all exhibits thereto (collectively, the "Agreement") is made IIAd entered into as of this lst day of August. 2006 ("Effective Date") by and between Countrywide Home Loans, Ine., for itself and for the benefit of its subsidiaries and affiliates ("Countrywide"), a New York corporation with principal offices at 4500 Park Granada. Calabasas, California 91302, and MERSCORP. Inc. and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (collectively "MERS") with corporate offices located at 1595 Spring Hill Road, Suite 310, Vienna, Virginia 22182, MERS and Countrywide may each be referred 10 herein as a "party" and collectively as Ihe "parties."

RECITALS

WHEREAS, the parties hereby agree that this Agreement along with certain documents including but not limited to those documents captioned "Membership Application," "Terms and Conditions", "Rules of Membership", "Procedures Manual", "Online User Guide", "Integration Handbook Volume I", "Integration Handbook Volume II", "Quality Assurance Procedures Manual", "EDI Implementation Guide", and the "Reports Handbook" (collectively, the "Governing Documents"), as found on the MERS website at www.mersinc.org and as may be amended from time to time, the MERS Membership Application (Exhibit A), and the Confidential Special Pricing letter (Exhibit B) governs the relationship between the parties.

AGREEMENT

NOW, THEREFORE, in consideration of the representations, warranties and performance of the obligations contained herein, Countrywide and MERS agree as follows:

1. Term. This Agreement shall commence on the effective date and shall continue in full force and effect until December 31,2006 unless terminated earlier in accordance with its tenns. Countrywide may terminate this Agreement at any time and for any reason, or for no reason, by providing at least thirty (30) days written notice of termination to MERS.

2. The parties agree that Countrywide shall abide by tbe Governing Documents. The Governing Documents shall be a pan of the terms and conditions of every transaction that Countrywide may make of bave with MERS or the MERS® System either directly or through a third party. Countrywide shall be bound by any amendment to any of the Governing Documents.

3. Countrywide, lit its own expense, shall promptly, or as soon as practicable, cause MERS to appear in the appropriate public records as the mortgagee of record with respect to each mortgage loan that Ihe Member registers on the MERS® system. MERS shall serve as mortgagee of record with. respect 10 all such mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners thereof from time to time. MERS shall have no rights whatsoever to any payments made on account of such mortgage loans, to any servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans. MERS agrees not to asset any rights (other than rights specified in the Documents) with respect to such mortgage loans or mortgaged properties. References herein to "mortgage(s)" lind "mortgagee of record" shalt include deed(s) of trust and beneficiary under a deed of trust and any other fonn of security instrument under applicable sale law.

4. MERS shall III nil times comply with the instructions of the holder of mortgage loan promissory notes. In the absence of contrary instructions from the note holder, MERS shall comply with lnsnucuons from the Servicer shown on the MERS® System in accordance with the Rilles and Procedures ofMERS, as found 011 the MERS website at www.rnersinc,org

i

.,-

'. .'_

..... '.I'""

Ii Countrywide~

HOME LOANS

MPAfI A45J7.0

5. No rights or obligations of Countrywide with respect to any data or information supplied to MERS by or Oil behalf of Countrywide shall be altered or affected in any manner by the provision of such data or information to MERS (except as otherwise specifically provided in the Terms and Conditions or the Rules of Membership, as found on MERS website at www.mersinc.org.)

6. If Countrywide uses MERS as Original Mortgagee (MOM) on the security instrument, tile Joan

must be registered on the MERS® System within [0 days of the Note Date.

7. MERS and Countrywide agree that: (i) the MERS® System is nol a vehicle for creating or transferring beneficial interests in mortgage loans, (ii) transfers of servicing interests reflected on the MERS® System are subject to the consent of the beneficial owner of the mortgage loans, and (iii) membership in MERS or usc of the MERS® System shall not modify or supersede any agreement between or among Countrywide having interests ill mortgage loans registered on the MERS® System.

8. lf Countrywide has IJ third-party register loans (the "Register") 011 the MERS® System on behalf of Countrywide, the Register shall not be deemed an agent of MERS. The Registrar shall be solely an agent for the Countrywde, and MERS is only giving consent to Countrywide to lise a Registrar to enter information on the MERS® System 011 behalf of Countrywide. Countrywide agrees that MERS is not liable to Countrywide for any errors and omissions, negligence, breach of confidentiality. breach of the Rules and Procedures, or willful misconduct of the Registrar, or any employee, director, officer, agent or affiliate of the Registrar in performing its services to Countrywide.

9. MERS shall indemnify and hold harmless Countrywide, and any employee, director, officer, agent or affiliate of the Member ("Member Party"), from and against any and all third-party claims, losses, penalties, fines, forfeitures, reasonable attorney fees and related costs judgments, and any other costs, fees and expenses ("Indemnified Payments") that the Member Party may sustain directly from the negligence, errors and omissions, breach of confidentiality, breach of the Terms and Conditions, breach of the Rules and Procedures, or willful misconduct of MERS, or any employee, director, officer, agent or affiliate of MERS ("MERS Indemnified Claim"). Notwithstanding the foregoing, MERS shall not be liable or responsible under the terms of this Paragraph for any losses or claims resulting from the actions or omissions of any person other than an employee, director, officer (who is also an employee of MERS), agent or affiliate of MERS.

Countrywide shall indemnify and hold harmless MERS, and any employee, director, officer, agent or affiliate of MERS (COMERS Party"), for any Indemnified Payments which do not result from 11 MERS Indemnified Claim and wbich Stich MERS Party incurs Ci) from the negligence, errors and omissions, breach of confidentiality, breach oflhe Terms and Conditions, Rules and Procedures, or willful misconduct of a Member Party, (ii) with respect to a transaction on tbe MERS® System initialed by such Member, or (iii) as a result of compliance by MERS with instructions given by Countrywide, as beneficial owner, servicer or secured party shown on the MERS® System ("Member Indemnified Claim").

MERS shall promptly notlfy Countrywide if a claim is made by a third party against either MERS or Countrywide with respect 10 any mortgage loan registered on the MERS® System in which Countrywide is shown on the MERS® System as beneficial owner, servieer or secured party in accordance with the Rules and Procedures. Countrywide shall promptly notify MERS jf a claim is made against Countrywide that may be subject to the indemnification provisions of Section 9.

The obligations of MERS and Countrywide under this Section 9 shall survive the termination of Countrywide'S use of the MERS® System.

10. MERS and Countrywlde shall maintain appropriate insurance coverage that shall include an errors and omissions insurance policy, and II fidelity bond. MERS shall not be required to maintain coverage for persons who may be appointed at the request of Countrywide as certifying officers of MERS. Countrywide's policies shall protect and insure MERS against losses in connection wilh the release or

.'

'r

II CountlY'lUidee

HOME LOANS

MPA# A4511.0

satisfaction of II mortgage loan without having obtained payment in fall of the indebtedness secured thereby. Upon request, MERS or Countrywide shall cause to be delivered to the other II certificate of insurance evidencing errors and omissions insurance policy and fidelity bond.

In the event of any loss of principal or interest on a mortgage loan or any Indemnified Payments for which reimbursement is received from a fidelity bond or any errors and omissions insurance policy or other insurance policy, the proceeds from any such bond or insurance shall be held in trust for and be promptly paid to Countrywide who is shown as the servicer on the MERS® System 011 behalf of the beneficial owner unless otherwise requested by the beneficial owner.

II. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when received, or on the third day after mailing by United States mail, registered or certified, postage pre-paid or via nationally recognized overnight courier and properly addressed., All notices shall be addressed 10 Countrywide at the address Countrywide provided in accordance with the Procedures Manual and those notices addressed to MERS Corporate Secretary at t 595 Spring Hill Road, Suite 310, Vienna, Virginia 22182.

12. This Agreement and all transactions effected by Countrywide with MERS shall be governed by the construed in accordance with the Jaws of the Commonwealth of Virginia without regard to its choice of law provisions.

13. Neither Countrywide nor MERS shall institute a proceeding before any tribunal to resolve any controversy or claim arising OUt of or relating to these Terms and Conditions, Rules and Procedures, or the breach, termination or invalidity thereof {a "Dispute"), before such party has sought to resolve the Dispute through direct negotiation with the other party. If the Dispute is not resolved within thirty (30) days after a written demand for direct negotiation, the parties shall attempt to resolve the Dispute through medial ion. If the parties do not promptly agree on a mediator, either party may request the then chief judge of the circuit Court of Fairfax County, Virginia to appoint II mediator. All mediation proceedings hereunder shall be held in Washington, D.C. If the mediator is unable (0 facilitate a settlement of the Dispute within II reasonable period oftime, as determined by the mediator, the mediator shall issue a written statement to the parties to that effect, and the aggrieved party may then seek. relief in accordance with the arbitration provisions of this Paragraph. TIle fees and expenses of the mediator shall be paid by the party initiating the Dispute.

In the event that Countrywide and MERS are not able to resolve a Dispute in accordance with the mediation provisions of this Paragraph. such Dispute shall be settled by binding arbitration administered by the American Arbitration Association under its commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof; provided, however, chat the place of arbitration shall be Washington D.C., and fees and expenses for the arbitration proceedings shall be paid by the party initiating arbitration.

14. MERS shall invoice Countrywide the fees as stated herein referencing contract number A45 17.0. MERS shall remit invoices to:

Countrywide Home Loans, Inc. Accounts Payable Department P.O. Box S070

Simi Valley, CA 93062 Fax# 866·240-6962 Agreement #:A45J7.0

15. In consideration of the representations, warranties and performance of the obligations contained in

the Governing Documents, the parties agree, by signing below, that Countrywide agrees to be a MERS

Member, to pay all expenses as set forth in the attached which may be changed from

" I,

A 'tr"" •• - • ,. -i"

II Countrywide~

HOME LOANS

MPA# A4517.0

time to time, and shall abide by and comply with the rules, procedures, and terms and conditions, as set forth in the Governing Documents, as may be amended from time to time. Any agreements by and between the parties, such as Electronic Tracking Agreements or those pertaining 10 the MERS eRcgistry and MERS Commercial System, shall remain separate and apart from this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date set forth above.

MET<SCO~'

By: ~t1>t!L

&~.,/ /l. ;If'pu~

(Printed Name)

Title:~vf,~ V;~tlesIU Date: If! f / ~,

I

COUNTRYWIDE HOME LOANS, INC.

By: /Jf'::::.===~;:::o----RICHA~D L. WILSoN

(Printed Name)

Title: f1 AN A fil tJ & D, 12. e«r» E?

Date: II/Ill-job

, I

us, DEPARTMENT Of HOUSING A~D l:RBAN DEVELOPMENT WASHINGTON. DC 20410·9000

GOVERNMEI\T NATlONAI. MORTGAGE ASSO('lATION

Ginnie Mae - MERS Membership Agreement

THIS AGREEMENT ("Agreement") is made this2]1/ay of SiPTIiIfI"'-, 2001 by and among the GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, a body corporate organized and existing under the laws of the United States within the Department of Housing and Urban Development ("Ginnie Mae"), and MERSCORP, Inc., a Delaware corporation ("MERSCORP") and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware corporation ("MERS").

Recitals:

WHEREAS, Ginnie Mae is a wholly-owned Government corporation authorized to guaranty mortgage-backed securities ("MBS") issued by approved entities ("Issuers");

Vv'HEREAS, the Issuers and Ginnie Mae enter into agreements under which, among other things, Ginnie Mae agrees to guaranty the MBS issued by the Issuers (collectively, the "Guaranty Agreements");

WHEREAS, Ginnie Mae, under the Guaranty Agreement, acquires all right, title and interest to the mortgages backing the MBS except for the nominal legal title which is held by the Issuer in trust for Ginnie Mae solely so that the Issuer may service the mortgages;

WHEREAS, MERSCORP and MERS were created to electronically register ownership in mortgages and servicing rights and wishes to have mortgages owned by Ginnie Mae and those of its Issuers registered on its system;

WHEREAS, MERSCORP and MERS and Ginnie Mae desire to enter into an agreement to establish the terms and conditions under which Ginnie Mae penults its mortgages and

those of its Issuers to be registered on the MERS system.

Agreement:

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, promises and agreements contained herein, and intending to be legally bound, the parties agree as follows:

www.hud.go\'

espanel.hud.gev

www.ginniemae.gov

2

Article 1 Definitions,

Initially capitalized terms used herein shall have the meaning ascribed to them in this Article

1.

"Act" shall mean Title III of the National Housing Act (12 U.S.c. § 1716 et seq.), as amended.

"Business Day" shall mean a day other than (a) a Saturday or Sunday, or (b) a federal legal public holiday as defined in 5 U.S.C. § 6103.

"Ginnie Mae" shall mean the Government National Mortgage Association, a body corporate organized and existing under the laws of the United States within the Department of Housing and Urban Development, which is a party to this Agreement, or Ginnie Mae's duly authorized agent or contractor.

"Ginnie Mae Guide" shall mean, with respect to any Securitized Mortgage Loan, the applicable Ginnie Mae guide, and all amendments or revisions thereto, governing the Ginnie Mae program applicable to such Securitized Mortgage Loan.

"Guaranty Agreement" shall mean, with respect to any Securitized Mortgage Loan Pool, the guaranty agreement, or other contractual agreement, between Ginnie Mae and the Issuer relating to such Securitized Mortgage Loan Pool.

"Issuer" shall mean, with respect to any Mortgage Loan, the business entity approved by Ginnie Mae to, issue the MBS guaranteed by Ginnie Mae and to service the Mortgage Loans backing such MBS.

"Letter of Extinguishment" shall mean a letter issued under Section 306(g) of the Act that extinguishes all of the Issuer's right, title and interest in any Securitized Mortgage Loan or Securitized Mortgage Loan Pool.

"MERS" shall mean Mortgage Electronic Registration Systems, Inc., a Delaware corporation, which is a party to this Agreement and a wholly owned subsidiary ofMERSCORP.

"MERSCORP" shall mean MERSCORP, Inc. a Delaware corporation, which is party to this Agreement

"Mortgage Loan" shall mean a security instrument, together with the obligation and indebtedness secured thereby, the title evidence, accounts and all other documents,

instruments, and other papers pertaining thereto, and all funds, payments, proceeds, recoveries, property, monies or assets related in any way thereto, including but not limited to any and all mortgage or title insurance or loan guaranty claim proceeds, payments by borrowers, refunds, rents,

3

foreclosure or sales proceeds, and escrowed items.

"Owner" shall mean, with respect to any Mortgage Loan, the person or entity that owns the beneficial interest in such Mortgage Loan.

"Ownership Rights" shall mean the rights of any Owner with respect to a Mortgage Loan, including, bur not limited to, the right to receive, possess and hold any and alJ payments, accounts, funds, documents and instruments related thereto, as well as other documents and payments related to the Mortgage Loan.

"Registration System" shall mean the computer systems (including both hardware and software) and processes owned and used by MERSCORP (or any contractor or vendor retained by MERS) to register the ownership interest or servicing rights for any Mortgage Loan.

"Securitized Mortgage Loan" shall mean a Mortgage Loan that is included in a pool or pools backing the MBS guaranteed by Ginnie Mae.

"Securitized Mortgage Loan Pool" shall mean a pool of Securitized Mortgage Loans.

"Servicing Authority" shall mean, with respect to a Mortgage Loan included in a Securitized Mortgage Loan Pool, the authority to service such Mortgage Loan, together with any right to receive a servicing fee or any other compensation therefore.

Article 2 Participation in MERS.

Subject to the terms, covenants and conditions set forth in this Agreement, Ginnie Mae hereby consents to and authorizes MERS to serve as mortgagee of record and secured party solely as nominee in an agency capacity, for the originating lender and its successors and assigns, including Ginnie Mae Issuers. MERS only holds mere legal title to the interests granted, assigned, and transferred to MERS pursuant to the security instrument related to any Mortgage Loan included or to be included in a Securitized Mortgage Loan Pool. In accepting the assignment of any such security instrument or by becoming the original secured party, MERS shall comply with the terms, covenants and conditions set forth in this Agreement. Notwithstanding any provision of this Agreement to the contrary, nothing herein shall authorize (or be deemed to authorize) MERSCORP or MERS to assert Ownership Rights to any Securitized Mortgage Loan, and MERSCORP and MERS covenant and agree not to assert Ownership Rights in any Securitized Mortgage Loan. Nothing in this Article shaH be deemed to prohibit a foreclosure proceeding from being prosecuted in MERS name; provided, however, in such event, MERS shall comply with such Ginnie Mae procedures, policies and regulations as may then be in force.

Unless Ginnie Mae otherwise notifies MERSCORP, or the business requirements presently used by MERSCORP are modified and such modifications are approved by Ginnie Mae, Ginnie Mae shall be noted in the Registration System as an "investor" with respect to any Securitized Mortgage Loan registered on the Registration System.

4

Article 3 Certain Covenants of MERS Relating to the Transfer of Securitized Mortgage Loan Pools.

Section 3.1 Release of Warehouse Lien. Issuers may create Securitized Mortgage Loan Pools and transfer all of such Issuer's right, title and interest in the Mortgage Loans registered on the Registration System included therein to Ginnie Mae. MERSCORP hereby covenants and agrees that, as Ginnie Mae has elected to be an Option 1 Investor (as defined in the MERSCORP rules and procedures), no later than one Business Day after the transfer to Ginnie Mae is registered on the Registration System, the Registration System shall reflect that (i) Ginnie Mae is the Owner of such Mortgage Loans; and (ii) with respect to any such Mortgage Loan, any registered security interest or Ownership Rights related thereto shown on the Registration System shall be released. If a security interest or the Ownership Rights related to a Mortgage Loan is removed from the Registration System pursuant to clause (ii) of the immediately preceding sentence, then MERSCORP shall provide Ginnie Mae with a system report evidencing such transaction within five (5) Business Days of the date that the transfer to Ginnie Mae was registered on the Registration System.

Section 3.2 Ginnie Alae to Authorize Transfer of Servicing Authority. MERSCORP hereby covenants and agrees that the Registration System will not register a transfer of the Servicing Authority related to any Securitized Mortgage Loan or Securitized Mortgage Loan Pool if Ginnie Mae has provided MERSCORP with written notice not to do so.

. ~

.

Section 3.3 l'vfERS to Comply with Any Letter of Extinguishment. If Ginnie Mae delivers to MERSCORP a copy of the Letter of Extinguishment (in the from attached as Exhibit A) with respect to a Ginnie Mae Issuer before 2:00 p.m. Eastem Time, within two business days (or within three business days if such letter is received after 3:00 p.m. Eastern Time), MERSCORP shall update the Registration System to reflect the extinguishment of all right, title and interest of (i) the Issuer in the Securitized Mortgage Loans or Securitized Mortgage Loan Pools, and (ii) the Servicing Authority related thereto. MERSCORP and MERS hereby acknowledge that, by virtue of Section 306(g)(1) of the Act, the automatic stay arising by operation of the United States Bankruptcy Code (11 U.S.c. § 362) does not apply to or otherwise impair the effectiveness of a Letter of Extinguishment or any acts by or on behalf of Ginnie Mae that are related thereto. MERSCORP and MERS further covenant that it will comply with the obligations under this Section 3.3 irrespective of any claim by an Issuer or any other person or entity (other than a bankruptcy trustee or court of competent jurisdiction) that the Letter of Extinguishment violates the automatic stay arising under the United States Bankruptcy Code or any similar provision of state law .

Section 3.4 Bankruptcy Automatic Stay.

(i) Nonapplicability a/Automatic Stay. Without in any way limiting the understandings set forth in Section 3.3 or in Section 5.1 and in furtherance of those understandings, MERSCORP and MERS covenant not to oppose or otherwise challenge or defend, whether directly or indirectly, Ginnie Mae's effort to obtain relief from the automatic stay arising under the Bankruptcy Code and acknowledges that pursuant to section 306(g) of the Act the automatic stay shall not apply.

5

(it)

Waiver of Automatic Stay. In the event of a voluntary or involuntary liquidation or reorganization case by or against MERS under bankruptcy, receivership, or other insolvency law, MERS agrees not to contest or oppose any motion filed by Ginnie Mae seeking relief from or modification of the: automatic stay imposed by 11 U.S.C. § 362(a) or similar state law, nor to seek relief under 11 U.S.c. § 105 to enjoin or restrain Ginnie Mae from recovering or obtaining the security instruments related to Securitized Mortgage Loans, or from obtaining title or a transfer of title thereof, or from obtaining the Securitized Mortgage Loans, MERS acknowledges and agrees that this provision is appropriate because of Ginnie Mae's urgent need to obtain immediate and unfettered possession of the Mortgage Loans in the event of a default by the Issuer.

Section 3.5 MERS to Comply with Certain Directions of Ginnie Mae. In the event Ginnie Mae bas issued a Letter of Extinguishment and until such time as the Servicing Authority related to a Securitized Mortgage Loan or Securitized Mortgage Loan Pool for which such Issuer acted as the servicer have been transferred to a new Issuer, MERSCORP shall cause the Registration System to reflect that such Securitized Mortgage Loan or Securitized Mortgage Loan Pool are serviced by such entities as may from time to time be identified by Ginnie Mae.

Article 4 Appointment of Vice Presidents on Behalf ofMORTGA GE ELECTRONIC REGISTRATION SYSTEMS. INC; Limited Powers of Attorney.

Section 4.1 Appointment. MERS hereby agrees and covenants that it will, from time to time and as may be requested by Ginnie Mae, appoint such individuals as may be requested by Ginnie Mae as Vice Presidents of Mortgage Electronic Registration Systems, Inc ..

Section 4.2 Form of Resolution; Powers of Assistant Vice Presidents. Any individual appointed a Vice President at the request of Ginnie Mae shall be appointed to such office through a standard form of resolution used for all members ofMERS. Such Vice Presidents shall be appointed solely for the purpose of executing assignments, deeds, satisfactions or releases, and other instruments related to any Securitized Mortgage Loan or the property securing such Securitized Mortgage Loan.

Section 4.3 Powers of Attorney. From time to time and as may be requested by Ginnie Mae, MERS shall prepare or cause to be prepared limited powers of attorney in such numbers as may be requested by Ginnie Mae and in a form acceptable to Ginnie Mae. Such powers of attorney sball (i) authorize such individuals as may be designated by Ginnie Mae to execute, on behalf of MERS, assignments transferring any and all of MERS' right, title and interest to some or all of the security instruments related to the Securitized Mortgage Loans from MERS to Ginnie Mae or its transferee, deeds, satisfactions, or re leases and other instruments related to any Securitized Mortgage Loan or the property securing such Securitized Mortgage Loan; and (ii) shall state that the powers conferred thereby are irrevocable (other than in accordance with the terms of such power) and coupled with an interest.

6

Article 5 Withdrawal of Securitized Mortgage Loans from MERS.

Section 5.1 Withdrawal. Ginnie Mae may request that the Vice Presidents or the attorneysin-fact appointed in accordance with Section 4 execute, on behalf of MERS, assignments transferring all of MERS' right title and interest to some or all of the security instruments related to the Securitized Mortgage Loans from MERS to Ginnie Mae. MERS hereby agrees that the Vice Presidents and/or attorneys-in-fact shall comply with such request and covenants not to take any action that would impede the Vice Presidents and attorneys-in-fact from executing such assignments. MERS acknowledges and agrees that Ginnie Mae's authority to use the powers of attorney and the Vice Presidents' authority under the corporate resolutions continues in the event of a voluntary or invol untary liquidation or reorganization case by or against MERS under bankruptcy receivership, or other insolvency law. Without in any way limiting the provisions set forth in Section 5.1 and in furtherance of those provisions, MERS acknowledges and agrees that the waiver referred to in Section 3.4 shall be equally applicable to a situation covered by this Section 5.1.

Section 5.2 Preparation of Assignments. Ginnie Mae may request that MERS prepare or cause to be prepared assignments transferring all of MERS' right, title and interest from MERS to Ginnie Mae for some or all of the security instruments related to the Securitized Mortgage Loans. MERS shall prepare and deliver to Ginnie Mae (or its designee) such assignments in the most expeditious method possible, but MERS shall first obtain approval from Ginnie Mae as to the cost. The cost of preparing such assignments shall be borne by Ginnie Mae, but only if MERS obtained Ginnie Mae's prior approval as to such cost, and MERS shall bill Ginnie Mae for such assignments at the rates paid, or costs incurred, by MERS for the preparation of such assignments. In the event that MERS is unable to prepare the assignments, and without in any way limiting the obligation of MERS under this Section; MERS shall provide Ginnie Mae with the information necessary to prepare such assignments.

Article 6 l".-fERS to Hold Nominal Legal Title to Securitized Mortgage Loans.

MERS hereby acknowledges that it holds or will hold nothing but mere nominal legal title to the security instruments related to the Securitized Mortgage Loans and that it has no other interest in the Securitized Mortgage Loans and no interest whatsoever in the Servicing Authority related thereto. To the extent MERS holds any interest in any Securitized Mortgage Loan, such a nominal legal title, MERS shall be deemed to hold such interest in trust for the benefit of Ginnie Mae and hereby agrees that in no event will MERS claim an interest to or in the Securitized Mortgage Loans other than as set forth in this Article. In addition to the more specific requirements set forth in this Agreement, MERS shall at all times comply with the direction of Ginnie Mae as regards any matter relating to such Securitized Mortgage Loan or Securitized Mortgage Loan Pool.

Article 7 Representation, Warranties & Covenants of MERS.

Section 7.1 Representations & Warranties. MERSCORPand MERS hereby represent and warrant that they are corporations duly formed and. in good standing under the laws of the State of Delaware. They further represent and warrant that the individual signing on its behalf has the authority to execute this Agreement and that the execution of this Agreement and the transactions, agreements and understandings embodied herein will not constitute a violation of (i) their

7

certificates of incorporation, by-laws, rules or regulations, (ii) any material agreement to which they are a party or that binds any of their property, or (iii) any order, writ, injunction or decree of any court or agency having jurisdiction over them.

. Section 7.2 Certain Covenants o/MERS Regarding the Registration System. MERSCORP hereby agrees and covenants that it will maintain or cause to be maintained the Registration System in a serviceable condition and that the Registration System contains safeguards and procedures adequate for its use. MERSCORP further agrees and COVenants and that (i) it will use reasonable efforts to insure that the data contained in the Registration System is accurate and complete; and (ii) the Registration System shall include the necessary safeguards to protect against fraud or unauthorized use of the Registration System, including, but not limited to, adequate safeguards to prevent unauthorized removal of a Mortgage Loan from the MERSCORP system or the unauthorized transfer of a Mortgage Loan or the Servicing Authority related thereto on the Registration System.

Section 7.3 MERS to Provide Notice of Sanctions or Termination of its Members.

MERSCORP hereby agrees and covenants that MERSCORP shall (i) promptly notify Ginnie Mae of any sanctions or penalties that it imposes against any member that is a Ginnie Mae Issuer that might lead to termination by MERSCORP; (ii) provide Ginnie Mae with ten (10) Business Days advance notice of the termination of any member that is a Ginnie Mae Issuer and a summary of the reasons therefore and any actions required to restore such member to good standing; and (iii) notify Ginnie Mae of the filing ofa petition in bankruptcy in connection with an Issuer.

Section 7.4 MERS to Maintain Insurance. MERSCORP hereby covenants and agrees that it shall maintain, at its own expense, an errors and omissions policy covering all MERSCORP officers, employees, agents and representatives that shall protect and insure against (i) losses arising in connection with the release or satisfaction of a Mortgage Loan where the related indebtedness has not been paid in full; (ii) any impairment in title to the real property securing a Mortgage Loan or the right to enforce the obligations under a Mortgage Loan as a result of MERSCORP failure to forward any tax bill, notice of tax sale, notice of foreclosure, or other legal notice or document received by or on behalf of MERSCORP or MERS; or (iii) any other error or omission that adversely affects Ginnie Mae. MERSCORP further covenants and agrees that it shall maintain, at its own expense, a fidelity bond and directors and officers insurance each in such amount as is approved by the board of directors of MERSCORP from time to time. MERSCORP shall provide Ginnie Mae with a certificate of insurance on an annual basis and, upon request, a copy of any such insurance policies, including any amendments, exclusions or endorsements thereto, within ten business days following such request. MERSCORP shall require that any contractor or vendor responsible for administering, managing or operating the Registration System maintain the same insurance on the same terms and conditions, as are required ofMERSCORP under this Section. No provision of this Section shall diminish or relieve MERSCORP, or any contractor or subcontractor of MERSCORP, from its duties and obligations set forth under this Agreement or otherwise.

Section 7.S Agreements with Vendor or Contractor. MERSCORP shall provide Ginnie Mae upon its request with a list of the contractors and subcontractors under contract with MERSCORP and the duties of each such contractor or subcontractor. Any contractor of subcontractor that has access to the Registration System shall be required to maintain the confidentiality of the information

8

on the Registration System to the same extent of MERSCORP under the terms of this Agreement.

Article 8 Fees & Expenses.

Other than as expressly provided for herein, Ginnie Mae shall not be liable to MERSCORP or MERS for any fees or expenses related to the Registration System or MERSCORP's administration of such system. Without in any way limiting the generality of the foregoing, no fee shall be assessed against Ginnie Mae in connection with Ginnie Mae's issuance of a Letter of Extinguishment, the transfer of the Servicing Authority related to such Letter of Extinguishment to Ginnie Mae's servicer or master subservicer, or the subsequent transfer of such Servicing Authority from Ginnie Mae's servicer or master subservicer to another servicer.

Article 9 Ownership of Information.

Section 9.1 Ownership of Information. MERSCORP and MERS hereby agree that, as among MERSCORP, MERS and Ginnie Mae, all information related to any Securitized Mortgage Loan or Securitized Mortgage Loan Pool shall be deemed to be the property of Ginnie Mae and shall be treated as proprietary and confidential information that has a substantial commercial value to Ginnie Mae. MERSCORP and MERS shall have a non-transferable license to use such information to the extent such use is necessary for the orderly operation of the Registration System. MERSCORP and MERS hereby agree and covenant that they will treat all such information as confidential information and that it will not disclose any such information, nor shall it use such information for any purpose other than the electronic registration contemplated under this Agreement

Section 9.2 Ownership of Mail. MERSCORP and MERS hereby agree that, as among MERSCORP, between MERS and Ginnie Mae, any document, correspondence, mail or other transmission of data which they receive relating to any Securitized Mortgage Loan is the property of Ginnie Mae. MERSCORP and MERS agree and covenant that they will promptly deliver, in accordance with commercially reasonable standards, such document, correspondence, mail or other transmission of data to the Issuer of. or to Ginnie Mae's master subservicer for the Securitized Mortgage Loan, unless otherwise directed by Ginnie Mae.

Article 10 No Assumption oflssuers' Responsibilities.

Section 10.1 No Assumption of fees. In the event that Ginnie Mae issues a Letter of Extinguishment with respect to any Securitized Mortgage Loan(s) or Securitized Mortgage Loan Pool(s). Ginnie Mae shall not be liable for (and shall not assume the Issuer's liability for) any tees charged by MERSCORP and related to such Securitized Mortgage Loan or Securitized Mortgage Loan Pool or arising under any agreement between any Issuer and MERSCORP.

Section 10.2 No Assumption of Membership Agreement. In the event that Ginnie Mae issues a Letter of Extinguishment with respect to any Securitized Mortgage Loans or Securitized Mortgage Loan Pool(s), Ginnie Mae shall not be deemed to assume any of the obligations or liabilities arising

9

under the Issuer's membership agreement with MERSCORP.

Section lO.3 Ginnie Mae not Liable for Acts of Issuers. Ginnie Mae shall not be liable to MERSCORP or MERS, any contractor or vendor providing services or materials to l\fERSCORP or MERS, or any other person or entity, by virtue of any act or failure to act of an Issuer, nor for any liability of any Issuer. MERSCORP and MERS hereby forever and irrevocably release Ginnie Mae from any claim that they may have against Ginnie Mae in connection with, arising out of, or resulting from any act or failure to act of an Issuer, and from any liability of any lssuer.

Article 11 Access to Information.

Section 1].1 On-Line Access. MERSCORP shall provide to Ginnie Mae, at no cost to Ginnie Mae, on-line access to that portion of the Registration System related to the Securitized Mortgage Loans and the information provided therein; provided, however, that other than to the extent contemplated herein such access shall not include the right or ability for Ginnie Mae to alter or otherwise change any of the information contained in the Registration System. Without limitation, Ginnie Mae shalI have access to Information from the inception of the Registration System regarding all releases of liens and the removal from the Registration System of any Securitized Mortgage Loan. Ginnie Mae, at its own cost, shall provide the necessary hardware and software to access the Registration System.

Section 11.2 Training. From time to time and as may be reasonably requested by Ginnie Mae, MERSCORP shall provide the necessary training to employees of Ginnie Mae and its contractors for such individuals to have adequate knowledge of the operation of the Registration System. Such training shall be provided at such times and in such a manner as is normally provided by MERSCORP and without cost to Ginnie Mae.

Section 11.3 Reports. From time to time and as may be reasonably requested by Ginnie Mae, MERSCORP shall provide Ginnie Mae with such reports as may be requested by Ginnie Mae. Any such report shall be promptly provided and at no cost to Ginnie Mae.

Section 11.4 Audit & Review. Ginnie Mae, its employees, agents, contractors, accountants, or attorneys shall have the right to audit or conduct a compliance review of MERSCORP, its operations and, to the extent related to a Securitized Mortgage Loan or Securitized Mortgage Loan Pool, the information contained in the Registration System. It is further agreed that to the extent required by Federal law, federal agencies with oversight, regulatory or audit authority, or federal law enforcement entities shall have the same rights as Ginnie Mae under this Section 11.4.

Article 12 Financial Information.

Section 12.1 Audited Financial Statements. MERSCORP shall provide Ginnie Mae with its most recent audited financial statements within 120 days of the close of each calendar year.

10

Section 12:2 Notice ofMaterial Change. In the event a material adverse change occurs to MERS' financial stability that reasonably calls into question the ability of MERS to continue its operations, MERS shall provide Ginnie Mae with notice of such event within two (2) business days of the time MERS' senior management learns of such event.

1

I

I

J ,

1

,

I 1 l

~

,

1 j

1

1

I J

I

1

I I

!

1

;

I

~

4

,

'i i

,~ J

I

,

1

i t

'j f

f

~ i I

Article 13 Indemnification.

Section 13.1 Indemnification by MERS. MERSCORP shall be liable to, and shall indemnify Ginnie Mae, its officers, employees, agents, attorneys and successors for, and shall hold harmless from and against, any and all claims, losses, damages 1 expenses, penalties, costs or liabilities, including, but not limited to, attorneys' fees and disbursements, in connection with, arising out of, or resulting from (i) any errors. omissions or negligence of l'viERSCORP or MERS; (ii) the breach by MERSCORP or MERS of any provision of this Agreement; (iii) the breach by MERSCORP or MERS of confidentiality or other misuse of proprietary information; and (iv) the willful misconduct or fraudulent acts of MERSCORP or MERS, In the context of this Article, 1 "MERSCORP" includes its directors, officers, employees, agents, contractors or representatives.

Section 13.2 Indemnification by Ginnie Mae. Ginnie Mae shall indemnify and hold harmless MERSCORP and MERS from and against any and all claims, losses, and damages in connection with, arising out at or resulting from compliance by MERSCORP or MERS with instructions given by Ginnie Mae pursuant to Section 3,5 of this Agreement or any other instructions received by MERSCORP or MERS from an authorized employee of Ginnie Mae as may be applicable ..

Article 14 Termination. At any time and for any reason, Ginnie Mae may terminate this Agreement by providing written notice of such termination to MERSCORP, Upon such notice by Ginnie Mae, all obligations of Ginnie Mae under this Agreement other than the obligation of Ginnie Mae to indemnify MERSCORP under Article 13 shall terminate, and all authority and power of MERS to accept or hold the security instruments Or assignments thereof with regard to any Securitized Mortgage Loan shall terminate and expire; provided, however, that all other obligations of MERSCORP or MERS to Ginnie Mae under this Agreement shall continue in full force and effect unless and until Ginnie Mae terminates each such obligation.

Article 15 Assignment This Agreement shall not be assigned by either party. MERSCORP acknowledges that Ginnie Mae's decision to enter into this Agreement is based on the composition of MERSCORP and its Board of Directors and the unique abilities ofMERSCORP.

Article 16 Acknowledgement by MERS of Certain Agreements by Issuers. MERSCORP and MERS acknowledge that, by virtue of the Ginnie Mae Guide and as a condition of registering any Securitized Mortgage Loan on the Registration System, the Issuers have consented and agreed that (i) they will follow any instruction of Ginnie Mae regarding the transfer of any Securitized Mortgage Loan, Securitized Mortgage Loan Pool or the Servicing Authority related thereto; (ii) Ginnie Mae is the owner of all information and mail relating to the Securitized Mortgage Loans; and (iii) MERSCORP is authorized to deliver all such mail and information to Ginnie Mae if so requested by Ginnie Mae pursuant to Article 9 of this Agreement.

1 I

Article 17 Miscellaneous.

, ,

;

Section 17.1 Choice of Law. This Agreement shall be construed, and the rights and obligations of the parties hereunder determined, in accordance with Federal law. Insofar as there may be no applicable rule or precedent under Federal law and insofar as to do so would not frustrate the purposes of Federal law, the local Jaw of the Commonwealth of Virginia shall be deemed to control without giving effect to any choice of law principles. Nothing in this Agreement shall require any unlawful action or inaction by any party.

,

1 I I l I

1 J

;

"

;

i

t

~ ·1

1 .~

i

I !

.1 i

J t I

~

"

"I

1

"

1

1

,

I f

~

I ~ 1

I i l \

J

Section 17.2 Integrated Agreement. This Agreement and all addenda, attachments, exhibits and schedules hereto constitute the final complete expression of the intent and understanding of the parties. This Agreement shall not be altered or modified except by a subsequent writing signed by the parties.

Section 17.3 Rights Cumulative; Waivers. The rights of each of the parties under this Agreement are cumulative and may be exercised as often as any party considers appropriate under the terms and conditions specifically set forth. The rights of each of the parties hereunder shall not be capable of being waived or varied otherwise than by an express waiver or variation. Any failure to exercise or any delay in exercising any of such rights shall not operate as a waiver or variation of that or any other such right. Any defective or partial exercise of any of such rights shall not preclude any other or further exercise of that or any other such right. No act or course of conduct or negotiation on the paJ1 of any party shall in any way preclude such party from exercising any such right or constitute a suspension or any variation of any such right.

Section 17.4 Amendment This Agreement may only be modified or amended by a writing signed by the parties hereto. No oral amendment or modification shall be effective to modify or alter the right of the parties hereunder.

Section 17.5 Notices. All notices, authorizations, approvals, identifications, waivers, variations and other communication under this Agreement shall be in writing (or electronically transmitted in accordance with procedures agreed upon m writing by both parties) and shall be deemed to have been duly given if delivered by hand, by reputable overnight courier, by registered or certified mail, return receipt requested, postage prepaid, or by facsimile (with a copy delivered by reputable overnight courier) to the parties at the following addresses:

12

~

j ,

i

1

!

If to Ginnie Mae:

Executive Vice President

Government National Mortgage Association 451 - 7th Street S. W.

Room B-l33

Washington, D.C. 204 IO

Facsimile: (202) 485-0206

And if to MERSCORP or MERS:

General Counsel MERSCORP,lnc. 1595 Spring Hill Road Suite 310

Vienna, Virginia 22182 Facsimile: (703) 748-0183

Any Notice shall be deemed delivered on (i) the date of its receipt if delivered by hand; (ii) the fifth day following its deposit in the U.S. Mail if delivered by registered or certified mail; (iii) the next business day following its deposit with a reputable overnight courier if delivered by reputable overnight courier; and (iv) the earlier of its actual receipt or the next Business Day following its transmission if delivered by facsimile.

~ .j

~

,

;

,

j

-s I I j

!

j

!

I i 1

.1

j 1

I

f f

.,

1

,

1 ~

~

1

Section 17.6 Intended Beneficiaries. This Agreement shall be solely for the benefit of the parties hereto and, except to the extent expressly set forth herein, shall not be deemed to confer a right upon any other person. Without in any manner limiting the generality of the foregoing, nothing contained in this Agreement shall alter the obligations of any Issuer, nor create any rights in favor of any such Issuer and no provision hereof shall excuse any such Issuer from complying with each and every of its obligations under the Guaranty Agreement or Ginnie Mae Guides.

Section 17.7 Drafting Presumption. TIle rule of construction that agreements ate to be construed against the drafter is not to be applied in construing this Agreement.

Section 17.8 Ginnie Mae's Discretion. Whenever in this Agreement. or in connection with this Agreement, Ginnie Mae can or may take or refrain from taking an action, such decision to act or refrain from acting shall be in Ginnie Mae's sole and absolute discretion.

Section 17.9 Severability. In the event that any provision of this Agreement is determined to be unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall be enforceable.

Section 17.10 Injunctive Relief MERSCORP and MERS agree that any violation of this Agreement will cause irreparable harm to Ginnie Mae, and it is further agreed to and acknowledged that Ginnie Mae shall be entitled to injunctive relief to enforce any provision of this Agreement.

13

IN WITNESS WHEREOF, the patties have caused this agreement to be signed by their duly authorized representatives on the day first above written.

GOYERl'-lMENT NATIONAL MORTGAGE ASSOCIATION, a body corporate organized and existing under the laws of the United States within the Department of Housing and Urban 9fve"lpmen~

By ~ t:.uJ~ 7/;./07

Name: Thomas R. Weakland

Its: Acting Executive Vice President

i .

IN THE DISTRICT COURT OF DOUGLAS COUNTY, KANSAS CIVIL COURT DEPARTMENT

BAC HOME LOANS SERVICING, L.P. ) f/k/a Countrywide Home Loans Servicing, L.P., )

)

Plaintiff, )

)

v. ) )

ROBBIE J. STEWART and )

ALICE STEWART, et at, )

)

Defendants, pro se. )

Case No.10CV206

Court Div. 1

Pursuant to K.S.A. Chapter 60

AFFIDAVIT

I, TOM GARCIA, hereby state the following;

1. I am an OFFICER and SERVICING TEAM MANAGER of BAC Home Loans

Servicing, LIP., flk/a Countrywide Home Loans Servicing, L.P., and hereby make this Affidavit

in such capacity.

2. BAC Home Loans Servicing, L.P., flk/a Countrywide Home Loans Servicing,

L.P. is a corporation organized and existing in accordance with law and is authorized to sue on

its own behalf.

3. I am a custodian of the records of BAC Home Loans Servicing, L.P., £lk/a

Countrywide Home Loans Servicing, L.P. In the course of my employmen~, I have becoI?e

familiar with the manner and method in which BAC Home Loan Servicing, L.P., £IkIa

Countrywide Home Loans Servicing, L.P. maintains its books and records in its regular course of

business. Those books and records are managed by employees and agents whose duty it is to

keep the books and records accurately and completely and to record each event or item at or near

the time of the event or item so noted.

DB04/S03461.0022/3343774.l DOOl

EXHIBIT 2

4. I have reviewed the books and records which reveal that BAC Home Loans

servicing, L.P., flk/a Countrywide Home Loans Servicing, L.P. is the holder of a Note dated June 18, 2008, in the original principal amount of $275,115.00 which is secured by the Mortgage dated June 18, 2008, recorded in Book No. l038 at Page 1790 in the Office of the Register of Deeds of Deeds of Douglas County, Kansas, securing certain realty located at 1266 N. 100 Road, Baldwin City, KS 66006.

5. The Note attached to the Petition filed by BAC Home Loans Servicing, L.P., f/k/a

Countrywide Home Loans Servicing, L.P. is a genuine copy of the original Note.

6. In the course of my day-to-day work responsibilities, I interact frequently with the

Mortgage Electronic Registration System, Inc. (hereinafter "MERS® System"). I have accessto MERS® System online records for loans serviced and held by BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P.

7. MERS® System accurately reflects that the beneficial interests and rights to the

loan were transferred to Government National Mortgage Association (hereinafter "GNMA") from Countrywide Bank, FSB without any change in the possession or servicing rights of the Note, which BAC Home Loans Servicing, L.P., flk/a Countrywide Home Loans Servicing, L.P. retained as servicing agent for GNMA. A record of this transfer was registered on the MERS® System.

8. GNMA subsequently transferred all beneficial interests and rights to the loan to

Bank of America, N.A., parent corporation and controlling owner of BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P. A record of this transfer was registered on the MERS® System.

2

DB04/S03461.0022/3343774.1 0001

9. Countrywide Bank, FSB, GNMA and Bank of America, N.A. are all members of

the MERS® System. The MERS® System membership agreement provides that any transfer between members will be recorded in the MERS® System in lieu of other written negotiation.

10. The original Note has at all times since the origination of the loan been in the

possession of BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P. The physical possession of the Note has not been transferred or otherwise conveyed to any other entity.

11. The physical location of the original Note is 1800 Tapo Canyon Rd., Simi Valley,

California 93065. BAC Home Loans Servicing, L.P., £'k/a Countrywide Home Loans Servicing, L.P. has physical control, custody and possession of the Note, and the Note has not been assigned, negotiated, or otherwise conveyed to any successor or assignee by BAC Home Loans Servicing, L.P., £'k/a Countrywide Home Loans Servicing, L.P. as of the filing of this Supplemental Memorandum.

12. The foregoing facts are of my own personal knowledge and on my review of the

records available to me and relied upon by BAC Home Loans Servicing, L.P. £'k/a Countrywide Home Loans Servicing, L.P. in the course of its daily business, and if called upon to appear as a witness, I could, and would, testify competently thereto. I declare under penalty of perjury that to the best of my knowledge, the foregoing facts are true and correct.

3

DB04/S03461.0022/3343774.! DOO!

BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, LP.

STATE OF CALIFORNIA )

) ss.

COUNTY OF VENTURA )

On this 13th day of October, 2010, before me appeared TOM GARCIA to me personally

known who being by me duly sworn, did say that he is an OFFICER of BAC Home Loans

Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P., who is duly authorized to sign

on behalf of said corporation, and being by me duly sworn, did say that he signed the Affidavit

and acknowledged said instrument to be the free act and deed of said corporation.

IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my o'fficial seal·

in the County and State aforesaid, the day and year first above written.

/~ NOTARY PUBLIC

My Commission Expires:

SHERR! MCKENN, Commission # 1749776

" .~.. Notary Public· California i

~. ,. Ventura Counfy ~

t;: ~ .. ~~~:~:S;~~2.0~.(

I ~ , t

4

DB04/S03461.0022/3343774.1 DOO!

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/1009:43:01 Desc Main

Document Page 1 of 17

IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF MISSOURI

Debtor.

) )

) Case. No. 10-61004 )

)

INRE:

PATRICIA LOUISE TUCKER,

ORDER GRANTING MOTION FOR RELIEF FROM STAY

Debtor Patricia Louise Tucker filed a Chapter 7 bankruptcy case on April 28,

2010. Thereafter, Aurora Loan Services, LLC, filed a Motion for Relief from

Automatic Stay with regard to the Debtor's residence. The Debtor does not oppose

the motion, but the Chapter 7 Trustee has challenged the movant's standing to seek

relief from the stay. The Trustee asserts that the movant was not the holder of both

the Note and Deed of Trust on the date of the bankruptcy filing, that the Note and

Deed of Trust were split as of that date, and that the Deed of Trust is now

unenforceable. This is a core proceeding under 28 U.S.C. § 157(b)(2) over which the

Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 1 57(a), and 1 57(b )(1). For

the reasons that follow, the Court finds that the motion should be granted.

On October 28, 2005, the Debtor signed an Adjustable Rate Note which

identifies the Lender as "New Century Mortgage Corporation, a California

Corporation."! Also on October 28,2005, the Debtor signed a Deed of Trust which

J Intervenor Mortgage Electronic Registration System, Inc., Ex. No. 12.

EXHIBIT 3

Case 10-61004-abfl Doc 54 Filed 09/20/10 Entered 09/20/1009:43:01 Desc Main

Document Page 2 of 17

provides that the Grantee is "New Century Mortgage Corporation.i" and again

identifies the Lender as "New Century Mortgage Corporation, a California

Corporation" ("New Century"}.' The Deed of Trust goes on to state that the

beneficiary of the Deed of Trust is Mortgage Electronic Registration Systems, Inc.

("MERS"), as "nominee" for the Lender (New Century) and its successors and

assigns." That Deed of Trust was properly recorded with the Recorder of Deeds of

Christian County, Missouri.

As is often done, New Century subsequently assigned the Note, and thereafter

it was assigned several more times before the bankruptcy filing on April 28, 2010. At

the time each of the assignees held the Note, the assignee was a member of the MERS

network, which is described in more detail below, and thereby had agreed that MERS

could act as its "nominee" in connection with the Deed of Trust. As of the date of the

Debtor's bankruptcy filing, Aurora Loan Services, LLC, was in possession of the

original Note, which had been endorsed in blank. Fannie Mae, as of that date, was the

owner of the loan with a servicing agreement with Aurora which directed and

authorized Aurora to act in Aurora's name on Fannie Mae's behalf.

2 MERS Ex. 4 at p. 2. 3 Id. at p. 4.

4 Id. at p. 4-5.

2

Case 10-61 004-abfl Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 3 of 17

While the Note had been assigned several times prior to the bankruptcy, no

assignment of the Deed of Trust had been recorded prior to that date. Therefore, as

of the date of bankruptcy , the records of the Recorder of Deeds still showed that New

Century was the grantee under the Deed of Trust and that NIERS, as nominee for New

Century, was the beneficiary under the Deed of Trust. Thereafter, on May 13,2010,

which was after the Debtor filed this bankruptcy case, MERS executed an Assignment

of Deed of Trust assigning its interest in the Deed of Trust to Aurora Loan Services,

LLC. On May 19,2010, Aurora Loan Services, LLC filed this Motion for Relieffrom

Stay. As of that date, Aurora Loan Services, LLC was both the holder of the Note and

the record owner of the Deed of Trust.

The Trustee objected to the motion for relief, for two main reasons.' The

Trustee's first contention is that the MERS structure, discussed below, created a split

between the ownership of the Note and the Deed of Trust at the time the loan was

initially made by New Century, such that no noteholder has ever held a valid lien on

the residence. And secondly, the Trustee contends that even if the MERS structure

properly authorized MERS to act on behalf of the holder of the Deed of Trust, that

holder as of the date of bankruptcy was still New Century. Since the Note as of that

5 The movant was able to produce the original promissory note, thereby satisfying the concern at issue in In re Box, _ B.R. __ ,2010 WL 2228289 (Bankr. WD. Mo. June 3, 2010).

3

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 4 of 17

date was held by Aurora, the Trustee contends that NIERS (on behalf ofN ew Century)

was prohibited by the automatic stay from recording the assignment of the Deed of

Trust to Aurora. Since Aurora was not a creditor holding a valid property interest in

the Debtor's real estate as of the date of bankruptcy, the Trustee contends, it lacks

standing to bring the motion for relief.

To respond to those concerns, MERS moved to intervene. The Court granted

MERS' request, and scheduled a hearing for the parties to present evidence as to,

among other things, the role ofMERS, and whether its role affects the enforceability

of the Deed of Trust.

APPLICABLE MISSOURI LAW

Whether Aurora holds a valid Deed of Trust is determined pursuant to Missouri

law." In Bellistri v. OcwenLoan Servicing, LLC, 7 the principal case relied upon by the

Trustee, the Missouri Court of Appeals recently described applicable Missouri

mortgage law. Since a portion of that opinion is relied on as the principal basis for the

Trustee's argument here, I quote it as follows:

Generally, a mortgage loan consists of a promissory note and security instrument, usually a mortgage or a deed of trust, which secures payment on the note by giving the lender the ability to foreclose on the property. Typically, the same person holds both the note and the deed of trust. In

6 Butner v. United States, 440 U.S. 48,55,99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). 7 284 S.W.3d 619 (Mo. Ct. App. 2009).

4

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 5 of 17

the event that the note and the deed of trust are split, the note, as a practical matter becomes unsecured. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed oftrust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed oftrust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan become ineffectual when the note holder did not also hold the deed of trust.

When the holder of the promissory note assigns or transfers the note, the deed of trust is also transferred. An assignment of the deed of trust separate from the note has no "force." Effectively, the note and the deed of trust are inseparable, and when the promissory note is transferred, it vests in the transferee all interest, rights, powers and security conferred by the deed of trust upon the beneficiary therein and the payee in the notes."

In Bellistri v. Ocwen, a nonbankruptcy case, the issue was whether a purported

assignee of a Deed of Trust had standing to challenge a tax sale of the property that had

been subject to the Deed of Trust. The underlying issue was whether the assignee,

Ocwen, had a property interest under the Deed of Trust. The borrower had executed

a Promissory Note in favor oflender BNC Mortgage, Inc. As here, the Deed of Trust

named not BNC, but MERS as the beneficiary, as nominee for BNC and its successors

and assigns. The Note was payable to BNC, not MERS. The obligor had failed to pay

real estate taxes, so a tax sale was held, and a certificate of purchase was issued to the

8 Id. at 623 (Mo. Ct. App. 2009) (citing Restatement (Third) of Property (Mortgages) § 5.4. Comment; George v. Surkamp, 336 Mo.1, 76 S.W.2d 368, 371(1934); St. Louis Mut. Life Ins. Co. V Walter, 329 Mo. 715, 46 S.W.2d 166,170 (1931)) (internal quotation marks omitted).

5

Case 10-61004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/1009:43:01 Desc Main

Document Page 6 of 17

buyer, Bellistri. Under Missouri law, the buyer is obligated to send a notice of

redemption to those claiming an interest in the property. Bellistri sent such notice to

BNC, but not to NIERS. The notice period ran without redemption, so the collector of

revenue issued Bellistri a collector's deed. Thereafter, MERS, as nominee for BNC,

caused to be recorded an assignment of the Deed of Trust to Ocwen Loan Servicing.

The issue in the subsequent quiet title action was whether Ocwen had standing to

challenge the sale. Among other things, Ocwen wanted to show that the process was

defective because Bellistri should have sent notice to MERS, as nominee for BNC.

Ocwen made no claim that it should have received notice itself, presumably because

it did not enter the picture until after the redemption period had run.

The evidence in Bellistri v. Ocwen was that MERS had attempted to assign both

the Note and Deed of Trust to Ocwen by assigning the Deed of Trust, and including

language stating that the assignment of the Deed of Trust also transferred the Note.

The Court thus held that the recorded document attempted to assign not only the Deed

of Trust, but also the Note, which was held by BNC. However, while BNC had given

MERS authority to serve as its nominee on the Deed of Trust, and to assign such Deed

of Trust at its direction, there was no evidence that BNC had given MERS authority

to assign the Note. Therefore, the Court held, when MERS recorded the assignment

of the Deed of Trust to Ocwen without properly assigning the Note, the Note remained

6

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 7 of 17

with BNC. And, MERS' attempt to assign the Deed of Trust, without an effective

assignment of the Note, was of "no force." The upshot is that the Note remained with

BNC (because MERS did not have authority to assign the Note), and the Deed of Trust

remained with MERS, as nominee for BNC (because the assignment of the Deed of

Trust without the Note was of "no force"). Since Ocwen failed to prove that it held

either the Note or the Deed of Trust, the Court held that it lacked a legally cognizable

interest in the real estate, and therefore did not have standing to challenge the sale.

Because Ocwen lacked standing, the Court did not reach the question of whether

MERS, as BNC's nominee, was entitled to receive notice of the redemption period.

Indeed, that was the issue inMERS v. Bellistri, a later declaratory judgment action

brought by MERS concerning the same sale in the United States District Court for the

Eastern District of Missouri," There, the District Court held that under Missouri's tax

foreclosure statute, NIERS was entitled to notice of redemption rights since it held bare

legal title to the Deed of Trust as nominee for the noteholder. Therefore, MERS also

had standing to challenge the validity of the collector's deed issued after the

redemption period had expired. While not necessary to our analysis here, the District

Court also held that MERS held a property interest that was entitled to constitutional

9 Mortgage Electronic Registration Systems, Inc. v. Bellistri, 2010 WL 2720802 (W.D.

Mo. July 1,2010).

7

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/1009:43:01 Desc Main

Document Page 8 of 17

protection.

In the Missouri Court of Appeals' Bellistri v. Ocwen opinion, the Court did not

decide whether the failure to prove assignment of the Note had any impact on the

borrower's obligations under the Note and Deed of Trust, because the borrower was

not the complaining party." Nor did it decide whether a split had occurred at the

inception of the loan at issue there due to the involvement of MERS, the principal

argument raised by the Trustee here. And, if such a split did occur, the Court did not

decide whether, at some later date, the Note and Deed of Trust could be reunited, such

that the holder would then possess a property interest in the real estate and be able to

foreclose in the event of default. Indeed, the Court did not decide that there had been

a split at all- just that Ocwen had not shown it held the Note or Deed of Trust, and

therefore had not shown that it had a property interest sufficient to challenge the sale.

The Trustee nevertheless relies on the quoted language to argue that the

involvement of MERS does create a split at the inception of a loan, and that the loan

was therefore an unsecured one. Because the borrower here (the Debtor) filed a

bankruptcy case before the Note and Deed of Trust were reunited, the Trustee raises

the additional issue that any reunification is barred by the automatic stay. The Trustee

10 The borrower (Crouther) was named as a defendant in the suit, because the purchaser wanted to both quiet title in his name, and to eject the borrower from the property, but there is no indication in the opinion that such borrower actively opposed or participated; in any event, the opinion does not deal with any claim that he may have made in the trial court.

8

Case 10-61004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/1009:43:01 Desc Main

Document Page 9 of 17

asserts that, based on Bellistri v. Ocwen, since the movant, Aurora, did not hold a

secured claim at the time of the bankruptcy filing, the automatic stay prevents Aurora

from ever taking an assignment of the Deed of Trust, and thereby becoming a secured

creditor.

If the Trustee is correct, the Trustee would presumably sell the Debtor's home

at fair market value, and the net proceeds would be paid to all the Debtor's unsecured

creditors, which would then include Aurora. I I If the Trustee is not correct, then the

mortgage signed by the Debtor is valid, there is no equity in the property for unsecured

creditors, and the Trustee has no interest in opposing the motion for relief from the

stay.

THE ROLE OF MERS

The Court in Bellistri v. Ocwen stated that Missouri law allows a noteholder to

appoint an agent to hold the Deed of Trust in its name, thereby allowing the agent to

foreclose on behalf of the noteholder. So, the question is whether MERS, as nominee,

has been the agent of the noteholders here. Therefore, the role ofrYIERS is critical.

At the hearing, William C. Hultman, the secretary and treasurer of MERS,

testified, and offered into evidence its Membership Agreements with New Century and

II Any claim of the Debtor to a homestead exemption out of such proceeds would be subject to § 522(g) of the Bankruptcy Code.

9

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 10 of 17

all assignees of the Debtor's Note here. He testified that MERS was developed in

order to allow the rapid transfer of mortgages. Those who purchase mortgages in the

secondary market, such as Fannie Mae and Freddie Mac, had determined that the

existing system, under which each assignment of a mortgage or deed of trust needed

to be recorded, was expensive and cumbersome, inhibited investment in the mortgage

market, and increased the costs to borrowers. The MERS system was therefore

established to provide a central address for recording mortgages, and for taking certain

specified actions at the direction of the holder of the note. What NIERS does is to

provide a system for registering who holds a particular note, and who is therefore

empowered to exercise rights under the corresponding mortgage or deed of trust. Thus,

each mortgage is given its own identification number for the life of the loan, and any

member of the MERS system, as well as borrowers, may inquire as to who holds such

loan at any given time, and how to contact them." As of now, NIERS has over 5000

members, including F annie Mae, Freddie Mac, and all of the 100 top home lenders, as

well as several companies that service loans on behalf of such lenders. The MERS

12 The Trustee argued that one of the problems with the MERS system is that borrowers often do not know who the holder of their loan is, and, thus, where to send payments. While I am sympathetic to that concern because debtors often testify that they do not know where to send payments, Mr. Hultman did testify that the NIERS website posts a toll-free number that borrowers may call to learn how to obtain information about the holder and status of their loan, and that MERS receives thousands of calls each year from such borrowers. Perhaps the availability of that information could be better publicized, but that does not affect the issue of whether MERS is acting as agent for its members.

10

Case 10-61004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/1009:43:01 Desc Main

Document Page 11 of 17

system was used to record mortgage documents in approximately fifty percent of all

currently outstanding home loans in the country, including approximately 600,000 in

Missouri.

As to the Debtor here, the evidence showed that New Century was the grantee,

and MERS, as nominee for New Century and its successors and assigns, was the

beneficiary under the Deed of Trust from the date of the loan's inception until the date

of the bankruptcy. By the time the Debtor filed this bankruptcy case, the Note had

been assigned to three succeeding holders, each of whom was at the time a member of

MERS, and had thereby agreed that MERS should serve as its nominee in connection

with the Deed of Trust. The last such assignee was Aurora, which held possession of

the Note as of the date of bankruptcy. After the bankruptcy case was filed, Aurora

directed MERS to record an assignment of the Deed of Trust to it. According to Mr.

Hultman, MERS members often wait until a default or bankruptcy case is filed to have

a mortgage or deed of trust assigned to them so that they can take steps necessary to

seek stay relief and/or to foreclose. The reason they wait is that, if a note is paid off

eventually, as most presumably are, MERS is authorized to release the mortgage

without going to the expense of ever recording any assignments. While MERS has

authority to foreclose on behalf of the lender, it only would do so at the express

direction of the member, and then only ifpossession of the note were transferred to it.

11

Case 10-61004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 12 of 17

In most.instances where a foreclosure becomes necessary, Mr. Hultman testified, the

members instead choose to have the Deed of Trust, and the right to foreclose under it,

transferred to them. Until then, MERS serves as a placeholder, so as to provide notice

to other potential lenders that debtors have mortgaged their property, without inhibiting

the assignment of their mortgages on the secondary market.

ANALYSIS

As shown, under Missouri law, the holder of a note that is in default is generally

entitled to foreclose under the deed of trust, regardless of whether the deed of trust has

actually been assigned to such holder.l'' Thus, the effect of the MERS system in

Missouri is that even if, as here, the deed of trust is recorded in the name of the original

lender (i.e., New Century, in this case), the holder of the note, whoever it is, would be

entitled to foreclose, even if the deed oftrust had not been assigned to it. However, as

Bellistri v. Ocwen demonstrates, the holder of such note would not be entitled to notice

of a tax sale or of a foreclosure by another creditor of the borrower unless it also has

a validly recorded assignment of the deed of trust at the time of such notice.

In addition, as Bellistri v. Ocwen acknowledged, under Missouri law, one who

holds rights under a deed oftrust may appoint an agent to exercise some or all of those

13 Bellistri v. Ocwen, 284 S.W.3d at 623 ("Effectively, the note and the deed oftrust are inseparable, and when the promissory note is transferred, it vests in the transferee all interest, rights, powers and security conferred by the deed of trust upon the beneficiary therein and the payee in the notes.").

12

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 13 of 17

rights on its behalf. 14 While the Deed of Trust here describes MERS as "nominee," as

opposed to "agent," for New Century and its successors and assigns, Mr. Hultman

testified that that term was chosen instead of "agent" because, in the securities industry,

a nominee is one who may act on behalf of the principal, but for limited purposes only.

Since one of the purposes of MERS was to make the securitization process more

efficient and attractive to outside investors, he testified that after a great deal of

discussion with representatives of Fannie Mae, Freddie Mac, and others, the term

"nominee" was chosen instead of "agent." Regardless of the term used, he testified,

MERS has authority to act on behalf of its members in a limited capacity, at their

direction, and so should be treated as their agent when taking such actions.

The legal definition of a nominee is a "party who holds bare legal title for the

benefit of others.?" The Deed of Trust here states that MERS holds legal title in its

capacity "as nominee for the Lender and the Lender's successors and assigns." The

Deed of Trust also grants MERS broad rights, again as a nominee for Lender and

Lender's successors and assigns, "to exercise any or all" of the interests granted by the

Borrower under the Deed of Trust, "including but not limited to, the right to foreclose

14 Id. (acknowledging that the holder of a deed oftrust may act as the agent of the holder of the note).

15 Black's Law Dictionary (8th ed. 2004) at 1076. See also Mortgage Electronic Registration Systems, Inc. v. Bellistri, 2010 WL 2720802 at * 10-12 (E.D. Mo. July 1, 2010).

13

Case 10-61 004-abfl Doc 54 Filed 09/20/10 Entered 09/20/1009:43:01 Desc Main

Document Page 14 of 17

and sell the Property, and to take any action required of Lender .... "

This is more than sufficient to create an agency relationship between MERS and

the Lender and its successors in Missouri, regardless what term they used to describe

that relationship." All that is required is a manifestation of the parties' assent that the

agent will act on behalf of the principal and subject to his control.'? An agency

relationship arises where, as here, one party is specifically authorized to act on behalf

of another in dealings with third persons .18 The language of the recorded Deed of Trust

clearly authorizes MERS to act on behalf of the Lender in serving as the legal title

holder to the beneficial interest under the Deed of Trust and exercising any of the rights

granted to the Lender thereunder.

Aurora, and all of the prior note-holders, signed up for this agency relationship

in their membership agreements, which provide thatMERS "shall" serve as mortgagee

of record with respect to each mortgage loan that the Member registers on the MERS

System and provide that "MERS shall at all times comply with the instructions of the

holder of mortgage loan promissory notes."!"

Thus, MERS was the agent for New Century under the Deed of Trust from the

16 Bach v. Winfield-Foley Fire Protection Dist., 257 S.W.3d 605, 608 (Mo. 2008).

17Id.

18 Weiland v. Ticor Title Ins. Co., 755 S. W.2d 659, 664 (Mo. Ct. App. 1988). 19 See Hultman Affidavit, ~~ 7, 10-12, and Exhibit B, § 5 and 6.

14

Case 10-61 004-abfl Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 15 of 17

inception, and MERS became agent for each subsequent note-holder under the Deed

of Trust when each such noteholder negotiated the Note to its successor and assign.

When Aurora acquired the right to enforce the Note as the note-holder, MERS held the

beneficial interest in the Deed of Trust on behalf of Aurora and had the right to enforce

all the rights granted to New Century and its successors and assigns in the Deed of

Trust. Therefore, as of the date of bankruptcy , Aurora held both the Note and the right,

thorough its agent MERS, to foreclose. Aurora's lien was therefore valid, and there

was no equity in the property as of that date.

N or did the subsequent assignment of the Deed of Trust to Aurora violate the

automatic stay. While in effect, the automatic stay provides that creditors may not take

specified actions against the debtor or the debtor's property without first obtaining

relief to do SO.20 Thus, if a creditor holds a lien which was not properly perfected at

the time of bankruptcy, the automatic stay generally prohibits such creditor from

thereafter taking steps to perfect. That's because in bankruptcy a lien which is

unperfected on the filing date is treated as unsecured for purposes of distribution. But

the recording of an assignment of a deed of trust, or the transfer of a note, is not an

action against the debtor or the debtor's property. On the date of bankruptcy, the

Debtor was obligated on a mortgage which was held by MERS as nominee for

20 11 U.S.C. § 362.

15

Case 10-61 004-abfl Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 16 of 17

whatever assignee held the Note, which happened to be Aurora here. Assignment of

the accompanying Deed of Trust did not violate the stay because it did not result in

perfection of a lien - the lien was already perfected.

CONCLUSION

Assuming that the note-holder is a member of MERS, thereby creating an

agency relationship, the fact that MERS is identified as the beneficiary under a deed

of trust for the benefit of the note-holder does not create a split between the note and

deed of trust. And, again, since the deed of trust follows the note, this is true for

subsequent parties to whom the note is properly assigned, so long as the assignees are

also members of MERS.

Here, as stated above, the evidence was that Aurora has possession of the

original Note, which it produced at the hearing, and which is endorsed in blank. As I

stated in In re Box, in order to prove that the movant is the holder of a note entitled to

enforce it and the corresponding deed of trust, the movant must provide sufficient

evidence that is in possession of the original note, or comply with the lost note

provisions." In addition, the evidence was that all of the assignees of the Note,

including Aurora, were members ofMERS who was, at all times, the beneficiary under

the deed of trust as agent for each of the assignees, including Aurora. As such, Aurora

21 In re Box, _ B.R. __ , 2010 WL 2228289 (Bankr. W.D. Mo. June 3, 2010).

16

Case 10-61 004-abf7 Doc 54 Filed 09/20/10 Entered 09/20/10 09:43:01 Desc Main

Document Page 17 of 17

established that it was the holder of the Note, and thus entitled to enforce both the Note

and Deed of Trust, on the date Aurora moved for relief from stay. Therefore, it had

standing to bring that motion.

ACCORDINGLY, the Motion for Relief from Stay filed by Aurora Loan

Services, LLC is GRANTED.

IT IS SO ORDERED.

lsi Arthur B. Federman Bankruptcy Judge

Date: 9/19/2010

Attorney for movant to serve parties not receiving electronic notice

17

Sign up to vote on this title
UsefulNot useful