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Bankruptcy Appellate Panel Rejects Split-the-Note Theory

A three-panel judge representing the United States Bankruptcy Appellate Panel of the Tenth Circuit sided with ""Mortgage Electronic Registration Systems, Inc."":http://www.mersinc.org/ (MERS) in a case involving a split-the-note theory.

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In the case _Royal v. First Interstate Bank (In re Trierweiler)_, the debtors argued that a split between the note and mortgage had occurred since Fannie Mae held the note while MERS held the mortgage, according to the decision.

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This, the debtors argued, invalidates the mortgage and makes the note unsecured. The note in the case was sold to Fannie Mae by First Interstate Bank (FIB), who serviced the loan, while MERS maintained the role as mortgagee.

The bankruptcy court rejected the plaintiff's argument that defining MERS as the mortgagee in the mortgage had split the note from the mortgage, according to the decision. The court also held that the mortgage was property recorded.

""We conclude there is no split between the Note and Mortgage arising from MERS being named as Mortgagee on behalf of the original lender and its successors and assign. At all times, the Note and the Mortgage were united,"" wrote U.S. Bankruptcy Judge Dale L. Somers of the District of Kansas.

Somers was joined by Chief Judge William T. Thurman of the District of Utah and Judge Elizabeth E. Grown of the District of Colorado.

The case affirmed a decision from the U.S. Bankruptcy Court for the District of Wyoming.

About Author: Esther Cho

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