19 located at the offices of 20 American Association for 21 Justice at 777 6th Street, 22 Northwest, Washington, D.C. 23 Will counsel identify 6 1 themselves beginning with the 2 attorney giving notice. 3 MR. WOOTEN: My name is Nick 4 Wooten, and I represent Debra 5 Henderson. I'm here with my 6 co-counsel, Lynn Jinks. 7 MR. BROCHIN: My name is Bobby 8 Brochin, Morgan-Lewis. I 9 represent the deponent, R.K. 10 Arnold. 11 MR. RAMEY: Shaun Ramey with 12 Sirote and Permutt. I 13 represent the defendant 14 MERSCORP and MERS, Inc. 15 MS. HORSTKAMP: Sharon Horstkamp. 16 And I'm general counsel with 17 MERS. 18 THE VIDEOGRAPHER: Also present, 19 the court reporter, Tracye 20 Blackwell, representing 21 Haislip, Ragan, Green, Starkie 22 & Watson Reporting. And 23 videographer and notary 7 1 public, Fred Walker, 2 representing Capital 3 Reporting. 4 I will now swear in the 5 witness. 6 (Witness sworn.) 7 MR. WOOTEN: Shaun, you have that 8 agreement. Did you want to 9 mark it, or do you just want 10 to reference it? 11 I can mark it if you want 12 me to. 13 MR. BROCHIN: Yeah. I just want 14 to mark the discovery and 15 confidentiality agreement 16 which deals with the 17 dissemination of the videotape 18 of this deposition as an 19 exhibit to the transcript. 20 THE COURT REPORTER: Thank you. 21 Do y'all want usual 22 stipulations? 23 MR. RAMEY: I think the only 8 1 difference is I don't think 2 Mr. Arnold is going to waive 3 reading and signing. 4 MR. BROCHIN: Yeah. If that's 5 what stipulation means. We 6 don't -- we do not waive 7 reading. 8 THE COURT REPORTER: Okay. 9 (Plaintiff's Exhibit 1 was marked 10 for identification.) 11 MR. WOOTEN: All right. And I 12 marked this agreement as 13 Plaintiff's Exhibit 1 to the 14 deposition just so we'll have 15 that out of the way. And this 16 is the negotiated agreement 17 with respect to the parties' 18 agreement not to disseminate 19 this video outside of this 20 litigation without -- except 21 according to the terms of this 22 agreement. 23 And, again, just for the 9 1 record, that has nothing to do 2 with the transcript. This is 3 purely with the video today. 4 MR. RAMEY: Correct. 5 6 * * * * * * * * * * * * * 7 8 R.K. ARNOLD 9 The witness, after having first been duly sworn 10 to speak the truth, the whole truth and nothing but 11 the truth testified as follows: 12 EXAMINATION 13 BY MR. WOOTEN: 14 Q. Mr. Arnold, if you would, would you state 15 your full name for the record, please, 16 sir. 17 A. R.K. Arnold. 18 Q. And how are you presently employed, sir? 19 A. I work for MERSCORP, Inc. 20 Q. What is your position with MERSCORP, Inc.? 21 A. I'm president and CEO. 22 Q. Okay. Do you remember what you were doing 23 three years ago today? 10 1 MR. BROCHIN: Object to the form 2 of the question. 3 Q. It's not a trick question. Do you remember 4 what you were doing three years ago today? 5 A. Where I was maybe. I don't know. 6 (Plaintiff's Exhibit 2 was marked 7 for identification.) 8 Q. I ask you to take a look at that and ask 9 you if you recognize that. It's marked as 10 Plaintiff's Exhibit 2. 11 (Brief interruption.) 12 MR. BROCHIN: Just for the record, 13 it appears that you've handed 14 the witness a transcript of a 15 copy of a deposition with all 16 sorts of highlighted notes and 17 et cetera on it. 18 Q. And I'll represent to you, Mr. Arnold, 19 that's a transcript of your testimony from 20 the matter of Trent versus MERS that was a 21 case in the District Court for the United 22 States in Florida. Does that appear to be 23 what that actually is? 11 1 A. Yes. 2 Q. Okay. And does it appear that on this date 3 three years ago you gave that deposition? 4 A. Yes. 5 Q. And have you ever reviewed that transcript 6 other than signing it for the purpose of 7 certifying your testimony? 8 A. Most of it. 9 Q. Okay. And I actually have two copies. I'm 10 going to swap with you, if you will, the 11 unmarked copy. If you'll hand me that copy 12 I marked back, please, sir. 13 With respect to -- and I'm trying to 14 save us a little time. But with respect to 15 the background information that you 16 provided during the course of that 17 deposition regarding your education, 18 experience, and training, any of that 19 information different today than it was 20 when you gave that deposition? 21 MR. BROCHIN: Object to the -- 22 excuse me. Let me object to 23 the form of that question. I 12 1 don't think it's appropriate 2 to ask a witness if the 3 previous testimony certainly 4 in general nature is 5 accurate. 6 A. Are you asking about my -- 7 Q. Have you obtained any additional degrees 8 since you gave that deposition? 9 A. No additional degrees. 10 Q. Okay. All right. And has anything changed 11 about your qualifications or experience 12 other than your longevity in your current 13 position since that deposition? 14 A. Probably just experience. 15 Q. Okay. And the information that you 16 provided during that deposition with 17 respect to your background and history, 18 employment history, your education and 19 qualifications is all still accurate; 20 correct? 21 MR. BROCHIN: Same objection of 22 asking a witness to testify 23 about the accuracy of 13 1 testimony given three years 2 ago in a general nature. 3 Q. Well, let's do that this way, then, 4 Mr. Arnold, so we can just make sure we 5 don't have any disputes about the 6 admissibility of this. 7 You're currently employed as the CEO of 8 MERSCORP; is that correct? 9 A. Yes. 10 Q. Were you so employed when you gave the 11 Trent deposition? 12 A. Yes. 13 Q. Are you affiliated with any other company 14 other than MERSCORP? 15 A. I'm an officer of Mortgage Electronic 16 Registration Systems, Inc. 17 Q. Is that the subsidiary of MERSCORP which 18 serves as the nominee of record in public 19 land records throughout America? 20 MR. BROCHIN: Object to the form 21 of the question. 22 A. It's a subsidiary of MERSCORP. 23 Q. Okay. And are both of these corporations 14 1 private corporations? 2 A. Yes. 3 Q. Are there any individual shareholders of 4 either of these corporations that are not 5 institutions or entities related to the 6 mortgage, banking, and lending industry? 7 MR. BROCHIN: Object to the form 8 of the question. 9 A. They're all corporations. 10 Q. Certainly. Do you serve on the board of 11 directors of any other corporations other 12 than MERSCORP and Mortgage Electronic 13 Registration Systems? 14 A. No. 15 Q. Are you compensated by any other business 16 or corporation other than the two entities 17 you've identified? 18 A. No. 19 Q. Currently how many directors serve on 20 Mortgage Electronic Registration Systems, 21 Inc.'s board? 22 A. 16. 23 Q. And how many directors serve on MERSCORP's 15 1 board? 2 A. Six. 3 Q. With regard to Mortgage Electronic 4 Registration Systems, sir, can you tell us 5 when that company was incorporated? 6 A. In 1999. 7 Q. And with respect to that company, sir, can 8 you tell us when the subsidiary was formed? 9 A. That is a subsidiary. 10 Q. Okay. Can you tell us when the parent was 11 formed? 12 A. In 1998. 13 Q. In the case that we're here about today 14 Mr. Hultman has provided an affidavit in 15 support of some pleadings that your 16 attorneys filed. What is Mr. William 17 Hultman's employment relationship with 18 these defendants -- with your company, I 19 should say? I'm sorry. 20 A. He works for MERSCORP, Inc. 21 Q. And what is his employment title? 22 A. He's senior vice president and corporate 23 division manager. 16 1 Q. With respect to the structure of this 2 corporation, Mr. Arnold, can you explain to 3 the ladies and gentlemen of the jury the 4 relationship between these two entities? 5 MR. BROCHIN: Object to the form 6 of the question. 7 A. Mortgage Electronic Registration Systems, 8 Inc., is a wholly-owned subsidiary of 9 MERSCORP, Inc. 10 Q. So the parent corporation has 100-percent 11 ownership of the subsidiary, which is the 12 company that appears in the land records in 13 this case; right? 14 A. Correct. 15 Q. Is that also the company that instituted 16 the foreclosure against Ms. Henderson? 17 A. Yes. 18 Q. And that is the corporation that has six 19 directors; correct? 20 A. Yes. 21 Q. And of those directors are five of those 22 directors members -- also directors of the 23 parent corporation? 17 1 A. Yes. 2 Q. Who is the independent director of the 3 subsidiary? 4 MR. BROCHIN: Object to the form 5 of the question. 6 A. Bruce Posey. 7 Q. It's my understanding that your corporate 8 structure of the subsidiary requires that 9 the independent director have no 10 affiliation with the parent corporation; is 11 that correct? 12 A. I -- I don't know what the question means. 13 Q. When you structured the subsidiary from a 14 parent, you structured the subsidiary with 15 the idea of creating a bankruptcy-remote 16 entity; is that correct? 17 A. That's correct. 18 Q. And one of the requirements of doing that 19 was that you have at least one independent 20 director; correct? 21 A. Yes. 22 Q. And according to your understanding, what 23 are the requirements of independents to 18 1 meet that test so that that entity 2 qualifies for bankruptcy remoteness? 3 A. Well, at a very basic level can't be a 4 shareholder or a director of the parent. 5 Q. And how is it determined -- well, let me 6 rephrase. 7 Outside of Mr. Posey's service on the 8 board of the subsidiary corporation, do you 9 know if he's otherwise employed? 10 A. Yes. 11 Q. And how is he employed? 12 A. He's the CEO of Streeter Brothers Mortgage. 13 Q. So is Streeter Brothers Mortgage what the 14 industry would commonly refer to as an 15 originator? 16 A. An originator? 17 Q. A company that originates mortgage loans? 18 A. Yes. 19 Q. So although he has no ownership interest 20 with the parent corporation, he is -- his 21 company is involved in the mortgage lending 22 industry? 23 MR. BROCHIN: Object to the form 19 1 of the question. 2 A. Streeter Brothers is an originator. 3 Q. All right. I noticed in reviewing the 4 documents -- at least some of the documents 5 I've seen regarding your company that some 6 of the original members were Fannie Mae and 7 Freddie Mac; is that correct? 8 A. Yes. 9 Q. And at the time they became members is it 10 fair to say that they had a significant 11 influence on the mortgage industry as a 12 whole? 13 A. Yes. 14 Q. Is it fair to say that the mortgage 15 industry generally looks to those two 16 entities for industry standards regarding 17 things like mortgage servicing and document 18 custodianship arrangements and that sort of 19 thing? 20 A. I don't understand the question. 21 Q. Are the Fannie Mae and Freddie Mac 22 published guidelines with respect to 23 mortgage servicing typically considered to 20 1 be an industry standard? 2 A. Among others. 3 Q. Are they also considered to be an industry 4 standard with respect to document custodial 5 agreements between mortgage securitization 6 participants? 7 A. I don't know. 8 Q. But you would agree that at the time they 9 became members of MERS they did have a 10 significant influence in the mortgage 11 industry? 12 A. Yes. 13 Q. Is it your opinion that the MERS concept 14 could have taken root without their 15 participation? 16 MR. BROCHIN: Object to the form 17 of the question to the extent 18 it calls for an opinion and 19 speculation. 20 A. I don't know. 21 Q. Were they afforded any special 22 considerations for becoming members of MERS 23 when MERS was originally formed? 21 1 A. No. 2 Q. Did they make an equity contribution to 3 MERS when it was formed? 4 A. Yes. 5 Q. Do you remember the amount of that 6 contribution? 7 A. Well, it was a rollover from a -- from the 8 previous company. 9 Q. Okay. So you're talking about old MERS; 10 right? 11 A. Old MERS? 12 Q. The original company that was formed when 13 they made their equity contribution was to 14 the new company that was formed that is the 15 present company? 16 A. In 1995 they made equity contributions. 17 Q. Okay. And do you remember the dollar 18 amounts of those contributions? 19 A. In 1995? 20 Q. Uh-huh (positive response). 21 A. No. 22 Q. Are there any documents available through 23 any public resource that would indicate the 22 1 dollar amount of those contributions by 2 those two entities? 3 MR. BROCHIN: Object to the form 4 of the question. Calls for 5 speculation. 6 A. I don't know what -- what documents there 7 are. 8 Q. Mr. Arnold, you testified in the Trent case 9 that you were a member of the first 10 executive team that was hired by MERS; is 11 that correct? 12 A. Yes. 13 Q. And I guess before we go any further, I 14 guess you and I and your lawyers should 15 agree on how we're going to delineate 16 between these two companies as we talk 17 about it. 18 I have been referring to the parent 19 corporation as MERSCORP. Is that correct? 20 A. That's correct. 21 Q. Okay. And so if I say MERSCORP, I am 22 discussing the parent. 23 The subsidiary I have typically 23 1 referred to simply as MERS, M-E-R-S. Is 2 that how you typically refer to the 3 subsidiary? 4 A. No. 5 Q. How do you refer to the subsidiary? 6 A. Mortgage Electronic Registration Systems, 7 Inc. 8 Q. For the sake of my voice, can we agree to 9 refer to the subsidiary as MERS, Inc.? Is 10 that sufficient to delineate the two for 11 the purpose of this deposition? 12 A. As opposed to MERS? 13 Q. As opposed to simply MERS, the 14 subsidiary -- for the purposes of this 15 deposition, if you and your lawyers can 16 agree to it, I'd like to just refer to the 17 subsidiary as MERS, Inc. Is that okay? 18 A. Okay. 19 Q. You testified in the Trent case that you 20 were part of the original executive team 21 for -- that was hired by MERSCORP; is that 22 correct? 23 A. There wasn't a MERSCORP. 24 1 Q. At that time? 2 A. At that time. 3 Q. Right. And that would -- I mentioned a 4 moment ago old MERS. That was the original 5 incarnation of this company in the state of 6 Delaware; correct? 7 A. In 1995. 8 Q. In 1995. And, just briefly, because I 9 think the judge and the jury would want to 10 understand this issue, can you briefly 11 outline the corporate history from 1995 12 until we reach this present structure where 13 we have MERSCORP and MERS, Inc.? 14 Just -- and I'm not asking you for 15 specific days. I know y'all have produced 16 some documents relative to some of that. 17 But just in general can you lay out for the 18 jury and the judge the transformation of 19 this corporation till it reached its 20 present state, please? 21 A. It was -- old MERS, as you referred to it, 22 was created in 1995 with temporary 23 officers. It was capitalized maybe up to 25 1 50-percent level, and that was a 2 combination of equity and debt. 3 Q. And is that -- I'm sorry. I didn't mean to 4 interrupt you. But is that the 5 contribution we mentioned awhile ago from 6 Fannie and Freddie? 7 A. Yes. And it was a combination of equity 8 and debt, and you asked about equity. 9 Q. Sure. All right. Go ahead. I'm sorry. 10 A. So the first task, of course, was to hire 11 permanent officers. And that was the 12 original executive team that you referred 13 to. And that happened in December of 1995. 14 Q. Other than yourself, do you recall who else 15 was hired as a member of the executive 16 team? 17 A. Paul Mullings. 18 Q. Is he still employed by either the parent 19 or the subsidiary? 20 A. No. 21 Q. Is his last name spelled M-U-L-L-I-N-G-S? 22 A. Yes. 23 Q. And do you know what his employment had 26 1 been prior to this hiring? 2 A. No. 3 Q. Was he a member of the team that you were 4 part of which was charged with implementing 5 this concept? 6 A. Yes. 7 Q. And what was his function on that team? 8 A. He was the CEO. 9 Q. Okay. So he was the initial CEO? 10 A. Yes. 11 Q. Do you still have a relationship with 12 Mr. Mullings? 13 A. Once-a-year cocktail. 14 Q. Okay. As you sit here today, do you know 15 how he is currently employed or if he is 16 currently employed? 17 A. Yes. 18 Q. Okay. And how is that? 19 A. He works for Freddie Mac. 20 Q. And do you know the position he holds with 21 Freddie Mac? 22 A. No. 23 Q. All right. Who else was hired initially? 27 1 A. Jim Dowell. 2 Q. Is that D-O-W-E-L-L? 3 A. I believe so. 4 Q. What was his position? 5 A. Chief technology officer. 6 Q. Is he still employed by either the parent 7 or the subsidiary? 8 A. No. 9 Q. Do you have any relationship with 10 Mr. Dowell? 11 A. Cocktail every three years. 12 Q. Do you know how he's currently employed? 13 A. No. 14 Q. Who else was hired? 15 A. Dan McLaughlin. 16 Q. And do you recall his position? 17 A. He was the operations officer. 18 Q. Is he still employed by either the parent 19 or the subsidiary? 20 A. Yes. 21 Q. And how is he presently employed? 22 A. He's executive vice president over the 23 product division. 28 1 Q. And is that for the parent or the 2 subsidiary? 3 A. Parent. 4 Q. Who else was on the initial executive team? 5 A. No one. 6 Q. So -- other than yourself? 7 A. (Witness nods head.) 8 Q. Right? 9 A. Yes. 10 Q. And how were you initially employed? 11 A. Senior vice president and general counsel 12 and secretary. 13 Q. And those persons all came on board 14 December of 1995? 15 A. Paul and I. 16 Q. Okay. And how far behind the two of you 17 were Jim and Mr. McLaughlin, Jim Dowell and 18 Jim -- Dan McLaughlin? 19 A. A month. 20 Q. Okay. So more or less contemporaneously? 21 A. (Witness nods head.) 22 Q. I assume, then, from -- that all four of 23 you were a member of that initial 29 1 implementation team; is that correct? 2 A. Yes. 3 Q. And did you hold corporate meetings or 4 discussions about how to structure this 5 organization, how to implement this 6 concept? 7 A. Yes. 8 Q. Did you maintain records of those meetings? 9 A. I don't know. 10 Q. You were the secretary; correct? 11 A. Yes. 12 Q. Would that have been within your job 13 function? 14 A. No. 15 Q. Would you have had an assistant who would 16 have had that function? 17 A. No. 18 Q. Did y'all write any interoffice memoranda 19 or summaries of these meetings or anything 20 like that? 21 A. Not -- no, not really. 22 Q. What was the purpose for this concept? I 23 mean, why did you -- why did your company 30 1 feel it was necessary? 2 MR. BROCHIN: Object to the form 3 of that question. 4 Q. Well, and let me re-ask it because that 5 might be considered a compound question. 6 What exactly was the concept you were 7 trying to implement? 8 A. We were setting up a system to eliminate 9 unnecessary assignments and track mortgage 10 loans. 11 Q. And the timing of this entity -- had you 12 been involved with any discussions prior to 13 this initial formation of the company we'll 14 call old MERS about the need or the 15 perceived need for this type of entity or 16 concept? 17 A. Prior to old MERS? 18 Q. Uh-huh (positive response). 19 A. No. 20 Q. So prior to being hired you had not taken 21 part in any of this? 22 A. No. 23 Q. With respect to the concept, what was the 31 1 concern or the perceived concern with 2 respect to public land records and 3 assignments of mortgages? 4 MR. BROCHIN: Object to the form 5 of the question. 6 Q. And if that's not a fair statement -- I 7 don't want to mischaracterize anything. 8 But what I've read, in any case, that there 9 was a concern with issues with regard to 10 chain of title and paper moving to the 11 market and that sort of thing. Is that 12 fair? 13 MR. BROCHIN: Well, is it fair 14 that you read that? 15 Q. I mean, is that -- was that the concern, or 16 was there some other concern? 17 MR. BROCHIN: Object to the form 18 of the question. 19 A. I don't -- I don't think of anything as 20 being a concern from that period. 21 Q. So was this a profit-driven concept? 22 A. No. 23 Q. And truly never has been profit-driven to 32 1 the extent of MERS or the parent or the 2 subsidiary, has it? 3 A. Correct. 4 Q. Is it fair to say that MERS was created not 5 as a -- not necessarily as a corporation 6 for profit but as a corporation which would 7 hope to sustain itself by covering its cost 8 of existence? 9 MR. BROCHIN: Object to the form 10 of the question. If you 11 understand it. 12 A. Yes. 13 Q. And was that the -- at least a portion of 14 the reason that the company chose to 15 initially form as a member corporation 16 rather than a stock corporation? 17 A. I wouldn't characterize it that way, but it 18 did start as a membership corporation. 19 Q. And for people that are unfamiliar with 20 that term, could you briefly tell them the 21 difference between a membership corporation 22 and a stock corporation? 23 A. Well, rather than get into the legal 33 1 differences, it's -- membership corporation 2 would be essentially one company, one vote. 3 Q. And so every company that became a member 4 of old MERS, which is a member corporation, 5 would in effect have one vote regarding the 6 governance of that corporation? 7 A. Shareholders. 8 Q. Shareholders. 9 A. Every company shareholder would have one 10 vote. 11 Q. Right. As opposed to a stock corporation 12 where there might be 10,000 stockholders, 13 but two of them might own 70 percent of the 14 shares; right? 15 MR. BROCHIN: Object to the form. 16 A. In theory, yes. 17 Q. And I guess a stock corporation, the extent 18 of ownership would be determined more by 19 the shares of stock? 20 A. Yes. 21 Q. And I don't want to get too far off track 22 of where we started, but I'm just trying to 23 fill in some blanks. 34 1 This group of four that began the 2 company that we refer to as old MERS, which 3 is a member corporation, how long did the 4 four of you meet to formulate your plan 5 about implementing this concept? 6 A. Well, we never really stopped formulating 7 the concept. We met -- 8 Q. I'm sorry. 9 A. -- intensively. 10 Q. All right. And over what period of time 11 did those meetings take place? 12 A. Well, before until Jim Dowell exited. 13 Q. All right. With -- well, with respect to 14 when the original four came on board -- you 15 said they should have all been in place by 16 approximately January of 1996? 17 A. Yes. 18 Q. And you said y'all began to meet 19 intensively about this concept -- 20 A. Yes. 21 Q. -- and how to most effectively implement 22 it? 23 A. Yes. 35 1 Q. Is it your testimony that none of the four 2 of you maintained any records about how to 3 do this or the legalities of it or how to 4 make sure that it functioned correctly and 5 as intended? There were no records of any 6 of those types of conversations or meetings 7 or anything? 8 MR. BROCHIN: Object to the form 9 of the question. 10 A. Yeah. I couldn't speak for every -- every 11 possible piece of paper, but writing was 12 not -- was not one of the -- one of the 13 characteristics of our meetings. 14 Q. And once those meetings began, I guess, in 15 earnest in January of 1996, how long did 16 those meetings take place before you began 17 to take action outside of your group? 18 A. I guess I'm not sure I understand what 19 you're asking. The -- we had to establish 20 a technology relationship with another 21 company. 22 Q. Was that the first step in the process? 23 A. That and the concept. The concept and the 36 1 technology were probably the two things 2 that took up the time. 3 Q. And I want to drop back for a second and 4 just clarify something so that anybody who 5 hears your testimony understands it in 6 context. 7 You are a licensed attorney; right? 8 A. Yes. 9 Q. And do you still maintain an active law 10 license? 11 A. Yes. 12 Q. Is it purely for the state of Virginia or 13 is it any other state? 14 A. It's not Virginia. It's Oklahoma and 15 Texas. 16 Q. Right. And you practiced law for a period 17 of time before you ultimately obtained this 18 position; correct? 19 A. Yes. 20 Q. And are there any other members of this 21 group of four who are also attorneys? 22 A. No. 23 Q. With respect to the implementation of the 37 1 concept, what you were -- I think you 2 mentioned before you wanted to create a 3 situation where you didn't have to record 4 assignment when the promissory note changed 5 hands; is that correct? 6 A. No. 7 MR. BROCHIN: Object to the 8 form -- excuse me. Object to 9 the form of the question. 10 A. That's not correct. 11 Q. All right. Explain, then, in your own 12 words what the concept was. 13 A. The concept or the purpose? 14 Q. Well, both. Let's start with the concept. 15 A. Well, the purpose was to eliminate 16 unnecessary assignments. 17 Q. And when you say unnecessary assignments, 18 tell me how you define an unnecessary 19 assignment. 20 A. Well, it had nothing to do with notes at 21 all. 22 Q. Okay. When you went to law school, did you 23 take classes in real property and that sort 38 1 of thing? 2 A. Yes. 3 Q. And you discussed mortgages and you worked 4 in that area some as you practiced. Is 5 that fair? 6 A. Yes. 7 Q. I'm not asking you about any state in 8 particular. I'm just talking about as a 9 general concept, general legal principle. 10 Typically when the transfer of a promissory 11 note which is secured by a mortgage takes 12 place, generally speaking, typically 13 there's a contemporaneous assignment of the 14 mortgage for the public record; is that 15 correct? 16 MR. BROCHIN: Object -- 17 A. That is not correct. 18 MR. BROCHIN: Excuse me. Object 19 to the form of the question. 20 That is not correct, and 21 you're asking for a legal 22 conclusion. 23 MR. WOOTEN: Asked for what, sir? 39 1 MR. BROCHIN: Legal conclusion. 2 MR. WOOTEN: Okay. Just want to 3 make sure I understand you. 4 Q. So is it your contention, then, that the 5 public recording records -- typically the 6 assignment of a mortgage is not undertaken 7 to give notice to the world that the 8 ownership of the debt has changed hands? 9 MR. BROCHIN: Object to the form 10 of the question to the extent 11 it calls for a legal 12 conclusion and generalizes 13 some 50 states. 14 Q. Well, we'll talk specifically later. I'm 15 just talking about generally what you 16 learned in law school, the big thick books 17 like that that they give us. 18 A. Yeah. It's more than a contention. It's 19 just not right. It's -- assignments are 20 not recorded, never were, when notes move. 21 Q. And is that one of the premises that 22 underlay your company's consideration in 23 its implementation of this idea? 40 1 A. It's one of the fundamental underpinnings 2 of negotiable instruments and the entire 3 mortgage industry. Notes have never been 4 recorded, and assignments are not recorded 5 in connection with notes. 6 Q. Let's don't do like we did in some other 7 places and conflagurate the two terms. 8 When I talk about a promissory note, I'm 9 talking about the obligation that the 10 borrower signs that is the debt 11 instrument. I will pay you "X" amount of 12 money per month for 30 years for my home 13 mortgage, the loan that you give me to buy 14 my home. That is contained in the 15 promissory note; right? 16 MR. BROCHIN: Object to the form 17 of the question. 18 A. It's universally called a note. 19 Q. Right. And that is the debt instrument? 20 A. Yes. 21 Q. Okay. The mortgage is the lien which the 22 borrower grants on their real estate to 23 secure payment of that promissory note; 41 1 right? 2 A. Yes. 3 Q. So I don't want you to be confused. I 4 didn't say that a promissory note had to be 5 recorded or that an assignment of a 6 promissory note had to be recorded; okay? 7 A. Uh-huh (positive response). 8 Q. What I'm saying is, is that when an 9 originator sells that note to an aggregator 10 or a warehouse lender or some other entity 11 that intends to securitize it on Wall 12 Street, that typically they endorse that 13 note by some agreed-upon method; correct? 14 MR. BROCHIN: Object to the form 15 of the question. Calls for 16 speculation. 17 A. Yeah. The agreed form -- agreed-to form is 18 the endorsement of the note -- 19 Q. Right. 20 A. -- under Article 3. 21 Q. Sure. And it can be in blank or to order; 22 right? 23 A. Yes. 42 1 Q. And when we say in blank, it says pay to 2 the order of, and then they sign off; 3 right? 4 A. Well, that's not blank. 5 Q. Just sign off just like signing the back of 6 a check; right? 7 A. That's blank. 8 Q. Okay. But when you endorse to order, you 9 endorse from, you know, the originator 10 directly to the entity that's purchasing; 11 right? 12 A. Specific. 13 Q. Right. It's to -- from the company that 14 the note is made to to the company that it 15 is sold to; correct? 16 A. Yes. 17 Q. So if you and I had a check between us, 18 which is a form of a negotiable instrument, 19 and I had a check made out to me and it 20 said cash, pay to Nick Wooten, $300 -- if I 21 wanted to endorse that note to you, I could 22 do it two ways. I could turn it over on 23 the back and I could sign Nick Wooten; 43 1 right? 2 MR. BROCHIN: Object to the form 3 of the question. 4 A. That's a check. 5 Q. Right. 6 A. But that's a negotiable instrument. 7 Q. And that would be a blank endorsement; 8 right? 9 MR. BROCHIN: Object to the form 10 of the question. 11 Q. Just signing my name on the back of it so 12 that anybody that had it could take it and 13 cash it; right? 14 MR. BROCHIN: Object to the form 15 of the question. 16 A. Under Article 3. 17 Q. Sure. And when you say Article 3, you're 18 talking about the UCC -- 19 A. Yes. 20 Q. -- Uniform Commercial Code? 21 But if I said -- on the back of that 22 check if I wrote Nick Wooten to 23 R.K. Arnold, that's a specific endorsement; 44 1 right? 2 A. Yes. 3 Q. And so when entities transfer promissory 4 notes which are secured by mortgages, they 5 transfer those notes in a similar fashion, 6 either in blank or specifically between 7 those two entities; right? 8 MR. BROCHIN: Object to the form 9 of the question. 10 A. Yes. 11 Q. And with respect to the mortgage lien -- 12 the lien, not the note -- if the company 13 who received the note wants to make the 14 world aware that they now own the debt, 15 they would typically file an assignment of 16 the mortgage as a debt owner; right? 17 MR. BROCHIN: Object -- no. 18 Object to the form of the 19 question. And it's asking for 20 legal conclusions and is 21 calling for speculation and 22 mischaracterizes his 23 testimony. 45 1 A. And it's incorrect. It's not the case and 2 it's never been the case. 3 Q. So your contention is that all the 4 assignments are filed in land records 5 throughout Alabama that evidence change in 6 the ownership of the debt -- they don't 7 matter. Is that your contention? 8 MR. BROCHIN: Objection. Object 9 to the form of the question. 10 You're mischaracterizing his 11 testimony. 12 Q. Why would a mortgage assignment be 13 recorded? What does it do? What's the 14 purpose of a mortgage assignment? 15 A. To move the lien interest. 16 Q. Right. And who does it move it to? 17 MR. BROCHIN: Object to the form 18 of the question. 19 A. Whoever's name is in the land records. 20 Q. Well, if you assign the original mortgage, 21 the name in the land records is going to be 22 the name on the mortgage; right? 23 MR. BROCHIN: Object to the form 46 1 of the question. 2 A. I don't understand the question. 3 Q. Well, let's just talk about a MERS as 4 mortgagee mortgage. There are 53 million 5 of them roughly today in the country? 6 A. 62 million. 7 Q. 62 million. And of those 62 million, they 8 all say that MERS is the mortgagee? 9 A. Yes. 10 Q. So if you wanted to transfer that to a 11 non-MERS member, how, then, would you do 12 that, sir? 13 A. Record an assignment in the land records. 14 Q. Okay. And what would be the purpose of 15 that assignment? 16 A. To take MERS out of the land records. 17 Q. Okay. And would that be because the owner 18 of the debt was no longer a MERS member? 19 MR. BROCHIN: Object to the 20 form -- 21 A. No. 22 MR. BROCHIN: -- of the question. 23 Q. What other reason would that occur? 47 1 A. The owner of the debt -- 2 MR. BROCHIN: Object to the form. 3 A. -- doesn't have to be a MERS member. 4 Q. Okay. You would agree with me, would you 5 not, that MERS cannot act on behalf of an 6 entity that it does not have a membership 7 agreement with, can it? 8 MR. BROCHIN: Object to the form. 9 A. Not -- you know, I wouldn't -- I wouldn't 10 concede that. We've got our membership 11 structure. 12 Q. And your membership structure is the 13 nominee structure; right? 14 MR. BROCHIN: Object to the form 15 of the question. 16 A. We have members of MERS. 17 Q. Sure. I agree with you. And we've got 18 bunches of documents to go through. We're 19 going to get to that in a minute. But I'm 20 just trying to talk about what you've 21 conceded numerous times either through your 22 attorneys or through yourself or through 23 Mr. Hultman or through Ms. Horstkamp in 48 1 either an affidavit or written testimony 2 that you don't act on behalf of parties who 3 are not members of MERS; right? 4 A. Not -- not through the membership 5 agreements. 6 Q. Right. Because your right to act flows 7 through that membership agreement; right? 8 A. With somebody on the loan, sure. 9 Q. Right. Because you're a -- I mean, you're 10 a nominee. You're acting more or less as 11 an agent of some sort; is that right? 12 A. Yes. 13 Q. So, you know, an agency agreement -- you're 14 pretty much bound by the written terms of 15 that agency agreement, aren't you? 16 A. Sure. 17 MR. BROCHIN: Object to the form. 18 Q. So if you don't have an agency agreement 19 for someone, you certainly shouldn't be 20 able to act on their behalf; right? 21 MR. BROCHIN: Object to the form 22 of the question. 23 A. Yeah. I don't really understand the 49 1 question. We have a membership 2 relationship with the loan. 3 Q. With the loan? 4 A. The servicer. 5 Q. Mr. Arnold, I understand that this is kind 6 of a complex area for a layman, so I try to 7 be pretty precise about my terminology. 8 But you just said that you have a 9 membership relationship with the loan. 10 Okay. The loan consists of the 11 promissory note and the lien; right? 12 A. Yes. 13 Q. And those are intangible things; right? 14 A. Well, that's a legal term. I mean, they're 15 documents. 16 Q. Sure. But you just said you had a 17 membership agreement with a loan -- not a 18 member, but a loan. I just want to be real 19 clear about that. 20 A. Well, then I'll -- I'll say that we have a 21 membership agreement with somebody involved 22 in the loan. 23 Q. Okay. And that I can deal with. But you 50 1 don't have any agreement that says loan 2 number 12345678 nominates MERS as nominee, 3 do you? 4 A. No. 5 MR. BROCHIN: Object to the form. 6 Q. Okay. Well, I mean, that's literally what 7 you testified to; right? 8 MR. BROCHIN: No. Objection to 9 the form. The record will 10 reflect what he testified to. 11 Q. Now, I can understand having a membership 12 agreement with a party to a loan. 13 A. Okay. 14 Q. And you do have numerous agreements of that 15 nature; right? 16 A. Yes. 17 Q. Okay. But I think my initial question that 18 triggered that was much simpler in that 19 you're not going to testify that you have 20 the right to act on behalf of someone that 21 you are not the nominee or agent of through 22 one of your written agreements, are you? 23 MR. BROCHIN: Object to the form 51 1 of the question. 2 A. With respect to the loan, we will act 3 within the context of our authority to act 4 under the member agreements. 5 Q. True. And the member agreements are only 6 with MERS members? 7 A. Yes. 8 Q. So there is no right of MERS to act for 9 anyone that they do not have a written 10 agreement with? 11 MR. BROCHIN: Object to the form 12 of the question. 13 A. Well, we're mortgagee of record on the 14 loan. 15 Q. Well, we'll get around to that in a moment; 16 okay? I understand that's your position, 17 but what I'm talking about is much more 18 esoteric. 19 A. Maybe that's why I'm having some difficulty 20 with it. 21 Q. Okay. Well, let's say that I bought a 22 mortgage loan from someone. There are lots 23 of people buying distressed loans today. 52 1 And I don't have a MERS membership 2 agreement, but you have a MERS mortgage. 3 You don't have any authority to act on my 4 behalf because we don't have a membership 5 agreement? 6 A. That's incorrect. 7 Q. So what authority would you have to act on 8 my behalf if you don't have a membership 9 agreement? 10 A. We're the mortgagee of record. 11 Q. Sure. And you've written extensively in 12 pleadings and taken positions in court the 13 general rule that the lien follows the 14 note; right? 15 A. Generally. 16 Q. So if someone who is not a MERS member 17 becomes owner of the debt, the note, then 18 as a general proposition they would have 19 the right to enforce that lien irrespective 20 of the fact that you were named mortgagee 21 of record; right? 22 A. Yes. 23 Q. Okay. So there would be no reason for you 53 1 to act on their behalf if you had no 2 agreement with them; right? 3 MR. BROCHIN: Object to the form 4 of the question. 5 A. Yeah. I wouldn't concede that. 6 Q. And is that because of your position with 7 respect to the lien which nominates you as 8 mortgagee of record? 9 A. Yes. 10 Q. Because, in fact, what you're claiming is 11 in fact ownership of the lien; right? 12 MR. BROCHIN: Object to the form 13 of the question. 14 A. No. We're -- we are the mortgagee in the 15 land records, and we have duties that go 16 along with that. And we carry out those 17 duties according to what we've agreed to 18 do. 19 Q. Okay. Is it not your testimony that MERS 20 owns the lien? 21 MR. BROCHIN: Object to the form 22 of the question. 23 A. I don't know what that means. We are the 54 1 mortgagee in the land records. We were 2 made mortgagee by the borrower on a 3 security instrument. 4 Q. Well, let's talk about that for a moment, 5 if we can. 6 You would agree that the mortgagee on 7 the MERS mortgage is not a 8 fill-in-the-blank, is it? 9 MR. BROCHIN: Object to the form 10 of the question. 11 A. It's a pre -- prefab document. 12 Q. Right. I mean, it's not a multiple-choice 13 question as to who's the mortgagee, is it? 14 A. No. 15 Q. And you would agree that there's no time at 16 any time during the negotiation or 17 solicitation of any mortgage loan where 18 it's ever discussed with the consumer who 19 will serve as the mortgagee of record? 20 A. I can't vouch for what discussions take 21 place. 22 Q. Well, you know, typically consumers see 23 things on a good-faith estimate, like 55 1 closing costs, interest rate, that type of 2 thing; right? 3 MR. BROCHIN: Object to the form. 4 Q. You're familiar with a good-faith estimate; 5 right? 6 A. Yes. 7 Q. And you're familiar with the typical 8 contents of those documents? 9 A. Yes. 10 Q. And there's not a check-the-box for who 11 you'd like to serve as mortgagee of record, 12 is there? 13 A. No. 14 Q. No. So as far as you know, when a consumer 15 goes to a broker or lender and asks for a 16 mortgage, they don't hand them a copy of 17 your form mortgage and say, hey, look this 18 over and tell me if you got any problems 19 with it, do they? 20 MR. BROCHIN: Object to the form. 21 A. Well, the consumer is entitled to the 22 documents ahead of time. 23 Q. They're entitled to a good-faith estimate; 56 1 right? 2 A. And they're entitled to the documents. 3 Q. Okay. And you would agree that the lender 4 is going to place whoever they deem 5 appropriate in the slot as the mortgagee 6 through the use of a preprinted form; 7 right? 8 A. Well, it's a condition of the loan. 9 Q. Right. It's not a negotiable issue, is it? 10 MR. BROCHIN: Object to the form. 11 A. I don't know. 12 Q. You ever had any documents come through 13 your system where a mortgagee was scratched 14 off and somebody else was written in? 15 A. We wouldn't have a document that didn't 16 make MERS the mortgagee. 17 Q. Right. So to the extent that that's an 18 issue, again, it's a preprinted form that's 19 presented to the consumer for signature 20 typically at closing; right? 21 A. Yes. 22 MR. BROCHIN: Asked and answered. 23 Q. Okay. So they might shop around for 57 1 interest rates or payment amounts or 2 closing costs or that kind of thing or 3 approval even? 4 A. Or companies. 5 Q. Or companies. But typically they don't 6 negotiate about who is the mortgagee of 7 record, do they? 8 MR. BROCHIN: Objection. Calls 9 for speculation. Asked and 10 answered. 11 A. They shopped around for the company. 12 Q. So if the companies all use MERS as 13 mortgagee, is there any choice for the 14 consumer? 15 MR. BROCHIN: Object to the form. 16 A. Companies don't all use MERS. 17 Q. 60 percent. Is that about right? 18 A. Probably. 19 Q. Maybe two-thirds now? 20 A. I doubt it. 21 Q. But sneaking up on it maybe? 22 MR. BROCHIN: Object to the form. 23 A. It may -- it may even be creeping back. 58 1 Q. And, I mean, your stated goal is that every 2 mortgage would be a MERS mortgagee -- 3 A. That's our mission. 4 Q. Right? 5 I mean, that's what you're trying to 6 get to? 7 A. Yes. 8 Q. You're still sitting there with that 9 transcript in front of you. If you will, 10 flip over to page 39 of that transcript, 11 please, sir. 12 A. Which page? 13 Q. 39. 14 Well, and before I even ask you that 15 question, let me step back and ask a more 16 general question. 17 Your company spends a lot of time 18 talking about interest in a mortgage loan; 19 right? 20 A. (Witness nods head.) 21 Q. And I notice that y'all speak in terms of 22 beneficial interest and things of that 23 nature. 59 1 A. Yes. 2 Q. Can you tell the judge and the jury every 3 interest that your company recognizes in a 4 mortgage loan? 5 MR. BROCHIN: I'm sorry. Could 6 you read the question? 7 MR. WOOTEN: I can restate it if 8 you'd like. 9 Q. Can you tell me every interest that your 10 company recognizes in a mortgage loan? 11 MR. BROCHIN: Object to the form. 12 A. Yeah. I don't understand what you mean by 13 interest. 14 Q. Well, let's talk about the mortgagee 15 interest. Define that for me. 16 A. I think of the mortgagee interest as being 17 just bare legal title. 18 Q. When you say bare legal title, is that 19 merely being the name in the land records? 20 A. Yes. 21 Q. That is not ownership of the lien which 22 secures the payment of the promissory note? 23 MR. BROCHIN: Object to the form. 60 1 A. No, not in my mind. 2 Q. Have you ever testified to such or allowed 3 anyone to testify as such on behalf of your 4 company? 5 MR. BROCHIN: Object to the form 6 of the question, asking a 7 witness to recall testimony, 8 and particularly to the part 9 of the question that is asking 10 the witness whether he's 11 allowed somebody to testify. 12 That's -- doesn't make much 13 sense. 14 A. Well, there's a lot of jargon and slang in 15 this industry. 16 Q. Well, let's try to avoid that. 17 A. Let's try. 18 Q. I am talking about the owner of the lien. 19 A. And I don't know what that means. 20 Q. Okay. What about the interest in 21 servicing? Is that an interest that your 22 company recognizes, in servicing rights of 23 a particular loan? 61 1 MR. BROCHIN: Object to the form 2 of the question. 3 A. We track servicing rights. 4 Q. Okay. And I notice that you make a big 5 deal about the fact that those transfer 6 between parties by contract and that those 7 are not recordable interests? 8 A. Correct. 9 Q. Those exist purely between the parties who 10 own mortgage loans, the notes, and the 11 parties who service those loans on their 12 behalf; right? 13 A. I -- I couldn't agree with that. 14 Q. Servicing interest. 15 A. The servicing interest is the company that 16 has an obligation to collect the payments 17 on the loan. 18 Q. But servicing accomplishes -- or 19 encompasses more than simply collecting 20 payments; right? 21 A. Yes, it does. 22 Q. And typically servicing rights with respect 23 to the secondary mortgage market are 62 1 contained in several types of agreements; 2 right? 3 MR. BROCHIN: Object to the form 4 of the question. 5 A. Can be. 6 Q. In a typical securitization a pooling and 7 servicing agreement would set out servicing 8 rights, wouldn't it? 9 MR. BROCHIN: Object to the form 10 of the question. 11 A. Yeah. I don't -- I don't think that the 12 two are directly related. For one thing, 13 when we talk about jargon and slang, even 14 the term servicing rights is -- it's a 15 weird term. That's a contract right that's 16 sold, and then there's a secondary market 17 that developed in that. 18 Q. Sure. And there are 34 or so national 19 mortgage servicers today as we sit here 20 roughly. Is that about right? 21 A. Just -- way more than that. 22 Q. National mortgage servicers, not just -- 23 A. I don't -- 63 1 Q. -- regional or area. 2 A. I don't know about the demarcation, but 3 there are hundreds and hundreds of 4 servicers. 5 Q. Right. And they -- when you say a 6 servicer, you're talking about not only the 7 person who collects payments for a normal 8 performing mortgage loan and everybody pays 9 on time, you're talking about subservicers 10 who handle default servicing, subservicers 11 who handle foreclosures, subservicers who 12 handle real-estate-owned property, 13 subservicers who handle property 14 preservation? 15 A. Yes. 16 Q. Those are all servicers; right? 17 A. Those are all servicers. 18 Q. And all those rights pass by contract? 19 MR. BROCHIN: Object to the form. 20 A. There are -- there are contracts, and those 21 contracts can be sold by their nature. 22 Q. Right. Like pretty much any other 23 contract; right? 64 1 A. Not really like any other contract. I 2 mean, it's got -- it's a specific type of 3 contract. Servicers know how to deal with 4 borrowers on a daily or monthly basis. 5 Q. Right. But those interests would exist 6 with or without MERS; right? 7 A. Yes. 8 Q. And servicers would change and servicing 9 rights would change whether MERS was ever 10 created; right? 11 MR. BROCHIN: Object to the form. 12 A. Yes. 13 MR. WOOTEN: I'm sorry, 14 Mr. Brochin. 15 MR. BROCHIN. Object to the form. 16 Q. So when you start talking about MERS' 17 impact on servicing rights, if something 18 happened and MERS no longer existed, 19 servicing rights are still going to change 20 hands in mortgages; right? 21 A. I don't know about the future. 22 Q. Well, judging by the last 30 years, 23 servicing rights are bought and sold every 65 1 day, aren't they? 2 A. Judging by the last year, we don't know 3 what the future holds. 4 Q. Right. And with respect to the beneficial 5 interest in a mortgage loan, when you talk 6 about a beneficial interest, what are you 7 talking about? 8 A. The -- generally the party that is 9 ultimately entitled to the funds. 10 Q. Would that be the owner of the debt? 11 MR. BROCHIN: Object to the form. 12 A. Closer. 13 Q. Okay. Well, just as a general rule, if 14 someone who was a MERS member had -- and we 15 really haven't talked about this term 16 yet -- but someone who had been designated 17 a certifying officer of MERS went out 18 without anybody's authority and transferred 19 a MERS mortgage into some other entity's 20 name and that other entity foreclosed, 21 without ownership of the debt they would 22 have no right to foreclose, would they? 23 MR. BROCHIN: Object to the form 66 1 of the question. Calls for 2 speculation and a legal 3 conclusion based on 4 speculation. 5 A. Yeah. I don't understand the question. 6 Q. Is it fair to say that the right to 7 foreclose flows from the right to payment 8 of the debt? 9 MR. BROCHIN: Object to the form 10 of the question. 11 A. Depends on state law. 12 Q. And, again, we'll talk more specifically. 13 I'm talking about generally. 14 MR. BROCHIN: Object to the form 15 of the question. 16 Q. Is it fair to say that the person who owns 17 the debt is the person who has the right to 18 payment of the debt? 19 A. Yes. 20 Q. So if a person -- a New York securitized 21 trust has paid value for a mortgage loan so 22 that it could securitize it, create REMIC 23 interest, and sell bonds, they have a 67 1 superior interest in that note over someone 2 who has paid nothing and does not own that 3 note; right? 4 MR. BROCHIN: Object to the form 5 of the question in that it 6 calls for speculation and a 7 legal conclusion based on that 8 speculation. 9 A. It'd depend on the documents. At that 10 point it's been atomized into many, many, 11 many interests. 12 Q. Right. And those are things that we've all 13 become familiar with, like trenches and 14 swaps and CDOs and things like that; right? 15 MR. BROCHIN: Object to the form 16 of the question. 17 A. It's just a security. So it's in 18 everybody's 401(k)s and all that. 19 Q. Right. And that's the cash flow 20 represented by the payments on that 21 mortgage loan; right? 22 A. Cash flow is part of it. 23 Q. But the right to foreclose, the right to 68 1 come and take Ms. Henderson's home, that 2 flows to the owner of the note; right? 3 A. It depends on state law. 4 Q. And when you say it depends on state law, 5 are you making that qualification based 6 upon the right -- the fact that the owner 7 might designate someone else to take that 8 action on their behalf? 9 MR. BROCHIN: Object to the form. 10 A. There are places where that happens. 11 Q. Sure. Before your company came into 12 existence, it wouldn't be uncommon to see 13 seven, eight, nine, ten, 15 mortgage 14 assignments over a ten- or 15-year period 15 where a loan flowed amongst various owners, 16 would it? 17 MR. BROCHIN: Is that a question? 18 MR. WOOTEN: Yeah. 19 MR. BROCHIN: Object to the form 20 of the question. Calls for 21 speculation. 22 A. Yeah. And the loan might not have been 23 what's flowing. That could have been the 69 1 servicing rights. 2 Q. Sure. But it wouldn't have been uncommon 3 to see a document in the probate records 4 evidencing that change, would it? 5 A. With the servicing change? 6 Q. With the change in ownership of the debt. 7 A. That's never recorded. 8 Q. Are you saying that the change in servicing 9 rights would have been recorded? 10 MR. BROCHIN: Object to the form. 11 A. That was what caused a lot of unnecessary 12 assignments. It had nothing to do with 13 notes. 14 Q. So you're saying that the transfer of the 15 servicing interest in loans caused a lot of 16 unnecessary assignments? 17 A. I'm not calling servicing an interest in 18 the loan. That's a contract -- 19 Q. Right. 20 A. -- to service the loan. 21 Q. And a servicer is not the owner of the 22 debt, is it? 23 MR. BROCHIN: Object to the form. 70 1 A. Can be. 2 Q. Typically a servicer is acting on behalf of 3 the owner of the debt, is it not? 4 A. The servicer could own a debt. 5 Q. Could -- 6 A. (Witness nods head). 7 Q. -- but typically a servicer is acting on 8 behalf of the owner? 9 A. Yes. 10 Q. And that's why I said -- you indicated that 11 changes in servicing caused a lot of 12 unnecessary assignments; is that right? 13 A. Yes. 14 Q. Why would a change in servicing trigger any 15 assignment of a mortgage? 16 MR. BROCHIN: Object to the form. 17 A. Because the servicer was the mortgagee. 18 Q. So are you speaking in the context of the 19 situation where a company like Wells Fargo 20 originates a mortgage loan and they are 21 named as mortgagee, because they were the 22 lender. And then at some point they 23 securitized that loan and some other entity 71 1 became a servicer, and so there would be an 2 assignment evidencing a change in that 3 interest? 4 MR. BROCHIN: Object to the -- 5 A. It's not evidence -- 6 MR. BROCHIN: Excuse me. Object 7 to the form of the question. 8 A. Yeah. Being mortgagee doesn't mean that 9 somebody made the loan. 10 Q. Well, not with respect to MERS; right? 11 A. Or anybody else. 12 Q. But, I mean, your whole MERS as mortgagee 13 system is built upon the premise that you 14 never make a loan? 15 A. We never make a loan. 16 Q. And you never have the right to collect any 17 money on any mortgage loan? 18 A. Do not. 19 Q. And you exist as mortgagee of record so 20 that assignments do not have to be recorded 21 when transfers occur between MERS members; 22 right? 23 A. Servicing transfers. 72 1 Q. Okay. What about transfers of the 2 ownership of the debt? 3 A. It's never recorded, never was. 4 Q. Okay. So your testimony is, is that no 5 matter how many times a promissory note is 6 endorsed and transferred for value between 7 various purchasers, for whatever reason, 8 that there was never contemporaneous 9 assignments of those mortgages which 10 secured the payment of that note? 11 MR. BROCHIN: Object to the form. 12 That's not his testimony. The 13 record will reflect his 14 testimony. 15 A. Can you repeat the question? 16 MR. WOOTEN: Can you read it 17 back? 18 (Requested portion of the record 19 was read by the court reporter.) 20 A. Yeah. I guess the problem is the word 21 never. But as a matter of course, when the 22 note moves, there's -- it's never been the 23 case that there were generally assignments 73 1 that reflected that. 2 Q. Would you agree that that's something that 3 we lawyers would call a legal issue? 4 MR. BROCHIN: Object to the form. 5 A. Well, notes are freely transferrable, so 6 there's -- 7 Q. I don't disagree with that. My question 8 was, the purpose of a mortgage assignment 9 is typically a legal issue on a 10 state-by-state basis; right? 11 A. Sure. 12 Q. And did your company undertake to research 13 the law of the several states with respect 14 to why those states say that a mortgage 15 assignment should be filed in the public 16 land records? 17 A. Yes. 18 Q. Okay. Did you personally review that 19 research? 20 A. Yes. 21 Q. And you, as we said earlier, are a lawyer 22 and have had legal training? 23 A. Yes. 74 1 Q. And are you satisfied that there is no 2 state that requires -- or that the purpose 3 of the mortgage assignment is to provide 4 notice to the world that the ownership of 5 the debt is transferred between two 6 different parties? 7 A. Yes. 8 MR. BROCHIN: Excuse me. Are you 9 asking him if that -- if he's 10 satisfied that that is the 11 current law? 12 MR. WOOTEN: I am asking him in 13 reviewing that research that 14 his company relied on was he 15 satisfied that -- 16 MR. BROCHIN: At that point? 17 MR. WOOTEN: At the point he 18 reviewed the research. 19 MR. BROCHIN: Okay. 20 A. Yes. 21 (Plaintiff's Exhibit 3 was marked 22 for identification.) 23 Q. I show you this document I marked as 75 1 Plaintiff's Exhibit 3. I represent to you 2 that that is two pages from Black's Law 3 Dictionary, one dealing with beneficial 4 interest, the other dealing with nominee. 5 Are those definitions accurate 6 definitions of your corporation's 7 interpretation of the beneficial interest 8 and nominee with respect to your actions? 9 MR. BROCHIN: Object to the form 10 of the question, and I 11 instruct the witness not to 12 answer. 13 MR. WOOTEN: Mr. Brochin -- 14 MR. BROCHIN: Brochin. 15 MR. WOOTEN: Brochin. 16 -- I'm -- I bend over 17 backwards to be as polite as I 18 could be, but I've been 19 through one of these 20 depositions before where the 21 opponent felt like that they 22 had a right to instruct the 23 witness not to answer. 76 1 I'll be glad to take a 2 minute if you'd like to 3 consult with Mr. Ramey, who's 4 here from Sirote who's an 5 Alabama lawyer. But the law 6 in Alabama is quite clear that 7 you don't have the right to 8 instruct your client not to 9 answer the question. 10 MR. BROCHIN: I believe your 11 question calls for privileged 12 information. 13 MR. WOOTEN: Okay. 14 MR. BROCHIN: And I believe I have 15 every right to instruct him 16 not to answer when you ask him 17 questions about the legal 18 position of a company and ask 19 for legal opinions based on 20 that, so -- 21 MR. WOOTEN: Well, Mr. Brochin, 22 are you licensed in the state 23 of Alabama? 77 1 MR. BROCHIN: My objection and 2 instruction stands. 3 MR. WOOTEN: Okay. Shaun, before 4 I break to call the judge, do 5 you want to try to work this 6 out? 7 MR. RAMEY: I don't know if there 8 is anything to work out if 9 it's a -- I mean, we're 10 talking about an 11 attorney-client privilege 12 issue. 13 MR. WOOTEN: That's not what I 14 asked him. 15 MR. RAMEY: Well, I guess, what is 16 the question? 17 MR. WOOTEN: I mean, the question 18 is does he agree with those 19 definitions of beneficial 20 interest and nominee with 21 respect to the interests that 22 he indicates are his company's 23 interests in these loans. 78 1 MR. BROCHIN: That's not what your 2 question was. 3 MR. WOOTEN: Well, I'll be glad to 4 restate the question if you 5 have -- if you believe that I 6 was asking about information 7 that he obtained from his 8 attorney, which I didn't ask 9 for. I'm asking for his 10 opinion. 11 MR. BROCHIN: I think the question 12 is you asked -- it called for 13 him to disclose information 14 that was obtained through his 15 counsel and the counsel of his 16 company. 17 MR. WOOTEN: Well, that wasn't 18 your objection. So I'll be 19 glad to rephrase my 20 question -- 21 MR. BROCHIN: That was my 22 objection, so -- 23 MR. WOOTEN: -- to make it not 79 1 objectionable. 2 MR. BROCHIN: Go ahead. If you 3 want to rephrase it, go ahead 4 and rephrase it. 5 Q. If you will, pass that document back, 6 Mr. Arnold. I just want to make sure I 7 phrase this correctly. 8 I highlighted three definitions. One 9 was beneficial interest, one was beneficial 10 owner, and the other was nominee. And 11 those directions, I'm representing to you, 12 were pulled -- or those definitions were 13 pulled from Black's Law Dictionary. And my 14 question to you, first of all, with respect 15 to beneficial interest is, does the 16 definition from Black's Law Dictionary 17 agree with your understanding of the 18 beneficial interest as your company 19 recognizes it in these mortgage loans? 20 MR. BROCHIN: That is different. 21 Now, do you understand 22 the question? Because I'm not 23 sure I do. 80 1 A. Well, the definitions use Latin. And, you 2 know, my Latin is not my first language. 3 So, you know, as a general proposition make 4 a distinction between the beneficial 5 interest and the legal interest, which is 6 generally in line with our concept. 7 Q. All right. Then explain to me what your 8 company defines as the beneficial 9 interest. 10 A. It's the interest that goes along with 11 entitled to receive payments. 12 Q. So the beneficial interest is the right to 13 receive payments, not the ownership of the 14 note? 15 A. No. I would say proceeds. I should say 16 proceeds. So the beneficial interest is 17 the interest that coincides with the right 18 to the proceeds. 19 Q. And the right to the proceeds generally 20 belongs to the person who has the right to 21 enforce the note? 22 A. That would depend on state law. 23 Q. It would also depend upon agreements 81 1 between the parties; right? 2 A. Yes. 3 Q. So you could possess a note but not be 4 entitled to payment of any of the proceeds? 5 A. Absolutely. 6 Q. And that occurs all the time? 7 MR. BROCHIN: Object to the form. 8 A. Often. 9 Q. And you're generally familiar with the 10 notions of securitization with respect to a 11 secondary mortgage market; right? 12 A. Less so than the primary market. 13 Q. Sure. But you're familiar with the concept 14 of a document custodian? 15 A. Yes. 16 Q. And document custodians may hold billions 17 of dollars' worth of notes that they have no 18 right to payment on; is that correct? 19 A. Yes. 20 Q. And, in fact, a company could hold a note 21 endorsed in blank but have no right to 22 payment of any sum represented by that 23 note? 82 1 A. Yes. 2 MR. BROCHIN: Object to the form. 3 Q. Did -- 4 A. Yes. 5 Q. The definition of a nominee contained in 6 Black's is the one who's been nominated or 7 proposed for an office. One designated to 8 act for another in his or her place. Is 9 that a fair description of what MERS' 10 position is with respect to a MERS as 11 mortgagee loan? 12 A. Well, again, I think there's some Latin in 13 that definition. But I think, you know, 14 we're talking about as a general 15 proposition that -- yes, agency 16 representative. 17 Q. And is it, in fact, a limited agency that's 18 based upon your agreement with your member? 19 MR. BROCHIN: Object to the form. 20 Membership agreement will 21 speak for itself as to terms 22 of the limitations. 23 Q. Is that correct? 83 1 A. Yes. 2 Q. You won't go beyond what your membership 3 agreement says you can do, will you? 4 A. No. No. 5 Q. I mean, in fact, you say that you will take 6 your instructions from the owner of the 7 debt; right? 8 A. Yes. But we also -- we have 9 responsibilities to the public, and so 10 we -- you know, we have an obligation to do 11 what mortgagees have to do. 12 Q. When you say you have a responsibility to 13 the public, what exactly is that? 14 A. Well, it's just not the case that there 15 aren't other factors that have to be 16 considered in our actions. 17 Q. What are those factors? 18 A. We have -- we have obligations as 19 mortgagee. 20 Q. And what are those obligations? 21 A. At -- you know, at the end of the day it 22 might be to maintain the property. 23 Q. I seem to have read something one time 84 1 where you said something in some media 2 piece about you couldn't identify who the 3 holder of the note was. Your company had 4 to go out and cut the grass or something 5 like that. 6 A. Yes. 7 Q. Now, I understand it might have been a 8 little tongue-in-cheek. But what you're 9 saying is, is that if there's a home that's 10 been foreclosed on by someone in MERS' name 11 and the mortgage -- or the ownership now 12 rests in MERS' name and the house is 13 sitting there with the windows broke out 14 and, you know, the copper stolen and grass 15 not cut, that ultimately it falls to you 16 because you're the owner in the land 17 records by virtue of the foreclosure to fix 18 that up and make it comply with the city 19 code; right? 20 A. Yes. But that could also be the case as 21 mortgagee. 22 Q. Sure. 23 A. And it -- 85 1 Q. Well, after a foreclosure, it would be 2 because of title vested; right? 3 MR. BROCHIN: Object to the form. 4 A. Could be. It could also be with regard to 5 being a mortgagee. And, you know, your 6 question was very categorical. And one of 7 the benefits of MERS is that if a servicer 8 just disappears, MERS is still there. MERS 9 has still got the responsibilities. So 10 they could be in prison, and we're not 11 going to take instructions from that 12 direction. We're going to -- we're going 13 to perform our obligations as mortgagee. 14 Q. Sure. Well, it's a fact, isn't it, sir, 15 that your system will identify the owner of 16 every interest in any loan at any given 17 moment; right? 18 MR. BROCHIN: Object to the form 19 of the question. 20 A. Yeah. Interest, I guess, is a word I've 21 had a problem with from the start of the 22 deposition. We track -- or our system 23 tracks certain information about the loan. 86 1 Q. Other than those obligations that you just 2 mentioned about cutting grass and that sort 3 of thing, being there if the servicer 4 evaporates, what other obligations does 5 MERS have to the general public? 6 A. We have to comply by the laws of the 7 respective state. 8 Q. Well, that's a pretty generic term. I 9 mean, what do you mean comply by the laws? 10 What laws are you complying with? 11 A. The laws of the respective state. 12 Q. Is that with respect to the -- 13 A. Anything. 14 Q. -- status of the mortgagee of record or 15 zoning ordinances? 16 A. Whatever the law is we have to comply 17 with. MERS doesn't have -- 18 Q. Now, that's a -- that's a duty to comply 19 with laws. Allegedly all citizens and 20 corporations are responsible to comply with 21 the law, and you testified that you had 22 obligations to the general public. What 23 are those obligations? 87 1 A. Yeah. I don't really understand the 2 question. Your -- your -- this whole line 3 of questioning, it basically started with 4 you saying that we couldn't do anything 5 that's not spelled out in the membership 6 agreement. And I named numerous situations 7 where we've got obligations that go beyond 8 the membership agreement. 9 Q. Okay. What I said was -- and I'll just 10 re-ask the question so we don't have any 11 misunderstandings. 12 When you're acting on behalf of your 13 principal by virtue of your membership 14 agreement with them, you are not going to 15 exceed the authority you have in that 16 membership agreement to act on behalf of 17 that principal, are you? 18 A. It's subject to what the state law would 19 be. It's subject to what other obligations 20 we might have. 21 I guess my debate is about the 22 categorical nature of your statement. As a 23 general proposition, the membership 88 1 agreement dictates our actions. That's 2 subordinate to our obligations as a citizen 3 and subordinate to whatever kind of 4 specific law might be the case. 5 Q. Okay. Well, let's talk about that with 6 respect to your obligations as to the 7 general public. 8 As a percentage of your business, what 9 percentage of your business is conducting 10 foreclosure activities for the members? 11 A. The revenue? 12 Q. Sure. 13 A. Zero. 14 Q. Okay. And as a percentage of time and 15 effort of your staff and employees, what 16 percentage of the time and effort of your 17 staff and employees is involved in 18 foreclosing in the name of MERS? 19 A. Without getting specific about a 20 percentage, it is -- it is huge. 21 Q. And you've testified -- well, I won't say 22 you've testified. But you say on your 23 Website that you have the right to 89 1 foreclose in all the states in the country 2 based on your membership agreement and the 3 documents; right? 4 MR. BROCHIN: Object to the form. 5 A. It's based on our status with regard to the 6 mortgage loan and the state law. 7 Q. Okay. But you stopped foreclosing in 8 Florida? 9 A. Yes. 10 Q. And why did you stop foreclosing in your 11 name in Florida? 12 A. Well, there was a trial court ruling that 13 created confusion about whether we could or 14 not. And so we instituted a moratorium 15 until we could get that clarified, which we 16 did through the appellate process and won 17 both cases unanimously. 18 Q. And both of those cases held that when you 19 were the note holder that you had the right 20 to foreclose; right? 21 A. Yes. 22 MR. BROCHIN: Object to the form. 23 Q. And you're talking about the Cabrera case 90 1 and Judge Logan's case; right? 2 MR. BROCHIN: I'm sorry. Would 3 you repeat that. I didn't 4 hear it. 5 Q. You're talking about the Cabrera case -- 6 MR. BROCHIN: Cabrera? 7 Q. -- and Judge Logan's case; right? 8 MR. BROCHIN: Object to the form. 9 A. I think of it as Logan and Gordon. 10 Q. Right. The judges. 11 Now, you just testified that you won 12 both of those cases unanimously on appeal; 13 right? 14 A. Yes. 15 Q. Why aren't y'all back in business 16 foreclosing down there, then? 17 A. We just haven't turned it back on. 18 Q. And so you haven't turned it back on. You 19 don't think there's any other legal 20 impediment to your right to turn it back 21 on, as you phrased it, in Florida? 22 A. No. 23 Q. In reading, preparing for today, I have 91 1 seen either writings or testimony from your 2 company indicating -- we talked earlier 3 about the servicing interest and/or 4 servicing rights to any loan. So that's 5 part of what your company tracks? 6 A. Yes. 7 Q. And we've talked about the beneficial 8 interest, which you indicated is the person 9 who has the right to payment. Is that fair 10 to say? 11 A. Generally. 12 Q. And you've indicated the mortgagee 13 interest, which is what your company holds? 14 A. Yes. 15 Q. Is it fair to say that in every case of 16 63 -- 62 million loans that are recorded -- 17 where mortgages are recorded MERS as 18 mortgagee, that the lender in those loans 19 has not recorded a lien solely in their 20 name? 21 MR. BROCHIN: Object to the form. 22 A. Yes. 23 Q. All the liens for those 62 million loans 92 1 are in the name of MERS as mortgagee? 2 MR. BROCHIN: Object to the form. 3 A. They are in the name of MERS. When you 4 say -- you said earlier MERS, Inc. 5 Q. Okay. Right. And let's be clear. You 6 call the MERS as original mortgagee 7 mortgage form -- I think y'all refer to it 8 as a MOM mortgage? 9 A. Yes. 10 Q. And when we talk about the mortgagee of 11 record, you're talking about the subsidiary 12 company, MERS, Inc.; is that correct? 13 A. MERS, Inc. 14 Q. Right. 15 A. Yes. 16 Q. And you agree with me that in every one of 17 those mortgage loans the lien is in the 18 name of MERS, Inc.? 19 MR. BROCHIN: Object to the form. 20 A. Yes. MERS, Inc., being Mortgage Electronic 21 Registration Systems, Inc. 22 Q. Right. And you also agree with me in all 23 62 million of those loans that MERS has 93 1 never made a single loan to a borrower or 2 acted as a lender? 3 A. Yes. 4 Q. And you agree with me with respect to those 5 62 million loans that although the lien is 6 in the name of MERS, Inc., that MERS, Inc., 7 is never entitled to a penny of the money 8 that is owed on the note which is secured 9 by the lien that exists in MERS, Inc.'s 10 name? 11 A. Yes. 12 Q. Prior to your company's formation, has 13 there ever existed in the history of this 14 country a company who attempted to do what 15 your company is doing? 16 A. I don't know. 17 Q. Do you have any other company who is 18 attempting to implement a system similar to 19 or competitive with your company? 20 MR. BROCHIN: Object to the form. 21 A. I don't know. 22 Q. Are you aware of any company? 23 A. Rumors? 94 1 Q. No announcements? 2 A. No. 3 Q. Page 39 in that transcript we were talking 4 about earlier and we kind of got off track. 5 MR. BROCHIN: Can I just make a 6 note for the record -- 7 MR. WOOTEN: Sure. 8 MR. BROCHIN: -- that you 9 substituted an exhibit for 10 what was originally marked as 11 the transcript, pulling one 12 copy that had markings on it 13 and substituting another. But 14 the copy that is in front of 15 the witness also has various 16 markings and highlighting and 17 underlining and -- 18 MR. WOOTEN: Sure. 19 MR. BROCHIN: -- perhaps notes on 20 it. 21 MR. WOOTEN: And I'll just 22 represent to you, Mr. Brochin, 23 for your -- so you understand 95 1 that, that it's just where I 2 read this transcript and made 3 highlights. 4 MR. BROCHIN: I just want the 5 record to reflect it's not a 6 clean copy of the transcript. 7 MR. WOOTEN: Sure. It's got my 8 highlights on it. 9 Q. But the actual testimony in this transcript 10 is yours; right? There's no -- you don't 11 deny that you gave that deposition three 12 years ago today in that case, do you? 13 Mr. Arnold? 14 A. Yes. 15 Q. You don't deny that you gave that 16 deposition three years ago today in that 17 case, do you? 18 A. No, I don't. 19 Q. And in this deposition is it true that 20 you're acting in the capacity as a 30(b)(6) 21 witness for your corporation? 22 A. This one? 23 Q. Yeah. 96 1 A. Yes. 2 Q. And today you're here not as a 30(b)(6) 3 witness but under 30(b)(1) as a fact 4 witness; right? 5 A. That's my understanding. 6 Q. I want to ask you again, is it your 7 position that your company owns the lien? 8 MR. BROCHIN: Object to the form. 9 Asked and answered. 10 A. Yeah. I'd have -- you know, ownership of 11 the lien is not really -- it doesn't really 12 fit. 13 Q. Why is that? 14 A. We hold the lien interest. 15 Q. What is -- 16 A. We're the mortgagee -- 17 Q. I'm sorry. What is the lien interest? 18 A. It's the mortgage interest. We're the 19 mortgagee of record. 20 Q. What is the mortgagee? I mean, is that the 21 person who has the lien? 22 A. It's bare legal title. 23 Q. So what you're saying, then, is -- when you 97 1 say you hold the mortgagee interest or the 2 lien interest, you're saying simply that 3 this mortgage lien is in your name in the 4 public land records? 5 A. That's right. 6 Q. And you have no right to enforce that lien 7 as owner? 8 MR. BROCHIN: Object to the form 9 of the question. That's not 10 what he said. 11 A. Yeah. And I wouldn't agree with that 12 either. The security instrument gives MERS 13 the right to foreclose. 14 Q. The form mortgage says that you have the 15 right to foreclose? 16 A. Yes. 17 Q. What are the qualifications of that right? 18 MR. BROCHIN: Object to the form 19 of the question. 20 A. I don't know what you mean by 21 qualifications. 22 Q. Aren't you familiar with the mortgagee 23 clause in the MOM mortgage? 98 1 A. Yes. 2 Q. And doesn't it say that you're acting as 3 nominee for the lender, their successor, 4 and their assigns? 5 A. Yes. 6 Q. And it says your right is subject to 7 limitations imposed by law basically? 8 MR. BROCHIN: Objection to the 9 form of the question. First 10 of all, the document will 11 speak for itself, and I think 12 it's an overgeneralization of 13 a probably 30-page document. 14 Q. Well, we can agree that the mortgagee 15 clause where your company's name is 16 inserted is not 30 pages, is it? 17 MR. BROCHIN: Object to the form. 18 We'll agree to that. 19 A. The grantor clause is just a reasonable 20 size paragraph. 21 Q. And is it your testimony that there are no 22 limitations on your right to foreclose as 23 nominee for the lender? 99 1 A. I didn't say that. 2 MR. BROCHIN: Object to the form 3 of the question. That's not 4 his testimony. You continue 5 to mischaracterize what he's 6 saying. 7 Q. Well, what are the qualifications of your 8 right to foreclose under that paragraph? 9 MR. BROCHIN: Object to the -- 10 A. Well, if you're -- 11 MR. BROCHIN: Excuse me. Object 12 to the form of the question. 13 Again, the document would 14 speak for itself as to what 15 limitations or enabling 16 provisions are in that 17 mortgage. Maybe you want to 18 show it to him. 19 A. When you say qualifications, I don't -- I 20 don't know what that means. And then you 21 say limitations. That's -- I understand 22 that. 23 Q. Okay. I'm using the terms 100 1 interchangeably. Is there any limit on 2 your right to foreclose contained in the 3 MERS as mortgagee document? 4 MR. BROCHIN: Same objection. 5 A. Yes. 6 Q. And what are those limitations? 7 MR. BROCHIN: Same objection to 8 the extent the document speaks 9 to its -- speaks for itself. 10 A. Yeah. I'd have to say the same thing. The 11 document -- you know, there -- I'm 12 comfortable with saying there are 13 limitations. 14 Q. So your equation of ownership of the 15 mortgagee interest is merely your company's 16 name in the public land records? 17 MR. BROCHIN: Object to the form 18 of the question. 19 A. We are the mortgagee on the security 20 instrument, and we have to be recorded as 21 such in the land records. 22 Q. Okay. Do you have the right to foreclose 23 absent ownership of the underlying debt? 101 1 MR. BROCHIN: Objection. Asked 2 and answered. 3 A. It would depend on the state law. 4 Q. With respect to my client, you began a 5 foreclosure in the name of MERS. How does 6 MERS determine that it's time to go 7 foreclose on someone? 8 A. That's determined by the servicer. 9 Q. And with respect to my client, who is the 10 servicer? 11 A. Isn't it GMAC? 12 Q. I think so. What is the process by which 13 GMAC notifies MERS to go and foreclose? 14 A. Well, GMAC will handle the foreclosure, and 15 they report that over the MERS system. 16 Q. And how is that accomplished? What are the 17 mechanics of that process? 18 A. Electronically. 19 Q. Do you have any firsthand personal 20 knowledge whether Debra Henderson was 21 behind on her mortgage payment when this 22 foreclosure began? 23 A. No. 102 1 Q. Would MERS have any firsthand knowledge of 2 whether she was behind when this 3 foreclosure began? 4 A. No. 5 MR. BROCHIN: Objection. Calls 6 for speculation. 7 Q. Does it call for speculation? 8 A. The answer is no. 9 Q. You don't have any records, do you -- 10 MR. BROCHIN: I'm sorry? 11 Q. -- with respect to her payment history? 12 A. No. 13 Q. You don't get that information from a 14 servicer ever, do you? 15 A. No. 16 Q. And you wouldn't have any idea if she paid 17 the loan off and they were still trying to 18 foreclose, would you? 19 MR. BROCHIN: Excuse me. Are you 20 talking about Mr. Arnold, or 21 are you talking about MERS? 22 MR. WOOTEN: Either. 23 A. We get notified if the loan is paid off. 103 1 Q. Assuming that it's recorded by the 2 servicer; right? 3 A. Yes. 4 Q. But with respect to any action with any 5 foreclosure that's taken in the name of 6 MERS, at the time the foreclosure is 7 instituted MERS has no idea what the legal 8 status of that mortgage account is, does 9 it? 10 MR. BROCHIN: Object to the form 11 of the question. 12 A. You know, like you said, I'm -- you know, 13 I'm a 30(b)(1) witness. And you asked 14 earlier about personal knowledge. And I 15 don't have any personal knowledge about 16 that. 17 Q. Did you review the information contained in 18 the MERS system for Ms. Henderson's loan 19 before you came here today? 20 A. I glanced through the file. 21 Q. And is it fair to say that nothing in the 22 MERS system provides you any information 23 about the status of her loan, what payments 104 1 have been made, what payments have been 2 missed, anything like that? 3 A. That's a fair statement. 4 Q. And so when a foreclosure is undertaken in 5 the name of MERS, MERS has no information 6 about the validity of the act being 7 undertaken -- 8 MR. BROCHIN: Object to the form 9 of the question. 10 Q. -- simply being told that a foreclosure is 11 being taken in its name; right? 12 MR. BROCHIN: Object to the form 13 of the question. 14 A. Well, we have -- we have rules, and it's 15 all part of the membership agreement. 16 Q. Right. But -- 17 A. There are limitations, as you say. 18 Q. Right. But with respect to any particular 19 foreclosure act, MERS never receives any 20 information where MERS could determine 21 whether or not there's even a right to 22 begin a foreclosure; is that correct? 23 A. Well, the member has a certifying officer. 105 1 Q. Right. And when you say certifying 2 officer, just so nobody misunderstands, 3 that's any employee that the member 4 designates that they would like to have 5 execute documents in the name of MERS? 6 A. It's not any employee. 7 Q. Who are they? 8 A. Well, they have to be an officer of the 9 member. 10 Q. And an officer of the member, do you mean 11 an executive officer who has a right to 12 bind the company? 13 A. Any officer has the right to bind the 14 company. 15 Q. So in contemplating that requirement, was 16 it your company's intention that persons 17 designated as certifying officers would be 18 persons with sufficient authority to bind 19 the corporation? 20 A. MERS, Inc.? 21 Q. The membership agreement authorizes the 22 member to designate certifying officers; 23 right? 106 1 A. Well, designate -- they report to us and we 2 approve that. 3 Q. But the member tells MERS who they would 4 like MERS to designate as a certifying 5 officer? 6 A. Yes. 7 Q. Fair? 8 A. Fair. 9 Q. And your membership agreement says that 10 those persons will be officers of the 11 member? 12 A. Yes. 13 Q. And if the member is a corporation, is 14 there an expectation that they would be a 15 corporate officer? 16 A. An officer? 17 Q. Right. 18 A. Yes. 19 Q. And you would expect that if they were 20 certified as a certifying officer that they 21 would be able to bind the member when the 22 member requested that they be designated as 23 certifying officer by you, MERS -- by MERS? 107 1 A. Well, the certifying officers have only 2 limited authority. 3 Q. With respect to their limited authority, 4 what is it limited to? 5 A. I think there's seven categories. 6 Q. Okay. What are the seven categories? 7 A. Can execute releases, execute assignments, 8 execute modifications, matters regarding 9 foreclosure -- 10 Q. And let me pause you there. When you say 11 matters regarding foreclosure, would that 12 be like an affidavit of default? 13 A. Yes. 14 Q. And that could be undertaken in the name of 15 MERS? 16 A. Not necessarily. 17 Q. They could; right? 18 A. Actions in a foreclosure that are 19 necessary, one of their authorities. 20 Q. All right. That means that they have to 21 certify the amount of the default through 22 sworn testimony? 23 A. Whatever -- whatever the state law 108 1 requirements are. 2 Q. And they can certify that in the name of 3 MERS? 4 A. I don't think it's in the name of MERS. 5 MERS is not -- MERS is not certifying that 6 anybody is in default. An affidavit may 7 come from somebody with personal knowledge. 8 Q. And if they sign that affidavit as a 9 certifying officer of MERS, then they would 10 be giving the impression to the receiver of 11 that affidavit that MERS is certifying the 12 amount of the default; right? 13 MR. BROCHIN: Object to the form 14 of the question. 15 A. Yeah. I think an affidavit is going to 16 come from a person with personal knowledge 17 of that, so ... 18 Q. Do you have a specific prohibition against 19 a certifying officer certifying the amount 20 of a delinquency or default under oath in 21 any judicial proceeding? 22 A. It depends on what the state law is and 23 whether they have personal knowledge of it. 109 1 Q. MERS would have no corporate records of any 2 type and no business records of any type 3 with respect to the existence or the amount 4 of a default on any mortgage loan, would 5 it? 6 MR. BROCHIN: Object to the form. 7 A. At the corporate headquarters? 8 Q. MERS period. 9 A. Well, if there's the certifying officer 10 with personal knowledge of that, then so be 11 it. 12 Q. You've heard of a company called LPS, 13 haven't you? 14 A. Yes. 15 Q. And does MERS certify employees of LPS as 16 certifying officers? 17 A. I don't know. 18 Q. You're aware of LPS's position in the 19 industry; correct? 20 A. No. 21 MR. BROCHIN: Object to the form. 22 Q. Do you know that LPS is the owner, 23 proprietor, licensor of the software system 110 1 called Mortgage Servicing Platform, or MSP 2 for short? 3 A. Yes. 4 Q. Are you aware that that software program is 5 used by approximately 80 percent of all the 6 mortgage servicers in the country? 7 A. No. 8 MR. WOOTEN: Let's take a moment's 9 break. He needs to change the 10 tape. Do y'all need a break? 11 We've been going for a 12 while. 13 THE VIDEOGRAPHER: We are going 14 off the record. The time is 15 now 12:06 p.m. 16 (A brief recess was taken.) 17 THE VIDEOGRAPHER: This is Disk 2 18 in the continuing deposition 19 of R.K. Arnold, and the time 20 is now 12:22 p.m. 21 Q. (Mr. Wooten continuing:) Mr. Arnold, we 22 took a short break to take care of a few 23 things. We were talking about some various 111 1 testimony that's occurred over the years 2 with respect to different cases your 3 company has been involved in, testimony 4 you've given. Is it your company's 5 intention to supplement or assist the 6 public land records of the several states 7 with the MERS system to make it more clear 8 about who owns what? 9 A. No. 10 Q. Is it your company's intent to supplant the 11 mortgage land records of various states 12 with its system? 13 A. No. We layer it on top is the way to think 14 of it. 15 Q. When you say layer it on top, explain that, 16 please. 17 A. Well, the MERS system couldn't exist if the 18 recording system didn't exist. 19 Q. But the recording system can exist without 20 MERS? 21 A. Certainly. So we are the mortgagee of 22 record, and there has to be a place for us 23 to establish that. And then we track the 112 1 servicer. 2 Q. You actually track more than a servicer, 3 too, don't you? 4 A. Yes, we do. 5 Q. What else do you track? 6 A. Well, we track the note. 7 Q. And what do you -- when you say you track 8 the note, what exactly are you tracking 9 about the note? 10 A. And even when I say we, it's really the 11 system. The members utilize the system to 12 track the note. 13 Q. I think you've referred to this in various 14 documents as a book entry system. 15 A. That term has been used. It doesn't have a 16 whole lot of application in it when it 17 comes right down to it, but that term has 18 been used. 19 Q. So when we ask MERS in this lawsuit to tell 20 us who the holder of a note is, you can 21 look in your system and tell us that 22 information, can't you? 23 MR. BROCHIN: Object to the form 113 1 of the question. 2 A. Our system tracks the beneficial interest. 3 Q. And the beneficial interest is the entity 4 entitled to payment of the money on the 5 note? 6 A. Beneficial interest is generally entitled 7 to the proceeds of the debt. 8 Q. My understanding is during the foreclosure 9 process, at some point the beneficial 10 interest holder, as your term is, will 11 physically place in the possession of the 12 servicer or the servicer's attorney the 13 actual promissory note; is that correct? 14 MR. BROCHIN: Object to the form. 15 A. We have a requirement that the actual 16 promissory note be available at the right 17 point as dictated by state law in a 18 foreclosure. 19 Q. Is it fair to say that at the point in time 20 a foreclosure is initiated by publication 21 in Alabama, which is a nonjudicial 22 foreclosure state, in the name of MERS, 23 that MERS does not possess the promissory 114 1 note? 2 MR. BROCHIN: Object to the form 3 of the question. 4 A. Depends on the situation. 5 Q. I'm speaking of physical possession. 6 MR. BROCHIN: Object to the form 7 of the question. 8 A. And I'm saying I -- you know, it depends on 9 the requirements of state law. 10 Q. Okay. Is it your understanding that 11 Alabama requires the holder of the 12 promissory note to be the one to enforce 13 it? 14 A. I don't know Alabama law. 15 Q. Is that a general rule of the UCC? 16 MR. BROCHIN: Object to the form 17 of the question. 18 A. It's certainly not part of the UCC. 19 Q. Okay. Is it your testimony that the UCC 20 does not require a holder to enforce a 21 note? 22 MR. BROCHIN: Object to the form 23 of the question. 115 1 A. The UCC wouldn't cover any of that. 2 Q. The UCC would cover who is entitled to 3 enforce an instrument, wouldn't it? 4 A. No. 5 MR. BROCHIN: I'm sorry. I 6 can't -- couldn't hear you. 7 Q. I said the UCC would cover who is entitled 8 to enforce an instrument, wouldn't it? 9 A. No. 10 MR. BROCHIN: Object to the form. 11 A. I don't think so. I think the UCC 12 establishes what a holder is. 13 Q. Okay. Is it your testimony that every 14 mortgage note -- every promissory note 15 which secures -- or which is secured by a 16 MERS as mortgagee loan -- lien is endorsed 17 in blank as part of complying with the MERS 18 membership agreement? 19 A. I don't know. 20 Q. You will agree with me that MERS requires a 21 promissory note to be endorsed in blank at 22 the time that it presents it during a 23 foreclosure proceeding; right? 116 1 MR. BROCHIN: Object to the form. 2 A. Yeah. It wouldn't have to be in blank. 3 It -- it has to be available in the 4 foreclosure. That's one of our 5 requirements. And a note doesn't have to 6 be endorsed in blank. It can move without 7 endorsement. 8 Q. It can move by transfer of possession; 9 right? 10 A. Yes. It does move by transfer of 11 possession. 12 Q. Without an endorsement? 13 A. It can. 14 Q. Now, typically the person with possession 15 is entitled to enforce the note; right? 16 MR. BROCHIN: Object to the form 17 of the question. 18 A. It would depend on what the state law 19 requirements are. 20 Q. Is that what your rules with respect to 21 foreclosures call for? 22 MR. BROCHIN: Object to the form 23 of the question. The 117 1 documents speak for 2 themselves. 3 A. One of the requirements is that state law 4 has to be followed. Another requirement is 5 that the note has to be available. 6 Different courts, different states. It 7 just depends on what the particular 8 jurisdiction requires. But you always have 9 to go by state law and the note has to be 10 available. 11 Q. And you would agree that under no 12 circumstances is any mortgage note ever 13 endorsed to MERS by a MERS member? 14 A. I wouldn't say that. 15 Q. If you will, flip over to page 76 of that 16 transcript, please, sir. 17 Beginning at line six you were asked, 18 let me ask about mortgage notes. Does MERS 19 ever take an assignment of a mortgage 20 note? 21 And your response was, no, sir. We 22 become the holder of the mortgage note. 23 With respect to your position that you 118 1 become the holder of the mortgage note, are 2 you using the term holder in the sense of 3 the Uniform Commercial Code and its 4 definition, or are you using the term 5 holder in the sense of bare physical 6 possession? 7 MR. BROCHIN: Just so I understand 8 the question, you're asking 9 him -- are you asking him how 10 he's using the term holder in 11 the answer to this deposition? 12 MR. WOOTEN: That's right. 13 MR. BROCHIN: Okay. I object to 14 the form of that question. I 15 think it's inappropriate to 16 ask one Q and A out of a 17 deposition transcript and ask 18 a witness to interpret what it 19 means without the entire 20 context. So I think that that 21 question is inappropriate. 22 Q. Well, let me rephrase that question; okay? 23 MR. BROCHIN: I object to the form 119 1 of that. 2 Q. That question and answer, lines -- page 76, 3 lines six through nine, is that a fair 4 statement of your position, that MERS 5 becomes a holder of a mortgage note in the 6 foreclosure process? 7 MR. BROCHIN: Object to the form 8 of the question on the same 9 basis as it is not appropriate 10 to ask a witness a question 11 about previous testimony and 12 then say is that his position 13 by just referring to one 14 question and answer. 15 Q. Well, let me ask you this, Mr. Arnold: How 16 do you define holder? 17 A. Well, it would depend on the state law, 18 specifically the Uniform Commercial Code as 19 adopted, Article 3, and whatever cases have 20 interpreted that in that state. 21 Q. So your definition of holder rests upon the 22 UCC definition of holder? 23 A. Yes. 120 1 Q. You are not contending that being in mere 2 physical possession is what you mean by 3 holder? 4 MR. BROCHIN: Object to the form. 5 A. You know, that's part of being holder. 6 Q. I said mere physical possession. 7 A. Yeah. And that's the word that I don't 8 understand. 9 Q. Because we talked earlier about the fact 10 that document custodians hold billions of 11 dollars' worth of mortgages that they have 12 no rights to -- or mortgage notes they have 13 no right to any payments on; right? 14 A. Right. 15 Q. And anyone who would represent merely 16 possessing a promissory note entitles them 17 to payment, that's not the definition of 18 the UCC holder, is it? 19 A. Well, you asked about the definition of the 20 holder, and it depends on the state law, 21 specifically the UCC, Article 3, in that 22 state, cases. And then you're referring to 23 a situation that's got documents, 121 1 contracts, and those contracts would 2 dictate within the confines of state law. 3 Q. Right. And your membership agreements 4 state that even though you may obtain 5 possession of a note, you are never 6 entitled to payment under the note? 7 A. Yes. 8 Q. So, again, I want to make sure that you're 9 not contending that merely having a note 10 endorsed in blank makes you or anyone else 11 a UCC holder. 12 MR. BROCHIN: Object to the form 13 of the question to the extent 14 it calls for a contention and 15 a legal conclusion. 16 A. Yeah. I think you're trying to draw a 17 legal line there that's -- that doesn't 18 work. All holders are not entitled to the 19 proceeds of a note. 20 Q. And isn't it true that every time that MERS 21 presents a note, even if it is endorsed in 22 blank, that it is presenting that note on 23 behalf of the person who is entitled to 122 1 payment? 2 A. Yes. 3 Q. And so the mere physical possession of the 4 note endorsed in blank does not entitle 5 MERS to the payment of those proceeds? 6 A. Correct. But you're the holder. 7 Q. I'm going to let that lay for a minute. 8 If the beneficial owner of a promissory 9 note that is secured by a MERS as mortgagee 10 mortgage chooses to foreclose in a name 11 other than MERS, your company does not 12 oppose that practice, does it? 13 A. When you say beneficial owner of a 14 promissory note ... 15 Q. The person identified on the MERS system as 16 having the right to payment on the 17 promissory note; right? 18 A. Okay. 19 Q. If they determine that they would like to 20 foreclose in a name other than MERS, you 21 don't have a problem with that, do you? 22 A. In a name other than MERS? 23 Q. (Nods head.) 123 1 A. No problem. 2 Q. How do you effectuate or assist that 3 beneficial owner in accomplishing that? 4 A. Well, there would need to be an assignment 5 out of MERS. 6 Q. How would that be accomplished? 7 A. A MERS certifying officer of the member 8 would execute an assignment out of MERS and 9 that would be recorded in the land records. 10 Q. And that certifying officer who made that 11 assignment, he would be -- he would be 12 assigning everything that MERS owned; 13 right? 14 A. But he would be assigning the mortgage 15 interest. 16 Q. And who owns that? 17 A. Well, the ownership of that is something 18 that I've had a problem with since the 19 start of the deposition. It's -- it's a -- 20 it's a status. It is the mortgagee. It's 21 a legal interest. 22 Q. Is it -- is it your understanding that a 23 party could theoretically assign an 124 1 interest that they do not own? 2 MR. BROCHIN: Object to the form 3 of the question. Calls for 4 theory. 5 Q. I mean, isn't it a fundamental law -- a 6 fundamental principle that you can only 7 assign what you actually own? 8 MR. BROCHIN: Object to the form. 9 A. Yes. 10 Q. So a recorded MERS assignment is an 11 assignment of whatever MERS owns? 12 A. Well, you're -- you want to say that MERS 13 owns the legal interest. And, you know, 14 MERS -- MERS assigns the legal interest. 15 Ownership -- I'm not really sure what that 16 word means in this context. 17 Q. You're certainly familiar with the 18 pleadings and briefs and transcripts from 19 the Jewelean Jackson versus MERS case up in 20 Minnesota, aren't you? 21 THE WITNESS: Is that -- 22 MR. BROCHIN: Are you asking him 23 if he's familiar with it? 125 1 A. You have to give me more than that. 2 Q. You're aware that there was a lawsuit up 3 there that said that you weren't recording 4 assignments; right? 5 MR. BROCHIN: Object to the form 6 of the question. 7 A. That went to the State Supreme Court? 8 Q. Right. 9 A. Yes. 10 Q. And you're familiar with the fact that that 11 state had adopted a special statute dealing 12 with nominees that they were referring to 13 as the MERS statute; right? 14 A. Yes. 15 Q. And, I mean, isn't it a fact that in that 16 case MERS argued both to a Federal District 17 Court and to the State Supreme Court that 18 MERS was the owner of the mortgage and that 19 the notes could be sold repeatedly without 20 any effect on the actual lien? 21 MR. BROCHIN: Object to the form 22 of the question to the extent 23 you're trying to ask the 126 1 witness what positions were 2 argued in the Minnesota 3 Supreme Court. But if you 4 know ... 5 A. Yeah. I'm not familiar with everything 6 that was -- that was said and done in the 7 lawsuit. 8 Q. Although you're here as a fact witness, I 9 mean, you're still the CEO of MERS; right? 10 A. Yes. 11 Q. And this lawsuit basically challenged the 12 validity of your right to foreclose in 13 Minnesota; right? 14 MR. BROCHIN: Object to the form 15 of the question. 16 A. Yes. 17 Q. And I'm assuming that you would have had 18 discussions at some point among your team 19 or your executive officers about the 20 potential impact of that case? 21 A. Yes. 22 Q. We talked about the fact that you're an 23 attorney who practiced law. You understand 127 1 the significance of a ruling that you have 2 no right to foreclose in a state; right? 3 A. I do. 4 Q. It would be detrimental to your business 5 model, wouldn't it? 6 A. I wouldn't concede that. 7 Q. So, I mean, is it your testimony that you 8 have not reviewed the pleadings and 9 affidavits that were filed on behalf of 10 your company in that case? 11 A. Yes. 12 Q. Have you reviewed any of the transcripts of 13 that case? 14 A. I was there at the argument. 15 Q. Is that the argument between Ms. Hawkins 16 and Mr. Pratt? 17 A. There were two. 18 Q. Were you at the trial court transcript or 19 the Supreme Court hearing? 20 A. Both. 21 Q. As I understand it, Mr. Pratt, your 22 attorney up there seemed to be pretty 23 accomplished. He actually helped craft 128 1 your MERS statute and helped to get it 2 passed; right? 3 MR. BROCHIN: Object to the form 4 of the question. 5 Q. Isn't that true? 6 A. What's the question? 7 Q. Your attorney in the case in Minnesota 8 actually helped draft the MERS statute for 9 Minnesota; correct? 10 A. Yes, he did. 11 Q. And that MERS statute specifically 12 authorized the nominee to undertake certain 13 actions; right? 14 A. It clarified -- Minnesota is a Torrens 15 state. So the county clerks wanted 16 clarification of what a nominee was. 17 Q. And when you say Torrens, you're talking 18 about a recording system; right? 19 A. Yes. 20 Q. And a Torrens state requires that only 21 certain specific instruments may be 22 recorded; right? 23 A. Well, I don't think of it that way. 129 1 Q. Okay. 2 A. It's more the clerk is establishing the 3 validity of the document. 4 Q. Okay. And in the case at issue, what the 5 plaintiffs and Ms. Hawkins were complaining 6 about was partially the allegation that the 7 note had changed hands many times, but 8 there was no record of who the true owner 9 of the note was that could be ascertained 10 from the recording statute; right? 11 MR. BROCHIN: Object to the form 12 of the question to the extent 13 you're asking this witness 14 about facts of a case in 15 Minnesota. 16 A. Well, we talked about this earlier. The 17 notes were never recorded in the land 18 records. So the argument didn't -- the 19 argument lost. 20 Q. Right. And what we've talked about is, is 21 what is recorded is the lien which secures 22 the payment of the note by the right to 23 sell the real property? 130 1 A. Fair enough. 2 (Plaintiff's Exhibit 4 was marked 3 for identification.) 4 Q. I want to mark as Plaintiff's Exhibit 4 the 5 Affidavit of William Hultman that was filed 6 in the United States District Court for the 7 District of Minnesota. And because I did 8 not have the opportunity to make duplicates 9 of that, I'm going to ask you to glance 10 through it, and then I'll ask you some 11 questions about it; okay? 12 A. Yes. 13 MR. WOOTEN: And, again, there are 14 highlighted portions that I've 15 highlighted in that as I read 16 through it. 17 MR. BROCHIN: There's highlighted 18 portions for the record. 19 There's notations made on it, 20 handwritten notations. 21 MR. WOOTEN: Sure. 22 MR. BROCHIN: There's underlining 23 on it. And it's hardly the 131 1 document as filed in the 2 court. 3 MR. WOOTEN: Certainly. 4 MR. RAMEY: And obviously our 5 relevancy objections on this 6 are all preserved. 7 MR. WOOTEN: Yeah. 8 A. So you have questions? 9 Q. Yeah. If you will, hand it back to me and 10 I'll run those -- I'll run through those 11 with you right quick. 12 Mr. Hultman has been with you guys 13 since when? 14 A. February 1998. 15 Q. And has he basically been part of your team 16 that entire time? 17 A. Yes. 18 Q. And you're aware that he filed an affidavit 19 in the Henderson case also? 20 A. As part of his job. 21 Q. Is to file affidavits? 22 A. Yes. 23 Q. In paragraph three he says the MERS system 132 1 keeps track of such servicers and answers 2 inquiries as to who currently services a 3 given mortgage loan, providing critical 4 information that was not available prior to 5 the creation of MERS. 6 Isn't it a fact, Mr. Arnold, that the 7 servicer is the entity to which the 8 borrower pays their payments? 9 A. Yes. 10 Q. So that information is available to the 11 borrower every month by virtue of a payment 12 coupon; right? 13 A. Well, the payment coupon is issued at the 14 time the loan is made, so it changes. 15 Q. There's a monthly mortgage statement sent; 16 right? 17 A. Maybe. 18 Q. And it advises the borrower who to pay; 19 right? 20 A. There's also a hello/goodbye letter. 21 Q. Which is a requirement under federal law -- 22 A. Right. 23 Q. -- that notifies the borrower when there's 133 1 a change in the servicer? 2 A. Right. 3 Q. And that's under the RESPA law; right? 4 A. Right. 5 Q. So that information is available whether or 6 not MERS exists? 7 MR. BROCHIN: Object to the form. 8 A. Not in the land records. 9 Q. But you testified earlier that assignments 10 were filed to disclose who the servicer was 11 prior to the MERS system; right? 12 A. The servicer was the mortgagee. So every 13 time the servicer changed there had to be 14 an assignment. 15 Q. And so even if MERS didn't exist, the 16 servicer would still be in the land 17 records; right? 18 A. Six months, 12 months, 18 months late, 19 filed in the wrong order, lost, 20 misrecorded, misspelled. 21 Q. And those are obligations of the parties 22 performing those acts. Those are not the 23 consumers' obligations; right? 134 1 MR. BROCHIN: Object to the form. 2 A. I don't understand the question. 3 Q. Well, you know, part of this argument that 4 you guys are making around the country is, 5 is that you provide these great benefits to 6 consumers. And one of the things that you 7 identify in this affidavit and the 8 affidavit in the Henderson case is that you 9 tell the world who the servicer is. 10 A. Instantaneously. 11 Q. However, we just talked about the fact that 12 if you didn't exist, the servicers' 13 information would be in the land records by 14 virtue of an assignment; right? 15 A. Six months, 12 months, 18 months late, 16 filed in the wrong order, wrong names, 17 misfiled -- 18 Q. And those issues -- 19 A. -- stacked up in a closet somewhere. 20 Q. And those issues are lender-servicer 21 issues. They're not consumer issues; 22 right? 23 A. And clerk issues. 135 1 Q. Right. Those inure to the benefit of the 2 lenders and servicers, not the consumers? 3 A. I couldn't agree with that at all. The 4 borrower needs to know where to send their 5 payment. 6 Q. Sure. 7 A. And there shouldn't be a question about 8 that. 9 Q. And they're going to get that information 10 in the form of hello/goodbye letters and 11 mortgage statements; right? 12 MR. BROCHIN: Object to the form. 13 Asked and answered. 14 Argumentative. 15 A. It's not -- it's not that easy. 16 Q. Servicers have a strict liability duty to 17 comply with RESPA; right? 18 MR. BROCHIN: Object to the form 19 of the question. 20 A. Servicers have to comply with RESPA. 21 Q. Right. And there are -- borrowers have 22 private lawsuits. There are FTC actions. 23 There are attorney general actions. There 136 1 are Department of Justice actions for 2 servicers who don't comply with RESPA; 3 right? 4 MR. BROCHIN: Object to the form 5 of the question. 6 A. Yes. 7 Q. And if a borrower can't locate the person 8 who's supposed to receive their payment, 9 they have the right to file an action in 10 court and have the court determine what 11 they should do or pay money to the court 12 pending the identification of a servicer; 13 right? 14 A. If they want to hire a lawyer, probably. 15 Q. Well, typically they hire a lawyer when a 16 servicer they've never heard of shows up to 17 foreclose. But the point being, your 18 indication is that this is a benefit to 19 consumers when it truly provides benefit to 20 the industry; right? 21 A. Well, it certainly -- 22 MR. BROCHIN: Excuse me. Object 23 to the form of the question. 137 1 Go ahead. 2 A. It certainly provides benefits to the 3 industry. That's -- 4 Q. Right. 5 A. That's why the system was created. 6 Q. And let's talk -- 7 A. And I don't think we've ever alleged that 8 that's why that it was created, to benefit 9 borrowers. 10 Q. Sure. 11 A. But it's a benefit to borrowers to know who 12 the servicer is instantaneously. 13 Q. Well, let's talk about the benefit to the 14 industry for a second. 15 Your associate, Mr. Hultman, testified 16 that as of 2-7 of 2008 there were 17 53 million mortgage loans on the MERS 18 system, and you said earlier today it's now 19 62 million. And he also testified that the 20 average cost of filing an assignment is 21 $40; right? 22 A. At least. 23 Q. Right. And so some states may be higher. 138 1 Some states may be lower. But let's just 2 take that number. 3 If your system saves the industry one 4 mortgage assignment on 62 million loans, 5 the industry has saved approximately 2.4 6 billion dollars in recording costs, hasn't 7 it? 8 A. Yes. 9 Q. And are you familiar with the typical 10 number of transfers of ownership in a 11 securitization where a loan is sold through 12 two or three or four or five true sales to 13 reach an investment trust? 14 A. Depends on the transaction. 15 Q. Right. But you know enough about it to 16 know that a key portion of securitization 17 is the concept of true sale; right? 18 A. Yes. 19 Q. Which is transfer of ownership? 20 A. (Witness nods head.) 21 Q. So under the prior MERS system, every time 22 that ownership was transferred there would 23 be some evidence; right? 139 1 MR. BROCHIN: Object to the form. 2 I don't know what you mean by 3 prior MERS system. 4 Q. Before MERS existed every one of these 5 assignments we're talking about would have 6 been recorded; right? 7 A. Well, what assignments are you talking 8 about? 9 Q. If the servicer became the mortgagee, they 10 would record an assignment to that effect; 11 right? 12 A. Well, before MERS the originator and the 13 servicer and the investor many times were 14 the same. 15 Q. Okay. 16 A. The industry has changed a lot. 17 Q. And that's part of private label 18 securitization; is that right? 19 A. Well, that's just a name of -- for, you 20 know, a type of product in the secondary 21 market. 22 Q. And it also deals with securitizations 23 involving companies that are securitizing 140 1 assets which are not subject to a 2 government backing through a GSE also; 3 right? 4 A. Yeah. The GSEs have limits on what they 5 can buy, and that maintains a market for 6 securitization that's called nonconforming. 7 Q. And speaking of GSEs, what are the GSEs 8 that are members of MERS? 9 A. Fannie Mae and Freddie Mac. 10 Q. What about Ginnie Mae? 11 A. Ginnie Mae is a -- they're critical to 12 MERS, but they don't have an ownership 13 interest. 14 Q. Are they a member? 15 A. Ginnie Mae is a member. They have a 16 special membership agreement. Ginnie Mae 17 is the United States. 18 Q. Okay. We talked about the fact that if 19 MERS saved one assignment on 62 million 20 mortgages that the industry realized 21 approximately 2.4 billion in unpaid 22 recording costs; right? 23 A. By that mathematic. 141 1 Q. And I understand it's imprecise. 2 A. Well, it's not just imprecise, because 3 there's no way to tell how many assignments 4 have been saved. 5 Q. Right. 6 A. And there's no such thing as an average 7 assignment even though you may hear 8 somebody say that. It's no different than 9 knowing how many loans are made in the 10 United States. Nobody knows that. 11 Q. So when we -- when Mr. Hultman generalized, 12 he was generalizing based on his best 13 understanding? 14 A. Yes. 15 Q. But he was not speaking with specific 16 knowledge? 17 A. No, he wasn't. 18 Q. Now ... 19 A. But what Mr. Hultman did not say is that 20 there is one assignment saved per loan. 21 Q. Absolutely. And I didn't either. I just 22 said if it saves one, because in truth you 23 and I know it probably would be multiple 142 1 per loan; right? 2 MR. BROCHIN: Object to the form. 3 Q. Over the life of the loan. 4 MR. BROCHIN: Object to the form. 5 A. Yeah. And many, many, many, many, many 6 loans never change hands. 7 Q. But for those that were securitized, they 8 typically would change hands three to four 9 times in the securitization process, 10 wouldn't they? 11 A. It would depend on the situation. I think 12 that's an overgeneralization. I think it's 13 an exaggeration of the number of 14 transactions that are taking place. This 15 is all in the context of what happened 16 before MERS. And so there are unnecessary 17 assignments that have been eliminated with 18 MERS, but there's not really a way to 19 figure out how many of those are -- 20 Q. Sure. And I didn't say that there was. I 21 just said that use of this process has 22 saved the industry untold fortunes in 23 recording costs? 143 1 A. Well, that's your testimony. You know, 2 what I would say is that we eliminate 3 unnecessary assignments. And the number of 4 those assignments is the same as how many 5 loans are made. It's a mystery. So 6 there's not anyplace that we can go to find 7 out how many assignments have been 8 eliminated. And I think it's an 9 exaggeration to say one has been eliminated 10 for every loan that's been registered. 11 Q. Well, here's one thing that's for sure. 12 Every MERS as mortgagee mortgage in this 13 country, there was an assignment eliminated 14 there because you start out with your 15 company as the mortgagee when some other 16 company was actually the lender; right? 17 MR. BROCHIN: Object to the -- 18 A. But there wouldn't have been an assignment 19 there. 20 MR. BROCHIN: Yeah. Object to the 21 form. 22 Q. All right. And so what you're saying is, 23 is that if MERS didn't exist, who would 144 1 have been the mortgagee on those loans? 2 A. The servicer. 3 Q. The servicer. 4 A. Usually. 5 Q. And the servicer was the same as the 6 lender? 7 A. Yeah. Back in the old days. 8 Q. Right. And so when you first implemented 9 this system, you gained market share or 10 loans on the system by having MERS take an 11 assignment of the lien into MERS' name; 12 right? 13 A. But we got no market share. We got no 14 registrations that way. We went for over a 15 year with no registrations. That model did 16 not work. 17 Q. Why didn't that model work? 18 A. Because that created an assignment instead 19 of eliminating it. 20 Q. So is it your testimony that there were no 21 assignments of any mortgage lien to MERS 22 where the mortgagee on the loan or on the 23 mortgage instrument was someone other than 145 1 MERS? 2 MR. BROCHIN: Object to the form. 3 A. Can you repeat that? 4 Q. I'll try. I understand it was a long 5 question. 6 We talked about the fact that on the 7 security instrument, the mortgage, prior to 8 MERS' existence, your testimony is, is that 9 your understanding is the servicer would 10 have been named as the mortgagee on the 11 original mortgage executed by the borrower? 12 A. Probably. Because that was the originator 13 as well. 14 Q. So it would have been the lender? 15 A. Very often. Didn't have to be. 16 Q. And is it your testimony that the lender is 17 not the party entitled to the lien? 18 A. No. Those are apples and oranges. The 19 lender is the one making the loan -- or 20 originator as you referred to them. 21 Q. The person making the original mortgage 22 loan? 23 A. Yes. 146 1 Q. And the mortgage document -- your MERS as 2 original mortgagee document says that the 3 lender is the company that provided the 4 money for the loan? 5 A. Yes. 6 Q. Now, in securitization parlance that is the 7 originator? 8 A. I believe so. 9 Q. Mr. Hultman said in his affidavit, 10 paragraph nine, that over the life of a 11 mortgage loan the servicing rights of a 12 loan may be sold and resold many times. 13 A. Yes. 14 Q. That is based upon industry experience; 15 right? 16 A. Maybe, yes. 17 Q. Is that based on your company's research? 18 MR. BROCHIN: Object to the form 19 of the question. You're 20 talking about is Mr. Hultman's 21 testimony based on the 22 company's research? That's 23 what you're asking this 147 1 witness? 2 MR. WOOTEN: Right. I'm asking if 3 he came up with that statement 4 based on his knowledge of the 5 company's experience in the 6 industry. 7 A. I'd say that statement for him is based on 8 his knowledge of the industry generally. 9 Q. Okay. And then he says in paragraph ten 10 that consumers are benefited because 11 originating lenders typically pass the 12 costs of assignments on to the borrowers to 13 the extent they know in advance that the 14 loan will be sold immediately subsequent to 15 the closing. 16 A. Yes. 17 Q. Now, once -- let's just -- for the sake of 18 the argument, let's just give you that. 19 Let's say that the lender charges a client 20 $50 because they're going to immediately 21 assign the mortgage. Beyond that charge, 22 any subsequent assignments which occur do 23 not fall to the consumers' costs. They are 148 1 between the parties that have transferred 2 those rights; correct? 3 A. It doesn't directly fall on consumers. 4 Q. Right. 5 A. Indirectly it does. 6 Q. So -- but the insinuation that all costs of 7 all assignments are passed on once the 8 original assignment takes place -- and, 9 again, if that is done because the lender 10 knows they're about to immediately 11 transfer, once that assignment is passed, 12 any subsequent assignments would fall 13 between the parties that made that transfer 14 of interest; right? 15 MR. BROCHIN: Object to the form 16 of the question. 17 A. Yes. But that would fall on the borrower 18 indirectly. 19 Q. He also says that the MERS system further 20 benefits consumers by speeding up the flow 21 of funds enabling the consumer to easily 22 and instantly determine which lending 23 institution owns or services his or her 149 1 mortgage loan by calling a toll-free number 2 which is available 24 hours a day, seven 3 days a week; right? 4 A. Yes. 5 Q. Isn't it true that your system will under 6 no circumstances disclose the owner of a 7 loan to a consumer? 8 A. You mean the beneficial interest? 9 Q. Let me ask that a better way. 10 There is no way to use the MERS system 11 to determine who owns the promissory note? 12 MR. BROCHIN: Object to the form. 13 A. We actually have a product that does notify 14 the borrower if the note moves. 15 Q. And that is a product that was developed in 16 response to the recent crisis that we've 17 been living through in the economic 18 markets; right? 19 A. That and the fact that there's a statute. 20 Q. There's an amendment now to the Truth in 21 Lending Act; right? 22 A. Yes. 23 Q. But the fact of the matter is, is that 150 1 prior to your implementation of that 2 system, you could have made that 3 information available from the information 4 on your system, couldn't you? 5 A. I suppose. 6 Q. I mean, it's there, isn't it? 7 A. It's there. 8 Q. So just the same as you gave them the 9 servicer's identification, you could have 10 gave them the owners, couldn't you? 11 A. Yes. 12 Q. So if a borrower is having trouble with a 13 servicer and thought they were being 14 treated unfairly and they came to the MERS 15 system and said tell me who the owner is, 16 I'd like to complain about my servicer, you 17 say, no, you got to talk to your servicer; 18 right? 19 A. Yes. 20 Q. And -- but during the whole period of time 21 you've been in existence you could have 22 told them, oh, well, here's your owner, 23 contact them and maybe they can help you 151 1 out? 2 MR. BROCHIN: Object to the form. 3 Q. Right? 4 A. That's -- you mean could we have done 5 that? 6 Yes. 7 Q. Just as easily as you give the consumer the 8 servicer's information; right? 9 A. Not as easily. 10 Q. And the reason you couldn't is because of 11 the transfer of the interest to 12 securitization vehicles; right? 13 MR. BROCHIN: Object to the form. 14 A. I wouldn't say that. It had never been 15 done before. 16 Q. But there has never been a time that your 17 system has been in implementation that you 18 were not able to look at any loan by its 19 MIN -- which we have not talked about 20 that. But a MIN is a term of art your 21 company uses for the term mortgage 22 identification number? 23 A. Yes. 152 1 Q. And you give a unique MIN to every loan 2 registered on your system? 3 A. Yes. 4 Q. And as part of tracing that MIN, you have 5 available what company is registered as the 6 owner of that note; right? 7 A. That's -- the company that's registered as 8 the beneficial interest owner. 9 Q. And that information has been available to 10 your company from day one; right? 11 A. Yes. 12 Q. So every loan that has ever been registered 13 on your system, that information has been 14 available from the very day this system was 15 implemented? 16 A. But never in the land records. 17 Q. Right. What's in the land records is the 18 person who's identified as the owner of the 19 mortgage; right? 20 A. As the mortgagee. 21 Q. And Mr. Hultman goes on to say in that 22 paragraph that if the MERS mortgage is not 23 used, the borrower will pay approximately 153 1 40 or more dollars to record an assignment 2 of a traditional mortgage from one lender 3 to another lender as well as additional 4 document preparation fees to prepare such 5 assignments. 6 Again, that would only be permissible 7 with respect to the initial transfer when 8 it was contemplated as part of the funding; 9 correct? 10 A. Well, the basis for that requirement is 11 that RESPA forbids collection of payments 12 for third parties that aren't dispensed. 13 So the effect is what you've said. Unless 14 you know that the loan is going to be 15 transferred, you can't really collect the 16 money. 17 Q. You're aware that in Minnesota there was an 18 amicus brief filed by the American Land 19 Title Association? 20 A. Yes. 21 Q. They also filed an amicus for you in Kansas 22 in the Landmark versus Kesler case; is that 23 right? 154 1 A. Yes. 2 Q. Are you aware of whether or not in either 3 instance American Land Title disclosed to 4 either court that it was a shareholder of 5 MERS? 6 A. I don't know. 7 Q. You think that might have been relevant 8 when the courts were considering their 9 statuses in amicus? 10 MR. BROCHIN: Objection to the 11 form of the question. 12 A. I don't know. 13 Q. Did you make a request or anyone to your 14 knowledge make a request that the 15 shareholders file an amicus brief in those 16 cases? 17 A. Did we have a discussion with the American 18 Land Title Association about that? 19 Q. Did you ask them to do it? 20 A. They offered. 21 Q. And, again, they are shareholders of MERS? 22 A. They are shareholders. 23 Q. Did you ever participate in preparing an 155 1 amicus when you were practicing? 2 A. Not that I recall. 3 Q. Do you know if the Supreme Court of 4 Minnesota or the Supreme Court of Kansas 5 would have allowed MERS to file two 6 separate briefs in the same case? 7 MR. BROCHIN: Object to the form 8 of the question. 9 A. I don't think that's what happened there. 10 Q. You think it's relevant to the issues that 11 American Land Title was an undisclosed 12 shareholder of your company? 13 MR. BROCHIN: Is this -- are we -- 14 is this a case -- are you 15 arguing about the Minnesota 16 case? What is this about? 17 MR. WOOTEN: I'm taking a 18 deposition. 19 MR. BROCHIN: I thought you were 20 taking a deposition in a case 21 that's pending in Alabama. 22 MR. WOOTEN: I am. 23 MR. BROCHIN: And this has 156 1 something to do with it? 2 MR. WOOTEN: Uh-huh (positive 3 response). 4 MR. BROCHIN: Object to the form 5 of the question. If you know 6 the answers to the rules in 7 Minnesota. 8 A. Yeah. I don't understand the question, 9 undisclosed shareholder. It's -- I mean, 10 they're a shareholder of MERS, and they 11 filed an amicus as the American Land Title 12 Association on behalf of their membership. 13 Q. And I guess my question to you is whether 14 or not you're aware whether or not they 15 made any effort to disclose to the court 16 their financial interest in MERS. 17 A. I -- 18 MR. BROCHIN: Excuse me. You're 19 asking him does he know if 20 ALTA made any effort in the 21 case in Minnesota to disclose 22 their financial interest in 23 MERS. Is that your question? 157 1 MR. WOOTEN: That was my question. 2 MR. BROCHIN: Object to the form 3 of the question. If you know. 4 A. I don't know. 5 Q. But it's your testimony that they asked you 6 or offered to provide you the amicus, that 7 MERS did not ask them? 8 A. I'm not -- I'm not going to sparse it that 9 way. I -- they agree with the MERS 10 concept. It saves them money. It saves 11 the industry money. It saves the borrower 12 money. It's good policy for the industry. 13 Everyone benefits from it. So they're -- 14 I'm quite sure that they filed that because 15 they felt that the legal issues justified 16 it. 17 Q. Do you know how many states have filed or 18 have passed a so-called MERS statute? 19 MR. BROCHIN: Object to the form 20 of the question. 21 A. Well, there are states that have utilized 22 the MERS system in their statutes. 23 Q. What I'm talking about is, do you know how 158 1 many states like Minnesota passed a 2 specific piece of legislation that 3 addressed by name MERS' right to act as 4 nominee? 5 MR. BROCHIN: Object to the form 6 of the question. 7 A. Minnesota does not use MERS, Inc.'s name. 8 So there are statutes that rely on the MERS 9 system for their implementation. 10 Q. Today can a consumer go to the MERS Website 11 and determine who the owner of their note 12 is? 13 A. No. 14 MR. WOOTEN: Let's do this. Let's 15 break for lunch right now, 16 take about 30 minutes, if 17 that's all right with y'all. 18 MR. BROCHIN: Okay. 19 THE VIDEOGRAPHER: We're going off 20 the record at this time and 21 the time is now 1:19 p.m. 22 (A lunch recess was taken.) 23 THE VIDEOGRAPHER: We are now back 159 1 on the record, and the time is 2 now 2:13 p.m. 3 Q. (Mr. Wooten continuing:) Mr. Arnold, we 4 took a short break so everybody could have 5 a little lunch. Ask you a couple of 6 questions about MERS, the business itself. 7 It is true that your company has 8 nothing to do with origination or 9 underwriting any mortgage loan? 10 A. Yes. 11 Q. And it is true that your company never 12 extended credit to any consumer? 13 A. Yes. 14 Q. And it's true that your company does not 15 purchase or sell mortgage loans? 16 A. True. 17 Q. And it's true that your company is never an 18 investor in a mortgage loan? 19 A. True. 20 Q. Your system does not actually create any 21 beneficial interest in a mortgage loan, 22 does it? 23 A. True. 160 1 Q. And it does not transfer any beneficial 2 interest in a mortgage loan, does it? 3 A. True. 4 Q. In fact, what your system does is tracks 5 the paper documents, which are the subjects 6 of these agreements and endorsements and 7 things that we've been talking about most 8 of the morning; right? 9 A. Yes. And it's the members that utilize the 10 system to track it. 11 Q. Right. And the point being is, is that 12 simply registering a transfer of an 13 interest on your system does not mean that 14 legally the transfer of that interest took 15 place. That is dependent on the underlying 16 documents; correct? 17 A. True. Although the parties might use that 18 as an initiator. 19 Q. Sure. And that would be in your batch 20 process system; is that right? 21 A. Well, any -- any registration and 22 transaction over the system. 23 Q. Well, and that's what I'm saying. You're 161 1 saying they might use your system to 2 initiate the transfer, one party provide to 3 the other notice. We'd like to give you 4 this interest or we'd like to take this 5 interest pursuant to an agreement. But the 6 actual change in ownership of that interest 7 depends on documents that are not contained 8 on the MERS system? 9 A. True. And what I meant was that the side 10 documents might say -- when it moves in the 11 MERS system, that's when the documents say 12 something else kicks in. 13 Q. Sure. Is it also true that MERS is not a 14 party to the mortgage indebtedness or the 15 promissory note which underlies the 16 mortgage that is recorded with MERS as 17 mortgagee? 18 A. True. 19 Q. Even if a property were taken through 20 foreclosure in the name of MERS and a 21 foreclosure deed were entered in the name 22 of MERS, MERS would not claim any interest 23 in that property whatsoever, would it? 162 1 MR. BROCHIN: Object to the form. 2 A. As far as proceeds are concerned? 3 Q. I'm talking about when a foreclosure sale 4 is completed and a foreclosure deed is 5 recorded and it lists MERS as the grantee 6 of the foreclosure deed by virtue of the 7 sale. MERS would never claim to be the 8 owner of that piece of real property; 9 right? 10 MR. BROCHIN: Object to the form 11 of the question. 12 A. Yeah. You know, you're talking about 13 matters of state law. We would never claim 14 to be entitled to the final proceeds of 15 liquidation of that property. 16 Q. In fact, you wouldn't claim right to 17 ownership of that real property even though 18 it was deeded in your name; right? 19 MR. BROCHIN: Object to the form 20 of the question. 21 A. It just depends on the circumstances of 22 the -- of the way that that's handled. 23 Q. Well, if a mortgage foreclosure deed was 163 1 issued with MERS as the grantee, that would 2 be a violation of the rules of membership, 3 wouldn't it? 4 A. I wouldn't go that far. It -- yeah. I'd 5 have to know the purpose of why they wanted 6 to do it that way. At no point would we 7 claim to be entitled to the final proceeds. 8 Q. Well, what about the event wherein the 9 foreclosure takes place and the cry takes 10 place at the courthouse steps and then the 11 deed is transferred actually transferring 12 the title in the public land records to 13 MERS? I mean, in that instance you still 14 would be claiming to hold that as nominee 15 for the party that truly had the right to 16 that property; correct? 17 MR. BROCHIN: I object to the form 18 of the question. 19 A. You're talking about the fee interest? 20 Q. Right. 21 MR. BROCHIN: Same objection. 22 A. We're -- we're not holding that as our own 23 asset. 164 1 Q. That's right. 2 A. Right. 3 Q. You're holding it for the benefit of 4 someone else? 5 A. Yes. 6 Q. If a foreclosure deed were recorded showing 7 that MERS was the grantee, who would have 8 the right to possession after that had 9 taken place? 10 A. It would depend on all the circumstances 11 and documents and -- with regard to the 12 property. 13 Q. If a party issues a payment to MERS because 14 MERS is shown in the land records as 15 mortgagee, what is MERS' standard practice 16 for that payment? 17 A. It's to get the check to the proper party. 18 Q. And your provisions in your membership 19 agreement allow certifying officers to 20 endorse a MERS check for deposit with the 21 servicer; correct? 22 A. Yes. That's one of the seven authorities. 23 Q. And you would never under any circumstances 165 1 list those payments as income to the 2 benefit of MERS; right? 3 A. Never. 4 Q. And you've never claimed such on any tax 5 return, have you? 6 A. Never. 7 Q. All these 62 million mortgages in this 8 country that are listed with MERS as 9 mortgagee, none of those mortgages are 10 listed anywhere as an asset of MERS, are 11 they? 12 A. True. 13 Q. And if any of those properties are 14 foreclosed on and there is a failure to 15 collect any amount of money on any of those 16 mortgages, none of those losses are 17 accounted for on MERS' books; right? 18 A. No. 19 Q. And MERS has no risk as to the nonpayment 20 of any mortgage for which it is a nominee? 21 A. No. 22 Q. Does MERS ever suffer a default when a 23 mortgagee fails to pay or when a borrower 166 1 fails to pay the payment on a mortgage 2 note? 3 A. No. 4 Q. And MERS suffers no injury of any type if a 5 borrower fails to pay the mortgage note? 6 MR. BROCHIN: Object to the form. 7 A. It probably costs additional manpower. 8 Q. And that's because of the way MERS chose to 9 structure the system; is that right? 10 A. Yes. 11 Q. And as I understand it, you did not 12 originally intend to be in the foreclosure 13 business when you set this system up, did 14 you? 15 MR. BROCHIN: Object to the form. 16 A. I don't think I could agree with that. 17 Q. Would you agree that foreclosure is not 18 the -- let me -- strike that, please. Let 19 me restate that. 20 Would you agree that MERS was not 21 principally formed to act as an agent 22 conducting foreclosures for the beneficial 23 owners of promissory notes? 167 1 A. Yes. 2 Q. And would you agree that that is not a 3 principal purpose of MERS today? 4 A. Yes. 5 Q. Would you agree that it is merely 6 antecedent to your stated corporate purpose 7 of attracting interest in mortgage loans? 8 A. I don't know that I know what antecedent 9 means, but it derives from that. 10 Q. Right. And MERS has no personal interest 11 in whether or not any borrower ever pays 12 any payment on any mortgage loan? 13 A. No. 14 Q. And you agree -- or one of the principal 15 purposes of your system is to eliminate 16 changes in the name of the lienholder while 17 the promissory note and the servicing 18 rights continue to change hands and are not 19 recorded in the public record? 20 MR. BROCHIN: Object to the 21 form -- 22 A. I didn't say that. 23 MR. BROCHIN: Yeah. Object to the 168 1 form of the question. 2 Q. Maybe I ought to break that down some more. 3 One of the things you've previously 4 stated or your company has previously 5 testified to is that MERS immobilizes the 6 mortgage lien; is that correct? 7 A. Yes. 8 Q. And you do not dispute that after you 9 immobilize the mortgage lien, the 10 promissory note can continue to be bought 11 and sold repeatedly? 12 A. Yes. 13 Q. And servicing rights can continue to change 14 hands by contractual agreements? 15 A. Yes. 16 Q. And that there is no entry in the public 17 record reflecting anything with respect to 18 either of those types of transactions? 19 A. Well, neither one of those transactions -- 20 MR. BROCHIN: Object to the form. 21 A. -- were ever reflected in the land records. 22 Q. Sure. And I'm just saying that once MERS 23 settles in as mortgagee, be it by an 169 1 assignment or be it by this MERS as 2 original mortgagee system, no matter how 3 many times a promissory note changes hands, 4 the lien is always going to be in MERS' 5 name? 6 A. Yes. 7 Q. In the ordinary course of business, MERS 8 does not act as a UCC holder of promissory 9 notes, does it? 10 A. I don't understand the question. 11 Q. Well, earlier we talked about the fact that 12 when you testified that MERS would become 13 the holder, that that would be a holder 14 under the UCC. 15 A. That's what I mean. 16 Q. Okay. And what I'm saying is, is it's not 17 part of your stated business purpose to be 18 a holder of promissory notes? 19 A. Well, we routinely do become holder of 20 promissory notes. 21 Q. You routinely obtain possession of 22 promissory notes for the benefit of the 23 beneficial owner; right? 170 1 MR. BROCHIN: Object to the form 2 of the question. 3 Q. Is that correct? 4 A. Holder. 5 Q. And you agree that your rules do not 6 require a certifying officer to be in 7 possession of a promissory note when a 8 foreclosure begins in a nonjudicial 9 foreclosure state? 10 MR. BROCHIN: I'm sorry. Could 11 you reread the question, 12 please? 13 (Requested portion of the record 14 was read by the court reporter.) 15 A. I wouldn't agree with that. The rules are 16 subordinate to state law. And so whatever 17 the state law requirement is, that's what 18 we require. 19 Q. Okay. You would agree that when MERS 20 obtains physical possession of the mortgage 21 note that there is no exchange of 22 consideration between MERS and the owner of 23 the beneficial interest of that note? 171 1 MR. BROCHIN: Object to the form 2 of the question. Also calls 3 for a legal conclusion. 4 A. I'm going to have to ask to hear that one 5 again too. 6 Q. When you obtain possession of a note from a 7 holder -- when I say you, I mean MERS -- 8 you do not pay any consideration to obtain 9 that note, do you? 10 A. No consideration. 11 Q. And you do not receive any consideration 12 for accepting that note, do you? 13 MR. BROCHIN: Object to the form 14 of the question. Calls for a 15 legal conclusion. 16 A. At that specific moment we derive 17 compensation for all of this, but there's 18 no exchange for that specific thing. 19 Q. That's a good point, so let me deviate for 20 a moment. 21 What exactly are you paid by the 22 beneficial owner of the promissory note for 23 use of your system? 172 1 A. Well, first, I presume you're talking about 2 MOMs? 3 Q. Right. 4 A. Specifically the beneficial interest owner 5 would not necessarily be the one that pays 6 us. 7 Q. Okay. Who would pay you? 8 A. It would -- someone would pay us at the 9 time of registration. 10 Q. Okay. And that might be the originator or 11 some intervening purchaser? 12 A. It -- it -- it's going to come early 13 because our rules require that registration 14 occur within ten days of closing, and then 15 in the normal course of business we would 16 expect payment to be made. 17 Q. And that is the fee that you charge for 18 registration? 19 A. Yes. 20 Q. And is that the $4.95 fee? 21 A. It's $6.95 now. 22 Q. Okay. Beyond that fee that's paid as a 23 result of registration, are you paid any 173 1 other compensation by any holder of a 2 beneficial interest in a promissory note 3 that is registered to your system? 4 A. Well, you said beneficial holder. 5 Q. And I say that because -- or beneficial 6 owner. I say it because you use that 7 terminology in your materials and your 8 testimony. 9 A. Well, there are two other forms of payment 10 that we would receive. 11 Q. Okay. What are those? 12 A. One would be a membership agreement -- 13 membership fee, which is, you know, not a 14 lot, for -- to be a member. And then there 15 are transfer fees. 16 Q. Okay. 17 A. And that is charged when a -- there's a 18 servicing transfer more than 270 days after 19 the origination. 20 Q. Is that what you refer to as a seasoned 21 transfer? 22 A. Yes. 23 Q. All right. At the time that MERS obtains 174 1 possession of a promissory note for use in 2 a foreclosure proceeding, is there any 3 compensation or consideration received by 4 MERS for obtaining possession of that 5 promissory note? 6 A. None that I have not mentioned. 7 Q. Well, you mentioned the membership 8 agreement. That pays a fee for membership; 9 right? 10 A. Yes. 11 Q. The transfer agreement is a fee for 12 transferring servicing interest between 13 services? 14 A. Not the note. 15 Q. Not the note. And then the registration 16 fee is for physically registering the loan 17 and the note and the lien on the MERS 18 system through the use of the MIN; right? 19 A. You're registering the loan -- 20 Q. Right. 21 A. -- and getting the MIN. 22 Q. And that's the purpose of the 6.95? 23 A. That's right. 175 1 Q. But with respect to the actual point in 2 time where MERS gains physical possession 3 of the note, they do not receive any 4 compensation for obtaining possession at 5 that time? 6 A. True. 7 Q. Right? 8 A. True. 9 Q. And they don't give any consideration at 10 that time? 11 A. True. 12 MR. BROCHIN: Object to the form 13 of the question to the extent 14 it calls for a legal 15 conclusion. 16 Q. There is no payment of any readily 17 identifiable sum of money for either 18 receiving the note or getting the note; 19 right? 20 A. True. 21 Q. Let me ask you this: When MERS obtains 22 physical possession of the note, is that 23 documented in the MERS system for purposes 176 1 of foreclosure? 2 A. No. 3 Q. Okay. So in the MERS system it does not 4 indicate any transfer of any beneficial 5 interest away from the entity which has the 6 beneficial interest in the promissory note 7 at that time? 8 MR. BROCHIN: Object to the form 9 of the question. 10 A. True. 11 Q. Your system is capable of tracking every 12 time that the beneficial interest in the 13 note changes hands? 14 A. Our system is capable of being used to 15 track that if the members utilize it for 16 that reason. 17 Q. In fact, the coding of your system is such 18 that if you were doing research on the MIN, 19 it would show you every time that the 20 beneficial interest or the servicing rights 21 changed; correct? 22 A. It depends on what kind of access you have. 23 Q. Sure. But in your system there is the 177 1 built-in inherent capability to keep a 2 record of every time that the beneficial 3 interest in that note changes hands? 4 A. If the members use it for that purpose. 5 Q. Right. And typically as part of their 6 changes in ownership of that instrument, 7 they would typically record that, wouldn't 8 they? 9 MR. BROCHIN: Object to the form 10 of the question as far as 11 typically and record. 12 A. Yeah. I would -- those would be my two 13 points, too, that -- you know, typically 14 would depend on the business model for the 15 company member that we're talking about. 16 And then there's nothing recorded on the 17 MERS system. 18 Q. Transfer of the beneficial interest is not 19 recorded on the MERS system? 20 A. It's a transfer of the beneficial interest. 21 Q. Well, when I say recorded, in the sense of 22 it is entered on the MERS system when the 23 transfer of the beneficial interest takes 178 1 place; right? 2 A. Well, therein lies the jargon and slang 3 that has caused a lot of confusion. 4 There's no recording on the MERS system of 5 anything. 6 Q. Well, what do you term the data that is 7 entered on the MERS system, then? 8 A. It's either a registration or a transfer. 9 Q. Okay. So whenever a transfer occurs of any 10 interest, be it beneficial interest in the 11 promissory note or be it servicing 12 interest, those you expect to be entered on 13 the MERS system? 14 A. It's not so much that we expect it. We 15 operate a system that offers that 16 capability. So it's always the parties 17 that transact by an electronic handshake. 18 Q. An electronic handshake. That's an 19 interesting term. What exactly does that 20 mean? 21 A. One company goes in and stages it 22 electronically and it waits in a status 23 until another company comes in and confirms 179 1 it. 2 Q. And is that typically done through the 3 process of an upload or like a batch file? 4 A. Preferably. 5 Q. And y'all have internal coding that tells 6 you what each of those types of -- 7 handshakes was your term -- what each of 8 those are; right? 9 A. Yes. 10 Q. And so if you have those codes, you know 11 exactly what was changed hands and at what 12 point in time according to those parties; 13 right? 14 A. Yes. And that's what makes the system 15 instantaneous. 16 Q. Correct. But the system relies upon the 17 actual execution of the underlying 18 agreements and documents? 19 A. Yes. 20 Q. So while your system may indicate the 21 intent to undertake a certain act, it is 22 not proof that that act actually was 23 undertaken, is it? 180 1 MR. BROCHIN: Object to the form. 2 A. As far as its evidentiary nature, you know, 3 I -- that would depend on whatever the 4 circumstances were. But it's not intended 5 to reflect the actual transaction. It's 6 not the transaction. It's tracking that 7 transaction. 8 Q. Sure. It is, in fact, a memorialization of 9 the underlying paper that is allegedly in 10 existence between the parties? 11 MR. BROCHIN: Object to the form. 12 A. You know, the -- basically it's a -- we 13 operate a system that lets the members 14 through electronic handshakes tell us who 15 we're working for. And that's the extent 16 of it. So we serve in the land records for 17 the members, and then the system tells us 18 who we're serving for. 19 Q. Let me ask you this: In the absence of 20 MERS, would those agreements transferring 21 the beneficial interest -- how would they 22 be memorialized between parties? 23 A. That -- what we're talking about here did 181 1 not exist. 2 Q. Right. 3 A. So they would not have been recorded in the 4 land records. They would have been kept 5 track of by those two companies. 6 Q. In the form of their respective contracts 7 and if they were transferring ownership of 8 promissory notes, there would be 9 endorsements and transfer receipts and 10 delivery confirmation and those types of 11 things; right? 12 MR. BROCHIN: Object to the form 13 of the question. 14 A. Well, there still are all those things. 15 Q. Right. 16 A. So MERS is additive. 17 Q. Are you familiar with the timing of the IRS 18 ruling which allowed originators to 19 instantaneously securitize assets? 20 A. I don't believe so. 21 Q. Do you have any idea if it occurred around 22 1998 or 1999, approximately the same time 23 your system sort of appeared on the scene? 182 1 MR. BROCHIN: I'm sorry. Did what 2 occur? 3 MR. RAMEY: He said the system 4 appeared on the scene. 5 MR. BROCHIN: Can you reread the 6 question? 7 (Requested portion of the record 8 was read by the court reporter.) 9 MR. BROCHIN: I ask that you 10 rephrase it and tell him what 11 "it" means. 12 MR. WOOTEN: Sure. 13 A. I don't know what it is. 14 Q. Okay. I will represent to you that near 15 the end of the '90s there was a ruling by 16 the IRS that allowed an entity that 17 originated an asset, a contract, a 18 mortgage, a credit contract, to securitize 19 it once it had been originated. Do you 20 have any familiarity if that ruling 21 coincided with or was at or near the time 22 that your system began to be implemented? 23 MR. BROCHIN: Object to the form 183 1 of the question. 2 A. I don't know anything about what you're 3 talking about. 4 Q. With respect to the conduction of any 5 foreclosure, MERS takes all of its actions 6 at the direction of the servicer; is that 7 correct? 8 A. Well, the servicer is conducting the 9 foreclosure. 10 Q. The servicer is conducting the foreclosure, 11 but it's done in the name of MERS? 12 A. Yes. 13 Q. MERS has no interest whatsoever in the 14 money that is due on the note? 15 A. True. 16 MR. BROCHIN: I'm just going to 17 object. I don't know how many 18 times you've asked that same 19 question. And it's been asked 20 and answered, but ... 21 Q. So MERS allows another entity to use its 22 name to conduct a foreclosure? 23 MR. BROCHIN: Object to the form 184 1 of the question. 2 A. Well, we're the mortgagee, so the 3 foreclosure is done in our name. And the 4 security instrument gives MERS the 5 authority to do that. 6 Q. After a default; right? 7 A. After a default. 8 Q. And MERS never experiences a default; 9 right? 10 MR. BROCHIN: Object to the form 11 of the question. 12 A. True. 13 Q. Because, in effect, the only person that 14 can experience a default on a note is the 15 person that owns or has the beneficial 16 interest in the note; right? 17 MR. BROCHIN: Object to the form. 18 A. I -- true. 19 Q. MERS does not incur attorneys' fees or 20 litigation costs in the conduct of a 21 foreclosure, does it? 22 MR. BROCHIN: Object to the form 23 of the question. 185 1 A. Well, we certainly have in this case. 2 Q. Yes, sir. But assuming that some consumer 3 doesn't happen to know some lawyer like 4 myself and MERS just conducts a foreclosure 5 without interruption, the fees associated 6 with undertaking that foreclosure and the 7 costs associated with undertaking that 8 foreclosure are not borne by MERS, are 9 they? 10 A. True. 11 MR. BROCHIN: Object to the form 12 of the question. 13 Q. Let me ask you this, Mr. Arnold: You said 14 that the servicer is conducting the 15 foreclosure. The servicer is not the owner 16 of the note. It has not experienced a 17 default, has it? 18 MR. BROCHIN: Object to the form 19 of the question. 20 A. That's going to depend on the relationship 21 between the servicer and the note owner. 22 Q. Right. Have you examined Ms. Henderson's 23 documents in this case? 186 1 A. No, I have not. 2 Q. Were you aware that she was a veteran of 3 our Armed Forces? 4 A. I was not. 5 Q. Were you aware that she had received a 6 rating of a 100-percent disability from the 7 Department of Veterans Affairs? 8 A. No. 9 Q. You are aware that the Department of 10 Veteran Affairs guarantees mortgages for 11 veterans who qualify; right? 12 A. Yes. 13 Q. And you are aware that if that veteran 14 defaults, that Veterans Affairs will step 15 in and pay its mortgage insurance to the 16 owner of that note; right? 17 A. According to the terms of the insurance. 18 Q. Right. So even if there were actually a 19 default on the note, there was a remedy 20 short of foreclosure available to the owner 21 of the note; right? 22 MR. BROCHIN: Excuse me. Which 23 case are you talking about? 187 1 MR. WOOTEN: Talking about Debra 2 Henderson's case. 3 MR. BROCHIN. Object to the form 4 of the question because, as 5 he's already said, he has not 6 reviewed the papers in this 7 matter. 8 A. Yeah. I wouldn't agree with that. 9 Q. What exactly does the VA guarantee protect, 10 then? 11 MR. BROCHIN: Object to the form 12 of the question. 13 A. I'm no expert on that. 14 Q. Do you have a general familiarity with it? 15 A. There's -- it's similar to FHA in the sense 16 that there is a government guarantee. 17 Q. And what does it do? 18 A. Again, I'm not an expert on payment under 19 that plan. 20 Q. Are you aware as to whether or not the 21 persons who are acting as certifying 22 officers for MERS in this case are actually 23 officers of GMAC? 188 1 A. It's a requirement. 2 Q. Who enforces that requirement? 3 A. Well, it's part of our rules. 4 Q. Who enforces your rules? 5 A. MERS. 6 Q. Do you have a MERS policeman that audits 7 these folks that get these titles to see if 8 they actually are complying with these 9 recommendations? 10 A. There is a process. 11 Q. Can you explain that to me? 12 A. Well, we went over it a bit earlier. 13 Q. Well, let me narrow your focus a little 14 bit. 15 Tell me everything that MERS does to 16 ensure that persons who are identified as 17 certifying officers are actually officers 18 of the corporation that they work for. 19 A. Well, it starts with a requirement. 20 Q. And that is in the form which they download 21 from the Internet requesting appointment as 22 certifying officers? 23 A. Yes. 189 1 Q. And that form is available today? 2 A. Yes. 3 Q. And anybody who's a member can go on line, 4 fill out a form, and request that MERS make 5 them a certifying officer? 6 A. No. 7 (Plaintiff's Exhibit 5 was marked 8 for identification.) 9 Q. I show you what I've marked as Plaintiff's 10 Exhibit 5 in this case and ask you to take 11 a look at that and tell me if it is a 12 specimen copy of your agreement for having 13 persons designated as certifying officers. 14 A. Yeah. This is not -- this is not the 15 certifying officer form that you're talking 16 about. 17 Q. Okay. What is that form? 18 A. Well, this is where -- in this exhibit, 19 this is where WAMU is getting authority for 20 Fidelity to take certain actions. 21 Q. And that's because they provide services to 22 servicers as part of their outsource 23 provider of contracts? 190 1 A. In their business model. 2 Q. And that company is -- and that document is 3 Fidelity National Foreclosure & Bankruptcy 4 Solutions; right? 5 A. Yes. 6 Q. And that document is an example of MERS 7 authorizing persons to sign as MERS 8 certifying officers, who are employees of 9 at that time Fidelity, now known as LPS, to 10 act on behalf of Washington Mutual; right? 11 A. Yes. 12 Q. And does that document require that those 13 persons certify to MERS that they are 14 officers of that corporation? 15 MR. BROCHIN: Object to the form. 16 The document speaks for 17 itself. 18 A. Whatever it says. 19 Q. And the form is downloaded from the Web. 20 These persons who request that you identify 21 them as certifying officers, they all give 22 you this information and say, yes, these 23 people are our corporate officers; right? 191 1 A. WAMU. 2 Q. Well, I'm talking more generally about your 3 form that's on line that requests 4 certifying officers; right? 5 A. Well, all our documents are on line. 6 Q. Right. 7 A. We're a very open company. So you can go 8 on line and look at practically every 9 document that exists. 10 Q. Right. And, again, my point being, when a 11 service or a member asks MERS to designate 12 certifying officers, they represent to MERS 13 that the persons they're asking you to 14 designate are corporate officers; right? 15 MR. BROCHIN: Object to the form 16 of the question. 17 A. Whatever this says. 18 Q. Okay. So if it says that, you would agree 19 with it? 20 MR. BROCHIN: Object to the form 21 of the question. I don't know 22 what you're talking about. 23 Q. And it says that -- with respect to those 192 1 issues, once a person is certified by MERS 2 as a certifying officer, does MERS ever 3 undertake any action to verify that those 4 persons are actually corporate officers of 5 the company, that they have certified 6 themselves to be so? 7 A. Well, first off, it has not always been a 8 requirement that they would be officers of 9 the member. 10 Q. Right. And so you've certified whomever 11 they've asked; right? 12 A. Yes. 13 Q. And irrespective of how many persons there 14 were; right? 15 A. It -- the bigger the company, the more 16 certifying officers they're probably going 17 to want to have. 18 Q. Especially nowadays; right? 19 MR. BROCHIN: Object to the form 20 of the question, if that's a 21 question. 22 Q. A lot more foreclosures going on today than 23 lately; right? 193 1 A. Actually it plateaued off. So it's held 2 pretty steady for the last year. 3 Q. At more or less historically high levels? 4 A. Yes. 5 Q. Not seen since the Great Depression? 6 A. I'm only 54. I don't know. 7 Q. Again, when did you implement this 8 requirement that these persons with signing 9 authority be officers of the corporation? 10 A. Within the last couple of years. 11 Q. Is it your contention that anyone who is 12 signing as a certifying officer who is not 13 an officer of the corporation is not 14 validly acting on behalf of MERS? 15 MR. BROCHIN: Object to the form 16 of the question. 17 A. No, I wouldn't agree with that. 18 Q. Do you have any idea how many people are 19 certified as certifying officers of MERS in 20 the country today? 21 A. Me personally? Me personally? 22 Q. Through you personally or through your 23 company, what you know as CEO of MERS. 194 1 A. Well, you say any idea. 2 Q. I mean, ballpark? 3 A. We've got a very good idea. 4 Q. Do you know exactly how many? 5 A. We -- we have every name. 6 Q. Okay. And do you track every transaction 7 that they undertake in MERS' name? 8 MR. BROCHIN: Object to the form 9 of the question. 10 A. No. 11 Q. Do you have any idea how many transactions 12 are conducted daily by persons who are 13 identified as certifying officers of MERS? 14 A. I don't understand the question, any idea. 15 Q. Do you keep any record of the number of 16 transactions undertaken by persons who are 17 designated as certifying officers of MERS 18 on a daily basis in this country? 19 A. There is certain things that the system is 20 required to be updated to reflect, so, yes. 21 Q. What are those things? 22 A. When a loan is paid off, when a foreclosure 23 begins. 195 1 MR. WOOTEN: How close are you on 2 the tape? 3 How close are you on the 4 tape? 5 THE VIDEOGRAPHER: Okay. We're 6 going to go off the record for 7 a moment. The time is now 8 three o'clock p.m. 9 (A brief recess was taken.) 10 THE VIDEOGRAPHER: This is Disk 3 11 in the continuing video 12 deposition of R.K. Arnold, and 13 the time is now 3:08. 14 Q. (Mr. Wooten continuing:) Mr. Arnold, when 15 we took that break to change the tape, we 16 were talking about the certifying 17 officers. Is it your testimony that MERS 18 has a record of every person that is 19 certified as a certifying officer in its 20 system? 21 A. Yes. 22 Q. And so if we asked you to give us the name 23 of every person who's been nominated or 196 1 made by resolution a certifying officer for 2 GMAC, somewhere there would be a button you 3 could push and print that information off? 4 A. Well, I'm sure it's more complicated than 5 that. 6 Q. But it's available in your computer system; 7 right? 8 A. We know who the certifying officers are. 9 Q. And do you know what the total number of 10 certifying officers are as of today? 11 A. Again, you're asking me? 12 Q. Well -- 13 A. MERS knows. 14 Q. Sure. And -- but as CEO have you been 15 privy to that information? Have you seen 16 that number? 17 A. Oh, I've -- you know, I hear that number. 18 Q. Yeah. But -- and I'm not trying to hold 19 you to anything specific. I'm just trying 20 to get a ballpark. Do you not have a 21 ballpark of how many people that is? 22 A. Thousands. 23 Q. Thousands. And you said that certain 197 1 transactions that were required to be 2 entered on the MERS system, you would have 3 a record of the number of those 4 transactions that were effected by your 5 certifying officers; right? 6 A. Well, we know how many changes in records 7 take place. 8 Q. As a result of actions by certifying 9 officers? 10 A. Not necessarily by certifying officers. 11 Q. Okay. I guess that's what I'm trying to 12 get at. Is there any way that MERS tracks 13 or attempts to track the actions of those 14 persons it has designated as certifying 15 officers? 16 A. Well, they have limited authority. And 17 we're comfortable with them operating in 18 the name of MERS under that limited 19 authority. 20 Q. And I don't want to oversimplify this. But 21 the reason that you're comfortable with 22 that is, is that your membership agreement 23 provides an indemnity running to MERS from 198 1 the member for those types of acts; right? 2 MR. BROCHIN: Object to the form. 3 A. That's one thing that gives us comfort. 4 Q. Right. And the other reason that you feel 5 comfortable, I would presume, or another 6 reason is, is because, what you indicated, 7 that the servicer is actually really acting 8 in his own stead. He's just using your 9 name? 10 MR. BROCHIN: Object to the form. 11 A. As mortgagee. 12 Q. Right. As an incident to the work that 13 these servicers do, you're familiar with 14 them filing documents related to both 15 foreclosures and bankruptcies where 16 mortgagers -- borrowers have filed 17 bankruptcy because they couldn't make their 18 mortgage payment? 19 A. That's another category of authority. 20 Q. Right. And they file documents in 21 bankruptcy court called proofs of claim in 22 the name of MERS? 23 A. Yes. 199 1 Q. And they file documents evidencing the 2 amount of default with those proofs of 3 claim? 4 A. They can. 5 Q. And if that takes a form of an affidavit 6 done in the name of MERS, you're okay with 7 that because what the certifying officer is 8 certifying is actually the servicer's 9 records and the certifying officer is 10 actually the servicer; right? 11 MR. BROCHIN: Object to the form 12 of the question. 13 A. Well, if the affiant has personal knowledge 14 or institutional knowledge, then we're 15 comfortable with the affidavit. 16 Q. And, again, if there's a problem with it, 17 they're going to indemnify you; right? 18 MR. BROCHIN: Object to the form 19 of the question. 20 A. That's one thing. 21 Q. There's no vehicle by which you can 22 electronically track the number of 23 affidavits or documents that certifying 200 1 officers might have executed once they have 2 been given that designation by your 3 company; right? 4 A. Within the bounds of the limitations of 5 their authority, they can execute as many 6 documents as are necessary within those 7 categories, those seven categories that I 8 mentioned, as long as they're true and 9 correct. 10 Q. What happens if they're not true and 11 correct? 12 MR. BROCHIN: Object to the form. 13 A. Then that is either pointed out and 14 corrected or not. 15 Q. How would MERS find out that a certifying 16 officer's action wasn't true and correct 17 when it ends up in front of a lawyer like 18 me? 19 MR. BROCHIN: Object to the form. 20 A. It is -- isn't that what you're doing? 21 Q. Well, yeah. I mean, what I'm saying is, is 22 that short of being sued or short of being 23 held in a court by a judge who's mad about 201 1 a document, is there any way for MERS to 2 know that a certifying officer has done 3 something improper? 4 A. Well, if nobody challenges it, then it's 5 probably true. 6 Q. Well, let's talk about that instance where 7 a certifying officer does something 8 improper but nobody bothers to tell MERS. 9 I mean, you have no way to find out on your 10 own, do you? 11 MR. BROCHIN: Object to the form 12 of the question. 13 A. Yeah. I wouldn't say that. 14 Q. Does MERS have employees or staff dedicated 15 to auditing the actions of certifying 16 officers? 17 A. Well, we have quality reviews on our loans 18 from time to time. 19 Q. And what is exactly entailed in a quality 20 review? 21 A. I don't know. 22 Q. Who would know that? 23 A. My team. 202 1 Q. Huh? 2 A. My team. 3 Q. Who would be on your team that would know 4 that? 5 A. I don't know that. 6 Q. Do you have a department, a quality review 7 department? 8 A. We've got a performance department. We've 9 got a law department. 10 Q. Okay. Who heads your performance 11 department? 12 A. Well, I don't -- I'm not exactly sure what 13 your question is about -- about the 14 certifying officers, the -- there is a list 15 of certifying officers. 16 Q. Okay. 17 A. And so what is your question about those 18 certifying officers? 19 Q. Well, my question, Mr. Arnold, is this: 20 MERS really doesn't even make an effort to 21 keep up with the actions of certifying 22 officers once they're designated, do they? 23 MR. BROCHIN: Object to the form. 203 1 A. Yeah. I wouldn't agree with that. I mean, 2 we've got a very strict membership 3 structure. We've got limitations on their 4 authority, and they can operate within 5 those seven categories of authority. And 6 if a problem comes to our attention, then 7 we take corrective action up to and 8 including terminating the member's 9 membership. So -- 10 Q. Sure. 11 A. -- there's a lot of incentive for the 12 members to go by the rules in executing 13 these documents within the seven categories 14 of authority. That's the whole purpose of 15 certifying officers. And like you -- 16 Q. And I agree. I mean, that's the purpose, 17 but I'm asking you is that a practice. 18 A. And the knowledge about whether the loan is 19 in default is right there with the 20 servicer. So you reference pre-MERS. 21 Pre-MERS, it was always that way pre-MERS. 22 So it's that way post-MERS. Officers 23 execute documents on behalf of 204 1 corporations. 2 Q. Sure. 3 A. So the only difference between me and the 4 certifying officers are they have limited 5 authority and I have general authority. 6 Q. Right. And with respect to that, again, my 7 issue basically is the same as what you're 8 saying. If you have a general officer of 9 MERS -- I think you've referred to them 10 previously as executive officers -- and 11 they go off the reservation and go out and 12 start doing things, you have a system at 13 MERS to identify that problem and address 14 it; right? 15 MR. BROCHIN: Object to the form 16 of the question. 17 A. Well, I'm not sure I do in the way that you 18 seem to want to make the distinction. I 19 mean, all officers have different degrees 20 of authority. 21 Q. Sure. 22 A. I'm the chief executive officer, so I have 23 more authority than the next level down. 205 1 And as far as our representatives are 2 concerned, lawyers that work for us have 3 limited authority too. So -- 4 Q. Well, they serve at the leisure of the 5 client; right? 6 A. And certifying officers do as well. So 7 certifying officers within the cat -- those 8 seven categories that I mentioned, they 9 have latitude to execute documents within 10 those seven categories. And the knowledge 11 about whether those are true or not are 12 right there at the company that they're 13 employed by. 14 Q. Sure. And I think you're making this much 15 more difficult than the question I'm 16 asking. 17 What I'm saying is, is that MERS does 18 not track the acts of those persons that it 19 has designated as corporate officers? 20 A. Well, you -- you know, that's your 21 testimony. I'm not -- 22 Q. No. It's a question. Does it? Do you? 23 A. Yes. 206 1 Q. Okay. So you track -- 2 A. They have limited authority. We have 3 limited their authority. 4 Q. Okay. 5 A. Officers are -- certifying officers have to 6 stay within these seven categories, and 7 within these seven categories they have the 8 latitude to execute whatever documents are 9 necessary to perform under those seven 10 categories. 11 Q. Okay. Now, with respect to the documents 12 they execute, do you have any record of 13 those acts? 14 A. Certain of those would require updates to 15 the MERS system. 16 Q. Beyond those that require updates, do you 17 have any record of the acts of your 18 certifying officers? 19 A. I don't understand the question. 20 Q. Well, you've heard of a notary book, hadn't 21 you? 22 A. Yes. 23 Q. Where a notary says today I'm notarizing 207 1 this affidavit of R.K. Arnold. And so it's 2 September 25, 2009, at 4 p.m. I'm -- this 3 is what I'm doing. 4 A. Uh-huh (positive response). 5 Q. And every time they take an act in their 6 office as notary, they keep a record; 7 right? 8 A. Yes. 9 Q. And so that record, if it's kept properly, 10 tells you everything they've ever done as a 11 notary; right? 12 A. (Witness nods head.) 13 Q. Is that fair? 14 A. I guess it depends on -- 15 Q. As a hypothetical, assuming they do it the 16 right way. 17 A. It depends on the state. 18 Q. Sure. 19 A. But, you know, it's a fair question. 20 Q. And, you know, I'm a lawyer with a trust 21 account. I'm supposed to keep up with 22 every deposit and, you know, every 23 withdrawal, who it was for and what it 208 1 was -- you're familiar with those rules; 2 right? 3 It's an obligation. I'm an officer of 4 the court; right? 5 MR. BROCHIN: Object to the form 6 of these questions. 7 Q. But with respect to your officers, 8 Mr. Arnold, these people that you designate 9 that you have thousands of, you don't know 10 what these people do on a daily basis, do 11 you? 12 MR. BROCHIN: Object to the form. 13 Asked and answered. 14 A. Does Ms. Henderson know what you're doing? 15 Q. She knows I'm representing her. 16 A. And I know that the certifying officers 17 have limited authority within these seven 18 categories. 19 Q. Okay. And what I'm asking you, 20 Mr. Arnold -- because what your company 21 deals with is taking people's homes from 22 them in the context of foreclosure. Do you 23 do anything to monitor the actions of these 209 1 people that your company has authorized to 2 use your name to take people's homes? 3 MR. BROCHIN: Object to the form 4 of the question. 5 A. Yes. 6 Q. Okay. And tell me everything your company 7 does to monitor and be aware of those 8 actions. 9 MR. BROCHIN: Asked and answered. 10 A. They have to update the MERS system as to 11 certain of their actions. 12 Q. Okay. 13 A. They have to perform within these seven 14 specific categories. And within those 15 categories, they are the ones with personal 16 knowledge, and they -- as you mentioned, 17 we're talking about affidavits. Those are 18 under oath filed with the court. I presume 19 that those are true. And that's the 20 structure that we have. 21 Q. Okay. And do you know every time an 22 officer executes an affidavit? 23 A. No, I do not. 210 1 Q. Do you know every time an officer testifies 2 as an officer of MERS? 3 A. No. 4 Q. Would you ever agree to have an employee of 5 a servicer testify as a 30(b)(6) 6 representative of MERS? 7 MR. BROCHIN: Object to the form 8 of the question. 9 A. Depends on the circumstance. They're 10 officers of MERS. 11 Q. Would you -- well, let's talk about 12 Florida, for instance. Y'all have this 13 prohibition on foreclosures in your name in 14 Florida; right? 15 A. It's a moratorium. 16 Q. Moratorium. But as in the membership 17 agreement, you state specifically that 18 members shall not foreclose in your name in 19 Florida; right? 20 A. Yes. 21 Q. And you charge them how much if they do 22 that? 23 A. $10,000. 211 1 Q. And how would you know, other than by being 2 sued, if a servicer sued in the name of 3 MERS in Florida on a foreclosure? 4 A. If we became aware of it through the normal 5 course of business. 6 Q. I mean, would they update the system and 7 say, hey, we're foreclosing in your name, 8 select -- what is it, option one, when they 9 foreclose in your name? Is that right? 10 A. It's actually option two. 11 Q. Option two. Option one is when they 12 transfer it out of your name; right? 13 A. Right. 14 Q. And that's an internal coding in your 15 system? 16 A. Yes. 17 Q. And they're supposed to put that 18 information in there when they start a 19 foreclosure; right? 20 A. Yes. 21 Q. And so you can know if they're foreclosing 22 in your name or if they're foreclosing by 23 virtue of an assignment; right? 212 1 A. Yes. 2 (Plaintiff's Exhibit 7 was marked 3 for identification.) 4 Q. I show you a copy of a deposition that I 5 received -- and let your lawyer take a look 6 at that also -- dated April 22nd, 2009. 7 I'll give you a minute to take a look at 8 that. 9 MR. BROCHIN: Okay. I mean, I 10 haven't seen this, and I'm 11 just -- but I do want to note 12 for the record, it appears to 13 be a deposition from a case in 14 Palm Beach County, Florida, 15 the deposition of some Jill 16 Orrison, taken in Raleigh, 17 North Carolina. And like 18 other exhibits, it, too, has 19 markings on it, highlights and 20 the like. 21 Q. Would you take a moment and just read 22 through the first few pages of that 23 deposition about that young lady's 213 1 certifications to what she was there to 2 testify to and for. I don't even mind -- 3 if the others need a break, we can take 4 five or ten minutes and let you sit and 5 read it and come back on the record if you 6 want to. 7 A. Okay. 8 Q. You had no idea that foreclosure was filed 9 in MERS' name in Florida, did you? 10 MR. BROCHIN: You're asking if he 11 personally knew? 12 Q. Did you know that? 13 A. Whether MERS knew? 14 Q. Well, did you personally know that that 15 foreclosure action was filed in MERS' name 16 in Florida? 17 A. Did I personally know? 18 No. 19 Q. As the CEO of MERS, do you have some system 20 in place to be notified if there's a 21 foreclosure filed in the name of MERS in 22 Florida? 23 MR. RAMEY: Is that in Florida? 214 1 MR. WOOTEN: Uh-huh (positive 2 response). 3 MR. RAMEY: Okay. Sorry. It was 4 a North Carolina -- 5 MR. WOOTEN: The deposition was 6 taken by telephone, and the 7 lady is employed by HomEq. 8 And she's in Charlotte. 9 A. So what's the question? 10 Q. Do you have any mechanism in place to be 11 notified if a foreclosure is instituted in 12 the name of MERS in Florida? 13 MR. BROCHIN: Object to the form 14 of the question. 15 A. We have a moratorium on foreclosure in 16 Florida. 17 Q. In your name? 18 A. In our name. 19 Q. And we've talked about that; right? 20 A. Yes. 21 Q. And you -- 22 A. Several times. 23 Q. And you have an issue where in your system 215 1 your servicer is supposed to indicate that 2 they transferred that mortgage out of MERS' 3 name for the purpose of that foreclosure; 4 right? 5 A. Uh-huh (positive response). 6 Q. Do you have a system in place to determine 7 if a foreclosure is instituted in Florida 8 in MERS' name? 9 A. I don't know -- I don't understand what the 10 question is. We -- we have a moratorium on 11 foreclosure in our name in Florida. 12 Q. Okay. 13 A. To institute a foreclosure in the name of 14 MERS, you pick option two. 15 Q. Right. Let me take a look at that 16 transcript for you. I want to pull out 17 something and let you take a look at it. 18 MR. RAMEY: And, Nick, just as far 19 as an objection for the 20 record, since we don't know 21 what this deposition is or 22 when this action occurred, 23 we're just taking some of your 216 1 statements right now as if 2 this was filed at a certain 3 time and that MERS itself, the 4 entity, had no knowledge of 5 it, et cetera. So I just 6 wanted that stated for the 7 record. 8 MR. WOOTEN: Well, it says 9 April 22nd, 2009. 10 MR. RAMEY: Is that when the 11 deposition was taken? 12 MR. WOOTEN: Uh-huh (positive 13 response). 14 MR. RAMEY: Okay. I was asking 15 when the action was filed. 16 MR. WOOTEN: Well, that would 17 probably be ... 18 Q. Because you guys had taken care of all the 19 pending foreclosures that you knew about in 20 the name of MERS when these other lawsuits 21 were going on, Trent and some of the other 22 cases; right? 23 MR. BROCHIN: Object to the form 217 1 of the question. I don't even 2 understand it, but -- 3 Q. You had assigned them out of MERS' name or 4 something like that to deal with them? 5 MR. BROCHIN: Object to the 6 form -- 7 A. Not necessarily. 8 MR. BROCHIN: Excuse me. Object 9 to the form of the question. 10 I assume this line of 11 questioning has some relevancy 12 to the case pending in 13 Alabama. 14 MR. WOOTEN: Well, if it doesn't, 15 you can object. 16 MR. BROCHIN: And I assume there's 17 some good -- well, I know. 18 But there should be some 19 good-faith basis here to be 20 asking questions related to 21 the purpose of the deposition. 22 MR. WOOTEN: Yeah. The good-faith 23 basis is, is that there are 218 1 thousands and thousands and 2 thousands of people certifying 3 activities on behalf of this 4 company every day and this 5 company has no idea that it's 6 going on. And people are 7 losing their houses because 8 people are lying in the name 9 of MERS to take their houses. 10 So that's the good-faith basis 11 of offering a deposition. 12 MR. BROCHIN: Well, I still don't 13 understand what it has to do 14 with this transcript and that 15 testimony with the case -- 16 MR. WOOTEN: What it has to do 17 with this transcript is -- 18 THE COURT REPORTER: Hold on. 19 MR. BROCHIN: -- that you have 20 pending in Alabama. 21 MR. WOOTEN: What it has to do 22 with the transcript, 23 Mr. Brochin, is this. 219 1 MR. BROCHIN: But ask -- but ask 2 your questions. 3 MR. WOOTEN: What it has to do 4 with this transcript is this: 5 You have a person who is 6 employed by HomEq giving a 7 deposition as a 30(b)(6) 8 representative of MERS when 9 MERS does not even know that 10 the lawsuit is going on -- 11 MR. RAMEY: Assuming that's the 12 case. 13 MR. WOOTEN: -- or that this 14 person is acting in that 15 capacity. 16 MR. RAMEY: And, once again, I 17 mean -- 18 MR. BROCHIN: I know that's your 19 testimony and I appreciate it, 20 but I still want to try to 21 understand what the relevancy 22 is for the witness here that 23 you're supposed to be taking 220 1 the deposition of. 2 And I'm sure it's not 3 because you're upset over what 4 MERS is doing. I'm sure it 5 has something to do with the 6 lawsuit you have. 7 MR. WOOTEN: It does. 8 MR. BROCHIN: Yeah, okay. 9 Hopefully that will become 10 clear. 11 Q. Would you ever agree to designate an 12 employee of a servicer who is a litigation 13 management liaison to act as your 30(b)(6) 14 representative in a foreclosure action in 15 the state of Florida? 16 MR. BROCHIN: Object to the form 17 of the question. Calls for 18 speculation. Hypothetical. 19 A. Depends on the circumstance. Are you 20 saying there's lies? 21 You did. 22 Q. Huh? 23 A. You said there are lies. 221 1 Q. Well, she's testifying as an employee of 2 MERS -- a 30(b)(6) representative of MERS 3 when she's not. 4 MR. BROCHIN: Object to the form, 5 if that's a question. 6 A. Are you saying that's a lie? 7 That seems to be the word of the day, 8 but -- 9 Q. I mean, is she -- is Ms. Orrison an 10 employee of MERS? 11 MR. RAMEY: And with all due 12 respect, it's my understanding 13 that a company can designate 14 another person of the 15 different companies, that 16 (inaudible) -- 17 MR. WOOTEN: Sure. That's why I 18 asked the question. 19 MR. RAMEY: Right. 20 Q. I mean, I asked the question would you 21 designate a paralegal at HomEq to be your 22 30(b)(6) representative. 23 A. It depends on the circumstance. 222 1 MR. BROCHIN: And he answered it. 2 Q. Okay. 3 A. And witnesses can make mistakes. I may 4 have made one today. 5 Q. Maybe so. 6 (Plaintiff's Exhibit 6 was marked 7 for identification.) 8 Q. Let me show you this document. You said 9 that your documents were pretty much freely 10 available on the Website. 11 I apologize, Mr. Arnold. I shouldn't 12 have thrown that toward you. I didn't mean 13 to. I just wanted to make sure it got to 14 you. 15 A. That's fine. 16 Q. The document before you is currently on the 17 Website as the foreclosure practices for 18 the state of Alabama. And, as you said, 19 your company is very transparent. That 20 document highlighted a couple of entries. 21 But, in particular, down at the bottom of 22 the front page it indicates that MERS would 23 like to obtain possession of the note 223 1 endorsed in blank; correct? 2 MR. BROCHIN: Object to the form 3 of the question. The document 4 will speak for itself. 5 Q. Certainly. So why don't you read that last 6 paragraph I've got highlighted down there, 7 Mr. Arnold. 8 A. The last beginning paragraph? 9 Q. The one that begins right before the end of 10 the page. 11 A. The agencies? 12 Q. Yes, sir. 13 A. The agencies, paren, Fannie Mae, Freddie 14 Mac, and Ginnie Mae, require the promissory 15 note to be endorsed in blank when the 16 seller/servicer sells a mortgage loan to 17 them. Therefore, the note should remain 18 endorsed in blank when the foreclosure is 19 commenced in the name of MERS. However, we 20 have been advised that sometimes there is 21 an endorsement of the promissory note to 22 the servicer prior to foreclosure. We 23 recommend that the agencies' policies be 224 1 followed. 2 Q. Okay. Part of your preferred rules are 3 that the mortgage note -- promissory note 4 be endorsed in blank -- 5 MR. BROCHIN: Object -- 6 Q. -- preferably; right? 7 MR. BROCHIN: Objection. Asked 8 and answered several times. 9 And, again, these documents 10 speak for themselves. 11 A. I don't think we're specific about the type 12 of endorsement. 13 Q. Has your firm considered the situation 14 where there is a specific endorsement to 15 either an agency or a securitized trust and 16 the servicer then attempts to foreclose 17 with a promissory note that is endorsed to 18 someone other than the servicer or in 19 blank? 20 MR. BROCHIN: Object to the form. 21 A. Do I have knowledge of that? 22 Q. Have you considered that? Have y'all 23 talked about that? Has that occurred -- 225 1 MR. BROCHIN: Object to the form. 2 Q. -- to your knowledge? 3 MR. BROCHIN: Object to the form, 4 if that's a question. 5 A. I don't remember. 6 Q. You would agree with me that if a non-MERS 7 member owns the note, that there would be 8 no right of a MERS member to endorse that 9 note? 10 MR. BROCHIN: Object to the form. 11 A. I disagreed with that earlier. 12 Q. The note. 13 MR. BROCHIN: Object to the form. 14 A. Yeah. As far as our authority to do 15 something, that's going to depend on the 16 circumstances. 17 Q. With respect to the assignment of mortgages 18 out of the name of MERS, membership Rule 3 19 addresses that right of your certifying 20 officers; correct? 21 A. Rule 3? 22 Q. Uh-huh (positive response). 23 A. I can't remember the rule number. 226 1 Q. Do you remember that that is one of the 2 powers you grant your certifying officers? 3 A. Yes. Well, you're talking about the 4 resolution appointing the certifying 5 officer? 6 Q. I'm talking about Rule 3 of your membership 7 agreement. 8 A. Okay. 9 Q. It says that your certifying officers have 10 the right to assign the lien; right? 11 MR. BROCHIN: Object to the form. 12 The document will speak for 13 itself. If you know. 14 A. What's the title -- 15 MR. BROCHIN: If you want to show 16 him the document, but -- 17 A. What's the title of Rule 3? 18 Q. Membership, I believe. 19 Let me show you that. And I'll 20 represent to you that that is an attachment 21 to the affidavit of Mr. Hultman that was 22 filed in this case. 23 MR. BROCHIN: Okay. Just so the 227 1 record is clear, since I don't 2 think -- I don't know if you 3 marked this as an exhibit. 4 MR. WOOTEN: I haven't, but I can 5 if you want me to. 6 MR. BROCHIN: Well, I just want 7 the record to reflect what's 8 in front of him is -- 9 MR. WOOTEN: It is the 10 affidavit -- 11 MR. BROCHIN: Appears to be the 12 affidavit with the attachments 13 and specifically pointing to 14 Rule 3, which is titled 15 obligations of MERS and, 16 again, noting that there's 17 highlighting and handwritten 18 marks on it. 19 Q. The subsection there that I just pointed 20 out to you, Mr. Arnold, sets forth the 21 powers that you grant to your certifying 22 officers, one of which is the right to 23 assign the lien. There is a limitation on 228 1 the right to assign the lien, is there not? 2 MR. BROCHIN: You're asking him is 3 there a limitation contained 4 in this document? 5 MR. WOOTEN: Uh-huh (positive 6 response). 7 MR. BROCHIN: Objection to the 8 extent that the document 9 speaks for itself. 10 A. Yeah. And this is not the actual grant of 11 authority. 12 Q. Okay. 13 A. This is the -- this is the agreement with 14 the member. 15 Q. Okay. And there's a section in that 16 agreement that deals with assignment of the 17 lien; right? 18 MR. BROCHIN: Objection. The 19 document speaks for itself. 20 Q. What subheading, what subnumber under that 21 paragraph is that? 22 A. Romanette two. 23 Q. Okay. And what is the actual verbiage of 229 1 that grant or that authority? 2 A. To permit such member to assign the lien 3 with any mortgage naming MERS as the 4 mortgagee when the member is also the 5 current promissory note holder or if the 6 mortgage is registered on the MERS system 7 is shown to be registered to the member. 8 Q. So what you're saying is when they either 9 have the note as a holder or when the 10 system shows them as the owner of the 11 beneficiary -- beneficial interest? 12 A. Or registered to the member. 13 Q. And that's -- beneficial interest is what 14 that's referring to; right? 15 A. Or servicer. 16 Q. Okay. So you're saying that that should be 17 interpreted to mean that they're either the 18 note holder or the beneficial interest 19 holder or the servicer? 20 MR. BROCHIN: Object to the form 21 of the question. 22 A. Well, this is talking about our 23 relationship with the members. 230 1 Q. Uh-huh (positive response). 2 A. And it begins by saying upon request from 3 the member -- 4 Q. Right. 5 A. -- we will grant authority. 6 Q. Right. 7 A. And then there's a resolution where the 8 secretary of the corporation grants that 9 authority on behalf of the company. 10 Q. Is the authority granted by the resolution 11 different from the authority stated there 12 with respect to assigning the lien? 13 A. It's not intended to be. 14 Q. Okay. So what we're reading there is the 15 authority that you intend to grant through 16 the resolution? 17 A. Well, this is our agreement with the 18 member. And then the resolution delineates 19 the seven categories of authority. And 20 whether that lines up with these Romanettes 21 or not, I don't know. 22 Q. I'm just asking you, are the particular 23 grants mentioned there identical to the 231 1 grants contained in the resolution or is it 2 your intention that they be identical? 3 A. Generally. I wouldn't say identical. 4 Q. But that they convey the same authority? 5 A. The resolution is what limits the 6 certifying officer's authority to act. 7 This deals with a request from the member 8 that we would grant that authority. 9 Q. So you're telling them there what they can 10 request that you grant to them and then the 11 resolution grants it? 12 MR. BROCHIN: Object to the form. 13 A. Yes. 14 Q. And I guess because of the way that you 15 answered the question earlier, I'm trying 16 to clarify. This says assign the lien that 17 a current promissory note holder or is 18 shown on the system. Are you saying that 19 if they have either the servicing rights or 20 the beneficial interest they have the right 21 to assign the lien? 22 A. Yes. 23 Q. And that, again, is subject to what the 232 1 actual documents show? 2 A. Yes. 3 Q. So irrespective of the fact that you grant 4 them the right to change the name on the 5 lien out of your name, they still need the 6 legal right to do it based on the documents 7 that underlie that registration? 8 A. Yes. And under state law. 9 Q. Right. So if someone attempts to assign a 10 lien out of MERS' name that is not allowed 11 to make that assignment, or state law, the 12 fact that you've said it's okay for them to 13 do that is not relevant; right? 14 MR. BROCHIN: Object to the form. 15 A. Our grant of authority for certifying 16 officer would at all moments be subject and 17 subordinate to state law. 18 Q. Okay. So any argument that the mere fact 19 that you grant the power allows them to do 20 it is not probative of the legal question 21 of whether they have the separate right 22 under the state's law? 23 MR. BROCHIN: Object to the form 233 1 of the question in that it 2 asks for a legal conclusion 3 and compound and vague. If 4 you understand it, you can 5 answer it. 6 A. Everything is subordinate to state law. 7 Q. So, in truth, we really don't need to 8 concern ourselves with the MERS agreement. 9 We need to concern ourselves with the 10 documents that underlie the transactions to 11 determine who truly has the right to change 12 these interests under state law; right? 13 MR. BROCHIN: Object to the form 14 of the question and the term 15 concern ourselves. 16 A. Everything matters. 17 Q. Right. Well, your -- the power you grant 18 to GMAC is based upon the premise that they 19 have the underlying right under state law 20 to do what they claim to be doing in your 21 name by the grant of that power? 22 A. True. 23 Q. The grant of the power from you does not 234 1 supercede the state law requirement that 2 they have the right to take that action 3 independently of your relationship with 4 them? 5 A. True. 6 Q. Does your company ever audit any actions of 7 any member or any person designated as a 8 certifying officer of any member? 9 A. We do member audits. 10 Q. And what is contained in that audit, 11 please, sir? 12 A. I don't know. 13 Q. Do you have an idea of who might know? 14 A. My team. 15 Q. Does your company pay any compensation to 16 any person designated as a certifying 17 officer? 18 A. No. 19 Q. Does any certifying officer have any right 20 to participate in the governance of MERS? 21 A. No. 22 Q. Does any certifying officer have any 23 interest in the daily control for direction 235 1 of the affairs of MERS? 2 A. No. 3 Q. Is it fair to say that persons who are 4 designated corporate officers of -- or 5 certifying officers of MERS are basically 6 granted a right to execute documents as an 7 accommodation of your agency agreement with 8 the member? 9 MR. BROCHIN: Object to the form. 10 A. Accommodation -- I don't know about that 11 word, but it's -- it's part of our business 12 model in our relationship with our members 13 that our members would conduct certain 14 types of business transactions in the name 15 of MERS through certifying officers. 16 Q. And that is because of your status as the 17 mortgagee of record in the land records? 18 A. Yes. 19 Q. There is no other economic or legal reason 20 for those acts to be conducted in your name 21 other than the fact that you exist as 22 mortgagee of record? 23 MR. BROCHIN: Object to the form 236 1 of the question. 2 A. True. 3 Q. With respect to -- if you'll flip over to 4 Rule 8(a), that is your rule that addresses 5 foreclosure. Is there a highlighted 6 portion of that Rule 8(a)? 7 MR. BROCHIN: You highlighted a 8 good deal of it. 9 Q. Could you read the highlighted portion of 10 that rule? 11 A. In sub-A? 12 Q. Yes, 8(a). 13 MR. BROCHIN: Oh, 8(a). I'm 14 sorry. 15 THE WITNESS: Yeah. 16 A. Section 1-8(a)? 17 Q. The highlighted portion under subpart A. 18 If you'd just read the highlighted portion 19 of that rule. 20 A. Section 1, subsection 8(a)? 21 Q. Uh-huh (positive response). 22 A. Foreclosure proceedings with respect to 23 such mortgage loans shall be conducted in 237 1 the name of Mortgage Electronic 2 Registration System, Inc., the name of the 3 servicer, or the name of a different party 4 to be designated by the beneficial owner. 5 And that's with respect to each mortgage 6 loan. 7 Q. So that is simply a reaffirmation of the 8 principles we've been talking about all day 9 that the rights of parties that are members 10 are defined by their agreements and their 11 documents and their transactions? 12 MR. BROCHIN: Object to the form 13 of the question. 14 A. True. 15 Q. And if they conducted a foreclosure in the 16 name of MERS, it would not be because MERS 17 has anything at stake other than its name 18 as mortgagee of record. It would be for 19 the convenience of those parties? 20 MR. BROCHIN: Object to the form 21 of the question. 22 A. Yeah. And you say anything at stake other 23 than our name. Our name is probably the 238 1 most important thing that would be at 2 stake. 3 Q. Sure. I understand that you built this 4 business model within the industry and 5 you've got all these loans registered and 6 your name is on all these liens. But, you 7 know, if a court in Alabama ruled that you 8 had no right to foreclose on any loan in 9 Alabama -- I mean, if they didn't say you 10 didn't have the right to serve as mortgagee 11 of record, you just didn't have the right 12 to foreclose, what harm would MERS suffer? 13 MR. BROCHIN: Object to the form 14 of the question. 15 A. Yeah. I wouldn't -- I wouldn't be able to 16 speculate about that. We don't anticipate 17 that happening. 18 Q. Well, I'm sure you don't. I'm talking 19 about hypothetically. 20 If you had the right to continue to be 21 mortgagee of record but the right to 22 foreclose was determined by the underlying 23 documents, not merely that your name is in 239 1 the records, how would your company be 2 harmed in that scenario? 3 MR. BROCHIN: Object to the form. 4 A. Well, the intent of the parties, including 5 the borrower, is that MERS can foreclose. 6 Q. Well, have you ever interviewed a borrower 7 to ask them even if they knew who MERS was? 8 A. It's in the first paragraph of the security 9 instrument. 10 Q. Sure. And like we talked about, MERS is 11 the mortgagee. I mean -- 12 A. Yes. 13 Q. So we're talking about from that 14 perspective again. MERS is never going to 15 suffer a default no matter what a client 16 does; right? 17 MR. BROCHIN: Object to the form 18 of the question to the extent 19 there is a legal question 20 there. That's my objection. 21 A. Well, the security instrument makes MERS 22 the mortgagee, and that's executed by the 23 borrower. And the security instrument 240 1 specifically says in another paragraph that 2 MERS has the right to foreclose. And those 3 documents under federal law are provided to 4 the borrower well before closing. 5 Q. And if the borrower is dealing with a 6 lender who uses the MERS as mortgagee form 7 and that's the only form they use, then 8 that borrower has no choice as to whose 9 name is mortgagee of record in the records, 10 does it? 11 MR. BROCHIN: Objection. Asked 12 and answered. I thought we 13 covered that this morning. 14 But you can answer it. 15 A. Well, they have a choice as to which lender 16 they use. 17 Q. And exactly how deep do they have to go in 18 the process to find out that that lender 19 only uses the MERS as mortgagee form? 20 A. Maybe walk across the street. I don't 21 know. 22 Q. Is it disclosed in a good-faith estimate or 23 any warnings prior to closing if that's the 241 1 case? 2 MR. BROCHIN: Objection. 3 Compound. Asked and answered 4 this morning. 5 A. It's in the first paragraph of the security 6 instrument and federal law requires that 7 they be given a copy of those documents 8 well before closing. 9 Q. I just want to make sure I understand. You 10 are perfectly willing to allow any 11 beneficial owner of any mortgage note 12 registered on your system to transfer that 13 lien out of your name and conduct 14 foreclosure on their own? 15 MR. BROCHIN: Object to the form. 16 A. Yes. 17 Q. But you somehow claim to be harmed if a 18 court were to say that you had no 19 enforceable interest in the foreclosure 20 proceeding? 21 MR. BROCHIN: Objection to the 22 form. You're 23 mischaracterizing his 242 1 testimony. And I also object 2 for the previous reasons I 3 objected when you asked it 4 last time. 5 A. Yeah. I had trouble following that because 6 the security instrument signed by the 7 borrower gives us the right to foreclose. 8 And if we hold the note like our rules 9 require, it's hard to envision that we 10 can't foreclose. 11 Q. The right to foreclose is defined by state 12 law; right? 13 A. Always subject to state law. 14 Q. And your MERS as mortgagee form is merely 15 an extension of your agreement with your 16 members; right? 17 MR. BROCHIN: Object to the form. 18 A. Well, that's the uniform document that's 19 used by anyone that is going to register 20 the loan on the MERS system. 21 Q. Absolutely. But that form is a form that 22 you require of the members to use who are 23 going to register the loan; right? 243 1 A. Actually it would be required by the 2 investor. 3 Q. Did you take any part in answering the 4 interrogatories that were filed in this 5 case? 6 A. In the Henderson case? 7 Q. (Nods head.) 8 A. No. 9 Q. Okay. Have you reviewed them? 10 A. No. 11 (Plaintiff's Exhibit 8 was marked 12 for identification.) 13 Q. I show you a document I've marked as 14 Plaintiff's Exhibit Number 8. Are you able 15 to identify that document? 16 A. It's one of the -- one of the documents 17 generated out of the MERS system. 18 Q. And what level of access would you have to 19 have to receive that document? 20 A. This would be top-level access. 21 Q. So that would be somebody way up the food 22 chain? 23 MR. BROCHIN: Object to the form 244 1 of the question. 2 A. It would be somebody that is already in 3 this file. 4 Q. Okay. So is that file frozen from access 5 to people who are not already involved in 6 it or something? 7 A. Yes. 8 Q. And is that because of this lawsuit? 9 MR. BROCHIN: Object to the form. 10 A. No. It's because of the access level. 11 Q. Okay. And what could a person reviewing 12 that document -- what could they learn from 13 the contents of that document? What does 14 that document tell us? 15 A. It's got all kinds of information on it, 16 but it's very basic. 17 Q. And what exactly is there? 18 A. You mean every single piece of information 19 on it? 20 Q. Well, you can summarize it. What's on that 21 document just by reading it? What am I 22 supposed to be able to determine by that? 23 A. Well, you determine who the parties to the 245 1 loan are. 2 Q. Okay. 3 A. The only thing it establishes is that this 4 is a MOM. 5 Q. Okay. Anything else? 6 A. It says it's in foreclosure. 7 Q. Is that part of a standard form of course 8 that can be generated or is generated 9 routinely through your company? 10 A. If you have the authority. 11 Q. Is that authority available to GMAC? 12 A. Yes. 13 Q. Is it available to anyone else? 14 A. By this document? 15 Q. (Nods head.) 16 A. No. 17 Q. And when was that document effective? 18 MR. BROCHIN: Object to the form 19 of the question. 20 Q. Is there any way to tell when that 21 situation came to be where only GMAC was 22 aligned with that particular loan? 23 A. Whenever -- whenever the registration was 246 1 and then transfers, since then. 2 Q. Would that be a MIN transfer audit? 3 A. A MIN transfer? 4 Q. A MIN transfer audit. Would that give you 5 that same information? 6 A. Oh, you mean a report like that? 7 Q. (Nods head.) 8 A. I don't know. 9 Q. Have you reviewed the MIN transfer audit 10 for this particular loan? 11 A. I don't recall. 12 (Plaintiff's Exhibit 9 was marked 13 for identification.) 14 Q. Let me show you a document I've marked as 15 Plaintiff's Exhibit 9. Have you reviewed 16 those documents as part of your employment 17 in the past? 18 A. Not really. 19 Q. Are you familiar with the contents of those 20 documents? 21 A. Generally. 22 Q. Are you able to testify as to what that 23 document represents? 247 1 A. Not really. 2 Q. What can you ascertain from looking at that 3 document -- what information can you glean 4 from that document? 5 A. I'd have to have one of my -- my team help 6 me with that. 7 Q. Who would be the person that could 8 interpret that document for you? 9 A. Somebody on my team. 10 Q. Got any idea who that would be? 11 A. Well, it's very -- it's very basic. So it 12 would just need to be somebody that knows 13 how to read it. 14 Q. Can I have that document for a moment, 15 please, sir? 16 In looking at this document, reading 17 from right to left, it says that 18 December 20th, 2004, there was a batch 19 uploaded by an organization that was ID'd 20 as 1000249. And the next entry says that 21 the transfer status says pending and then 22 complete. Would that represent a handshake 23 that we talked about earlier? 248 1 A. That sounds like it. 2 MR. BROCHIN: Object to the form. 3 I think the witness said he's 4 not in a position to offer 5 that testimony for this 6 document. 7 MR. WOOTEN: All right. Well, 8 we're -- I'm going to examine 9 him on what he can tell from 10 it based on what I can tell 11 from it. 12 Q. And it indicates that all three of those 13 transactions indicated a transfer status 14 and a transfer success indicator occurred 15 on 12-20 of 2004 and that the transfer 16 success indicator was yes. Does that mean 17 that the handshake was complete? 18 A. I don't know. 19 Q. All right. The column on the farthermost 20 right-hand side has a series of 21 organizational ID numbers. Do you have a 22 database which would provide you the 23 identity of each of the entities by that 249 1 organization ID number? 2 A. Yes. 3 Q. And you can actually look up those entities 4 on your Website by that ID number, can't 5 you? 6 A. Do those numbers have seven digits? 7 Q. Yes, they do. 8 A. Yes. 9 Q. Okay. And in examining those documents on 10 your Website, I represent to you -- and be 11 glad to take a moment to look it up and 12 show it to you if you'd like -- but that 13 1,249 -- or 1000249 was a number for GMAC. 14 Have you reviewed those numbers and are 15 familiar with them? 16 A. I know they have seven digits and they keep 17 track of our members. 18 Q. Okay. So if it indicated that on 19 12-20-2004 GMAC transferred the note and 20 there was a handshake for it, you would 21 have no reason to doubt that that's at 22 least allegedly what transpired; right? 23 A. I don't know whether it had to do with the 250 1 note or not. 2 Q. Okay. With respect to that particular 3 document, there is a date entered of 4 September 18th, 2009. And it says that the 5 MIN transfer confirmation from the current 6 investor and that it was confirmed. The 7 current investor, according to the earlier 8 transaction ... 9 The number for the current investor was 10 1000375. And when I looked that number up, 11 it came back to Ginnie Mae. Would you have 12 any reason to doubt that that was who was 13 the current investor at the time that the 14 transfer took place -- 15 MR. BROCHIN: Object to the form 16 of the question. 17 Q. -- based on your records? 18 MR. BROCHIN: Object to the form 19 of the question. 20 A. Well, Ginnie Mae is a little different than 21 any other investor. 22 Q. In what respect? 23 A. They're actually a guarantor. It's the 251 1 United States Government. 2 Q. Okay. And how are they different from the 3 other investors? 4 A. They probably never actually have the note. 5 Q. But you don't know that? 6 A. I don't know that. 7 Q. And, again, you would defer to what the 8 actual documents say; right? 9 A. Well, if those are documents out of the 10 MERS system, I would certainly go by them. 11 I just -- I don't read those in the normal 12 course of my work. 13 Q. Well, you understand I've never seen them 14 before either? 15 A. Yeah. And they're not -- not that 16 difficult to read. I just would be 17 guessing. 18 Q. Put that with the other ones. 19 This is a two-page -- 20 (Brief interruption.) 21 (Plaintiff's Exhibit 10 was marked 22 for identification.) 23 Q. I'm going to clip these separately. We'll 252 1 mark these as Plaintiff's Exhibit 10. 2 Do you know what a MIN audit is? 3 A. As opposed to a MIN transfer audit? 4 Q. Right. 5 A. I might if I look at it. 6 Q. All right. Let me let you take a look at 7 that. And, again, I don't mean to throw 8 that at you. I'm sorry. I'm just trying 9 to make sure you can get your hands on it. 10 A. Uh-huh (positive response). 11 Yeah. These are documents that an 12 expert could read. Straightforward, but 13 you would have to have experience to be 14 able to read them. 15 Q. Okay. Would you be able to take your 16 procedures manual and those documents and 17 pretty much be able to tell what was meant 18 by most of those entries? 19 A. My team could. 20 Q. Sure. Let me take a look at that 21 document. 22 At the bottom of this page there's an 23 entry for 12-20-2004, and it gives an 253 1 agency number and says it's a part of a 2 batch file. And then on 8-18-2007, as part 3 of a batch file, it indicates that it's in 4 foreclosure status pending under option two 5 and says, comma, retained on MERS. So that 6 would indicate to you that foreclosure was 7 instituted in the name of MERS; right? 8 A. Yes. 9 Q. And the organization ID at that point in 10 time says 1000375, which earlier I said 11 when I looked it up was GMAC. 12 A. It was GMAC? 13 Q. GMAC -- GMAC Mortgage, LLC. 14 MR. BROCHIN: I thought you said 15 Ginnie Mae. 16 MR. RAMEY: Yeah. You said 375 17 said Ginnie Mae. 18 MR. WOOTEN: 100249 is Ginnie Mae. 19 MR. RAMEY: Oh, okay. You said it 20 backwards earlier. 21 THE WITNESS: Yeah. 22 MR. RAMEY: Because I did write it 23 down whenever it came out the 254 1 first time. So that may 2 change how the testimony 3 was -- 4 MR. WOOTEN: I apologize if that 5 was the case. 6 Q. But this follows a -- there's an entry of 7 August 18th, 2007, indicating foreclosure 8 status, September -- or October 23rd, 2007, 9 indicating foreclosure status, and 10 June 14th, 2008, indicating foreclosure 11 status. But then there's an entry on 12 September 18th, 2009, indicating an 13 investor pool number, and it has a code or 14 a value that says 634653XSF. Somewhere 15 that value is defined in your system, isn't 16 it? 17 A. I'm sure it is. 18 Q. And that was intended to identify an 19 investor pool; right? 20 A. Whatever that value is shown in the system. 21 Q. Okay. And your policies and procedures 22 manual requires servicers and investors to 23 indicate the pool or the trust where the 255 1 asset -- the note is for the beneficial 2 interest; right? 3 A. I wouldn't say requires. In all of these 4 entries you're talking about, like you said 5 earlier, there's corollary documents. 6 Q. Right. There are underlying documents. 7 We're talking about for the purposes of 8 your system. Everything that's on this 9 report as of this day, this information 10 should have been available to GMAC and 11 Ginnie Mae whenever they looked at this MIN 12 number; right? 13 A. Yes. 14 Q. And right above that entry that indicates 15 the investor pool number, there is an 16 investor Org ID, which I read to be the 17 investor organization ID; is that correct? 18 A. Sounds like it. 19 Q. Okay. And it indicates 1000249 is the 20 before value, which is the value for Ginnie 21 Mae. And then the after value is 1000375, 22 which is the value for GMAC Mortgage, LLC. 23 Is that also another handshake evidencing a 256 1 change in the interest of this loan? 2 A. It's an update. 3 (Plaintiff's Exhibit 11 was marked 4 for identification.) 5 Q. I'm going to hand you another page I've 6 marked as 11. It is also dated 7 December 20th, 2004. It indicates that the 8 investor organization ID is 1000375, which 9 is GMAC, and the after value is 1000249, 10 which is Ginnie Mae. And it also indicates 11 the investor pool number which matches the 12 investor pool number shown on 13 September 18th, 2009; correct? 14 I mean, I'll show it to you. But you 15 can take a look at that and you can compare 16 it. 17 Okay. Compare it to the numbers on 18 that document. 19 In reviewing those documents, that 20 would indicate to you, would it not, that 21 the interest in that note changed hands 22 first from GMAC to Ginnie Mae on December 23 the 20th of 2004 and went to a specific 257 1 pool and then it came back from that pool 2 and Ginnie Mae to GMAC in September of 3 2009. Would you agree with that based on 4 those two documents? 5 A. I would say that the documents show what 6 they show. 7 Q. Is that what those documents would indicate 8 to you by those entries? 9 A. I -- I don't have experience in reading the 10 MIN audit reports. 11 Q. Have you ever read a milestone? 12 A. A milestone? 13 Q. Uh-huh (positive response). 14 A. I know what -- I know what that is. 15 Q. Have you read any before? 16 A. I've seen milestones. 17 Q. Do you know what a milestone report is 18 supposed to do or supposed to tell you? 19 A. I don't know that I could answer that. 20 Q. Well, maybe I can fill in the gaps for you 21 a little bit. 22 (Plaintiff's Exhibit 12 was marked 23 for identification.) 258 1 Q. I show you this document. It's Plaintiff's 2 Exhibit 12. 3 MR. BROCHIN: Just so the record 4 will reflect it, that the 5 document has highlighted 6 markings in it, multicolors. 7 MR. WOOTEN: Sure. That's what 8 you do when you hadn't slept 9 all night and you're trying to 10 stay awake. You mark it in 11 funny colors. 12 Q. The milestone report, take a minute and 13 read it over. 14 Does it indicate that that loan 15 transferred from GMAC to Ginnie Mae in 16 December of 2004? 17 It would be on your left -- or your 18 right-hand column down at the bottom of the 19 page. 20 A. In pink? 21 Q. There will be a number of colors, but it's 22 the lower entries. 23 A. Well, this report is different in the sense 259 1 that it does use the term Government 2 National Mortgage Association, which is 3 Ginnie. 4 Q. Right. 5 A. So this report's a little more intuitive. 6 Q. Right. It gives you the information I gave 7 you earlier with respect to the 8 organizations' ID number and their name; 9 right? 10 A. It's got names. 11 Q. It's also got their ID number, doesn't it? 12 A. Yes. 13 Q. And do those numbers and names match what I 14 told you about the earlier exhibits? 15 A. The second time around. 16 MR. BROCHIN: Object to the form. 17 Q. So in reviewing that document, does it 18 indicate that Ginnie Mae became an investor 19 on that loan in December of 2004? 20 A. Well, it's referred to as new investor. 21 Q. Okay. 22 A. And that is December 2004. 23 Q. And that was done under a process that your 260 1 company calls option one for the 2 registration of that loan on the system; 3 correct? 4 A. It says option one. 5 Q. Do you know what option one means? 6 A. In this context? 7 Q. Uh-huh (positive response). 8 A. Transfer beneficial rights, option one. 9 Q. Do you know what option one is with respect 10 to the transfer of beneficial rights? 11 A. No. 12 Q. Do you know how many options there are for 13 transfer of beneficial rights? 14 A. No. I think it's got to do with Ginnie's 15 special status. I don't know. 16 (Plaintiff's Exhibit 13 was marked 17 for identification.) 18 Q. I show you this document I've marked as 19 Plaintiff's Exhibit 13. It's -- a portion 20 of it I've highlighted. Does it explain 21 what option one is? 22 A. It's their special status. 23 Q. Right. And what does that section say 261 1 option one is? 2 A. Option one requires no confirmation and 3 they can remove any interim funder or 4 warehouse/gestation lender interests from 5 the loan. 6 Q. And by reading option one and looking at 7 that milestone report, does it appear, at 8 least as it was represented on your system, 9 that Ginnie Mae became the investor on that 10 loan in December of 2004? 11 A. Under option one. 12 Q. Okay. Going back to the previous 13 exhibit -- I guess it was Number 12, the 14 milestone report -- it indicates, going up 15 the right-hand column, the transfers that 16 took place on your system registration; is 17 that correct? 18 A. It was registered on November 20th, 2004. 19 Q. November or December? 20 A. The registration? 21 November. 22 Q. Would that be the preregistration with an 23 anticipated closing date? 262 1 A. That's possible. 2 Q. Right. If there was a commitment to lend 3 and they knew they were going to use the 4 MOM form, wouldn't they go ahead and 5 preregister to get the MIN? 6 A. They can. 7 Q. Right. And that's so they can put the MIN 8 on the documents; right? 9 A. Could be. 10 Q. Sure. Now, I know you started in November, 11 but going forward in time from November of 12 2004, is the next entry the December entry 13 where Ginnie Mae was indicated to be the 14 investor? 15 A. Yes. 16 Q. And that indicates they took from GMAC; 17 right? 18 A. GMAC Mortgage is listed as the old 19 investor. 20 Q. Okay. And the next transfer occurred, 21 according to the milestone report, when? 22 A. October 2006. 23 Q. Okay. And is that the update regarding 263 1 foreclosure status? 2 A. It looks like a seasoned servicing 3 transfer. 4 Q. Okay. That would have been something we 5 discussed earlier today where there was a 6 fee paid for a servicing change that 7 occurred on a loan that was more than 270 8 days old; is that right? 9 A. I believe so. 10 Q. And does that indicate who the new servicer 11 would have been? 12 A. The old and the new are the same. 13 Q. So it's Homecomings taking from 14 Homecomings? 15 A. It's GMAC. 16 Q. Or GMAC. I'm sorry. You're right. 17 What is the next status change 18 indicated by date chronologically on that 19 form? 20 A. Foreclosure status. 21 Q. And what date is that? 22 A. August 2007. 23 Q. What is the next date entry that indicates 264 1 a change in the investor on that report? 2 A. Looks like September 2009. 3 Q. September 2009. And does that at that 4 point change from Ginnie Mae to GMAC 5 Mortgage, LLC? 6 A. Old investor to new investor, Ginnie to 7 GMAC. 8 Q. And, again, you can take the pool number 9 that is included on those exhibits and 10 someone at MERS can tell us whatever 11 information is in the system which 12 identifies what that pool is supposed to 13 be; right? 14 A. What do you mean by pool? 15 Q. There is -- if you'll let me see that 16 milestone report, I'll point it out for 17 you. 18 Thank you. 19 Well, actually, you know what. I guess 20 you need to go back to Number 11. Because 21 the -- Exhibit 11 would show you -- and 22 there -- is it a series number that 23 indicates on that in the upper transaction 265 1 or a pool number? 2 A. Investor pool number is what it says. 3 Q. Right. And is there a specific portion of 4 your procedures manual that requires that 5 that be indicated? 6 A. I don't know. 7 Q. You don't know. 8 (Plaintiff's Exhibit 14 was marked 9 for identification.) 10 Q. Let me show you what I've marked as 11 Exhibit 14. I represent to you that that 12 came from your procedures manual. And does 13 that procedures manual require that you 14 identify the pool number or the investor 15 with a Ginnie Mae loan? 16 A. If required by the investor. 17 MR. BROCHIN: Object to the form. 18 The document speaks for 19 itself. 20 A. If the investor requires it, it's required. 21 Q. Right. 22 MR. WOOTEN: I need to take a 23 short break and look at a 266 1 couple of things. Let's take 2 about ten minutes. I might be 3 able to cut off. 4 THE VIDEOGRAPHER: We are going 5 off the record at this time. 6 It is now 4:31 p.m. 7 (A brief recess was taken.) 8 THE VIDEOGRAPHER: We are back on 9 the record, and the time is 10 now 4:43 p.m. 11 Q. (Mr. Wooten continuing:) Mr. Arnold, we 12 looked at several reports generated as part 13 of this discovery. And specifically to 14 those issues, is there any method that 15 you're aware of whereby a user of the MERS 16 system could go back and alter any of those 17 transactions that have been entered or 18 registered on the system, change any of the 19 terms or the timing or anything like that? 20 A. No. 21 Q. Is that a -- is there some sort of audit of 22 the technology to assure that that can't 23 take place or some sort of firewall? How 267 1 does that occur? Do you know? 2 A. You just wouldn't be able to go in and 3 change anything that had been done. You'd 4 have to update it. 5 Q. So if -- is there a way to make an entry 6 which would allege that the prior entry was 7 an error and it be replaced on your system? 8 A. You could correct a prior entry with a new 9 entry. 10 Q. Would the old entry be deleted if you 11 correct it? 12 A. No. 13 Q. So even if, say, somebody decided that they 14 didn't like the timing of some of these 15 transfers in one of these reports, even if 16 they tried to go back and change the dates 17 with a correction, it would still show the 18 previous entries? 19 A. Yes. 20 Q. Your technology provider, where are they 21 located? 22 A. EDS? 23 They're a worldwide company. 268 1 Q. Do they have a location that is dedicated 2 towards your technology systems? 3 A. Well, there's -- I think of it as being the 4 Plano headquarters. 5 Q. Plano? 6 A. Plano, Texas. 7 Q. That's what I was getting at. Is that 8 the -- is that your national data center? 9 A. That's their national data center. But I 10 know that there's work done in other 11 places. 12 Q. Is there a physical location where your 13 electronic data is centrally reposited? 14 A. Yes. 15 Q. Is that Plano? 16 A. I don't think so, but that's -- that's a 17 guess. 18 Q. Has EDS created data integrity audits which 19 will verify the reliability of the data 20 entered in your system? 21 A. I don't know. 22 Q. With respect to the various certifications 23 that your certifying officers make in your 269 1 name, the data that they are certifying as 2 correct in your name is not MERS data, is 3 it? 4 A. Well, they have either personal or 5 institutional knowledge with regard to the 6 loan itself. 7 Q. Sure. 8 A. And the member. 9 Q. Right. But they are certifying in the name 10 of MERS data that actually belongs to the 11 member; correct? 12 A. In some cases. 13 Q. Right. Because other than with respect to 14 the entries like we've talked about in your 15 system, the registrations, and the fact 16 that the loan names your company as 17 mortgagee of record, data with respect to 18 the account, the documents that created the 19 mortgage loan, the custodial files -- all 20 that information would be in the possession 21 of some other entity, most likely that 22 member making that certification? 23 A. Yes. 270 1 MR. BROCHIN: Object to the form 2 of the question. 3 MR. WOOTEN: Do I need to re-ask 4 the question and make sure we 5 don't have an objection about 6 that? 7 MR. BROCHIN: I do object to the 8 form of that question. 9 Q. When a MERS certifying officer makes a 10 certification in MERS' name, based upon the 11 mortgage account, the mortgage documents, 12 the custodial documents, the mortgage file, 13 those documents are not MERS documents; 14 correct? 15 A. We have certain documents, but none of them 16 are mortgage documents. 17 Q. So any document related to the servicing of 18 a mortgage loan other than the MERS as 19 mortgagee document, the lien that is being 20 certified in MERS' name, is a certification 21 of documents that belong to another entity? 22 A. When you say any, that seems a little 23 categorical to me. 271 1 Q. Okay. Let me ask it this way: With 2 respect to the mortgage servicing 3 function -- 4 Okay? 5 -- that is conducted by a mortgage 6 servicer; correct? 7 A. Yes. 8 Q. And that servicer is most likely a member 9 of MERS; correct? 10 A. Yes. 11 Q. The persons that you have designated as 12 certifying officers of MERS who are 13 employees of that mortgage servicer -- 14 those persons, when they certify on behalf 15 of MERS the servicing activities of the 16 servicer, they are certifying not MERS data 17 and documents, but the servicer's data and 18 documents? 19 MR. BROCHIN: Object to the form 20 of the question. 21 A. Generally those servicing documents are 22 from the member. 23 Q. Is the milestone report that we were 272 1 referring to earlier here, Number 12 -- is 2 that a document or a report that is 3 produced by MERS? 4 A. Yes. It's generated from the MERS system. 5 Q. Is MERS able to go onto the MERS system and 6 request a milestone report for any MIN? 7 A. Yes. 8 Q. And a servicer may also do so? 9 A. Yes. 10 MR. RAMEY: Just to clarify, is 11 that certify -- a servicer can 12 go in on any loan that it can 13 input -- can it put in the 14 milestone report for any loan 15 that it has an interest in? 16 A. I should clarify that. It's -- when you 17 say member, it should be the member. 18 Q. Okay. So if a MIN is identified to a 19 servicer or a beneficial owner -- 20 A. Yes. And I misspoke. It's -- any servicer 21 cannot get a milestone report on any loan. 22 Q. And I think you and I were talking about 23 the same thing but maybe weren't clear. 273 1 What I was speaking about is, in this 2 particular case MERS has the right to get a 3 milestone report and GMAC? 4 A. Yes. 5 Q. And whoever the investor on the note is or 6 was; right? 7 A. Yes. 8 Q. If MERS presents a note which it has 9 obtained possession of that is endorsed in 10 blank and a payment is made to satisfy that 11 note as a result of MERS' presentation, may 12 MERS simply take that money and do with it 13 what it wishes? 14 A. No. 15 Q. Is that because of the express terms of 16 your agency with your members? 17 MR. BROCHIN: Object to the form. 18 A. It's one of the reasons. 19 Q. And it's also because you never have the 20 right to any of the money under that note? 21 A. That's another reason. 22 Q. And you've testified previously that you 23 would consider that almost to be a criminal 274 1 action; right? 2 A. No. 3 MR. BROCHIN: Object to the form 4 of the question. 5 A. No, I don't -- I don't think it would be a 6 criminal act, but it would -- it would be a 7 mistake that would need to be corrected. 8 Q. In every membership agreement with every 9 member you have that same agreement that 10 you will never claim to be entitled to any 11 of the money from any promissory note? 12 A. Yes. 13 (Plaintiff's Exhibit 15 was marked 14 for identification.) 15 Q. I show you what I'll mark as Exhibit 15, 16 which are documents 61 and 62 by your 17 Bates-stamping. That's a copy of the note 18 in this case. Does that note appear to be 19 a copy of the note executed by Debra 20 Henderson? 21 MR. BROCHIN: Object to the form 22 of the question. 23 A. Appears to be. 275 1 Q. Does that note have a rider just above the 2 signature line addressing the modification 3 of the terms of that note due to the VA 4 guarantee? 5 A. I don't understand the question. 6 Q. Is there a modification of the terms of the 7 note with respect to a VA guarantee just 8 above the signature page of that note? 9 MR. BROCHIN: Objection. The 10 document speaks for itself. 11 A. I have not seen any reference to the VA. 12 Q. If you will, if you'll hand that to me, 13 I'll tell you -- 14 A. It says it's insured under the United 15 States Code. 16 Q. Right. And at the top of the note it 17 says -- it has a VA number and says that 18 it's not assumable without the approval of 19 the Department of Veterans Affairs or its 20 authorized agent; right? 21 MR. BROCHIN: You're asking him if 22 that's what it says? 23 Q. That's what it says; right? 276 1 MR. BROCHIN: Object to the form 2 of the -- 3 Q. And I'll show that back to you. 4 MR. BROCHIN: Object to the form 5 of the question. 6 Q. The section under 11 says prepayment and 7 acceleration. In your experience in your 8 employment in the mortgage industry, are 9 you familiar with that terminology? 10 A. The two concepts. 11 Q. Right. And does that paragraph address 12 modifications to the terms of the mortgage 13 based on the guarantee that's recited in 14 that paragraph? 15 MR. BROCHIN: Objection to the 16 extent the question calls for 17 a legal conclusion and the 18 document speaks for itself. 19 A. Yeah. I don't see modification. 20 Q. Read that paragraph into the record, 21 please, sir. 22 A. Prepayment and acceleration paragraph? 23 If the indebtedness secured hereby is 277 1 guaranteed or insured under Title 38, 2 United States Code, such title and 3 regulations issued thereunder and in effect 4 on the date hereof shall govern the rights, 5 duties, and liabilities of borrower and 6 lender. Any provisions of the security 7 instrument or other instruments executed in 8 connection with said indebtedness which are 9 inconsistent with said title or 10 regulations, including, but not limited to, 11 the provision for payment of any sum in 12 connection with prepayment of the secured 13 indebtedness and the provision that the 14 lender may accelerate payment of the 15 secured indebtedness pursuant to Section 18 16 of the security instrument, are hereby 17 amended or negated to the extent necessary 18 to confirm such instruments -- such 19 instruments to said title or regulations. 20 Q. Are you familiar with any special 21 protections afforded by -- to Ms. Henderson 22 by virtue of this loan being guaranteed by 23 the VA? 278 1 A. Well, this paragraph seems to say there 2 can't be a prepayment penalty and there are 3 certain restrictions on acceleration. 4 Q. Okay. Are you familiar with any of those 5 changes because of the VA guarantee 6 personally? 7 A. What do you mean? 8 Q. Do you know what the specific protections 9 are which are afforded by that clause? 10 A. Well, I know you can't have a prepayment 11 penalty. 12 (Plaintiff's Exhibit 16 was marked 13 for identification.) 14 Q. Exhibit 16 is the Henderson mortgage. That 15 is the standard form language for all 16 62 million MERS mortgages in existence; is 17 that right? 18 MR. BROCHIN: Object to the form 19 of the question. 20 A. It's an Alabama mortgage. 21 Q. The clauses dealing with MERS and its 22 rights -- 23 A. Yes. 279 1 Q. -- are they any different in any other 2 state than the explanation provided in that 3 document? 4 A. Generally speaking, no. 5 Q. Okay. If you will, let me take a look at 6 that for just a second. 7 I highlighted a portion of that 8 document in pink, and that is the 9 acknowledgement clause where the borrower 10 acknowledges that MERS is the mortgagee of 11 record on behalf of the lender; is that 12 right? 13 MR. BROCHIN: Object to the form. 14 The document speaks for 15 itself. 16 Q. I mean, is that -- that is, in effect, 17 Mr. Arnold, the magic language that is 18 inserted in all these mortgages, isn't it? 19 MR. BROCHIN: Object to the form 20 of the question, the term 21 magic language. 22 A. This is the granting clause, the words of 23 conveyance. 280 1 Q. Right. That give you the right to sit as 2 mortgagee of record; right? 3 MR. BROCHIN: Object to the form. 4 A. The borrower makes MERS the mortgagee of 5 record. 6 Q. Right. That's what I'm saying. That 7 portion of that clause is the language that 8 you rely on to make you the mortgagee of 9 record for the land record; right? 10 A. Yes. 11 Q. Okay. Let me have that document for just a 12 second. 13 With respect to this clause, you've 14 explained your concept of legal title as 15 being the right to appear as mortgagee of 16 record; right? 17 A. It's the bare legal title. We're in the 18 land records as mortgagee. 19 Q. The name in the book; right? 20 MR. BROCHIN: Object to the form. 21 A. And the interest that goes with it. 22 Q. And the clause says that the borrower 23 understands and agrees that MERS holds only 281 1 legal title to the interest granted by the 2 borrower in this security instrument, but, 3 if necessary to comply with law or custom, 4 MERS, as nominee for lender and lender's 5 successors and assigns, has the right to 6 exercise any or all of those interests, 7 including, but not limited to, the right to 8 foreclose and sell the property. 9 Now, the clause says if necessary to 10 comply with law or custom; right? 11 MR. BROCHIN: You're asking him if 12 that's what the document says? 13 MR. WOOTEN: Right. 14 MR. BROCHIN: Object to the form 15 of the question. The document 16 speaks for itself. 17 Q. I mean, this was your language. 18 A. Yes. 19 MR. BROCHIN: Well, object to the 20 form of the question in terms 21 of what your language means. 22 Q. If necessary -- 23 A. That's the language where the borrower 282 1 makes us the mortgagee. 2 Q. If necessary to comply with law or custom, 3 MERS has the right. So if it's necessary 4 to comply with law or custom, you have the 5 right? 6 MR. BROCHIN: Object to the form 7 of the question. 8 Q. Correct? 9 MR. BROCHIN: Do you understand 10 the question? 11 A. It's the granting clause that the borrower 12 conveys the interest. 13 Q. So if nothing in law or custom is necessary 14 and would require you to foreclose, you 15 don't have to; right? 16 MR. BROCHIN: He's -- are you 17 asking him based on this 18 document? 19 MR. WOOTEN: I'm asking him based 20 on his document, yes. 21 MR. BROCHIN: Object to the form 22 of the question. 23 A. It's the borrower's document. 283 1 Q. Who prepared it? 2 A. Whoever closed the loan. 3 Q. Okay. And this is a standard form 4 document, Fannie Mae, Freddie Mac, who are 5 shareholders of MERS, with the MERS 6 granting clause -- 7 A. Yes. 8 Q. -- that you chose -- MERS chose; right? 9 MR. BROCHIN: Object to the form. 10 A. I wouldn't say that we chose it. 11 Q. Who came up with the granting clause, then? 12 A. Well, the member is the one that put it in 13 the document, and the borrower is the one 14 that executed it. 15 Q. The member is actually using a form 16 provided as a uniform instrument by Fannie 17 and Freddie; right? 18 A. Yes. 19 Q. So the actual granting language, the 20 verbiage, the terminology, that was MERS'; 21 right? 22 A. I wouldn't say -- 23 MR. BROCHIN: Object to the form. 284 1 A. -- that. 2 Q. If it were not MERS', who chose that 3 language? 4 MR. BROCHIN: Object to the form. 5 A. Fannie and Freddie and the lender. 6 Q. And Fannie and Freddie are Class A 7 shareholders of MERS? 8 A. Yes. 9 Q. And tell the ladies and gentlemen of the 10 jury what a Class A shareholder is versus 11 the rest of us. 12 A. A Class A shareholder is in a class all 13 their own. 14 Q. And they are afforded special treatment 15 within the classes of shareholders of MERS; 16 right? 17 A. Not special treatment. They have a few 18 additional rights. 19 Q. They form the management committee that has 20 the right to act as the board of directors 21 in certain circumstances; correct? 22 A. No. 23 Q. That's not in your bylaws? 285 1 A. They're on that committee. 2 Q. Right. That's made up of Class A 3 shareholders; right? 4 A. Well, half of -- half of that committee is 5 made up of Class A shareholders. The other 6 half are not Class A. 7 Q. Okay. So when you say that the consumer -- 8 obviously a consumer signed this mortgage, 9 Ms. Henderson. But this mortgage was 10 presented to her in printed form. She did 11 not write the language that's contained in 12 this preprinted form; right? 13 A. True. 14 Q. And irrespective of your agency grant by 15 your member, you are not testifying that 16 any court should look past the actual 17 documents that underlay this transaction to 18 determine your rights, are you? 19 MR. BROCHIN: Object to the form 20 of the question. If you can 21 answer it. 22 A. What the court looks like is -- I am 23 comfortable saying that they would have to 286 1 look at the mortgage. What else they look 2 at is up to the court. 3 Q. You testified earlier that the ownership of 4 the promissory note, the right to enforce 5 it, all of that is determined by state law? 6 A. Yes. 7 Q. Not by your mortgage or your membership 8 agreement? 9 MR. BROCHIN: Object to the form 10 of the question. 11 A. Yeah. I -- you know, that's very 12 theoretical, you know. The bottom line is 13 you've got the note. You've got the 14 mortgage. And under state law that's a 15 secured transaction. 16 Q. And that is assuming that you do not hold 17 the note under a separate agreement that 18 limits your rights to that note; correct? 19 A. Well, if you hold the notes, you're holder 20 of the note. 21 Q. But you hold the note with specific 22 restrictions by written agreement with your 23 member? 287 1 A. Many holders do. 2 Q. Correct. 3 A. (Witness nods head.) 4 MR. WOOTEN: I think I'm done. 5 Thank you. 6 MR. BROCHIN: Just put back, you 7 know, on the record so we're 8 clear, we do not waive reading 9 of the deposition. 10 And just -- I don't know 11 if I put this on the record, 12 but this will be attached as 13 Exhibit Number 1 -- 14 MR. WOOTEN: Sure. 15 MR. BROCHIN: -- which is a 16 discovery and confidentiality 17 agreement which has been 18 signed -- it doesn't look by 19 all, but certainly I would -- 20 MR. WOOTEN: It's going to be 21 countersigned by the other 22 co-counsel. They've made the 23 agreement. And as I've told 288 1 Shaun, we have no interest in 2 disseminating the video. 3 We're not going to do it. 4 MR. BROCHIN: Very good. 5 THE VIDEOGRAPHER: This concludes 6 today's deposition. The time 7 is now 5:19 p.m. 8 (Deposition concluded at 9 approximately 5:19 p.m.) 10 * * * * * * * * * * 11 FURTHER DEPONENT SAITH NOT 12 * * * * * * * * * * 13 REPORTER'S CERTIFICATE 14 STATE OF ALABAMA: 15 MONTGOMERY COUNTY: 16 I, Tracye Sadler Blackwell, Certified 17 Court Reporter and Commissioner for the State of 18 Alabama at Large, do hereby certify that I reported 19 the deposition of: 20 R.K. ARNOLD 21 who was duly sworn by me to speak the truth, the 22 whole truth and nothing but the truth, in the 23 matter of: 289 1 DEBRA A. HENDERSON, 2 Plaintiff, 3 vs. 4 MERSCORP, INC., et al., 5 Defendants. 6 IN THE CIRCUIT COURT FOR 7 MONTGOMERY COUNTY, ALABAMA 8 Case Number CV-08-900805.00 9 on September 25, 2009. 10 The foregoing 288 computer-printed pages 11 contain a true and correct transcript of the 12 examination of said witness by counsel for the 13 parties set out herein. The reading and signing of 14 same is hereby not waived. 15 I further certify that I am neither of 16 kin nor of counsel to the parties to said cause nor 17 in any manner interested in the results thereof. 18 This 6th day of October 2009. 19 20 ___________________________ Tracye Sadler Blackwell 21 ACCR No. 294 Expiration date: 9-30-2010 22 Certified Court Reporter and Commissioner for the State 23 of Alabama at Large 290 1 * * * * * * * * * * * * * * 2 WITNESS SIGNATURE PAGE 3 * * * * * * * * * * * * * * 4 5 IN RE: HENDERSON vs. MERSCORP, INC., et al. 6 7 I, R.K. ARNOLD, hereby certify that I have 8 read the foregoing transcript of my deposition 9 given on September 25, 2009, and it is a true and 10 correct transcript of the testimony given by me at 11 the time and place stated with the corrections, if 12 any, and the reasons therefor noted on a separate 13 sheet of paper and attached hereto. 14 15 __________________________ 16 R.K. ARNOLD 17 SWORN TO AND SUBSCRIBED before me this _____ 18 day of __________________, 2009. 19 20 __________________________ NOTARY PUBLIC 21 MY COMMISSION EXPIRES: 22 __________________________ 23 291 1 October 6th, 2009 2 3 Mr. R.K. Arnold c/o Mr. Shaun Ramey 4 SIROTE & PERMUTT 2311 Highland Avenue 5 Birmingham, Alabama 35205 6 IN RE: HENDERSON vs. MERSCORP, INC., et al. 7 Dear Mr. Arnold: 8 Enclosed is a copy of the transcript of your deposition taken on September 25, 2009. Please read 9 the transcript and make any corrections on the correction sheet provided specifying the page and 10 line number of each correction. 11 You will find the original signature page attached to the front of the transcript. Even if there are no 12 corrections, please sign the original signature page and have your signature notarized. 13 Please return the signature page, correction sheet 14 and transcript within thirty days. The list of corrections will be attached to the original 15 deposition and all parties will be notified of any changes. 16 Thank you for your prompt attention to this matter. 17 Sincerely, 18 19 Tracye Sadler Blackwell 20 Certified Court Reporter 21 22 cc: Mr. Nicholas H. Wooten 23 Mr. Shaun Ramey
