Since the robo-signing scandal broke last autumn, Mortgage Electronic Registration Systems has been at the epicenter of litigation. The electronic tracking system for most U.S. mortgages has been brought to court by consumers to determine where its process is valid, according to one credit rating agency. Moody's Investors Service said Monday that should one recent decision in the Eastern District of New York spread to other jurisdictions, the ramifications to residential mortgage-backed securities could be detrimental. But that isn't likely, the agency adds. In a Feb. 10 decision, In re: Ferrel L. Agard, the U.S. Bankruptcy Court in the Eastern District of New York ruled that MERS did not have authority to assign Agard's mortgage to a securitization trust. The servicer, acting on behalf of the trust, originally filed a motion for relief from the bankruptcy automatic stay so it could foreclose on the property. Agard previously filed for Chapter 7 bankruptcy relief in Nassau County, N.Y. The court ultimately ruled in favor of the servicer on unrelated technical grounds, but because Agard's mortgage did not specifically outline MERS' right to assign the mortgage, the firm was not authorized to do so. "If MERS doesn't have the right to assign the mortgage, a court may not permit the servicer to foreclose for lack of standing," said Moody's Vice President and Senior Analyst Yehudah Forster, who wrote the analysis. MERS is reportedly listed as the owner of record and nominee for the lender on more than 50% of outstanding mortgage in the U.S., he said. If the ruling stands and is adopted by other jurisdictions, Forster argues it will increase moral hazard and encourage borrowers to raise specific technical challenges to foreclosures on MERS loans. "The broader concern the Agard case raises for RMBS is the increasing phenomenon of borrowers attacking foreclosures on technical grounds, and courts being unwilling, even if able, to look through to the economic reality that the RMBS trust owns the loan," Forster wrote. Forster said the case is likely to be appealed and there is only a slim chance other jurisdictions will adopt this decision. In fact, he stated, two similar court cases produced counteracting decisions. However, the judge in the Eastern District of New York alluded to pending cases surrounding MERS' right to assign mortgages. "In future cases," Forster suggested, "the servicer would need to show additional proof that the RMBS trust validly holds both the note and the mortgage in order to prove standing to foreclose." Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.