StatebyStateCompendiumofRecentMERSRelatedLitigation

by John R. Chiles 1 , Katrina D. Chisholm, and Zachary D. Miller

I. INTRODUCTION
Since the earliest stages of the economic meltdown that has rocked the financial system both in the United States and abroad, an inordinate amount of time has been spent searching for someone,orsomething,toblame.ChargesofimproprietyhavebeenleviedagainstWallStreeton a consistent basis, and consumer advocates have focused great amounts of energy on the area of mortgagebacked securities. An instrumental cog allowing for the buying and selling of mortgage backed promissory notes on the open market is Mortgage Electronic Registration Systems, Inc. ("MERS"), 2 a nationwide database that allows lenders to more easily transfer the rights to a mortgage. For the last several years, these allegations of impropriety have spawned federal and state court lawsuits. The arguments asserted by borrowers, either offensively or defensively, have evolved; however, the basic charge of these lawsuits remains the same: the MERS system is fatally flawed anddoesnot,orshouldnot,givetransfereesofmortgagesthroughtheMERSsystemtheauthority to enforce remedies under the mortgages they have obtained. Finding that MERS transfers are invalidwouldhaveaninconceivableeffect,asestimatesarethatMERSholdsmortgagesonnearly sixtymillionAmericanhomes,orsixtypercentofthenation'sresidentialmortgages. 3 This document is a compendium of cases that have addressed central questions critical to the viabilityoftheMERSsystem.Asshownbelow,theargumentsaddressnumerousfactors,fromthe avoidance of statecourt recording fees to the ability of a mortgage nominee to transfer beneficial ownershipinapromissorynote.Asnosinglemethodofcategorizationwouldbeperfect,wehave chosenastatebystateanalysis,withkeydecisionsindicatedandexaminedmorethoroughly.

John R. Chiles is a partner in the Birmingham, Alabama office of Burr & Forman, LLP. Katrina D. ChisholmandZacharyD.MillerareassociatesinBurr&Forman,LLP'sBirminghamoffice.
2 3

AdditionalinformationonMERSisavailableonitswebsite,foundat:http://www.mersinc.org/.

McIntire, Mike, Tracking Homes Through a Firm that Holds Millions, THE NEW YORK TIMES, available at HTTP://WWW.NYTIMES.COM/2009/04/24/BUSINESS/24MERS.HTML (Apr. 23, 2009); see also Kate Berry, ForeclosuresTurnUpHeatonMERS,AM.BANKER,July10,2007,at1.
1

II. OVERVIEWOFMERS
A. HistoryofMERS 1. 2. Created "in order to streamline the mortgage process by using electronic commercetoeliminatepaper." 4 MERS' principal owners are the Mortgage Bankers Association ("MBA"), the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), Bank of America, Chase, HSBC, CitiMortgage,GMAC,AmericanLandTitleAssociation,andWellsFargo. 5 "MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded. MERS as original mortgagee ("MOM")isapprovedbyFannieMae,FreddieMac,GinnieMae,FHAandVA, California and Utah Housing Finance Agencies, as well as all of the major WallStreetratingagencies." 6 Purpose is to track changes in servicing rights and beneficial ownership interests when those interests are sold by the original lender into the secondaryandtertiarymarkets. 7 MERS System was created to reduce the costs, errors and delays associated withfrequentandnumerousassignmentsofmortgageliens. 8 Comprised of MERSCORP, Inc. and its subsidiary, Mortgage Electronic Registration Systems, Inc. 9 Operated as a membership organization. 10 Almost all mortgage lenders (about 3,000) are members of MERS. 11

3.

4.

5. B.

DescriptionofMERS 1. 2. 3.

About UsOverview, MERS, available at http://www.mersinc.org/about/ index.aspx (last visited Mar. 7, 2011). Testimony of R.K. Arnold, President and CEO of MERSCORP, Inc., Before the Subcomm. on Housing and CommunityOpportunity,HouseFinancialServicesComm.,111thCong.5(2010).
6 7 8 5

Id. Id.at78.

See, e.g., Eisen, Laurence, MERS and the Title Industry, 6 TITLE ISSUES CHICAGO TITLE INSURANCE CO. 4 (July/Aug.1997)
9

SeeArnold,supranote5,at11. Id.at5.
2

10

4. C.

Revenue is derived solely from annual membership fees, and loan registrationandservicingtransferfees. 12 MERS maintains a database of mortgage loans that allows servicing rights andtransfersofownershipintereststobetracked,and 13 MERS can be designated by its members to serve as the mortgagee in the publiclandrecords. 14 Doesnotmakeanydecisionsaboutwhethertoloanmoney. Doesnotmakeanydecisionsaboutwhethertosecuritizeamortgageloan. Doesnotmakeanydecisionsaboutwhethertoforeclose. Doesnotserveasarepositoryformortgagedocuments. Doeseliminatetheexpenseofrecordingrepeatedassignments. Does serve as a convenient place for mortgagors to find out information abouttheirmortgages.

TwoMainFunctionsofMERS 1. 2.

D.

MERSRoleintheLendingProcess 1. 2. 3. 4. 5. 6.

III. MERSASAMORTGAGEDATABASE
A. B. C. Not every loan, even those loans made by members, is registered with MERS. Memberstendtoregisteronlyloanstheyintendtosell. 15 Each registered mortgage is assigned a Mortgage Identification Number (MIN) at origination. 16 If servicers change, the borrower can always find out information about the Mortgage by calling MERS or accessing MERS website and referencing the MortgagesuniqueMIN. 17 Through MERS, the borrower can access information about the servicer of the Mortgageand,iftheownerofthenoteconsents,theidentityofthenoteowner.

D.

11 12 13 14 15 16 17

Id. Id.at56. Id.at6. Id. Id.at910. Id.at9.

MERS Servicer Identification System, MERS Servicer ID, available at https://www.mers servicerid.org/sis/(lastvisitedMar.8,2011).
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IV. MERSASMORTGAGEE
A. MERSActsasMortgageeofRecord 1. WhenMERSservesasmortgageeofrecord,itservesasacommonagentfor all MERS members. MERS status as mortgagee and nominee of the lender, anditssuccessorsandassigns,isapprovedbytheborrowerinthemortgage documents. MERS status, as set forth in the mortgage documents, is recordedinthelandrecords. Typically, parties use the Fannie Mae/Freddie Mac Uniform Security Instrument. Threeparties:Borrower,LenderandMERS MERS is named as the mortgagee of record in a nominee capacity for the originallenderandthatlenderssuccessorsandassigns. InterestconveyedtoMERSislegaltitle,grantingMERSthespecificrightto actonbehalfofthelendertoforecloseandselltheproperty. Thelenderretainsbeneficialtitle.

2. 3. 4. 5. 6. B.

CertifyingOfficers 18 1. 2. 3. 4. Where MERS acts as mortgagee on behalf of one of its members, it acts throughcertifyingofficers. Certifying officers are persons elected by individual members to act as officersofMERSwithlimitedauthoritytotakecertainactions. Individualsareappointedtoserveasvicepresidentandassistantsecretary. Authorityisgrantedtothesecertifyingofficersto: a. b. c. d. e. f. g. 5. Executelienreleases; Executemortgageassignments; Initiateforeclosures; Executeproofsofclaimsandotherbankruptcyrelateddocuments; Execute modification and subordination agreements needed for refinancing; Endorse mortgage payment checks made payable to MERS (in error) byborrowers;and Take other such action and execute documents necessary to fulfill themembersservicingduties.

RequirementsforbecomingaMERScertifyingofficerinclude:

18

Arnold, supra note 5, at 12-13

a. b. c. C.

Beingacompanyofficerofthememberinstitution; HavingbasicknowledgeofMERS;and Passing a certifying examination administered by MERS.

Foreclosures Where MERS Is Mortgagee When MERS is named as mortgagee, foreclosurecanbegininoneoftwoways: 1. Option1ForeclosurecanbeconductedinthenameofMERS a. Noteowner endorses the note in blank (making it bearer paper) and turns over possession of the note to a MERS certifying officer, makingMERSthenoteholder. Since MERS is already the mortgagee, MERS can begin the foreclosureprocessassoonasitisinpossessionofthenote. Foreclosure is handled entirely by the MERS certifying officer (who typically is also an employee in the member institutions default department)

b.

c.

2.

Option 2 MERS, acting through its certifying officer, will execute an assignment to the servicer or noteowner (whichever entity is conducting the foreclosure) and the assignment will be recorded in the land records. Oncetheassignmentisrecorded,theforeclosurewillcommence.

V. CHALLENGESTOMERSASMORTGAGEE
A. Recently, MERS has been subjected to attacks by defaulting borrowers and consumer advocates who are attempting to avoid valid mortgage debts. These attackshavecomeonavarietyoffronts,butthefollowingareashavebecomemost popular: 1. 2. 3. 4. 5. WhetherMERSHasStandingtoConductForeclosuresInItsOwnName? Whether Naming MERS As Mortgagee Improperly Splits the Note and Mortgage,ThusInvalidatingtheMortgage? Whether MERS Is A Party In Interest Who Is Entitled To Seek Relief From An AutomaticStayinBankruptcy? Is MERS A Necessary Party Who Is Entitled to Receive Notice of Proceedings RelatedtotheProperty? WhethertheEntireMERSSystemIsFraudulent?

VI. REPRESENTATIVECASESVALIDATINGMERS
Alabama Mortensen v. MERS, No. 090787WSN, 2010 WL 5376332 (S.D. Ala. Dec. 23, 2010) (recognizinganassignmentfromMERStopurchaserasvalid).
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 Crum v. LaSalle Bank, N.A., No. 2080110, 2009 WL 2986655 (Ala. Civ. App. Sept. 18, 2009) (concluding that MERS had the power to make an assignment to the foreclosing assignee and that mortgage documents expressly authorized MERS to assign its right to the foreclosingparty). Alaska(nocasesfound) Arizona Key Decision Cervantes v. Countrywide Home Loans, Inc., No. CV09517PHXJAT, 2009 WL3157160(D.Ariz.Sept.24,2009) PlaintiffsmadetwoattacksontheMERSsystem: (1) MERS is never really a beneficiary under the deed of trust because it never acquiresatruebeneficialinterest;and (2)theMERSsystemisameansofcircumventingthepublicrecordingsystem. Splitting of Note and Mortgage: Plaintiffs allegations would foreclose the very splitting of a promissory note from a deed of trust. Such an approach, of course, would intrude into the realm of thirdparty beneficiary contracts, as well as assignmentsanddelegations. MERSas"ShamBeneficiary":"ThefactthatMERSdoesnotobtainsuchrightsasto collect mortgage payments or obtain legal titleto the property in theevent of non paymentdoesnottransformMERSstatusintoasham. Circumventing Public Recording System: Plaintiffs second objection to the MERS system similarly has no effect upon their status as borrowers . . . . Any lack of noticeinthepublicrecords,however,tofuturebuyersofPlaintiffsmortgagesdoes notalterPlaintiffsobligationsunderthemortgages.... See Robinson v. Wells Fargo, No. CV092066PHXJAT, 2010 WL 2534192 (D. Ariz. June18,2010(same).

Court:

Key Decision In re MERS Litigation, MDL Docket No. 092119JAT, 2011 WL 251453 (D. Ariz.Jan.25,2011) Issue:InvolvesclaimsthatMERSandothersconspiredto commitfraudandconspiracy to commit wrongful foreclosure through the creation, operation and use of the MERS system. Split the Note Theory: Should not matter in nonjudicial foreclosure states because defendantsdonotneedtoproducethenotetothepropertyinordertoproceedwitha nonjudicial foreclosure. The Court also rejected Plaintiffs argument that splitting the note automatically voids the notes and the right to enforce them through nonjudicial foreclosure. See Maxa v. Countrywide Home Loans, Inc., No. CV108076PCTNVW, 2010WL2836958(D.Ariz.July19,2010)(same).

 Jones v. Wells Fargo Bank, No. CV110197PHXDGC, 2011 WL 683887 (D. Ariz. Feb. 18, 2011) (rejecting the plaintiffs argument that MERS could not assign the deed of trust to purchaser of note, concluding that plaintiffs had consented to MERS designation as beneficiaryandnomineeunderthedeedoftrust). Higton v. Quicken Loans, Inc., No. 2:10CV01320JWS, 2011 WL 333357 (D. Ariz. Jan. 31, 2011) (recognizing MERS status as nominee of Note holder); Kane v. Bosco, No. 10CV 01787PHXJAT,2010WL4879177(D.Ariz.Nov.23,2010)(same). InreMadison,No.2:09bk22225PHXSSC,2010WL3941858(Bankr.D.Ariz.Oct.4,2010) (concluding that MERS system is not a sham and does not perpetrate a fraud upon the borrower and that MERS, as the named beneficiary, also has the power to appoint a trusteeorsuccessortrusteeunderArizonasnonjudicialforeclosurestatute). Arkansas Peace v. MERS, No. 4:09CV00966, 2010 WL 2384263 (E.D. Ark. June 11, 2010) (MERS assignment to Note purchaser was valid and properly gave purchaser standing to appoint anagenttoinitiateanonjudicialforeclosure). MERS v. Stephanie Gabler, et al., Case No. 200417II, Circuit Court of Garland County, Arkansas (2004) (MERS has standing to seek relief for its Writ of Assistance and is the proper party to foreclose the mortgage as MERS is the mortgagee of record and holder of thepromissorynote.) California Key Decision Gomes v. Countrywide Home Loans, Inc., No. D057005, 2011 WL 566737 (Ca.Ct.App.Feb.18,2011) Court first concluded that there was no right of action in California which allows a borrowertofilealawsuittorequireaforeclosingpartytoproveitsrighttoforeclose. Under California law MERS may initiate a foreclosure as the nominee, or agent, of the noteholder . . . . Civil Code Section 2924, subdivision (a)(1) states that a trustee, mortgagee, or beneficiary, or any of their authorized agents may initiate the foreclosure process. The Court considered also the fact that the borrowers deed of trust included language whereby the borrower agreed that MERS has the authority to initiateaforeclosure. See also Germon v. BAC Home Loans Servicing, LP, No. 10CV2482BTM (POR), 2011 WL 719591 (S.D. Cal. Feb. 22, 2011) (same); Wadhwa v. Aurora Loan Services, LLC, No. CIV. 2:103361WBSDAD, 2011 WL 590911 (E.D. Cal. Feb. 10, 2011) (same); Labra v. CalWestern Reconveyance Corp., No. C092537PJH, 2010 WL 889537 (N.D. Cal. Mar. 11,2010)(same).

Colorado(nocasesfound) Connecticut KeyDecisionChaseHomeFinance,LLCv.Fequiere,989A.2d606(Conn.Ct.App.Mar.2, 2010)

"EvenifweweretoassumearguendothattheassignmentofthemortgagefromMERS totheplaintiffwasinvalid,thedefendant'sclaimfails.GeneralStatutes4917permits theholderofanegotiableinstrumentthatissecuredbyamortgagetoforecloseonthe mortgage even when the mortgage has not yet been assigned to him . . . . The statute codifies the commonlaw principle of long standing that the mortgage follows the note,pursuanttowhichonlytherightfulownerofthenotehastherighttoenforcethe mortgage."

LaSalle Bank v. Johnson, No. CV085016113, 2009 WL 2872844 (Conn. Super. Aug. 10, 2009) (recognizing MERS status as mortgagee and MERS subsequent assignment of the mortgage). Bayview Loan Servicing v. Sanchez, No. CV095004156S, 2009 WL 1874180 (Conn. Super. June 10, 2009) (rejecting claim that mortgages naming MERS as nominee for the lender wereinvalid) Delaware(nocasesfound) DistrictofColumbia Wells Fargo Bank, N.A. v. Wrenn, No. 08165 (CKK), 2009 WL 1705692 (D.D.C. June 18, 2009) (noting MERS status as the legal holderof the Deeds of Trust for the benefit of the holderofthePromissorynotes). Florida KeyDecisionTaylorv.DeutscheBankNatlTrustCo.,44So.3d618(Fla.5thDCA2010) Court held a MERS mortgage to be valid under Florida law, and held that MERS may assign its rights in the mortgage to the foreclosing entity who holds the Note and also mayassignrightstotheNoteitself. The Florida court held that where MERS is described as the mortgagee under the Security Instrument the document grants to MERS legal status under the UCC, which MERScanassigntotheforeclosingbank. "The written assignment . . . recites that MERS assigned to the appellee, Deutsche Bank, the Mortgage and Note, and also the said property unto the said Assignee forever, subject to the terms contained in the Mortgage and Note. More importantly, as a nonholder in possession of the instrument who had the rights of a holder, MERS assigned to Deutsche Bank its explicit power, granted by the mortgage, to enforce the note by foreclosing the mortgage on the subject property. We conclude, accordingly, that the written assignment of the note and mortgage from MERS to Deutsche Bank properly transferred the note and mortgage to Deutsche Bank . . . . MERS was lawfully acting in the place of the holder and was given explicit and agreed upon authority to makejustsuchanassignment." SeealsoMortgageElectronicRegistrationSystems,Inc.v.Azize,965So.2d151(Fla.2d DCA 2007) (holding that holder of note has standing to seek enforcement of the Note and that Note can be transferred to MERS without having beneficial interest for purposeofinstitutingforeclosureproceedings).

 Georgia KeyDecisionDrake(Trustee)v.CitizensBankofEffingham,et.al.,APNo.104033(Bankr. S.D.Ga.Feb.28,2011) Security deed granted to MERS satisfied the requirements of Georgia law and the language of the security deed created an agency relationship between the lender and MERS. There was no split of the Note and Security Deed as a matter of contract by any transferoftheNote,becausetheSecurityDeedexpresslycontemplate[d]thattheNote [could]betransferredfromtheoriginalLender,andthatMERSroleasnomineeforthe Lenderextend[ed]toeachsuccessiveassignee. ". . . [T]he note and thedeed must (and do) retain a legal nexus except 'on the rare occasions when a mortgagee will wish to disassociate the obligation and the mortgage, but that result should follow only upon evidence that the parties to the transfer so agreed. (citing Restatement (Third) of Property (Mortgages) 5.4 (1997).

DistinguishedtheopinioninBellistriv.OcwenLoanServicing,LLC,284S.W.3d619(Mo. App. 2009), stating that the Bellistri case only addressed a situation where the noteholderfailedtodemonstratethatithadanownershipinterestintheNoteorDeed ofTrust.

Johnson v. MERS, 252 Fed. Appx. 293 (11th Cir. 2007) (stating that MERS held the Security Deedas"nominee"forlender). Nicholson v. OneWest Bank, No. 1:10CV0795JEC/AJB, 2010 WL 2732325 (N.D. Ga. Apr. 20,2010)(holdingthatthenomineeofthelenderhastheabilitytoforecloseonadebtor's property even if such nominee does not have a beneficial interest in the note secured by the mortgage, thus, splitting the Note and Mortgage does not invalidate either document, aslongastheforeclosingpartyobtainspossessionofboth). Hawaii Sakalav.BACHomeLoansServicing,LP,No.1000578DAELEK,2011WL719482(D.Haw., Feb. 22, 2011) (rejecting the show me the note argument and dismissing plaintiffs claim that the assignment from MERS was invalid); see also Krakauer v. IndyMac Mortg. Servs., No.0900518ACKBMK,2010WL5174380(D.Haw.Dec.14,2010)(same). Mier v. Lordsman, Inc., No. 1000584, 2011 WL 285862 (D. Haw. Jan. 27, 2011) (dismissing plaintiffs lack of standing argument as to MERS); see also Phillips v. BAC Home Loans Servicing,LP,No.1000272DAELEK,2010WL5146433(D.Haw.Dec.13,2010)(same). Idaho Trotter v. Bank of New York Mellon, et al., Case No. CV1095, Kootenai County District Court(July2,2010)(findingMERSwasthebeneficiaryofthedeedoftrustunderIdaholaw and,therefore,hadtheauthoritytoassignthemortgage).

 Illinois KeyDecisionMERSv.Barnes,940N.E.2d118(Ill.Ct.App.2010) Finding that MERS can maintain foreclosure lawsuit although the beneficial ownership of the note is in another person and that Illinois does not require that a foreclosure be filedbytheownerofthenoteandmortgage. "According to the terms of the mortgage, MERS, as nominee for the lender, had authority to act to enforce the mortgage. Specifically, the mortgage provided that . . . MERShadtherighttoexerciseanyoralloftheinterestsgrantedbytheborrowerinthe mortgage, 'including, but not limited to, the right to foreclose and sell [the] property.' Under those terms, the parties agreed that MERS could bring foreclosure suits in its ownname."

Indiana The Bank of New York Mellon v. Michael R. Green, Case No. 41D010901MF00027, Johnston Superior Court (Sept. 20, 2010) (holding that MERS had the authority to assign themortgagetoBankofNewYorkMellon). Iowa(nocasesfound) Kansas Key Decision Martinez v. MERS, et al., No. 0940886, 2011 WL 489905 (Bankr. D. Kan. Feb.10,2011) Assignment of the Note and Mortgage to different entities does not render them void becausesuchasplitmaybeperformedwhenthereisan"agencyrelationship"between theholderofthenoteandtheholderofthemortgage. Court found sufficient evidence to demonstrate that MERS was acting as the agent for the lender by reviewing the language of the Mortgage. MERS also submitted the affidavitofitsTreasurertodemonstratethatanagencyrelationshipexisted. "The fact that MERS and Countrywide chose to use the word nominee, rather than agent,doesnotaltertheunderlyingrelationshipbetweenthetwoparties."

Kentucky In re Jessup, AP No. 095229, 2010 WL 2926050 (Bankr. E.D. Ky. July 22, 2010) (concluding that the language in the deed of trust is sufficient to create a nominee status in favor of MERS and that MERS may grant signing authority via a Corporate Resolution to permit individualstoassignmortgages). Louisiana(nocasesfound) Maine HSBC v. Murphy, RE08340, Lewiston District Court (2008) (holds that MERS has the authoritytoassignmortgagesbyvirtueofitsstatusasnomineeontheoriginalmortgage).

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 Maryland Parillon v. Fremont Investment and Loan, No. L093352, 2010 WL 1328425 (D. Md. Mar. 25, 2010) (dismissing various state law claims against MERS and finding that MERS is the beneficiaryoftheSecurityDeed). Massachusetts KeyDecisionInreLopez,No.0910346,2011WL576820(Bankr.D.Mass.Feb.9,2011) Splitting of the Note: The court stated that under Massachusetts law, where a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation. Accordingly, even though MERS never had possession of the Note, it was legally holding the mortgage in trust for the Note holder. AssignmentbyaNominee:AstoPlaintiffsclaimthatMERSnomineestatuswaslimited so as to prevent MERS from executing an assignment to the Note purchaser, the court answered that Plaintiff misunderstood the role of a nominee. Even though MERS role as nominee is limited, it could, by virtue of its nominee status, transfer the Mortgage onbehalfoftheNoteholder.

Bassilla v. GMAC Mortgage, et al., No. 09J519 (Mass. App. Ct. Dec. 4, 2009) (holding that MERS has authority to assign mortgage interest without owning or holding the promissory note) Michigan Key Decision Corgan v. Deutsche Bank National Trust Co., No. 1:09CV939, 2010 WL 2854421(W.D.Mich.July20,2010) Plaintiffs claimed that MERS could not foreclose because it was not the holder in due courseoftheNoteandhadnolegalrighttoforecloseontheMortgage. Court stated that Michigan law did not require that the named mortgagee be a holder in due course of the Note. Court pointed to the language of the Mortgage that specificallygrantedMERStheabilitytoforecloseasthenomineeforthelender. "Plaintiffs clearly and expressly gave MERS the power to foreclose on the defaulted mortgage. That power was never taken away from MERS by an transfer of the mortgageormodificationofsomeofthetermsofthemortgage."

Safford v. Precision Funding, No. 0914925, 2010 WL 548504 (E.D. Mich. Feb. 9, 2010) (dismissing state law claims against MERS when MERS acted as nominee on Mortgage and the plaintiff had failed to submit any evidence to demonstrate that MERS did not have an interestintheMortgagesufficienttoforeclose). English v. Flagstar Bank, No. 0911705, 2009 WL 3429674(E.D. Mich. Oct. 21, 2009) ("Plaintiff's argument that MERS did not have the right to initiate foreclosure proceedings is belied by the record. The mortgage contains an express provision giving MERS the

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 Minnesota KeyDecisionJacksonv.MERS,770N.W.2d487(Minn.2009) Certified question from the US District Court for the District of Minnesota: Where an entity,suchasdefendantMERS,servesasmortgageeofrecordasnomineeforalender and that lenders successors and assigns and there has been no assignment of the mortgage itself, is an assignment of the underlying indebtedness for which the mortgage serves as security an assignment that must be recorded prior to the commencement of a mortgage foreclosure by advertisement under Minn. Stat. ch. 580? Holding: "Transfers of the underlying indebtedness do not have to be recorded to forecloseamortgagebyadvertisement. Minnesota law expressly permits nominees to record an assignment, satisfaction, releaseorpowerofattorneytoforeclose.

Mississippi(nocasesfound) Missouri KeyDecisionMERSv.Bellistri,No.4:09CV731CAS,2010WL2720802(E.D.Mo.2010) Held that purchaser of property at a tax sale must give notice of redemption to all parties that may have a claim in the property, which could include MERS who had a "publiclyrecordedinterestinthepropertyasbeneficiaryasnomineeforthelenderand thelender'sassigns." Also held that party had to join MERS in any quiet title action and failure to do so divestspartyofinterestintheproperty. Furthermore,heldthatMERShas"barelegaltitletothenoteanddeedoftrustsecuring it,"whichissufficienttocreatestandingtochallengequiettitleaction.

In re Tucker, 441 B.R. 638 (Bankr. W.D. Mo. 2010) (holding that designation of MERS as nomineeintheMortgageis"morethansufficienttocreateanagencyrelationshipbetween MERS and the Lender and its successors in Missouri" and that MERS may exercise any rightsthattheLendermayexerciseundertheMortgage). Montana(nocasesfound) Nebraska(nocasesfound) Nevada KeyDecisionRamosv.MERS,No.2:08CV1089,2009WL5651132(D.Nev.Mar.5,2009) Court concluded that, under Nevada law, foreclosure proceedings can be commenced by the beneficiary, the successor in interest of the beneficiary, or the trustee and, thus,thatMERShadarighttoforeclose.

12

Since the deed of trust expressly named MERS as beneficiary, MERS had the right to commenceforeclosureandtoappointthesubstitutetrustee.

Vazquez v. Aurora Loan Services, No. 2:08CV01800RCJRJJ, 2009 WL 1076807 (D. Nev. 2009) (granting MERS motion to dismiss claims of wrongful foreclosure, negligence and quiettitleaslandrecords"sufficientlydemonstrate[d]standingbyDefendantswithrespect to the loan and the foreclosure conducted pursuant to applicable law and the Nevada foreclosurestatues.") NewHampshire Powers v. Aurora Loan Servicing, Case No. 2132010CV00181, Superior Court of Cheshire County,NewHampshire(Feb.25,2011)(MERSstatusas nomineeallowsittoperformits corefunctionoffacilitatingthetrackingofmortgages....ContrarytoPlaintiffsassertions ...theuseofMERSasanomineeisinandofitselfneitherfraudulentnorwrong.) NewJersey(nocasesfound) NewMexico(nocasesfound) NewYork U.S.Bank,N.A.v.Flynn,897N.Y.S.2d855(N.Y.Sup.Ct.2010)("Thiscourtfindsthatwhere, as here, an entity such as MERS is identified in the mortgage indenture as the nominee of the lender and as the mortgagee of record and the mortgage indenture confers upon such nominee all of the powers of such lender, its successors and assigns, a written assignment of the note and mortgage by MERS, in its capacity as nominee, confers good title to the assigneeandisnotdefectiveforlackofanownershipinterestinthenoteatthetimeofthe assignment.") MERSv.Coakley,838N.Y.S.2d622(N.Y.App.Div.2007)(findingthatMERShasstandingto commence a foreclosure action based upon the language of the Mortgage itself as the borrower "expressly agreed without qualification that MERS had the right to foreclose uponthepremisesintheeventofadefault"). NorthCarolina Ward v. Security Atlantic Mortgage, No. 5:10CV119F, 2011 WL 474560 (E.D.N.C. Feb. 4, 2011)(dismissingplaintiffsblanketclaimsthatMERSlackedstandingasnominee) NorthDakota Key Decision Bray v. Bank of America, No. 1:09CV075, 2011 WL 30307 (D.N.D. Jan. 5, 2011) Question: Whether MERS, by virtue of its possession of both the note and the mortgage,hasstandingtoforeclose. Court: The assignment of a debt secured by a mortgage carries the security with it. The Court concluded that MERS is able to enforce the note which was endorsed in blankandinMERSpossession.

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Even if the ownership of the mortgage passed with the ownership of the note pursuant to N.D.C.C. 350301.2, MERS possession of the note would give it ownershipofthemortgage.

Ohio DeutscheBankNatl.TrustCo.v.Traxler,2010Ohio3940(OhioCt.App.2010)(holdingthat because the Mortgage follows the Note, even without an assignment from MERS the transfer of the Note operated as an equitable assignment of the Mortgage to the purchaser; also recognized MERS authority to assign Mortgage when designated as both a nomineeandmortgagee). MERS v. Mosley, No. 93170, 2010 WL 2541245 (Ohio Ct. App. June 24, 2010) (finding that MERS had authority to foreclose on the property because it was named as the lender's nomineeintheMortgage,despitethefactthatithadnobeneficialinterestintheNote.) Oklahoma MERS v. William C. Warden, CJ20057027, District Court of Oklahoma City (Mar. 3, 2006) (refusing to vacate a judgment of foreclosure, concluding that plaintiffs argument that MERSlackedstandingtopursuewaswithoutmerit) Oregon Burgett v. MERS, No. 096244HO, 2010 WL 4282105 (D. Or. Oct. 20, 2010) (recognizing that the MERS system does not, in and of itself, violate Oregon law, but providing that any andallassignmentswouldhavetoberecordedpriortocommencingforeclosure). Stewart v. MERS, No. CV09687PK, 2010 WL 1055131 (D. Or. Feb. 9, 2010) (granting MERS motion to dismiss, finding that U.S. Bank was a real party in interest because the assignmentfromMERStoU.S.BankwasproperunderOregonlaw). Pennsylvania MERS v. Ralich, 982 A.2d 77 (Pa. Super. Ct. 2009) (affirming the trial courts determination thatthemortgagevestedMERSwiththeauthoritytoenforcetheloan) Straker v. Deutsche Bank Nat'l Trust, No. 3:09CV338, 2011 WL 398374 (M.D. Pa. Feb. 3, 2011)(notingthat[a]stheamendedcomplaintandmortgagedocumentsnote,MERSwas thenomineeholdinglegaltitleforFremont,theoriginatinglender.) RhodeIsland KeyDecisionBucciv.LehmanBros.Bank,No.PC20093888,2009WL3328373(R.I.Aug. 25,2009) Borrowers through the Mortgage specifically granted the Statutory Power of Sale to MERS, as nominee for Lender and Lender's successors and assigns. "The Mortgage further stated that if necessary to comply with law or custom, MERS (as nominee for LenderandLender'ssuccessorsandassigns)hastherighttoexerciseanyorallofthose interests, including, but not limited to, the right to foreclose and sell the Property .... The fact that paragraph twentytwo of the Mortgage states that the Lender may invoke the STATUTORY POWER OF SALE does not negate the previous language in the
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"MERShastherighttoinvoketheStatutoryPowerofSaleherebecauseitisthenamed mortgageeandnomineeof[thelender]anditssuccessorsandassigns."

SouthCarolina(nocasesfound) SouthDakota(nocasesfound) Tennessee Mills v. First Horizon Home Loan Corp., No. W201000310COAR3CV, 2010 WL 4629610 (Tenn. Ct. App. Nov. 16, 2010) (dismissing as unripe plaintiffs complaint for declaratory judgmentthattheirmortgagewouldbeunenforceablebasedontheinvolvementofMERS) Texas Hunt v. MERS, No. 031000031CV, 2010 WL 3271966 (Tex. Ct. App. Aug. 20, 2010) (rejectingplaintiffsargumentthatMERSlackedstanding) Athey v. MERS, 314 S.W.3d 161 (Tex. Ct. App. 2010) (affirming trial courts grant of summary judgment to MERS, holding that MERS was the beneficiary of the deed of trust and,therefore,hadauthoritytoconductanonjudicialforeclosure).SeealsoRichardsonv. CitiMortgage, Inc., No. 6:10CV119, 2010 WL 4818556 (E.D. Tex. Nov. 22, 2010) (deed of trustexpresslyprovidedthatMERSwastohavepowerofsale). Maxwell v. Chase Home Finance, No. H094038, 2011 WL 181345 (S.D. Tex. Jan. 19, 2011) (dismissingplaintiffscookiecuttercomplaintthatMERSlacksstandingtosue). Santarose v. Aurora Bank FSB, No. H100720, 2010 WL 3064047 (S.D. Tex. Aug. 3, 2010) (relying on language in deed of trust to establish that MERS, as nominee, had the right to foreclose). Utah King v. American Mortgage Network, et al., No. 1:09CV162DAK, 2010 WL 3516475 (D. UtahSept.2,2010)(interpretingthelanguageofthedeedoftrust,heldthatMERShadthe authority to initiate foreclosure proceedings, appoint a trustee, and to foreclose and sell theproperty). Commonwealth Property Advocates, LLC v. CitiMortgage, No. 2:10CV00885, 2011 WL 98491 (D. Utah Jan. 12, 2011) (Plaintiff offers no evidence or legal argument that MERS cannotcontractfortherightandpowerofforeclosureregardlessofwhoholdsthenote,or the beneficial interest under the trust deed. Nor does Plaintiff demonstrate that such rightsareactuallylostbythetransferofthedebt.) Key Decision Witt v. CIT Group/Consumer Finance, Inc., No. 2:10CV440TS, 2010 WL 4609368(D.UtahNov.5,2010)

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Courtfirstfoundthatlenderdidnothavetoobtaintheconsentoftheborrowerbefore assigningnotetopurchaser. CourtthenstatedthattheNotewasnot"split"withthemortgagebybeingassignedto MERS. Court noted the "wellsettled precedent in both the United States Supreme Court and UtahSupremeCourtwhichclearlyestablishthat[t]hetransferofthenotecarrieswith it the security, without any formal assignment or delivery, or even mention of the latter.

King v. American Mortg. Network, Inc., No. 1:09CV162DAK, 2010 WL 3516475 (D. Utah Sept.2,2010)(dismissingplaintiffssplitthenoteargument). McGinnisv.GMACMortgageCorp.,No.2:10CV00301TC,2010WL3418204(D.UtahAug. 27,2010)(dismissingplaintiffsclaimthatMERSlackedstandingtoconductforeclosure). Rhodes v. Aurora Loan Services, No. 2:10CV00230, 2010 WL 3219310 (D. Utah Aug. 13, 2010) (Although MERS does not own the note, it is given authority to foreclose on the notebythenotesownerthroughthelanguageinthetrustdeed.Courtshaveconsistently held that MERS has the authority to foreclose in behalf of the lender and that MERS need not possess the note in order to appoint a trustee in behalf of the lender who does hold thenote.) Burnett v. MERS, No. 1:09CV00069DAK, 2009 WL 3582294 (D. Utah Oct. 27, 2009) (MERS had authority under the Deed of Trust to initiate foreclosure proceedings and to appointWoodallassuccessortrustee.) Vermont(nocasesfound) Virginia RamirezAlvarez v. Aurora Loan Services, LLC, No. 01:09CV1306, 2010 WL 2934473 (E.D. Va.July21,2010)(MERShadtheauthorityandabilitytoenforcethetermsofthesecurity instruments.) KeyDecisionTapiav.U.S.Bank,718F.Supp.2d689(E.D.Va.2010) "The Deed of Trust authorized MERS to foreclose the Property in the event that Plaintiffsdefaultedontheloan." "By signing the Deed of Trust, Plaintiffs agreed that MERS, as nominee for Lender and Lenderssuccessorsandassigns,hadtherighttoforeclosethePropertyandrecognized thatMERScouldtakeanyactionrequiredofLender. Also finding that the borrowers had failed to submit any "legallysupported" argument as to why MERS as nominee did not have the right to foreclose and sell the borrower's propertyinaccordancewithlaworcustom.

Merinov.EMCMortg. Corp.,No.1:09CV1121,2010WL1039842(E.D.Va.Mar.19,2010) (rejecting split the note argument as the holder of the instrument retains the ability to foreclose); Horvath v. Bank of New York, N.A., et al., No. 1:09CV01129, 2010 WL 538039 (E.D.Va.Jan.29,2010)(same).
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 Washington Cebrun v. HSBC Bank USA, N.A., No. C105742BHS, 2011 WL 321992 (W.D. Wash. Feb. 2, 2011) (rejecting plaintiffs claims regarding MERS not being a beneficiary under the security instrument. In so ruling, the Court considered that plaintiffs had signed a mortgagethatexpresslynamedMERSasbeneficiary.) Key Decision Daddabbo v. Countrywide Home Loans, Inc., No. C091417RAJ, 2010 WL 2102485(W.D.Wash.May20,2010) Plaintiffs sole basis for blocking the foreclosure is their contention that MERS has no beneficial interest in the note that the deed of trust secures, and that Recontrust therefore has no power as MERSs designee to initiate a foreclosure action. This assertion is baffling. The deed of trust, of which the court takes judicial notice, explicitly names MERS as a beneficiary. The deed of trust grants MERS not only legal titletotheinterestscreatedinthetrust,buttheauthorizationofthelenderandanyof its successors to take any action to protect those interests, including the right to forecloseandselltheProperty.

Vawterv.QualityLoanServiceCorp.ofWashington,707F.Supp.2d1115(W.D.Wash.Apr. 22, 2010) (dismissing claim on basis that MERS was properly a beneficiary and entitled to effectsaleofdefaulteduponproperty) WestVirginia(nocasesfound) Wisconsin KeyDecisionCountrywideHomeLoansServicing,LPv.Rohlf,No.2009AP2330,2010WL 4630328(Wis.App.Nov.17,2010) DistinguisheddecisionofLandmarkv.Kesler,216P.3d158(Kan.2009). "The mortgage designates MERS as the mortgagee and American Sterling Bank as the lender. MERS is also designated American Sterling Bank's nominee which allows it to act as American Sterling Bank but not possess any ownership rights. The note references the mortgage as the controlling security instrument. The mortgage provides that the note and mortgage may be sold one or more times. The note and the mortgage securing the note are to be construedtogether. The assignment of mortgage transfers both the note and mortgage. [Plaintiffs] presented no evidence to refute the assignmentofboththenoteandmortgagetoCountrywide." Plaintiffs also "failed to establish that MERS designation as nominee for American Sterling Bank did not include authority to assign the note. Moreover, [t]he judgment of foreclosure and sale determines the parties' legal rights in the underlying obligation.

Wyoming In re Relka, No. 0920806, 2009 WL 5149262 (Bankr. D. Wyo. Dec. 22, 2009) (finding that MERS had properly assigned the mortgage to the note purchaser and validating foreclosure).

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VII. CASESPRESENTINGQUESTIONSREGARDINGMERSVALIDITY
Arkansas MERSv.SouthwestHomesofArkansas,301S.W.3d1(Ark.2009) Action by MERS to set aside a decree of foreclosure where MERS had not been served with process. The circuit court denied MERS motion, concluding that MERS, as mere agent of the lender, was not a necessary party that was entitled to receive service of process. "We specifically reject the notion that MERS may act on its own, independent of the direction of the specific lender who holds the repayment interest in the security instrumentatthetimeMERSpurportstoact.[A]nagentisauthorizedtodo,andtodo only, what it is reasonable for him to infer that the principal desires him to do in the lightoftheprincipal'smanifestationandthefactsasheknowsorshouldknowthemat thetimeheacts. "MERS holds no authority to act as an agent and holds no property interest in the mortgaged land. It is not a necessary party. In this dispute over foreclosure on the subjectrealpropertyunderthemortgageandthedeedoftrust,completereliefmaybe grantedwhetherornotMERSisaparty.MERShasnointeresttoprotect.Itsimply was notanecessaryparty."

Idaho InreSheridan,No.0820381,2009WL631355(Bankr.D.IdahoMar.12,2009) WithoutdecidingwhetherMERS,asnominee,wouldhavetherighttolifttheautomatic stay,thebankruptcycourtdeniedtherequestforstayreliefonthebasisthattherewas noproofthatthetrusteeonwhosebehalfMERSwaspurportingtoacthadanyinterest inthenoteordeedoftrust.

Kansas LandmarkNationalBankv.Kesler,216P.3d158(Kan.2009) Facts: MERS was mortgagee as nominee for the owner of the junior mortgage loan. First mortgagee foreclosed, but did not notify MERS even though MERS was the recorded mortgagee. Without notice, MERS failed to defend, and a default judgment was entered extinguishing the second mortgage. Property was sold to a third party. MERS moved to vacate the default, arguing that it had not received notice of the foreclosure. The Court denied MERSs motion, but did not address whether MERS was entitled to notice.Instead,theCourtsimplystatedthat,evenifMERSwouldhavebeenentitledto notice,MERSwouldnothavehadameritoriousdefensetotheaction. TwoviewsonKesler: First view, and the one adopted by MERS, is that Kesler is a narrow decision. Specifically,proponentsofthisviewclaimthatKeslerwasbasedonprocedure(high

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The alternate view, and one endorsed by consumer advocates, is that this decision questionsMERSrighttonoticeofforeclosureactions. Key Points: MERS did not receive notice of the suit because the foreclosing party sent notice to the lender on the second mortgage. Court did not recognize that MERS has capacity to act on behalf of an assignee of the note because of its legal title as mortgagee. Court disregarded the propriety of using nominees in secured transactions.

Maine MERSv.Saunders,2A.3d289(Me.Aug.12,2010) Court concluded that MERS is not a mortgagee within the meaning of Maines foreclosure statute, 14 M.R.S. 63216325 and, therefore, had no standing to foreclose.Courtconcluded,however,thatrealpartyininterestwasDeutscheBankand thattheCourtdidnoterrbysubstitutingthelenderforMERS. MERS argued that it was the holder of both the mortgage and the note, but did not submit any evidence regarding whether real property secured the note or whether, particularly, the real property of the borrowers was involved. Borrowers provided evidence (RFAs answered by MERS) that showed that the bank was the holder of the note. Becauseofthisdispute,theCourtdeniedsummaryjudgmenttoMERS.Later,thebank was substituted as a party in place of MERS,and the Court granted summaryjudgment infavorofthebank. As to MERS standing: The relationship of MERS to the transaction between the [borrowers] and [their lender] is not subject to an easy description or classification. The Court noted that MERS is not mentioned in the note and has no interest in the note. In the mortgage, MERS is defined as a separate corporation that is acting solely as a nominee for Lender and Lenders successors and assigns For the purposes of recording this mortgage, MERS is the mortgagee of record. The only rights conveyed to MERS is bare legal title to the property for the sole purpose of recording the mortgage Accordingly, because MERS sole right is to record the mortgage, it lacks standingtoforecloseasthemortgagee.

Missouri Bellistriv.OcwenLoanServicing,LLC,284S.W.3d619(Mo.Ct.App.2009) CourtheldthatbecauseMERSneverheldthepromissorynoteitsassignmentofthe deedoftrustseparatefromthenotehadnoforce,thusprohibitingtheassigneeofthe deedoftrustfromforeclosing.

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"When the holder of the promissory note assigns or transfers the note, the deed of trustisalsotransferred.Anassignmentofthedeedoftrustseparatefromthenotehas no force. Effectively, the note and the deed of trust are inseparable, and when the promissorynoteistransferred,itvestsinthetransfereealltheinterest,rights,powers andsecurityconferredbythedeedoftrustuponthebeneficiarythereinandthepayee inthenotes. Court recognized that when the holder of a DOT is an agent for the holder of the note,noimpropersplittingoccurs.

NewYork LaSalleBankv.Lamy,824N.Y.S.2d769(N.Y.App.Div.2006) Statingthatanomineeoftheownerofthenoteandmortgage,suchasMERS,maynot prosecute a mortgage foreclosure action in its own name as nominee for the original lender because it lacks ownership of the note and mortgage at the time of the prosecutionoftheaction." Facts:Servicerofmortgageloansoughtrelieffromtheautomaticstay. The Court framed the issue as follows: The Debtors argument raises a fundamental question as to whether MERS had the legal authority to assign a valid and enforceable interestinthesubjectmortgage.BecauseU.S.Banksrightscanbenogreaterthanthe rightstransferredbyitsassignorMERStheDebtorarguesthattheMovant,actingon behalfofU.S.Bank,hasfailedtoestablishthatitholdsanenforceablerightagainst the Property. Additional Facts: Because the state court had already entered a judgment of foreclosure in favor of US Bank, the bankruptcy court concluded that the Debtors objection to the motion for relief from the automatic stay must be overruled pursuant totheRookerFeldmandoctrine. The Court went on to address whether, absent the state court foreclosure order, US Bank and its agent would have had authority to foreclose where the assignment had come from MERS. No evidence was produced showing that US Bank holds the note. OnlyanAssignmentofMortgagebyMERSwasproduced. Forthesereasons,theCourtwasnotsatisfiedthatUSBankhadreceivedtransferofthe note by assignment. Further, there was no evidence before the Court showing that US Bankhadphysicalpossession ofthe note. The Motionforrelieffromstaydidnoteven explicitly state that US Bank held the note. Not only was US Banks noteholder status defective,butitalsocouldnotshowthatitwastheholderoftheMortgage. Court: First rejected the argument that the mortgage stays with the note, finding that the MERS system itself altered this practice by naming MERS as mortgagee and some other party as the noteholder. In order to prove standing to foreclose, the Court stated, US Bank (or its agent) must show that US Bank is a valid assignee of both the NoteandtheMortgage.
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InreAgard,No.81077338reg,2011WL499959(Bankr.E.D.N.Y.Feb.10,2011)

The Court also rejected the argument that MERS membership rules created an agency relationship. The court also concluded that no agency relationship was created because it was not memorializedinwritingasrequiredbytheStatuteofFrauds.

Formoreinformation,pleasecontacttheauthorat:
JohnR.ChilesinBirminghamat(205)4585464orjohn.chiles@burr.comor KatrinaD.ChisholminBirminghamat(205)4585126orkatrina.chisholm@burr.comor ZacharyD.MillerinBirminghamat(205)4585250orzachary.miller@burr.com oryourBurr&Formanattorneywithwhomyouregularlywork.
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