State‐by‐State Compendium of Recent MERS‐Related Litigation
by John R. Chiles 1 , Katrina D. Chisholm, and Zachary D. Miller
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, or something, to blame. Charges of impropriety have been levied against Wall Street on a consistent basis, and consumer advocates have focused great amounts of energy on the area of mortgage‐backed 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 and does not, or should not, give transferees of mortgages through the MERS system the authority to enforce remedies under the mortgages they have obtained. Finding that MERS transfers are invalid would have an inconceivable effect, as estimates are that MERS holds mortgages on nearly sixty million American homes, or sixty percent of the nation's residential mortgages. 3 This document is a compendium of cases that have addressed central questions critical to the viability of the MERS system. As shown below, the arguments address numerous factors, from the avoidance of state court recording fees to the ability of a mortgage nominee to transfer beneficial ownership in a promissory note. As no single method of categorization would be perfect, we have chosen a state‐by‐state analysis, with key decisions indicated and examined more thoroughly.
John R. Chiles is a partner in the Birmingham, Alabama office of Burr & Forman, LLP. Katrina D. Chisholm and Zachary D. Miller are associates in Burr & Forman, LLP's Birmingham office.
Additional information on MERS is available on its website, found at: 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, Foreclosures Turn Up Heat on MERS, AM. BANKER, July 10, 2007, at 1.
II. OVERVIEW OF MERS
A. History of MERS 1. 2. Created "in order to streamline the mortgage process by using electronic commerce to eliminate paper." 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, American Land Title Association, and Wells Fargo. 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") is approved by Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA, California and Utah Housing Finance Agencies, as well as all of the major Wall Street rating agencies." 6 Purpose is to track changes in servicing rights and beneficial ownership interests when those interests are sold by the original lender into the secondary and tertiary markets. 7 MERS System was created to reduce the costs, errors and delays associated with frequent and numerous assignments of mortgage liens. 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
Description of MERS 1. 2. 3.
About Us‐Overview, 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 Community Opportunity, House Financial Services Comm., 111th Cong. 5 (2010).
6 7 8 5
Id. Id. at 7‐8.
See, e.g., Eisen, Laurence, MERS and the Title Industry, 6 TITLE ISSUES ‐‐ CHICAGO TITLE INSURANCE CO. 4 (July/Aug. 1997)
See Arnold, supra note 5, at 11. Id. at 5.
Revenue is derived solely from annual membership fees, and loan registration and servicing transfer fees. 12 MERS maintains a database of mortgage loans that allows servicing rights and transfers of ownership interests to be tracked, and 13 MERS can be designated by its members to serve as the mortgagee in the public land records. 14 Does not make any decisions about whether to loan money. Does not make any decisions about whether to securitize a mortgage loan. Does not make any decisions about whether to foreclose. Does not serve as a repository for mortgage documents. Does eliminate the expense of recording repeated assignments. Does serve as a convenient place for mortgagors to find out information about their mortgages.
Two Main Functions of MERS 1. 2.
MERS’ Role in the Lending Process 1. 2. 3. 4. 5. 6.
III. MERS AS A MORTGAGE DATABASE
A. B. C. Not every loan, even those loans made by members, is registered with MERS. Members tend to register only loans they intend to sell. 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 Mortgage’s unique MIN. 17 Through MERS, the borrower can access information about the servicer of the Mortgage and, if the owner of the note consents, the identity of the note‐owner.
11 12 13 14 15 16 17
Id. Id. at 5‐6. Id. at 6. Id. Id. at 9‐10. Id. at 9.
MERS Servicer Identification System, MERS Servicer ID, available at https://www.mers‐ servicerid.org/sis/ (last visited Mar. 8, 2011).
IV. MERS AS MORTGAGEE
A. MERS Acts as Mortgagee of Record 1. When MERS serves as mortgagee of record, it serves as a common agent for all MERS members. MERS’ status as mortgagee and nominee of the lender, and its successors and assigns, is approved by the borrower in the mortgage documents. MERS’ status, as set forth in the mortgage documents, is recorded in the land records. Typically, parties use the Fannie Mae/Freddie Mac Uniform Security Instrument. Three parties: Borrower, Lender and MERS MERS is named as the mortgagee of record in a nominee capacity for the original lender and that lender’s successors and assigns. Interest conveyed to MERS is “legal title,” granting MERS the specific right to act on behalf of the lender to foreclose and sell the property. The lender retains “beneficial title.”
2. 3. 4. 5. 6. B.
Certifying Officers 18 1. 2. 3. 4. Where MERS acts as mortgagee on behalf of one of its members, it acts through “certifying officers.” “Certifying officers” are persons elected by individual members to act as officers of MERS with limited authority to take certain actions. Individuals are appointed to serve as vice president and assistant secretary. Authority is granted to these “certifying officers” to: a. b. c. d. e. f. g. 5. Execute lien releases; Execute mortgage assignments; Initiate foreclosures; Execute proofs of claims and other bankruptcy‐related documents; Execute modification and subordination agreements needed for refinancing; Endorse mortgage payment checks made payable to MERS (in error) by borrowers; and Take other such action and execute documents necessary to fulfill the member’s servicing duties.
Requirements for becoming a MERS “certifying officer” include:
Arnold, supra note 5, at 12-13
a. b. c. C.
Being a company officer of the member institution; Having basic knowledge of MERS; and Passing a certifying examination administered by MERS.
Foreclosures Where MERS Is Mortgagee ‐ When MERS is named as mortgagee, foreclosure can begin in one of two ways: 1. Option 1 ‐ Foreclosure can be conducted in the name of MERS a. Note‐owner endorses the note in blank (making it bearer paper) and turns over possession of the note to a MERS certifying officer, making MERS the noteholder. Since MERS is already the mortgagee, MERS can begin the foreclosure process as soon as it is in possession of the note. Foreclosure is handled entirely by the MERS certifying officer (who typically is also an employee in the member institution’s default department)
Option 2 ‐ MERS, acting through its certifying officer, will execute an assignment to the servicer or note‐owner (whichever entity is conducting the foreclosure) and the assignment will be recorded in the land records. Once the assignment is recorded, the foreclosure will commence.
V. CHALLENGES TO MERS AS MORTGAGEE
A. Recently, MERS has been subjected to attacks by defaulting borrowers and consumer advocates who are attempting to avoid valid mortgage debts. These attacks have come on a variety of fronts, but the following areas have become most popular: 1. 2. 3. 4. 5. Whether MERS Has Standing to Conduct Foreclosures In Its Own Name? Whether Naming MERS As Mortgagee Improperly Splits the Note and Mortgage, Thus Invalidating the Mortgage? Whether MERS Is A Party In Interest Who Is Entitled To Seek Relief From An Automatic Stay in Bankruptcy? Is MERS A Necessary Party Who Is Entitled to Receive Notice of Proceedings Related to the Property? Whether the Entire MERS System Is Fraudulent?
VI. REPRESENTATIVE CASES VALIDATING MERS
Alabama Mortensen v. MERS, No. 09‐0787‐WS‐N, 2010 WL 5376332 (S.D. Ala. Dec. 23, 2010) (recognizing an assignment from MERS to purchaser as valid).
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 foreclosing party). Alaska (no cases found) Arizona √ Key Decision Cervantes v. Countrywide Home Loans, Inc., No. CV‐09‐517‐PHX‐JAT, 2009 WL 3157160 (D. Ariz. Sept. 24, 2009) Plaintiffs made two attacks on the MERS system: (1) MERS is never really a beneficiary under the deed of trust because it never acquires a true beneficial interest; and (2) the MERS system is a means of circumventing the public recording system.” Splitting of Note and Mortgage: “Plaintiff’s 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 third‐party beneficiary contracts, as well as assignments and delegations.” MERS as "Sham Beneficiary": "The fact that MERS does not obtain such rights as to collect mortgage payments or obtain legal title to the property in the event of non‐ payment does not transform MERS’ status into a ‘sham.’” Circumventing Public Recording System: “Plaintiffs’ second objection to the MERS system similarly has no effect upon their status as borrowers . . . . Any lack of notice in the public records, however, to future buyers of Plaintiffs’ mortgages does not alter Plaintiffs’ obligations under the mortgages . . . . See Robinson v. Wells Fargo, No. CV‐09‐2066‐PHX‐JAT, 2010 WL 2534192 (D. Ariz. June 18, 2010 (same).
√ Key Decision In re MERS Litigation, MDL Docket No. 09‐2119‐JAT, 2011 WL 251453 (D. Ariz. Jan. 25, 2011) Issue: Involves claims that MERS and others conspired to commit fraud and conspiracy to commit wrongful foreclosure through the creation, operation and use of the MERS system. Split the Note Theory: Should not matter in non‐judicial foreclosure states because defendants do not need to produce the note to the property in order to proceed with a non‐judicial foreclosure. The Court also rejected Plaintiffs’ argument that ‘splitting the note’ automatically voids the notes and the right to enforce them through non‐judicial foreclosure. See Maxa v. Countrywide Home Loans, Inc., No. CV‐10‐8076‐PCT‐NVW, 2010 WL 2836958 (D. Ariz. July 19, 2010) (same).
Jones v. Wells Fargo Bank, No. CV‐11‐0197‐PHX‐DGC, 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 beneficiary and nominee under the deed of trust). Higton v. Quicken Loans, Inc., No. 2:10‐CV‐01320‐JWS, 2011 WL 333357 (D. Ariz. Jan. 31, 2011) (recognizing MERS’ status as nominee of Note holder); Kane v. Bosco, No. 10‐CV‐ 01787‐PHX‐JAT, 2010 WL 4879177 (D. Ariz. Nov. 23, 2010) (same). In re Madison, No. 2:09‐bk‐22225‐PHX‐SSC, 2010 WL 3941858 (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 trustee or successor trustee under Arizona’s non‐judicial foreclosure statute”). Arkansas Peace v. MERS, No. 4:09‐CV‐00966, 2010 WL 2384263 (E.D. Ark. June 11, 2010) (MERS’ assignment to Note purchaser was valid and properly gave purchaser standing to appoint an agent to initiate a non‐judicial foreclosure). MERS v. Stephanie Gabler, et al., Case No. 2004‐17‐II, 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 the promissory note.”) 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 borrower to file a lawsuit to require a foreclosing party to prove its right to foreclose. “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 borrower’s deed of trust included language whereby the borrower agreed that MERS has the authority to initiate a foreclosure. See also Germon v. BAC Home Loans Servicing, LP, No. 10‐CV‐2482‐BTM (POR), 2011 WL 719591 (S.D. Cal. Feb. 22, 2011) (same); Wadhwa v. Aurora Loan Services, LLC, No. CIV. 2:10‐3361‐WBS‐DAD, 2011 WL 590911 (E.D. Cal. Feb. 10, 2011) (same); Labra v. Cal‐Western Reconveyance Corp., No. C‐09‐2537‐PJH, 2010 WL 889537 (N.D. Cal. Mar. 11, 2010) (same).
Colorado (no cases found) Connecticut √ Key Decision Chase Home Finance, LLC v. Fequiere, 989 A.2d 606 (Conn. Ct. App. Mar. 2, 2010)
"Even if we were to assume arguendo that the assignment of the mortgage from MERS to the plaintiff was invalid, the defendant's claim fails. General Statutes § 49‐17 permits the holder of a negotiable instrument that is secured by a mortgage to foreclose on the mortgage even when the mortgage has not yet been assigned to him . . . . The statute codifies the common‐law principle of long standing that ‘the mortgage follows the note,’ pursuant to which only the rightful owner of the note has the right to enforce the mortgage."
LaSalle Bank v. Johnson, No. CV‐085016113, 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. CV‐09‐5004156‐S, 2009 WL 1874180 (Conn. Super. June 10, 2009) (rejecting claim that mortgages naming MERS as nominee for the lender were invalid) Delaware (no cases found) District of Columbia Wells Fargo Bank, N.A. v. Wrenn, No. 08‐165 (CKK), 2009 WL 1705692 (D.D.C. June 18, 2009) (noting MERS’ status as the “legal holder of the Deeds of Trust for the benefit of the holder of the Promissory notes”). Florida √ Key Decision Taylor v. Deutsche Bank Nat’l Trust Co., 44 So. 3d 618 (Fla. 5th DCA 2010) 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 may assign rights to the Note itself. 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 MERS can assign to the foreclosing bank. "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 make just such an assignment." See also Mortgage Electronic Registration Systems, Inc. v. Azize, 965 So. 2d 151 (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 purpose of instituting foreclosure proceedings).
Georgia √ Key Decision Drake (Trustee) v. Citizens Bank of Effingham, et. al., AP No. 10‐4033 (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 transfer of the Note, because the Security Deed expressly contemplate[d] that the Note [could] be transferred from the original Lender, and that MERS’ role as nominee for the Lender extend[ed] to each successive assignee.” ". . . [T]he note and the deed 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).
Distinguished the opinion in Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo. App. 2009), stating that the Bellistri case only addressed a situation where the noteholder failed to demonstrate that it had an ownership interest in the Note or Deed of Trust.
Johnson v. MERS, 252 Fed. Appx. 293 (11th Cir. 2007) (stating that MERS held the Security Deed as "nominee" for lender). Nicholson v. OneWest Bank, No. 1:10‐CV‐0795‐JEC/AJB, 2010 WL 2732325 (N.D. Ga. Apr. 20, 2010) (holding that the nominee of the lender has the ability to foreclose on a debtor'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, as long as the foreclosing party obtains possession of both). Hawaii Sakala v. BAC Home Loans Servicing, LP, No. 10‐00578‐DAE‐LEK, 2011 WL 719482 (D. Haw., Feb. 22, 2011) (rejecting the “show me the note” argument and dismissing plaintiff’s claim that the assignment from MERS was invalid); see also Krakauer v. IndyMac Mortg. Servs., No. 09‐00518‐ACK‐BMK, 2010 WL 5174380 (D. Haw. Dec. 14, 2010) (same). Mier v. Lordsman, Inc., No. 10‐00584, 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. 10‐00272‐DAE‐LEK, 2010 WL 5146433 (D. Haw. Dec. 13, 2010) (same). Idaho Trotter v. Bank of New York Mellon, et al., Case No. CV‐10‐95, Kootenai County District Court (July 2, 2010) (finding MERS was the beneficiary of the deed of trust under Idaho law and, therefore, had the authority to assign the mortgage).
Illinois √ Key Decision MERS v. Barnes, 940 N.E.2d 118 (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 filed by the owner of the note and mortgage. "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 . . . MERS had the right to exercise any or all of the interests granted by the borrower in the 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 own name."
Indiana The Bank of New York Mellon v. Michael R. Green, Case No. 41D01‐0901‐MF‐00027, Johnston Superior Court (Sept. 20, 2010) (holding that MERS had the authority to assign the mortgage to Bank of New York Mellon). Iowa (no cases found) Kansas √ Key Decision Martinez v. MERS, et al., No. 09‐40886, 2011 WL 489905 (Bankr. D. Kan. Feb. 10, 2011) Assignment of the Note and Mortgage to different entities does not render them void because such a split may be performed when there is an "agency relationship" between the holder of the note and the holder of the mortgage. 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 affidavit of its Treasurer to demonstrate that an agency relationship existed. "The fact that MERS and Countrywide chose to use the word “nominee,” rather than “agent,” does not alter the underlying relationship between the two parties."
Kentucky In re Jessup, AP No. 09‐5229, 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 individuals to assign mortgages). Louisiana (no cases found) Maine HSBC v. Murphy, RE‐08‐340, Lewiston District Court (2008) (holds that MERS has the authority to assign mortgages by virtue of its status as nominee on the original mortgage).
Maryland Parillon v. Fremont Investment and Loan, No. L‐09‐3352, 2010 WL 1328425 (D. Md. Mar. 25, 2010) (dismissing various state law claims against MERS and finding that MERS is the beneficiary of the Security Deed). Massachusetts √ Key Decision In re Lopez, No. 09‐10346, 2011 WL 576820 (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.” Assignment by a Nominee: As to Plaintiff’s claim that MERS’ nominee status was limited 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 on behalf of the Note holder.
Bassilla v. GMAC Mortgage, et al., No. 09‐J‐519 (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. 1:09‐CV‐939, 2010 WL 2854421 (W.D. Mich. July 20, 2010) Plaintiffs claimed that MERS could not foreclose because it was not the holder in due course of the Note and had no legal right to foreclose on the Mortgage. 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 specifically granted MERS the ability to foreclose as the nominee for the lender. "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 mortgage or modification of some of the terms of the mortgage."
Safford v. Precision Funding, No. 09‐14925, 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 interest in the Mortgage sufficient to foreclose). English v. Flagstar Bank, No. 09‐11705, 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
Minnesota √ Key Decision Jackson v. MERS, 770 N.W.2d 487 (Minn. 2009) Certified question from the US District Court for the District of Minnesota: “Where an entity, such as defendant MERS, serves as mortgagee of record as nominee for a lender and that lender’s 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 foreclose a mortgage by advertisement.” Minnesota law expressly permits nominees to record an assignment, satisfaction, release or power of attorney to foreclose.
Mississippi (no cases found) Missouri √ Key Decision MERS v. Bellistri, No. 4:09‐CV‐731‐CAS, 2010 WL 2720802 (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 "publicly recorded interest in the property as beneficiary as nominee for the lender and the lender's assigns." Also held that party had to join MERS in any quiet title action and failure to do so divests party of interest in the property. Furthermore, held that MERS has "bare legal title to the note and deed of trust securing it," which is sufficient to create standing to challenge quiet title action.
In re Tucker, 441 B.R. 638 (Bankr. W.D. Mo. 2010) (holding that designation of MERS as nominee in the Mortgage is "more than sufficient to create an agency relationship between MERS and the Lender and its successors in Missouri" and that MERS may exercise any rights that the Lender may exercise under the Mortgage). Montana (no cases found) Nebraska (no cases found) Nevada √ Key Decision Ramos v. MERS, No. 2:08‐CV‐1089, 2009 WL 5651132 (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, that MERS had a right to foreclose.
Since the deed of trust expressly named MERS as beneficiary, MERS had the right to commence foreclosure and to appoint the substitute trustee.
Vazquez v. Aurora Loan Services, No. 2:08‐CV‐01800‐RCJ‐RJJ, 2009 WL 1076807 (D. Nev. 2009) (granting MERS’ motion to dismiss claims of wrongful foreclosure, negligence and quiet title as land records "sufficiently demonstrate[d] standing by Defendants with respect to the loan and the foreclosure conducted pursuant to applicable law and the Nevada foreclosure statues.") New Hampshire Powers v. Aurora Loan Servicing, Case No. 213‐2010‐CV‐00181, Superior Court of Cheshire County, New Hampshire (Feb. 25, 2011) (“MERS’ status as nominee allows it to perform its core function of facilitating the tracking of mortgages . . . . Contrary to Plaintiff’s assertions . . . the use of MERS as a nominee is in and of itself neither fraudulent nor wrong.”) New Jersey (no cases found) New Mexico (no cases found) New York U.S. Bank, N.A. v. Flynn, 897 N.Y.S.2d 855 (N.Y. Sup. Ct. 2010) ("This court finds that where, 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 assignee and is not defective for lack of an ownership interest in the note at the time of the assignment.") MERS v. Coakley, 838 N.Y.S.2d 622 (N.Y. App. Div. 2007) (finding that MERS has standing to 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 upon the premises in the event of a default"). North Carolina Ward v. Security Atlantic Mortgage, No. 5:10‐CV‐119‐F, 2011 WL 474560 (E.D.N.C. Feb. 4, 2011) (dismissing plaintiff’s blanket claims that MERS lacked standing as nominee) North Dakota √ Key Decision Bray v. Bank of America, No. 1:09‐CV‐075, 2011 WL 30307 (D.N.D. Jan. 5, 2011) Question: “Whether MERS, by virtue of its possession of both the note and the mortgage, has standing to foreclose.” 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 blank and in MERS’ possession.
“Even if the ownership of the mortgage passed with the ownership of the note pursuant to N.D.C.C. § 35‐03‐01.2, MERS’ possession of the note would give it ownership of the mortgage.”
Ohio Deutsche Bank Natl. Trust Co. v. Traxler, 2010‐Ohio‐3940 (Ohio Ct. App. 2010) (holding that 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 nominee and mortgagee). 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 nominee in the Mortgage, despite the fact that it had no beneficial interest in the Note.) Oklahoma MERS v. William C. Warden, CJ‐2005‐7027, District Court of Oklahoma City (Mar. 3, 2006) (refusing to vacate a judgment of foreclosure, concluding that plaintiff’s argument that MERS lacked standing to pursue was without merit) Oregon Burgett v. MERS, No. 09‐6244‐HO, 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 and all assignments would have to be recorded prior to commencing foreclosure). Stewart v. MERS, No. CV‐09‐687‐PK, 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 assignment from MERS to U.S. Bank was proper under Oregon law). Pennsylvania MERS v. Ralich, 982 A.2d 77 (Pa. Super. Ct. 2009) (affirming the trial court’s determination that the mortgage vested MERS with the authority to enforce the loan) Straker v. Deutsche Bank Nat'l Trust, No. 3:09‐CV‐338, 2011 WL 398374 (M.D. Pa. Feb. 3, 2011) (noting that “[a]s the amended complaint and mortgage documents note, MERS was the nominee holding legal title for Fremont, the originating lender.”) Rhode Island √ Key Decision Bucci v. Lehman Bros. Bank, No. PC‐2009‐3888, 2009 WL 3328373 (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 Lender and Lender's successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property ....” The fact that paragraph twenty‐two of the Mortgage states that the Lender “may invoke the STATUTORY POWER OF SALE” does not negate the previous language in the
"MERS has the right to invoke the Statutory Power of Sale here because it is the named mortgagee and nominee of [the lender] and its “successors and assigns."
South Carolina (no cases found) South Dakota (no cases found) Tennessee Mills v. First Horizon Home Loan Corp., No. W‐2010‐00310‐COA‐R3‐CV, 2010 WL 4629610 (Tenn. Ct. App. Nov. 16, 2010) (dismissing as unripe plaintiffs’ complaint for declaratory judgment that their mortgage would be unenforceable based on the involvement of MERS) Texas Hunt v. MERS, No. 03‐10‐00031‐CV, 2010 WL 3271966 (Tex. Ct. App. Aug. 20, 2010) (rejecting plaintiff’s argument that MERS lacked standing) Athey v. MERS, 314 S.W.3d 161 (Tex. Ct. App. 2010) (affirming trial court’s grant of summary judgment to MERS, holding that MERS was the beneficiary of the deed of trust and, therefore, had authority to conduct a non‐judicial foreclosure). See also Richardson v. CitiMortgage, Inc., No. 6:10‐CV‐119, 2010 WL 4818556 (E.D. Tex. Nov. 22, 2010) (deed of trust expressly provided that MERS was to have power of sale). Maxwell v. Chase Home Finance, No. H‐09‐4038, 2011 WL 181345 (S.D. Tex. Jan. 19, 2011) (dismissing plaintiff’s “cookie cutter” complaint that MERS lacks standing to sue). Santarose v. Aurora Bank FSB, No. H‐10‐0720, 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. 1:09‐CV‐162‐DAK, 2010 WL 3516475 (D. Utah Sept. 2, 2010) (interpreting the language of the deed of trust, held that MERS had the authority to initiate foreclosure proceedings, appoint a trustee, and to foreclose and sell the property). Commonwealth Property Advocates, LLC v. CitiMortgage, No. 2:10‐CV‐00885, 2011 WL 98491 (D. Utah Jan. 12, 2011) (“Plaintiff offers no evidence or legal argument that MERS cannot contract for the right and power of foreclosure regardless of who holds the note, or the beneficial interest under the trust deed. Nor does Plaintiff demonstrate that such rights are actually ‘lost by the transfer of the debt.’”) √ Key Decision Witt v. CIT Group/Consumer Finance, Inc., No. 2:10‐CV‐440‐TS, 2010 WL 4609368 (D. Utah Nov. 5, 2010)
Court first found that lender did not have to obtain the consent of the borrower before assigning note to purchaser. Court then stated that the Note was not "split" with the mortgage by being assigned to MERS. Court noted the "well‐settled precedent in both the United States Supreme Court and Utah Supreme Court which clearly establish that “[t]he transfer of the note carries with it the security, without any formal assignment or delivery, or even mention of the latter.”
King v. American Mortg. Network, Inc., No. 1:09‐CV‐162‐DAK, 2010 WL 3516475 (D. Utah Sept. 2, 2010) (dismissing plaintiff’s “split the note” argument). McGinnis v. GMAC Mortgage Corp., No. 2:10‐CV‐00301‐TC, 2010 WL 3418204 (D. Utah Aug. 27, 2010) (dismissing plaintiff’s claim that MERS lacked standing to conduct foreclosure). Rhodes v. Aurora Loan Services, No. 2:10‐CV‐00230, 2010 WL 3219310 (D. Utah Aug. 13, 2010) (“Although MERS does not own the note, it is given authority to foreclose on the note by the note’s owner through the language in the trust deed. Courts have consistently 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 the note.”) Burnett v. MERS, No. 1:09‐CV‐00069‐DAK, 2009 WL 3582294 (D. Utah Oct. 27, 2009) (“MERS had authority under the Deed of Trust to initiate foreclosure proceedings and to appoint Woodall as successor trustee.”) Vermont (no cases found) Virginia Ramirez‐Alvarez v. Aurora Loan Services, LLC, No. 01:09‐CV‐1306, 2010 WL 2934473 (E.D. Va. July 21, 2010) (“MERS had the authority and ability to enforce the terms of the security instruments.”) √ Key Decision Tapia v. U.S. Bank, 718 F. Supp. 2d 689 (E.D. Va. 2010) "The Deed of Trust authorized MERS to foreclose the Property in the event that Plaintiffs defaulted on the loan." "By signing the Deed of Trust, Plaintiffs agreed that MERS, as nominee for Lender and Lender’s successors and assigns, had the right to foreclose the Property and recognized that MERS could take any action required of Lender.” Also finding that the borrowers had failed to submit any "legally‐supported" argument as to why MERS as nominee did not have the right to foreclose and sell the borrower's property in accordance with law or custom.
Merino v. EMC Mortg. Corp., No. 1:09‐CV‐1121, 2010 WL 1039842 (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. 1:09‐CV‐01129, 2010 WL 538039 (E.D. Va. Jan. 29, 2010) (same).
Washington Cebrun v. HSBC Bank USA, N.A., No. C10‐5742‐BHS, 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 mortgage that expressly named MERS as beneficiary.) √ Key Decision Daddabbo v. Countrywide Home Loans, Inc., No. C09‐1417‐RAJ, 2010 WL 2102485 (W.D. Wash. May 20, 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 MERS’s 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 title to the interests created in the trust, but the authorization of the lender and any of its successors to take any action to protect those interests, including the ‘right to foreclose and sell the Property.’”
Vawter v. Quality Loan Service Corp. of Washington, 707 F. Supp. 2d 1115 (W.D. Wash. Apr. 22, 2010) (dismissing claim on basis that MERS was properly a beneficiary and entitled to effect sale of defaulted‐upon property) West Virginia (no cases found) Wisconsin √ Key Decision Countrywide Home Loans Servicing, LP v. Rohlf, No. 2009‐AP‐2330, 2010 WL 4630328 (Wis. App. Nov. 17, 2010) Distinguished decision of Landmark v. Kesler, 216 P.3d 158 (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 construed together. The assignment of mortgage transfers both the note and mortgage. [Plaintiffs] presented no evidence to refute the assignment of both the note and mortgage to Countrywide." 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. 09‐20806, 2009 WL 5149262 (Bankr. D. Wyo. Dec. 22, 2009) (finding that MERS had properly assigned the mortgage to the note purchaser and validating foreclosure).
VII. CASES PRESENTING QUESTIONS REGARDING MERS VALIDITY
Arkansas MERS v. Southwest Homes of Arkansas, 301 S.W.3d 1 (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 instrument at the time MERS purports to act. “[A]n agent is authorized to do, and to do only, what it is reasonable for him to infer that the principal desires him to do in the light of the principal's manifestation and the facts as he knows or should know them at the time he acts.” "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 subject real property under the mortgage and the deed of trust, complete relief may be granted whether or not MERS is a party. MERS has no interest to protect. It simply was not a necessary party."
Idaho In re Sheridan, No. 08‐20381, 2009 WL 631355 (Bankr. D. Idaho Mar. 12, 2009) Without deciding whether MERS, as nominee, would have the right to lift the automatic stay, the bankruptcy court denied the request for stay relief on the basis that there was no proof that the trustee on whose behalf MERS was purporting to act had any interest in the note or deed of trust.
Kansas Landmark National Bank v. Kesler, 216 P. 3d 158 (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 MERS’s motion, but did not address whether MERS was entitled to notice. Instead, the Court simply stated that, even if MERS would have been entitled to notice, MERS would not have had a meritorious defense to the action. Two views on Kesler: First view, and the one adopted by MERS, is that Kesler is a narrow decision. Specifically, proponents of this view claim that Kesler was based on procedure (high
The alternate view, and one endorsed by consumer advocates, is that this decision questions MERS’ right to notice of foreclosure actions. 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 MERS v. Saunders, 2 A.3d 289 (Me. Aug. 12, 2010) Court concluded that MERS is not a “mortgagee” within the meaning of Maine’s foreclosure statute, 14 M.R.S. §§ 6321‐6325 and, therefore, had no standing to foreclose. Court concluded, however, that real party in interest was Deutsche Bank and that the Court did not err by substituting the lender for MERS. 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. Because of this dispute, the Court denied summary judgment to MERS. Later, the bank was substituted as a party in place of MERS, and the Court granted summary judgment in favor of the bank. 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 Lender’s 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 standing to foreclose as the mortgagee.
Missouri Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo. Ct. App. 2009) Court held that because “MERS never held the promissory note … its assignment of the deed of trust separate from the note had no force,” thus prohibiting the assignee of the deed of trust from foreclosing.
"When the holder of the promissory note assigns or transfers the note, the deed of trust is also transferred. An assignment of the deed of trust separate from the note has no “force.” Effectively, the note and the deed of trust are inseparable, and when the promissory note is transferred, it vests in the transferee “all the interest, rights, powers and security conferred by the deed of trust upon the beneficiary therein and the payee in the notes.” Court recognized that when the holder of a DOT is an agent for the holder of the note, no improper splitting occurs.
New York LaSalle Bank v. Lamy, 824 N.Y.S.2d 769 (N.Y. App. Div. 2006) Stating that “a nominee of the owner of the note and mortgage, such as MERS, may not 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 prosecution of the action." Facts: Servicer of mortgage loan sought relief from the automatic stay. The Court framed the issue as follows: “The Debtor’s argument raises a fundamental question as to whether MERS had the legal authority to assign a valid and enforceable interest in the subject mortgage. Because U.S. Bank’s rights can be no greater than the rights transferred by its assignor ‐ MERS ‐ the Debtor argues that the Movant, acting on behalf of U.S. Bank, has failed to establish that it holds an enforceable right against 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 Debtor’s objection to the motion for relief from the automatic stay must be overruled pursuant to the Rooker‐Feldman doctrine. 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. Only an Assignment of Mortgage by MERS was produced. For these reasons, the Court was not satisfied that US Bank had received transfer of the note by assignment. Further, there was no evidence before the Court showing that US Bank had physical possession of the note. The Motion for relief from stay did not even explicitly state that US Bank held the note. Not only was US Bank’s noteholder status defective, but it also could not show that it was the holder of the Mortgage. 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 Note and the Mortgage.
In re Agard, No. 810‐77338‐reg, 2011 WL 499959 (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 memorialized in writing as required by the Statute of Frauds.
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