Editor: David Reiss
Brooklyn Law School

March 2, 2013

Arkansas Supreme Court Holds that MERS is Not a Beneficiary and Not a Necessary Party in Foreclosure Proceedings

By Gloria Liu

In MERS, Inc. v. SouthWest Homes of Ark., Inc., , 301 S.W.3d 1 (Ark. 2009), the court held that MERS was at most the mere agent of the lender Pulaski Mortgage Company, Inc., and thus held no property interest and was not a necessary party in foreclosure proceedings. The borrowers entered into a deed of trust on a one-acre lot in Benton County to secure a promissory note. The lender on that deed of trust was Pulaski Mortgage, the trustee was James C. East, and the borrowers were the Lindseys. MERS was listed on the deed of trust as the “Beneficiary” acting “solely as nominee for Lender,” and “Lender’s successors and assigns.” The second page of the deed of trust states “the Borrower understands and agrees that MERS holds only legal title to the interests granted by the Borrower and further that MERS as nominee of the Lender has the right to exercise all rights of the Lender including foreclosure.” The deed of trust was recorded. The borrowers later granted the subject mortgage on the same property to Southwest Homes of Arkansas, Inc. to secure a second promissory note. The court emphasized the fact that Arkansas was a recording state and noted that all the required parties to a deed of trust under Arkansas law are present, the borrower in the Lindseys, the lender in Pulaski Mortgage, and the trustee in James C. East. Under a deed of trust in Arkansas, title is conveyed to the trustee and here, MERS was neither a trustee nor a beneficiary. Moreover, no payments on the underlying debt were ever made to MERS. MERS did not service the loan in any way. It did not oversee payments, delinquency of payments, or administration of the loan in any way. The court thus held that it was at most an agent to the lender, but had no further rights to standing.

| Permalink