In Brooks v. Freddie Mac, 2011 WL 3794683 (AL District Court, 2011), the court held that once a mortgage is assigned to another, foreclosure action is not attributed to the assignor. Therefore, when MERS assigned its interest to another party, the foreclosure was not initiated or undertaken by MERS. The court also agreed with a number of Alabama cases that held that mortgages could still be enforceable even if the note and mortgage had originally been split. Therefore, MERS can serve as the mortgagee as nominee for a lender without invalidating the mortgage.
Author Archives: Gloria Liu
Alabama District Court Finds that MERS had Standing to Foreclose Absent Showing of Fraud and Breach of Good Faith
In Mortensen v. MERS, 2010 WL 5376332 (AL Distr. Ct, 2010), the court did not find that refusal to modify a mortgage obligation constituted a breach of good faith and dealing. The court also held that that there was no fraud or deception in telling the mortgagee that “he had to be in default in order to negotiate the mortgage loan modification” because it was not a false statement per se. Therefore, MERS had standing to foreclose.
Alabama Civil Court of Appeals finds that MERS Assignee has Standing to Initiate Foreclosure Proceedings
In Crum v. LaSalle Bank, 55 So.3d 266, (Ala. Civ. App. 2009), the court held that the assignee of the mortgage, LaSalle Bank had standing to initiate foreclosure proceedings. The court reasoned that MERS and the assignee were not delivered a mortgage instrument by a mortgagee solely for effecting a foreclosure and MERS was expressly acknowledged by the borrower in the mortgage instrument itself as not only having “any or all of [the lender’s] interests” in the mortgaged property, but also as having the power “to take any action required of” the lender. The mortgage instrument also expressly provided that the note and the mortgage could be sold without prior notice to the borrower, and the assignment by MERS to the assignee of the mortgage, the note, and “all moneys” due was undertaken for consideration that included a $10 payment to MERS. Therefore, MERS was authorized to perform any act on the lender’s behalf as to the property, including selling the note and the mortgage to a third party and MERS fully exercised that power in favor of the assignee for valuable consideration.
Arizona 9th Circuit Bankruptcy Appellate Proceeding Finds Lack of Standing with Absence of Mortgage Note
In In re Veal, 450 B.R. 897 (B.A.P. 9th Cir. 2011) the court held that a party has standing to prosecute a proof of claim involving a negotiable promissory note secured by real property if, under applicable law, it is a “person entitled to enforce the note” as defined by the Uniform Commercial Code. Here, Wells Fargo Bank lacked standing because the purported assignment from Option One Mortgage Corporation to Wells Fargo did not contain language effecting an assignment of the Note. The reference in the Note served only to identify the Mortgage and once the Note is separated from the Mortgage, the Note becomes unsecured.
Nolan Robinson Argues that MERS Should not be Allowed to Initiate Foreclosure Proceedings in Cardozo Law Review
Abstract:
Few American homeowners know much about the small, Virginia-based company that has revolutionized the mortgage industry over the past fifteen years. Yet, Mortgage Electronic Registration Systems, Inc. (MERS) is the named mortgagee on nearly two-thirds of all newly originated residential mortgages in the United States. Industry leaders – including Freddy Mac, Ginnie Mae, and a host of private lenders – created MERS in the mid-1990s to help facilitate a burgeoning market in mortgage-backed securities.
At the time MERS was created, a robust and lightly regulated secondary market for mortgage-backed securities seemed like a good idea. The recent subprime mortgage crisis, which has impacted millions of American homeowners and played a key role in a global recession, has done much to challenge that presumption. One unfortunate byproduct of the subprime mortgage crisis has been a dramatic increase in the number of American homeowners facing foreclosure. For many of these homeowners, the MERS system may compound their hardships by effectively masking the identity of the owner of their loans. One of the benefits of MERS membership, according to MERS, is the legal right to foreclose on a defaulting homeowner in MERS’s name rather than in the name of the entity who actually owns the mortgage. This can mean that homeowners have no way of ascertaining the identity of the party with whom they can negotiate their loans.
Several state courts have considered challenges to MERS’s right to initiate foreclosure actions in its own name. MERS claims to have the legal authority to initiate foreclosure proceedings throughout the United States, but not every court has agreed. Some jurisdictions have expressly upheld MERS’s right to foreclose, while some have questioned or limited MERS’s foreclosure rights. Still other courts have reserved judgment, expressing frustration and confusion regarding MERS’s role in an increasing number of foreclosure and bankruptcy proceedings, and the ostensible connection between MERS and the subprime mortgage crisis.
MERS is currently a plaintiff in as many as forty percent of pending foreclosure actions in some locales. This Note argues that foreclosure actions brought in MERS’s name, without joining the real party in interest, are unlawful. Furthermore, this Note reveals how granting standing to MERS in foreclosure actions threatens to undermine the protections for homeowners that foreclosure law has traditionally provided, and violates important property law doctrines that ensure the proper functioning of the recording system and minimize clouds on title.
Article can be found here.
New York Supreme Court Holds that MERS Does Not Have Standing to Foreclose if it Does Not Own Both Note and Mortgage
In LaSalle Bank Nat’l Ass’n v. Lamy, 824 N.Y.S.2d 769 (NY S. Ct., 2006), the court held that MERS did not have standing to foreclose because it did not own the note and mortgage. Court reasoned that “well established case authorities have held that where a mortgage debt is represented by a bond or other instrument, an assignment of the mortgage without a concomitant assignment of the note or bond for which said mortgage was given as security is a nullity.”
Massachusetts Supreme Judicial Court Holds that without a Recordable Assignments, MERS has no Standing
In US Bank National Ass’n v. Ibanez , 2009 WL 3297551, (MA S. Judicial Ct, 2011), the court held that a party lacks standing to foreclose when it holds a mortgage note endorsed in blank and an assignment of the mortgage endorsed in blank, but not a recordable assignment. The case involved three separate foreclosure sales in Springfield, Massachusetts. Massachusetts law provides for non-judicial foreclosure by advertisement. In all three foreclosure actions, the foreclosing party advertised the foreclosure sale in the Boston Globe rather than a local Springfield paper. All three plaintiffs brought actions in Land Court to “remove a cloud from the title” of the properties.
