Editor: David Reiss
Brooklyn Law School

February 5, 2013

Court in Rhode Island Rejects the Disconnection Theory

By Karl Dowden

In Payette v. Mortgage Electronic Registration Systems, No. PC-2009-5875, 2011 WL 3794701 (R.I. Sup. August 22, 2011), the plaintiffs do not challenge the allegation they defaulted on the note, however they challenged both the foreclosure sale and the title acquired by the buyer from the sale.

The court first determined whether a conversion of the motion for judgment on the pleadings was proper. Conversion of the motion for a judgment on the pleadings into a motion for summary judgment without expressly notifying the parties is permissible in Rhode Island. However, this requires notice that a conversion may occur. The court found that inviting a conversion qualifies as notice. In addition, the court found that the current case, which lasted two years, is longer than the ten month period that was found sufficient to justify converting a motion without previously notifying the parties.

The court stated that exhibits were attached to the motion for judgment on the pleadings. Evidence outside of the pleadings are not relevant to the judgment. As a result, if the “matters outside the pleadings are presented to and not excluded by the court, the motion “shall be treated as one for summary judgment.” Super. R. Civ. P. 12(c).

The plaintiff challenged previous assignments of the mortgage under the mortgage agreement and under Rhode Island’s statutes, allegedly resulting in the illegal foreclosure sale. However, the court adopted the reasoning in both Porter, which was recently decided, and Bucci. As a result, the court found that the assignments were proper under both the mortgage agreement (due to clear language granting the authority to MERS) and the statute (rejecting the plaintiff’s narrow statutory interpretation).

The court notes that in this case, MERS assigned its nominee status and mortgage interest to another party, which is different from the two cases. However, the court found the language to mortgage, grant, and convey [the property] to MERS … and to the successors and assigns of MERS’” clearly indicates that the MERS had the ability to assign the rights. In addition, the plaintiff gave MERS the authority to assign the rights in another provision of the agreement granting the “right to exercise any and all of [the lender’s] interests, including… [the right] to take any action required of Lender including, but not limited to, releasing this Security Instrument.”

A third argument by plaintiff is based on agency law, alleging a bankruptcy terminated the relationship between MERS and the original Lender. However, the court relied on Porter to reject the claim that the bankruptcy can negate the contractual agreement. The court found that MERS’ right to act as nominee for the Lender and for the Lender’s “successors and assigns” clearly maintains the relationship regardless of the state of the Lender.

The court next addressed a claim that the initial assignment of the Mortgage to MERS “disconnected” the note and mortgage, leaving both obligations invalid at their inception. This is very similar to the split note theory. However, the court relies on the “voluminous and well-reasoned authority” of other jurisdictions that rejected this theory to do the same. Additionally, the court notes that the analysis in Porter and Bucci presupposed that an assignment of the mortgage to MERS was valid. The court also found the mortgage and note were “clearly reunited” when both documents were transferred to the foreclosing party.

Finally the court addressed a challenge to MERS based on alleged misconduct of handling the plaintiff’s mortgage. However, the court found the plaintiffs lacked standing to challenge mortgage assignments and their effects. The court again relied on the reasoning of other jurisdictions that the court found persuasive. The court found the plaintiff’s allegations of misconduct by MERS (namely alleging their mortgage was robosigned) were not supported by evidence.

Ultimately, the court granted summary judgment for the defendants.

| Permalink