November 13, 2013
The federal district court of Nevada in Smith v. Community Lending, 773 F.Supp.2d 941 (D.N.V. 2011), held that MERS properly started a foreclosure action on behalf of the lender, Community Lending, Inc., because it found that MERS acted within the scope of its authority as Community Lending’s agent in the foreclosure. In this case, the court consolidated two separate cases regarding investment properties where the plaintiff brought 11 causes of action against the defendants.
In the first case, (“651 case”), the Plaintiff, S. Burke Smith bought a home with a total mortgage amount of $148,500 with Community Lending, Inc. (“CLI”) as the lender for a property in Fallon, Nevada, in July 2005. Smith defaulted on the first note on April 1, 2009, and MERS sold the loan to BAC Home Loans Servicing, LP on August 18, 2009. BAC then sent the loan to Recontrust Co., N.A (“Reconstruct”) the same day and First American Title filed a Notice of Default against Smith as Reconstruct’s agent. Reconstruct then started foreclosure proceedings by filing a notice of sale on June 9, 2010.
In the second case, (“653 case”), the Plaintiff entered a mortgage for $148,000 with CLI, also for a property in Fallon, Nevada, but defaulted on April 1, 2009. MERS eventually sold the loan to the The Bank of New York Mellon, who then listed Reconstruct as the trustee of the loan. Reconstruct later initiated foreclosure proceedings against the Plaintiff by filing notice of sale on October 15, 2010.
The district court granted the defendant’s motion to dismiss in both cases and held that
1) MERS had authority to transfer interest in the loan from deed of trust beneficiary to loan servicer;
2) Mortgage foreclosure, in and of itself, did not constitute debt collection as contemplated by Fair Debt Collection Practices Act (FDCPA);
3) Cause of action for unfair lending practices accrued, and three-year limitations period began to run, when loans were made;
4) Deed of trust debtors could not equitably remain in properties without making payments due on deeds of trust until after their unfair lending practices claims had been decided by the court;
5) Deed of trust debtors failed to state claims for bad faith, fraud, fraud in the inducement, or unjust enrichment;
6) Exercise of federal-question jurisdiction over claim alleging violation of Nevada statute premised entirely on FDCPA violation was warranted; and
6) Non-diverse defendants were fraudulently joined for purpose of defeating diversity jurisdiction.
In the 651 case, the district court denied the Plaintiff’s claims for quiet title, injunctive and declaratory relief against MERS because the court found that although MERS did not hold legal title or act as a beneficiary, that it acted within the broad scope of its agency to act on behalf of the owner of the underlying debt (the lender) to start a foreclosure action. As a result, the court found that MERS’s actions were proper and therefore rejected the Plaintiff’s claims against MERS. The court found that the foreclosure in the 653 case was proper for the same reasons 651 case, and denied the Plaintiff’s other claims for the same reasons.