June 7, 2013
In O’Brien v. Mortgage Electronic Registration Systems KC 2009-1695 (R.I. Sup. June 4, 2012) the court found in favor of the defendants, MERS and Deutsche Bank. The court held that Rhode Island law allows for the assignment of a mortgage where a homeowner has executed a mortgage with explicit language providing the right to assign the mortgage and allows for the separation of a mortgage from a note.
O’Brien brought this action to quiet title to his property challenging the foreclosure sale by Deutsche Bank. On January 3, 2007, O’Brien executed a promissory note in favor of New Century Mortgage Corporation and he also executed a mortgage on the property naming MERS as the nominee providing that “if necessary to comply with law or custom, MERS has the right: to exercise any or all of those interest, including but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.” Six days after executing the mortgage a corrective mortgage was executed to include metes and bounds which had been excluded from the initial mortgage. One year and two months later MERS assigned the mortgage to Deutsche Bank. O’Brien defaulted on the mortgage in the summer of 2009 and Deutsche foreclosed on the property.
The court relied upon Payette v. Mortgage Electronic Registration Systems in finding that the mortgage sale was valid because O’Brien bound himself to the language of the execution with MERS which stated in clear and unambiguous language that MERS held the right to “release.” Rhode Island law does not require a recording of power of attorney for MERS to act on the behalf of a company as its nominee. O’Brien then argued that New Century’s bankruptcy terminated its nominee relationship with MERS but this argument failed since the mortgage was executed with MERS well before New Century became bankrupt.
The court rejected O’Brien’s argument that the mortgage to Deutsche was void because only the defective mortgage was transferred. The court found that mortgages lacking formal requisites are considered agreements to give a mortgage and effective as between parties though not binding as to third parties. Relying upon Kriegel v. Mortgage Electronic Registration Systems, when MERS assigned the mortgage to Deutsche, all of the legal rights which MERS held by the agreement, including the power to sell after O’Brien’s default, were transferred to Deutsche. Therefore, the deeds defectiveness was irrelevant because the agreement was binding between the original parties and MERS transferred its entire interest to Deutsche, including the right to sell.
The court did not find a conflict with the U.S. Supreme Court’s ruling in Carpenter v. Longan determining that a mortgage and note are inseparable under Colorado law because the Rhode Island statute §34-11-24 indicates that the assignment of a mortgage will be followed by “the note and debt thereby secured.” Therefore MERS, recognized under Rhode Island law as the nominee of the current note holder, assigned both the mortgage and the note and debt to Deutsche. As the note and mortgage holder, Deutsche had the right to foreclose. Furthermore, Rhode Island has long respected that homeowners as non-parties to a contract cannot challenge the “propriety of mortgage assignments and the effect those assignments could have, if any, on the underlying obligation.”
The court found in favor of the defendants, the foreclosure was valid.| Permalink