Tag Archives: foreclosure

The Appellate Division of New York State Supreme Court Holds that Assignee Lenders Must Produce Evidence of MERS’s Authority to Assign Mortgage Notes to Lawfully Conduct a Non-Judicial Foreclosure

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The New York State Supreme Court, Appellate Division, Second Department in Aurora Loan Services v Weisblum, 923 N.Y.S.2d 609 (App. Div. 2011) held that a mortgage lender does not have standing to foreclose if it cannot establish its lawful status as assignee. In this case, MERS assigned both a mortgage and mortgage note to Aurora Services (“the Assignee”), who subsequently moved to foreclose on the subject property. At the time of the assignment, MERS was the holder of the mortgage, but not the note, which was held by the original mortgagee. MERS claimed that the assignment was valid because it was acting on behalf of the original mortgagee when it assigned the note. The court rejected this argument and held that the assignment was not valid because the Assignee failed to prove that MERS received an explicit grant of authority to assign the note from the original mortgagee. The court explained that, in general, MERS can legitimately assign notes. However, if the assignee moves to conduct a foreclosure, it must produce evidence of MERS’s authority to assign, which must be granted from the original lenders. The court further held that the evidence must show that the original mortgagee explicitly granted MERS such authority to assign.

Here, the lender failed to produce any evidence of MERS’s authority to assign the notes. Thus, the court found that MERS could not assign the note and therefore the lender did not have standing to foreclose.

Oregon District Court Holds that MERS Must Record Every Assignment of Trust Deed to Lawfully Conduct a Non-Judicial Foreclosure

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The District Court of Oregon in Hooker v Northwest Trustee Services, Inc., 2011 WL 2119103 (D.Or. May 25, 2011) granted homeowners’ motion for declaratory judgment preventing MERS from continuing with a non-judicial foreclosure proceeding. The court first held that MERS could only be a nominee or agent of a lender, and not have a beneficial interest in the trust deed, where MERS was not listed as the beneficiary on the note. However, the court did not hold that this precluded MERS from lawfully initiating a non-judicial foreclosure. The problem in this case was that MERS only recorded the final assignment of the trust deed, instead of recording every assignment as required by law. In failing to record every assignment of the trust deed in this case, the court found that MERS could not lawfully conduct a non-judicial foreclosure.

MERS Must Possess Note or Have Authority to Act on Behalf of Note Holder in Order to Foreclose, According to Massachusetts Supreme Court

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In Eaton v Federal National Mortgage Association, 462 Mass. 569 (Mass. 2012), the Supreme Judicial Court of Massachusetts addressed “the propriety of a foreclosure by power of sale undertaken by a mortgage holder that did not hold the underlying mortgage note.” In this case, the homeowner executed both a promissory note, solely to the lender, and a mortgage to the lender and to MERS. Under the terms of the mortgage, the lender was referred to as “lender” and MERS was referred to as “mortgagee.” As mortgagee, MERS was stipulated to hold legal title to the property with the power of sale “solely as nominee.” MERS was also given explicit authority under the mortgage to exercise the right to foreclose the property as nominee for lender. Subsequently, MERS assigned its interest to Green Tree servicing, LLC (Green Tree). The assignment was recorded in the county register of deeds, but without evidence of transfer of the note.

Eventually, the homeowner fell behind on his mortgage payments and Green Tree moved to foreclose. Green Tree was the highest bidder at the foreclosure auction, and assigned the rights to its bid to Fannie Mae. Fannie Mae later moved to evict the homeowner from the property. In response, the homeowner filed a counterclaim, arguing that the underlying foreclosure was invalid because Green Tree did not hold the note at the time of the foreclosure action. The housing court and the superior court found in favor of the homeowner, holding that a mortgagee must possess both the mortgage and the mortgage note to have authority to foreclose.

However, the Supreme Court, transferring the case to its court on its own motion, came to a different conclusion. The Supreme Court found that the lower courts relied only on common law for their holdings, and that statutory law, particularly G.L.c. 183, § 21 and G.L.c. 244, § 14, changes the analysis. Relying on these stautes, the court held “that where a mortgagee acts with the authority and on behalf of the note holder, the mortgagee may comply with these statutory requirements without physically possessing or actually holding the mortgage note.” Whether a mortgagee is acting with authority and on behalf of the note holder is a an agency question, which the Supreme Court could not address based on the record.

The court also held that the ruling only had prospective effect, and thus the ruling “appl[ies] only to mortgage foreclosure sales for which the mandatory notice of sale has been given after the date of this opinion.” However, the court also applied the ruling to the parties in the case, and the court remanded the case to the superior court to determine whether Green Tree was acting with authority and on behalf of the lender at the time of the closing.

Washington State Supreme Court Holds that MERS is Not a Lawful Beneficiary Under Washington’s Deed of Trust Act and Homeowners May Have a Cause of Action Against MERS Under Washington’s Consumer Protection Act

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Sitting en banc, the Washington Supreme Court in Bain v. Metropolitan Mortgage Group, Inc., 285 P.3d 34 (Wash. 2012) answered two of three certified questions from the Federal District Court for the Western District of Washington in favor of two homeowners. In this case, the homeowners’ deeds of trust named MERS as the beneficiary and nominee for the lender, and named the title company as the trustee. The homeowners eventually fell behind in the payments, and MERS, acting as beneficiary of the deeds of trust, named successor trustees who commenced foreclosure proceedings. The assignments of the promissory notes were not recorded. The homeowners sought injunctions to stop the foreclosures, and the cases are pending in federal court. The district court hearing the case certified three questions of state law to the state supreme court.

The first question was “whether MERS is a lawful beneficiary with the power to appoint trustees within the deed of trust act if it does not hold the promissory notes secured by the deeds of trust.” The court held that “only the actual holder of the promissory note or other instrument evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure on real property. Simply put, if MERS does not hold the note, it is not a lawful beneficiary.”

The second certified question was “what is the legal effect of Mortgage Electronic Registration Systems, Inc., acting as an unlawful beneficiary under the terms of Washington’s Deed of Trust Act?” The court declined to answer this question based on the record and briefing before them.

The third certified question was “does a homeowner possess a cause of action under Washington’s Consumer Protection Act against Mortgage Electronic Registration Systems, Inc., if MERS acts as an unlawful beneficiary under the terms of Washington’s Deed of Trust Act?” The held that “if the first word in the third question was ‘may’ instead of ‘does,’ our answer would be ‘yes.’ Instead, we answer the question with a qualified ‘yes,’ depending on whether the homeowner can produce evidence on each element required to prove a CPA claim.” The elements of a CPA claim are “(1) unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her business or property; (5) causation.” (internal quotations omitted).