Tag Archives: Mortgage Electronic Recording System

New York Supreme Court Holds that Assignee Bank Lacks Standing to Foreclose for Failure to Validate MERS’s Authority to Assign and Condemns Frivolous Conduct Relating to “Robosigning”

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In HSBC Bank v Taher, 32 Misc. 3d 1208(A) (Sup. Ct. 2011), the New York Supreme Court of Kings County held that an assignee bank conducting a foreclosure action must submit proof of the assignor’s authority to assign the mortgage, including the underlying note, on behalf of the original mortgagee in order for the assignee to lawfully conduct a foreclosure.

In this case, the court found that the assignee bank, HSBC, did not have standing to foreclose on Taher, the homeowner. The court stated, “the instant action must be dismissed because plaintiff HSBC lacks standing to bring this action. MERS lacked the authority to assign the subject Taher mortgage to HSBC and there is no evidence that MERS physically possessed the Taher notes.”

The court went on to explain that MERS must have authority to assign both the mortgage and the underlying note in order for an assignee to lawfully conduct a foreclosure. The court stated, “even if MERS had authority to transfer the mortgage to HSBC… MERS [was not] the note holder. . . . MERS cannot transfer something it never proved it possessed. . . . [Thus,] MERS was never the lawful holder or assignee of the notes described and identified in the consolidation agreement, the . . . assignment of mortgage is a nullity, and MERS was without authority to assign the power to foreclose to [HSBC]. Consequently, [HSBC] failed to show that it had standing to foreclose.”

In addition to finding that the assignee bank lacked standing, the court also took the opportunity in this case to highlight its intention to prevent the degradation of the foreclosure process, particularly concerning the practice of “robosigning.” Citing the need to “protect the integrity of the foreclosure process and prevent wrongful foreclosures,” the court announced its institution of a new filing requirement in any foreclosure action. This requirement is that assignees must “file an affirmation certifying that counsel has taken reasonable steps—including inquiry to banks and lenders and careful review of the papers filed in the case—to verify the accuracy of documents filed in support of residential foreclosures.” The court scrutinized HSBC’s foreclosure filing practices, which included instances where the court believed robosigning occurred, and reprimanded the bank and its counsel for its conduct. The court concluded that the conduct bordered on frivolous, and determined that further inquiry, by way of a hearing, was necessary.

New York Supreme Court Holds that Assignee Banks Must Produce Evidence of MERS’s Authority to Assign in Order to Have Standing to Foreclose

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The New York Supreme Court of Kings County in Bank of New York v. Alderazi, 28 Misc. 3d 376 (Sup. Ct. 2010) held that a foreclosing bank, as assignee, does not have standing to bring a foreclosure action if it cannot submit proof of MERS’s authority to assign the mortgage. In this case, “MERS was referred to in the mortgage as nominee of the mortgagee . . . for the purpose of recording the mortgage.” The court then stated that “MERS, as nominee, is an agent of the principal, for limited purposes, and has only those powers which are conferred to it and authorized by its principal.” Based on this rule, the court held that an assignee moving to foreclose must submit evidence to the court that such authority was granted to MERS by the original mortgagee. Here, “[the assignee] submits no evidence that [the mortgagee] authorized MERS to make the assignment. MERS submits only its own statement that it is the nominee for [the mortgagee], and that it has authority to effect an assignment on [the mortgagee’s] behalf.” Thus, the court found that the assignee in this case could not lawfully conduct a foreclosure proceeding.

The court went on to explain that “even accepting MERS'[s] position that the [mortgagee] acknowledges MERS'[s] authority to exercise any or all of the [mortgagee’s] rights under the mortgage, the mortgage does not convey the specific right to assign the mortgage. The only specific right enumerated in the mortgage is the right to foreclose and sell the property. The general language ‘to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument’ is not sufficient to give [MERS] authority to alienate or assign a mortgage without getting the mortgagee’s explicit authority for the particular assignment.” Hence, under the terms of its own agreement, MERS would have had to solicit an explicit grant of the authority to assign the mortgage from the original mortgagee in order to effectuate a valid assignment. Since the assignee could not prove that such a grant of authority occurred in this case, the court found that the assignment was still invalid under MERS’s and the assignee’s argument.

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.

Texas Appellate Court Holds that Formal Transfer of Deed is Not Required to Initiate Foreclosure

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In Robeson v. Mortgage Electronic Registration Systems, Inc., No. 02-10-00227-CV (Tex. App. –Fort Worth [2nd Dist.] 2012, pet. denied), the Texas Court of Appeals affirmed a summary judgment motion by MERS and the Midfirst bank granted by the trial court. The homeowner plaintiff argued that the bank did not have standing to accelerate the loan and begin foreclosure on January 2009 because the deed of trust was assigned to the Bank on February 2009 and there was no evidence of an endorsement of the note (the note contained a blank endorsement).

The Court of Appeals held that, as to the blank endorsement in the note, no special endorsement is necessary under the Texas Business and Commercial Code, only possession of the note. Two vice presidents of Midfirst bank testified that the bank held both the note and the deed of trust. In addition, one testified that both the note and deed of trust were received on October 2008. Since the plaintiff did not challenge the accuracy of the statements made, the court found that the evidence was sufficient. The court also held that the date the deed of trust was assigned does not create a factual issue of when the interests were transferred to the bank relying on a prior holding that an assignment of the deed of trust from MERS to a lender dated two years after the actual date of transfer does not raise a factual issue of whether the assignment was fabricated. The court held that the date of transfer is not evidence of when the bank is entitled to initiate foreclosure relying on prior holdings which found that the mortgage typically follows the note it secures.

The deed of trust granted both the lender and the beneficiary various lender’s rights in the agreement, particularly the power of sale. As a result, the court stated that MERS was authorized to exercise the right to invoke the power of sale in the deed of trust.

The Texas Supreme Court recently denied the petition for review of this case.

Federal District Court in Texas Rules That Third-Party Lacks Standing in Recording-Fee Case

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It appears that although courts may be receptive to claims about lost recording fees because of MERS, they won’t hear cases brought by third parties (at least, not in federal court). The citizens of a Texas county brought the claim seeking lost recording fees from MERS as a defense while they were in foreclosure. In Huml v. Mortgage Electronic Registration System, Judge David Guaderrama of the U.S. District Court in El Paso, Texas, rejected the plaintiffs’ theory of MERS gaining unjust enrichment. The plaintiffs alleged that the county lost recording fees that would have been acquired had MERS not taken “undue advantage of real property recording systems.”

The Judge found that the plaintiffs lacked standing to bring the claim. Since the plaintiffs alleged that counties were harmed by MERS, Judge Guaderrama found the argument of standing “piggy-backs on the direct injury, if any, to the counties.” Since the plaintiffs couldn’t assert direct injury from lost recording fees, and because plaintiffs cannot sue to enforce a third party’s rights in federal court (unless the suit falls under a particular exception, which didn’t happen in this case), the Judge dismissed the claim.

Nevada Supreme Court Unanimously Rejects Irreparable Split Theory and Grants Bank Standing

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In Edelstein v. Bank of New York, the Nevada Supreme Court unanimously rejected the irreparable split theory. The theory was brought up to challenge the Bank’s standing to foreclose on the plaintiff’s property. The irreparable split theory provides that a promissory note and a deed of trust that is separated prevents a nonjudicial foreclosure from occurring. This is because a note is a promise to repay the loan, while the deed of trust establishes the property as security for the loan.

The Court rejected the “traditional rule” that prevents the transfer of notes or deeds of trust separately, particularly because it would conflict with a previous holding recognizing the ability to transfer notes and deeds of trust separately. Instead, the Court adopted the Restatement approach, which permits separate transfers if the parties agree to it.

The Court held that identifying MERS as the nominee for the original lender and its assignees in the note is sufficient to hold “an agency relationship with [the original Lender] and its successors and assigns with regard to the note.” The Court found that the recorded beneficiary is considered “the actual beneficiary and not just a shell for the ‘true’ beneficiary.” As a result, naming MERS as the beneficiary of the deed of trust effectively split the note and deed of trust, but they were unified prior to foreclosure proceedings.

However, the Court found that no law requires them to be unified at inception, only in order to foreclose. The Nevada Supreme Court ultimately held that if the “split is cured when the promissory note and deed of trust are reunified.” As a result, the Court found that the bank, which held both the mortgage and the note at the time of foreclosure, had standing to continue the foreclosure mediation process.