Editor: David Reiss
Brooklyn Law School

March 16, 2013

Tenth Circuit Holds that MERS Has Authority to Assign Trustees After the Promissory Note Has Been Securitized and that Those Assignees Can Initiate Non-Judicial Foreclosure; Plaintiffs’ TILA Claims Were Time Barred

By Justin Rothman

In Tadehara v. Ace Securities Corp. Home Equity Loan Trust Series 2007 HE4, 2012 WL 2581037, the United States Court of Appeals for the Tenth Circuit dismissed the plaintiffs’ quiet title claim and TILA claim. On February 8, 2007, the plaintiffs obtained a loan secured by a mortgage on their house in Murray, Utah. They gave a promissory note secured by a deed of trust to DB Home Lending. MERS was designated as the beneficiary of the deed of trust and as nominee for the lender and the lender’s assigns as well as “the successors and assigns of MERS.” The deed of trust gave MERS authority to foreclose and sell the property. MERS subsequently assigned the deed of trust on two separate occasions in 2009. The promissory note itself was sold by the lender and securitized in 2007. On August 27, 2009, the plaintiffs sent a notice of rescission claiming that DB Home Lending failed to provide required disclosures under TILA. Plaintiffs then stopped paying their mortgage, and the trustee, assigned by MERS, sent them a notice of default and initiated foreclosure.

In bringing forth a quiet title claim, the plaintiffs relied on Utah Code Ann. § 57-1-35, which states, “The transfer of any debt secured by a trust deed shall operate as a transfer of the security therefor.” The plaintiffs claim that under the statute, once the promissory note was transferred, the benefit of the deed of trust was transferred to the holder of the note, and only the holder of the note or its agent can transfer the beneficial interest in the deed of trust. According to the plaintiffs’ interpretation of the statute, MERS had no power to assign beneficial interest of the deed of trust because it did so when DB Home Lending no longer held the note. Thus, if the plaintiffs’ contentions were true, this would mean that those assigned beneficial interest by MERS had no authority to foreclose on the property in question.

The court, however, disagreed with the plaintiffs. In doing so, it pointed to prior case law that found § 57-1-35 “does not operate to strip the beneficiary of a Deed of Trust or its assigns of the power to foreclose on the secured property on behalf of the original lender or any of its assignees.” In the case at hand, “an assignee of the Deed of Trust foreclosed on behalf of an assignee of the note.” So, MERS had standing to assign a trustee and that trustee had authority to foreclose on behalf of DB Home Lending’s assignee. The quiet title claim was accordingly dismissed.

The plaintiffs also argued for relief under TILA. They asserted that they were not provided proper disclosures under TILA and that their loan was a consumer credit transaction subject to TILA’s rescission remedy under 15 U.S.C. § 1635. The court dismissed this claim as well, stating that plaintiffs’ action was outside of the statute of limitations because they failed to file the TILA action within three years of consummating their loan transaction. The loan in question was made on February 8, 2007 and the action was filed on May 9, 2011. The court found that the plaintiffs’ notice of intent to rescind, which was sent to the lender in August 2009, was irrelevant for statute of limitations purposes. Thus, the TILA claim was dismissed.

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