Editor: David Reiss
Brooklyn Law School

February 22, 2013

Utah District Court Holds that MERS Has Authority to Initiate Non-Judicial Foreclosure and Does Not Need to Possess a Note to Appoint a Trustee; Court Holds that TILA Rescission Claim Was Insufficient

By Justin Rothman

In McGinnis v. GMAC Mortgage Corporation, No. 2:10 CV 00301 TC, 2010 WL 3418204 (D. Utah Aug. 27, 2010), the United States District Court of Utah granted Defendants’ motion to dismiss Plaintiff’s claims.

On June 21, 2007, Plaintiff obtained a loan to purchase a property in Utah. The trust deed that Plaintiff signed in conjunction with the loan stated, “MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.” On July 18, 2009, the trustee appointed by MERS to conduct the foreclosure, recorded a notice of default against the property. Due to alleged disclosure violations of the Truth in Lending Act (TILA), Plaintiff then filed a notice of rescission on August 5, 2009.

First, Plaintiff claimed that MERS lacked authority to foreclose and that MERS could not appoint a trustee because MERS is “merely a nominee of the lender and does not possess the note.” The court found this argument unpersuasive, and stated that “courts have consistently held that [language such as that found in this trust deed] gives MERS the authority to foreclose in behalf of the lender and that MERS need not possess the note in order to appoint a trustee in behalf of the lender who does hold the note.” Moreover, the court pointed out that Utah Code Ann. § 57-1-21 to 38 contains no requirement that the beneficiary produce the actual note in order to authorize the trustee to foreclose on the property secured by the note.

Second, the plaintiff claimed that he rescinded his loan under the rescission provisions of TILA on August 5, 2009, because he was not provided with the proper disclosures under TILA. However, the court held that for the borrower to have the right to rescind under TILA, the lender “must fail to make a material disclosure.” The court went on to say that, although Plaintiff may have a claim for rescission, the court cannot determine based on the pleading how Defendants failed to provide him the material disclosures required by TILA. Therefore, the court granted Defendants’ motion to dismiss both claims. The court did, however, give the plaintiff an opportunity to amend his TILA rescission claim.

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