Editor: David Reiss
Brooklyn Law School

April 6, 2013

Utah State Court Holds that MERS Maintains Its Rights Under the Deed of Trust Despite the Sale and Securitization of the Underlying Note

By Justin Rothman

In Commonwealth Property Advocates v. Mortgage Electronic Registration System, 263 P.3d 397, (2011), the Court of Appeals of Utah affirmed a Utah district court’s order dismissing the plaintiff’s complaint. In the case at hand, a home buyer executed a promissory note in favor of her lending bank for $417,000. The note was secured under the terms of a deed of trust describing property in Utah as collateral for the debt. The deed of trust identified MERS as the “nominee for Lender and Lender’s successors and assigns” and as the “beneficiary under this Security Instrument.” Moreover, MERS had the right “to exercise any or all of Lender’s interests, 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 the Security Instrument.” The lender assigned its servicing rights to Citi. It was alleged that the lender promptly sold the debt represented by the note to Fannie Mae, which led to the securitization of the home buyer’s debt. On December 6, 2009, MERS assigned its “beneficial interest” to Citi. The home buyer defaulted on the note, and on approximately December 8, 2009, the successor trustee to the deed of trust recorded a notice of default and election to sell. On December 31, 2009, a quitclaim deed was recorded by which the home buyer transferred her interest in the Utah property to Commonwealth Property Advocates (CPA).

The plaintiff argues that securitization of the note “nullified MERS’s and Citi’s rights under the terms of the Deed of Trust.” The plaintiff goes on to say that Utah Code § 57-1-35 provides that the deed of trust, and all of the rights associated with it, were transferred with the note to the investors when the note was securitized, “thereby stripping MERS and Citi of any rights carved out in the terms of the deed of trust.”

The court, however, disagreed with the plaintiff’s argument and interpretation of Utah Code § 57-1-35. The court reasoned that the “plain language of this statute simply describes the long-applied principle in [this] jurisdiction that when a debt is transferred, the underlying security continues to secure the debt.” The court further interpreted Utah Code § 57-1-35 as ensuring the basic presumption that “a transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise.” Moreover, the “plain language of the statute does nothing to prevent MERS from acting as nominee for Lender and Lender’s successors and assigns when it is permitted by the Deed of Trust.” The deed of trust explicitly gave MERS the right to foreclose on behalf of “Lender and Lender’s successors and assigns.” The statute does not prohibit parties from contracting for these arrangements, and nowhere in the documents themselves is MERS explicitly prohibited from then assigning its beneficial interests under the note to Citi. Thus, MERS and Citi maintained their rights as provided under the deed of trust despite the securitization process.

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