Editor: David Reiss
Brooklyn Law School

December 5, 2012

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

By Michael Liptrot

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).

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