Dispelling the Myth of MERS as a "Sham" Beneficiary

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In the current flood of mortgage litigation, plaintiffs often rely on myth to avoid paying their debts. One of the most pervasive concerns the Mortgage Electronic Registration System (MERS). Plaintiffs accuse MERS of being a "sham" entity, lacking authority to foreclosure and used by lenders to engage in fraud. In Cervantes v. Countrywide Home Loans, Inc., No. 09-17364 (9th Cir. Sept. 7, 2011), the Ninth Circuit Court of Appeals joins other recent courts in dispelling the Myth of MERS.

In affirming the trial court's dismissal with prejudice, the Court began by explaining that there is nothing inherently misleading or improper about MERS. MERS is a private electronic database that tracks the transfer of the "beneficial interest" in home loans, as well as changes in loan servicers. MERS was designed to avoid the need to record multiple transfers of deeds of trust by serving as the nominal record holder of the deed for the original lender and any subsequent lender. Accordingly, MERS holds legal title to the security interest conveyed even when the lender sells or assigns its beneficial interest in the loan. MERS serves a legitimate function.

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