On July 3, 2014, the Maine Supreme Judicial Court issued a ruling in Bank of America, N.A. v. Greenleaf, 2014 ME 89 (Me. July 3, 2014), significantly affecting the ability of Mortgage Electronic Registration System, Inc. (MERS) to assign mortgage rights as a "nominee" of a mortgage lender. This decision will likely have a considerable effect on the foreclosure process in Maine because it appears to limit the authority of MERS solely to the ability to record mortgages.1
In Greenleaf, the court assessed a routine foreclosure action. In November 2006, the defendant executed a promissory note to Residential Mortgage Services, Inc. (RMS). The mortgage listed RMS as the "lender" of the note amount and identified MERS as the nominee for the lender. Following the defendant’s default, Bank of America (the "Bank"), as holder of the original promissory note, which was indorsed in blank, instituted foreclosure proceedings against the defendant in Maine state court. At trial, the court admitted a series of exhibits submitted by the Bank:
the original promissory note;
the 2006 mortgage;
a recorded document purporting to demonstrate the assignment of the note and mortgage (the "Assignment") from MERS to BAC Home Loan Servicing, LP (f/k/a Countrywide Home Loan Servicing, LP) (BAC);
a recorded certification that BAC merged with the Bank effective July 1, 2011;
a copy of the notice of default and right to cure served as part of the foreclosure proceedings;
a copy of the defendant's payment history; and
an affidavit verifying that the defendant is not in the military.
The trial court entered a judgment of foreclosure in favor of the bank in September 2013. The defendant appealed on the ground that the Bank did not have standing to pursue the foreclosure action.
On appeal, the Maine Supreme Judicial Court first considered the Maine foreclosure statute, 14 M.R.S. § 6321 (2013), which provides that "the mortgagee or any person claiming under the mortgagee" may seek foreclosure of mortgaged property. Next, the court concluded that "[b]ecause foreclosure regards two documents—a promissory note and a mortgage securing that note—standing to foreclose involves the plaintiff's interest in both the note and the mortgage." Greenleaf, 2014 ME 89 at *P9. As to the note, the court confirmed that the Bank properly established that it was the holder of the note indorsed in blank and that, therefore, it enjoyed the right to enforce the defendant's debt. Id. (citing Maine's Uniform Commercial Code, 11 M.R.S. § 3-1301).
It is important to note that the court further determined that a foreclosing party's "interest in the note is only part of the standing analysis [because] to be able to foreclose, a plaintiff must also show the requisite interest in the mortgage." Id. at *P12. Recognizing that a mortgage is not a negotiable instrument, the court reasoned that "the mortgage portion of the standing analysis requires the plaintiff to establish ownership of the mortgage." Id. (emphasis original).
In this case, the Bank claimed ownership of the mortgage through the Assignment and the Bank's subsequent merger with assignee BAC. Upon review of the Assignment, however, the court determined that the Assignment did not support the Bank's claim of ownership. Looking to the language of the mortgage, the court concluded that "the mortgage in fact granted to MERS 'only the right to record the mortgage' as the lender's nominees, and 'having only that right, MERS [did] not qualify as a mortgagee pursuant to our foreclosure statute.'" Id. at *P14.
As a result, the court held that the mortgage conveyed to MERS only the right to record the mortgage as nominee for the lender, RMS. Accordingly, when MERS assigned its interest in the mortgage to BAC, it granted BAC only what MERS possessed: the right to record the mortgage as nominee. Likewise, upon merger with BAC, the Bank obtained only that which BAC possessed: again, the right to record the mortgage as nominee. The court ultimately vacated the judgment of foreclosure upon its determination that the record demonstrated no more than a series of assignments of the right to record the mortgage.
The full effect of the court's decision in Greenleaf remains unknown, particularly to the extent that it does not discuss or identify the procedure for addressing or correcting similar MERS assignments in pending or prospective matters. The immediate effect, however, is apparent: Parties now have to prove an appropriate interest in the note and mortgage in order to have standing to prosecute mortgage actions in Maine.
The court's decision in Greenleaf also requires the statutorily mandated notice provided to a defendant regarding his right to cure a default to contain a specific, fixed amount that will be accepted by the foreclosing party in order to cure the default.