MERS Has Power To Assign Interest in Deed of Trust, Borrower Can Challenge Assignment of Mortgage, First Circuit Rules

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Under Massachusetts law, Mortgage Electronic Registration Systems, Inc., or MERS, has the power, as nominee beneficiary, to assign its interest under a deed of trust, the U.S. Court of Appeals for the First Circuit has ruled. The ruling is consistent with the majority of appellate rulings throughout the country on this question.

In February 13, 2013, opinion in Culhane v. Aurora Loan Services of Nebraska, the court further ruled that borrowers have standing to challenge certain assignments of interest in a deed of trust. In addition, the court upheld MERS's practice of appointing employees of the assignee to the position of "vice president" for purposes of assigning legal title.

In a matter of first impression, the First Circuit held that a mortgagor, who is not a party to an assignment, has standing to challenge an assignment only if it claims the assignment is "invalid, ineffective, or void (if, say, the assignor had nothing to assign or had no authority to make an assignment to a particular assignee)." Conversely, a mortgagor has no standing to challenge an assignment that is "effective to pass legal title," even if such assignment may be voidable by one party to the agreement.

The First Circuit reasoned that under Massachusetts law, the mortgagor has the right to a lawful foreclosure and has no way to challenge foreclosure proceedings absent standing because Massachusetts law provides for nonjudicial foreclosure.

The First Circuit also ruled that MERS held valid legal title to the property when it assigned its interest to the servicer. Rejecting the argument that splitting ownership of the note and trust deed invalidated the mortgagor's repayment obligation, the court held that MERS derived its' authority to assign the mortgage both from the mortgage contract and from its status as equitable trustee for the noteholder.

Importantly, the court held that the assignment of legal title by MERS was valid even though the "vice president of MERS" who served as the certifying officer executing the assignment, as required by Massachusetts statute, was primarily employed by the servicer/assignee and was designated vice president of MERS "purely as a matter of administrative convenience." The court rejected as "wishful thinking" the plaintiff's argument that the certifying officer's status defeated the assignment, since no statute limited who could serve as a vice president of an assignor corporation.

Ballard Spahr's Mortgage Banking Group combines broad regulatory experience assisting clients in both the residential and commercial mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions. It is part of the firm's Consumer Financial Services Group, which is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

For more information, please contact Mortgage Banking Group Practice Leader Richard J. Andreano, Jr., at 202.661.2271 or andreanor@ballardspahr.com, Mortgage Banking Group Practice Leader John D. Socknat at 202.661.2253 or socknatj@ballardspahr.com, Mortgage Banking Group Practice Leader Michael S. Waldron at 202.661.2234 or waldronm@ballardspahr.com, Anthony C. Kaye at 801.531.3069 or kaye@ballardspahr.com, or Emily L. Wegener at 801.517.6876 or wegenere@ballardspahr.com.

Topics:  Assignments, Borrowers, Deed of Trust, Equitable Trustees, Foreclosure, Legal Title, MERS, Standing

Published In: General Business Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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