The First Circuit Court of Appeals recently upheld Mortgage Electronic Registration Systems, Inc.'s (MERS) power to assign a mortgage without having to possess a beneficial interest in the promissory note.
The plaintiff in the case contended that although the actual bank mortgagee had declared bankruptcy, MERS did not have the authority to act on behalf of a non-existent entity and assign the mortgage to another institution.
In a unanimous decision, the First Circuit agreed with a lower court that "legally MERS was holding the mortgage in trust," meaning it has the authority to foreclose and assign mortgages, even though it was acting as an agent for the new owners.
MERSCORP’s Vice President of Corporate Communications Janis L. Smith celebrated the win, stating: “The Appeals Court’s ruling cannot be clearer. The mortgage, which the borrower signed at closing, gives MERS the authority to represent current and future owners of the loan, and this authority includes the ability to assign the mortgage.
The First Circuit’s decision follows the Ninth Circuit Court of Appeal’s recent ruling that basically legitimized MERS’ dealings with homeowners.
In Cervantes v. Countrywide, the plaintiffs alleged that financial institutions were using MERS for fraudulent purposes. The Ninth Circuit held that MERS’ operation had been disclosed in detail to the borrowers and potentially had the ability to execute assignments.
Given the housing and foreclosure crisis that has swept the nation, it’s no surprise that there have been an increasing number of lawsuits challenging those foreclosures. However, it looks like the federal appellate courts won’t let homeowners nitpick over who holds the note before allowing foreclosure.