An unusual joint hearing held by the U.S. Bankruptcy Court for the District of Las Vegas involving 27 separate cases could have a great impact on the ability to enforce mortgages in the United States. The bankruptcy court held a joint hearing with three bankruptcy judges sitting simultaneously to hear an issue presented in those cases: whether the Mortgage Electronic Registration System Inc. (MERS) had standing to seek relief from the automatic stay when it was not the actual owner and holder of the promissory note and deed of trust at issue.
The issue was presented when Lenard E. Schwartzer, a private chapter 7 trustee, filed his opposition to a motion for relief from stay filed by MERS in the case of In re Mitchell. The trustee objected on the basis that (1) there was no documentation that the loan by the debtors is owned by MERS and (2) that there was no documentation that the original lender had complied with the requirements of the Truth in Lending Act when the loan was originated. In addition to these evidentiary objections, the trustee contended that MERS was not the real party in interest under Rule 9014 and that MERS therefore had no interest in the note and deed of trust, except as nominee of the true, unidentified owner.
In 1993, the MERS System was created by the Mortgage Bankers Association, Ginnie Mae, Fannie Mae, Freddie Mac and others in the real estate finance industry. MERS electronically tracks beneficial interests in, and servicing rights to, mortgage loans on behalf of its member banks, so that recording fees do not have to be paid in local county clerk's offices around the nation. MERS is listed on the deeds of trust and mortgages as the beneficiary. The use of MERS became prevalent in connection with the growing trend of bundling and reselling of mortgages in securitized pools on Wall Street. Almost every entity involved in home lending or servicing is a member of MERS and more than 55 million mortgages and deeds of trust are registered on the MERS system. A complete list of MERS members can be found at www.mersinc.org.
In its briefing, MERS argued that it has standing to move for relief from stay because MERS members agree to appoint MERS to act as their common agent, or nominee, and to name MERS as the lienholder of record in a nominee capacity on all recorded security instruments relating to loans registered on the MERS system. Specifically, MERS maintained that, pursuant to the MERS membership agreement, MERS authorizes its members to have "MERS Certifying Officers" who have authority delineated by MERS to perform specified actions in MERS' name with respect to the loan, including Rule 8, which specifies how MERS can pursue a foreclosure action in MERS' name should the member elect to do so. MERS further explained that once it becomes the beneficiary of record as nominee, the homeowner/borrower is notified by both the selling MERS member and buying MERS member (under the Truth in Lending Act) of any transfer of servicing rights.
MERS cited the decisions in the following cases, arguing that the majority of courts around the country that have considered the issue have held that MERS is a real party-in-interest with standing to move for relief from the automatic stay: Mortgage Electronic Registration Sys. Inc. v. Revoredo, 955 So.2d 33, 34 (Fl. 2007), Mortgage Electronic Registration Sys. Inc. v. Coakley, 41 AD3d 674 (NY App. 2007), In re Huggins, 357 B.R. 180 (Bank. D. Mass. 2006), In re Sina, No. A06-200, 2006 WL 2729544 (Minn. Ct. App. Sept. 26, 2006) (unpublished), Mortgage Elec. Registration Sys. Inc. v. Ventura, No. CV054003168S, 2006 WL 1230265 (Conn. Super. Ct. April 20, 2006) (unpublished) and Mortgage Elec. Registration Sys. Inc. v. Leslie, No. CV044001051, 2005 WL 1433922 (Conn. Super. Ct. May 25,2005) (unpublished).
In response to the briefing and affidavits filed by MERS, the trustee reiterated his evidentiary points that MERS was not named as a beneficiary in a nominee capacity on some of the deeds of trust at issue and that MERS did not allege that it was the beneficial owner of the notes involved in the motions. The trustee contended that MERS never alleged that it has possession of the original notes and that the notes were endorsed to MERS, which is required under Nevada law to make it the "holder" of a note, and that MERS has further not attempted to identify the current beneficial owners of the loans or to show that MERS was authorized to file the motions on their behalf.
The trustee distinguished the cases cited by MERS and cited the cases of In re Foreclosure Cases, Nos. 07CV2282, 07CV2532, 07CV2560, 07CV2602, 07CV2631, 07CV2638, 07CV2681, 07CV2695, 07CV2920, 07CV2930, 07CV2949, 07CV2950, 07CV3000, 07CV3029, 2007 WL 3232430 (N.D. Ohio 2007) (wherein the district court dismissed a group of foreclosure cases when the plaintiff could not produce copies of executed assignments demonstrating that it was the owner and holder of the notes and mortgages at issue as of the date of the filing of the complaint) and LaSalle Bank NA v. Lamy, 824 N.Y.S.2d 769 (N.Y. Supp. 2006) (denying a foreclosure action by an assignee of MERS on the grounds that MERS itself had no ownership interest in the underlying note and mortgage) in support of his opposition.
MERS replied that in Nevada, an agent authorized by the principal to collect on a debt has standing to sue in the agent's name, that the agent need not obtain a power of attorney and sue on the principal's name and that Nevada's foreclosure statutes contemplate that the beneficiary under a deed of trust may direct a sale of the property.
The Nevada bankruptcy judges, after taking the matters under advisement, indicated that they will issue separate opinions in each of the cases after considering the evidence and arguments presented.