The mortgage backed securities crisis and questions of who is to blame continues. In recent weeks the State of Michigan Court of Appeals issued an opinion, Residential Funding et al. v. Saurmen, Case No. 290248, where it addressed issues involving the Mortgage Electronic Registration System (MERS), and whether MERS was an entity qualified to foreclose by advertisement on subject properties. The importance of this opinion transcends beyond the specific parties in this case, and potentially impacts the validity of thousands of cases in the country serviced and foreclosed by MERS.
MERS is the servicer of mortgages that are often originated by traditional financial institutions. In most cases, a traditional bank would originate the loan, but MERS would be listed as “mortgagee” in the mortgage, even though MERS was not the “lender” or owner of the Note. This allowed financial entities to buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even though the loans were changing hands.
The Michigan Court of Appeals found that MERS lacked authority to foreclose by statute because although it was the mortgagee, it was not the owner of the indebtedness, as required under the Michigan statute, MCL 600.3204(1)(d). The court found that MERS did not have the authority to foreclose by advertisement on the properties at issue, because it owned neither the notes, nor an interest, legal share or right in the notes.
As such the validity of foreclosures by MERS will likely be questioned, and the financial institutions that originated the loans will have to find another solution to this quagmire. One such solution may be assigning MERS interests back to the financial institution that originated the loan. Nevertheless, banks should reexamine their mortgages held by MERS, and the validity of the foreclosures conducted by MERS.
The mortgage backed securities crisis and questions of who is to blame continues. In recent weeks the State of Michigan Court of Appeals issued an opinion, Residential Funding et al. v. Saurmen, Case No. 290248, where it addressed issues involving the Mortgage Electronic Registration System (MERS), and whether MERS was an entity qualified to foreclose by advertisement on subject properties. The importance of this opinion transcends beyond the specific parties in this case, and potentially impacts the validity of thousands of cases in the country serviced and foreclosed by MERS.
MERS is the servicer of mortgages that are often originated by traditional financial institutions. In most cases, a traditional bank would originate the loan, but MERS would be listed as “mortgagee” in the mortgage, even though MERS was not the “lender” or owner of the Note. This allowed financial entities to buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even though the loans were changing hands.
The Michigan Court of Appeals found that MERS lacked authority to foreclose by statute because although it was the mortgagee, it was not the owner of the indebtedness, as required under the Michigan statute, MCL 600.3204(1)(d). The court found that MERS did not have the authority to foreclose by advertisement on the properties at issue, because it owned neither the notes, nor an interest, legal share or right in the notes.
As such the validity of foreclosures by MERS will likely be questioned, and the financial institutions that originated the loans will have to find another solution to this quagmire. One such solution may be assigning MERS interests back to the financial institution that originated the loan. Nevertheless, banks should reexamine their mortgages held by MERS, and the validity of the foreclosures conducted by MERS.
