A New York appellate court dismissed a foreclosure action this week, saying Mortgage Electronic Registration Systems failed to properly assign the mortgage and didn't hold the actual promissory note.

MERS maintains the ruling does not "undermine" its operations, according to a spokesperson.

The case — Bank of New York v. Silverberg — involves a mortgage originally tied to Countrywide Financial.

The homeowners facing foreclosure filed suit to block a Bank of New York foreclosure action by claiming MERS improperly assigned their mortgage to the bank since the mortgage registry didn't receive the note from Countrywide.

Despite the lack of transfer, at the time of the assignment to Bank of New York, MERS was listed on the mortgage agreement as Countrywide's nominee.

This week, a New York Supreme Court analyzed the case, holding that MERS had no legal standing to foreclose or the ability to transfer that right because the mortgage registry "was never the lawful holder or assignee of the notes."

In reaching this conclusion, the court clearly distinguishes the Silverberg case from New York's MERS v. Coakley decision, which ruled in favor of MERS.

The appeals court wrote in the Silverberg decision that the Coakley case is different because it "revolved around a lender that had transferred and tendered the promissory note to MERS before the commencement of the foreclosure action."

Because MERS had actual possession of the note, the court granted the mortgage registry foreclosure standing in Coakley.

The Silverberg case shows a different outcome when the note itself is not in MERS possession at the time of assignment.

In the Silverberg opinion, the justices wrote, "This court's holding in Coakley was dependent upon the fact that MERS held the note before commencing the foreclosure action. In the absence of that crucial fact, the language in the mortgage instrument would not have provided 'further support' for the proposition that MERS had the power to foreclose in that case."

Janis Smith, Merscorp Inc. vice president of corporate communications, responded to the decision late Wednesday, saying, "the Silverberg decision does not undermine MERS’ ability to serve as the mortgagee"

"This decision is consistent with the same court’s 2007 decision in Mortgage Electronic Registration Systems Inc. v. Coakley." Smith said. "In Coakley, this same court held that MERS had standing to foreclose because MERS was mortgagee and holder of the note at the time the foreclosure was commenced."

Write to Kerri Panchuk.