Servicing

Washington Supreme Court: MERS cannot obtain foreclosure power without note

Mortgage Electronic Registration Systems, or MERS, cannot be a lawful beneficiary of a deed of trust in Washington state if the registry lacks real possession of the promissory note, the Washington Supreme Court said this week.

The ruling contradicts opinions from other jurisdictions, but clearly draws a line MERS cannot cross when arguing its position as "the beneficiary of a trust deed" in Washington during a nonjudicial foreclosure procedure.

MERS released a statement about the case saying "there is nothing in this opinion that prevents the parties from proceeding with judicial foreclosures" and "it does not find that deeds of trust that name MERS as beneficiary are invalid."

The case, Bain v. Metropolitan Mortgage Group, was launched by homeowner, Kristin Bain, and grouped together with another homeowner's complaint against MERS and multiple financial firms.

The homeowners claim their lenders named MERS beneficiary of the deeds of trust. MERS later named two trustees as successors, believing it had transferred over power of foreclosure.

When the trustees tried to initiate foreclosure proceedings, the homeowners pushed back, claiming Washington law requires a trustee to show the beneficiary of a mortgage "is the owner of any promissory note or other obligation secured by the deed of trust" before it can foreclose. 

The court concluded that under its interpretation of Washington law, "if MERS does not hold the note, it is not a lawful beneficiary."

At the same time, the court said based on the details provided, it cannot determine the exact "legal effect" of MERS not being a lawful beneficiary.

The court also ruled the homeowners may have a valid complaint against MERS under the Washington Consumer Protection Act if MERS acted as an unlawful beneficiary under state law. But to succeed, the plaintiffs would have to prove all of the elements of a Consumer Protection Act claim as outlined in the state. 

The electronic registry says there is nothing in the decision prohibiting MERS from still serving as mortgagee in land records or that prevents lenders from using MERS to track servicing and ownership of the note changes.

"As we have maintained consistently, MERS is an agent of lenders and their successors and assigns. In fact, the opinion written by Justice Tom Chambers states: 'nothing in this opinion should be construed to suggest an agent cannot represent the holder of a note. Washington law, and the deed of trust act itself, approves of the use of agents.'"

MERS added that it ceased foreclosing in its own name more than a year ago, so the opinion does not impact current operations. But the registry says it does create confusion for Washington homeowners since trial courts will have to consider its effect on pending cases.

kpanchuk@housingwire.com

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