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Federal Court of Appeals hands MERS another victory

Mortgage assignment authority upheld yet again

MERSCORP Holdings announced Wednesday that a Federal court handed it another victory over a homeowner who challenged MERS’ authority to assign a mortgage.

MERS, parent of the electronic mortgage registry with the same name, had its authority upheld this time by the U.S. Court of Appeals for the 5th Circuit, which upheld a lower court’s dismissal of a lawsuit brought against MERS and Bank of New York Mellon.

In Ferguson vs. Bank of New York Mellon, the borrowers sued MERS, their servicer and the trustee seeking an injunction and declaratory relief preventing the trustee from foreclosing.

The borrowers alleged that Bank of New York Mellon violated the false lien statute by falsely asserting a right to foreclose. The district court granted MERS and Bank of New York Mellon’s motion to dismiss.

On appeal, the borrowers argued that the MERS assignment was void because Texas law did not permit MERS to act as beneficiary of a Deed of Trust.

In its decision, the 5th Circuit ruled that the borrowers agreed to a deed of trust that explicitly designated MERS as the beneficiary with a right to exercise all the interests in the deed of trust.

Additionally, the Court rejected the borrowers’ argument that book-entry systems were prohibited from acting as beneficiaries under the Texas Property Code.

The 5th Circuit cited Harris County vs. MERSCORP, which involved deeds of trust with similar language. In its ruling, the Court “concluded MERS had committed no fraudulent misrepresentation because it was a valid beneficiary as a matter of contract law and under [Texas Property Code].”

The Court also found that the Texas Property Code “grants MERS authority to act as a beneficiary of DOTs by including book-entry systems in [the Code’s] definition of ‘mortgagees.’”

The Court held that MERS is a beneficiary and therefore had the right to assign the deed of trust.

Finally, the Court found the false lien claim was “entirely derivative” of the assignment challenge, and that the right to foreclose the MERS Deed of Trust was validly created, and effectively assigned by MERS to Bank of New York Mellon.

“We are pleased that this Court confirmed that MERS can hold and assign a mortgage,” said MERSCORP Holdings Vice President for Corporate Communications, Janis Smith. “MERS has the legal authority to act on behalf of the lender and, as this Court noted, the deed of trust agreed to by the borrowers ‘explicitly designated’ MERS as the beneficiary.”

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