Two Courts Uphold MERS Rights to Act As An Agent For The Lender

Hawaii Federal Court Upholds MERS’ Interest Rights

U.S. District Court Judge for the District of Hawaii upheld the right of Mortgage Electronic Registration Systems, Inc., (MERS) to assign interests in mortgages. MERSCORP Holdings, Inc., is a privately-held corporation that owns and manages the MERS System and all other MERS products.

In Pascual v. Aurora Loan Services, LLC, (Dist. Court, D. Hawaii; June 18, 2012) (Civil No. 10-00759 JMS-KSC), U.S. District Judge J. Michael Seabright dismissed the plaintiffs’ First Amended Complaint asserting that Aurora violated the state’s non-judicial foreclosure statute by foreclosing without a valid assignment of the mortgage.

Pascual arose from a February 12, 2007 mortgage transaction in which Plaintiffs Lester and Ofelia Pascual (“Plaintiffs”) borrowed $630,000 from Lehman Brothers Bank, F.S.B. (“Lehman Brothers”), secured by a promissory note and mortgage on real property located in Kahului, Hawaii (the “subject property”). On September 20, 2009, the Hawaii Bureau of Conveyances recorded an assignment of the mortgage to Defendant, Aurora Loan Services, LLC (“Aurora”), who subsequently foreclosed on the subject property. Plaintiffs’ First Amended Complaint (“FAC”) asserted that Aurora violated Hawaii’s non-judicial foreclosure statute, Hawaii Revised Statutes (“HRS”) § 667-5, by foreclosing on the subject property because the transfer of the mortgage to Aurora was improper. The FAC sought a declaratory judgment that the assignment from Lehman Brothers (via MERS) to Aurora was invalid such that the non-judicial foreclosure is void.

The Pascual court found that the plaintiffs granted and conveyed to MERS the power of sale, which MERS was then allowed to assign to Aurora, the foreclosing party in the case. The case was dismissed on this basis. “Indeed, this court has already rejected numerous borrowers’ claims challenging MERS’ authority to assign, on behalf of a lender, the mortgage,” Seabright wrote.

The Pascual court said it plainly: “MERS’ role in the mortgage lending process is clear and unambiguous,” Moreover, this has been affirmed by numerous courts around the United States, including the Ninth Circuit Court of Appeals.

Kansas Court Upholds MERS as Acting Agent in Foreclosure Case.

The Kansas Court of Appeals ruled in favor of U.S. Bank and rejected an appeal of wrongful foreclosure by a borrower. The borrower in U.S. Bank vs. Howie (Kan. App.; June 8, 2012) (Case No. 106,415) argued that MERS split the mortgage and the note, making the foreclosure invalid.

In Howie, on September 20, 2005, James W. Howie executed a promissory note (Note) to U.S. Bank in the amount of $151,600 plus interest. The Note was signed solely by Mr. Howie. That same day, Howie and his wife, Georgia Howie, executed a mortgage (Mortgage) granting a security interest in certain real property (Property) located in Ottawa, Kansas, to secure payment of the Note. Under the terms of the Mortgage, the Howies were named as “Borrower,” U.S. Bank was named as “Lender,” and MERS was named as the mortgagee “acting solely as a nominee for Lender and Lender’s successors and assigns.” Howie died on February 23, 2008, leaving Georgia as the surviving joint tenant with right of survivorship in the Property. At some point, Georgia stopped making payments on the underlying debt and by May 1, 2009, the Note was in default.

On October 28, 2009, MERS assigned the Mortgage to U.S. Bank, and on November 10, 2009, U.S. Bank filed a petition to foreclose the mortgage. U.S. Bank later clarified that it was pursuing only its in rem remedy to foreclose the Mortgage against the Property and that it was not seeking a personal judgment against Georgia under the Note. Georgia argued that she was not personally liable for the debt because she never signed the Note and further that her husband’s estate was not liable under the Note because U.S. Bank had failed to demand payment within the time prescribed under K.S.A. 59-2239(1) after her husband’s death. She also argued that U.S. Bank could not foreclose against the Property under the Mortgage because the Note, held by U.S. Bank, and the Mortgage, initially held by MERS and later assigned to U.S. Bank, had been irreparably severed.

Following a hearing, the district court found that even if there were no agency relationship between U.S. Bank and MERS such that the Note and Mortgage were severed, any severance was “cured” by MERS’s subsequent assignment of the Mortgage to U.S. Bank, thereby permitting U.S. Bank to foreclose on the Mortgage.

The Howie Court concluded that the plain language of the Mortgage herein provided sufficient and undisputed evidence that MERS was acting as an agent of U.S. Bank at all relevant times. Because MERS was acting as an agent of U.S. Bank, the Mortgage and the Note were never severed and U.S. Bank, as present holder of both the Note and the Mortgage, was entitled to foreclose on the Mortgage.

The borrower in Howie relied on a previous decision stemming from the case Landmark vs. Kesler. However, the Court of Appeals said the decision from the Kansas Supreme Court regarding that specific case did not address whether the mortgage and note were split, but was limited to matters surrounding Kansas civil procedure.

This Kansas Court of Appeals ruling mirrors five other rulings from the United States Bankruptcy Court for the District of Kansas, all of which said that the note and mortgage were never split because MERS is an agent of the note holder. MERSCORP Holdings VP of Corporate Communications, Janis L. Smith stated that “[t]his failed and meritless theory has been solidly rejected in Kansas. Furthermore, the Court of Appeal’s distinguishing of Landmark supports what we have long argued, that Landmark does not support the argument that MERS mortgages are unenforceable.”

As this battle continues, more will be revealed. . .