Wednesday, August 03, 2011

Bankruptcy case upholds MERS-held mortgage

A recent decision by the US Bankruptcy Court in Worcester, In re Marron (Case No. 10-45395-MSH) reviewed in some detail Massachusetts mortgage law and how MERS fits within it.

In Marron, the bankruptcy trustee opposed a lender’s Motion for Relief from Automatic Stay in order to foreclose a mortgage. The trustee argued that the proposed foreclosure was defective, questioning the legal authority of MERS to hold and assign mortgages. The court rejected that argument, stating that in Massachusetts, “courts have generally held that MERS may both foreclose and assign mortgages held in its name” because Massachusetts does not strictly follow the “mortgage follows the note” rule adhered to by many other states. (Wide variations in property law from state to state help explain why this area of the law defies a coherent nationwide analysis). Massachusetts case law treats a MERS-like separation of the note holder and the mortgagee as a type of trust relationship, with the mortgagee holding only bare legal title for the benefit of the note holder. It’s almost as if MERS used Massachusetts law as a model when establishing itself. Its structure may run afoul of the law in other states, but it would appear to be consistent with existing case law in the Commonwealth. At a minimum, the case against MERS for not recording assignments of mortgages is infinitely more complex than has been portrayed in the media thus far.


Jeff Welch said...

Finally. A case that doesn't upend existing practice and throw a monkey wrench into title work, like Schwartz, Ibanez, and Giroux have done.

Michael Ruderman said...

Interesting to read this decision along with yesterday's BANK OF NEW YORK, trustee, vs. KC BAILEY (SJC-10801), in which the Supreme Judicial Court slaps MERS and Bank of New York for playing fast and loose with mortgage assignments before/during/after foreclosure sales. MERS held the mortgage, MERS foreclosed the mortgage, there is nothing on the record (yet) that says BNY held the mortgage, so Mr. Bailey has a defense (in a case that originated in Housing Court) against BNY's telling him he has to vacate the foreclosed property. The common thread is that the rules for foreclosure are strict and apply to all entities, and that when it comes to assignments of mortgagees' interests, recorded means recorded.