An increasing break in jurisdictions continues over whether MERS, the Mortgage Electronic Registration System, has standing to bring a foreclosure action.  MERS is listed as the recorded owner on more than 50% of all mortgages in the United States.  In litigation, MERS has variously described itself as owner of the mortgage, agent of the mortgagee, and 'nominee' of the mortgagee.  The mortgagee is the entity that owns the mortgage.  Some states have accepted these arguments and others have not.

Fannie Mae announced in May that MERS must not be named as a plaintiff in any foreclosure action on a mortgage loan that Fannie Mae owned or securitized and that the loan's servicer should foreclose.

On February 10, 2011, New York Bankruptcy Court Judge Robert E. Grossman found that regardless of the MERS membership agreement that purports to bestow authority on MERS to act as an agent, a mere membership agreement does not render MERS an agent of the mortgagee.  In re Agard, US Bankruptcy Court, Eastern District of New York, No. 10-77338.  The court wrote:

MERS urges the Court to look beyond the four corners of the mortgage and take into consideration the agency relationship created by the agreements entered into by the lenders participating in the MERS System, including their agreement to be bound by the terms and conditions of membership.

The court noted that the MERS membership agreement contains no explicit reference to the creation of an agency or nominee relationship and therefore the rules of membership do not grant any clear authority to MERS to take action with respect to mortgages held by MERS members, including, but not limited to executing assignments.

The court also noted that MERS' position that it can be both the mortgagee and an agent of the mortgagee is "absurd at best."  In Agard, MERS executed a assignment of a mortgage as nominee for First Franklin, the original lender.  But First Franklin no longer existed at the time MERS assigned the mortgage from First Franklin to US Bank purportedly acting as First Franklin's agent even though it did so at the direction of US Bank, which allegedly already held the note as "assigned" through the MERS database.  In other words, MERS claims to have assigned a mortgage from First Franklin to US Bank as First Franklin's agent even though First Franklin no longer existed and US Bank had directed the assignment.

The court found these arguments unpersuasive.

On February 18, 2011, the California Court of Appeal held that MERS does have standing to foreclose because the borrower consented to allowing MERS to foreclose in the deed of trust.  Gomes v. Countrywide Home Loans, Cal. App. 4th Case. No. D057005, 02/18/2011.  This is the second major case issued in February 2011 holding that MERS has standing to bring foreclosure actions in California.  The Gomes court held,

By asserting a right to bring a court action to determine whether the owner of the Note has authorized its nominee to initiate the foreclosure process, Gomes is attempting to interject the courts into this comprehensive nonjudicial scheme. As Defendants correctly point out, Gomes has identified no legal authority for such a lawsuit. Nothing in the statutory provisions establishing the nonjudicial foreclosure process suggests that such a judicial proceeding is permitted or contemplated.

The court held that even if there was a legal basis for an action to determine whether MERS has authority to foreclose, Gomes was barred by estoppel from bringing such a claim because he signed the deed and the deed itself provides that MERS has the right to foreclose and sell the property.  He agreed to it, so he was barred from complaining about it later.

There are enormous conflicts evolving between states and even jurisdictions within states as to what rights MERS has to assign notes, assign mortgages and to foreclose.  Increasingly, MERS is stepping away from trying to foreclose, notifying its members that they should not name it as the party in interest foreclosing.  For this reason much of the litigation regarding standing will probably subside as MERS no longer allows others to hide behind its name while foreclosing.  But whether MERS has the right to assign notes and mortgages is a crucial question that will certainly continue to be litigated.

On April 7, 2010, James F. Villere, Jr. and Mark J. Malone took the deposition of William Hultman, then Secretary of MERS.  That deposition revealed remarkable information about how MERS appoints "vice presidents" and how it generally operates.  The deposition provides deep information about MERS that puts the issues in context and it is fun and interesting reading.  This deposition is a must read to understand the underlying issues driving ongoing MERS litigation throughout the United States.

Read the April 7, 2010 Deposition of William Hultman Here

For more information about MERS and the ongoing battle
to determine who has the right to sue, click here.