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MERS Requires No Authorization to Assign Mortgage

A Judge of the Massachusetts Superior Court, relying on earlier Massachusetts Appeals Court cases, has held that Mortgage Electronic Registration Systems, Inc. ("MERS") does not need authorization from the holder of the promissory note secured by a mortgage before assigning the mortgage to another entity.  O'Neil et al. v. The Bank of New York Mellon, 33 Mass. L. Rptr. 1, 8 (Mass. Super. July 20, 2015).

In O'Neil, Plaintiffs refinanced their mortgage in 2007, executing a promissory note in favor of Countrywide Home Loans, Inc. d/b/a America's Wholesale Lender ("AWL").  The corresponding mortgage in favor of MERS, as nominee for AWL and AWL's successors and assigns, granted MERS the power of sale and the right to exercise all interests of the lender, including the right to foreclose and sell the property.  Sometime in 2011, the Plaintiffs defaulted on their loan.  On September 19, 2011, MERS assigned the mortgage to The Bank of New York Mellon ("BNYM") as trustee for certificateholders of a securitized loan trust.  In 2014, BNYM's loan servicer initiated foreclosure proceedings and recorded documents certifying that BNYM was the holder of the mortgage and the owner or authorized agent of the holder of the note.

Plaintiffs filed suit to stop the foreclosure proceedings, arguing that:  (1) the assignment of the mortgage to BNYM was invalid because the assignment to BNYM occurred after the closing of the trust according to its Pooling and Servicing Agreement (the "PSA"); (2) MERS, as "nominee" for the lender, was not a valid mortgagee; and (3) MERS, in the alternative, could only act at the specific direction of the lender, AWL.  

The Court relied on The Bank of New York Mellon Corp. v. Wain, 85 Mass.App.Ct. 490, 502-503 (2014) to dispose of the claimed violation of the trust's PSA.  While acknowledging that borrowers have standing to challenge "void" assignments, the Court held that, under Wain, the borrowers' assertions regarding the PSA would render the assignment merely "voidable" at the election of one of the parties to the assignment, a claim that the borrowers lacked standing to raise.  Relying on Haskins v. Deutsche Bank National Trust Co., 86 Mass.App.Ct. 632, 642 (2014), the Court further found that bare legal title to the mortgage, or "nominee" status, is sufficient to allow MERS to act as a mortgagee and execute a valid assignment.

The Court also found that Plaintiffs' reliance on Farmer v. Federal Nat'l Mortgage Assoc., 2013 WL 1976240 (Mass. Super. 2013) for the proposition that MERS required specific direction or authorization for its assignment, was misplaced.  The Court noted that Farmer was not binding, and further, was currently on appeal.  In fact, although not noted by the O'Neil opinion, the Farmer decision had been reversed by the Appeals Court on May 15, 2015, in an unpublished, Rule 1:28 opinion.  Farmer v. Federal National Mortgage Assoc. et al., 2015 WL 2260023 (Mass.App.Ct. May 15, 2015).  More importantly, the Court found that the decision in Sullivan v. Kondaur Capital Corp., 85 Mass.App.Ct. 202, 209 (2014) expressly rejected the assertion that MERS needed to either hold the note or have direction from the holder of the note in order to execute a valid assignment.

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