Massachusetts Appeals Court Reaffirms MERS Mortgage System

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The Massachusetts Appeals Court has reaffirmed its holding in Sullivan v. Kondaur Capital Corp., 85 Mass.App.Ct. 202 (2014), that mortgagors have standing only to challenge assignments of their mortgages that are void, not merely voidable, and that the Mortgage Electronic Registration Systems, Inc. (“MERS”) system of mortgage assignments comports with Massachusetts law. The Court in Shea v. Federal National Mortgage Association, et al., No. 13-P-1630, slip op. (Mass. App. Ct. Feb. 18, 2015), further reaffirmed that a mortgagee need not ever hold the note secured by the mortgage, and that Massachusetts law does not require authorization from the noteholder for a mortgagee to assign the mortgage to another party.

Plaintiff refinanced his home in 2007, executing a note payable to IndyMac Bank, FSB (“IndyMac”) as the “Lender” and a mortgage to MERS as “a nominee for Lender and Lender’s successors and assigns.” The mortgage further granted a power of sale under the mortgage to MERS and to the successors and assigns of MERS. On November 11, 2009, MERS assigned the mortgage to OneWest Bank, FSB (“OneWest”). OneWest commenced foreclosure proceedings, foreclosed under its power of sale, and assigned its winning bid to Federal National Mortgage Association (“Fannie Mae”). Plaintiff then sued IndyMac, MERS and Fannie Mae under numerous theories, which the Court described as “in essence an action to quiet title.” Shea at p. 1, fn. 3. The plaintiff argued that the assignment of his mortgage from MERS was void, alleging that MERS never obtained the status of mortgagee because it never held the note, and that any assignment to OneWest was void because MERS did not receive specific authorization from the noteholder, IndyMac, prior to executing the assignment.

The Appeals Court rejected both contentions. Citing to its own Sullivan decision, the Court reaffirmed that “MERS’s interest as mortgagee was not ‘inherently invalid because it was separated from ownership of the underlying debt.'” Shea at p. 4 (quoting Sullivan, 85 Mass.App.Ct. at 210). The Court explained that plaintiff’s argument that MERS needed explicit authorization to assign the mortgage was likewise without merit, as the contention appeared to be based on a misreading of Eaton v. Federal Natl. Mort. Assn., 462 Mass. 569 (2012). Eaton held that a foreclosing mortgagee had to hold the note or be an authorized agent for the noteholder to foreclose, but imposed no such requirement on an assignment of the mortgage. “In other words, despite IndyMac’s right (as note holder) to demand and obtain an assignment of the mortgage…MERS (as mortgagee) retained the right to assign the mortgage unilaterally absent any restriction in the mortgage document.” Shea at p. 5.

The Appeals Court has now reaffirmed its holdings that the MERS model comports with Massachusetts law, that a mortgagee is not required to have any interest in the underlying note prior to foreclosure, and that a mortgagee requires no authorization from the noteholder to assign the mortgage to another party.

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