The Appeals Court of Massachusetts recently affirmed a summary judgment ruling In favor of a MERS mortgagee, holding that the MERS mortgage was superior to the plaintiff second-lien holder’s non-MERS mortgage because the MERS mortgage was recorded first.
In so ruling, the Court held that a mortgage and note can be “split” if the mortgagee holds both the note and mortgage prior to initiating foreclosure. Additionally, the Court held that, if the note and mortgage are held separately, the holder of the mortgage holds the mortgage in trust for the purchaser of the note. The Court further ruled that only a party or an intended beneficiary may assert a breach of the pooling and servicing agreement, and that MERS has the authority to make a valid mortgage assignment.
A copy of the opinion is available at: Link to Opinion
On May 10, 2006, Borrower purchased real property (the “property”) with a $344,000.00 promissory note provided by a MERS member lender (“Lender”). The loan was secured by a mortgage that identified MERS as the mortgagee and nominee (the “First Mortgage”).
Borrower subsequently obtained another loan and granted the plaintiff in this action a non-MERS mortgage to secure the subsequent loan (the “Second Mortgage”). Subsequently, MERS assigned the First Mortgage to the defendant bank (“Defendant”).
Borrower defaulted on the First Mortgage and Defendant sent him a notice of intention to foreclose. Plaintiff commenced the instant action arguing the Second Mortgage was superior to the First Mortgage. Defendant moved for summary judgment arguing the First Mortgage was superior. The trial court granted Defendant’s motion and Plaintiff appealed.
On appeal, Plaintiff argued Defendant’s mortgage was void “because a mortgage cannot be separated from the promissory note it secures, and MERS did not hold the note secured by the first mortgage.” The Court rejected this argument, holding that a mortgage and the note secured thereby can be “split” as long as the mortgagee holds the note and mortgage prior to initiating foreclosure. Eaton v. Federal Natl. Mort. Assn, 462 Mass. 569, 576, 583-584 (2012). The Court also held that when “the mortgage and the note are held separately, the holder of the mortgage holds the mortgage in trust for the purchaser of the note.” Id.
Plaintiff next argued MERS’ assignment of the First Mortgage was invalid. Specifically, Plaintiff claimed the assignment “conflicted with a certain pooling and servicing agreement among Lender and various other lenders and with various obligations that flow from that agreement under New York and federal law.” The Court rejected this argument ruling Plaintiff had no standing to challenge the pooling and servicing agreement because Plaintiff was neither a party nor an intended beneficiary of that agreement.
The Appellate Court also rejected Plaintiff’s contention that MERS does not have the authority to make a valid mortgage assignment.
Furthermore, the Court held that, even if the assignment were invalid, it would not affect the priority of the First Mortgage over the Second Mortgage. Thus, the Court held that “any invalidity in the assignment from MERS to Defendant could not have affected the relative priority of the first mortgage as against the second the mortgage.”
Accordingly, the Court affirmed the trial court’s granting of Defendant’s motion for summary judgment.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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