the Circuit Court of Montgomery County, Alabama, granting a motion for
summary judgment and dismissing a wrongful foreclosure action against
MERS. The trial court ruled that as the mortgagee and nominee of the
lender, MERS had the right to enforce the mortgage and had standing to
foreclose and sell the mortgaged property.
A copy of the trial court's order, the defendants' motion for summary
judgment, and the Alabama Supreme Court's order are available at:
http://www.mersinc.org/files/filedownload.aspx?id=356&table=DownloadFile.
The borrower-plaintiff ("Borrower") obtained a loan from GMAC Mortgage
Corporation ("Lender") and executed a mortgage on her property to Mortgage
Electronic Registration System, Inc., ("MERS"). The mortgage named MERS
as the mortgagee and as nominee of the Lender and its successors and
assigns. The Lender retained ownership of the underlying debt and the
servicing rights to the loan. The Borrower defaulted on the loan, and
MERS initiated foreclosure proceedings.
The Borrower then filed a lawsuit against MERS and its parent company,
MERSCORP, alleging wrongful foreclosure and challenging MERS's standing to
foreclose. The complaint alleged that MERS lacked the present legal right
to enforce the underlying security instrument. The Borrower also asserted
claims against MERS for negligence for breach of fiduciary duty,
wantonness, and unjust enrichment.
In support of its motion for summary judgment, MERS argued that: (1) the
mortgage specifically named MERS as the nominee of the Lender; (2) the
Borrower's execution of the mortgage granted MERS the authority to
foreclose the mortgage as the Lender's nominee; and (3) the Lender, having
the legal right to enforce the debt secured by the mortgage, elected to
have MERS as the mortgagee foreclose the mortgage in MERS's name, which
was permissible under both the mortgage and the membership agreement
between the Lender and MERS.
One court opinion MERS cited was In re Huggins, 357 B.R. 180 (Bankr. D.
Mass. 2006), which articulated four reasons why MERS had standing to
enforce the terms of a mortgage: (1) MERS acted as the nominee for the
creditor holding the Note; (2) as the record mortgagee, MERS held all the
powers set forth in the mortgage, including the power of sale; (3) the
state statute expressly authorized the named mortgagee, or another
authorized person, to exercise the power of sale; and (4) the "denial of
MERS's foreclosure right would lead to anomalous and perhaps inequitable
results, to wit, if MERS cannot foreclose as the named mortgagee, then
either [the creditor] can foreclose though not named as the mortgagee or
no one can foreclose . . . ."
MERS argued that, under Alabama law, the foreclosing party need only be
the person or the representative of the person entitled to the money
secured by the mortgage. See Ala. Code § 35-10-12. MERS also noted that
the Alabama Rules of Civil Procedure expressly confer standing on a "party
with whom or in whose name a contract has been made for the benefit of
another" and that such parties may sue in their own name. See Ala. R.
Civ. P. 17(a). Accordingly, MERS argued that as the Lender's
representative holding the legal interest in the mortgage, MERS had
standing to foreclose on behalf of the Lender, which held the beneficial
interest in the mortgage.
MERS also argued that it had standing based on its status as the holder of
the note. The Borrower's note was indorsed in blank without recourse and
was therefore enforceable by anyone in possession of the note. As the
possessor and thus holder of the note, MERS argued that it was entitled to
enforce the note's provisions and the mortgage that secured the debt. See
Ala. Code §§ 7-3-205; 7-3-301 (instrument indorsed in blank is payable to
bearer and a person in possession of a bearer instrument is the "holder"
entitled to enforce the instrument).
As to the Borrower's claims for negligence, wantonness, and unjust
enrichment, MERS argued that each such claim was based on loan servicing
functions such as collecting, holding, distributing or applying the
Borrower's payments on the loan. As MERS did not perform any servicing
duties, MERS was not the proper party to these claims and could not be
liable to the Borrower for any claims based on the servicing of the loan,
including a negligence claim for breach of fiduciary duty.
Finally, MERS argued that the Borrower's wrongful foreclosure action was
not ripe for litigation. Even though the Borrower was in default on the
loan, no foreclosure sale had yet occurred or was scheduled to occur. As
no foreclosure sale had taken place and the mortgage had not been
foreclosed, the Borrower still owned and occupied the property and could
not maintain a wrongful foreclosure claim.
The trial court dismissed the case, and the Alabama Supreme Court
affirmed.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
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