lawsuits against Mortgage Electronic Registration Systems, Inc. (MERS) and
other participants in the MERS system. The Court held that naming MERS as
the beneficiary and lender's nominee in deeds of trust did not invalidate
the foreclosure actions against the plaintiffs. A copy of the order is
In ruling on multiple motions to dismiss, the Court concluded that: (1)
MERS was a proper beneficiary under the deeds of trust; (2) naming MERS
as beneficiary does not render the promissory notes unenforceable; (3)
the assignments by MERS were proper; (4) MERS and its appointed trustees
have the authority to foreclose; and (5) plaintiffs lacked standing to
challenge MERS assignments.
In this consolidated multi-district litigation that included six putative
class actions, the federal district court considered allegations
challenging MERS's status as a legitimate beneficiary and nominee under
deeds of trust, and the validity of non-judicial foreclosures involving
MERS or its assignees. The plaintiffs alleged that MERS lacked legal
title to the promissory notes, and thus lacked authority to foreclose.
They argued that where deeds of trust designate MERS as the beneficiary
and nominee of the lender, the lender, taking possession of the promissory
note, "splits" the note from the deed of trust, thereby rendering the note
unsecured and unenforceable. The plaintiffs also argued that, because
MERS is not the "true" beneficiary under the deeds of trust, its
assignments are invalid and contain false claims, and MERS-appointed
trustees lack the power to foreclose.
The plaintiffs' allegations included violations of various Arizona,
Nevada, Oregon and South Carolina statutes, wrongful foreclosure, aiding
and abetting wrongful foreclosure and predatory lending, unjust
enrichment, and slander of title. In addition, the plaintiffs sought
rescission of their mortgage loans, restitution, as well as declaratory
and injunctive relief.
The District Court rejected the plaintiffs' "split-the-note" theory and
their arguments that MERS is a sham beneficiary lacking authority to
foreclose under the deeds of trust. Citing Cervantes v. Countrywide Home
Loans, No. 09-17364, slip op. at 16 (9th Cir. Sept. 7, 2011), the court
noted that the plaintiffs were unable to support the conclusion that a
mortgage becomes unenforceable by any party if it names MERS as the
beneficiary and that there was no "legal support for the proposition that
the MERS system of securitization is so inherently defective as to render
every MERS deed of trust completely unenforceable and unassignable."
The Court also pointed out that the plaintiffs specifically agreed in
their deeds of trust that MERS is the agent for the note holder and "holds
legal title to the secured interests and is the beneficiary or lien holder
of record, as the nominee or agent for Plaintiffs' lenders and the
lenders' 'successors and assigns.'"
In addition, the Court explained that, because there was nothing improper
about MERS's role as beneficiary, the foreclosures were proper and both
MERS and MERS-appointed trustees have the power to foreclose.
Accordingly, the Court also dismissed claims that hinged on wrongful
The Court also determined that the plaintiffs lacked standing to challenge
the MERS assignments, because the complaint failed to allege a concrete
and particularized injury resulting from those assignments. The court
noted that as third-party borrowers, the plaintiffs were uninvolved and
unaffected by the assignments that did not alter the obligation to pay a
debt, but only changed the party to whom the debt was owed.
In addition to dismissing the plaintiffs' claims for failure to establish
the impropriety of naming MERS as the beneficiary under the deeds of
trust, the Court noted that several of the allegations were moot, failed
to satisfy specific pleading requirements, or failed to establish certain
facts in support of the claims, such as the absence of default on the
mortgage loans or the breach of a particular duty on the part of the
defendants. Moreover, the Court pointed out that the claims based on the
alleged falsity of recorded assignments were time-barred, because any
damage as the result of improper recordation would have occurred at the
time of recordation.
Separately, the Court denied as untimely a motion to certify a question to
the Nevada Supreme Court as to whether a purported split of the note from
the deed of trust renders the note unsecured and unenforceable. The Court
noted that the plaintiffs filed their motion only after this issue was
decided against them, failed to provide "particularly compelling reasons"
for certifying the question, and that Cervantes had rejected the argument
that a supposed splitting of the note from the deed of trust denies any
party the power to foreclose.
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
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