The Idaho Supreme Court recently upheld summary judgment in favor of MERS, ruling that, as the beneficiary under a deed of trust and as the lender's agent, MERS had the authority to appoint a successor trustee and direct the trustee to initiate foreclosure proceedings. In so ruling, the Court reasoned that the borrower failed to meet her burden of proving that MERS could not legally act as the beneficiary under the deed of trust and thus failed to prove that MERS lacked standing to direct the foreclosure sale of her home.
A copy of the opinion is available at: http://www.isc.idaho.gov/opinions/38604.pdf.
Plaintiff borrower ("Borrower") obtained a mortgage refinancing loan that was secured by a deed of trust on Borrower's property naming defendant Mortgage Electronic Registration Systems Inc. ("MERS") as the beneficiary, as nominee for the lender ("Lender"). Specifically, the deed of trust defined MERS as "a separate corporation that is acting solely as a nominee for Lender and Lender's successor's and assigns. MERS is the beneficiary under this Security Instrument."
Around four years after the refinancing transaction, Borrower defaulted on the loan, and MERS appointed a substitute trustee ("Substitute Trustee") under the deed of trust, recording the substitution of trustee shortly thereafter. Substitute Trustee in turn recorded a notice of default and election to sell that stated among other things, that Borrower had failed to make her payments and that MERS, as beneficiary, had provided the Substitute Trustee with a written declaration of default and all documents evidencing obligations secured by the trust deed. Substitute Trustee scheduled a trustee's sale.
Less than a week before the scheduled trustee's sale, Borrower filed a complaint against MERS, Substitute Trustee and others (collectively, the "Defendants") to stop the foreclosure sale, arguing that Defendants lacked legal standing, that they had no interest in the note or deed of trust and that MERS could not legally be the beneficiary under the deed of trust. Defendants moved to dismiss, requesting the court to take judicial notice of various public records related to the loan.
Treating Defendants' motion as a motion for summary judgment, the lower court stayed the foreclosure sale, in part to allow Borrower to conduct discovery, and subsequently granted Defendants' motion. Roughly two months later, the court entered judgment dismissing Borrower's complaint with prejudice and vacated the order staying the foreclosure sale. However, as Borrower's property was sold before the entry of judgment, MERS rescinded the sale and recorded a notice of the rescission.
Borrower appealed. The Idaho Supreme Court affirmed.
As you may recall, under Idaho law, a deed of trust refers to "a deed . . . conveying real property to a trustee in trust to secure the performance of an obligation of the grantor . . . to a beneficiary." I.C. § 45-1502(3). In addition, the "beneficiary" of a deed of trust is "the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or his successor in interest, and who shall not be the trustee." I.C. § 45-1502(1). Moreover, one of Idaho's requirements for foreclosure is that either the trustee or the beneficiary record a notice of default. I.C. § 45-1505(3).
The Idaho Supreme Court first determined that, contrary to Borrower's argument that the case was moot due to rescission of the foreclosure sale, the case was not moot, as Borrower was still in possession of the property, was still in default, and MERS still wanted to foreclose.
Next, turning to Borrower's assertions that the Defendants (including MERS) lacked standing to foreclose, and that there were genuine issues of material fact related to ownership of the note and mortgage, the Idaho Supreme Court noted that Borrower failed to meet her burden of proving a legal ground to stop the foreclosure, and that "standing" was not a requirement for nonjudicial foreclosure of deeds of trust. See Trotter v. Bank of New York Mellon, 152 Idaho 842, 847, 275 P.3d 857, 861-62 (2012)("a trustee may initiate nonjudicial foreclosure proceedings on a deed of trust without first proving ownership of the underlying note or demonstrating that the deed of trust beneficiary has requested or authorized the trustee to initiate those proceedings."). The Court thus concluded that Borrower was not entitled to stop the foreclosure based on MERS's alleged lack of standing
With respect to Borrower's argument that MERS lacked authority to appoint Substitute Trustee, declare a default, or demand initiation of foreclosure of the deed of trust because MERS did not have an interest in the note, the Court concluded that Lender's designation of MERS as the beneficiary in its representative capacity as nominee of Lender and its successor and assigns was legally no different than designating Lender itself and its successors and assigns as the beneficiary.
In so ruling, the Idaho Supreme Court noted that a "nominee" is a particular form of agent that acts in place of another in a very limited way and that Lender had the authority to designate MERS as its agent to act on its behalf. See Clements v. Jungert, 90 Idaho 143, 151, 408 P.2d 810, 814 (1965).
The Court also observed that as Lender's agent, MERS had the authority to appoint Substitute Trustee as the successor trustee under the trust deed, to direct Substitute Trustee to record a notice of default, and that Substitute Trustee in turn had the authority to initiate foreclosure proceedings.
Pointing out that Borrower failed to meet her burden of proof, the court rejected Borrower's various assertions, including her arguments that (1) the notice of default was untrue in that the payment obligation was not actually "in favor" of MERS; and (2) that the deed of trust made MERS both the beneficiary and the trustee in violation of Section 45-1502(1). In noting that the deed of trust did not purport to grant the property to MERS but granted it to the original trustee named in the trust deed, the court stressed that the deed of trust specified that MERS held only legal title to the interests granted by Borrower to Lender, not that MERS held legal title to the real property Borrower granted. The court thus concluded that the deed of trust did not make MERS both the beneficiary and the trustee in violation of Section 45-1502(1).
Finally, among other things, the Court also ruled that even though MERS was a prevailing party on appeal, it was not entitled to attorney fees under Idaho Rules 40 and 41, reasoning that neither rule provided the authority for awarding such fees.
Accordingly, finding that Borrower failed to show that there were any genuine issues as to material fact that would preclude summary judgment, the Idaho Supreme Court affirmed the judgment of the lower court.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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