Indiana Appellate Court Holds That MERS as Nominee Has No Rights Apart From Those of Lender

On May 17, the Court of Appeals of Indiana held that Mortgage Electronic Registration Systems, Inc. (MERS), as the mere "nominee" of a mortgage lender, held nothing more than "bare legal title" to a mortgage, and therefore has no rights separate from those of the lender, including no rights to notice of a foreclosure claim by another lender. CitiMortgage, Inc. v. Barabas, No. 48A04-1004-CC-232 (Ind. Ct. App. May 17, 2011). In 2005, Barabas executed a mortgage that provided for the security interest to be "given to [MERS], (solely as nominee for Lender . . . ), as mortgagee." The Lender was Irwin Mortgage Corporation (IMC). The mortgage included the addresses of both MERS and IMC, but it stated that any notice to Lender was to be provided to IMC. Later, the holder of a second mortgage on the property, ReCasa Financial Group (ReCasa) sought to foreclose on the property and named IMC (but not MERS) as a defendant. IMC, however, disclaimed any interest in the property, and Barabas had discharged her debts in bankruptcy. Accordingly, the trial court entered a default judgment in favor of ReCasa and ordered the property sold at a judicial sale. ReCasa wound up repurchasing the property and then reselling it to a third party. Meanwhile, MERS assigned its interest in the original mortgage to CitiMortgage (Citi), which subsequently sought to vacate the default judgment and the subsequent sales. The trial court declined to vacate the default judgment, and the Court of Appeals affirmed. As to Citi’s argument that the default judgment was defective because MERS had not received notice of the foreclosure claim, the Court (relying on Landmark National Bank v. Kesler, 216 P.3d 158 (Kan. 2009)), held that, notwithstanding the fact that the mortgage referred to MERS as both "nominee" and "mortgagee," MERS "served as the mortgagee ‘solely as nominee’ for [IMC]." Thus, when IMC disclaimed its interest in the property, "MERS, as mere nominee and holder of nothing more than bare legal title to the mortgage, did not have an enforceable right under the mortgage separate from the interest held by [IMC]." Because IMC received proper notice, there was no basis to set aside the default judgment. The Court also rejected Citi’s claim under Indiana Code 32-29-8-3, which provides that a purchaser at a judicial sale without notice that the mortgage has been assigned holds the premises free and discharged of the lien, unless the assignee redeems the premises within one year of the sale. Although Citi did seek to redeem the premises within one year of the judicial sale, it had been more than one year since (i) ReCasa’s foreclosure complaint and (ii) Citi’s effort to intervene in Barabas’s bankruptcy case to assert its rights to the property. Therefore, the Court determined that Citi’s claim was "precluded . . . because it failed to intervene until more than a year after it first acquired interest in the property."