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Financial Services Law Insights and Observations

Tenth Circuit Confirms MERS Has Authority to Foreclose

Foreclosure

Lending

Recently, the U.S. Court of Appeals for the Tenth Circuit affirmed separate lower court rulings that Mortgage Electronic Registration Systems, Inc. (MERS) had authority to foreclose under Utah law even though the notes at issue had been sold by the original lenders and securitized. Commonwealth Property Advocates v. Mortgage Elec. Reg. Sys, Inc., Nos. 10-4182, 10-4193, 10-4215, 2011 WL 6739431 (10th Cir. Dec. 23, 2011). In each of the underlying cases, the deed of trust contained the usual language naming MERS as the "nominee" for both the original lender and the lender's "successors and assigns," and providing MERS with authority "to foreclose and sell the Property" on behalf of those entities. The plaintiff (a firm that acquired title to each of the properties from delinquent borrowers) based its challenge to MERS' authority to foreclose on a Utah statute providing that the "transfer of any debt secured by a trust deed shall operate as a transfer of the security therefor." Utah Code Ann. § 57-1-35. According to the Plaintiff, the statute meant that sale and securitization of the notes deprived "original 'nominees,' such as MERS," of any right to exercise any power under the deeds of trust absent authorization by the new owners of the debt, i.e., the security-holders. The Tenth Circuit, relying on prior Utah and federal-court decisions, rejected that argument. It held that the statute merely codifies the well-established rule that a lender's transfer of a note also transfers that lender's interest in the associated security instrument. The statute in no way impacted MERS' explicit authority under the deeds of trust to continue to act as the "nominee" of each successive buyer of the note and to foreclose on each such buyer's behalf.

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