Daily Development for Thursday, February 22, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
MORTGAGES; FORECLOSURE; STANDING TO FORECLOSE; MERS: MERS wins first round of Florida foreclosure litigation - nominee that is in possession of note has standing to foreclose, even it is not beneficial owner.
Mortgage Electronic Registration Systems, Inc. v. Azize, 2007 Westlaw 517842 (Fla. App. 2/21/07)
What a remarkable piece of litigation. Mortgagor defaulted on a note, a foreclosure was instituted in the name of MERS, nominee of the lender, and the mortgagor did not show up to defend. Nevertheless, sua sponte, the trial court, apparently irritated about lawyer's practices in a number of MERS related foreclosures, dismissed this foreclosure proceeding and, while he was at it, many others, on the grounds that MERS did not allege or prove that it was in fact the beneficial owner of the note. The trial court also made a number of other observations about the practices of lawyers who alleged that MERS had lost the note and simultaneously alleged that it possessed the note. But this case focuses only on the nominee issue.
Although, as indicated, the mortgagor was not represented either at trial or on appeal, MERS had illustrious counsel at the appellate stage, and amicus briefs were filed by Foley and Larneer, Greenberg Traurig, Akerman Senterfitt, FNMA counsel, and Powell Goldstein, all supporting MERS position, one assumes. Balanced against all this firepower, which certainly cost far more than the balance owing on the contested mortgage, was an amicus brief from Jacksonville Area Legal Aid, Inc., written by formidable DIRTer April Charney.
The case has to be regarded as a ringing victory for MERS. Although the case was remanded for further proceedings on the question of whether MERS in fact has possession of the note, the appeals court unequivocally indicated that a corporate nominee that is the holder of a note could bring a foreclosure action for another corporate beneficial owner of a note. Further, if, indeed, the note is lost, MERS will be permitted to demonstrate this fact and to "reestablish" the note.
Comment 1: In light of the sweeping and nasty ruling by the trial court in this case, MERS has to be very gratified by this ruling. As noted earlier, it does not address issues concerning MERS functions as a debt collector under numerous consumer protection acts, but it does recognize, as did a recent New York decision, that there is nothing improper about MERS serving as nominee of a beneficial owner, which is the fundamental principle at stake for MERS here.
Comment 2: The court emphasized that the mortgage itself stated that borrower understood and agreed that MERS held only legal title to the mortgage but that it might exercise the remedies available to mortgagee, including foreclosure, as nominee of the true owner of the note. The mortgage also stated that "MERS is the mortgagee under this Security Instrument."
How important is this language? The court doesn't allude to it later. The editor understands that MERS practices have varied from jurisdiction to jurisdiction and from time to time. Not all MERS foreclosed mortgages will contain this language. We don't know whether it's vital. The New York decision, the editor recalls, made nothing of such language.
Comment 3: In comments sent to the editor, April Charney commented that in her view the court still confuses the issue because it seems to be of the view that MERS alleged itself to be the "owner" of the mortgage, but doesn't say how it reached that position when it was not beneficial owner. In the editor's view, the court does not assume nor require that MERS be the beneficial owner of the mortgage, but only the legal owner, which it was because it was the named owner and because subsequent transferees of the note acquiesced in MERS' continued legal ownership of the mortgage rights.
The editor acknowledges that the court in the opinion states that 'MERS alleged that it is the owner and holder of the note and mortgage and that allegation has not been contested by responsive pleading. Assuming that the complaint properly states a cause of action to reestablish the note [the editor assumes - in those instances in which the note in fact is not in MERS' possession] and that MERS can show prima facie proof of such allegations, MERS would have standing as the owner and holder of the note and mortgage to proceed with the foreclosure."
Ms. Charney reads this language to suggest that the court is of the view that MERS must be the "owner" of the note and mortgage. But other language in the opinion makes clear that all the court is requiring is that MERS be the holder of the note and legal mortgagee, even though it is performing these functions as nominee for the beneficial of these interests. In the case of a securitized pool, the court acknowledges that the beneficial owners could be legion.
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