Financial Services Litigation Bulletin-April 2010
MERS Litigation Update: Pro-Lender Dismissals Gain Momentum in Nonjudicial Foreclosure Cases
Around the country, distressed borrowers are filing suit in an attempt to delay or avoid nonjudicial foreclosure of their residential mortgages. These borrowers' tactics include assailing the secondary market for mortgage obligations. In one common stratagem, they allege that their deeds of trust may not be enforced because the deeds of trust name a facilitator of the secondary market, Mortgage Electronic Registration Systems Inc. ("MERS"), as a nominee of the lender and beneficiary. To date, federal and state courts have uniformly rejected the contention that naming MERS on a deed of trust impairs the security interest. While foreclosing parties are sometimes required to present evidence of their entitlement to foreclose under a MERS deed of trust, these burdens do not arise in the typical nonjudicial foreclosure context. A new decision out of the District of Nevada does not upset these conclusions, but would require presentation of evidence unless MERS follows a specific foreclosure procedure.