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First Circuit supports MERS

June 12th, 2014 by Joseph William Singer

The First Circuit reaffirmed its view of the validity of the MERS system under Massachusetts law. Mills v. U.S. Bank, (1st Cir. 2014) (reaffirming Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir.2013)). The court explained that there was no conflict between MERS’s role as the “mortgagee” and MERS’s role as the nominee (agent) for the mortgagee (the actual Lender to whom promises were made under the note). Thus the note could be transferred from bank to bank while MERS held “legal title” to the mortgage, giving MERS the power to transfer legal title to the final note holder to allow it to foreclose on the property after default by the mortgagor. According to the court the “MERS framework…separates the legal interest [in the mortgage] from the beneficial interest [in the underlying debt]” and is valid. This separation is valid under Massachusetts law which allows the note to be held by one person and the mortgage (or right to foreclose) held by someone else.

In particular, the court found no contradiction between the mortgage language that described MERS both as the “mortgagee” and the nominee for the lender, rejecting the plaintiff’s argument that one cannot be both the principal and the agent. Rather, the court explained that “MERS validly serves both as the holder of ‘bare legal title as mortgagee of record’ and as ‘nominee for the member-noteholder.'”

One caution is that the First Circuit may or may not be accurately predicting how the Supreme Judicial Court of the Commonwealth of Massachusetts would interpret its mortgage law and foreclosure statutes.

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