MERS Has No Standing to Bring a Judicial Foreclosure Action in Maine

Michael Martin together with former PM & H partner Thomas Cox recently won an appeal before the Maine Supreme Judicial Court in Mortgage Elec. Registration Sys. v. Saunders, 2010 ME 79, P3 (Me. Aug. 12, 2010). The result was a landmark decision with national implications ruling that the Mortgage Electronic Registration System Inc. (“MERS”) has no standing to bring a judicial foreclosure action in Maine.MERS had brought a foreclosure action against the defendant homeowners represented by Martin and Cox, but MERS is not a lender or mortgage holder; it does not originate, service or hold loans or mortgages, except as nominee for lenders. MERS is a system that was designed to facilitate the transfer of mortgages on the secondary mortgage market without the need of recording mortgage assignments. Quoting a New York case, the Maine Court explained that “MERS acts as nominee and as mortgagee of record for its members nationwide and appoints itself nominee, as mortgagee, for its members’ successors and assigns, thereby remaining nominal mortgagee of record no matter how many times loan servicing, or the [debt] itself, may be transferred.” In this recent decision, Maine has joined a growing number of state courts ruling that MERS’ limited role results in a lack of standing to bring foreclosure actions.One of the defendants, Jon Saunders, signed a promissory note in June, 2006, in favor of his lender, Accredited Home Lenders, Inc (“Accredited”). To secure the note, both Jon and Belinda Saunders granted a mortgage to MERS, solely as nominee for Accredited. The Court determined that MERS’s only right under these documents is the right to record the mortgage. “Having only that right, MERS does not qualify as a mortgagee pursuant to our foreclosure statute, 14 M.R.S. å¤å¤ 6321-6325.” The Court reasoned that to qualify as a mortgagee, a party must be entitled to enforce the debt secured by the mortgage, and MERS does not qualify as such a party under Maine’s Uniform Commercial, because there is no evidence it held the note, was in possession of the note, or otherwise qualified. Despite this analysis, the Court based its decision on the separate question of whether MERS has “standing” in the judicial process, leaving open the question of whether MERS could foreclose a mortgage in a non-judicial foreclosure process. To have standing to bring an action in court, a party must show that it has suffered an injury caused by the defendant for which the court has a remedy. MERS had no standing because it had no interest in the Note and therefore suffered no injury when Mr. Saunders allegedly defaulted on his payments.This ruling did not end the case. The foreclosure action remains alive because the Court upheld the trial court’s substitution of parties replacing MERS with Bank National Trust Company (“Deutsche Bank”) as the foreclosing plaintiff. An understanding of this ruling requires a somewhat detailed account of the procedural history. MERS filed its foreclosure complaint in February 2009 and moved for summary judgment in May, 2009. The trial court denied summary judgment to MERS on September 9, 2009, but meanwhile, in July, 2009, an undated allonge had been exchanged between Accredited and Deutsche Bank indicating a transfer of the promissory note to Deutsche Bank. On September 10, Deutsche Bank filed a motion to be substituted for MERS and then, before the motion was granted, Deutsche Bank filed a motion to reconsider or amend the order denying summary judgment. In November, the trial court granted both motions issuing a summary judgment in favor of Deutsche Bank.On appeal, the Supreme Court ruled that substitution was proper because commencing the action in MERS’ name was an understandable mistake and the transfer of interest did not alter the claims or prejudice the defendants. However, the Court reversed the grant of summary judgment because of insufficiencies in the record evidence and because the trial court should have required Deutsche Bank to file an independent motion for summary judgment with its own statement of material facts and affidavits. On remand, Deutsche Bank will need to prove its status as mortgagee and holder of the note.