Appeals Court Upholds MERS Mortgage Assignment System

by Rich Vetstein on July 25, 2017 · 0 comments

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Defects, Title Insurance

Strawbridge v. Bank of NY Mellon:  Appeals Court Justice Peter Agnes Gives Judicial Blessing to MERS Assignment System, Rejects Other Foreclosure Challenges

The most recent foreclosure case heard by a Massachusetts appellate court should allow title underwriters and foreclosing lenders to sleep better at night. In Strawbridge v. Bank of NY Mellon, No. 16-P-1244, embedded below, Appeals Court Justice Peter Agnes upheld the MERS system of holding and assigning mortgages in Massachusetts as a “nominee.” Judge Agnes also ruled that the borrower lacked standing to raise defects in the pooling and servicing agreement by which the bank created a securitized mortgage trust, because she is not a party to that intra-lender agreement. This ruling should simultaneously benefit the housing market, while taking away a major weapon for foreclosure defense attorneys.

The case was brought by well-respected foreclosure defense attorney Glenn Russell, Esq. who represented the borrower, Sandra Strawbridge. Attorney Russell’s cases are typically on the cutting edge of foreclosure defense law, and thus, should always be read with interest.

Foreclosure Challenge

Strawbridge challenged the foreclosure on the grounds that the Bank did not comply with Massachusetts foreclosure law after the SJC’s decision in Eaton v. FNMA which held that a foreclosing lender must establish it holds both the promissory note and the mortgage. (Title companies have issued comprehensive underwriting guidelines after the Eaton ruling). Strawbridge also claimed that MERS’s assignment of her mortgage to the Bank was void because the assignment occurred after a date established in the pooling service agreement (PSA) of the securitzed trust.

Countrywide-MERS Assignment System

In 2007, Strawbridge obtained a $370,000 mortgage from Countrywide Home Loans. The mortgage designated Mortgage Electronic Systems, Inc. (MERS) as the nominee for Countrywide. In 2009, Strawbridge defaulted on her note by failing to keep up with her mortgage payments. In February, 2010, MERS assigned Strawbridge’s mortgage to Bank of New York Mellon which held the mortgage as part of a securitized trust. A MERS “Assistant Secretary and Vice President” executed the assignment, which was notarized and recorded at the appropriate registry of deeds. Later, in March, 2015, a “Second Assistant Vice President” at the Bank’s loan servicer executed an “Affidavit Regarding Note Secured by Mortgage Being Foreclosed.” That affidavit states that the Bank is the holder of the note. In addition, in April, 2015, the Bank’s loan servicer executed a “Certificate Relative to Foreclosing Mortgagee’s Right to Foreclose Pursuant to 209 C.M.R. 18.21A(2)(c),” which certified that the Bank is the “holder of the Mortgage” and “the holder of the Note or is authorized agent of the Note holder with the specific authority to enforce payment and pursue foreclosure of the Mortgage on behalf of such Note holder.” Finally, in July, 2015, the Bank sent Strawbridge a notice of foreclosure sale, informing her that a foreclosure sale would take place in August. The borrower challenged the sale in the Superior Court which ruled against her.

Appellate Rulings

On appeal, Judge Agnes ruled that “MERS’s nominee status does not preclude it from validly assigning the mortgage, or does it limit MERS’s power to exercise a right of [foreclosure] sale.” The Court also rejected the borrower’s argument that the Bank is required to provide a complete chain of assignments of the mortgage, opting instead to hold the Bank to a less onerous standard of merely producing a single assignment directly from MERS, the last holder of record. Lastly, the judge ruled that the borrower lacked standing to raise defects in the pooling and servicing agreement because she is not a party to that intra-lender agreement.

Take Aways

The impact of this decision is a reaffirmation that the MERS system of assigning mortgages remains legal and binding in Massachusetts. MERS mortgages account for the vast majority of conventional mortgage financing in Massachusetts. This ruling will also make it more difficult for distressed homeowners to challenge foreclosures, clearing the way for banks to sell REO property. I spoke to Attorney Russell about the case, and he indicated that he is considering taking an appeal up to the Supreme Judicial Court. So this may not be the last word on the matter.

Strawbridge v. Bank of NY Mellon by Richard Vetstein on Scribd

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