One of many issues swirling in the miasma of the foreclosure crisis has been whether Mortgage Electronic Registration Systems, Inc. – MERS for short – can validly foreclose a mortgage that it holds as nominee for the lender. The question arises because MERS itself doesn’t make loans – it simply holds mortgages that secure loans made by others. While this issue is now garnering attention in the national media, and some states, such as Oregon, have effectively halted MERS foreclosures, in Massachusetts – home of the famous Ibanez decision (pdf) (see related commentary here and here) – the issue has not (yet) troubled the courts that have faced it.
In Lyons v. MERS, the plaintiff defaulting borrowers challenged MERS’s foreclosure of their mortgage. The plaintiffs argued that they had borrowed money from, and executed a promissory note in favor of, Countrywide Home Loans, Inc. – not MERS – and therefore only Countrywide could foreclose. To hold otherwise, the plaintiffs argued, would unlawfully separate their note from their mortgage. In a January, 2011 decision (pdf), the Massachusetts Land Court flatly rejected this argument and granted the defendants’ motion to dismiss. The court found nothing wrong with MERS acting as the lender’s nominee in foreclosing a mortgage which, as the court observed, named MERS as the mortgagee and expressly granted it (as nominee) the power of sale under the Massachusetts foreclosure statute. In support of its ruling, the Land Court cited a 2006 decision of the U.S. Bankruptcy Court (pdf) that reached the same conclusion under Massachusetts law.
The Lyons plaintiffs have appealed the Land Court’s dismissal of their case, so we should soon learn whether this is another issue on which the Supreme Judicial Court will weigh in as it re-shapes Massachusetts foreclosure law in response to the crisis.