The appeals court ruling against Mortgage Electronic Registration System (MERS) that caused the GSEs and the Department of Housing and Urban Development (HUD) to reinitiate foreclosures on more than 1,600 Michigan properties was overturned by the state's highest court this week.
The Michigan Supreme Court issued a ruling saying that MERS holds sufficient interest in the borrower's promissory note (debt) to initiate a nonjudicial foreclosure.
“We clarify, however, that MERS' status as an 'owner of an interest in the indebtedness' does not equate to an ownership interest in the note,” the order reads. “Rather, as recordholder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness…authorized MERS to foreclose by advertisement.”
Merscorp, the parent company of MERS, heralded the decision as an affirmation of its business model. “This will allow homeowners to resolve title issues and buyers to move forward with the purchase of foreclosed properties, which is good for neighborhood stability,” said Bill Beckmann, the president and CEO of Merscorp, in a press statement. “The Saurman ruling caused considerable confusion, delayed property transactions, and triggered unnecessary litigation.”
But Curtis Hertel Jr., the register of deeds in Ingham County, Mich. who, along with another county register, filed a lawsuit against MERS earlier this week, called the ruling “an embarrassment to those of us who care about the property records of this state.”
“At the Michigan Chambers request, they now have the right to masquerade as a bank and take a citizen's home,” Hertel Jr. said in a written statement. “It is unfortunate that Justices Young, Markman, Zahra and Mary Beth Kelly decided to side with special interest groups instead of Michigan citizens.”
The Michigan Court of Appeal's April ruling — that MERS did not have the authority to initiate a nonjudicial foreclosure because it is not the owner nor has an interest in the promissory note —resulted in the reversal of two foreclosures and called into question the validity of other previously completed foreclosures. The ruling led Fannie Mae and Freddie Mac to take the extraordinary measure of reforeclosing on a combined 1,250 Michigan properties. In addition, the HUD reconveyed about 400 properties back to lenders to clear up the title issue.
The impact of the ruling in future foreclosures is limited, however, as Merscorp proposed a policy change in March that prohibited its members from foreclosing in the name of MERS. The new rule was in effect during the comment period and became permanent in July.
In addition, Fannie Mae has required its servicers to file an assignment of the mortgage out of MERS' name in judicial foreclosures since Dec. 2006. In March, Fannie extended that policy to include nonjudicial foreclosures. Freddie Mac also told its servicers to put an end to the practice on all its foreclosures in April.
