Fifth Circuit Court of Appeals Ruling Affirms Again that MERS Qualifies as Mortgagee under Texas Law

 MERS assignment is valid


CONTACT: Janis Smith
Phone: 703-738-0230
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Reston, Virginia, June, 18, 2014—MERSCORP Holdings, Inc. today announced that the Court of Appeals for the Fifth Circuit affirmed the District Court’s holding that borrowers are not third-party beneficiaries of a Pooling and Service Agreement (PSA) and therefore cannot challenge alleged violations of the PSA. Also, the court ruled that the foreclosing party does not have to possess the promissory note when the deed of trust authorizing it to foreclose has been properly assigned.

In  pdf Svoboda v. Bank of America, N.A. (110 KB) , MERS, the original beneficiary of the deed of trust, assigned the deed of trust to BAC Home Loans Servicing, LP (“BAC”) which then assigned the deed of trust to Bank of America, N.A. (“Bank of America”) for the benefit of J.P. Morgan Alternative Loan Trust 2006-S3 (the “Trust”). Bank of America subsequently foreclosed. The borrowers alleged that Bank of America lacked authority to foreclose because the assignments of the deed of trust violated the terms of the Trust’s PSA and because Bank of America did not possess the relevant note when foreclosing.

Relying on its decision in pdf Reinagel v. Deutsche Bank National Trust Co. , the Court of Appeals determined that the Svobodas “cannot challenge the transfer of their deed of trust based on alleged violations of the PSA unless they are third-party beneficiaries.” Moreover, the Court found that even if the Svobodas were third-party beneficiaries a violation of the PSA would not render the assignments void.

The Court also found that because the deed of trust had been properly assigned to Bank of America possession of the note was not required to foreclose. The Court cited a previous ruling – pdf Martins v. BAC Home Servicing, L.P. (102 KB)  (5th Cir. 2013) – to note that MERS qualifies as a mortgagee under Texas law, MERS properly assigned all of its “interest and all rights accrued or to accrue under [the] Deed of Trust” to BAC, and BAC then properly assigned that interest to Bank of America, so that Bank of America became the mortgagee. Therefore, the Court of Appeals affirmed the lower court's ruling that Bank of America had the right to foreclose without possession of the note because Bank of America was properly assigned the deed of trust that authorized it to foreclose.

“MERS as the beneficiary of the deed of trust has the legal authority to act on behalf of the lender—including the right to execute the assignment,” said MERSCORP Holdings Vice President for Corporate Communications, Janis Smith. “Further,” she said “this opinion reaffirms that plaintiffs lack standing to challenge such assignments by MERS.”

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MERSCORP Holdings, Inc. is a privately held corporation that owns and manages the MERS® System and all other MERS® products. It is a member-based organization made up of thousands of lenders, servicers, sub-servicers, investors and government institutions. Mortgage Electronic Registration Systems, Inc. (MERS) serves as the mortgagee in the land records for loans registered on the MERS® System, and is a nominee (or agent) for the owner of the promissory note. The MERS® System is a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members.