MERS Standing Challenge
Mortgage Electronic Registration Systems — the nominee that holds title for the real lender. Does MERS have the right to foreclose?
Overview
MERS (Mortgage Electronic Registration Systems, Inc.) is a private electronic registry that tracks mortgage ownership transfers. In a MERS mortgage, the borrower grants the mortgage to 'MERS, as nominee for Lender and Lender's successors and assigns.' MERS holds legal title as nominee, while the beneficial interest (ownership of the Note) passes among MERS members through electronic tracking rather than recorded assignments. This raises fundamental standing questions: Does MERS, as mere nominee, have the authority to foreclose? Can MERS assign the mortgage when it doesn't own the note? (the 'split-the-note' problem). The MERS system has been the subject of extensive litigation across all 50 states, with courts reaching different conclusions about MERS's standing to foreclose.
Legal Definition
Under a MERS mortgage, the borrower grants the mortgage to 'MERS, as nominee for Lender and Lender's successors and assigns.' MERS holds bare legal title as nominee/agent — it does NOT own the Note (the debt) and does NOT have a beneficial interest in the mortgage. The mortgage is security for the Note; under the Restatement (Third) of Property (Mortgages), the mortgage follows the note — whoever holds the Note holds the equitable right to enforce the mortgage. MERS's standing to foreclose (or assign the mortgage) depends on whether the court treats MERS as the true mortgagee (with the right to foreclose) or as a mere agent/nominee with no independent interest.
When This Defense Applies
Asserted when: MERS is the named mortgagee on the Deed of Trust and attempts to foreclose (or assigns the mortgage to a third party who forecloses); there is a gap in the chain of assignments (MERS assigned the mortgage but there's no assignment of the Note); MERS assigned the mortgage AFTER the note was transferred (the Note and Mortgage were separated — the assignor of the mortgage no longer held the Note); or MERS's corporate representative executed the assignment without verifying the underlying ownership.
Common Foreclosure Scenarios
MERS is the named mortgagee — MERS executes an Assignment of Mortgage to the foreclosing trust; the borrower challenges: MERS was never the holder of the Note, so MERS had nothing to assign; the trust had no Note to hold
The Note was sold 3 times (Lender A → Bank B → Trust C) but the Assignment only shows MERS → Trust C (a single assignment skipping the intermediate transfers) — the chain of title is broken
The Assignment was executed by 'Jane Smith, Assistant Secretary of MERS' — but Jane Smith was actually an employee of the loan servicer, not MERS, and signed without verifying the underlying ownership (robo-signing on a MERS assignment)
The borrower's state (Oregon, Washington, and others) has held that MERS cannot foreclose non-judicially because MERS is not a true beneficiary under the state's Deed of Trust Act
Burden of Proof
The plaintiff (foreclosing party or its assignee from MERS) must prove standing — that it holds both the Note and the Mortgage (or that the Mortgage follows the Note). The borrower asserts MERS's lack of standing as an AFFIRMATIVE DEFENSE. The borrower must identify the specific defect: (1) MERS assigned the mortgage but didn't own the Note, (2) the Assignment is robo-signed, (3) the state's law doesn't recognize MERS as a true mortgagee. Once the borrower challenges standing, the burden shifts to the plaintiff to prove standing.
Court Considerations
The MERS standing issue has produced conflicting state-court decisions. Key rulings: (1) most states (including California, Florida, New York, Illinois) recognize MERS as having the authority to foreclose as the mortgagee of record (the Note follows the Mortgage in these states), (2) some states (Oregon, Washington under certain circumstances) hold MERS cannot foreclose non-judicially because MERS is not a true 'beneficiary' under the state's trust deed statute, (3) the Uniform Commercial Code and UCC Article 3 prevail: whoever holds the Note (properly indorsed) has the right to enforce the mortgage — so MERS's role is secondary to Note ownership, (4) the Robo-Signing Crisis of 2010-2012 exposed widespread defects in MERS assignments — courts have since tightened scrutiny of MERS assignments.
Homeowner Strategies
Trace the Note and the Mortgage separately: who holds the Note (look at the indorsements/allonge)? Who holds the Mortgage (look at the Assignment chain)? Are they the same entity? If not, you have a standing challenge
If MERS assigned the Mortgage, demand proof that MERS held the Note (or the authority to assign the Note) at the time of the assignment — MERS almost never held the Note
Get the deposition of the MERS signatory — MERS employees sign thousands of assignments without reviewing underlying documents (robo-signing); a deposition that reveals this destroys the Assignment's credibility
Research your state's case law on MERS standing — this is one of the most heavily litigated mortgage issues; the law varies significantly by state
Related Court Documents
Related Court Procedures
Frequently Asked Questions
Is MERS illegal?+
No. The MERS system has been upheld by courts across the country. However, specific MERS practices — robo-signing, assignments without verification, backdating assignments — have been found defective in individual cases. The MERS system itself is legal; specific MERS assignments may be defective. The challenge is to the SPECIFIC assignment in your case, not to MERS as an institution.
Can MERS foreclose in my name?+
MERS typically does not foreclose itself — it assigns the mortgage to the current Note holder (or servicer) who then forecloses. The issue is whether the assignment from MERS is valid. In some states, the Deed of Trust names MERS as the beneficiary with the power of sale (the right to foreclose non-judicially). If your mortgage names MERS as the beneficiary, check your state's case law on whether MERS can exercise the power of sale as a nominee.
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