In the current flood of mortgage litigation, plaintiffs often rely on myth to avoid paying their debts. One of the most pervasive concerns the Mortgage Electronic Registration System (MERS). Plaintiffs accuse MERS of being a "sham" entity, lacking authority to foreclosure and used by lenders to engage in fraud. In Cervantes v. Countrywide Home Loans, Inc., No. 09-17364 (9th Cir. Sept. 7, 2011), the Ninth Circuit Court of Appeals joins other recent courts in dispelling the Myth of MERS.
In affirming the trial court's dismissal with prejudice, the
Court began by explaining that there is nothing inherently
misleading or improper about MERS. MERS is a private electronic
database that tracks the transfer of the "beneficial
interest" in home loans, as well as changes in loan servicers.
MERS was designed to avoid the need to record multiple transfers of
deeds of trust by serving as the nominal record holder of the deed
for the original lender and any subsequent lender. Accordingly,
MERS holds legal title to the security interest conveyed even when
the lender sells or assigns its beneficial interest in the loan.
MERS serves a legitimate function.
Further, the deed of trust—"an essentially private
contractual agreement"—spells out MERS' role. By
signing it, the plaintiffs agreed to its terms, including those
concerning MERS. So long as MERS acted consistently with the terms
of the deed of trust, which it did, there can be no fraud.
Finally, the Ninth Circuit held that any amendment by plaintiffs
would be futile. Even if MERS acted fraudulently or without
authority—and it did not—plaintiffs admittedly
defaulted on their loans. The lender was entitled to foreclose
even if MERS was not.
Try as they might, there is no mythical loophole recognized by law
to avoid paying a mortgage debt.
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