The Utah Court of Appeals, upholding the trial court, has ruled that Mortgage Electronic Registration System (MERS) has the right to enforce deeds of trust even if the underlying debt has been sold and securitized.

The ruling, issued July 14, 2011, came in Commonwealth Property Advocates, LLC v. Mortgage Electronic Registration System, Inc.; CitiMortgage, Inc.; et al., in which Ballard Spahr partner Anthony C. Kaye represented MERS and CitiMortgage. As the first such appellate-level decision in the State, it effectively settles issues of MERS authority as they relate to Utah homeowners. Further, it may be persuasive in jurisdictions nationwide, given the similarities between the language in the loan documents and the statutes at issue.

The original borrower had transferred her interest in the property to a third-party entity, which brought suit, challenging MERS’ authority under the trust deed securing the loan. The plaintiff argued that the trust deed had been separated from the note, alleging that the originating lender transferred the note into a securitized pool along with other notes and, thus, the note was transferred to investors in that pool. The alleged transfer “split” the note from the trust deed, the plaintiff argued, stripping the authority of MERS, which is named in the trust deed as beneficiary and “nominee for Lender and Lender’s successors and assigns” to exercise rights under the trust deed. Later, the plaintiff argued that the transfer did not “split” the note and the trust deed, but rather lodged both in the pool of investors, rendering MERS without authority to conduct a trustee’s sale.

The appeals court, however, held that MERS retained authority “regardless of who may have purchased, in whatever form, the right to receive payment under the Note.” The court found that MERS’ authority includes “the authority to initiate foreclosure proceedings, appoint a trustee, and to foreclose and sell the property.”

The court also rejected plaintiff’s interpretation of Utah Code Ann. § 57-1-35, which states that “[t]he transfer of any debt secured by a trust deed shall operate as a transfer of the security therefor.” Referring to its “plain meaning,” the court held that the statute simply provides that “when a debt is transferred, the underlying security continues to secure the debt.”

Further, the court observed that the statute “does nothing to prevent MERS from acting as nominee for Lender and Lender’s successors and assigns when it is permitted by the Deed of Trust,” and that, contrary to the plaintiff’s arguments, the statute does not prohibit the original parties to the note and trust deed from “validly contract[ing] at the outset to have someone other than the beneficial owner of the debt act on behalf of that owner and its successors and assigns to enforce rights granted in the security instrument.”

In addition to Mr. Kaye, the Ballard Spahr team representing MERS and CitiMortgage included associates Angela W. Adams and Steven D. Burt.

Ballard Spahr’s Consumer Financial Services Group has substantial experience in defending financial institutions against the kinds of claims advanced by the plaintiff in this case, and this decision mirrors numerous rulings we’ve obtained in state and federal trial courts. For more information, please contact Group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; or Anthony C. Kaye, 801.531.3069 or kaye@ballardspahr.com.


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