MN Borrowers Challenge MERS Foreclosures

The issue was initially raised in a state court case filed by owners of four properties in foreclosure and transferred to U.S. District Court. The case was sent to the Minnesota Supreme Court on Feb. 27 for a decision.

“In this case,” wrote District Court Judge Joan N. Ericksen, “the dispositive issue is whether MERS must record changes tracked within the MERS System before foreclosing mortgages by advertisement,” that is by non-judicial methods.

The District Court suit, which names MERS and the Hennepin County sheriff as defendants, alleges that MERS violates a key requirement of one of Minnesota’s statutes “by failing to record all assignments of a mortgage prior to commencing a non-judicial foreclosure” and also failing “to list each assignment of a mortgage in the statutorily mandated Notice of Mortgage Foreclosure Sale,” as required by the state’s streamlined, non-judicial foreclosure process.

It seeks to enjoin MERS from authorizing non-judicial foreclosure sales without first recording or registering every assignment of the mortgages and identifying each assignee; the voiding of any foreclosure sale in which this has not occurred; and enjoining the sheriff from conducting any pending foreclosure sales.It also seeks class action status.

MERS has argued that the plaintiffs’ claims, if upheld, would raise uncertainty with respect to the establishment of a chain of title for releases and satisfactions of mortgages and may raise “serious title problems” for tens of thousands of homeowners who have paid off their mortgages.

Judge Ericksen, suggesting a legal victory for MERS, has denied the plaintiffs’ motion for a temporary restraining order that would have halted foreclosures.

“Although plaintiffs have demonstrated that they face a threat of irreparable harm and that the balance of harms favors them,” she concluded, “the likelihood of plaintiffs’ success on the merits, the most significant factor, is too slight to justify plaintiffs’ requested relief. Moreover,” she added, “the public interest weighs against plaintiffs’ requested relief.”

While the plaintiffs supported moving the suit to the Minnesota Supreme Court, that move was opposed by MERS, which had gotten the suit moved from a state court to the federal court system. In transferring the case, Judge Ericksen, quoting from a state statute, noted that the state’s high court “may answer a question of law certified to it by a court of the United States…if the answer may be determinative of an issue in pending litigation in the certifying court.”

No date has been set for when the high court will hear the matter.

“Right now we are waiting for an order accepting the question and setting a briefing schedule,” a spokeswoman in the court clerk’s office in St. Paul told MortgageDaily.com. “They haven’t even sent in any of that.”

MERS spokeswoman Karmela Lejarde said MERS does not comment on pending litigation but told MortgageDaily.com that the mortgage registration company has faced “nothing similar” in terms of a legal challenge to its rights.

In her order seeking a Minnesota Supreme Court decision, Judge Ericksen noted: “Future challenges to MERS’s ability to invoke Minnesota’s foreclosure-by-advertisement statutes without recording the changes tracked within the MERS System are likely given present market conditions and the substantial number of mortgages registered on the MERS System.

“Resolution of this case . . . may have a profound impact on issues of great state concern.”