Jessica M. Karmasek May 15, 2013, 6:25pm

TUCSON, Ariz. (Legal Newsline) -- The Arizona Court of Appeals ruled last week that those who purchase tax liens -- and seek to foreclose on them -- must give notice to the national mortgage registry known as MERS.

In Delo v. GMAC Mortgage LLC, Presiding Judge Garye L. Vasquez and Judges Philip G. Espinosa and Virginia C. Kelly unanimously ruled that the purchasers must give MERS notice of the foreclosure proceedings when they are identified in the deed of trust.

"Due process requires a tax lien holder to engage in a 'diligent search and inquiry' for persons or entities holding a legal or equitable interest in property before those interests can be foreclosed by default," Vasquez noted in the court's May 8 opinion.

The three-judge panel reversed the decision of the Pinal County Superior Court.

The trial court had granted quiet title, or outright ownership, of an Arizona property to plaintiff William Delo, who was granted an interest in the property after paying the delinquent property taxes.

On appeal, GMAC Mortgage LLC, U.S. Bank N.A. and Mortgage Electronic Registration Systems Inc., or MERS, argued the court erred by concluding their interests in the property had been foreclosed in a prior tax-lien foreclosure lawsuit.

In its 13-page ruling last week, the appeals court found that the deed of trust "not only expressly identifies MERS as the nominee for the lender, but also beneficiary, and the holder of legal title to the property."

The court concluded that Delo should have provided notice of the tax lien foreclosure lawsuit to MERS because the registry's interest in the property was acquired before Delo had acquired his interest.

Read the court's full opinion here.

Therefore, the court ruled that the trial court should have rendered judgment in favor of GMAC, U.S. Bank and MERS because their interest in the property was protected by the registry's record interest.

In a statement Wednesday, MERS said the ruling was an important one.

"It's important to note that MERS, as the designated lender's nominee under the deed of trust, protects the interests of its members who service or own the particular mortgage loan secured by a MERS security instrument," said Jason Lobo, MERSCORP Holdings' director for corporate communications.

"Many times, as was the case here, homeowners default on their property taxes before defaulting on their mortgage loan."

He continued, "Tax lien purchasers and the taxing authorities should be aware of MERS' right to notice as agent for the original lender and its successors and assigns."

MERSCORP and Mortgage Electronic Registration Systems Inc. were formed in 1995 to facilitate the growing mortgage finance market.

The privately-held electronic registry is designed to track servicing rights and ownership of mortgage loans in the United States.

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