Wash. SC makes ruling in cases over mortgage registry

Jessica M. Karmasek Aug. 20, 2012, 3:00pm


OLYMPIA, Wash. (Legal Newsline) - The Washington State Supreme Court ruled last week that if the national mortgage registry known as MERS is not a promissory note-holder, then it is not considered the beneficiary for purposes of non-judicial foreclosures in the state.

MERSCORP and its subsidiary, 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.

In 2006 and 2007 respectively, plaintiffs Kevin Selkowitz and Kristin Bain bought homes in King County, Wash.

Selkowitz's deed of trust named First American Title Company as the trustee, New Century Mortgage Corporation as the lender and MERS as the beneficiary and nominee for the lender.

Bain's deed of trust named IndyMac Bank FSB as the lender, Stewart Title Guarantee Company as the trustee and, again, MERS as the beneficiary.

Subsequently, New Century filed for bankruptcy protection, IndyMac went into receivership, and both Bain and Selkowitz fell behind on their mortgage payments.

In May 2010, MERS, in its role as the beneficiary of the deeds of trust, named Quality Loan Service Corporation as the successor trustee in Selkowitz's case, and Regional Trustee Services as the trustee in Bain's case.

A few weeks later, the trustees began foreclosure proceedings.

According to the attorneys in both cases, the assignments of the promissory notes were not publicly recorded.

Being so, Bain and Selkowitz sought injunctions to stop the foreclosures and sought damages under Washington's Consumer Protection Act, among other things.

Both cases are now pending in the U.S. District Court for the Western District of Washington.

District Judge John C. Coughenour certified three questions relating to the two pending home foreclosures to the state's high court.

Justice Tom Chambers, writing for a unanimous Court, explained that in both cases MERS was informed by the loan servicers that the homeowners were delinquent on their mortgages and that it then appointed trustees who initiated foreclosure proceedings.

"The primary issue is whether MERS is a lawful beneficiary with the power to appoint trustees within the deed of trust act if it does not hold the promissory notes secured by the deeds of trust," Chambers wrote in the Court's ruling Thursday.

"A plain reading of the statute leads us to conclude that only the actual holder of the promissory note or other instrument evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure on real property."

The Court also was asked to determine the "legal effect" of MERS not being a lawful beneficiary.

In their 41-page opinion, the justices said they were unable to come to a conclusion based on the record and argument before them.

Finally, the Court was asked to determine if a homeowner has a CPA claim based on the registry representing that it is a beneficiary.

"We conclude that a homeowner may, but it will turn on the specific facts of each case," Chambers wrote.

In a statement Thursday, MERS said it has "maintained consistently" that it is an agent of lenders and their successors and assigns.

The company also noted that it ceased commencing foreclosures in its name more than a year ago, so the Court's opinion does not impact its current operation.

"The opinion will, however, create confusion for Washington homeowners while the trial courts consider its effect on pending cases," said Janis L. Smith, vice president for corporate communications.

"We remain confident that MERS' role in the U.S. housing finance system is valid and will withstand legal challenges."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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