Federal Judge, Citing Bain Decision, Rejects Plaintiffs’ Consumer Protection Act Claims

Federal Court finds MERS Deed of Trust not an Impediment to Non–Judicial Foreclosures in Washington  

Reston, Virginia, December 5, 2012—MERSCORP Holdings, Inc. today announced that Judge Ronald B. Leighton of the U.S. District Court, Western District of Washington at Tacoma recently ruled that Mortgage Electronic Registration Systems, Inc. (MERS) involvement in two trust deeds did not prevent the note-holder from initiating the non-judicial foreclosure process or cause injury to the borrowers – a necessary element of a Consumer Protection Act (CPA) claim.

In Kullman v Northwest Trustee Services, Inc., Judge Leighton, citing the recent Bain v. Metropolitan Mortgage Group decision, found that the Washington Supreme Court “did not rule MERS involvement renders a foreclosure per se invalid.”  Judge Leighton noted that the borrowers failed to prove that they were harmed by MERS’ role in the foreclosure and that the borrowers admitted that they defaulted on their mortgage. The Court found the plaintiffs’ claims against MERS sought to generate controversy through this action where none exists. The Court also found no merit to plaintiffs’ claims for fraud or violation of Washington’s CPA against MERS and the other defendants.   

In Lynott v. MERS, et al., Judge Leighton, also citing Bain and the Washington Deed of Trust Act, held that U.S. Bank had the authority to foreclose because it was the holder of the borrower’s promissory note and the MERS trust deed assignment did not render U.S. Bank incapable of foreclosing.   “Here, Plaintiff’s claims arise from a fundamental misunderstanding of the law,” Judge Leighton wrote.  “U.S. Bank is the beneficiary of the deed because it holds Plaintiff’s note, not because MERS assigned it the deed.” 

He further noted that J.P. Morgan Chase’s involvement in the foreclosure was also acceptable because it was acting as an agent for U.S. Bank.  “The Washington Deed of Trust Act expressly authorizes the use of agents,” he held.  Lastly, Judge Leighton ruled that the borrower could not sustain a CPA claim against any of the defendants including MERS because the Bain decision did not create a per se cause of action based solely on MERS’ involvement in the trust deed.

 “As we noted in our initial statement concerning the Bain opinion, the Washington Supreme Court did not find that deeds of trust that name MERS as beneficiary prevent MERS members from foreclosing non-judicially,” MERSCORP Holdings Director of Corporate Communications, Jason Lobo, said.  “We are pleased that this federal court, the Washington Superior Court and the Washington Court of Appeals have all rejected CPA claims against MERS."

For descriptions of cases and other materials pertaining to MERS’ business model and role in U.S. housing, please visit www.mersinc.org

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MERSCORP Holdings, Inc. is a privately held corporation that owns and manages the MERS® System and all other MERS® products.  It is a member-based organization made up of thousands of lenders, servicers, sub-servicers, investors and government institutions.  Mortgage Electronic Registration Systems, Inc. (MERS) serves as the mortgagee in the land records for loans registered on the MERS® System, and is a nominee (or agent) for the owner of the promissory note.  The MERS® System is a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members.