In a significant ruling, a divided panel of the Michigan Court of Appeals recently ruled that Mortgage Electronic Registration Systems, Inc (“MERS”) is not statutorily permitted to foreclose a mortgage by advertisement. MERS was a corporation created by several large mortgage lenders to ease the assignment of loans in the residential marketplace. Rather than record assignments of mortgages, MERS acted as the nominee for the lenders, and assignments occur internally at MERS.
In Michigan, a mortgage can be foreclosed either judicially, or by advertisement (which does not require a court filing). Mortgages secured by residential properties are almost universally foreclosed by advertisement, given that it is a quicker, less expensive option. In Residential Funding Co, LLC v Saurman, a divided panel of the Michigan Court of Appeals ruled that MERS did not qualify to foreclose a mortgage by advertisement.
To qualify under the applicable Michigan statute, MERS would have to be either: (a) the owner of the indebtedness; (b) the owner of an interest in the indebtedness; or (b) the servicing agent of the mortgage. It was undisputed that MERS was not the owner of the indebtedness or the servicing agent. MERS argued it had an interest in the indebtedness, because its interest was derivative to the existence of the note. The Court of Appeals disagreed with that argument, and ruled that MERS did not satisfy any of the three qualifiers.
Given the significance of this issue to residential lenders in the State of Michigan, and the existence of a dissenting opinion in the Court of Appeals, one should expect an application for leave to appeal to the Michigan Supreme Court.
This is causing havoc with title companies, as closings have been cancelled where MERS is in the chain of title. I hope the Supreme Court does NOT allow MERS to keep cutting corners.