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10th Circuit Court of Appeals Says MERS has Authority to Foreclose

Mortgage Electronic Registration Systems secured a legal victory this week when the Denver-based 10th Circuit Court of Appeals upheld three lower court opinions granting MERS the right to foreclose when the company is listed as nominee of the note.

The appellate case — Commonwealth Property Advocates v. MERS — dealt with three foreclosure cases on appeal. The homeowners argued the securitization structure prevents MERS from having a right to foreclose since investors with an ownership stake in loans held in trust never received a chance to approve the foreclosure action. Commonwealth Property Advocates became the plaintiff after the homeowners conveyed their properties to the entity.

The central issue debated on appeal was whether the “securitization of a note renders the holder of the underlying trust deed and its nominees unable to foreclose absent authorization by every investor holding an interest in the securitized note.”

The argument plays off the securitization process, which begins with an originator and a series of subsequent loan sales and assignments. Home loans that are securitized and sold to investors end up in a trust with investors generally retaining ownership in the form of their investments in the loan pool.

The plaintiffs further allege that Utah law prevents MERS from taking this type of action.

However, the 10th Circuit, which reviewed Utah appellate court decisions, upheld MERS ability to foreclose, saying the deed of trust specifically gave MERS the right “to foreclose on behalf of lender and lender’s successors and assigns.”

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