A recent court decision at the federal level rules that there is “no splitting” of MERS and banks when MERS is acting as the bank’s agent in a foreclosure action.
In other words, MERS (Mortgage Electronic Registration Systems) the mortgage tracking and recording agent and the foreclosing banks are one. But the key aspect of the ruling may inadvertently aid homeowners to gain a better legal footing.
At first look, the ruling, which disseminates from a bankruptcy court appellate review panel, seems to diminish a homeowner’s ability to challenge the bank’s legal standing to foreclose.
However, the complex nature of bank mortgage transfers often places the homeowner in the center of a finger-pointing campaign between MERS and the foreclosing bank.
MERS is typically named as a co-defendant with the homeowner in the actual foreclosure lawsuit. The bank considers any person or entity with an interest in the home being foreclosed as an adverse party and in order to take full custody of the home, the bank attempts to neutralize all party interests to the subject property.
A party interest can arise from a tenant, any resident, lien holder, or even a judgment creditor. The bank brings the foreclosure action against anyone that has an interest in the subject property, even if that anyone is MERS, the duly assigned agent designated by the foreclosing bank.
In a foreclosure, the homeowner is placed in a unique position whereby MERS is united with the homeowner rather than the foreclosing bank.
Through this peculiar alignment between MERS and the homeowner in the caption of the lawsuit, the homeowner is able to seek a legal defense from MERS to ensure that the mortgage covenant which MERS has been made a party to is not breached.
A key component of the mortgage is the covenant between the homeowner [mortgagor] and the bank [mortgagee]. Since MERS is the outwardly held mortgagee on behalf of the bank, it holds the rights to perfect this covenant upon its satisfaction or rigorously defend it against adverse claims such as a foreclosure.
It’s MERS, as the designated mortgagee, that has the exclusive power to release the encumbrance on the home.
MERS has historically relied on its obscurity and ambiguity in the foreclosure process but this ruling amplifies MERS’ role which arguably can potentially benefit the homeowner.
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