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First Circuit Rules MERS Procedure Follows Massachusetts Law, Permitting Foreclosure - Culhane v. Aurora Loan Services

March 5, 2013

Vincent Howard and our Rubidoux foreclosure defense attorneys were interested to see another challenge to MERS, the private company that controls mortgage assignments. The Mortgage Electronic Registration System was created in the 1990s by lenders that wanted to buy and sell mortgage loans without taking the trouble to register them with county land offices, as required by law everywhere. Challenges to the law have generally failed, including ones raised more recently by mortgagors. Culhane v. Aurora Loan Services of Nebraska concerned the related issue of whether the procedure for assignments by MERS followed state law--in this case, Massachusetts state law--well enough to permit the assignee to foreclose. The First U.S. Circuit Court of Appeals ultimately decided that it does, upholding the district court.

Oratai Culhane refinanced her home in Milton, Mass. in 2006. She took out the loan from Preferred Mortgage Services and executed a separate mortgage document in favor of MERS "as nominee for lender and lender's successors and assigns," giving MERS legal title to the premises. Preferred transferred the note to Deutsche Bank as trustee for a mortgage-backed security; Aurora was the servicer. MERS eventually transferred the mortgage to Aurora, a nonmember. Aurora began foreclosure proceedings after Culhane fell behind on loan payments, though the foreclosure was delayed several times while Culhane pursued a HAMP loan modification and some bankruptcies. Three days before the foreclosure sale, Culhane sued in state court, alleging among other things that the involvement of MERS affected Aurora's right to foreclose. The district court, where the case was removed, ultimately ruled for Aurora and the foreclosure went through.

Culhane nonetheless appealed, arguing that the assignment from MERS to Aurora was not valid beause MERS never properly held the mortgage. Thus, she argued, the foreclosure was not valid. The First Circuit started by disagreeing with Aurora's argument that Culhane did not even have standing to challenge the assignment. Culhane is not a direct party to the assignment, the court said, but Massachusetts law gives homeowners the legal right to ensure that foreclosures on their homes are lawful. Furthermore, to decide otherwise would deprive homeowners of any ability to challenge non-judicial foreclosures, the court said. Thus, Massachusetts homeowners have standing only for certain claims. However, the First rejected Culhane's claim that MERS had to have the beneficial interest in the loan (the note or the right to enforce it) in order to hold the mortgage. Massachusetts law permits them to separate; the mortgagee is not required to own the note in order to retain the mortgage. Thus, the assignment and the foreclosure are valid, the First said.

Vincent Howard and our Irvine foreclosure defense lawyers are not surprised by this decision. In fact, if Culhane's argument had been successful, it could have cast doubt on various other state-level cases in which foreclosures were stopped because the note and the mortgage (or the rights to enforce them) were separated. However, it's encouraging to see the court upholding standing for Massachusetts homeowners in certain situations, because a decision to the contrary could valid challenges to invalid foreclosures. Without standing, courts throw out cases before they can even consider the merits of a challenge. Vincent Howard and our Rancho Cucamonga foreclosure defense attorneys work hard to ensure that our clients' cases are heard on the merits and not dismissed on technicalities.

If you believe you were pushed into foreclosure by a lender that didn't give your efforts to stop it fair consideration, you should call Howard Law, P.C., to discuss whether a lawsuit could help. To learn more, you can reach us at 1-800-872-5925 or send us a message through our website.

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