MERS Takes It on the Chin in Washington State Supreme Court Case

In recent Washington State Supreme Court decision (Bain v. MERS), the court ruled that the Mortgage Electronic Registration System (MERS) is not and cannot be a legal beneficiary under Washington State Law.  In effect only the legal holder of the note, the real creditor, has the power to appoint a substitute trustee in order to transact such legal actions as a foreclosure.

The court asserted that the power of sale of a property is a significant one and trustees have tended to ignore their duties and obligations.  The court believed it was time to swing a little bit of the power back to the side of the borrower.

Essentially, the court ruled that the lenders could not continue to routinely ignore the state’s laws regarding the recording of deeds and then turn around and use the same set of state laws to foreclose on a borrower.  The court also left the door open for those with legal grievances to ask for compensatory damages against MERS and those who used MERS in wrongful foreclosures.

The court made this decision in part because MERS never has anything to do with the actual financial transaction.  It never handles any of the money in the loan process, and it never has anyone on staff with personal knowledge of the principal for whom they are acting.  Therefore, MERS has no standing when it comes to a foreclosure.

So what is the general impact of the Bain decision?  The decision certainly clears the way for legal action in Washington for aggrieved homeowners who have lost their homes, or who are threatened with foreclosure through MERS as “beneficiary.”  While the ruling has no legal standing outside of Washington, it will most certainly be cited as case law for suits in other states where MERS is frequently listed as “beneficiary” with the right to appoint a nominee trustee.  This ruling adds considerable ammunition wherever MERS has been registered on deeds held in local property records as the owner, but it turns out is merely the nominee for a succession of owners. 

If MERS is all that is needed in order to record the sale of property, then why is there a statutory scheme for recording deeds and mortgages in every state? The MERS process circumvents the statutory system, and therefore MERS is arguably illegal in every state.  Perhaps not all state supreme courts will rule this same way; but many will, if cases reach that level.  The case does closely resemble one that was decided by the Kansas state supreme court.  In addition, since the Washington case was actually certified from a federal court, there is applicability of the ruling in any federal court case.

This ruling provides real estate investors with powerful ammunition in their efforts to help underwater homeowners, and buy houses at huge discounts.  There is now a direct ruling against MERS that puts into question the bank’s ability to foreclose.  We now have a way to force the banks to negotiate on our terms.  Not only are we able to use this information to help underwater homeowners get out from under their homes with no short sale, no deficiency, and no coming out of pocket, but we are able to pick up pretty houses at incredibly low prices.

For more information on how you can get involved in helping underwater homeowners while doing some awesome deals, give my office a call at 706-485-0162.