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Title Companies Can Proceed to Close Loans in Michigan With MERS as Mortgagee

May 3, 2011

False reports about a recent decision by the Michigan Court of Appeals have caused several title companies to refuse closing any transactions where MERS was the mortgagee.

The decision from the Michigan Court of Appeals in Residential Funding Corporation v. Saurman/Bank of New York v. Messner, upholds the legal right of Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee of the security instrument and nominee of the lender and lender’s successors and assigns. The court recognizes that MERS may exercise its interests in the mortgage by assigning the mortgage to the note holder so that the note holder may avail itself of the foreclosure by advertisement process.

MERS issued a release indicating title companies should not have any concerns about closing loans with MERS as the mortgagee.

In a 2-to-1 decision, the court held that MERS does not meet the requirements under Michigan statute to foreclose by advertisement (although the opinion does not preclude MERS from pursuing a judicial foreclosure) because the court holds that MERS is not an owner of an interest in the indebtedness. Judge Wilder, in a dissenting opinion, finds MERS to be a contractual owner of an interest in the notes with the right to foreclose by advertisement. MERS is reviewing the decision as to the next steps.

Earlier this year, MERS published a proposed membership rule change and MERS will no longer foreclose in its name, requiring members to obtain an assignment from MERS. So on a going forward basis, this decision does not impact the MERS business model or the ability of its members to foreclose on mortgages held by MERS as the mortgagee.

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