Mortgage Industry Wins Significant Ruling In Ninth Circuit, Largely Ending Consolidated MERS Cases

Class Actions  •  Litigation  •  MERS

9thcircuitLenders scored a victory in the Ninth Circuit on June 12, 2014, with the court largely affirming dismissal of claims by plaintiffs in multidistrict litigation challenging the lending industry’s use of Mortgage Electronic Registration Systems, Inc. (MERS).

The appeal stemmed from dozens of putative class actions and individual borrower cases filed against MERS, lenders, servicers, and others in the mortgage industry.  Lenders frequently designate MERS as mortgagee or beneficiary of security instruments, as nominee for lenders and subsequent loan owners.  When designated as mortgagee or beneficiary of mortgages or deeds of trust, MERS remains in that role when the lender transfers the associated promissory note to another entity, and the new note holder does not need to record an assignment of the security instrument in county land records.

The lawsuits challenged the use of MERS and sought damages and sweeping injunctive relief that, if successful, could have blocked non-foreclosures in twenty-nine states.  Starting in 2009, the lawsuits were transferred to a multidistrict litigation proceeding in the District of Arizona.  The defendants filed motions to dismiss, which the court granted with prejudice in October 2011, rejecting the plaintiffs’ arguments that it is unlawful to designate MERS as beneficiary of a deed of trust and dismissing each of plaintiffs’ claims.

On appeal, the Ninth Circuit rebuffed the plaintiffs’ procedural challenges to the multi-district ligation and affirmed dismissal of claims for wrongful foreclosure, violation of a Nevada foreclosure statute, and aiding and abetting wrongful foreclosure and predatory lending.  The Court’s opinion confirmed, at least as to certain states at issue, that the assignment of a deed of trust by MERS does not invalidate a foreclosure and that plaintiffs cannot plead wrongful foreclosure claims (whether based on issues related to MERS issues or not) without alleging that the borrower was not actually in default or has the ability to cure.

The Ninth Circuit reversed and remanded for further proceedings the dismissal of one claim by certain plaintiffs under an Arizona statute alleging that false documents were recorded in land records.  But aside from that claim, the ruling is likely the end of the consolidated MERS litigation.

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