MERS and Foreclosure Law in Massachusetts: Culhane v. Aurora Loan Services

By: Andrew C. Glass, Gregory N. Blase, Roger L. Smerage

A Massachusetts federal court recently confirmed MERS’s ability to assign mortgages under Massachusetts law and approved MERS’s practices in doing so.

In Culhane v. Aurora Loan Services, — F. Supp. 2d —-, 2011 WL 5925525 (D. Mass. Nov. 28, 2011), a borrower sued her loan servicer to prevent foreclosure. The court granted summary judgment for the servicer, addressing two principal issues. First, the court examined whether Massachusetts law requires that the same entity hold both the note and mortgage before initiating the foreclosure process. Predicting how the Massachusetts Supreme Judicial Court may rule in a pending appeal, Eaton v. Federal National Mortgage Association, SJC-11041 (argued Oct. 3, 2011), the federal court concluded that under Massachusetts law, the mortgagee must either be the noteholder, or the servicer of the noteholder acting pursuant to authority from the noteholder, to foreclose on property pursuant to the power of sale.

Second, and importantly, the court confirmed MERS’s ability to assign residential mortgages under Massachusetts law. Specifically, the court found that (1) as the nominee of the mortgagee, MERS may assign a mortgage to the noteholder or servicer prior to foreclosure, and (2) MERS’s process of appointing employees of a servicer to act as officers of MERS so as to effect such an assignment comports with Massachusetts law. The court reasoned that because the note and mortgage must be reunited prior to foreclosure, the law must permit MERS to be able to assign the mortgage to the noteholder, or to the servicer acting for the noteholder, before foreclosure.

The Culhane court will not be the last court to address these issues. Indeed, as noted in Culhane, the Massachusetts Supreme Judicial Court will itself soon address the question of whether the mortgagee must hold the note prior to initiating foreclosure. Be sure to check back from time to time for further updates on MERS litigation, as well as Massachusetts foreclosure law and other issues of interest to the consumer financial services industry.