Back in February, we posted a blog titled MERS: a MESS We Should Know About. In that post, we warned that MERS, a system most mortgage entities have used in transferring the ownership of mortgages, might turn out to be rather problematic. It seems MERS is now creating challenges in the foreclosure process. DSNews reported last week that the state of Michigan is not recognizing some of the foreclosures completed using the MERS system:As a quasi-judicial state, Michigan recognizes both judicial foreclosures that go through the courts and œforeclosure by advertisement, which gives creditors™ the right to foreclose after they post a notice of the default in a newspaper for four consecutive weeks when the mortgage includes a power of sale clause. The appellate court ruled the latter is not a valid function of MERS because the company does not own any interest in the debt. The judgment does not apply to judicial foreclosures conducted by MERS.If the courts have determined that certain foreclosures will not stand, do the original owners of the property still own the home? What about the new buyers who have purchased the foreclosure? The article says: ¦the court™s decision could void thousands of foreclosure actions in the state, including properties that have already been sold to new buyers.
What about future foreclosure sales in Michigan?
If they involve a MERS™ foreclosure by advertisement, title companies may be afraid to issue clear title:The Detroit Free Press says it™s received reports from local Realtors that title companies are canceling closings on some bank-owned homes in light of the appellate court™s ruling. According to Randall S. Miller, Esq., of the law firm Randall S. Miller & Associates in Bloomfield Hills, Michigan, œTitle underwriters are taking a very conservative stance on the issue and will not insure any property that was foreclosed in the name of MERS to be insured at REO sale unless the foreclosure was performed prior to 2005. Michigan has a five-year statute of limitations period in which to bring litigation challenging a foreclosure.
Bottom Line
It appears that some states are taking a hard line stance on certain MERS foreclosures. How much confusion will this create? We™ll have to wait and see.