Jillayne pointed me toward an interesting Washington State Supreme Court ruling that was just filed today. It seems that according to the Supreme Court, Mortgage Electronic Registration System Inc. (MERS)—the popular service used by many banks to consolodate their mortgage filings—doesn’t have the standing to proceed with foreclosures in Washington unless they actually hold the promissory note (which they usually do not).
The primary issue is whether MERS is a lawful beneficiary with the power to appoint trustees within the deed of trust act if it does not hold the promissory notes secured by the deeds of trust. A plain reading of the statute leads us to conclude that only the actual holder of the promissory note or other instrument evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure on real property. Simply put, if MERS does not hold the note, it is not a lawful beneficiary.
I’m not an attorney, so the full implications of this ruling are not entirely clear to me, but the unclear standing of MERS before this ruling may have much to do with why foreclosures in Washington were declining through much of 2011 and early 2012. Banks simply couldn’t foreclose through MERS when they still held the note.
With this ruling there is now a clear path for banks that use MERS to process foreclosures in our state. Before beginning a foreclosure, MERS will need to record a deed back to the bank that actually holds the note, who must then initiate foreclosure proceedings themselves.
It will be interesting to see if this has much of an effect on the foreclosure stats over the next six to twelve months now that the question of how much can MERS legally do in a foreclosure has been answered.
[Update: More analysis was posted this evening at The Seattle Times]