MERS Conundrum: Pragmatically Resolved

Good morning. It is Sunday, November 20, 2011, and I am writing this article in great anticipation of the Lions and Panthers game at 1:00. For those who are football fans, I would like to extend my congratulations to the Wolverines, who beat the Cornhuskers yesterday in Ann Arbor!!

The MERS issue has been resolved. On November 16, 2011, the Michigan Supreme Court reached a pragmatic result in reversing the decision of the Michigan Court of Appeals.

In my article titled "MERS Conundrum," written August 14, 2011, I had analyzed the Court of Appeals decision. Under the microscope was MCL 600.3204(1)(d), which reads, in part: "a party may foreclose a mortgage by advertisement . . . if the party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage."

The appellate court held that for a party to own an interest in the indebtedness, it must own an interest in the note. It reasoned that MERS, acting solely as the mortgagee, did not own an interest in the note, which meant that it did not own an interest in the indebtedness, which meant that it did not qualify as a party capable of foreclosing under 600.3204(1)(d). Additionally, as agreed by the parties, MERS was never acting as a Servicing Agent.

Now . . . Enter the Michigan Supreme Court, stage right. It's like grandmother offering a comforting hand and sense of reasonableness to an otherwise chaotic situation.

On November 16, 2011, The Michigan Supreme Court reversed the decision of the Court of Appeals.

Supreme Court's REASONING:

MERS is in fact "the owner of an interest in the indebtedness secured by the mortgage, because MERS' contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured."

The Court acknowledged that MERS did not own an interest in the note, rather that MERS, as record holder of the mortgage, the continued existence of which was contingent upon the satisfaction of the indebtedness, authorized MERS to foreclose by advertisement under MCL 600.3204(1)(d).

The Court further added that, under settled law in Michigan, the mortgage and the note are to be construed together.

So that's it: the conundrum is resolved. Life goes on for all in the title and searching industry.

Some people support the decision of the Court of Appeals. Others support the decision of the Supreme Court. Regardless of which side of the fence you stand on, we all knew that the writing was on the wall. We all expected that the Court of Appeal's decision would be overturned, either by decision or legislation. I think the legislature left this decision to the higher courts of Michigan simply because the argument focused around a statutory interpretation. Such matters are for the court to tangle with.

The Michigan Supreme Court, acting like the comforting grandmother it is, put everyone in the real estate industry to bed with a warm glass of milk. Conundrum resolved.

dave