Tuesday, February 19, 2013

foreclosure - standing to challenge MERS

Culhane v. Aurora Loan Services – February 2013 – 1st Circuit

SELYA, Circuit Judge. As the millennium dawned, American financial markets soared to new heights. One of the vehicles that propelled this dizzying flight involved the bundling and securitization of residential mortgage loans. But all good things come to an end, cf. Geoffrey Chaucer, Troilus and Criseyde (circa 1374) ("There is an end to everything, to good things as well."), and it was not long before the economy faltered and the housing bubble burst. A rash of residential mortgage foreclosures  followed.

Novel practices had been devised to facilitate the bundling and securitization of residential mortgage loans — and those practices gave rise to hitherto unanswered questions in the foreclosure context. The fact pattern here is emblematic: the mortgagor's note was delivered to one party (the lender) and then transferred; the mortgage itself was granted to a different entity,Mortgage Electronic Registration Systems, Inc., and later assigned to the foreclosing entity. We are asked, as a matter of first impression for this court, to pass upon not only the legality and effect of this arrangement but also the mortgagor's right to challenge it. The substantive law of Massachusetts controls our inquiry.

After careful consideration, we conclude that, in the circumstances of this case, the mortgagor has standing to contest the validity of the mortgage assignment made by MERS to the foreclosing entity. We also conclude, however, that the MERS framework is faithful to the age-old tenets of mortgage law in Massachusetts and that, therefore, the foreclosure here was not unlawful.

Standing doctrine is meant to  be  a  shield  to  protect  the  court  from  any  role  in  the adjudication of disputes that do not measure up to a minimum set of adversarial  requirements.  There  is  no  principled  basis  for employing standing doctrine as a sword to deprive mortgagors of legal protection conferred upon them under state law.  We hold, therefore,  that  a  mortgagor  has  standing  to  challenge  the assignment  of a mortgage on her  home to the  extent  that such  a challenge is necessary to contest a foreclosing entity's status qua mortgagee.-