Washington Supreme Court Rules MERS Can't Foreclose

November 06, 2012

In a unanimous ruling on August 16, 2012, the Washington Supreme Court ruled that the controversial mortgage-tracking organization known as MERS, or Mortgage Electronic Registration Systems Inc., lacks the authority to initiate out-of-court foreclosures in the state.

In its written opinion, the court also found that MERS may have violated state consumer protection laws with its involvement in robo-signing and other practices that appear to violate the Washington Consumer Protection Act. Hundreds or even thousands of Washington foreclosures may have been affected, according to one attorney quoted by the Seattle Weekly.

MERS uses a mortgage-tracking system that was created by the mortgage industry to streamline the process of selling loans to investors. The system allows loans to be bundled and sold without recording each transfer individually with county recorder's offices.

Although MERS is involved in many mortgages in Washington and across the country, it does not receive payments from homeowners or negotiate on behalf of mortgage lenders. The court ruled that MERS does not have the authority to initiate out-of-court foreclosures on its own because it is not the actual owner of the loans and therefore does not fit the definition of a legal beneficiary under Washington state law.

The Supreme Court ruling applies only to non-judicial foreclosures -- those that take place outside the courtroom. Most foreclosures that take place in Washington State are non-judicial. As a result of the ruling, MERS will no longer be able to initiate out-of-court foreclosures in Washington. Although MERS stopped initiating foreclosures in its own name in 2011, the decision could still affect homeowners whose foreclosure cases previously filed by MERS are still pending. In addition, the ruling affects other entities known as "servicers," which collect mortgage payments on behalf of note holders and often conduct foreclosures. Now, mortgage lenders will be required to initiate out-of-court foreclosure proceedings themselves instead of relying on proxies.

In addition to clarifying the foreclosure process in Washington, the recent ruling may also open the door for homeowners who were wrongly foreclosed upon by MERS and other unauthorized entities to sue for damages under Washington's Consumer Protection Act. The court found that MERS's characterization of itself as the beneficiary on a mortgage, despite never holding the promissory note, could be viewed as a deceptive and illegal business practice under the CPA.

Homeowners facing the possibility of foreclosure in Washington, as well as those who believe they may have been foreclosed upon improperly, are encouraged to discuss their situations with an experienced real estate and foreclosure lawyer to learn about their rights and legal options.

Article provided by Triad Law Group
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