Indiana’s Take On MERS, Part II: The “Straw Man”

This follows up last week’s post regarding CitiMortgage.  In an effort to defeat ReCasa’s Ind. Code § 32-29-8-3 argument, Citi contended that an analysis of Section 3 was not necessary for the reason that the mortgagee of record was MERS.  Citi claimed that MERS, not Irwin, should’ve been given notice of ReCasa’s foreclosure suit.  See, I.C. § 32-29-8-1.  The Court didn’t bite.

Notice language.  Remember that MERS/Citi claimed that they did not receive proper notice of the foreclosure suit.  But, their own mortgage had the following language with respect to notice:

Any notice to Lender shall be given by first class mail to Lender’s address stated herein or any address Lender designates by notice to Borrower.  Any notice provided for in this Security Instrument shall be deemed to have been given to Borrower or Lender when given as provided in this paragraph.

The mortgage defined the lender as Irwin and provided Irwin’s address.  The mortgage also provided that Barabas owed Lender (thus Irwin, not MERS) money. 

Mortgage language.  The mortgage stated that MERS served “solely as nominee” for Irwin.  It appears that much of the confusion in the litigation arose out of the ambiguities in the mortgage.  Read the language for yourself: 

This Security Instrument is given to Mortgage Electronic Registration Systems, Inc. (“MERS”), (solely as nominee for Lender, as hereinafter defined, and Lender’s successors and assigns), as mortgagee. 

Irwin the mortgagee.  To determine whether MERS or Irwin was the mortgagee, the Court focused heavily on a 2009 decision by the Kansas Supreme Court Landmark v. Kesler, 216 P.3d 158 (Kan. 2009).  “The Kansas Supreme Court found that in this case, MERS was little more than a ‘straw man’ for [the lender].”  For more in-depth analysis, read CitiMortgage.  The Indiana Court of Appeals affirmed the trial court’s ruling, which declined to set aside ReCasa’s default judgment that placed ReCasa’s mortgage in first position.  The Court held:

When Irwin Mortgage filed a petition and disclaimed its interest in the foreclosure, MERS as mere nominee and holder of nothing more than bare legal title to the mortgage, did not have an enforceable right under the mortgage separate from the interest held by Irwin Mortgage.

Who to sue?  As a litigator, the role of MERS has always struck me as odd.  In practice, MERS may be a nice vehicle for commerce involving mortgage loans.  But, once the loans go into default and the mortgages must be judicially enforced, problems with interpreting the documents’ language have bubbled to the surface.  If, in the future, you or your foreclosure counsel struggle with whether to name MERS as a defendant, perhaps to be safe you should name both the identified lender and MERS, even though the CitiMortgage opinion suggests that MERS need not be named.  (CitiMortgage also demonstrates the need for a title commitment and an owner’s policy.  The commitment should help lenders decide whether to name MERS.) 

I understand Citi has filed a petition to transfer the case to the Indiana Supreme Court, so our State may not be done with creating law about MERS (transfer granted 4-10-12).  For more insight into how MERS views some of these issues, please see these links to its website:

• MERS as original mortgagee
• MERS foreclosures/bankruptcy
• Judicial decisions
• Case law outlines

NOTE:  On 10-4-12, the Indiana Supreme Court reversed the trial court.