MERS 1, Homeowners 0

In Residential Funding Co., LLC, f/k/a Residential Funding Corp. v Saurman, the Michigan Court of Appeals held that Mortgage Electronic Registration Systems Inc. (“MERS”) could not pursue foreclosures under Michigan’s foreclosure by advertisement statute and that certain foreclosures already obtained were invalid. MERS was created by the lending industry to make it easier to sell home loans to investors. By designating MERS as the mortgagee on documents recorded with the county clerk’s office, the need to record subsequent transfers of the loan was eliminated. Without the requirement to record subsequent transfers, the sale of loans to investors could proceed quickly. In Saurman, the Court of Appeals determined that MERS status as a mortgagee did not give it an “interest in the indebtedness” sufficient to allow it to use Michigan’s foreclosure by advertisement statute. Foreclosure by advertisement is the preferred method used by lender to foreclose on delinquent homeowners because its cheaper and quicker.

The plaintiffs in Saurman asked the Michigan Supreme Court to allow them to appeal the Court of Appeal’s decision. In lieu of granting leave to appeal, the Michigan Supreme Court issued an Order reversing the Saurman decision. The Court was of the opinion that MERS did own an “interest in the indebtedness.” It characterized that interest as “the ownership of legal title to a security lien whose existence is wholly contingent on the satisfaction of the indebtedness.” In the Court’s view, that interest was sufficient to include MERS in the categories of persons entitled to foreclose by advertisement.