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MERS Court Ruling Affects Financial Institutions with REO Properties in Michigan

Note: This story is provided as informational only for PFI´s clients and any actions should be reviewed with your legal counsel to ensure the proper action is taken by your company.

Michigan homeowners have found their foreclosed properties in flux based on a recent Michigan Court of Appeals decision.  In the case referred to as Residential Funding Co. v. Saurman, the court held that under Michigan law Mortgage Electronic Registrations Systems, Inc. (MERS) lacked authority to initiate foreclosures by advertisement.

“This decision brings into question virtually each and every foreclosure that was completed by MERS or under similar circumstances,” said Brian Dailey, Attorney and radio talk show host of the Dailey Law Firm, PC.  “This decision could result in the restoration of previously foreclosed properties to their original owners and in some cases damages to homeowners for abuse of process, malicious prosecution, violation of legal rights, conversion, fraud, theft, and wrongful foreclosure.”  The Daily Law Firm has recently filed a class action lawsuit in United States District Court alleging, among other claims, wrongful and illegal foreclosure by advertisement. 

At least one trial court has recently followed the Residential Funding case.  A Washtenaw County trial court, recently relied on and extensively quoted the Residential Funding case when it decided that a foreclosure sale was void because MERS did not have the authority to foreclose by advertisement.

MERS was set up in 1993 by several large participants in the real estate mortgage industry to keep track of loans bought and sold by financial institutions. A system was created in which MERS, on behalf of the lender, was named as mortgagee and remained the mortgagee regardless of which lender owned the loan.  By using MERS, lenders could buy and sell loans without having to record a mortgage transfer for each transaction with the local register of deeds.

Proctor Financial, Inc. wants financial institutions with REO properties in Michigan to be aware of the issue and the potential impact these cases could have on their portfolio.

All REO properties foreclosed by MERS may be impacted by these cases.  Lenders should review the REO/foreclosed properties in their portfolio to determine if they are affected by the Residential Funding Co. court ruling and what the ruling means to the re-sale of its REO properties.  Because lenders may need to maintain insurance on the REO properties, PFI offers a REO Guard lender-placed hazard insurance program which will maintain coverage on these properties for financial institutions.

If you would like more information on REO Guard, please contact PFI at (800) 521-6800 ext. 1464 or Contact PFI.