The recent decision of the Arkansas Supreme Court in the case seems to pretty much eviscerate the business franchise of Mortgage Electronic Registration Systems, Inc. (MERS) within the State of Arkansas.
The case is:
Mortgage Elec. Registration Sys. v. Southwest Homes of Ark., No. 08-1299, SUPREME COURT OF ARKANSAS, 2009 Ark. LEXIS 121, March 19, 2009, Opinion Delivered.
The case can be found online at:
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Ironically, the case is NOT about MERS standing at all. Rather, it is about MERS' right to notice in consideration of its designation as "nominee" of the original lender. The court correctly points out that a nominee is nothing more than an agent and the agent acts on behalf of the principal. Since the principal -- the named Lender -- was in fact named and served, MERS could have no additional right to notice beyond that due the principal, who had defaulted.
In route to the decision, the Court notes that MERS is nothing more than the Lenders' agent:
"We specifically reject the notion that MERS may act on its own, independent of the direction of the specific lender who holds the repayment interest in the security instrument at the time MERS purports to act. “[A]n agent is authorized to do, and to do only, what it is reasonable for him to infer that the principal desires him to do in the light of the principal’s manifestation and the facts as he knows or should know them at the time he acts.” Hot Stuff, Inc. v. Kinko’s Graphic Corp., 50 Ark. App. 56, 59, 901 S.W.2d 854, 856 (1995) (citing Restatement (Second) of Agency § 33 (1958)). Nothing in the record shows that MERS had authority to act. Here, Pulaski Mortgage was the lender and MERS’s principal. Pulaski Mortgage was a named party in the foreclosure action. Thus, MERS was not acting as the lender’s agent at the time it moved to set aside the decree of foreclosure."
The Court dismisses ANY pretense that MERS holds any independent rights separate from the owner of the indebtedness and the named trustee:
"MERS holds no authority to act as an agent and holds no property interest in the mortgaged land. It is not a necessary party. In this dispute over foreclosure on the subject real property under the mortgage and the deed of trust, complete relief may be granted whether or not MERS is a party. MERS has no interest to protect. It simply was not a necessary party. See Ark. R. Civ. P. 19(a). MERS’s role in this transaction casts no light on the contractual issues on appeal in this case. See, e.g., Wilmans v. Sears, Roebuck & Co., 355 Ark. 668, 144 S.W.3d 245 (2004)."
Note that if MERS has NO RIGHT TO NOTICE under Arkansas law, it CANNOT PROTECT ITS PRINCIPALS! Anyone who sues and names the Lender and named trustee can obtain a judgment and complete relief! ANY MORTGAGE INVESTOR WHICH LEAVES ITS UNRECORDED INTERESTS EXPOSED WITH MERELY THE NOMINAL INDICATION OF MERS AS NOMINEE RISKS ITS ENTIRE INTEREST IN A SUIT SIMILAR TO THE ONE DECIDED. THE FIRST LIENHOLDER'S INTEREST WAS EXTINGUISHED BY THE SECOND LIENHOLDER'S SUIT AND THE MORTGAGE INVESTOR IS LEFT WITH AN UNSECURED DEBT AGAINST A DEFAULTED BORROWER WHO HAS ALREADY LOST HIS HOUSE!