It can be difficult to challenge a foreclosure based on the legal principle of "standing" (that is, the idea that the bank doesn’t have the right to foreclose), but for a while it looked like a case, Bank of America v. Greenleaf, might help Maine homeowners do just that. The court's holding in Greenleaf might have allowed homeowners to fight foreclosures in situations where Mortgage Electronic Registration Systems, Inc. (“MERS”) signed documents involved in the home-loan transaction.
However, in an effort to address the issues created by Greenleaf, the Maine legislature passed a new law in 2015 -- LD 321. This law creates a presumption that assignments executed by MERS as a nominee for the lender in past foreclosures are valid. It also sets standards for foreclosing banks to follow in upcoming foreclosures that involve MERS. This will likely make it more difficult for a homeowner to win a standing case by relying on a Greenleaf-based argument.
Read on to learn more about MERS (and the role it plays in mortgage transactions and foreclosures), what the court decided in the Greenleaf case, how LD 321 dealt with Greenleaf, and how it will probably affect foreclosures in the state of Maine.
To understand the Greenleaf decision and how LD 321 will affect foreclosures in the state of Maine, you must first understand MERS and how mortgages are transferred from one bank to another.
How mortgages are transferred between banks. Ordinarily, each time a mortgage is sold from one bank to another, an assignment (a document showing that the ownership of the mortgage has been transferred) is prepared and recorded in the county registry.
What is MERS? MERS is a company that was created by the mortgage banking industry to simplify the assignment process by maintaining a database that tracks mortgages for its members as they are transferred from bank to bank.
How the transfer works. In some cases, the mortgage designates MERS as a nominee for the lender. In other cases, the loan may be assigned to MERS as a nominee for the mortgage owner sometime after the loan closes. MERS then acts as a “nominee” (basically a placeholder) for the bank in local registries. Whenever the mortgage is assigned, the assignment is recorded electronically in the MERS system rather than at the registry. Since the loan is in MERS’s name in the registry, this saves time and recording costs. Multiple assignments are not necessary each time the loan changes hands. (Find out further details about MERS and its role in a mortgage transaction.)
MERS and Maine foreclosures. Before a foreclosure starts, MERS typically assigns the mortgage to the bank that currently owns the mortgage, which is then the plaintiff in the foreclosure action. (Learn more about the foreclosure process in Maine.)
In the case of Bank of America v. Greenleaf, 2014 ME 89 (2014), a Maine homeowner took out a mortgage from Residential Mortgage Services, Inc. (RMS). The mortgage listed RMS as the lender and MERS as the nominee for the lender.
MERS later assigned the mortgage to BAC Home Loans Servicing (BAC) (the current owner of the loan), which eventually merged into Bank of America. Bank of America started a foreclosure in court after the homeowner stopped making mortgage payments. The homeowner then challenged Bank of America’s right to foreclose (in legal terms, its “standing”), claiming that MERS had no right to assign ownership of the mortgage to BAC since it was only acting as a nominee for the lender.
The Maine Supreme Judicial Court ultimately agreed with the homeowner and held that, among other things, Bank of America did not have the right to foreclose on the property because MERS did not have the right to assign ownership of the mortgage to BAC.
One effect of the Greenleaf case was that, in Maine, MERS became a weak link in any chain of title and created potential title defects for any past foreclosure where MERS was involved. (This means that, based on this decision, someone who purchased a foreclosed home sometime down the line might not have marketable title if MERS had assigned the mortgage as part of the foreclosure.)
The Greenleaf decision also created a problem for banks that currently wanted to foreclose on any of the thousands of Maine mortgages registered with MERS, since they couldn’t use any MERS assignments. As a result, the Greenleaf decision caused foreclosure numbers in the state to plummet.
In an effort to clear up the issues created by the Greenleaf case, the Maine legislature passed LD 321 (titled “An Act to Protect Consumers Against Residential Real Estate Title Defects”).
For starters, LD 321 amended Maine law by establishing a presumption that a “nominee” (such as MERS) has the authority to execute an assignment for foreclosures that occurred before the law takes effect in October 2015, so long as either:
The bottom line is that the law validates completed foreclosures that used a MERS assignment and assures clear title after past foreclosures that involved MERS assignments.
The law also effectively requires banks that conduct future foreclosures to meet the requirements of the Greenleaf decision. Specifically, instead of relying on any MERS assignments to prove standing, the foreclosing party must prove ownership of a mortgage another way, such as by finding the loan’s original lender and getting an assignment from that entity, or offering other proof of standing.
So, whereas foreclosure numbers plunged sharply after the Greenleaf decision, banks will probably resume conducting foreclosures in Maine now that LD 321 has passed.
Ultimately, LD 321 validates past foreclosures that relied on MERS, but requires future foreclosures to meet the requirements of Greenleaf.
The issue of standing is complicated. If MERS is involved in your foreclosure and you are considering trying to challenge the action by claiming the bank doesn’t have standing to foreclose, you'll most likely need an attorney to help you through the process and ensure that you fully understand the likelihood of success in your case.