Mortgage Electronic Registration Systems, Inc. (MERS), the private electronic database that records the ownership of and servicing rights in home loans, was recently the subject of a Ninth Circuit appeal. Various borrowers had brought a multidistrict litigation in Arizona against MERS for five counts ranging from robosigning to aiding and abetting predatory lending.
On appeal, the Ninth Circuit reversed and remanded the Multidistrict Court’s dismissal of the first count concerning alleged violations of Arizona's false documents statute and affirmed the remaining counts.
- Count 1 – Violation of Arizona's false documents statute (robosigning): Dismissal reversed and remanded. Plaintiffs alleged that MERS “robosigned” documents in violation of Arizona's false documents statute (Ariz. Rev. Stat. Sec. 3-420). Plaintiffs claimed that documents such as notices of trustee sales and assignments of deed of trust had been notarized in blank and robosigned with forged signatures. The Ninth Circuit reversed the Multidistrict Court’s dismissal based on a change in law, noting that in a recent decision, the Arizona Court of Appeals determined that a damages claim is available under Arizona's false documents statute where a borrower alleges that a notice of substitution of trustee and assignment of deed of trust are false. See Stauffer v. U.S. Bank National Ass'n, 308 P.3d 1173, 1175 (Ariz. Ct. App. 2013). The Stauffer decision also provided that borrowers in default did have standing to bring allegations under Sec. 33-420. Because the allegations at issue in Stauffer closely resembled the borrowers' allegations here, the Ninth Circuit reversed the Multidistrict Court’s dismissal.
- Count 2 – Wrongful foreclosure based on MERS “splitting” ownership of the note from ownership of the deed of trust: Dismissal affirmed. The Ninth Circuit found that Plaintiffs’ claims failed because “none of the [borrowers] has shown a lack of default, tender, or an excuse from the tender requirement, [borrowers’] wrongful foreclosure claims cannot succeed.”
- Count 3 – Improper nonjudicial foreclosures in violation of Nevada law: Dismissal affirmed. For this count, the borrowers alleged that MERS was not the “true beneficiary” under the deed of trust. The Ninth Circuit disagreed with the plaintiffs, ruling that Edelstein v. Bank of New York Mellon, 286 P.3d 249 (Nev. 2012) “makes clear that MERS does have the authority, for the purposes of Nev. Rev. Stat. Sec. 107.080, to make valid assignments of the deed of trust to a successor beneficiary . . . .”
- Count 4 – Aiding and abetting wrongful foreclosure: Dismissal affirmed. Having found that the borrowers’ allegations of wrongful foreclosures under Arizona, California and Nevada law were without merit, the Ninth Circuit had little difficulty with dispatching this related claim of aiding and abetting wrongful foreclosure.
- Count 5 – Aiding and abetting predatory lending: Dismissal affirmed. The Ninth Circuit found that the Multidistrict Court’s determination that these claims did not relate to the formation and operation of the MERS system was correct.