Texas is not exactly a consumer-friendly state, so the Federal court ruling in the Eastern District of Texas against MERS has the potential to have broad ramifications (note a Federal court in Texas will still have to look to Texas law and precedents on real estate matters). Oddly, even though this decision took place last month, it seems to have escaped the notice of most real-estate oriented sites until now. Hat tip to April Charney for highlighting it (literally and figuratively, she marked the filing that I’ve posted below):
The borrower challenged an assignment from Citimortgage to MERS based on a pretty simple basis: MERS was not authorized to do so and on top of that violated its own procedures:
Plaintiff alleges that the assignment by MERS to CitiMortgage is void for the following reasons: (1) Blackstun was not appointed as vice president by MERS’ board of directors; and (2) MERS was without authority to transfer the Note. Plaintiff claims that the Deed of Trust is a cloud on its title and sues to quiet title in the Property and claims the assignment violates Chapiter 12 of the Texas Civil Practices and Remedies Code. Alternatively, Plaintiff sues to enforce its equity [*3] in re-demption.
The court found that the mechanism used by MERS, of having MERS’ corporate secretary (Hultman) appointment various MERS signing officers was invalid because the appointment has not been approved by MERS’ board of directors, as required by MERS’ by-laws. That means that when the signing officer executed the assignment, it resulted in MERS filing a fraudulent document in the deed records.
Per April Charney: “The Court found that MERS failed to address the issue of the legal effect of an assignment executed by an unauthorized signer.”
The court also rebuked MERS, noting that the signing officer “had no such authority, MERS would know that fact. It appears to be more than mere negligence by MERS.”
Given the large number of signing officers that MERS has (over 20,000, with a lot of churn among them) which would seem to make it impractical for the board to have authorized them individually as required, and the fact that in past cases Hultman appears to have provided the MERS authorization for signing officers, MERS appears to have more than a wee problem if other courts follow this Federal court ruling.