Failing To Name MERS In Utah Quiet Title Suits Leads To Default Judgments, Mortgage-Free Title For Homeowners; Lawyers Say MERS Not Entitled To Notice

In Salt Lake City, Utah, The Salt Lake Tribune reports:

• A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.

• The award of a title free of liens means that whoever owns the promissory note on the Draper property — likely a group of faraway investors — no longer has the right to foreclose to collect on a delinquent loan. Indeed, the townhouse owner has sold the property and kept the money. Those who own the promissory note probably don’t even know what occurred.

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• Last year, the owner of the Draper property contacted attorney Walter T. Keane to help him deal with lenders, though Keane won’t say what the problem was and the owner declined an interview request. Keane filed what’s called a “quiet title action,” a lawsuit in which the owner seeks clear title to a property free of liens by lenders or others.

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• The lawsuit over the title to the townhouse named Garbett Mortgage and Citibank FSB as the holders of promissory notes as recorded on trust deeds filed with the recorder’s office. Integrated Title Services was listed as trustee of the Garbett Mortgage trust deed, while First American Title was the trustee of the CitiBank trust deed. But there also was another entity listed on the trust deeds called the Mortgage Electronic Registration Systems (MERS).

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• Under the state’s quiet title laws, Keane said he did not have to name MERS or serve it legal papers in the lawsuit because it was not the legal owner of title to the property. Those were title companies. In addition, attorneys contend, MERS cannot be the “beneficiary” or holder of the promissory note because it readily has admitted it has no financial interest in any notes or mortgages.

• Normally, a trustee named in a trust deed has a legal duty in Utah to the entity that holds the promissory note and for fair dealing with the homeowner. But in the townhouse case, First American Title filed a response to the quiet title action saying that it had no idea who had the right to collect payments on the promissory note, nor did it admit to knowing any other basic information about the property.

• “The fact of the matter is First American Title doesn’t know who the beneficiary of the trust deed is and basically they disavow any interest in it,” Keane said. “It’s an acknowledgement [the recording system on this property is] a fiction, that they don’t have any real interest in it.”

• Garbett Mortgage also told the court it no longer held an interest in the property. Integrated Title never filed a response to the lawsuit but did withdraw as a trustee with the Salt Lake County Recorder’s Office. “Considering the owner of the property [the title companies who were trustees] failed to dispute the matter, and further considering that the original lender claims no further interest, the court nullified the trust deeds prior to setting any type of trial date,” Keane said.

• So in the four months that the process took, the owner was able to gain title and deny the owners of his loan the ability to foreclose on the property for nonpayment. That means the promissory note owned by investors may be worth far less than they paid for it because it is no longer backed by an asset. [...] Keane said he’s been able to obtain quiet title in the same manner in two other cases.

• Another attorney, Abraham Bates, said he recently also won a quiet title action in a similar case in Salt Lake County. [...] Bates said under Utah laws, it was not necessary to serve MERS legal papers, as it was not in the Draper townhouse case.

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• Bates said he has more than 100 lawsuits pending over MERS-related questions and has hired more attorneys for his firm to handle the increasing load.

For the story, see How accurate are property records?