Tuesday, September 13, 2011

Federal Appeals Court: Proposed Arizona Class Action Plaintiffs Failed To Allege Facts, Cite Law Proving MERS To Be Fraudulent Conspiracy

Reuters reports:

  • A lawsuit accusing several mortgage lenders of fraud over home loans maintained within the industry's private electronic database cannot proceed, according to a U.S. appeals court ruling.

  • The lawsuit targeted lenders, including Bank of America Corp, JPMorgan Chase & Co and Wells Fargo, over their use of the Mortgage Electronic Registration System. MERS, a unit of Merscorp Inc of Reston, Virginia, owns the computerized registry which tracks the transfer of the beneficial interest in home loans, as well as any changes in loan servicers. It was also a defendant.

  • Mortgage loan giants Fannie Mae and Freddie Mac and several of the largest U.S. banks established MERS in 1995 to circumvent the costly and cumbersome process of transferring ownership of mortgages and recording the changes with county clerks.

  • However, MERS's role in foreclosure cases has made it a lightning rod in recent months in other court decisions which have held that loan servicers' use of the registry violates basic real estate and mortgage laws.


  • A proposed class action in an Arizona federal court alleged a conspiracy among MERS members to commit fraud and facilitate predatory lending practices. [...] A lower court judge dismissed the lawsuit, and on Wednesday the 9th Circuit upheld that decision.

  • "Although the plaintiffs allege that aspects of the MERS system are fraudulent, they cannot establish that they were misinformed about the MERS system,"(1) wrote Judge Consuelo Callahan for the unanimous three judge 9th Circuit panel.

For the story, see Appeals court rejects mortgage database suit.

For the ruling, see Cervantes v. Countrywide Home Loans, Inc., No. 09-17364 (9th Cir. September 7, 2011).

(1) For sake of completeness, Judge Callahan's full quote follows:

  • Although the plaintiffs allege that aspects of the MERS system are fraudulent, they cannot establish that they were misinformed about the MERS system, relied on any misinformation in entering into their home loans, or were injured as a result of the misinformation.

  • If anything, the allegations suggest that the plaintiffs were informed of the exact aspects of the MERS system that they now complain about when they agreed to enter into their home loans.

  • Further, although the plaintiffs contend that they can state a claim for wrongful foreclosure, Arizona state law does not currently recognize this cause of action, and their claim is, in any case, without a basis. The plaintiffs’ claim depends upon the conclusion that any home loan within the MERS system is unenforceable through a foreclosure sale, but that conclusion is unsupported by the facts and law on which they rely.

  • Because the plaintiffs fail to establish a plausible basis for relief on these and their other claims raised on appeal, we affirm the district court’s dismissal of the complaint without leave to amend.

Editor's Note: A careful reading of this case should lead any objective observer to conclude that MERS did not win a carte blanche approval for all of its 'handiwork' in foreclosure actions nationwide. The ruling simply states that, given the specific facts as alleged, and given the specific laws plaintiffs relied on to establish their case, plaintiffs failed to allege viable causes of action. Contrary to what banksters and their apologists may claim to the contrary, there are no national implications to come from this ruling.

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