Mortgage Electronic Registration Systems, Inc. v. Carlton J. Ditto
2015 Tenn. LEXIS 1000
| Tenn. | 2015Background
- In 2006 Dossetts took a loan from Choice Capital secured by a deed of trust recorded in Hamilton County; the deed named MERS as "beneficiary . . . solely as nominee for [Choice Capital] and [Choice Capital's] successors and assigns."
- Dossetts failed to pay 2006 property taxes; Hamilton County sued for delinquent taxes, conducted a public-records search, and attempted notice to Choice Capital but not to MERS; property sold at tax sale to Ditto in June 2010 and sale was later confirmed.
- MERS filed a 2012 petition to set aside the tax sale as void for want of constitutionally required notice, arguing it had a protected property interest under the Due Process Clause; Ditto moved to dismiss for failure to tender the bid amount pre-suit under Tenn. Code Ann. § 67-5-2504(c) and argued MERS lacked any protected interest.
- Trial court granted judgment on the pleadings for Ditto, holding MERS had no protected interest; Court of Appeals affirmed but on standing grounds and held pre-suit tender was not required if tender made after filing.
- Supreme Court of Tennessee granted review to decide (1) whether the statutory pre-suit tender requirement applies to suits alleging tax-sale voidness for lack of constitutional notice, and (2) whether the deed of trust language gave MERS a protected property interest requiring notice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Pre-suit tender under Tenn. Code Ann. § 67-5-2504(c) | MERS: statute inapplicable where sale is alleged void ab initio for lack of constitutionally required notice; constitutional challenges fall outside statutory invalidation grounds | Ditto: statute applies to any suit to invalidate tax title; failure to tender is fatal | Court: Tender requirement inapplicable when plaintiff alleges tax sale is void for lack of constitutionally required notice (statutory pre-suit tender not required) |
| Whether MERS had a protected property interest (Due Process) | MERS: deed of trust names MERS beneficiary/nominee and gives it "legal title" and power to exercise lender rights (e.g., foreclose), so it has a protected interest entitled to mailed notice | Ditto/County: MERS is only a nominee/agent with no independent beneficial interest, receives no payments, and DOT does not confer a cognizable property interest | Court: MERS holds no independent protected property interest under the Fourteenth Amendment; mere nominee/bare legal title in this context does not trigger due process notice |
| Constitutional notice required to invalidate tax-sale decree | MERS: lack of mailed notice to an identifiable interested party renders the tax-sale proceedings void ab initio | Ditto: County complied with statutory record search and notice obligations; MERS was not an identifiable owner entitled to notice | Court: If an entity does have a protected property interest, Mullane/Mennonite require mailed or actual notice; but because MERS had no protected interest, no constitutional notice violation occurred here |
| Remedy and final disposition | MERS: set aside tax sale and declare its beneficiary status unaffected; alternatively declaratory relief recognizing retained interest | Ditto: uphold tax sale and title; dismiss for failure to tender | Court: affirmed judgment for Ditto — rejected dismissal for lack of tender but held MERS had no protected interest so sale stands as to MERS; Ditto remains title holder |
Key Cases Cited
- Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (1983) (mortgagee has substantial property interest; when publicly recorded mortgage identifies mortgagee, due process requires mailed or actual notice)
- Rast v. Terry, 532 S.W.2d 552 (Tenn. 1976) (tax-sale decree void for lack of notice may be attacked at any time; statutes governing invalidation presuppose valid sale)
- Tennessee Marble & Brick Co. v. Young, 163 S.W.2d 71 (Tenn. 1942) (void decree may be assailed at any time; a void decree is as though it never existed)
- Sprint Commc'ns Co. v. APPC Servs., Inc., 554 U.S. 269 (2008) (party with legal title by assignment can sue; context concerned standing of assignees who received full assigned claims)
- Thompson v. Bank of Am., N.A., 773 F.3d 741 (6th Cir. 2014) (discussion of MERS role; courts generally uphold MERS as nominee/agent able to act for note holder but with varying state-law results)
- Landmark Nat'l Bank v. Kesler, 216 P.3d 158 (Kan. 2009) (deed language treated MERS as nominee/agent, not an independent beneficiary; no protected property interest, so no due process violation)
- Weingartner v. Chase Home Fin., LLC, 702 F. Supp. 2d 1276 (D. Nev. 2010) (explains confusion from calling MERS "beneficiary"; MERS is nominee/agent and does not hold beneficiary rights in ordinary sense)