MEMORANDUM & ORDER
“What does a judge do?” asked my three year old granddaughter Mia. Without half thinking, I answered, “A judge teaches law to people who come to court.”
Upon reflection, that answer is about as good as any.
Frankly, this is the central tension in this opinion, as much of what I have to say addresses the conduct of a non-party, the Mortgage Electronic Registration Sys
I. INTRODUCTION
Oratai Culhane (“Culhane”) brought this action against Aurora Loan Services, LLC (“Aurora”) to prevent the imminent foreclosure of her family’s home in Milton, Massachusetts (the “subject property”). Aurora, after removing the action from state court, moved for summary judgment. In ruling on the motion, this Court must resolve whether the mortgage properly was assigned from MERS (the original mortgagee), to Aurora and, if so, whether Aurora otherwise has standing to foreclose under the statutory power of sale.
A. Procedural Posture
Acting pro se, Culhane filed her complaint and a motion for a temporary restraining order (“TRO”) in the Massachusetts Superior Court sitting in and for the County of Norfolk on June 17, 2011, to stop the foreclosure sale of the subject property, which then was scheduled to take place on June 20, 2011. Compl. & TRO Mot., ECF No. 4. That same day, Aurora filed its notice of removal to this Court. Notice Removal, ECF No. 1.
The motion for a TRO was set to be heard by this Court on June 22, 2011. On June 21, Aurora filed its opposition papers. Def.’s Mem. Opp’n PL’s TRO Mot., ECF No. 5; Aff. Kristen Trompisz Supp. Def.’s Mem. Opp’n PL’s TRO Mot., ECF No. 6.
At the hearing on the motion for a TRO, the Court allowed Culhane’s oral motion for a six-week continuance to allow her time to retain an attorney. Aurora requested time to file a motion for summary judgment, which it did two days later. Mot. Summ. J., ECF No. 7; Mem. Supp. Mot. Summ. J. (“Def.’s Mem.”), ECF No. 8. The hearing on the summary judgment motion was set for July 20, 2011. Aurora agreed to postpone the foreclosure sale until after that date.
On July 15, 2011, Culhane retained counsel, who promptly requested an extension of time to respond to Aurora’s summary judgment motion. PL’s Mot. Extension Time, ECF No. 18. The Court allowed the motion, but declined to continue the hearing to a later date.
At the hearing on the motion for summary judgment on July 20, 2011, the Court took the matter under advisement. Culhane filed her opposition to Aurora’s motion for summary judgment on August 5, 2011. Opp’n Mot. Summ. J., ECF No. 20; Mem. L. Opp’n Mot. Summ. J. (“PL’s Mem.”), ECF No. 24. On August 22, 2011, the Court granted Aurora’s summary judgment motion, save as to the question of Aurora’s standing to foreclose in view of MERS’s involvement in the chain of title. On September 7, 2011, the Court heard further oral argument on the motion, focusing its inquiry on MERS’s role in the assignment to Aurora, see Hr’g Tr., ECF No. 32, and subsequently ordered Aurora to submit documents pertaining to MERS’s practice of appointing non-employеe certifying officers for the purpose of making mortgage assignments, see Order, ECF No. 31.
On September 19, 2011, in accordance with the Court’s order, Aurora submitted, as attachments to its supplemental memorandum in support of its motion for summary judgment, various documents pro
B. Facts
Culhane is the record owner of the subject property, where she has resided for sixteen years with her two children. Compl. ¶ 2; Pl.’s Resp. Def.’s Statement Facts Supp. Mot. Summ. J. (“PL’s Resp. SOF”) ¶ 1, ECF No. 22; Aff. Oratai Culhane ¶ 1, ECF No. 23. On April 4, 2006, Culhane executed a promissory note to Preferred Financial Group, Inc. doing business as Preferred Mortgage Services (“Preferred”) in the amount of $548,000. PL’s Resp. SOF ¶ 2; Aff. Cristal Blanchard Supp. Def.’s Mot. Summ. J., Ex. A, Adjustable Rate Note, ECF No. 16. As security for the promissory note, Culhane executed a mortgage on the subject property to MERS as nominee for Preferred. Pl.’s Resp. SOF 113; Aff. Cristal Blanchard Supp. Def.’s Mot. Summ. J., Ex. B, Mortgage (“Mortgage”), ECF No. 16-1. The mortgage was dated April 4, 2006, and recorded April 11, 2006, in the Norfolk County Registry of Deeds, in Book 23562, at Page 348. Pl.’s Resp. SOF ¶ 3.
On April 7, 2009, the mortgage was assigned from MERS as nominee for Preferred to Aurora.
As evidenced by an undated endorsement on the back of the note, Deutsche Bank Trust Company Americas (“Deutsche”), as trustee for Residential Accredit Loans Inc., Mortgage Asset-Backed Pass-Through Certificates, Series 2006-Q05 (the “RALI Series 2006-Q05 Trust”), is the current note holder. Aff.
On April 30, 2009, Aurora filed a complaint pursuant to the Servicemembers Civil Relief Act (the “Servicemembers Act”) in the Massachusetts Land Court and satisfied the statute’s requirements by causing the order of notice to be published, served, and recorded, and by subsequently submitting its return on the order to the Land Court. Pl.’s Resp. SOF ¶¶ 5-6; Aff. Reneau Longoria Supp. Def.’s Mot. Summ. J., Ex. AA, Land Ct. Compl., ECF No. 10-1. On October 21, 2009, the Land Court issued its judgment that Culhane was not entitled to the benefits of the Servicemembers Act and that Aurora could execute the power of sale contained in the mortgage. Aff. Reneau Longoria Supp. Def.’s Mot. Summ. J., Ex. AC, Land Ct. J., ECF No. 14-3.
Aurora first scheduled the foreclosure sale for October 22, 2009. PL’s Resp. SOF ¶ 7. The notice of mortgagee sale was sent to be published on September 21, 2009. Id. ¶ 8. Pursuant to Massachusetts General Laws chapter 244, section 14, Aurora sent letters giving notice of its intent to foreclose the mortgage and pursue a deficiency judgment to Culhane, MERS, and Countrywide Home Loans, Inc. on September 24, 2009. Id. ¶9; Aff. Reneau Longoria Supp. Def.’s Mot. Summ. J., Ex. AB, Notice Intent Foreclose Mortgage, Sept. 23, 2009, ECF No. 10-2.
The foreclosure sale scheduled for October 22, 2009, was cancelled prior to that day. Pl.’s Resp. SOF ¶ 11. On June 3, 2010, the foreclosure process resumed, and then was put on hold numerous times over the course of nearly a year while Aurora reviewed Culhane’s file for loss mitigation, including a loan modification under the Home Affordable Modification Program (“HAMP”), and while Culhane filed,. and then dismissed, a series of Chapter 13 bankruptcy actions. Id. ¶¶ 13-39.
On May 12, 2011, Culhane was denied a HAMP modification as well as an in-house modification by Aurora. Id. ¶ 40. On May 16, 2011, the foreclosure sale was postponed until June 20, 2011, to allow Culhane to appeal pursuant to the HAMP denial guidelines. Id. ¶ 41. On May 24,
After Culhane filed her complaint and motion for a TRO and Aurora removed the action to this Court on June 17, 2011, Aurora postponed the foreclosure sale by public proclamation. Pl.’s Resp. SOF ¶¶ 44-46. The sale was scheduled for July 5, 2011, but in light of the hearing before this Court on July 20, 2011, Aurora agreed to postpone the sale until after that date. Id. ¶ 47. When this Court took Aurora’s summary judgment motion under advisement, it postponed the foreclosure sale indefinitely, pending the present Memorandum and Order.
The property is valued at approximately $480,000. Id. ¶48. The loan remains in default. Id. ¶ 50.
II. STANDARD OF REVIEW
Summary judgment is proper where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). An issue of fact is “genuine” if there exists a sufficient evidentiary basis on which the trier of fact could find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
III. ANALYSIS
It is clear beyond peradventure that Culhane is substantially behind in paying her mortgage and appears unable to remediate her default. This, however, does not render her an outlaw, subject to having her home seized by whatever bank or loan servicer may first lay claim to it. She still has legal rights. Everything that follows attempts to sort out these compete ing claims.
In moving for summary judgment, Aurora contends that it has established its standing to foreclose by obtaining an assignment of Culhane’s mortgage from MERS, the original mortgagee of record, prior to fulfilling its statutory obligation to publish and send notice of sale to all interested parties. Def.’s Mem. 8-9. Aurora argues that a mortgagee, or an assignee of the mortgagee, need not be the holder of the underlying promissory note to exercise the power of sale under Massachusetts General Laws chapter 183, section 21, and chapter 244, section 14. Def.’s Supplemental Mem. 4-6. Even were unity of the note and mortgage a prerequisite to foreclosure in Massachusetts, Aurora asserts that here such unity exists because Aurora not only is the assignee of the mortgage, but also is the servicer of the loan on behalf of the current holder of the note, Deutsche. Id. at 5-6.
While the parties dispute the timing of the transfer of the note to Deutsche and what bearing, if any, it has on Aurora’s ability to foreclose, they agree that the mortgage was assigned by MERS to Aurora on April 7, 2009. The assignment was executed on a date before the notice of sale by an individual purporting to have the requisite authority to make the assignment. Because the assignment ostensibly conformed to the strictures of Massachusetts law, MERS’s appearance in the chain of title to Culhane’s mortgage could go by unnoticed. Culhane argues, however, that the presence of MERS, a privatized system for the registration and tracking of home mortgage loans that directly has facilitated the pooling and conversion of such loans into mortgage-backed securities, in the chain of title is hardly as innocuous as it may seem, Pl.’s Supplemental Mem. 2-3.
Nationwide, courts are grappling with challenges to MERS’s power to assign mortgages as well as its practice of deputizing employees of other companies to make assignments on its behalf. The present ease is distinct only in that it is this Court’s first encounter with MERS and with the question whether its involvement in the origination and assignment of a mortgage loan clouds record title to the mortgagеd property. The public has an interest in ensuring the liquidity of the mortgage market. Thus, even if Culhane is unable to exercise her equitable right of redemption and foreclosure of her mortgage loan is inevitable, title must pass free of cloud and not subject to challenge in any future action for summary process or to try title on the ground that the foreclosure process was conducted unlawfully. See Bevilacqua v. Rodriguez,
A. Legal Framework
1. Statutory Power of Sale
Massachusetts is a non-judicial foreclosure state: a mortgagee need not obtain judicial authorization to foreclose on a mortgaged property. See Mass. Gen. Laws ch. 183, § 21 (statutory power of sale); id. ch. 244, § 14 (procedure for foreclosure under power of sale). A mortgagee may foreclose by exercise of the statutory power of sale, so long as that power is granted in or incorporated by reference into the mortgage itself. U.S. Bank Nat’l Ass’n v. Ibanez,
Under Massachusetts General Laws chapter 183, section 21, after a mortgagor defaults in the performance of the underlying note, the mortgagee may sell
First, the statutory power of sale may be exercised only by “the mortgagee or his executors, administrators, successors or assigns.” Mass. Gen. Laws ch. 183, § 21. A “person acting in the name of [the] mortgagee” also may “do all the acts authorized or required by the power” of sale. Id. ch. 244, § 14. An effort to foreclose by an entity “lacking ‘jurisdiction and authority' to carry out a foreclosure” — i.e., not holding the mortgage at the time of notice and sale — is void. Ibanez, 458 Mass, at 647,
Where a mortgage has been assigned, the assignee may foreclose “regardless whether the assignment has been recorded,” so long as the assignment takes places prior to the publication of notice and execution of sale. Ibanez, 458 Mass, at 654,
An assignment is effective, however, without the need independently to establish the authority of the assignor to make the assignment. In re Marron,
if executed before a notary public, justice of the peace or other officer entitled by law to acknowledge instruments, whether executed within or without the commonwealth, by a person purporting to hold the position of president, vice president, treasurer, clerk, secretary, cashier, loan representative, principal, investment, mortgage or other officer, agent, asset manager, or other similar office or position, including assistant to any such office or position, of the entity holding such mortgage, or otherwise purporting to be an authorized signatory for such entity, or acting under such power of attorney on behalf of such enti*362 ty, acting in its own capacity or as a general partner or co-venturer of the entity holding such mortgage, shall be binding upon such entity and shall be entitled to be recorded, and no vote of the entity affirming such authority shall be required to permit recording.
Mass. Gen. Laws ch. 183, § 54B.
Second, strict compliance with the statutory notice of sale provision is “essential to the valid exercise of [the] power” of sale. Ibanez, 458 Mass, at 648, 941 N.E .2d 40 (quoting Moore, 187 Mass, at 212,
In addition to compliance with these two main requirements of the statute, a mortgagee seeking to foreclose must “act in good faith and ... use reasonable diligence to protect the interests of the mortgagor.” Id. at 647 n. 16,
2. Unity of the Note and Mortgage
Under the “title theory” of mortgages, to which Massachusetts adheres, a mortgage is a transfer of legal title to a property for the purpose of securing a debt. Ibanez, 458 Mass, at 649,
In Massachusetts, unlike many other jurisdictions, the transfer of a note does not automatically transfer the mortgage with it. In re Marron,
The notion that a split of the debt and security interest results in a trustee-beneficiary relationship between the holder of legal title to the mortgage and the holder of the note, who retains a beneficial interest in the mortgage, is longstanding. In Young v. Miller,
When a party holds a mortgage to secure the payment of a single negotiable note only, and no formal assignment is made of the mortgage, and nothing to indicate an intention of the parties that it is not to be assigned; as the mortgagee and indorser of the note, after such indorsement, would hold only a barren fee, without beneficial interest, and as the mortgage accompanying the note would be highly beneficial to the indorsee for the security of his note, the law may well imply the intention of the parties that the mortgage is thenceforth to be held by the mortgagee in trust for the indorsee. In other words, such a transaction might manifest a resulting trust.
Id. at 154; see Collins v. Curtin,
While the obligation of the note holder to obtain an assignment of the mortgage prior to foreclosing is clear from the plain language of the statutory power of sale, see Ibanez, 458 Mass, at 648,
Numerous courts have held that “Massachusetts law does not require a unity of ownership of a mortgage and its underlying note prior to foreclosure.” Rosa v.
A recent Massachusetts Superior Court decision, Eaton v. Federal Nat’l Mortg. Ass’n, No. 11-1382, slip op.,
At least one federal bankruptcy court judge has since declined to follow Eaton’s interpretation of Wolcott and Crowley. See In re Marron, No. 10-45395-MSH,
In re Matron missteps both factually and legally in its analysis of the common law. First, as matter of fact, it is at most ambiguous whether the debt was in fact paid in full in Wolcott. See Wolcott, 81 Mass, at 464 (stating that “it is well established that a mere outstanding naked mortgage title, the debt having been paid, cannot avail the mortgagee, so as to sustain an action upon the mortgage,” but making no definitive statement that the debt had been paid in that case). Second, and more significant from a legal standpoint, while both Wolcott and Crowley state that a mortgage cannot be foreclosed where the underlying debt has been discharged, this is but one application — and perhaps the most “plain” and obvious one, Crowley, 226 Mass, at 585,
Were a mortgagee without an interest in the debt able to exercise the power of sale, the note would be left outstanding as a valid obligation of the mortgagor to its holder. Cf. Cooperstein v. Bogas,
Arguably, the mortgagee, as trustee, would have a fiduciary duty to account to the note holder for the proceeds of a foreclosure sale — thereby alleviating the concern of double liability. See In re Marron,
Therefore, unless the Supreme Judicial Court decides otherwise in Eaton v. Federal Nat’l Mortg. Ass’n, SJC-11041 (argued and taken under advisement on October 3, 2011), this Court, in agreement with two justices of the Massachusetts Superior Court, Adamson,
B. MERS and the Standard MERS Mortgage Contract
At the outset, this Court must acknowledge Aurora’s assertion that Culhane lacks standing to question MERS’s involvement in the chain of legal title here. Aurora argues (correctly) that Culhane expressly agreed to the transfer of bare legal title to MERS and its successors and assigns, see Mortgage 1, and that neither MERS nor Aurora itself has raised any issue whatsoever as to the assignment of that legal title from MERS to Aurora. This, however, hardly resolves the issue of Culhane’s standing.
MERS is the Wikipedia of land registration systems. A Delaware corporation headquartered in Virginia, it was created in 1993 along with its parent corporation MERSCORP, Inc. (“MERSCORP”) by major players in the residential mortgage market to track ownership interests in mortgage loans. In re Marron,
Mortgage lenders, loan servicers, law firms, title companies, banks, and insuranee agencies become “members” of MERS by paying annual fees and consenting to the MERS Rules and Terms and Conditions. In re Marron,
MERS members agree to name MERS as “mortgagee of record” in the appropriate public registry of deeds with respect to any mortgage that they register on the MERS database. MERS Rule 2, § 5(a); Terms & Conditions ¶ 2. “MERS is named as mortgagee of record in the mortgage so that beneficial ownership and servicing rights of the note may be transferred among MERS members without the need to publicly record such assignments; instead assignments of the note are tracked by MERS’ electronic system.” Rosa,
The standard MERS mortgage contract, like Culhane’s, defines MERS as “the mortgagee under this Security Instrument.” See Mortgage 1. It also states, however, that “MERS is a separate corporation that is acting solely as nominee for Lender and Lender’s successors and assigns,” with the term “lender” referring to the note holder. Id. MERS thus serves “as the mortgagee of record with respect to ... mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners thereof from time to time.” Terms & Conditions ¶ 2.
Courts and scholars alike have expressed reservation, even bewilderment, as to MERS’s claim to be both mortgagee and nominee or, as it has been generalized, both principal and agent. See, e.g., In re Agard,
MERS readily concedes that it does not own mortgage loans
This Security Instrument secures to Lender: (I) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, grant and convey to MERS (solely as nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of MERS, with power of sale, the following described property....
Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.
Mortgage at 2-3. By the very terms of the mortgage instrument, MERS holds only bare legal title to each mortgage registered on its system. Consistent with its status as holder of bare legal title to the mortgage, MERS further agrees to act at the direction of the note holder, who retains a beneficial interest in the mortgage. Terms & Conditions ¶ 3; MERS Rule 2, § 6. Thus, MERS is hardly a principal; at most, it is an agent. See Fontenot v. Wells Fargo Bank, N.A.,
The term “nominee” in fact connotes a narrow form of agency: a “person designated to act in рlace of another, usu[ally] in a very limited way.” Black’s Law Dictionary (9th ed. 2009). The MERS Rules likewise define “nominee” as a “limited agent,” MERS Rule 8(b), although this appears to be a recent addition, see In re Agard, 444 B.R. at 252 (stating that the section of the MERS Rules identified by MERS, an intervenor in that action, as establishing its role as the note holder’s agent “contains no explicit reference to the creation of an agency or nominee relationship”). Perhaps even more fitting to describe MERS’s role in the mortgage transaction is the second definition of “nominee” given in Black’s Law Dictionary: a “party who holds bare legal title for the benefit of others.” Black’s Law Dictionary; see Mortgage Elec. Registration Sys., Inc. v. Saunders,
As discussed above, the common law of Massachusetts permits the practice of splitting the mortgage from the debt that it secures (at least prior to foreclosure). Such a split results in the mortgagee holding legal title to the mortgage in trust for the note holder, who has an equitable right to obtain an assignment of the mortgage. The mortgagee is thus a mortgagee in a nominal sense only; its rights are limited by its obligation as trustee. This is precisely the same scenario created by the standard MERS mortgage contract,
It is as if by clever design that the MERS system fits perfectly into the Massachusetts model for the separation of legal and beneficial ownership of mortgages. See In re Marron,
At issue in this case is MERS’s power to assign the mortgage. The prevailing view in Massachusetts is that MERS has the power of assignment by virtue of its nominee status. See, e.g., In re Marron,
Moreover, although the standard MERS mortgage contract does not explicitly mention the power of assignment, it gives MERS, as nominee, the right “to exercise any of all of [the note holder’s] interests,” including, but not limited to, the rights to foreclose, release, and cancel the mortgage. Mortgage 3. Finally, in its Rules, MERS agrees to assign a mortgage that it holds as mortgagee of record “[u]pon request from the Member ... where the Member is also the current promissory note-holder.” MERS Rule 3, § 3.
There is, however, an important caveat to MERS’s authority to act on behalf of the note holder, a caveat stated explicitly in the mortgage contract. MERS, as nominee, may only exercise the rights of the note holder “if necessary to comply with law or custom.” Mortgage 3. Thus, for MERS to take any action for the benefit of the note holder, including an assignment of the mortgage, the law must require, not merely permit, it.
Under Massachusetts General Laws chapter 183, section 21, an entity seeking to foreclose must hold the mortgage, although it need not be recorded, prior to issuing the notice of sale, see Ibanez, 458 Mass, at 647,
That the mortgagor consented to this contractual language does not operate as a waiver of the law’s protection against foreclosure by the wrong entity. Cf. Henry v. Mansfield Beauty Acad., Inc.,
Yet, it cannot be that no party may exercise the power of salе. As discussed, the note holder or its loan servicer
In sum, despite the standard MERS mortgage contract expressly granting MERS, as nominee, the power to exercise the rights of the note holder, including the power of sale, MERS cannot foreclose in its own name because it has no claim to the underlying debt. Relatedly, because only the real party in interest may foreclose, it is “necessary to comply with law or custom” that MERS bе capable of assigning the mortgage’s legal title to its beneficial owner. These are the two distinct, but ultimately harmonious, results produced by the common law rule requiring unity of the note and mortgage prior to foreclosure.
Having established that an assignment of the mortgage from MERS to the note holder not only comports with Massachusetts law, but also is in fact required by it if the note holder wishes to foreclose, the actual procedure by which MERS makes such an assignment must adhere to the requirements of Massachusetts General Laws chapter 183, section 54B. As discussed, the statute provides that a mortgage assignment is binding and recordable if undertaken before a notary public “by a person purporting to hold the position of president, vice president, treasurer, clerk, secretary ... or other similar office or position, including assistant to any such office or position, of the entity holding such mortgage, or otherwise purporting to be an authorized signatory for such entity....” Mass. Gen. Laws ch. 183, § 54B. Proof of the signer’s actual authority to act on behalf of the mortgagee is not required; nor must the signer attest to truth and accuracy of the assignment or his personal knowledge thereof.
While these statutory requirements are hardly burdensome, the cleverness of MERS’s design to meet them is again inescapable. Upon request by a member, MERS furnishes a formal corporate resolution designating one or more of the member’s employees, chosen by the member, as “certifying officers” of MERS. MERS Rule 3, § 3. That is, MERS authorizes employees of the note holder or, more commonly, the note holder’s servicing agent to execute assignments on MERS’s behalf. See Aliberti,
At least until recently, none of MERS’s sixty-five actual employees even needed to be involved in this process of appointing certifying officers. Instead, the MERS member seeking the assignment from MERS would enter the names of its selected employees “into MERS’s Web site, and, in a blink, MERS produced a ‘certifying resolution,’ signed by [its senior vice president].” Michael Powell & Gretchen Morgenson, MERS? It May Have Swallowed Your Loan, N.Y. Times, Mar. 6, 2011, at BU; see MERS Training Bulletin No. 2010-03, Re: Certifying Officer Certification Process (Mar. 2, 2010), available at http://www.mersinc.org/files/filedownload. aspx?id=625&table=ProductFile. The deputized employees then were free to use MERS’s corporate seal for a fee of twenty-five dollars. Powell & Morgenson, supra. While MERS claims to have instituted a new process for “testing] and appointing]” certifying officers, as far as this Court can ascertain, the onus remains on MERS members to ensure that its employees are “validly appointed” and “appropriately] train[ed] to carry out their duties and responsibilities as Certifying Officers.” MERS Announcement Bulletin No. 2011-01, Re: Foreclosure Processing and CMRS (Feb. 16, 2011), available at http://www.mersinc.org/files/filedownload. aspx?id=678&table=ProductFile.
The titles and powers assigned to the individuals who become MERS’s certifying officers are confounding given that these individuals are not actually connected to MERS in any way.
That MERS can consider an individual who is not an employee of the company, has never been to the company’s location, does not know where the company is located, has never met the company’s president, does not know who the prеsident is, and has never communicated personally with the company in any way to be a vice president of that company is inconsistent with even the most expansive definition of the term vice president. It does not follow that because a belief is convenient it is also true.
Peterson, supra, at 146 (emphasis added) (citing testimony given in a foreclosure case by an employee of a Florida debt collection law firm, who, as a MERS certifying officer, would sign twenty to forty mortgage assignments per day on MERS’s behalf).
Perhaps the designation of servicer and law firm employees as assistant secretaries of MERS is less absurd, but it is still misleading. While many of these servicer and law firm employees are secretarial workers in the businesses that they actually work for, they are not assistant secretaries of MERS in any meaningful economic sense. They have no more contact with MERS than vice presidents do. Indeed, the fact that MERS’s boilerplate resolutions allow the employees to just pick which title they want to use is compelling evidence that the whole concept is twaddle.
Id.
This Court is deeply troubled that, with little to no oversight, individuals without any tie to or knowledge of the company on whose behalf they are acting may assign mortgages — that is, they may transfer legal title to someone else’s home. Cf. Jenifer B. McKim, Building an Empire, One Home at a Time, Bos. Globe, Aug. 7, 2011. Equally troubling is the conflict of interest posed by these certifying officers wearing “two hats” simultaneously: that of assign- or (as agent for MERS) and assignee (as employee of the note holder or its servicing agent). See James v. Recontrust Co., No. CV-11-CV-324-ST,
But what of it? MERS’s certifying officers “purport[ ] to hold the position of ... vice president, ... secretary, ... [or] assistant to ... such office or position.” Mass. Gen. Laws ch. 183, § 54B. That they hold themselves out as officers of MERS, the “entity holding [the] mortgage,” is all that the statute requires with respect to a signer’s authority. Id. The corporate resolution, however auto-generated, does give them actual authority to act on MERS behalf. Indeed, this is immaterial. Even without it, their assignments would be “binding upon [MERS] ... [and] entitled to be recorded.” Id.; see Kiah,
C. Standing of Aurora, as Assignee of MERS and Servicing Agent of Deutsche, to Foreclose
The Court turns now to the ultimate issue in this case: the standing of Aurora, as holder of the mortgage by assignment from MERS and as the servicer of the loan on behalf of the note holder, Deutsche, to exercise the statutory power of sale and thereby foreclose Culhane’s equitable right of redemption. The legal framework having been addressed in great detail, the application of the law to the facts here, which are largely undisputed, need not be belabored.
Culhane’s mortgage instrument is that of the standard MERS mortgage contract. It conveyed to MERS, as the mortgagee of record as nominee for Preferred, only bare legal title to the mortgage. The note originally was held by Preferred, but then was later transferred to Deutsche as trustee for the RALI Series 2006-Q05 Trust, into which Culhane’s loan and others were pooled and converted into mortgage-backed securities.
Therefore, it was Aurora, through its employee, JoAnn Rein, acting as MERS’s agent, who caused the assignment of the mortgage from MERS to it, so that it could foreclose. By then, Culhane had defaulted on her payments. Aurora formally initiated foreclosure proceedings on September 21, 2009, by sending the notice of sale to be published.
The Court holds that there was no flaw in this process. Under Massachusetts law, MERS lawfully held the legal title to Culhane’s mortgage in trust first for Preferred and subsequently for Deutsche. A purported officer of MERS then executed an assignment of the mortgage from MERS to Aurora before a notary public in accordance with Massachusetts General Laws chapter 183, section 54B. This assignment was made upon the request of Aurora, who services Culhane’s loan on behalf of Deutsche. The assignment was necessary to comply with the common law of Massachusetts requiring unity of the note and mortgage in the same entity prior to foreclosing. Aurora, as Deutsche’s loan servicer, has an interest in the underlying debt; Aurora also physically possesses the collateral file, including the note. With the assignment of legal title to the mortgage from MERS, Aurora became the mortgagee of record as well, thus perfecting its standing to bring a foreclosure action against Culhane.
Culhane makes much of the fact that the endorsement to Deutsche on the note and attached allonge is undated. While this Court agrees as matter of law that the mortgagee must hold the note or be the servicing agent of the note holder before initiating foreclosure proceedings, here Aurora did. Regardless of the date that Deutsche became the note holder, whether it was before or after the cut-off date for loans to be transferred into the RALI Series 2006-QO5 Trust, as оf April 1, 2008, Aurora was servicing Culhane’s loan for Deutsche. Aurora caused legal title to the mortgage to be assigned to it over a year after becoming the servicing agent, and it did not send the notice of sale to be published until September 21, 2009.
The Court has given the MERS system its most searching inquiry, and yet the only foible detected — that is, the grant to MERS of the power of sale, despite it having no claim to the underlying debt— already has been remedied, see MERS Rule 8(d), and is of no moment in this case. On this record, Aurora has proved its standing to foreclose and is entitled to a grant of summary judgment in its favor.
IV. CONCLUSION
For the foregoing reasons, Aurora’s Motion for Summary Judgment, ECF No. 8, is allowed. Judgment shall enter for Aurora declaring that it may foreclose the mortgage on Culhane’s home in a commercially reasonable manner.
SO ORDERED.
Notes
. At least it was when I joined the district court bench over a quarter century ago. Yet, even then
a "sea-change” was taking place among federal trial judges. Many no longer perceived their primary tasks as deciding motions after oral argument and presiding as neutral referees at trials. They were encouraged to consider themselves managers whose job was to dispose of cases expeditiously. From that perspective trials came to seem wasteful.
Stephen B. Burbank & Stephen S. Subrin, Litigation and Democracy: Restoring a Realistic Prospect of Trial, 46 Harv. C.R.-C.L. L. Rev. 399 (2011) (footnote omitted); see Philip W. Tone, The Role of the Judge in the Settlement Process, Fed. Judicial Ctr., Seminars for Newly Appointed United States District Judges 57, 60 (West 1975) (“Settlement is usually the avenue that allows a more just result than trial.”); Fed. Judicial Ctr., Seminars for Newly Appointed United States District Judges (West 1971) (stating that trials are a "failure” (quoting Judge Fred J. Cassibry));
Today, the conception that the judge is primarily an actual law teacher during court proceedings is held only by a shrinking minority. One judge at least has the courage to tell it like it is:
OThere] is a change in the very culture of the United States District Court. It is no longer a trial court in many parts of the country. I have said it and I mean it, but it functions more like a state highway department. They will not try cases. More fundamentally, they will not set the cases for trial because the parties will mediate this case, and if I do not set it for trial, eventually it will settle. And settlement is a better reconciliation, because this is about relationships.
No it is not! It is about property, it is about money, and it is about serious disputes that are vital to the economy and need to be resolved fairly and straight up. Patrick E. Higginbotham, EDTX and Transfer of Venue, 14 SMU Sci. & Tech. L. Rev. 191, 197 (2011). Out of focus, we in the district courts are managing ourselves into oblivion. The larger consequences of the loss of focus on our core judicial responsibility and its tragic consequences for American democracy are detailed in Robert P. Burns, The Death of the American Trial (2009).
. There is an increasing cloak of secrecy being drawn around judicial sentencing proceedings. This is both unwarranted and unnecessary. It serves to diminish the judiciary in the eyes of the public. The matter is discussed in Richardson v. United States,
. MERS was invited to submit a brief amicus curiae and did so. Bench Mem. L. MERS ('MERS’s Mem.”), ECF No. 36. The Court gratefully acknowledges this well-written brief.
. As required on motions for summary judgment, the factual summary presented here consists of undisputed facts and disputed facts in the light most favorable to Culhane, the non-moving party. The Court is to review the record as a whole, but "it must disrеgard all evidence favorable to the moving party that the jury is not required to believe.” Reeves v. Sanderson Plumbing Prods., Inc.,
. The assignment lists its "effective date” as April 1, 2008. See Aff. Cristal Blanchard Supp. Def.'s Mot. Summ. J., Ex. C, Corporate Assignment Mortgage, ECF No. 16-2.
. The earliest date on which the physical location of the collateral file, which includes the original note, was recorded is April 15, 2008. Letter Reneau Longoria, Attach. 3, Location History Collateral File, ECF No. 41-3. The collateral file appears to have been transmitted in response to a foreclosure-related request on April 16, 2009, but the origin and destination of this transmittal are not ascertainable on this record. Id. The note came into the possession of Aurora's custodian of records on May 13, 2009. Id. It is now shelved in a filing room. Id.
. "Put simply, securitization is the process of creating debt instruments (usually bonds) by pooling mortgage loans, transferring those obligations to a trust, and then selling to investors fractional interests in the trust’s pool of mortgages.” Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Tex. L. Rev. 121, 126 (2008). For an extensive discussion of securitization, see Timothy A. Frochle, Standing in the Wake of the Foreclosure Crisis: Why Procedural Requirements are Necessary to Prevent Further Loss to Homeowners, 96 Iowa L. Rev. 1719, 1725-29 (2011).
. See, e.g., Bevilacqua, 460 Mass, at 774,
. While Eaton, and subsequently Adamson, focused primarily on Wolcott and Crowley as controlling precedent, the idea that a holder of bare legal title to the mortgage cannot foreclose without an accompanying interest in the note can be traced back even further. In re Howe v. Wilder,
if he should attempt anything of that kind, as by prosecuting a writ of entry for that purpose, he must necessarily fail to maintain his action.... For in pursuing such a suit he has only the rights of a mortgagee, and is limited by the restrictions imposed upon him.... If nothing is found due to [the note holder], it follows by necessary implication, from the provisions of the statute, that [the mortgagee] can recover no judgment at all; none to have possession at common law, because that is expressly prohibited. ...
Id.
One year prior to Howe, the predecessor statute to Massachusetts General Laws chapter 244, section 14, took effect. See St. 1857, ch. 299, § 1. This 1857 statute used the term "mortgagee” without reference to the holder of the note;
In all cases, in which a power of sale is contained in a mortgage deed of real property, the mortgagee, or any person having his estate therein, or in or by such power authorized to act in the premises, may, upon a breach of the condition thereof, give such notices and do all such acts as are authorized or required by such power....
Id. The Supreme Judicial Court's decision in Howe thus appears to have interpreted the 1857 statute’s use of "mortgagee” to mean holder of both the mortgage and note. Because the present-day language of the statutory power of sale is materially the same as St. 1857, ch. 299, § 1, the interpretation read into the statute by the Howe court ought continue to apply today.
Moreover, chapter 244 of the Massachusetts General Laws, as a whole, uses the term "mortgagee” interchangeably with "the holder of a mortgage note.” See Mass. Gen. Laws ch. 244, § 17B (notice of mortgagee’s inten
. If a note is transferred to a non-MERS member, then MERS will assign the mortgage to the new holder, unless that holder’s loan servicer is a MERS member, in which case MERS will continue to be mortgagee of record. See In re Moreno, No. 08-17715-FJB,
. Despite never owning the promissory note, MERS used to permit its members to conduct foreclosure proceedings in its name, in which case MERS was "identified as the 'note-holder' but only if the note [was] endorsed in blank and [was] in possession of a person authorized by MERS and the member to sign on MERS’ behalf.” In re Marron,
. There may be yet a third reason that "nominee” is the term of choice in the standard MERS mortgage contract. In Massachusetts, a nominee trust is "a common device for holding title to real estate.” Vittands v. Sudduth,
The hybrid agent-principal/trustee-beneficiary relationship created by a nominee trust is identical to that between MERS and the note holder under the standard MERS mortgage contract. In light of this, the use of the term "nominee” in the standard MERS mortgage contract seems even more intentional. But this Court need not decide whether the mortgage contract is an instrument sufficient to create a nоminee trust. Even were the Court to hold that the standard MERS mortgage contract fails as a declaration of trust, the law nonetheless implies a trust because of the split of the note and mortgage. Practically speaking, the result is the same.
. Because MERS no longer authorizes the filing of foreclosure proceedings in its name, the MERS Rules now require a pre-foreclosure "assignment of the Security Instrument from MERS to the note owner’s servicer, or to other such party expressly and specifically designated by the note owner.” MERS Rule 8, § 1(a). Furthermore, "[t]he Member agrees and acknowledges that MERS has the authority to execute such assignment of the Security Instrument....” Id. Because this version of the Rules was not in effect at the time that MERS assigned Culhane's mortgage to Aurora, the Court does not consider it.
. It is only fair to point out that there is utterly no evidence of fraud or impropriety here in Culhane's case. Indeed, even after the most careful scrutiny, it appears that MERS works rather well as a land registration system. Questions are raised because it purports to hold legal title when "there's no there, there."
. Interestingly, were this motion to have been heard in the courts of the Commonwealth, the outcome could well be different. It is not the law that is different; it is the differing responsibilities and authority of our federal and state courts.
As a judge of the United States exercising this Court’s diversity jurisdiction, my duty is to declare the law of Massachusetts as it is, and my focus is, and must remain, on the statutes of the Commonwealth and the decisions of its courts, nothing more.
The courts of general jurisdiction of the Commonwealth of Massachusetts (i.e., the Superior Court, the Appeals Court, and the Supreme Judicial Court), however, are common law courts, empowered to devise a remedy for every legally cognizable wrong. The justices of those Massachusetts courts necessarily must exercise a much wider focus and a broader vision to the end that "[ejvery subject of the Commonwealth [will] find a certain remedy, by having recourse to the laws, for all injuries or wrongs which he may receive in his person, property, or character.” Mass. Const, pt. 1, art. XI.
This Court admits that, for a time, it was conceptually bemused by MERS, for MERS represents a complex web of rights and interests, some sounding in law and others in equity; of roles such as agent, nominee, and trustee, which often but do not always overlap; of entities, some of whom are dual players while others exist only on paper. At its core, it is a system designed by the banks’ lawyers to grow the securitization industry. In this it has been remarkably successful. Securitization has replaced financial institutions in funding home mortgage loans, with over eighty percent of all such loans originated in 2006 — the year Culhane took out her mortgage — having been securitized. See James R. Barth et al., Milken Inst., A Short History of the Subprime Mortgage Market Meltdown 5 fig. 2 (2008), available at http://www. milkeninstitute.org/publications/publications. taf?function=detail&ID=3 880103 8&cat= Papers. A closer look at the larger securitization process reveals a system apparently intended to raise a virtually impenetrable smok
Slicing and dicing a home mortgage transaction as was done here profoundly alters the economic incentives of the banking industry in the home mortgage market. Banks necessarily focus on the immediate cash return from securitizing their home mortgage loans, rather than relying upon them as long term investments. Their agents, the loan servicers, have little, if any, incentive to "work out” a troubled home mortgage loan and eveiy incentive to realize an immediate return from foreclosure sales. Moreover, one who holds bare legal title, without more, has no incentive whatever to maintain the home it owns. Consider:
Where a mortgage loan has been pooled with others in a trust that then issues mortgage-backed securities to investors, the holder of the note is the trustee on behalf of the investors, who are the real beneficial owners. The trustee's role is to distribute to the investors the principal and interest payments by the mortgagors whose loans make up the trust. Yet, neither the trustee nor the investors are in the business of servicing the trust pool's loans. The trustee therefore contracts with a loan servicer, like Aurora in this case, who specializes in the day-to-day management of mortgage loans, including debt collection, loan restructuring, and foreclosure. The servicer is to manage the loans for the benefit of the investors. See generally Adam J. Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1, 13-16 (2011); Christopher L. Peterson, Predatory Structured Finance, 28 Cardozo L. Rev. 2185, 2208-11 (2007).
Loan servicers handle instances of default by mortgages in two primary ways: (1) "default management,” more commonly known as foreclosures; and (2) “loss mitigation,” such as a loan modification. Levitin & Twomey, supra, at 26. The initiation of foreclosure proceedings can be "a highly automated process with virtually no discretion or oversight.” Id. As described in In re Taylor,
"[investors are not concerned, however, about the efficiencies for any particular loan, but rather the net efficiencies of loss mitigation and default management for the securitized pool of loans.” Id. It is this calculus that places the power to decide between foreclosure and modification exclusively in the hands of the loan servicer.
Even if hands-on loss mitigation results in smaller losses than merely proceeding straight to foreclosure, the transaction cost savings from automation and quick foreclosure might well offset the benefit of hands-on loss mitigation. The net efficiencies are likely dynamic and depend on market conditions. For example, more defaults mean more cost savings from automation, but might also mean greater losses as a result of proceeding straight to foreclosure, especially in a depressed market. Thus, when defaults rise, the efficiencies of automated loss mitigation could decline. The net efficiency balance is impossible to determine in the abstract, much less ex ante. Even ex post, determining the benefits of one approach or another is impossible because it necessarily involves comparison with a counterfactual. Thus, [residential mortgage-backed securities] investors are unlikely to bargain for one loss mitigation or default management largely up to servicers’ discretion.
Id. at 28-29. Legal scholars have suggested that loan servicers, without direction as to which option to pursue from the investors or trustee acting on the investors' behalf, tend to elect the one that serves their own economic interest: foreclosure. Id. at 29; Diane E. Thompson, Nat’l Consumer Law Ctr., Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior: Servicer Compensation and Its Consequences (2009), available at www.nclc.org/images/pdfi pr-reports/report-servicers-modify.pdf ("A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no
The typical compensation structure of a loan servicer involves a mix of late and other ancillary fees, "float” interest, and a percentage of the unpaid principal balance in the trust. See Levitin & Twomey, supra, at 37. In operation, this structure incentives a servicer initially to allow a mortgagor to linger in default, accruing late fees. Id. at 75. During this time, however, the servicer must pay advances to the trustee from its own funds, and while these advances are recoverable, interest on them is not. Id. at 24, 47-48; Thompson, supra, at 25-26. Once the cost of the advances begins to outweigh the late fees being generated by holding the mortgagor in default, the servicer’s interest shifts rapidly to foreclosure. Levitin & Twomey, supra, at 51, 75.
Moving to foreclose — -and to sell the properties after foreclosure — can help servicers offset the costs of interest advances in two ways: first, once the property enters foreclosure and the servicer judges the loan can no longer be made performing, the obligation to continue making advances may cease, depending on various factors, and second, the advances can be recovered once the property is sold. Even if the investor takes a hit on the post-foreclosure fire sale, the servicer has stopped its bleeding and recovered any fees, costs, and advances.
Thompson, supra, at 26. Because servicing expenses are paid off the top of foreclosure sale proceeds, loan servicers have little incentive to maximize those proceeds for investors. Levitin & Twomey, supra, at 47.
Yet, investors are without the information or capacity to track servicers' handling of mortgage loans in default. Id. at 58, 81; Thompson, supra, at 8. While the typical pooling and servicing agreement charges the trustee with protecting the interests of the investors, the trustee’s duties involve reporting, not analyzing, data received from the loan servicer. MBIA Ins. Corp. v. Royal Indem. Co.,
What the process of securitization, and the market for loan servicing that has developed to support it, highlights is that loan servicers, despite their duty to act for the benefit of investors, are in fact "principal-less agents.” Levitin & Twomey, supra, at 81. Their incentives in managing individual loans do not mirror the interests of investors or trustees acting on behalf of investors, much less homeowners.
And what of the communities where the homeowners live? Thus far, the discussion has centered on the legal and practical issues arising, as here, out of a foreclosure action. The unstated assumption, of course, is that the home has sufficient value to be worth fighting over. An equally difficult issue is presented by the community blight created by a tsunami of thousands of abandoned homes. Creola Johnson, Fight Blight: Cities Sue to Hold Lenders Responsible for the Rise in Foreclosure and Abandoned Properties, 2008 Utah L. Rev. 1169, 1171 (2008). During the mortgage bubble era, many homeowners could obtain a home with little or no down payment. In hard times, the best economic option presented to them was simply to walk away from the home and spend their income for housing on rental space.
What then? The traditional hometown response has been to slap a lien on the property for unpaid taxes. This works only when there is a ready market for the home, albeit at reduced value, sufficient to enable the trust or loan servicer to make a profit from foreclosure after paying off the tax lien. Where the market is stagnant or where no one stands to make money from foreclosure, the banking industry simply walks away. The homeowner is judgment-proof. The loan servicer, as agent, has no authority to commit the trust’s funds to pay taxes or to maintain the property. The trustee claims it has no responsibility as it holds only the note and has nothing to do with the underlying property (at least until they call upon MERS for legal title in order to
So serious are these concerns that this Court has considered certifying the issue of the propriety of the MERS operation in this Commonwealth to the Supreme Judicial Court. A federal district court may certify a question for decision by the Supreme Judicial Court "if there are invоlved in any proceeding before it questions of law of [the Commonwealth of Massachusetts] which may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of [the Supreme Judicial Court].” Mass. S.J.C. Rule 1:03 § 1 (2010).
Upon reflection, however, certification is inappropriate. Certification is "manifestly inappropriate ... where ... there is no uncertain question of state law whose resolution might affect the pending federal claim.” City of Houston v. Hill,