Michigan Panel Rejects Challenge to MERS, Wells Fargo

A panel of judges in Michigan has upheld a lower court decision dismissing a legal challenge to Wells Fargo's authority to foreclose by advertisement in the state.

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Michigan is a quasi-judicial state, meaning it recognizes foreclosures that go through the courts and foreclosures by advertisement (giving creditors the right to foreclose after posting a notice of default in a newspaper for four consecutive weeks when the mortgage includes a power of sale clause).

In Hargrow v. Wells Fargo Bank N.A., a three-judge panel of the United States Court of Appeals for the Sixth Circuit rejected the plaintiffs' claims that Wells Fargo-an assignee of ""Mortgage Electronic Registration Systems, Inc."":http://www.mersinc.org/ (MERS)-was not entitled to foreclose because it did not own an interest in the indebtedness. The panel also rejected the claim that the mortgage assignment by MERS to Wells Fargo was invalid because the mortgage could not be assigned without a corresponding assignment of the underlying debt.

In 2011, the Michigan Supreme Court ruled that MERS, as record-holder of the mortgage, owned an interest in the indebtedness that gave authorization to foreclose by advertisement despite not owning the underlying debt. The Supreme Court's decision reversed an ""earlier ruling"":http://dsnews.comarticles/michigan-supreme-court-reverses-ruling-on-mers-right-to-foreclose-2011-11-16 that called into question thousands of foreclosures initiated by MERS.

In dismissing the claims, the panel upheld a June 2011 decision by U.S. District Court Judge Sean F. Cox for the Eastern District of Michigan.
In its decision, the panel wrote that ""Hargrows granted MERS the power to assign the Mortgage, and MERS used that power to assign the Mortgage to Wells Fargo. The assignment was recorded in the Washtenaw County Clerk's Office, creating a clear record chain of title for the Mortgage.""

Because the chain of title was properly recorded, the court ruled that Wells Fargo did have the power to foreclose by advertisement.

""We have seen numerous appellate court decisions over the course of the last several months that affirm lower court rulings in MERS' favor,"" said Janis Smith, VP of corporate communications at MERSCORP Holdings, Inc. ""As this panel has made clear, MERS has legal authority to act on behalf of the lender-including the right to execute the assignment or foreclose-and this authority is granted by plain language in the mortgage document signed at closing by the borrower.""

The MERS System is a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members.