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Monday, October 24, 2016

In Defense of MERS

By Paul F. Alphen

In a recent Lawyers Weekly article by Kris Olson on Epps vs. Bank of America, it was suggested that MERS (Mortgage Electronic Registration Systems Inc) is “controversial.”  On the contrary,  case law in Massachusetts continues to support the conclusion that Mortgage Electronic Registration Systems, Inc. (“MERS”) and the MERS® System database operate in compliance with Massachusetts law.

By way of background, MERS (a wholly-owned subsidiary of MERSCORP Holdings, Inc.)_ serves as mortgagee in the land records for mortgages registered on the MERS® System database on behalf of lenders and investors that own mortgage loans that are traded in the secondary market. MERS holds the secured interest in the property pledged as collateral for the repayment of the loan in the capacity as nominee (a limited form of agency) for the lender making the mortgage loan and for subsequent purchasers (“beneficial owners”) of the mortgage loan. The MERS® System database is a national electronic database owned and operated by MERSCORP Holdings that tracks changes in mortgage servicing rights and beneficial ownership interests in mortgage loans secured by residential real estate.  Certainly, when MERS documents first appeared of record in our local Registries of Deeds about fifteen (15) years ago many old school conveyancers like I had questions and concerns; we are conservative by nature and slow to adopt new technologies in general. Nevertheless, with the passage of time and experience we grew to understand and appreciate the system.

Notwithstanding MERS success in both federal and state courts and the fact that MERS assigns its mortgage lien interest prior to the commencement of foreclosures, legal challenges against MERS related to foreclosure actions continue to be raised here in Massachusetts. Assertions that MERS was not the lawful mortgagee were raised and dismissed by the trial court, and affirmed recently by the Appeals Court of Massachusetts in Epps v. Bank of America (2015-P-1095).  This is the very same case where Olson questioned the validity of MERS.  In Epps, the Appeals Court ruled against the proposition that only the original “Lender” can be the mortgagee, based on both the mortgage’s contractual terms and as a matter of law in Massachusetts. This decision, rendered on Oct. 11, 2016, held MERS was the legal mortgagee under the express terms of the homeowner’s mortgage until MERS assigned its interest in the mortgage to a subsequent party. 

Further supporting the Epps holding are several other decisions by the Appeals Court that reject the theories underlying Epps’s action and appeal, such as Sullivan v. Kondaur, 85 Mass. App. Ct. 202 (2014) (“Sullivan”), Shea v. Federal Nat’l Mort. Ass’n, 87 Mass. App. Ct. 901 (2015) (“Shea”), and others.  Prior to Epps, the Appeals Court made clear in Shea that MERS may serve as mortgagee with authority to assign the Mortgage, even though MERS never held the Note.  87 Mass. App. Ct. at 902-03. And, in Sullivan, the Appeals Court (in confirming the validity of a MERS assignment just like the Assignment here at issue) determined that MERS was the original mortgagee with power to assign the mortgage, and it needed no instruction from the owner of the debt in order to do so.  See 85 Mass. App. Ct. at 208-09. 

Just recently, the United States District Court of Massachusetts held the mortgage’s express language provided that MERS was the mortgagee and authorized MERS to assign the mortgage. The court also noted that, pursuant to First Circuit precedent, a note and mortgage need not be held by the same entity and that MERS can validly assign a mortgage.  See Hayden v. HSBC Bank USA, N.A Hayden v. HSBC Bank USA, N.A., No. 16-11492-DJC, 2016 U.S. Dist. LEXIS 135977 (D. Ma. Sept. 30, 2016).

Today, there are more than 5,000 lenders, servicers, sub-servicers, investors and government institutions using MERS and the MERS® System database, including MassHousing, the Commonwealth’s independent, quasi-public agency created to provide financing for affordable housing in Massachusetts.  Far from controversial, the validity of MERS is settled law.

Paul Alphen is an Emeritus member of the REBA Board of Directors and a member of the Association’s Strategic Planning Committee.  Paul can be contacted by email at

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