The Rhode Island Supreme Court has held that a mortgagor has standing to challenge a transfer of his mortgage in an effort to prevent a foreclosure. However, the Court otherwise denied the mortgagor's claims in his suit to halt a foreclosure.
In 2006, plaintiff purchased a house financed by a promissory note that was secured by a mortgage. MERS held the mortgage as the mortgagee and the nominee for the bank. The mortgage allowed for transfer of the mortgage and sale of the note. Both the note and the mortgage were subsequently transferred. Plaintiff defaulted on the mortgage in 2010. FNMA, as the holder of the mortgage, instituted foreclosure proceedings. Plaintiff filed suit in Superior Court challenging the validity of foreclosure sale. Defendants moved for summary judgment. Plaintiff objected on various grounds, including the validity of the assignment of the mortgage from MERS to FNMA.
The Superior Court found that plaintiff did not have standing to challenge the validity of the transfer of the mortgage because it was not a party to the transfer, that the mortgage explicitly permitted transfer of the mortgage and that plaintiff had not raised a material issue of fact respecting the signature. Plaintiff appealed.
The Supreme Court initially found that plaintiff had standing to challenge the transfer. The Court said the question of standing depends on whether plaintiff has a personal stake in the outcome, i.e., an injury-in-fact that is actual or imminent, not conjectural or hypothetical. The injury must be traceable to the defendant's conduct and not the result of the conduct of a third party not before the court. It must be likely, not merely speculative that the injury will be redressed by a favorable decision. Finally, standing is limited to those plaintiffs asserting their own rights, not the rights of others.
The Court acknowledged that plaintiff was not a party to the agreement transferring the mortgage from MERS to FNMA as well as its usual rule that an individual who is not a party to a contract cannot seek to void the contract or have it declared unenforceable. The Court said it is clear that a homeowner whose house is being foreclosed is suffering a concrete and particularized injury. There is a causal connection between the injury and the challenged action, the assignment of the mortgage to the foreclosing party. The injury would be redressed by a decision in the plaintiff's favor. Accordingly, the mortgagor has seeking to prevent a foreclosure on his home has standing to challenge the validity of a transfer of his mortgage to the foreclosing party. Otherwise, the mortgagor may not be able to challenge the foreclosure. The Court said this was a narrow exception to hits rule that people who are not parties to a transaction do not have standing to challenge it.
The Court then affirmed its recent holding that MERS, as the nominee of the holder of the note, could also be the mortgage and exercise the statutory power of sale. In addition, the note and the mortgage need not be held by the same entity. The Court said under Rhode Island law the holder of the note has equitable title to the mortgage. . The note and the equitable interest in the mortgage remain unified and the mortgage "follows the note."
Here, the mortage explicitly granted the power of sale to MERS and its successors and assigns. Moreover, MERS may exercise the power of sale under the mortgage on behalf of the noteholder. When MERS assigned its interest to FNMA, FNMA acquired all the rights that MERS possessed. The Court affirmed.
Mruk v. Mortgage Electronic Registration System, Inc., No. 2012-282, 2013 WL 6685790 (R.I. Dec. 19, 2013).
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