mortgage assignment to mers

B8-7-01, Mortgage Electronic Registration Systems (MERS), Inc. (05/01/2024)

Naming mers as the nominee for the beneficiary in the security instrument, requirements for the use of mers in specified geographic areas, mers registration, use of the min, mortgage assignment to mers, termination of mers.

A seller/servicer that wants to register a newly originated loan with MERS may prefer to designate MERS as the nominee for the beneficiary in the security instrument. Doing so, eliminates the need for a subsequent assignment of the security instrument should the seller/servicer sell (or transfer servicing of) the loan to another seller/servicer that is a member of MERS. In such cases, the applicable security instrument must be modified to:

show MERS as the nominee for the seller/servicer,

define and name the originating seller/servicer, and

obtain the borrower’s acknowledgment of MERS’ role in the mortgage transaction.

If the seller/servicer encounters a situation where Fannie Mae is the owner of record for a loan because the original assignment of the loan to Fannie Mae was recorded in the public records, the seller/servicer must correct the error before it completes the MERS registration by:

preparing an assignment of the loan from Fannie Mae to MERS,

sending the assignment to Fannie Mae for execution, and

recording the assignment in the public records.

Changes that must be made to create a standard MERS security instrument for each jurisdiction may be found in the Instructions document for each state-specific security instrument (see Fannie Mae's Legal Documents  website), with the exception of loans secured by property located in certain geographic areas, as described below.

The seller/servicer is responsible for the accurate and timely preparation and recordation of the security instrument and any MERS-related documents required to be used in specific geographic areas. Sellers/servicers must also take all reasonable steps to ensure that information pertaining to MERS is updated and accurate at all times.

Even when MERS is named as the nominee for the beneficiary in the security instrument, it has no beneficial interest in the mortgage. All actions that MERS takes with respect to a loan are based on the instructions initiated by the originating seller, Fannie Mae, or the servicer. The originating seller remains responsible for all of its Contractual Obligations and any liability that it or Fannie Mae incurs as a result of the MERS registration, any MERS transaction, or the failure of MERS to perform any obligation with respect to a MERS-registered loan. In addition, the seller/servicer is solely responsible for any failure to comply with the provisions of its MERS Member Agreement, Rules, and Procedures.

In the states listed below, sellers/servicers must use the Mortgage Electronic Registration Systems, Inc. Rider (MERS Rider) ( Form 3158 ) when a newly originated loan will be registered with MERS. Sellers/servicers must also follow the Instructions to the MERS Rider and the applicable security instruments to make changes to the standard security instruments for the following states:

Oregon, and

Washington.

As the MERS Rider must be used in these specified states, post-closing assignments to MERS are prohibited.

MERS Assignment Form - Maine

In the state of Maine, sellers/servicers must use the MERS Mortgage Assignment (Form 3749) to assign loans to MERS at origination or post-closing, as applicable. Loans in which the Maine security instrument has been modified to name MERS as the original mortgagee of record, solely as nominee for the seller/servicer, are ineligible for delivery to Fannie Mae.

If a seller/servicer registers a loan on the MERS system before delivering it to Fannie Mae, the seller/servicer must ensure that the MIN is registered in MERS and names itself as the investor. Additionally, the seller/servicer must include the MIN in the delivery data. After Fannie Mae purchases or securitizes the mortgage, Fannie Mae notifies MERS to update its records to reflect Fannie Mae’s ownership interest in the loan.

Note : For loans registered in MERS iRegistration where MERS is not named as the nominee for the beneficiary in the security instrument, the MERS MIN should not be reported on the loan schedules, unless the loan is an eMortgage registered on MERS eRegistry.

If a seller/servicer registers a mortgage with MERS after Fannie Mae has purchased or securitized the loan, the seller/servicer must name Fannie Mae as the investor during registration and notify MERS of Fannie Mae’s ownership interest in the loan.

For each MERS-registered loan delivered to a document custodian, the seller/servicer must indicate the MIN on the security instrument and related documents. Because the status of a MERS-registered mortgage can change, the seller/servicer is not required to include the MIN on the note. Additionally, the seller/servicer is still responsible for making sure that the document custodian has sufficient information to determine whether a loan that is included in a subsequent transfer of servicing is registered with MERS at the time of the transfer. The seller/servicer must have adequate controls in its processes to enable it to readily identify MERS-registered mortgages.

The seller/servicer can choose from the following options:

place the MIN on the note when the loan is registered with MERS and, if the MERS registration is subsequently terminated for any reason, notify the document custodian to delete the MIN from the note;

wait to advise the custodian of the status of the MERS registration for a loan until a change in status actually occurs; or

notify the custodian about the status of the MERS registration for a loan at the time of a servicing transfer by providing the custodian with a listing of all MERS-registered loans that are included in the transfer and a certification that any and all other loans included in the transfer are not currently registered with MERS. (The listing may be prepared by the seller/servicer or, with the seller/servicer’s authorization, by MERS.) If there are more MERS-registered loans included in the transfer than there are unregistered loans, the listing may instead identify the unregistered loans—and, in that case, the certification should state that any and all other loans included in the transfer are currently registered with MERS.

If the originating seller/servicer is the beneficiary for a loan that it registers with MERS, they must prepare an assignment of the mortgage to MERS. Refer to the section above, entitled Requirements for the Use of MERS in Specified Geographic Areas , for additional information about, and restrictions on, assignments of loans to MERS. 

By delivering a MERS-registered loan to Fannie Mae, the seller/servicer:

warrants that MERS is the mortgagee of record (either by being named as an assignee in a recorded assignment of the security instrument or as nominee for the beneficiary in the security instrument); and

warrants that the MIN is valid and properly registered in MERS naming the seller/servicer as the investor.

Sellers/servicers are not required to include a copy of the assignment of the loan to MERS in the delivery package they submit to the applicable document custodian.

If the seller/servicer decides to discontinue the use of MERS, they must request from MERS that the loan be “deactivated” in MERS. MERS will notify Fannie Mae about the deactivation of any loan in which it has an interest.

If the seller/servicer’s membership in MERS is terminated, the seller/servicer must promptly notify Fannie Mae’s MERS Program Office (see E-1-02, List of Contacts E-1-02, List of Contacts ).

In the event that either its membership in MERS or the MERS registration for an active loan is terminated for any reason while Fannie Mae has an ownership interest in the loan, the seller/servicer must perform the functions outlined in the following table for each MERS-registered loan that it is servicing for Fannie Mae.

The table below provides references to recently issued Announcements that are related to this topic.

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Originating & Underwriting

Selling Guide

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(Published: May 01 2024)

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• Copyright and Preface
• A1-1-01, Application and Approval of Seller/Servicer
• A2-1-01, Contractual Obligations for Sellers/Servicers
• A2-1-02, Nature of Mortgage Transaction
• A2-1-03, Indemnification for Losses
• A2-2-01, Representations and Warranties Overview
• A2-2-02, Delivery Information and Delivery-Option Specific Representations and Warranties
• A2-2-03, Document Warranties
• A2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties
• A2-2-05, Invalidation of Limited Waiver of Representations and Warranties
• A2-2-06, Representations and Warranties on Property Value
• A2-2-07, Life-of-Loan Representations and Warranties
• A2-3.1-01, Lender Breach of Contract
• A2-3.1-02, Sanctions, Suspensions, and Terminations
• A2-3.2-01, Loan Repurchases and Make Whole Payments Requested by Fannie Mae
• A2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and Eligibility
• A2-3.2-03, Remedies Framework
• A2-3.3-01, Compensatory Fees
• A2-4.1-01, Establishing Loan Files
• A2-4.1-02, Ownership and Retention of Loan Files and Records
• A2-4.1-03, Electronic Records, Signatures, and Transactions
• A2-4.1-04, Notarization Standards
• A2-5-01, Fannie Mae Trade Name and Trademarks
• A3-1-01, Fannie Mae’s Technology Products
• A3-2-01, Compliance With Laws
• A3-2-02, Responsible Lending Practices
• A3-3-01, Outsourcing of Mortgage Processing and Third-Party Originations
• A3-3-02, Concurrent Servicing Transfers
• A3-3-03, Other Servicing Arrangements
• A3-3-04, Document Custodians
• A3-3-05, Custody of Mortgage Documents
• A3-4-01, Confidentiality of Information
• A3-4-02, Data Quality and Integrity
• A3-4-03, Preventing, Detecting, and Reporting Mortgage Fraud
• A3-5-01, Fidelity Bond and Errors and Omissions Coverage Provisions
• A3-5-02, Fidelity Bond Policy Requirements
• A3-5-03, Errors and Omissions Policy Requirements
• A3-5-04, Reporting Fidelity Bond and Errors and Omissions Events
• A4-1-01, Maintaining Seller/Servicer Eligibility
• A4-1-02, Submission of Financial Statements and Reports
• A4-1-03, Report of Changes in the Seller/Servicer’s Organization
• A4-1-04, Submission of Irrevocable Limited Powers of Attorney
• B1-1-01, Contents of the Application Package
• B1-1-02, Blanket Authorization Form
• B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns
• B2-1.1-01, Occupancy Types
• B2-1.2-01, Loan-to-Value (LTV) Ratios
• B2-1.2-02, Combined Loan-to-Value (CLTV) Ratios
• B2-1.2-03, Home Equity Combined Loan-to-Value (HCLTV) Ratios
• B2-1.2-04, Subordinate Financing
• B2-1.3-01, Purchase Transactions
• B2-1.3-02, Limited Cash-Out Refinance Transactions
• B2-1.3-03, Cash-Out Refinance Transactions
• B2-1.3-04, Prohibited Refinancing Practices
• B2-1.3-05, Payoff of Installment Land Contract Requirements
• B2-1.4-01, Fixed-Rate Loans
• B2-1.4-02, Adjustable-Rate Mortgages (ARMs)
• B2-1.4-03, Convertible ARMs
• B2-1.4-04, Temporary Interest Rate Buydowns
• B2-1.5-01, Loan Limits
• B2-1.5-02, Loan Eligibility
• B2-1.5-03, Legal Requirements
• B2-1.5-04, Escrow Accounts
• B2-1.5-05, Principal Curtailments
• B2-2-01, General Borrower Eligibility Requirements
• B2-2-02, Non–U.S. Citizen Borrower Eligibility Requirements
• B2-2-03, Multiple Financed Properties for the Same Borrower
• B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction
• B2-2-05, Inter Vivos Revocable Trusts
• B2-2-06, Homeownership Education and Housing Counseling
• B2-2-07, First-Generation Homebuyer Loans
• B2-3-01, General Property Eligibility
• B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing
• B2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold Estates
• B2-3-04, Special Property Eligibility Considerations
• B2-3-05, Properties Affected by a Disaster
• B3-1-01, Comprehensive Risk Assessment
• B3-2-01, General Information on DU
• B3-2-02, DU Validation Service
• B3-2-03, Risk Factors Evaluated by DU
• B3-2-04, DU Documentation Requirements
• B3-2-05, Approve/Eligible Recommendations
• B3-2-06, Approve/Ineligible Recommendations
• B3-2-07, Refer with Caution Recommendations
• B3-2-08, Out of Scope Recommendations
• B3-2-09, Erroneous Credit Report Data
• B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report
• B3-2-11, DU Underwriting Findings Report
• B3-3.1-01, General Income Information
• B3-3.1-02, Standards for Employment Documentation
• B3-3.1-03, Base Pay (Salary or Hourly), Bonus, and Overtime Income
• B3-3.1-04, Commission Income
• B3-3.1-05, Secondary Employment Income (Second Job and Multiple Jobs) and Seasonal Income
• B3-3.1-06, Requirements and Uses of IRS IVES Request for Transcript of Tax Return Form 4506-C
• B3-3.1-07, Verbal Verification of Employment
• B3-3.1-08, Rental Income
• B3-3.1-09, Other Sources of Income
• B3-3.1-10, Income Calculator
• B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower
• B3-3.2-02, Business Structures
• B3-3.2-03, IRS Forms Quick Reference
• B3-3.3-01, General Information on Analyzing Individual Tax Returns
• B3-3.3-02, Income Reported on IRS Form 1040
• B3-3.3-03, Income or Loss Reported on IRS Form 1040, Schedule C
• B3-3.3-04, Income or Loss Reported on IRS Form 1040, Schedule D
• B3-3.3-05, Income or Loss Reported on IRS Form 1040, Schedule E
• B3-3.3-06, Income or Loss Reported on IRS Form 1040, Schedule F
• B3-3.3-07, Income or Loss Reported on IRS Form 1065 or IRS Form 1120S, Schedule K-1
• B3-3.4-01, Analyzing Partnership Returns for a Partnership or LLC
• B3-3.4-02, Analyzing Returns for an S Corporation
• B3-3.4-03, Analyzing Returns for a Corporation
• B3-3.4-04, Analyzing Profit and Loss Statements
• B3-3.5-01, Income and Employment Documentation for DU
• B3-3.5-02, Income from Rental Property in DU
• B3-4.1-01, Minimum Reserve Requirements
• B3-4.1-02, Interested Party Contributions (IPCs)
• B3-4.1-03, Types of Interested Party Contributions (IPCs)
• B3-4.1-04, Virtual Currency
• B3-4.2-01, Verification of Deposits and Assets
• B3-4.2-02, Depository Accounts
• B3-4.2-03, Individual Development Accounts
• B3-4.2-04, Pooled Savings (Community Savings Funds)
• B3-4.2-05, Foreign Assets
• B3-4.3-01, Stocks, Stock Options, Bonds, and Mutual Funds
• B3-4.3-02, Trust Accounts
• B3-4.3-03, Retirement Accounts
• B3-4.3-04, Personal Gifts
• B3-4.3-05, Gifts of Equity
• B3-4.3-06, Grants and Lender Contributions
• B3-4.3-07, Disaster Relief Grants or Loans
• B3-4.3-08, Employer Assistance
• B3-4.3-09, Earnest Money Deposit
• B3-4.3-10, Anticipated Sales Proceeds
• B3-4.3-11, Trade Equity
• B3-4.3-12, Rent Credit for Option to Purchase
• B3-4.3-13, Sweat Equity
• B3-4.3-14, Bridge/Swing Loans
• B3-4.3-15, Borrowed Funds Secured by an Asset
• B3-4.3-16, Credit Card Financing and Reward Points
• B3-4.3-17, Personal Unsecured Loans
• B3-4.3-18, Sale of Personal Assets
• B3-4.3-19, Cash Value of Life Insurance
• B3-4.3-20, Anticipated Savings and Cash-on-Hand
• B3-4.3-21, Borrower's Earned Real Estate Commission
• B3-4.4-01, DU Asset Verification
• B3-4.4-02, Requirements for Certain Assets in DU
• B3-5.1-01, General Requirements for Credit Scores
• B3-5.1-02, Determining the Credit Score for a Mortgage Loan
• B3-5.2-01, Requirements for Credit Reports
• B3-5.2-02, Types of Credit Reports
• B3-5.2-03, Accuracy of Credit Information in a Credit Report
• B3-5.3-01, Number and Age of Accounts
• B3-5.3-02, Payment History
• B3-5.3-03, Previous Mortgage Payment History
• B3-5.3-04, Inquiries: Recent Attempts to Obtain New Credit
• B3-5.3-05, Credit Utilization
• B3-5.3-06, Authorized Users of Credit
• B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit
• B3-5.3-08, Extenuating Circumstances for Derogatory Credit
• B3-5.3-09, DU Credit Report Analysis
• B3-5.4-01, Eligibility Requirements for Loans with Nontraditional Credit
• B3-5.4-02, Number and Types of Nontraditional Credit References
• B3-5.4-03, Documentation and Assessment of a Nontraditional Credit History
• B3-6-01, General Information on Liabilities
• B3-6-02, Debt-to-Income Ratios
• B3-6-03, Monthly Housing Expense for the Subject Property
• B3-6-04, Qualifying Payment Requirements
• B3-6-05, Monthly Debt Obligations
• B3-6-06, Qualifying Impact of Other Real Estate Owned
• B3-6-07, Debts Paid Off At or Prior to Closing
• B3-6-08, DU: Requirements for Liability Assessment
• B4-1.1-01, Definition of Market Value
• B4-1.1-02, Lender Responsibilities
• B4-1.1-03, Appraiser Selection Criteria
• B4-1.1-04, Unacceptable Appraisal Practices
• B4-1.1-05, Disclosure of Information to Appraisers
• B4-1.1-06, Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal (UCDP)
• B4-1.2-01, Appraisal Report Forms and Exhibits
• B4-1.2-02, Desktop Appraisals
• B4-1.2-03, Hybrid Appraisals
• B4-1.2-04, Appraisal Age and Use Requirements
• B4-1.2-05, Requirements for Verifying Completion and Postponed Improvements
• B4-1.3-01, Review of the Appraisal Report
• B4-1.3-02, Subject and Contract Sections of the Appraisal Report
• B4-1.3-03, Neighborhood Section of the Appraisal Report
• B4-1.3-04, Site Section of the Appraisal Report
• B4-1.3-05, Improvements Section of the Appraisal Report
• B4-1.3-06, Property Condition and Quality of Construction of the Improvements
• B4-1.3-07, Sales Comparison Approach Section of the Appraisal Report
• B4-1.3-08, Comparable Sales
• B4-1.3-09, Adjustments to Comparable Sales
• B4-1.3-10, Cost and Income Approach to Value
• B4-1.3-11, Valuation Analysis and Reconciliation
• B4-1.3-12, Appraisal Quality Matters
• B4-1.4-01, Factory-Built Housing: Manufactured Housing
• B4-1.4-02, Factory-Built Housing: Modular, Prefabricated, Panelized, or Sectional Housing
• B4-1.4-03, Condo Appraisal Requirements
• B4-1.4-04, Co-op Appraisal Requirements
• B4-1.4-05, Leasehold Interests Appraisal Requirements
• B4-1.4-06, Community Land Trust Appraisal Requirements
• B4-1.4-07, Mixed-Use Property Appraisal Requirements
• B4-1.4-08, Environmental Hazards Appraisal Requirements
• B4-1.4-09, Special Assessment or Community Facilities Districts Appraisal Requirements
• B4-1.4-10, Value Acceptance (Appraisal Waiver)
• B4-1.4-11, Value Acceptance + Property Data
• B4-2.1-01, General Information on Project Standards
• B4-2.1-02, Waiver of Project Review
• B4-2.1-03, Ineligible Projects
• B4-2.1-04, Environmental Hazard Assessments
• B4-2.1-05, Unacceptable Environmental Hazards
• B4-2.1-06, Remedial Actions for Environmental Hazard Assessments Below Standards
• B4-2.2-01, Limited Review Process
• B4-2.2-02, Full Review Process
• B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects
• B4-2.2-04, Geographic-Specific Condo Project Considerations
• B4-2.2-05, FHA-Approved Condo Review Eligibility
• B4-2.2-06, Project Eligibility Review Service (PERS)
• B4-2.2-07, Projects with Special Considerations and Project Eligibility Waivers
• B4-2.3-01, Eligibility Requirements for Units in PUD Projects
• B4-2.3-02, Co-op Project Eligibility
• B4-2.3-03, Legal Requirements for Co-op Projects
• B4-2.3-04, Loan Eligibility for Co-op Share Loans
• B4-2.3-05, Geographic-Specific Co-op Project Considerations
• B5-1-01, High-Balance Mortgage Loan Eligibility and Underwriting
• B5-1-02, High-Balance Pricing, Mortgage Insurance, Special Feature Codes, and Delivery Limitations
• B5-2-01, Manufactured Housing
• B5-2-02, Manufactured Housing Loan Eligibility
• B5-2-03, Manufactured Housing Underwriting Requirements
• B5-2-04, Manufactured Housing Pricing, Mortgage Insurance, and Loan Delivery Requirements
• B5-2-05, Manufactured Housing Legal Considerations
• B5-3.1-01, Conversion of Construction-to-Permanent Financing: Overview
• B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions
• B5-3.1-03, Conversion of Construction-to-Permanent Financing: Two-Closing Transactions
• B5-3.2-01, HomeStyle Renovation Mortgages
• B5-3.2-02, HomeStyle Renovation Mortgages: Loan and Borrower Eligibility
• B5-3.2-03, HomeStyle Renovation Mortgages: Collateral Considerations
• B5-3.2-04, HomeStyle Renovation Mortgages: Costs and Escrow Accounts
• B5-3.2-05, HomeStyle Renovation Mortgages: Completion Certification
• B5-3.2-06, HomeStyle Renovation: Renovation Contract, Renovation Loan Agreement, and Lien Waiver
• B5-3.3-01, HomeStyle Energy for Improvements on Existing Properties
• B5-3.4-01, Property Assessed Clean Energy Loans
• B5-4.1-01, Texas Section 50(a)(6) Loans
• B5-4.1-02, Texas Section 50(a)(6) Loan Eligibility
• B5-4.1-03, Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations
• B5-4.1-04, Texas Section 50(a)(6) Loan Delivery and Servicing Considerations
• B5-4.2-01, Native American Conventional Lending Initiative (NACLI)
• B5-4.2-02, Disaster-Related Limited Cash-Out Refinance Flexibilities
• B5-4.2-03, Loans Secured by HomePath Properties
• B5-5.1-01, Community Seconds Loans
• B5-5.1-02, Community Seconds Loan Eligibility
• B5-5.1-03, Community Seconds: Shared Appreciation Transactions
• B5-5.2-01, Loans With Resale Restrictions: General Information
• B5-5.2-02, Loans with Resale Restrictions: Eligibility, Collateral and Delivery Requirements
• B5-5.3-01, Shared Equity Overview
• B5-5.3-02, Shared Equity Transactions: General Requirements
• B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements
• B5-5.3-04, Massachusetts Resale Restriction Loan Eligibility Requirements
• B5-6-01, HomeReady Mortgage Loan and Borrower Eligibility
• B5-6-02, HomeReady Mortgage Underwriting Methods and Requirements
• B5-6-03, HomeReady Mortgage Loan Pricing, Mortgage Insurance, and Special Feature Codes
• B5-7-01, High LTV Refinance Loan and Borrower Eligibility
• B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan
• B5-7-03, High LTV Refinance Alternative Qualification Path
• B5-7-04, High LTV Refinance Representations and Warranties
• B5-7-05, High LTV Refinance Pricing, Mortgage Insurance, and Special Feature Codes
• B6-1-01, General Government Mortgage Loan Requirements
• B6-1-02, Eligible FHA-Insured Mortgage Loans
• B6-1-03, Eligible VA-Guaranteed Mortgages
• B6-1-04, Eligible HUD-Guaranteed Section 184 Mortgages
• B6-1-05, Eligible RD-Guaranteed Mortgages
• B7-1-01, Provision of Mortgage Insurance
• B7-1-02, Mortgage Insurance Coverage Requirements
• B7-1-03, Lender-Purchased Mortgage Insurance
• B7-1-04, Financed Borrower-Purchased Mortgage Insurance
• B7-1-05, Government Mortgage Loan Guaranty or Insurance
• B7-2-01, Provision of Title Insurance
• B7-2-02, Title Insurer Requirements
• B7-2-03, General Title Insurance Coverage
• B7-2-04, Special Title Insurance Coverage Considerations
• B7-2-05, Title Exceptions and Impediments
• B7-2-06, Attorney Title Opinion Letter Requirements
• B7-3-01, General Property Insurance Requirements for All Property Types
• B7-3-02, Property Insurance Requirements for One-to Four-Unit Properties
• B7-3-03, Master Property Insurance Requirements for Project Developments
• B7-3-04, Individual Property Insurance Requirements for a Unit in a Project Development
• B7-3-05, Additional Insurance Requirements
• B7-3-06, Flood Insurance Requirements for All Property Types
• B7-3-07, Evidence of Property Insurance
• B7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements
• B7-4-01, General Liability Insurance Requirements for Project Developments
• B7-4-02, Fidelity/Crime Insurance Requirements for Project Developments
• B8-1-01, Publication of Legal Documents
• B8-2-01, Security Instruments for Conventional Mortgages
• B8-2-02, Special-Purpose Security Instruments
• B8-2-03, Signature Requirements for Security Instruments
• B8-3-01, Notes for Conventional Mortgages
• B8-3-02, Special Note Provisions and Language Requirements
• B8-3-03, Signature Requirements for Notes
• B8-3-04, Note Endorsement
• B8-4-01, Riders and Addenda
• B8-5-01, General Information on Special-Purpose Legal Documents
• B8-5-02, Inter Vivos Revocable Trust Mortgage Documentation and Signature Requirements
• B8-5-03, HomeStyle Renovation Mortgage Documentation Requirements
• B8-5-04, Sample Legal Documents
• B8-5-05, Requirements for Use of a Power of Attorney
• B8-6-01, Authorized Use of Intervening and Blanket Assignments
• B8-7-01, Mortgage Electronic Registration Systems (MERS), Inc.
• B8-8-01, General Information on eMortgages
• B8-8-02, Requirements for Creating, Closing, and Correcting eNotes
• C1-1-01, Execution Options
• C1-2-01, General Information on Delivering Loan Data and Documents
• C1-2-02, Loan Data and Documentation Delivery Requirements
• C1-2-03, Ownership of Mortgage Loans Prior to Purchase or Securitization and Third-Party Security Interests
• C1-2-04, Delivering eMortgages to Fannie Mae
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• The Legally Invalid Assignment Defense to Foreclosure

People who are facing the possibility of a foreclosure on their home may want to investigate the history of their mortgage. If the assignment to the foreclosing party is not valid, this may be a viable defense to a foreclosure. In some states, you can demand that the foreclosing party produce a written assignment of the mortgage. If it does not have an assignment or failed to record it as required by state law, this may result in the dismissal of the foreclosure action. Recording rules may require that the foreclosing party record the assignment before starting the foreclosure.

Courts in other states are more lenient in their review of assignments. Since the mortgage is closely associated with the promissory note, the foreclosing party may be allowed to enforce the promissory note even if it cannot produce a valid assignment of the mortgage. You should seek legal guidance in your state to determine whether this defense may be viable.

Homeowners who believe that they may have a defense based on an invalid assignment may wish to consult with a knowledgeable foreclosure lawyer, since this defense can become complicated. Justia offers a lawyer directory to simplify researching, comparing, and contacting attorneys who fit your legal needs.

The Relationship Between Mortgages and Promissory Notes

The mortgage and the promissory note are the two key documents attached to a loan for buying a home. Some purchases involve a deed of trust rather than a mortgage, but they are functionally equivalent in this context. While the promissory note is your guarantee to repay the loan, the mortgage gives the lender the right to foreclose if you do not repay the loan as arranged. The mortgage also identifies the property that will serve as security for the loan. Thus, the two documents work together in establishing the lender’s rights.

The Role of Mortgage Assignments in Loan Transfers

A bank or other lender often will sell a mortgage to another party, which will collect payments and pursue the homeowner if they fail to keep up with the mortgage. To transfer the loan, the original lender will endorse the promissory note to the new owner of the mortgage. This is because collection efforts hinge on owning the promissory note. If the foreclosing party cannot produce the promissory note, the homeowner will have a defense to the foreclosure.

Meanwhile, the new owner will record the assignment of the mortgage. This includes transferring the right to foreclose, as provided by the mortgage, to the new owner. The assignment will provide the amount of the mortgage and the names of the homeowner, the original lender, and the new owner of the mortgage. It also will contain a description of the property attached to the mortgage and the date when the mortgage took effect.

An invalid assignment defense may only be a temporary solution until the new owner records an assignment in their name.

The mortgage industry uses a tool known as the Mortgage Electronic Registration System (MERS) to keep track of assignments. MERS may be a nominee for the lender, or it may receive the mortgage as an assignment. If MERS is the current assignee, it cannot pursue a foreclosure because it does not have an interest in the promissory note. MERS simply serves as an agent for the current owner of the mortgage and assists in creating a record for transfers of the mortgage. This allows banks to more easily transfer loans among them without creating a new assignment each time. You may have a defense against a foreclosure action if MERS is listed as the owner of the mortgage. However, this likely will be only a temporary solution until the new owner records an assignment in their name.

Last reviewed October 2023

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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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Mortgage electronic registration system (mers), explained.

Do you know who owns your mortgage? While this information isn’t essential for homeowners when they send monthly mortgage payments, it might come in handy one day — for example, if you decide to refinance your loan . This is when the Mortgage Electronic Registration System (MERS) comes into play. Let’s learn what exactly is MERS, its role in mortgages and how to look up your mortgage in MERS.

What is Mortgage Electronic Registration System (MERS)?

MERS is an American private electronic database created to track new mortgage loans, servicing rights and ownership of the loans. It provides free public access to information about home mortgages and is used by homeowners, local governments, servicers, lenders, municipalities and insurers, among others.

Every loan in MERS is assigned a mortgage identification number (MIN). This number stays the same throughout the loan's life, making it easier to track in the system, even if the loan is sold to another financial institution.

MERS and its role in mortgage transactions

Mortgages are bought and sold all the time. However, before MERS was created, the lender would have to prepare and file an assignment — a document that states a mortgage transfer — in county land records. Thanks to MERS, lenders can potentially save time and costs on filing assignments every time the mortgage gets transferred to another holder.

When you look into who owns your mortgage, you may also discover MERS itself documented as the loan owner. This is known as a MOM (MERS as Original Mortgagee) loan. However, even if MERS is mentioned as a mortgagee, it does not collect monthly payments and doesn't own the debt or service any loans. In actuality, MERS is generally only listed as a mortgagee for convenience. This way, every time a loan is transferred, MERS can act on behalf of the loan holder and eliminate the need for separate assignments.

Additionally, you should know that MERS cannot be a party to start foreclosure , even if it's mentioned as a mortgagee. If the MOM loan goes into foreclosure, MERS would usually assign the loan back to the current owner.

How to look up a mortgage in MERS

If you're a homeowner, MERS would have little impact on you or your mortgage. However, it may come in handy to learn who the holder of your loan is. This information is necessary for those who want to refinance their house, ask to modify the loan or update information about homeowners insurance , among others. You can search the registry online or by phone.

Homeowners can access MERS by providing:

• Property address
• Borrower's name and social security number (SSN)
• Mortgage Identification Number (MIN), which you can find on the deed of trust, loan statements or signed mortgage

If you cannot locate your MIN, the other details listed above are usually still sufficient to verify the current servicer. Additionally, you might have to confirm some identifying information to see the results.

Pros and cons of Mortgage Electronic Registration System (MERS)

As you learned earlier, MERS has little effect on regular homeowners. However, it does bring certain benefits and disadvantages to the whole mortgage management process.

Pros of MERS:

• Serves as a singular destination for loan information: MERS is a good place to start for any homeowner who needs to find out who holds their mortgage. It is also used nationwide by many players in the real estate industry for various reasons, such as finding undisclosed liens or establishing those responsible for maintaining vacant properties.
• May save money and time for lenders: MERS helps facilitate the process of transferring the loan and reduces the costs of consecutive assignment filings.

Cons of MERS:

• May be confusing for homeowners: If MERS is indicated as a beneficiary of the mortgage in its database, it may be misleading to borrowers who might think that MERS has more impact on their loan than it actually does.
• Makes it challenging to establish a loan owner in some cases: When it comes to MOM loans, it could be potentially more difficult to track a current loan owner since MERS is technically listed as one.

MERS is a private database created to facilitate tracking mortgages and any ownership changes. As a homeowner, you can use it to see who your loan holder is in case you want to refinance or modify your mortgage. For lenders, MERS provides the convenience of a singular place.

Mortgage Electronic Registration System FAQs

1. is mers the only way to see who owns a mortgage.

You can look up your mortgagee in a few different ways. For example, you can call or send a written request to your mortgage servicer or check the Fannie Mae and Freddie Mac websites. However, MERS was created as a unified database, so it could potentially be a good place to start your search.

2. Is there a MERS registration fee?

Yes, MERS may charge a small registration fee when the loan is recorded in its system. You should also know that as a homeowner, you can access the registry to find information about your mortgage service provider for free.

3. What is an MOM loan?

MOM stands for "MERS as original mortgagee." This is done to save time and recording costs: since MERS is listed on paper as the loan owner, the information about the mortgagee does not have to change.

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What Is the Mortgage Electronic Registration System (MERS)?

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

What Is a Mortgage Electronic Registration System—MERS?

The Mortgage Electronic Registration System (MERS) is a database created by the mortgage banking industry. A confidential electronic registry of mortgages originated in the United States, it keeps track of transfers of and modifications to servicing rights and ownership of the loans. It is used by the real estate finance industry for residential and commercial mortgage loan recording trading.

MERS, which also refers to the privately held company that manages the database, is approved by such government-sponsored enterprises as the Federal National Mortgage Association ( Fannie Mae) , the Federal Home Loan Mortgage Corporation ( Freddie Mac) , and the Government National Mortgage Association ( Ginnie Mae) , along wth such government agencies as the Federal Housing Administration (FHA) and the Department of Veterans Administration (VA) that are involved in housing loans. The California and Utah Housing Finance Agencies and all major Wall Street rating agencies make use of it as well.

Key Takeaways

• Mortgage Electronic Registration System (MERS) is a privately owned database that the mortgage banking industry created to simply the registration and transfer of mortgages.
• By tracking mortgage transfers electronically, MERS eliminates the need of a lender to register the transfer with the county recorder every time the loan is sold from one bank to another.
• Sometimes MERS itself is designee as the mortgage lender (mortgagee).
• While MERS can save time and recording costs, it has drawn criticism for making it difficult to see who actually is the current owner of a mortgage.

Understanding the Mortgage Electronic Registration System—MERS

Each time a mortgage is sold from one bank to another, an assignment—a document showing that the mortgage has been transferred—is, theoretically, prepared and recorded in the county land records. The assignment transfers all of the interest the original lender had under the mortgage to the new bank.

By tracking loan transfers electronically, MERS eliminates the long-standing practice that the lender must record an assignment with the county recorder every time the loan is sold from one bank to another.

The MERS system is used by mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders, and consumers. County and regulatory officials and homeowners can access MERS free of charge. Homeowners can look up information on their own mortgages that are registered with the system.

In order to use the electronic tracking, the servicer of the mortgage assigns it with a mortgage identification number (MIN) and then registers the loan with the MERS database. Sometimes, MERS itself is designated as the mortgagee, as the original lender is officially called in the mortgage documents; such a loan is known as an original mortgagee (MOM) loan. From there, the seller can originate the mortgage with MERS as a nominee of the lender (also referred to as the beneficiary), and then assign or record the assignment of the loan to MERS in the county land record. This would make MERS the mortgagee of record.

While MERS can act as mortgagee in county land records, it doesn't actually own the mortgage loan.

If the lender sells the loan, MERS will update its information regarding the mortgage. The servicer of a mortgage can have it removed from the MERS database by sending a request to have it deactivated. MERS will, in turn, notify Fannie Mae. If the servicer of a mortgage wants to end their membership with MERS entirely, it must also notify Fannie Mae as soon as possible.

Pros and Cons of the Mortgage Electronic Registration System—MERS

As an electronic, one-stop site for mortgage documents—deeds of trust and promissory notes—MERS greatly simplifies the mortgage process. MERS can act as a cost-saving measure to some degree because, by acting as a mortgagee, it cuts the expense of recording the transfer of a mortgage from one lender to another. Having the loan in MERS’ name (as nominee) in the land records saves time and recording costs because multiple assignments aren't necessary each time the loan changes hands.

The database has drawn some criticism, though. During the 2008 housing crisis , the system made it difficult at times to sort out who actually owned mortgages. That created a challenge for homeowners facing foreclosure or relief from their loans, as they needed to know who held their mortgages in order to work out some form of remedy.

MERS. " About Us Frequently Asked Questions ."

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Promissory Notes, Mortgage Assignments, and MERS’ Role in Real Estate

After the fall out of the subprime mortgage crisis that triggered the Great Recession, the effects still linger when looking at homeownership statistics in the United States. Nearly 10 million homeowners lost their homes to foreclosure between 2006 and 2014. Damaged credit and traumatized psyches paired with stricter lending standards and soaring median home prices mean that some former homeowners will never own another home.

Today, the United States is seeing the highest rates of unemployment since the Great Depression at nearly 15%  due to the COVID-19 pandemic, and of those who still own a home, nearly 4.1 million borrowers are struggling to make their monthly payments. Many are turning to forbearance for momentary relief from their mortgages.

For many homeowners, the question of what happens to their mortgage after closing day might not ever come up. Until the threat of foreclosure or the need for forbearance arises, most borrowers simply send in their monthly payments with no questions asked.

Now is a good time to consider the process after closing, and how it affects their property rights. Here are some of the questions to ask.

What happens after a real estate closing?

• At closing, the borrower signs the mortgage, the deed, and the promissory note
• The mortgage and the deed are recorded in the public record
• The promissory note is held by the lender while the loan is outstanding
• Payments are sent to the mortgage servicing company
• The mortgage may be securitized and sold to investors
• The mortgage may be transferred to another bank
• The mortgage servicing rights may change to another company
• When the mortgage is paid in full, a mortgage lien release or satisfaction with a number referencing the original mortgage loan is recorded in the public record to show the debt is no longer outstanding
• The promissory note is marked as paid in full and returned to the borrower

Banks often sell and buy mortgages from each other as a way to liquidate assets and improve their credit ratings. When the original lender sells the debt to another bank or an investor, a mortgage assignment is created and recorded in the public record and the promissory note is endorsed.

What are Loan Transfer Documents?

Assignments and endorsements prove who owns the debt and subsequently who has the authority to bring foreclosure action.

Mortgage Assignments

A Mortgage Assignment is a document showing a mortgage loan has been transferred from the originator to a third party.

Note Endorsements

In addition to the assignment, the originator of the loan or the most recent holder of the loan must endorse (or sign over) the promissory note whenever the loan changes hands. Sometimes, the note is endorsed “in blank,” which means that any party that possesses the note has the legal authority to enforce it.

While these documents are supposed to be recorded in the public land records systems, sometimes there’s a “break” in the chain. A missing mortgage satisfaction or assignment can cause a huge headache for homeowners when they go to sell. Without knowing who the official mortgage lienholder of the property is, the home can’t be sold. The title agent in charge of the closing is tasked with fixing the issue so that clear ownership rights can be established and the final mortgage payoff can be sent to the right lender if needed.

What is Mortgage Securitization?

In the last 30 years or so, the buying and selling of mortgage loans between lenders, banks, and investors has grown more complicated. When a mortgage is turned into a security, it’s pooled with similar types of loans and sold on the secondary mortgage market. The purchasers or investors in these securities receive interest in principal payments.

Securitization is good for lenders because it allows them to sell mortgage loans from their books and use that money to make more loans.

Where securitization goes wrong, as we saw during the housing crisis, is when bad or “toxic” assets are pooled together and sold on the secondary market to unsuspecting investors. Subprime mortgage-backed securities had received high ratings from credit agencies and offered a higher interest rate, but they also were the first to hemorrhage losses when borrowers began defaulting on homes with underwater mortgages.

Securitization isn’t an inherently good or bad process, it’s simply a mechanism by which banks liquidize assets, increase their credit and ratings, and clear their balance sheets.

For homeowners, securitization means that the mortgage isn’t owned by a single lender and is instead part of a pool of mortgages owned by investors. A mortgage service company is responsible for collecting the mortgage payments and sending it to the proper investors. Securitization also means that tracking the note and who has the authority to enforce it can get messy.

What is the Mortgage Electronic Registration System, Inc. or MERS?

The MERS system is a private, third-party database system used to track servicing rights and ownership of mortgages in the United States. This system of registering the promissory note and mortgage was created to make transferring these documents easier on the secondary mortgage market.

How does MERS work?

For some real estate transactions, the mortgage originator will designate MERS as the mortgagee at closing. These loans are called MERS as Original Mortgagee (MOM) loans. When buying a home, a borrower should see clear language on the mortgage or deed of trust document granting and conveying legal title of the mortgage to MERS as mortgagee. This gives the company the right to act on behalf of the current and subsequent owners of the loan.

In other transactions, the loan may be assigned to MERS in the public record at a later date after closing.

After MERS is designated as a nominee to act on behalf of the lender, it tracks the transfers of the loans between parties and acts as a nominee for each holder. This eliminates the need to file separate assignments in the public record each time the loan is transferred. If a lender sells the loan, MERS will update this information in their system.

Even though MERS is designated as the mortgagee, it doesn’t own the debt or hold the promissory note. MERS doesn’t service mortgages or collect payments on mortgages.

Benefits of MERS

Some of the benefits of the MERS system include:

• No document drafting fees
• Eliminates the need for multiple assignments each time the loan changes hands
• Reduces recording costs
• Saves time and administrative costs for lenders and servicers
• Provides the identification of servicers and investors for free for homeowners and lenders
• Used by Lenders to find undisclosed liens
• Used by municipalities to find companies responsible for maintaining vacant and abandoned properties
• Mortgage Identification Numbers (MIN) are assigned to each loan for easy tracking
• Selling of loans and servicing transfers are more efficient in the secondary market
• Obtaining lien releases when a lender goes out of business is simplified
• Cost savings by the mortgage industry is theoretically passed on to homeowners

Does MERS really save consumers money?

The MERS system is not meant to act as a replacement for public land records. However, some states, including Kentucky, New York, Texas, Alabama, and Delaware have sued the company that controls MERS for lost revenue from missing record filing fees. In the case of Kentucky , the state alleged that MERS did not record mortgage assignments with Kentucky County Clerks as they were transferred between banks. At $12 a recording, all those transfers without corresponding mortgage assignments add up to big bucks.

Despite numerous lawsuits challenging MERS over its mortgage assignment authority, the company that controls MERS usually receives favorable judgments . In 2016, courts in Texas ruled that MERS’ mortgage assignments were valid and dismissed two cases. County recorders in Pennsylvania also brought cases claiming that MERS and MERS System members failed to record mortgage assignments when transferring promissory notes, a violation of Pennsylvania recording laws. MERS emerged as the winner of these lawsuits as well.

Kentucky and other states argue that skipping out on these fees hurt the consumers and taxpayers in their states.

What is MERS role in foreclosures?

Depending on the state, a foreclosure process might be either judicial (reviewed by a judge in court) or nonjudicial. In the past, MERS, acting on behalf of lenders, has been named as the plaintiff in foreclosure proceedings. Sometimes MERS was even listed as the beneficiary in nonjudicial notices.

Whether or not MERS has the authority to file foreclosure as either the plaintiff or beneficiary is hotly contested. Some states have ruled that MERS doesn’t have standing to foreclose since it doesn’t have any financial interest in either the property of the promissory note.

MERS Splits the note and the mortgage

A court case from 1872, Carpenter v. Longan , established that where the promissory note goes, a deed of trust or mortgage must follow and, according to the United State’s Uniform Commercial Code (UCC) , the promissory note must also have a clear chain of title.

Foreclosure proceedings during the Great Recession proved to be complicated by the MERS system. Within the MERS system, a note and mortgage may be transferred multiple times, so to avoid an endorsement each time, the note is “endorsed in blank.” In one foreclosure after the other, borrowers were able to demonstrate that the subsequent assignments of the promissory note had gone unendorsed.

Although the MERS systems has helped the mortgage industry, title agents, and even borrowers better manage and understand who has the servicing rights and holds the authority to foreclose, several borrowers facing foreclosure have argued that the system impermissibly “splits” the note and the mortgage between the note holder and MERS as the beneficiary of the deed of trust or mortgage.

This process of bifurcation, it’s claimed, causes the relationship between the mortgage and note to become defective and subsequently unenforceable.

Homeowners facing foreclosure, especially in the aftermath of the housing bubble burst of 2008, were successful in delaying or avoiding foreclosure by arguing that the authority to foreclose was not satisfactorily established due to breaks in the chain of assignments and endorsements.

However, Article 3 of the UCC establishes anyone who possesses the note has the legal authority to enforce it. So foreclosing parties have countered that possession of the note should be enough.

As a result, some states, like Michigan, have ruled in favor of these borrower’s arguments by requiring reunification through valid assignment before foreclosures may proceed. Others have ruled that reunification is not necessary since MERS would be authorized to foreclose for the note holder on their behalf. In 2015, The Nevada Supreme Court actually clarified previous rulings by stating that the involvement of MERS actually cures the defect. This is because the note holder could potentially or theoretically direct or compel MERS to assign the deed of trust, resulting in reunifying the instruments.

Homebuyers should always ask questions

With the advent of eClosing solutions, eNotes, eVaults, and the MERS eRegistry , the real estate, title, and mortgage industry continues to build systems that improve the homebuying experience.

Despite all the advancements, homebuying can be a confusing and overwhelming process. It’s important to ask questions of the right real estate professionals. Hiring your own attorney to represent your interests in the real estate transaction is always a good idea.

While the pros and cons of MERS is debated, homeowners today will want to keep up with recommendations from the CFPB should they fall behind on their mortgage payments and reach out to their mortgage servicer as soon as possible.

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Amanda Farrell is a digital media strategist at PropLogix. She enjoys being a part of a team that gives peace of mind for consumers while making one of the biggest purchases of their lives. She lives in Sarasota with her bunny, Buster, and enjoys painting, playing guitar and mandolin, and yoga.

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Mortgage Assignment Laws and Definition

(This may not be the same place you live)

  What is a Mortgage Assignment?

A mortgage is a legal agreement. Under this agreement, a bank or other lending institution provides a loan to an individual seeking to finance a home purchase. The lender is referred to as a creditor. The person who finances the home owes money to the bank, and is referred to as the debtor.

To make money, the bank charges interest on the loan. To ensure the debtor pays the loan, the bank takes a security interest in what the loan is financing — the home itself. If the buyer fails to pay the loan, the bank can take the property through a foreclosure proceeding.

There are two main documents involved in a mortgage agreement. The document setting the financial terms and conditions of repayment is known as the mortgage note. The bank is the owner of the note. The note is secured by the mortgage. This means if the debtor does not make payment on the note, the bank may foreclose on the home. 

The document describing the mortgaged property is called the mortgage agreement. In the mortgage agreement, the debtor agrees to make payments under the note, and agrees that if payment is not made, the bank may institute foreclosure proceedings and take the home as collateral .

An assignment of a mortgage refers to an assignment of the note and assignment of the mortgage agreement. Both the note and the mortgage can be assigned. To assign the note and mortgage is to transfer ownership of the note and mortgage. Once the note is assigned, the person to whom it is assigned, the assignee, can collect payment under the note. 

Assignment of the mortgage agreement occurs when the mortgagee (the bank or lender) transfers its rights under the agreement to another party. That party is referred to as the assignee, and receives the right to enforce the agreement’s terms against the assignor, or debtor (also called the “mortgagor”). 

What are the Requirements for Executing a Mortgage Assignment?

What are some of the benefits and drawbacks of mortgage assignments, are there any defenses to mortgage assignments, do i need to hire an attorney for help with a mortgage assignment.

For a mortgage to be validly assigned, the assignment document (the document formally assigning ownership from one person to another) must contain:

• The current assignor name.
• The name of the assignee.
• The current borrower or borrowers’ names. 
• A description of the mortgage, including date of execution of the mortgage agreement, the amount of the loan that remains, and a reference to where the mortgage was initially recorded. A mortgage is recorded in the office of a county clerk, in an index, typically bearing a volume or page number. The reference to where the mortgage was recorded should include the date of recording, volume, page number, and county of recording.
• A description of the property. The description must be a legal description that unambiguously and completely describes the boundaries of the property.

There are several types of assignments of mortgage. These include a corrective assignment of mortgage, a corporate assignment of mortgage, and a mers assignment of mortgage. A corrective assignment corrects or amends a defect or mistake in the original assignment. A corporate assignment is an assignment of the mortgage from one corporation to another. 

A mers assignment involves the Mortgage Electronic Registration System (MERS). Mortgages often designate MERS as a nominee (agent for) the lender. When the lender assigns a mortgage to MERS, MERS does not actually receive ownership of the note or mortgage agreement. Instead, MERS tracks the mortgage as the mortgage is assigned from bank to bank. 

An advantage of a mortgage assignment is that the assignment permits buyers interested in purchasing a home, to do so without having to obtain a loan from a financial institution. The buyer, through an assignment from the current homeowner, assumes the rights and responsibilities under the mortgage. 

A disadvantage of a mortgage assignment is the consequences of failing to record it. Under most state laws, an entity seeking to institute foreclosure proceedings must record the assignment before it can do so. If a mortgage is not recorded, the judge will dismiss the foreclosure proceeding. 

Failure to observe mortgage assignment procedure can be used as a defense by a homeowner in a foreclosure proceeding. Before a bank can institute a foreclosure proceeding, the bank must record the assignment of the note. The bank must also be in actual possession of the note. 

If the bank fails to “produce the note,” that is, cannot demonstrate that the note was assigned to it, the bank cannot demonstrate it owns the note. Therefore, it lacks legal standing to commence a foreclosure proceeding.

If you need help with preparing an assignment of mortgage, you should contact a mortgage lawyer . An experienced mortgage lawyer near you can assist you with preparing and recording the document.

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MORTGAGE ELECTRONIC REGISTRATION SYSTEMS (MERS) by Christopher J. Beck, ATG Senior Law Clerk

Introduction

Mortgage Electronic Registration Systems, Inc. (MERS) provides a centralized registry for tracking ownership interests and servicing rights of mortgages. As the number of mortgages registered with MERS grows, MERS increasingly will appear in the chain of title. This article will address the following questions when dealing with transactions in which MERS is in the chain of title:

• How should an assignment to MERS appear in the chain of title?
• May a mortgage and an assignment to MERS be combined into a single document?
• How does one obtain a payoff letter and release for a mortgage assignment to MERS, and how does this appear in the chain of title?

MERS - owned by several companies involved in the mortgage finance industry - began in 1995 as a member-owned, non-stock corporation. It was created to address the problems associated with tracking the beneficial interests and servicing rights of mortgages due to the increased number of transactions in secondary markets. The goal was to make the tracking of the secondary mortgage assignments more similar to the stock market. Thus, an electronic registry was created to track such assignments of rights.

For MERS to be effective, mortgages must be properly registered with the MERS system. Each mortgage is assigned an individual Mortgage Identification Number (MIN) that tracks the mortgage for its life. The MERS system depends on MERS being named as the mortgagee of record in the county public records. This may be done in one of two ways. First, MERS can be identified as the nominee for the lender on the mortgage itself (referred to as "MERS as Original Mortgagee" or MOM). If the mortgage does not name MERS as the original mortgagee, then the mortgage can be assigned to MERS. The mortgage would begin as a typical mortgage, and as such it must be recorded in the county recorder's office. The mortgage would then be assigned to MERS, with the assignment being recorded in the public records. At this point, under either method MERS will be the assignee or mortgagee of record for the life of the mortgage. Assignments are not made outside of the MERS system. At this point, the chain of title will stop with MERS. MERS will internally track all subsequent assignments of interests and rights as long as the mortgage interests remain with a MERS member.

Benefit of MERS

The benefit of MERS is to create efficiency in secondary mortgage markets, thereby reducing costs. MERS relies on the current mortgage recording laws and procedures so that it may perform its goals, and is not meant to in any way replace governmental recording functions. MERS members are expected to update the transfers within the system. MERS has acknowledged that it is critical to its success that they accurately keep track of assignments. Interested parties are putting a considerable amount of trust in the accuracy of the MERS system and in its members diligently updating records.

How Should an Assignment to MERS Appear on the Chain of Title?

Signed mortgage documents are recorded in the county land records to make a public record of the security interest (in the form of a mortgage or a deed of trust). If MERS is not identified as the original mortgagee, an assignment must be recorded naming MERS as the mortgagee when the loan is registered on the MERS system. An assignment to MERS should appear like any other assignment. An assignment naming MERS as the assignee of record is prepared and recorded with the county recorder's office. MERS will be the assignee of record for the life of the loan and the chain of title should end with MERS unless the rights are assigned to a non-MERS member, a foreclosure, etc.

May a Mortgage and an Assignment to MERS Be Combined into a Single Document?

Beginning in 1997, it has been possible to name MERS as the original nominal mortgagee (MOM), eliminating the need for a subsequent assignment to MERS. If MERS is named as the nominee for the lender, there is no need for an assignment to MERS and no further recorded or unrecorded assignments are necessary as long as the loan remains on MERS. After the initial step naming MERS as mortgagee of record, the subsequent treatment of the mortgage is the same whether it was initially created through an assignment or through MOM. MERS prefers to be named as the original mortgagee because it eliminates the need for a subsequent assignment.

How Does One Obtain a Payoff Letter and Release for a Mortgage Assignment to MERS, and How Does This Appear in the Chain of Title?

Obtaining a payoff or release should be a simplified process for mortgages registered with MERS. It is the obligation of the MERS member currently servicing a loan to de-activate the loan on the MERS system and to prepare and send a lien release to the county recorder's office. To find out the name of the servicer, non-MERS members will have to call the MERS Voice Response Unit (VRU) and obtain the servicer's name, address, contact person, and phone number. It will be necessary to contact the servicer because the MERS system will not give out payoff information. It is the responsibility of the servicer to give out all payoff information.

The loan servicer will send a lien release to the county recorder's office. The release should contain the MIN and the telephone number to access the MERS VRU, which is the number the general public may call to obtain information about the MERS servicer. The number for the VRU is 1-888-679-MERS (679-6377). To access this service, callers will have to know either the MIN or the social security number of the borrower. If an inquirer lacks this information, he or she will still be able to access this information by calling the MERS Help Desk at 1-888-680-MERS (6377), provided one can provide the mortgagor's name or the property address. If a non-MERS member does not have any of the above information, the MIN should be available at the county clerk's office once the lien release has been recorded. "MERS has made a commitment to provide access to its system to county recorders and to the public generally," and the county recorder should be able to get people the information they need. 1997 Ill. Atty.Op.Gen No. 97-008.

As MERS becomes more prominent in the mortgage industry, title agents and companies may have to adapt some of their methodology and procedures to conform to the MERS system. While this initially may prove to be an inconvenience, the title industry should ultimately benefit from increased mortgage tracking efficiency that MERS will provide.

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One simple system of record

The MERS ® eRegistry is the mortgage industry’s "system of record" for holders of eNotes. Its role is to indicate who holds the authoritative copy of the eNote, resulting in a seamless process for you, your borrowers, and your trading partners. The MERS ® eRegistry is designed to make your transition from paper promissory notes to eNotes convenient and secure as you move into the eMortgage space.

Save money and eliminate breaks in the chain of title

Reduce the costs associated with transferring mortgage rights by erasing the need for certain paper assignments.

MERS ® System

A national electronic database that tracks changes in mortgage servicing rights and beneficial ownership interests in loans secured by residential real estate.

MERS ® eRegistry

MERS ® eRegistry is the legal system of record for identifying the Controller (holder) and Location (custodian) for the authoritative copy of a registered eNote.

MERS ® eDelivery

Provide a secure method for distributing documents in any electronic format (SMART Doc, PDF, TIFF, etc.) from one MERS ® eRegistry user to another, using the existing MERS ® eRegistry infrastructure and transaction security requirements.

“As early adopters of eNotes and RONs on the MERS ® eRegistry, at Mr. Cooper, we have been able to engage eNote originators as experts in the eMortgage space.” Bryan Budd SVP, Operations & Co-issue Mr. Cooper

• Bankruptcy & Finance

MERS’s “Maine” Purpose: Recognizing Key Differences Between MERS Mortgages

• A line of judicial opinions from Maine’s Supreme Court calls into question the ability of foreclosing lenders to rely on mortgage assignments from Mortgage Electronic Registration Systems, Inc. when proving ownership of the mortgage.
• However, not all MERS mortgages are the same. Some have key differences that could distinguish them from Maine’s more problematic MERS rulings.
• Before writing off assets or otherwise determining courses of action on MERS mortgages, foreclosing lenders in Maine should check whether they can distinguish the language in their mortgage from the language Maine’s Supreme Court found controlling.

Maine’s Supreme Court recently held that a foreclosing lender’s equitable interest in the mortgage does not by itself equate to ownership of the mortgage and does now allow courts to compel the mortgage’s assignment. * Beal Bank USA v. New Century Mortg. Corp. , 2019 ME 150, ¶ 15. The opinion revives concerns over the viability of foreclosing Maine mortgages involving Mortgage Electronic Registration Systems, Inc. (MERS).

MERS operates as an electronic mortgage registry whereby borrowers taking out mortgage loans give the mortgage to MERS as nominee for the lender’s successors and assigns. Although MERS mortgages generally include standardized language, different model mortgages utilize different descriptions of MERS’s core functions and purpose. Typically, the different MERS language makes little substantive difference in its powers. However, where state courts interpret MERS’s authority based on specific language in the mortgage, as Maine’s courts do, foreclosing lenders should check their specific mortgage language before proceeding.

In 2010, Maine’s Supreme Court analyzed MERS language with the following description in the paragraph defining MERS: “For purposes of recording this mortgage, MERS is the mortgagee of record.” Mortg. Elec. Reg. Sys. v. Saunders , 2010 Me. 79, ¶ 9 (emphasis removed). Relying at least in part on this language, the court held that MERS lacked standing to foreclose because the borrower gave MERS the right to only record the mortgage. Four years later, the court extended its MERS analysis from Saunders to mortgage assignments from MERS, holding that the assignments transfer only MERS’s right to record the mortgage. See Bank of America, N.A. v. Greenleaf , 2014 Me. 89, ¶ 17. This can create problems for foreclosing lenders who often rely on assignments from MERS to demonstrate their ownership of the mortgage.

Maine’s Supreme Court recently confirmed that the original lender can ratify a prior MERS assignment to give it the same effect as if the original lender assigned its interests in the mortgage rather than MERS. U.S. Bank N.A. v. Gordon , 2020 Me. 33, ¶ 10. This allows foreclosing lenders to correct the chain of assignments with an assignment or other document from the original lender acknowledging the transfer. Similarly, language in later documents, such as loan modification agreements, sometimes separately conveys full rights in the mortgage to a subsequent entity other than MERS, validating mortgage assignments from those entities.

What can foreclosing lenders do when the original lender no longer exists, and no other documents can demonstrate a transfer of the original lender’s full mortgage interest to the foreclosing lender? Before writing off the asset or making other decisions about how to proceed, lenders should confirm that their specific mortgage includes the same relevant MERS language that Maine’s Supreme Court considered controlling in Saunders and its progeny. As discussed below, some MERS mortgages include key differences relevant to the Saunders analysis.

Proof of Mortgage Ownership

Maine law requires the lender to establish the following elements to foreclose a delinquent mortgage: (1) the existence of the mortgage; (2) proof of ownership of the mortgage and note, including all assignments and endorsements; (3) a breach of the condition in the mortgage; (4) the amount due on the note, including attorney’s fees and costs; (5) the order of priority and any amounts that may be due to other interested parties; (6) evidence of a properly served notice of default and a mortgagor’s right to cure per 14 M.R.S. § 6111; (7) proof of completed mediation (or a waiver or default of mediation); and (8) SCRA compliance affidavit. See Chase Home Fin. LLC v. Higgins, 2009 ME 136, ¶ 11.

For the second element (proof of ownership of the mortgage and note), most foreclosing lenders rely on their status as the mortgage note’s holder along with a chain of mortgage assignments from the original lender to the foreclosing lender. Under the MERS system, the borrower usually gives the mortgage note to the original lender while separately conveying the mortgage to MERS as nominee for the original lender and the original lender’s successors and assigns. See, e.g., Saunders , 2010 Me. 79, ¶ 8. In many judicial foreclosure states, MERS then assigns the mortgage to a subsequent note holder when necessary to permit foreclosure. Case law from Maine’s Supreme Court has long complicated this system.

Saunders , Greenleaf , and Beal

In Saunders , MERS filed a foreclosure action in its own name, seeking to foreclose the mortgage as the nominee for the note holder. Maine’s Supreme Court held that MERS lacks standing to foreclose under Maine law. Saunders , 2010 Me. 79, ¶ 15. The court specifically quoted the applicable language in the mortgage at issue there:

C) “MERS” is Mortgage Electronic Registrations Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is organized and existing under the Laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501- 2026, tel. (888) 679-MERS. FOR PURPOSES OF RECORDING THIS MORTGAGE, MERS IS THE MORTGAGEE OF RECORD. * * * [Borrowers] mortgage, grant and convey the Property to MERS (solely as nominee for Lender and Lender’s successors and assigns), with mortgage covenants, subject to the terms of this Security Instrument, to have and to hold all of the Property to MERS (solely as nominee for Lender and Lender’s [***9] successors and assigns), and to its successors and assigns, forever. * * * [Borrowers] understand and agree that MERS holds only legal title to the rights granted by [Borrowers] 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: (A) to exercise any or all of those rights, including, but not limited to, the right to foreclose and sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument. * * * [Borrowers] grant and mortgage to MERS (solely as nominee for Lender and Lender’s successors in interest) the Property described [below].

Saunders , 2010 Me. 79, ¶ 9 (emphasis in original).

Relying on this quoted language, Maine’s Supreme Court found that “[t]he only rights conveyed to MERS in either the [borrower’s] mortgage or the corresponding promissory note are bare legal title to the property for the sole purpose of recording the mortgage.” The court noted that “[e]ach reference to MERS within the [borrower’s] mortgage describes MERS solely as the ‘nominee’ to the lender,” and it explained (quoting Black’s Law Dictionary 1149 (9th ed. 2009)) that “[a] nominee is a ‘person designated to act in place of another, [usually] in a very limited way,’ or a ‘party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.’”

The Saunders court further noted that under the mortgage, the borrowers expressly gave the lender—not MERS—the rights provided for in the mortgage, and that the borrowers did not make any of the mortgage covenants to or in favor of MERS. Saunders , 2010 Me. 79, ¶ 10. Accordingly, the court determined that MERS did not qualify as a mortgagee under Maine’s foreclosure statute (discussing 14 M.R.S. §§ 6321–6325).

The Saunders court next considered MERS’s standing under traditional standing rules that require a plaintiff to “show that it has suffered an injury fairly traceable to an act of the mortgagor and that the injury is likely to be redressed by the judicial relief sought.” Saunders , 2010 Me. 79, ¶ 14. Noting again that “[t]he only right MERS has in the [borrower’s] mortgage and note is the right to record the mortgage,” the court held that “MERS lacked standing to institute foreclosure proceedings and could not invoke the jurisdiction of our trial courts.”

Maine’s Supreme Court later extended its Saunders ruling to mortgage assignments from MERS. See Greenleaf , 2014 Me 89. In Greenleaf , the court analyzed identical mortgage language as the language at issue in Saunders . As in Saunders , the court quoted the specific MERS language at issue, including the definition paragraph for MERS that read: “ FOR PURPOSES OF RECORDING THIS MORTGAGE, MERS IS THE MORTGAGEE OF RECORD. ” (Emphasis in original.)

Based on this specific language, Maine’s Supreme Court reiterated that “the mortgage conveyed to MERS only the right to record the mortgage as nominee for the lender.” Greenleaf , 2014 Me. 89, ¶ 15. Thus, the court found that “[w]hen MERS then assigned its interest in the mortgage . . . it granted . . . only what MERS possessed—the right to record the mortgage as nominee.” Accordingly, the record the foreclosure plaintiff provided to show ownership of the mortgage “demonstrate[d] only a series of assignments of the right to record the mortgage as nominee, but no more.”

After Saunders and Greenleaf , foreclosing lenders in Maine “continued to argue that a holder of a note secured by a mortgage has an equitable pre-foreclosure right to compel an assignment of the mortgage.” Fannie Mae v. First Magnus Fin. Corp. , No. RE-2016-110, 2019 Me. Super. LEXIS 104 *3 (Penobscot C’ty Oct. 24, 2019). Unfortunately, Maine’s Supreme Court recently rejected that work-around. See Beal , 2019 Me. 150.

In Beal , the court considered Maine’s equitable trust doctrine that “one who takes a mortgagee’s title holds it in trust for the owner of the debt to secure the debt for which the mortgage was given.” 2019 Me. 150, ¶ 7 (quotations omitted). It rejected the plaintiff’s argument that it could compel the original mortgagee to assign it the mortgage because the original mortgagee held the mortgage in trust for the plaintiff. Noting that “the language of the mortgage was identical to that in [ Greenleaf ]”, the court held that applying the equitable trust doctrine in the situation presented “would be at odds with our holding in Greenleaf .”

These three decisions— Saunders , Greenleaf , and Beal —call into question the viability of mortgage foreclosures involving some MERS mortgages and assignments. However, they should not apply to all MERS mortgages in Maine.

Distinguishing Saunders , Greenleaf , and Beal

Importantly, Saunders , Greenleaf , and Beal all specified that the language in the mortgages at issue there included the identical “for purposes of recording this mortgage, MERS is the mortgagee of record” language. See Saunders , 2010 Me 79, ¶ 9; Greenleaf , 2014 Me. 89, ¶ 14; Beal , 2019 Me. 150, ¶ 3 n.4. Other courts in Maine to have considered issues affected by Saunders and its progeny have also expressly confirmed that the language is the same. See U.S. Bank v. Gordon , 2020 Me 33, ¶ 25 (Horton, J. concurring); Knope v. Green Tree Servicing , 2017 Me. 95, ¶ 3 n.1 (referencing specifically the “for purposes of recording this mortgage” language) (capitalization removed); First Magnus , 2019 Me. Super. LEXIS 104, *2 n.1.

However, not all MERS mortgages include the “for purposes of recording” language. For example, at least some MERS mortgages approved for use in Maine by the Fair Housing Association (FHA) instead read:

This Security Instrument secures to Lender: (a) the repayment of the debt evidenced by the Note, with interest, and all renewals, extensions and modification of the Note; (b) the payment of all other sums, with interest, advanced under paragraph 7 to protect the security of this Security Instrument; and (c) 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 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 or canceling this Security Instrument.

Mortgage, at 1–2 (emphasis added). These alternate MERS mortgages differ from the MERS mortgages discussed in Saunders and its progeny in key respects.

Whereas Maine’s Supreme Court interpreted the mortgage at issue in Saunders as limiting MERS’s status as nominee to “purposes of recording this mortgage,” the alternative MERS mortgages quoted above expressly confirm that the borrower grants the mortgage to MERS for the purpose of securing repayment of the debt to the lender. This distinction is important because even to the extent that Saunders and Greenleaf focused on MERS’s status as nominee, the term “nominee” by itself does not mean “party limited to recording a document.” Rather, Maine’s Supreme Court describes a nominee as “a person designated to act in place of another, usually in a very limited way.” Saunders , 2010 Me. 79, ¶ 10 (internal quotations omitted). Those limitations naturally arise from the contract itself, i.e., the specific mortgage language at issue.

The Saunders court construed the mortgage’s language there to mean that the borrower gave the mortgage to MERS as the lender’s nominee for the purpose of recording the mortgage. See Saunders , 2010 Me 79, ¶ 10. Yet under other MERS mortgages, the borrower conveys the mortgage to MERS for the purpose of securing repayment to the lender. The borrower further expressly agrees that the interest it gives to MERS—which it gives for the purpose of securing repayment—includes the right to exercise “any or all” of the lender’s interests “if necessary to comply with law or custom.” Those rights specifically include without limitation “the right to foreclose and sell the Property.”

Thus, under some MERS mortgages’ alternative language, the borrower grants MERS a mortgage interest allowing it to exercise the lender’s right to foreclose for the purpose of securing repayment. In other words, the mortgage bestows on MERS a contractual right to foreclose, or more importantly for this articles purposes, a contractual right to take any action “necessary to comply with law or custom” to secure repayment to the lender through foreclosure.

Maine’s Supreme Court has repeatedly recognized that MERS can assign only the mortgage rights it has. See, e.g., Greenleaf , 2014 Me. 89, ¶ 16. In Saunders and its progeny, the mortgages at issue limited those rights to “purposes of recording,” at least according to Maine’s Supreme Court. 2019 Me. 79, ¶ 9. The language in other MERS mortgages does not limit the rights to the purpose of recording; it limits them only to any interests necessary to comply with law or custom to secure repayment to the lender.

Moreover, MERS’s lack of standing to foreclose should not impact this analysis. Maine’s Supreme Court acknowledges that its standing analysis is separate and distinct from the question of mortgage ownership. See Greenleaf , 2014 Me. 89, ¶ 22 n.13. This suggests that MERS’s lack of standing to foreclose should not limit its ability to assign its contractual rights under the mortgage to a party who could demonstrate standing.

Under Maine law, MERS lacks standing to foreclose because it does not qualify as a mortgagee under the applicable statute and because it does not suffer an injury sufficient to give the court jurisdiction. See, e.g., Saunders , 2010 Me. 79, ¶¶ 10, 14–15. However, because standing and ownership are separate issues, Maine law could still allow MERS to assign its contractual rights under the alternative MERS mortgages, including its right “to exercise any or all of [the lender’s] interests, including, but not limited to, the right to foreclose.”

Put differently, MERS can assign whatever interest it has in the mortgage to another party. See, e.g., Greenleaf , 2014 Me. 89, ¶ 16. For MERS mortgages that do not limit MERS’s authority to recording purposes, those interests include rights beyond just recording. If MERS assigns those interests to a subsequent note holder who can establish standing, then the note holder should properly acquire all the same interests in the mortgage that the original lender had, and no legal mechanism should preclude the note holder from foreclosing.

Notably, this analysis fully comports with Maine’s traditional understanding of a nominee as holding “bare legal title for the benefit of others.” Saunders , 2010 Me. 79, ¶ 10. As nominee, MERS holds legal title to the mortgage interests for the benefit of the lender and the lender’s successors and assigns. When MERS assigns that legal title to the party for whom it holds it—i.e., the lender’s successor and assign—MERS’s legal title merges into the beneficiary-assignee’s interests, and the beneficiary-assignee acquires full rights under the mortgage. Where the mortgage limits MERS’s interest to “purposes of recording” under Maine case law, MERS can only transfer that limited interest. See, e.g., Greanleaf , 2014 Me. 89, ¶ 17. However, mortgages that do not limit MERS’s interest to recording purposes should not create similar impediments to foreclosure.

The impact of different MERS mortgage language under Saunders and Greenleaf appears untested in Maine courts. Until the Beal decision, lenders could still seek foreclosure under the position that the original lender holds any mortgage interest MERS itself could not assign in equitable trust for the party to whom MERS assigned its interests, meaning the foreclosing lender could compel a mortgage assignment from the original lender and continue with the foreclosure. See Beal , 2019 Me. 150, ¶ 8. Now that Maine’s Supreme Court has shot down the equitable trust argument, however, foreclosing lenders must seek alternative arguments to enforce their mortgage rights. Before they decide how to proceed, they should check their Maine mortgage to see how it describes MERS’s main purpose.

*  Kevin M. Hudspeth serves as of counsel to Maurice Wutscher LLP, a national financial services law firm, where he practices in the appellate, consumer credit, and regulatory compliance groups. He has extensive experience with real estate litigation in Ohio, Illinois, and other jurisdictions throughout the country. He regularly advises attorneys and clients about contested foreclosure issues arising in multiple states.

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Rating Action Commentary

Fitch Assigns Stratton Mortgage Funding 2024-3 PLC Expected Ratings

Tue 28 May, 2024 - 11:37 AM ET

Related Content: Stratton Mortgage Funding 2024-3 PLC - Appendix Stratton Mortgage Funding 2024-3 PLC

Fitch Ratings - London - 28 May 2024: Fitch Ratings has assigned Stratton Mortgage Funding 2024-3 PLC's notes expected ratings, as detailed below.

The assignment of final ratings is conditional on the receipt of final documents conforming to the information already reviewed.

VIEW ADDITIONAL RATING DETAILS

Transaction Summary

Stratton Mortgage Funding 2024-3 PLC is a securitisation of non-conforming owner-occupied (OO) and buy-to-let (BTL) mortgages backed by properties located in the UK. The residential mortgages were originated by GMAC-RFC Limited, GMAC, Amber Homeloans Limited, Edeus Mortgage Creators Limited, Kensington Mortgage Company Limited and Mortgages 1-2-4-5-6-7 Limited.

These assets were previously securitised in the Stratton Mortgage Funding 2020-1 plc and Stratton Mortgage Funding 2021-3 plc transactions. The pool also includes 15 commercial loans originated by NRAM Limited, which were not previously securitised.

KEY RATING DRIVERS

Seasoned Loans: About 98.4% of loans in the pool were originated between 2003 and 2008. The pool has benefited from considerable house price indexation, with a weighted average (WA) indexed current loan-to-value of 49.5%, leading to a WA sustainable LTV of 62.0%. The OO loans, which make up 84.2% of the pool, contain a high proportion of interest-only loans (86.7%).

High Arrears and Non-Performing L oans: Total arrears were 34.1% at the end-April 2024 pool cut-off date. Also, Fitch views 7.7% of loans in the pool as non-performing as the borrowers have not made any payments in the last three months. Fitch applied its UK RMBS Rating Criteria in its analysis and applied additional recovery haircuts and yield compression. The agency assumed no interest payments were made by borrowers for 5% of the pool, which reduces the available revenue funds in the transaction.

Ratings Lower than MIR s : Fitch conducted a forward-looking analysis by running scenarios and assuming higher defaults and lower recovery rates. This was to account for the arrears trend compared with the Fitch UK RMBS non-conforming index and weaker recovery proceeds than envisaged by the agency's criteria assumptions. The assigned rating for the class B notes is one notch lower than the model-implied rating (MIR) and in line with Fitch's UK RMBS Rating Criteria report. The assigned ratings for the class C to F notes are lower than their MIRs by up to four notches, a variation from the criteria.

Weak Representations and Warranties Framework: The seller provides the majority of representations and warranties Fitch expects in a UK RMBS transaction, but many are qualified by awareness on the part of the seller. Protection for R&W breaches is limited to the seller's obligation to repurchase mortgage loans or make an indemnity payment in lieu of such repurchases.

The seller is not a rated entity and may have limited resources available to indemnify the issuer or to repurchase loans if there is a breach of the R&Ws. Fitch views this framework as weak in comparison to typical UK RMBS, but the seasoning of the assets, and the absence of warranty breaches in the Stratton Mortgage Funding 2020-1 plc and Stratton Mortgage Funding 2021-3 plc transactions, make the likelihood of the issuer suffering a material loss sufficiently remote.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade.

Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base-case expectations may result in negative rating action on the notes. Fitch's analysis revealed that a 15% increase in the WA foreclosure frequency (FF), along with a 15% decrease in the WA recovery rate (RR), would lead to downgrades of up to three notches for the class A and F notes, four notches for the class B and D notes, and five notches for the class C and E notes.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing credit enhancement and, potentially, upgrades. Fitch found a decrease in the WAFF of 15% and an increase in the WARR of 15% would lead to upgrades of two notches for the class B notes, four notches for the class C, D and E notes, and five notches for the class F notes. The class A notes are at the highest achievable rating on Fitch's scale and cannot be upgraded.

CRITERIA VARIATION

The class C notes are rated two notches below their MIRs, the class D and E notes three notches below their MIRs and the class F notes four notches below their MIR. This constitutes a variation from rating determination in the UK RMBS Rating Criteria, where we allow deviation of no more than one notch from the MIR.

The ratings for the class A, B and C notes were anchored on the modelled output after a 10% recovery haircut at 'AAAsf' and the 'AAsf' category where we deem the level of defaults sufficiently stressful.

The ratings for the class D to F notes were anchored on the modelled output after a 10% increase in defaults and a 10% recovery haircut.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

DATA ADEQUACY

Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis.

Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

ESG Considerations

Stratton Mortgage Funding 2024-3 PLC has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to the high proportion of interest-only loans in legacy OO mortgages, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Stratton Mortgage Funding 2024-3 PLC has an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to a large proportion of the pool containing OO loans advanced with limited affordability checks, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores .

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.

APPLICABLE CRITERIA

• Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 07 Jul 2023)
• Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 28 Nov 2023)
• Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 28 Nov 2023)
• Global Structured Finance Rating Criteria (pub. 19 Jan 2024) (including rating assumption sensitivity)
• UK RMBS Rating Criteria (pub. 23 Feb 2024) (including rating assumption sensitivity)
• Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 05 Apr 2024)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Multi-Asset Cash Flow Model, v3.1.1 ( 1 )
• ResiGlobal Model: UK, v2.0.1 ( 1 )

ADDITIONAL DISCLOSURES

• Dodd-Frank Rating Information Disclosure Form
• Solicitation Status
• Endorsement Policy

ENDORSEMENT STATUS