Fannie says no to MERS, but yes to flawed foreclosure instructions

Fannie says no to MERS, but yes to flawed foreclosure instructions

Posted  by Robert Doggett, Texas RioGrande Legal Aid

Fannie Mae is the latest authority to question the legitimacy of MERS foreclosing in its own name.  See article on court decisions in Kansas and Arkansas here, and an opinion from a bankruptcy court in Nevada here.  Per Fannie’s new servicing guidelines, MERS “must not be named as a plaintiff in any foreclosure action, whether judicial or non-judicial, on a mortgage loan owned or securitized by Fannie Mae.”  See Guidelines issued March 30, 2010, Page 3, here.  Of course it makes sense to prohibit a party which has no interest in the mortgage from foreclosing.  More on MERS here.  What does not make sense is what Fannie Mae wants servicers to do.

[W]hen MERS is the mortgagee of record, the servicer must prepare a mortgage assignment from MERS to the servicer, and then bring the foreclosure in its own name, unless Fannie Mae specifically requires that the foreclosure be brought in the name of Fannie Mae. In that event, the assignment must be from MERS to Fannie Mae, in care of the servicer at the servicer’s address for receipt of notices. In all cases, the assignment from MERS to the servicer or Fannie Mae must be recorded before the foreclosure begins.
Foreclosure Actions in the Name of MERS, Servicing Guide, Part VIII, 105: Conduct of Foreclosure Proceedings, amendment issued at page 3, here.

It seems odd to prohibit MERS from conducting a foreclosure, but require a loan servicer to be assigned the mortgage in order to do the foreclosure when the servicer is not a real party at interest either.  It would seem more appropriate to have Fannie Mae be the entity named since it is the real party at interest, and have the servicer be its agent, but the truth is just too simple.  The financial industry after all prides itself on hiding the truth whenever possible. See NYT article on Lehman’s alter ego here.
A blogger on Foreclosure Industry described the new guidelines this way:

It’s interesting that Fannie Mae is issuing these instructions, but apparently no one’s told them that a servicer isn’t a real party in interest. If this assignment is attacked, the entire foreclosure could be derailed by the borrower.
If Fannie Mae is concerned about MERS’ involvement and losing cases, I wonder why they didn’t just instruct servicers to foreclose in Fannie Mae’s name. If Fannie Mae is the investor on the loan, they would be the real party in interest, not the servicer.

I probably don’t agree with Christine of the Foreclosure Industry often, but in this case I do