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Home Foreclosures: 4.5.3 Decisions Allowing MERS to Foreclose

In a few states courts have interpreted their non-judicial foreclosure statutes to permit a party with no interest in the promissory note to foreclose.216 Courts in Idaho, Minnesota, and Georgia have adopted this view, while courts in California and Texas have rendered inconsistent rulings on the question.217 Courts that reject the application of the UCC provisions governing negotiable instruments to foreclosures have ruled that parties acting under the MERS’s signing authority could engage in a

Home Foreclosures: 4.5.4.2 Evidence From an Alleged Agent Alone Cannot Establish the Facts of Agency

The standard MERS mortgage purports to bind the borrower, the original lender, and unknown future successors and assigns of the original lender to an agreement to participate in the MERS nominee system. The future successors and assigns are not parties to the mortgage contract. Nor are the future successors and assigns referenced in the note. The MERS model attempts to involve unknown parties in a common agency arrangement. This concept presents practical problems for future parties who claim to be affiliated in some way with the common agency structure.

Home Foreclosures: 4.6.1 MERS’s Assignments of Mortgages and Deeds of Trust

In a number of decisions, courts considered the validity of assignments of mortgages and deeds of trust executed by MERS’s signing officers. Courts have expressed concerns about the practice whereby individuals who are not employees of MERS but act in MERS’s name wear various hats to sign documents as assignor and assignee, or as trustee and agent, in connection with the same loan.

Home Foreclosures: 4.6.2 Transfers of Notes by MERS

MERS’s rules prohibit its members from referring to MERS as a “note-owner” in foreclosure proceedings.253 MERS Terms and Conditions provide that “MERS shall have no rights whatsoever to any payments made on account of such mortgage loans.”254 Individuals purporting to act as MERS’s representatives have no authority to transfer notes.255 This fact has not hindered servicers’ attorneys from arguing to the contrary.

Home Foreclosures: 4.7 Challenging MERS’s Standing in Bankruptcy Proceedings

If the consumer files bankruptcy, MERS requires that for actions taken after July 22, 2011, the MERS’s member assign any security interest in MERS name to the name of the beneficial owner and take the action in the name of the beneficial owner.270 This rule applies to filing proofs of claim and motions for relief from the bankruptcy stay.

Home Foreclosures: 4.8 Other Challenges Involving MERS

Advocates should consider challenges to MERS’s foreclosure practices and other activities including whether they violate any state laws related to banking, mortgage lending, foreclosure, or debt collection,279 whether they violate state licensing regulations,280 and whether MERS’s prosecution of foreclosures without any beneficial interest in the note gives rise to causes of action such as wrongful foreclosure.281

Home Foreclosures: 4.9 Local Recorders’ Actions Against MERS

A number of counties have brought suits against MERS, sometimes joining as defendants various financial institutions that use the MERS system, asserting claims for recovery of lost revenue from recording fees. The counties sought orders to require public recording of transfers of loans in the MERS system. MERS has consistently prevailed in having these actions dismissed.293 Typical of these rulings was Fuller v.

Consumer Banking and Payments Law: 1.1.2.1 The Chapters

This treatise generally covers laws that affect consumers governing bank checking and savings accounts and other payment systems. This section provides an overview of the treatise and describes issues that are covered by other treatises in this series.

Chapter 1 provides an overview of forms of payment systems and applicable law, including a discussion of preemption issues. It also provides checklists allowing speedy access to appropriate sections throughout the treatise.

Consumer Banking and Payments Law: 1.1.2.3 Pleadings and Primary Sources Found on the Digital Version

The treatise’s digital version, found at www.nclc.org/library, also includes pleadings and discovery, practice tools, and additional primary sources. They are listed at the bottom of the treatise’s table of contents found in the left pane and are also fully searchable. Search filters allow users to search only for pleadings, only for primary sources, or only for practice tools. Searching for pleadings is recommended using the Advanced Pleadings Search tool found above the Search box.

Consumer Banking and Payments Law: 1.1.3 Payment Issues Discussed in Other NCLC Treatises

Some consumer issues relating to payments are discussed in other NCLC treatises.

NCLC’s Collection Actions1 considers bank account garnishments, including the Treasury rule limiting garnishment freezes on certain federal benefits in a bank account. Also covered are criminal and civil collection of dishonored checks.

The Fair Credit Reporting Act’s applicability to bad-check and check approval lists is discussed in NCLC’s Fair Credit Reporting.2

Consumer Banking and Payments Law: 1.1.4 Alphabet Soup and Jargon

What follows are brief descriptions of some important acronyms found in this treatise that may be unfamiliar to the reader and that are often confused with other terms:

ACH is the Automated Clearing House, a major network that facilitates electronic transfers. (See “NACHA” definition, infra.)

Consumer Banking and Payments Law: 1.3.1 Uniform Commercial Code (UCC)

The law of check transactions is governed primarily by Articles 3 and 4 of the Uniform Commercial Code. Article 3 contains provisions governing negotiable instruments in general; checks are one form of negotiable instrument. Article 4 governs bank deposits and collections. The UCC addresses issues such as a bank’s duty of good faith and ordinary care. The UCC has been adopted, with some variations, in every state.

Consumer Banking and Payments Law: 1.3.2 Electronic Fund Transfer Act (EFTA)

The primary objective of the EFTA and its Regulation E is to provide individual consumer rights in connection with electronic fund transfers that authorize a financial institution to debit or credit a consumer’s account.12 Due to the broad definition of “electronic fund transfer” and the spread of electronic technology, EFTA may cover a wide variety of newer payment systems. It is less clear, however, what “accounts” (beyond traditional bank accounts) are covered by EFTA.

Consumer Banking and Payments Law: 1.3.3 NACHA Rules

The Rules of the National Automated Clearing House Association (NACHA rules) and operating guidelines are an important body of contract rules that apply only to Automated Clearing House (ACH) transfers that are processed by ACH Operators. Many, but not all, electronic payments are made over the ACH system. The NACHA rules supplement the EFTA rules and in some cases go beyond them, though the rules do not have the force of statute and may not be privately enforceable.

Consumer Banking and Payments Law: 1.3.5 Truth in Lending Act (TILA)

The Truth in Lending Act (TILA) and its Regulation Z govern disclosures and certain protections for credit cards and nearly every other form of credit. Among other issues, the TILA has provisions applicable to credit cards (and other credit-based payment systems) regarding unauthorized charges, billing errors, merchant disputes, and telemarketing sales.

Consumer Banking and Payments Law: 1.3.6 Other State Laws

In addition to state enactments of the UCC, many other state laws cover particular aspects of banking and payments products or services. For example, many states have laws regulating check cashers,18 remittances and money transmitters,19 gift cards,20 and electronic transactions.21 Those and other state laws are discussed throughout this treatise as applicable.

Consumer Banking and Payments Law: 1.4.1 Overview

Many different entities might be involved in holding consumers’ funds and making payments to and from consumers’ accounts. Financial institutions (banks and credit unions) beyond the consumer’s institution, and a variety of nonbank entities, might be involved in the process, depending on the payment system being used. Some of these entities interface directly with the consumer and some do not, but they can still impact the consumer’s experience and potentially be liable to the consumer, even if their role is behind the scenes.

Consumer Banking and Payments Law: 1.4.2 The Role of Depository Financial Institutions and Payment Processors Beyond the Consumer’s Bank

Consumers are most familiar with the role of their own depository financial institution (bank or credit union26). This treatise primarily focuses on consumers’ rights vis-à-vis their own bank.

However, when a payment is taken from a consumer’s account (whether by check, electronic ACH payment, or debit card), there is almost always a second financial institution (and sometimes more) involved at the other end of the payment. Those institutions may also have duties and responsibilities that impact consumers.