The Fifth Circuit Upholds MERS As A Proper Deed Of Trust Beneficiary And Affirms Limit On Borrowers' Standing To Challenge Assignees' Enforcements Of Obligations

In Ferguson v. The Bank of New York Mellon et al. (5th Cir. Oct. 1, 2015), the Fifth Circuit recently upheld the validity of deed of trust assignments from Mortgage Electronic Registrations Systems ("MERS") to assignees under Texas state law, if the relevant deed of trust specifically designates MERS and gives MERS the right to exercise interests in those deeds of trust. The Court also reaffirmed previous cases limiting obligors' standing to challenge assignments of obligations to grounds that void the relevant assignments.

In this case, the Borrowers sought to enjoin The Bank of New York Mellon Corporation ("BNY") from foreclosing on their residential mortgage loan and brought a false-lien claim, asserting (1) that MERS was an invalid beneficiary of the deed of trust and that the subsequent assignment by MERS to BNY was void; and (2) that BNY falsely foreclosed. The Fifth Circuit upheld the District Court's dismissal of Borrowers' claims.

1. Upholding MERS as a Deed of Trust Beneficiary and Finding Borrowers Lacked Standing

   Following its Harris Cnty. v. MERSCORP Inc., 791 F.3d 545 (5th Cir. 2015) precedent, the Fifth Circuit rejected Borrowers' argument that MERS was an invalid beneficiary under Chapter 51 of the Texas Property Code because the relevant deed of trust, to which Borrowers had agreed, explicitly designated MERS as the beneficiary with the right to exercise interests in the deed of trust.

   The Fifth Circuit also affirmed that obligors only have standing to challenge an assignee's enforcement of an obligation on grounds that would render the assignment void. Thus, the Borrowers in this case did not have standing to...