Fifth Circuit Affirms That MERS Assignment Did Not Violate Recording Law and That Borrowers Did Not Have Standing to Challenge a PSA

The United States Court of Appeals for the Fifth Circuit recently affirmed that Mortgage Electronic Registration Systems Inc. (“MERS”) did not violate a Texas recording law and that the borrowers being foreclosed did not have a right to challenge the Pooling and Service Agreement (“PSA”) that assigned their deed of trust.  See Ferguson v. Bank of New York Mellon Corp., 2015 WL 5751436 (5th Cir. Oct. 1, 2015).  In the case, the borrowers executed a deed of trust to Countrywide, which named MERS as the beneficiary and nominee.  MERS later assigned the deed of trust to the Bank of New York (“BNY”), which initiated a foreclosure action after the borrowers defaulted.  The borrowers then sued BNY and MERS, primarily arguing (i) Texas law does not allow MERS to act as the beneficiary of a deed of trust, which rendered the assignment to BNY void; and (ii) the assignment also was void because it violated the terms of the PSA, which was governed by New York law.  The District Court dismissed the borrowers’ action, and the Fifth Circuit affirmed.  First, it held that the borrowers agreed to the deed of trust that named MERS as the beneficiary and that it was “immaterial” that MERS had no interest in the underlying promissory notes “because Texas law treats a DOT and a note as separate instruments” and MERS therefore did not violate Texas law.  Second, it held that even if New York law governed the PSA, the unpublished Kings County decision relied upon by the borrowers for their argument that they had standing to challenge the assignment under the PSA had been overturned in April 2015.  See Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312 (2d Dept. 2015) leave to appeal dismissed, 25 N.Y.3d 1221 (2015).  Therefore, the assignment was valid and BNY had the right to foreclose.

The analysis of the New York PSA decision can be found by clicking here.

For a copy of the decision, please contact Michael O’Donnell at