In an action filed by plaintiff mortgagee in federal court purportedly under diversity jurisdiction, the United States District Court for the Northern District of New York denied plaintiff’s motion for default judgment and, instead, sua sponte dismissed the complaint for lack of subject matter jurisdiction.  Nationstar Mortg. LLC v. Mohr, 2017 WL 1373888 (N.D.N.Y. April 13, 2017).  In the case, plaintiff sought unpaid amounts due by defendant debtor under a home mortgage and for foreclosure and sale of the property to satisfy this debt.  The complaint alleged that plaintiff is a citizen of Delaware, that defendant debtor is a citizen of Indiana, and that Mortgage Electronic Registration Systems, Inc. (“MERS”), named as a defendant due to its holding a subordinate mortgage on the property at issue, is a citizen of Rhode Island.  The debtor and MERS failed to appear in the action and the clerk entered default.  Plaintiff then filed a motion for default judgment.  However, in addressing plaintiff’s motion, the court first addressed the jurisdictional issue, namely, whether there is subject matter jurisdiction over the action.  The court noted that the complaint appears to meet the “complete diversity” requirement at first glance.  However, the complaint stated that MERS was “named solely as a nominee” for a third party and further alleged that “[a]ll substantive interest in the mortgage remains in the hand of [the third party].”  Therefore, the court held that the third party, not MERS, is the real party in interest, and the citizenship of MERS is not controlling for diversity purposes.  The court further noted that at least one other court has found that MERS is not the real party in interest for diversity purposes in cases concerning mortgages it holds as nominee. See Hien Pham v. Bank of N.Y., 856 F. Supp. 2d 804 (E.D. Va. 2012).  Accordingly, the court dismissed plaintiff’s complaint, without prejudice, and ordered that it had 30 days to amend its complaint and properly alleged the third party’s citizenship.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.