Indiana Justice Mark Massa, writing for the court Thursday, delved into the history of the Mortgage Electronic Registration Systems Inc. and its role in today’s mortgage industry in a case involving a foreclosed home in Madison County.
The opinion, Citimortgage, Inc. v. Shannon S. Barabas a/k/a Shannon Sheets Barabas, ReCasa Financial Group, LLC, and Rick A. Sanders, 48S04-1204-CC-00213, provides background on how the mortgage industry has changed from involving just a borrower and lender to now include a lender, loan servicer, title company, and a whole host of other parties. Massa explains the creation in the 1990s of MERS, which maintains a computer database that tracks servicing and ownership rights of mortgage loans in the U.S. MERS member banks list MERS as “nominee” for lender and as “mortgagee” on their mortgage documents.
Shannon Barabas obtained a mortgage through Irwin Mortgage Corp. in 2005, to which the agreement said that the security instrument is given to MERS “(solely as nominee for Lender, as hereinafter defined, and Lender’s successors and assigns), as mortgagee.”
Two years later, she took a second mortgage out with ReCasa Financial Group. But she couldn’t keep up on payments with ReCasa, and it filed suit for foreclosure of the mortgage and for a sheriff’s sale. Irwin disclaimed any interest in the real estate in 2008. The sheriff’s sale occurred in January 2009.
In April 2009, MERS assigned the Irwin mortgage to Citimortgage. Citmortgage then filed a motion pursuant to Ind. Trial Rules 24(A) and 60(B) seeking to intervene in the foreclosure suit and asking that the judgment granted to ReCasa be subject to the mortgage now held by Citimortgage. The trial judge ultimately denied the motion.
The justices unanimously held that Citimortgage has the right to intervene. They found the mortgage contract Irwin had with MERS to be ambiguous and that the parties intended to designate MERS as the lender’s agent.
“This agency relationship conferred various rights upon MERS, including rights that constitute protected property interests sufficient to entitle MERS—and Citimortgage standing in the shoes of MERS—to meet the first requirement for intervention of right,” Massa wrote. MERS’ interest in the mortgage survived through its other principals, including Citimortgage.
The high court also found that disposition of the foreclosure case may impair Citimortgage’s interest and that no other party is adequately representing that interest. Citimortgage’s motion to intervene was timely, as well as its motion for relief, because ReCasa failed to provide Citimortgage or its agent MERS with notice of the foreclosure suit.
Massa pointed out that this case highlights issues with using laws established in 1877 to deal with a modern mortgage industry. The drafters of the original version of I.C. 32-29-8-1 couldn’t have imagined more than two or three actors involved, Massa wrote. The General Assembly may soon have to modernize the law to accommodate “this new and larger cast of characters,” he wrote.
The case is sent back to the trial court with instructions to grant the motion to intervene and amend the default judgment to provide that ReCasa took Barabas’ property subject to Citimortgage’s lien.