Tuesday, May 11, 2010

Justice Wayne Saitta defines role of "nominee" in the mortgage foreclosure context

Justice Saitta of the Supreme Court, Kings County has rendered a crisp decision pertaining to the controversial issue (at least for mortgage foreclosure practitioners) of defining the role of a "nominee".  The case is Bank of New York v. Alderazi, 2010 NY Slip Op 20167, and the procedural posture from which this decision arises pertains to an application of the Bank of New York for an order of reference—i.e. a preliminary step toward a judgment of foreclosure and sale whereby an independent referee computes the total amount owed by the defaulting borrower.  Justice Saitta denied the Bank of New York’s application without prejudice, with leave to renew upon providing the Court with proof that MERS had the right to assign and transfer the mortgage from the originating lender, America’s Wholesale Lender, to the Bank of New York.

Of particular interest in this decision is Justice Saitta’s discussion pertaining to MERS’ role as “nominee” of many, if not most, mortgage lenders.  As noted in a previous post, MERS has its hand in virtually every mortgage foreclosure action, although its actual role is little understood and met with increasing suspicion among judiciary.  Justice Saitta opines:

[I]n Schuh Trading Co. v. Commisioner [sic] of Internal Revenue, 95 F.2d 404, 411 (7th Cir. 1938), [the Court] defined a nominee as follows:  “The word nominee ordinarily indicates on designated to act for another as his representative in a rather limited sense.  It is sometimes used to signify an agent or trustee.  It has no connotation, however, other than that of acting for another, or as grantee of another…Id. Emphasis added.

Black’s Law dictionary defines a nominee as “[a] person designated to act in place of another, usually in a very limited way”.  Agency is a fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. Hatton v. Quad Realty Corp., 100 AD2d 609, 473 NYS2d 827, (2nd Dept 1984). "[A]n agent constituted for a particular purpose, and under a limited and circumscribed power, cannot bind his principal by an act beyond his authority." Andrews v. Kneeland, 6 Cow. 354 N.Y.Sup. 1826.

Justice Saitta’s pronouncement on the role of a "nominee" is welcome, since very little legal authority has been recently published in this regard.  The significance of Justice Saitta’s clarification is that any foreclosing bank, who was assigned a mortgage and note by MERS as nominee, must provide proof that MERS was authorized to make the assignment.  Such authorization is not implied, nor is reference to the boilerplate language of the mortgage sufficient to grant MERS, as nominee, authority to alienate or assign a mortgage.  MERS must have received explicit authority to do so from the entity in whose name MERS purports to act.  Such authority is typical embodied in a power of attorney or some other resolution.

The bottom line is that MERS’ status as “nominee”, without more, is not sufficient to vest MERS with the authority to effect a proper assignment of a note and mortgage.


  1. When a borrower signs the mortgage security instrument at closing, they grant and convey the legal title to the mortgage to Mortgage Electronic Registration Systems Inc. (MERS) and MERS is the mortgagee. As the agent for the promissory note owner, upon instructions from the owner, MERS will commence a foreclosure. The mortgage instrument states that MERS has the right to foreclose and sell the property. Courts around the country have repeatedly upheld and recognized this right.

  2. Nicholas M. MocciaMay 24, 2010 at 4:09 PM

    1. MERS has no interest in the mortgage unless it is also the holder of the note.
    2. If MERS actually had legal title in the mortgage, it would not be an agent subject to the instructions of some "owner".
    3. MERS is never the holder of the note and mortgage; never collects a mortgage payment; never is entitled to the proceeds of a foreclosure. Therefore, it never has standing to commence an action or assign a mortgage and note.
    4. If the courts upheld MERS' foreclosures based on this clause, it was because the foreclosure was uncontested or the court just got it wrong.

  3. Nicholas M. MocciaMay 24, 2010 at 4:16 PM

    I should qualify--MERS only has standing to commence a foreclosure when it receives authorization/power of attorney from the actual holder of the note and mortgage. MERS by itself can do nothing.

  4. See below