Borrower’s ”standing” Challenge Based On Mortgage Loan Securitization Argument Rejected

In _Scarborough v. LaSalle, N.A.,_ 11-4092 (10thCir., Feb. 1, 2012) the borrower obtained a residential mortgage loan secured by a deed of trust naming Mortgage Electronic Registration System, Inc. (MERS) as the beneficiary and nominee. The loan was later sold and became part of a mortgage-backed securities trust. When the borrower defaulted, MERS assigned its beneficial interest in the deed of trust to the trustee and a substitute foreclosure trustee foreclosed the loan and sold the property. The borrower filed suit to overturn the foreclosure and sale on the grounds that the foreclosure trustee lacked an enforceable interest in the subject property. The borrower claimed that the investors in the mortgage-backed securities trust owned the underlying debt, not the foreclosure trustee, so only they possessed the right to foreclose. The borrower further argued that the foreclosure trustee could not properly foreclose without the investors’ express authorization. The Trustee argued that the investors did not own the underlying promissory notes or have authority to enforce a deed of trust. Rather, they owned only an interest in the proceeds of the trust fund. The Court observed that this case was the latest case claiming that the securitization of a mortgage nullifies the foreclosure rights of the holder of the underlying trust deed and the rights of its nominees. State and federal precedent compelled it to conclude that the investors did not have an interest in the notes but only an interest in the proceeds from the payments made on the underlying mortgages. Thetrustee owned legal title to both the securitization trust, holding the borrower’s debt, as well as the beneficial interest under the underlying mortgage trust deed. It thus had standing to foreclose. Because the borrower had not demonstrated any impropriety in the foreclosure process, judgment for the Trustee was affirmed.