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SIPL in Seattle: A Report on the National Consumer Law Conference

Recently, three associates and two partners from Surovell Isaacs Petersen & Levy PLC attended the National Consumer Law Conference in Seattle, Washington to learn about the latest developments in consumer law. The conference was a four-day opportunity that provided invaluable insights into a wide-range of consumer litigation topics including debt collection abuses, auto fraud, predatory lending, fair credit reporting, class action litigation, loss mitigation alternatives, foreclosure defenses, and more. Each of our attorneys attended sessions applicable to their consumer practice areas, and left Seattle with more creative ideas to help protect our clients from banks, debt collectors, homeowners' associations, credit report agencies, car dealers, and more. Although each session I attended was extremely helpful to my consumer practice areas, one session discussed a recent, unanimous opinion from the Supreme Court of Washington that should affect foreclosure laws throughout the country (and hopefully here in Virginia).

The name of the case is Bain v. Metropolitan Mortgage Group, and it arises from two homeowners' lawsuits to stop the sale of their properties from nonjudicial foreclosure (like here in Virginia) initiated by trustees appointed by the Mortgage Electronic Registration System Inc. ("MERS"), which is an electronic database designed for tracking ownership of mortgage-related debt. The homeowners claimed that MERS did not have the authority to appoint the trustees without actual possession of their notes, despite MERS role as the designated beneficiary under the deeds of trust. In many states, including here in Virginia, MERS is frequently listed as the "beneficiary" of a deed of trust, as opposed to the actual lender who loaned money to the homeowner. In their role as beneficiary, MERS appointed the trustees who initiated the foreclosure proceedings against the homeowners in Bain. Thus, the primary issue was whether MERS is a lawful beneficiary with the power to appoint trustees within the deed of trust if it did not hold the promissory notes secured by the deeds of trust.

The court held that if MERS did not hold the note, it is not the lawful beneficiary. The court's primary ground for this holding was based on the plain language of the Washington Deed of Trust Act, which defined beneficiary in relevant part as "the holder of the instrument or document evidencing the obligations secured by the deed of trust." The court was also persuaded by the homeowners' argument that the interpretation of the deed of trust act should be guided by the Washington Uniform Commercial Code, which includes virtually identical provisions to the Virginia Code regarding authority to enforce a promissory note.

Unfortunately, the court was unable to address the legal effect of MERS appointment without possession of the note based on the record before it. Nevertheless, this was a groundbreaking and well-reasoned decision capable of influencing future development on nonjudicial foreclosure laws even though it is only binding in the state of Washington. The Supreme Court of Virginia has not had the opportunity to the appointment of trustees by MERS, but hopefully it will rely heavily on the Bain decision if presented the opportunity.

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