WELTMAN, WEINBERG & REIS CO., L.P.A.

CLIENT ADVISORY May 23, 2006

Changes to MERS Rule 8 Affects Commencing Foreclosures

and Taking Title in the Name of MERS
By Larry R. Rothenberg, Esq.

Mortgage Electronic Registration
Systems, Inc. (MERS) recently
made changes to its Rule 8 (“Rule”)
with regard to
Attached for your reference is a
copy of the changes.
These changes make it somewhat
more difficult to foreclose in the
name of MERS. In addition, there is
exposure to serious sanctions if the
foreclosure is commenced in the
name of MERS without compliance
with certain
Therefore, we are recommending
that mortgages be assigned from
MERS to the owner/investor of the
mortgage, so that the foreclosure
may be commenced in the name of
the owner/investor. The reasons for
this recommendation are as follows:
foreclosures. Judicial Foreclosures States
In judicial foreclosure states such as
Ohio, Kentucky,
Pennsylvania and Illinois, if the
foreclosure is to be commenced in
the name of MERS, the note must
be endorsed in blank (i.e., without
showing a name to whom the note is
endorsed). This is problematic
because certain judges and courts
requirements. prohibit or delay cases where the
note is endorsed
Borrowers’ attorneys might also use
that issue to contest the case. In
addition, if a foreclosure is to be
commenced in the name of MERS,
the servicer must be in possession
of the original note. Therefore, if we
are to commence a foreclosure in
the name of MERS, we must require
a written statement from the servicer
verifying that it is in possession of
Indiana, the original note.
Moreover, while the MERS rule
allows us to allege in the foreclosure
documents that MERS is the note-
holder, we are prohibited from
stating that MERS is the note-owner.
Some judges or courts will not
recognize that one entity (MERS)
in blank. can be deemed the note-holder
while another entity (the
owner/investor) is the note-owner.
Under the MERS rule, we also are
not permitted to name MERS as a
co-plaintiff.

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Weltman, Weinberg & Reis Co., L.P.A.
May 23, 2006
While the Rule still gives us an
option to foreclose in the name of
MERS if the requirements can be
met, we recommend that
commence the foreclosure in the
names of the owner/investor rather
than MERS. It will be necessary for
both the mortgage and the note to
be assigned to the owner/investor
prior to judgment being submitted in
the foreclosure.
Non-judicial Foreclosure States
In non-judicial foreclosure states,
such as Michigan, we are permitted
to foreclose in the name of MERS
under the Power of Sale provision
as long as we are not seeking a
deficiency judgment, even if the note
is not in the possession of the
servicer. However, we may not
allege that the note is in the
servicer’s possession if that is not
true.
Sanctions
The Rule authorizes MERS to
impose sanctions of $1,000 for the
we first violation and $5,000 for each
subsequent violation of the
prohibitions against:
• Stating that MERS is the note-
owner
• Showing MERS as a co-plaintiff
• Commencing a foreclosure in
the name of MERS if the note is
lost
Prohibition Against Taking Title in
the Name of MERS
The Rule also prohibits taking title in
the name of MERS, unless MERS
gives its prior written consent to the
servicer. Therefore, in judicial
foreclosure states such as Ohio,
Kentucky, Indiana, Pennsylvania
and Illinois, even if MERS is the
named plaintiff, the bid at the
Sheriff’s Sale generally should be
assigned to the owner/investor so
that MERS is not placed in the chain
Page 2
CLIENT ADVISORY
of title. In non-judicial foreclosure
states such as Michigan, an
Assignment of the Mortgage
generally should be executed and
submitted for recording prior to the
publication for foreclosure, and it
must be recorded prior to the
Sheriff’s Sale. The Grantee on the
Sheriff’s Deed will then be the
owner/investor to whom the
Mortgage has been assigned.
In the rare cases where title is taken
in the name of MERS based on
MERS’ written consent, the Rule
requires that the Servicer take all
necessary and reasonable steps to
remove MERS from title as soon as
possible. The Servicer is subject to
sanctions in the event title remains
in the name of MERS if fines or
judgments are entered against
MERS due to non-payment of tax
bills or other violations of state,
county or city codes.
Weltman, Weinberg & Reis Co., L.P.A. Page 3

May 23, 2006 CLIENT ADVISORY

If you have any questions regarding the

implications of the MERS rule as it relates to
any of the states in which our firm operates,
please contact Larry R. Rothenberg, Esq.

Larry Rothenberg is the Partner managing the

Foreclosure/Evictions department of the
Cleveland office of WWR. He can be reached
at (216) 685-1135 or via email at
lrothenberg@weltman.com.

Client Advisory is published by Weltman,

Weinberg & Reis Co., L.P.A., an organization
providing comprehensive creditor
representation. The information contained in
this newsletter is a summary of legal
information and is not intended to constitute
legal advice on specific matters or create an
attorney-client relationship. Contact any of
our offices or visit our website at
www.weltman.com for more information,
company facts and attorney profiles.  2006