Supreme Court Rules Mortgage Registration Business Has No Constitutionally Protected Interest In Property

Friday, December 11, 2015
In a lawsuit filed to set aside a tax sale of mortgaged land in Hamilton County, the Tennessee Supreme Court has held that a mortgage registry business was not entitled to prior notice of the sale because it did not have an interest in the land that is protected under the Due Process Clause of the U.S. Constitution. 

Mortgage Electronic Registration Systems operates a national electronic mortgage registry system for lenders who are MERS members. MERS electronically tracks the transfer of residential mortgages so that its members will not have to record each transfer in the county’s land records. 

The purchasers of the Hamilton County land borrowed money from a MERS member lender.
The purchasers signed a promissory note secured by the property and a deed of trust, which was recorded with the Hamilton County Register of Deeds office. The deed of trust described MERS as “a separate corporation that is acting solely as nominee for [the lender]” and said that MERS was the beneficiary of the deed of trust “solely as nominee” for the lender and any successor to the lender.

Later, after the original lender sold the note to another lender, the property owners failed to pay their 2006 property taxes, so Hamilton County initiated tax foreclosure proceedings.  The county sent notice of the foreclosure and the tax sale to the borrowers and to the original lender, but not to MERS. Eventually, the property was sold at a tax sale to Carlton Ditto.

After learning of the sale, MERS filed a lawsuit to set aside the tax sale, naming Hamilton County and Mr. Ditto as defendants. MERS argued that Hamilton County violated its constitutional right to due process of law by selling the land without notifying MERS. MERS claimed that the deed of trust gave MERS its own independent interest in the Hamilton County property, so it was constitutionally entitled to prior notice of the tax sale. 

The trial court ruled against MERS, holding that MERS was merely an agent of the lender without a separate interest in the property, and not entitled to prior notice of the tax sale. MERS appealed to the Court of Appeals, which affirmed the trial court’s decision for a slightly different reason, holding that MERS did not have standing to bring the lawsuit. MERS was then granted permission to appeal to the Tennessee Supreme Court.

The Supreme Court considered whether Hamilton County was required to give MERS prior notice of the tax sale. The Court recognized that the Due Process Clause of the U.S. Constitution generally applies when the government sells a taxpayer’s land to satisfy unpaid taxes, so if the government fails to give the taxpayer such notice, the sale is unconstitutional and void. 

The Court then considered whether MERS had an interest in the land that was protected under the Constitution. The Court first noted that the deed of trust for the Hamilton County transaction used contradictory language to describe the role of MERS in the property loan transaction; it described MERS as a “beneficiary” but also said that MERS acted “solely as nominee” for the lender. Considering the parties’ roles in the loan transaction, the Court held that MERS was not in fact a beneficiary but only an agent for the true beneficiary, the note holder, and that MERS acquired no independent interest in the Hamilton County land. 

Because MERS did not have an interest that was constitutionally protected, Hamilton County was not required to give MERS notice before it sold the land to pay the unpaid tax obligation. For this reason, the Supreme Court affirmed the trial court’s judgment in favor of Hamilton County and the tax sale purchaser, Mr. Ditto. 

To read the Mortgage Electronic Registration Systems, Inc. v. Carlton J. Ditto opinion, authored by Justice Holly Kirby, go to the opinions section of TNCourts.gov

WorkHound Named To Top Half Of 2022 Inc. 5000

Trident Makes Inc. 5000 List For 5th Year In A Row

April Sawmill Joins Grant, Konvalinka & Harrison, P.C. As Counsel


Inc. on Tuesday revealed that WorkHound is No. 2,441 on its annual Inc. 5000 list, a ranking of the fastest-growing private companies in America. The list represents a one-of-a-kind look at the ... (click for more)

For the fifth year in a row, Trident has ranked among the top 5,000 companies in the nation with a three-year revenue growth of 677 percent. Inc. magazine revealed that Trident is No. 954 ... (click for more)

The Grant, Konvalinka & Harrison, P.C. law firm announces that April Sawhill has joined the firm as counsel. Ms. Sawhill began her practice in commercial litigation and insurance coverage ... (click for more)



Business

WorkHound Named To Top Half Of 2022 Inc. 5000

Inc. on Tuesday revealed that WorkHound is No. 2,441 on its annual Inc. 5000 list, a ranking of the fastest-growing private companies in America. The list represents a one-of-a-kind look at the most successful companies within the economy’s independent businesses. Facebook, Chobani, Under Armour, Microsoft, Patagonia, and many other well-known names gained their first national exposure ... (click for more)

Trident Makes Inc. 5000 List For 5th Year In A Row

For the fifth year in a row, Trident has ranked among the top 5,000 companies in the nation with a three-year revenue growth of 677 percent. Inc. magazine revealed that Trident is No. 954 on its annual Inc. 5000 list, the most prestigious ranking of the nation’s fastest-growing private companies. The list represents a look at the most successful companies within the American ... (click for more)

Breaking News

Buses Carrying Migrants Sent By Texas Governor Will No Longer Stop In Chattanooga

Buses carrying migrants sent by Texas Governor Greg Abbott will no longer stop in Chattanooga, city officials said they were told on Tuesday. Asked why not, Joda Thongnopnua of the mayor's office said officials here have mobilized to welcome and help the migrants. He said, "That was not exactly achieving the governor's political purposes." Governor Abbott had been intending ... (click for more)

City Moving Forward On Setting Up Low-Barrier Homeless Shelter

The city is moving forward with setting up a low-barrier homeless shelter. Joda Thongnopnua, chief of staff to Mayor Tim Kelly, said two Requests for Proposals are being sent out. One is for a planning consultant to help identify where the emergency shelter should be located. The other is for a provider to operate the facility. City Council Chairman Darrin Ledford said ... (click for more)

Opinion

Our Safety Is Gone - And Response

Sad news seeing a person was murdered at the Rosemont Apartment. We lived on Oak Street across the street from the then named Glenwood Apartments from 1953 to 1956. I spent many a day there as there were probably 100 school age kids who lived in the units. In those days, parents simply let their kids roam the neighborhood with no worry for their safety. Now adults can't walk ... (click for more)

Roy Exum: Avoid Electric Cars Like The Plague

A Friday article on Chattanoogan.com read in part: “Chattanooga will be home to the nation’s largest electric vehicle ‘living testbed,’ thanks to $9.2 million in funding for a project proposed by the city and scientists at the University of Tennessee at Chattanooga with municipal, private industry and research partners. Funding will come from a $4.5-million U.S. Department ... (click for more)