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A state appeals court decision could have a wide impact on dozens of lawsuits filed in Utah over home foreclosures that washed across the state in the wake of the Great Recession.

The Utah Court of Appeals has agreed with a lower court that a key loan servicer and an entity created by mortgage bankers have the legal right to foreclose on an Eagle Mountain home.

Lower federal and state courts have dismissed numerous foreclosure suits in Utah on the same grounds, but this decision is the first from a higher court, and its ruling may guide future judicial actions. The decision invalidates one of the legal theories that have guided dozens of lawsuits challenging the tens of thousands of foreclosures in Utah.

"This ruling will be brought to the attention of the trial judges in each of those lawsuits, and claims based on the theories rejected in our case should be dismissed," said Ballard Spahr attorney Tony Kaye, who represented loan servicer CitiMortgage Inc. and Mortgage Electronic Registration Systems Inc. (MERS), a creation of the Mortgage Bankers Association and an actor in many of the foreclosures.

He also said Tuesday he thinks the decision could discourage others from filing lawsuits seeking to nullify trust deeds.

But Craig Smay, the attorney for the homeowner, said he will either ask for reconsideration of the decision or appeal to the Utah Supreme Court.

"Our intention is to not to let it stand. It's obviously wrong."

At issue in the case is the role in foreclosures of MERS and those who service loans. MERS was created in the mid-1990s by bankers as a way to register ownership of the mortgage notes in order to facilitate their transfer from an original lender into pools that were then marketed to investors. The system upended parts of the traditional registration of property interests with county recorders.

MERS is listed on tens of thousands of trust deeds — used by holders of mortgage notes to foreclose if a homeowner fails to make payments — as the beneficiary or owner of the notes and also as the agent of the actual owners. As the agent, it claims the right to foreclose when homeowners violate the terms of the mortgage.

But attorneys in Utah and other states have challenged the MERS-related foreclosures, arguing long-established property law requires that only the person or entity holding the actual mortgage loan document can foreclose. They say MERS cannot legally foreclose because it does not have a financial interest in the mortgages or because it cannot prove it is acting as the agent of the pools that actually own the notes.

The Utah Court of Appeals ruled late last week, however, that state law does not prohibit MERS from acting as the agent of the mortgage note holders with the right to foreclose.

Chris Peterson, a University of Utah law school professor and associate dean, said the court did not rule on a very basic standard of traditional property law. Utah statues say the owner of a mortgage note cannot be separated from the deed of trust, and Peterson said MERS is clearly not the owner of such a note.

"We're talking about basic, ground-level commercial law, and the court of appeals decision doesn't answer that argument," said Peterson, who is recognized as a national expert on legal questions related to MERS.

Abraham Bates, an attorney whose firm has filed dozens of suits challenging foreclosures, agreed with Peterson.

"The lender is the beneficiary of a trust deed — MERS is not," Bates said in an email. "MERS may act as an agent ["nominee"] of the original lender — at the lender's direction — but cannot validly claim to be the lender itself, as it does in tens of millions of county records across the country."

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MERS

The Mortgage Electronic Registration Systems (MERS), created in the mid-1990s, is a database that holds the names of the entities that have a financial interest in a particular mortgage note, such as investment funds that bought bundles of notes called mortgage-backed securities. MERS is recorded on many property deeds of trust in Utah as both the "beneficiary" of a note and as "nominee" for the actual note holder. MERS has let mortgage note owners avoid paying fees with every transfer of mortgage note ownership.