November 20, 2012
Nevada Supreme Court Unanimously Rejects Irreparable Split Theory and Grants Bank Standing
In Edelstein v. Bank of New York, the Nevada Supreme Court unanimously rejected the irreparable split theory. The theory was brought up to challenge the Bank’s standing to foreclose on the plaintiff’s property. The irreparable split theory provides that a promissory note and a deed of trust that is separated prevents a nonjudicial foreclosure from occurring. This is because a note is a promise to repay the loan, while the deed of trust establishes the property as security for the loan.
The Court rejected the “traditional rule” that prevents the transfer of notes or deeds of trust separately, particularly because it would conflict with a previous holding recognizing the ability to transfer notes and deeds of trust separately. Instead, the Court adopted the Restatement approach, which permits separate transfers if the parties agree to it.
The Court held that identifying MERS as the nominee for the original lender and its assignees in the note is sufficient to hold “an agency relationship with [the original Lender] and its successors and assigns with regard to the note.” The Court found that the recorded beneficiary is considered “the actual beneficiary and not just a shell for the ‘true’ beneficiary.” As a result, naming MERS as the beneficiary of the deed of trust effectively split the note and deed of trust, but they were unified prior to foreclosure proceedings.
However, the Court found that no law requires them to be unified at inception, only in order to foreclose. The Nevada Supreme Court ultimately held that if the “split is cured when the promissory note and deed of trust are reunified.” As a result, the Court found that the bank, which held both the mortgage and the note at the time of foreclosure, had standing to continue the foreclosure mediation process.
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