I must admit that I am surprised of your analysis of the sitution. MERS only held the mortgage because the mortgage was filed with "MERS as nominee" for Lender #1. I do not beleive that MERS ever holds the note because they act merely as a nominee with no beneficial interest in it. But, it is irrelevant what happens with the note. Once MERS assigns the mortgage, it no longer has any interest in it.
In order to foreclose, one has to own the note and the mortgage. It seems rather clear to me that Lender #3 could not have possibly owned the mortgage because MERS no longer held the mortgage after it assigned it to Lender #2. Because you cannot grant an interest in property that you don't own, the assignment to Lender #3 was invalid.
Best,
Robert A. Franco
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