This is a second blog post dealing with various legal challenges to the MERS registration system and their ability to initiate a foreclosure in California. We previously discussed on our blog the holding in the Fontenot case, which also made it tougher to challenge a wrongful foreclosure sale. In this case, the borrower obtained a loan in 2004 through the “lender” KB Home Mortgage. In the Deed of Trust, MERS was identified as the “nominee for the lender, its successors and assisgns” and the Deed of Trust also stated “MERS is the beneficiary under this security instrument.” This is typical MERS language. When the borrower fell behind on mortgage payments a Notice of Default was recorded by Recontrust Co. on 3/10/09. Prior to the foreclosure sale, Gomes, the Plaintiff, initiated a legal action to try to prevent the sale. The Defendants do what they will normally do – file a demurrer and argue the tender rule. They also said the legal challenge was invalid because “produce the note” may not be used as a legal theory to defend against a non-judicial foreclosure sale. The Court agreed on all counts. The Plaintiff argued MERS had no proof it owned the note, and no proof it had authority from the noteholder to initiate the foreclosure sale. The Court disagreed. In so holding, the Court is basically saying it is not your right to know who is foreclosing on you because you gave MERS authority to do whatever the lender could do when you signed the Deed of Trust.
Here is some language from the case:1. Gomes Has Not Identified a Legal Basis for an Action to Determine Whether MERS Has Authority to Initiate a Foreclosure Proceeding:(1) California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924 through 2924k, which “provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust.” (Moeller v. Lien (1994), 830 [30 Cal.Rptr.2d 777] (Moeller).) “These provisions cover every aspect of exercise of the power of sale contained in a deed of trust.” (I. E. Associates v. Safeco Title Ins. Co. (1985), 285.) “The purposes of this comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.” (Moeller, at p. 830.) “Because of the exhaustive nature of this scheme, California appellate courts have refused to read any additional requirements into the non-judicial foreclosure statute.” (Lane v. Vitek Real Estate Industries Group (E.D.Cal. 2010), 1098; see alsoMoeller, at p. 834 [“It would be inconsistent with the comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to incorporate another unrelated cure provision into statutory nonjudicial foreclosure proceedings.”].)By asserting a right to bring a court action to determine whether the owner of the Note has authorizedits nominee to initiate the foreclosure process, Gomes is attempting to interject the courts into this comprehensive nonjudicial scheme. As Defendants correctly point out, Gomes has identified no legal authority for such a lawsuit. Nothing in the statutory provisions establishing the nonjudicial foreclosure process suggests that such a judicial proceeding is permitted or contemplated.
As we have talked about many times on various blog posts “produce the note” will not stop a civil foreclosure, but may rear its head as a standing and real party in interest issue in a bankruptcy setting. The Court continued:Gomes Agreed in the Deed of Trust That MERS Is Authorized to Initiate a Foreclosure ProceedingAs an independent ground for affirming the order sustaining the demurrer, we conclude that even if there was a legal basis for an action to determine whether MERS has authority to initiate a foreclosure proceeding, the deed of trust—which Gomes has attached to his complaint—establishes as a factual matter that his claims lack merit. As stated in the deed of trust, Gomes agreed by executing that document that MERS has the authority to initiate a foreclosure.Specifically, Gomes agreedthat “MERS (as nominee for Lender and lender’s successors and assigns) has . . . the right to foreclose and sell the Property.” The deed of trust contains no suggestion that the lender or its successors and assigns must provide Gomes with assurance that MERS is authorized to proceed with a foreclosure at the time it is initiated. Gomes’s agreementthat MERS has the authority to foreclose thus precludes him from pursuing a cause of action premised on the allegation that MERS does not have the authority to do so.Relying on the terms of the applicable deeds of trust, courts have rejected similar challenges to MERS’s authority to foreclose. In Pantoja v. Countrywide Home Loans, Inc. (N.D.Cal. 2009), the federal district court pointed out that in the deed of trust, the plaintiff “distinctly granted MERS the right to foreclose through the power of sale provision, giving MERS the right to conduct the foreclosure process under [Civil Code s]ection 2924,” and therefore “[s]ince Plaintiff granted MERS the right to foreclose in his contract, his argument that MERS cannot initiate foreclosure proceedings is meritless.” (Id. at pp. 1189, 1190.) Similarly, another court pointed out that “[u]nder the mortgage contract, MERS has the legal right to foreclose on the debtor’s property. . . . MERS is the owner and holder of the note as nominee for the lender, and thus MERS can enforce the note on the lender’s behalf.” (Morgera v. Countrywide Home Loans, Inc. (E.D.Cal., Jan. 12, 2010, No. 2:09-cv-01476-MCE-GGH) 2010 U.S.Dist. Lexis 2037, p. *22, citation omitted.) Following this same approach, we conclude that Gomes’s first and second causes of action lack merit for the independent reason that by entering into the deed of trust, Gomes agreed that MERS had the authority to initiate a foreclosure.
The only real glimmer of hope from the Gomes case is that the Court discussed the Ohlendorf decision (backdating of the Assignment of Deed of Trust) which was not alleged by the Plaintiff:
For instance, in Ohlendorf, the plaintiff alleged wrongful foreclosure on the ground that assignments of the deed of trust had been improperly backdated, and thus the wrong party had initiated the foreclosure process. (Ohlendorf, supra, 2010 U.S.Dist. Lexis 31098 at pp. *22-*23.) No such infirmity is alleged here.
Taking this case, with the Ferguson case, Fontenot and others, it is still a difficult feat to try to stop or overturn a wrongful foreclosure sale in California. Some of the best legal challenges may well exist in a bankruptcy court.