Editor: David Reiss
Brooklyn Law School

September 26, 2013

California Court Finds that MERS Was Not Liable for Wrongful Foreclosure, Breach of Contract, and Breach of the Implied Covenants of Good Faith and Fair Dealing

By Ebube Okoli

The United States District Court for the Central District of California hearing Gaitan v. MERS, et al, 09-1009 (C.D. Cal. 2009) found that MERS had the right to initiate foreclosure proceedings. The court also found that MERS was not liable for claims including wrongful foreclosure, breach of contract, and breach of the implied covenants of good faith and fair dealing.

The plaintiff alleged that several flaws in the documents he received proved the mortgage loans were obtained by fraud. Specifically, he alleged that neither the adjustable rate mortgage loan documents nor the truth in lending disclosure statement “clearly and conspicuously disclosed”: (1) the actual interest rate on which the scheduled payments were based; “(2) that making the payments according to the payment schedule listed in the TILD will result in negative amortization and that the principal balance will increase; and (3) that the payment amounts listed on the TILD are insufficient to pay both principal and interest.”

The plaintiff alleged that not only were the disclosure statements “unclear and inconspicuous,” but they were “deceptive” and “based in order to mislead and deceive plaintiff into believing that he would be getting a loan with a low fixed payment rate that would be sufficient to pay both interest and principal.” The court examined each of the claims in the plaintiff’s argument in turn, and determined that the plaintiff failed to argue the viability of any of the claims.

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