February 6, 2013
California Court of Appeals Affirmed Trial Court’s Decision Granting MERS Authority to Initiate Foreclosure Proceeding
In Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 121 Cal. Rptr. 3d 819 (2011), the California Court of Appeals in the Fourth District held that there was no legal authority which required the Court to entertain a borrower’s cause of action.
Gomes borrowed $331,000 from lender KB Home Mortgage Company to purchase real estate. Gomes executed a promissory note which was secured by a deed of trust. The deed identifies MERS as a nominee for the lender and a beneficiary under the security instrument. The deed that Gomes signed states that Gomes “understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS has the right: to exercise any or all of those interest, including, but not limited to, the right to foreclose and sell the Property…” Gomes eventually defaulted on his loan payments, was mailed a notice of default, and was mailed an election to sell which initiated a non-judicial foreclosure process. Gomes subsequently filed a lawsuit against Countrywide (loan servicer), MERS, and ReconTrust.
On appeal, Gomes argued that MERS did not have authority to initiate the foreclosure because the current owner of the Note did not authorize MERS to do so. Gomes sought damages in an amount not less than $25,000. Gomes also argues that Civil Code § 2924(a)—allowing borrower, before his property is sold, to bring a civil action to see whether person electing to sell the property is authorized to do so—provides the legal authority for Gomes to assert the claim he made in his first cause of action. Countrywide demurred Gomes’s first and second cause of action.
The Court held that Gomes failed to identify a legal authority for his lawsuit. Nothing in Civil Code §2924—which sets out California’s non-judicial foreclosure scheme—suggests that a judicial proceeding is permitted or even contemplated. There is nowhere in the statute that provides for judicial action to determine whether the person initiating the foreclosure is indeed authorized, and the Court saw no ground for implying such an action. The Court was worried that if they recognized the right to bring a lawsuit in order to determine a nominee’s authorization to proceed with a foreclosure on behalf of the note-holder, the non-judicial nature of the process would be undermined and introduce the possibility of lawsuits filed solely to delay valid foreclosures. Gomes further argues that the Legislature may not have had time to fully respond to this type of situation, but the Court advised Gomes to address his arguments to the Legislature, not the courts.
Nevertheless, even if there was a legal basis to determine whether MERS had the authority to initiate the foreclosure proceeding, Gomes’ claim would still lack merit; Gomes agreed, by executing the deed, that MERS has the authority to initiate a foreclosure as per the provisions of the deed. Finally, because Gomes conceded that he has no specific information about assignments of the note, he would be unable to plead on information and belief, based on facts leading him to believe they were true, a specific theory that would warrant amending his complaint. Accordingly, the Court concluded that the trial court properly sustained Countrywide’s demurrer without leave to amend.
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