Editor: David Reiss
Brooklyn Law School

March 13, 2013

California Court of Appeals Holds that MERS and its Assignee have Standing to Foreclosure Without Holding Original Promissory Note

By Gloria Liu

In Ferguson v Avelo Mortgage, LLC.,195 CA 4th 1618 (2011), the court held that MERS and its valid assignee, Avelo, had authority to initiate foreclosure proceedings and invoke the tender rule against Tenants, even when neither held the original promissory note. The owner had purchased home with New Century Mortgage Company as lender, Mortgage Electronic Registration Systems (MERS) as lender’s nominee and beneficiary under the deed of trust, and First American Title as trustee. Avelo Mortgage executed a substitution of trustee, replacing First American with Quality Loan Service Corporation. MERS then assigned its interest under the deed of trust to Avelo. The substitution of trustee (from First American to Quality) was recorded in 2007; on that same day, the notice of sale was recorded. Avelo purchased Home in a nonjudicial foreclosure sale in 2008. Court reasoned that the deed of trust specifically allowed MERS to initiate foreclosure proceedings. Under federal case law, it is not necessary that MERS or Avelo, as its assignee, have possession of the original promissory note as a precondition to a nonjudicial foreclosure under the deed of trust. The court characterized the argument that MERS or Avelo must have possession of the promissory note as a “legal loophole.”

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