Editor: David Reiss
Brooklyn Law School

October 2, 2013

California Court of Appeals holds that MERS Does Not Bear Burden of Proving Valid Assignment

By Gloria Liu

In Fontenot v. Wells Fargo Bank N.A, No. A130478, 198 Cal.App.4th 256 (Ca. Ct. App. 1st Dist. Aug. 11, 2011), Fontenot sued Wells Fargo Bank, MERS and three other entities after she defaulted and lost the property to foreclosure. In the fourth amended complaint, plaintiff alleged the foreclosure was unlawful because Wells Fargo had breached an agreement to forbear from foreclosure, and MERS made an invalid assignment of an interest in the promissory note relating to the property.

Fontenot had given Alliance Bancorp a $1 million promissory note, secured by a deed of trust in the purchased real property. MERS was identified as the “nominee” of the lender in the deed of trust. The court held that first, MERS did not bear the burden of proving a valid assignment and second, the lack of a possessory interest in the note did not necessarily prevent MERS from having the authority to assign the note. It reasoned that MERS may have had no power in its own right to assign the note, since it had no interest in the note to assign, MERS did not purport to act for its own interests in assigning the note. Rather, the assignment of deed of trust states that MERS was acting as nominee for the lender, which did possess an assignable interest.

The court also found that there was nothing inconsistent in MERS’s being designated both as the beneficiary and as a nominee. The legal implication of the designation is that MERS may exercise the rights and obligations of a beneficiary of the deed of trust, a role ordinarily afforded the lender, but it will exercise those rights and obligations only as an agent for the lender, not for its own interests.

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