Editor: David Reiss
Brooklyn Law School

October 2, 2013

California Court of Appeals Holds that MERS has Authority to Assign Beneficial Interest

By Gloria Liu

In Forbes v. Countrywide Home Loans, Inc., E051309, 2011 WL 4985965 (Cal. Ct. App. Oct. 20, 2011), homeowner had acquired a single-family residence and later refinanced the property by obtaining two loans. Mortgage Funding, Inc. was the lender of both loans, and the loans were secured by two deeds of trust that were recorded. ReconTrust, the successor trustee under the first deed of trust, initiated nonjudicial foreclosure proceedings by recording a notice of default. (Civ. Code, § 2924, subd. (a).) The notice of default includes a declaration stating: “Countrywide tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5 . . . .” Countrywide was the original servicer of the loan, and later changed its name to BAC. ReconTrust then recorded a notice of trustee’s sale under the first deed of trust, and conducted a sale. MERS was the original beneficiary under the foreclosing first deed of trust. Pursuant to an instrument titled “Corporation Assignment of Deed of Trust”, MERS transferred its beneficial interest, “together with” the promissory note, to FNMA. Homeowner then filed a complaint asserting (1) breach of an oral forbearance agreement with BAC, under which BAC agreed not to foreclose on the property; and (2) “wrongful foreclosure” based on various irregularities or Civil Code violations in the foreclosure sale proceedings.

Court held that by executing the first deed of trust, homeowner agreed that MERS had the right to exercise, and could accordingly assign, “any or all” of the interests that homeowner granted to the Lender under the first deed of trust. These interests necessarily included the lender’s beneficial interest under the deed of trust, “together with” the lender’s right to collect all sums due under the note secured by the first deed of trust. Homeowner thus cannot state a cause of action to invalidate the sale or trustee’s deed based on his assertion that the deed of trust did not authorize MERS to initiate the foreclosure proceedings in the first instance, or based on his further assertion that the lender may not have, in fact, assigned the note to FNMA.

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