Tag Archives: Downstream Litigation

Court Rules That MERS, as the Beneficiary on the Deed of Trust, Had the Authority to Make a Substitution of Trustee

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The United States District Court of the Northern District of California in deciding Lomboy v. SCME Mortgage Bankers, Inc. et al, No. C-09-1160 SC (N.D. Cal. 2009) held that under California law, MERS was not required to register to do business in California. The court also ruled that MERS is able to foreclose.

As her first cause of action, Plaintiff sought declaratory relief against SCME, MERS, Quality, and Aurora. Plaintiff asserted that she was the true equitable owner of the house, that the defendants were not holders of the promissory note, which should accompany the deed of trust, and that MERS has no right to foreclose on the house.

Plaintiff Imelda Lomboy also brought an action alleging various improprieties surrounding the then-imminent foreclosure of property that was used as security for a loan. Plaintiff alleges that the defendants “fraudulently obtained the deed of trust.”

The court in rejecting the plaintiff’s contentions note that MERS, as the beneficiary on the deed of trust, had the authority to make a substitution of trustee. The court further noted, that the substitute trustee appointed by MERS was able to carry out the foreclosure.

Northern District of California Rules That MERS Had the Authority to Appoint a Substitute Trustee

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The United States District of the Northern District of California dismissed fraud claims brought by plaintiff against MERS in Labra v. Cal-Western Reconveyance Corp., No. C 09-02537 PJH (C.D. Cal. 2010). The court also denied the plaintiff’s request for injunctive relief.

The Northern District of California court affirmed the lower court’s ruling that MERS had the authority to appoint a substitute trustee after finding that the deeds of trust explicitly stated that MERS was the nominal beneficiary under the deeds of trust. Further, it also provided that MERS had the right to foreclose and sell the property as well as take any action that a lender could take.

The United States District Court for the Eastern District of California Finds That MERS Was the Beneficiary and Did Not Breach Duty of Care

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The United States District Court for the Eastern District of California in deciding Knowledge Hardy v. IndyMac Federal Bank, et al, No. CV F 09-935 (E.D. Cal. 2009) found that MERS was the beneficiary and did not breach a duty of care.

The court found that MERS did not breach duty of care owed to the borrower by acting as the beneficiary and assigning the deed of trust to IndyMac. The court found that MERS participation in the foreclosure failed to amount to a violation of the covenant of good faith and fair dealing.

Court Holds That California State Law Did Not Require Possession of the Note to Commence a Non-Judicial Foreclosure

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The court in Chilton v. Federal National Mortgage Association, No. 1:09-cv-02187-OWW-SKO (2010), held that California state law did not necessitate possession of the promissory note in order to proceed with a non-judicial foreclosure.

The court dismissed the plaintiff’s complaint, after hearing the plaintiff’s arguments alleging wrongful foreclosure and lack of standing. Even though MERS was not named as a party to the action, the plaintiff argued that based on recent Kansas case law, MERS did not have standing to foreclose since the note and deed of trust had been separated.

The court distinguished Kansas’s recent precedent from this case in that the court held that Kansas’s case law did not consider the requirements of California’s non-judicial foreclosure process.

Court Holds MERS’ Previous Business Activities Prior to Proper Registration in California Did Not Render its Foreclosing Illegal

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The court in Perlas et al v. MERS, No. C 09-4500 (N.D.Cal. 2010) held that MERS’ previous business activities prior to becoming registered to do business in California did not render its foreclosing activities illegal.

Despite the plaintiff’s arguments to the contrary, the court noted that since MERS is now registered in California any alleged error had since been retroactively fixed. The Court in delivering their holding also noted that MERS, acting as the lender’s agent, had the authority to initiate non judicial foreclosures.

California Court of Appeals Holds That the Right to Challenge a Nominee’s Authority to Foreclose on Behalf of Note Holder Would Fundamentally Undermine the Non-Judicial Nature of the Process

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The Fourth District California Court of Appeals in considering Gomes v. Countrywide Home Loans, Inc., 192 Cal.App.4th 1149 (2011), affirmed the lower court’s decision upholding MERS’ ability to initiate non-judicial foreclosure actions.

The appellant argued that he was entitled to bring a lawsuit to challenge whether MERS was authorized to initiate a foreclosure action, however the California Court of Appeals rejected this argument. In rejecting the appellant’s argument, the court held that the text of the statue failed to provide a judicial action to determine whether the person initiating the foreclosure process is indeed authorized. Further, the court noted that there were no grounds for implying such an action.

The Court found that “the recognition of the right to bring a lawsuit to determine a nominee’s authorization to proceed with foreclosure on behalf of the note holder would fundamentally undermine the non-judicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures.”

United States District Court Rules That MERS Had The Power to Assign the Deed of Trust

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The United States District Court of the Eastern District of California in deciding Coburn v. Bank of New York Mellon, N.A., 2:10-CV-03080 (2010) granted defendants’ motion to dismiss. The court also handed down the ruling that the plaintiff’s claim of deceit was without merit.

The plaintiff argued that MERS simply lacked the power to assign the deed of trust to The Bank of New York Mellon since MERS was neither the owner of the mortgage nor holder of the note. The court rejected this assertion.

The court held that MERS had the authority to assign its beneficial interest to another party. The court also held that MERS did not violate California Civil Code §1095 in assigning the deed of trust to the bank.