Tag Archives: motion to dismiss

Court Rules That When MERS Assigned its Interest, it Did Not Commit Negligence Against the Borrower

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The United States District Court of the Eastern District of California in deciding Baisa v. Indymac, MERS, et al, No. Civ. 2:09-1464 (E.D. Cal. 2009), found that MERS had the right to execute an assignment of the deed of trust and was not a debt collector for the purposes of California’s Rosenthal Act. The act of assigning a deed of trust did not constitute debt collection.

Plaintiff’s first cause of action alleged that MERS and other defendants violated the Rosenthal Fair Debt Collection Practices Act (“RFDCPA” or “Rosenthal Act”), 1 Cal. Civ. Code §§ 1788 et seq. (SAC 9.). However the court found that plaintiffs failed to plead facts necessary to support the inference that MERS is a “debt collector” under the RFDCPA; specifically, that MERS engages in “debt collection,” that the deed of trust memorializes a “consumer credit transaction,” and that the amount owed under the deed of trust is a “consumer debt” according to the RFDCPA

Furthermore, the court found that when MERS assigned its interest, it did not commit negligence against the borrower nor make a misrepresentation or fraudulent claim to the borrower.

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.

Arkansas Court Denies MERS’ Motion to Set a Decree of Foreclosure

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The Arkansas court in MERS v. Southwest Homes of Arkansas, 301 S.W.3d 1 (2009) denied MERS’ motion to set a decree of foreclosure, therein affirming the decision from the lower court. As the record beneficiary of the deed of trust, MERS received no foreclosure notice. The court in their finding, applied Arkansas law, and found that the lender was the deed of trust beneficiary not MERS, since MERS did not receive payment of the debt.

MERS alleged that the lower court erred in ordering foreclosure because as the holder of legal title it was a necessary party that was never served. However, In affirming the lower court decision, the court disregarded the written terms of the mortgage contract that selected MERS as the deed of trust beneficiary entitled to notice.

The court went on further to hold that under the recorded deed of trust in this case, James C. East, as trustee under the deed of trust, held legal title. Moreover, as the court reasoned, MERS was at most the mere agent of the lender Pulaski Mortgage Company, Inc., and it held no property interest and was not a necessary party.

The United States District Court for the District of Arizona Reasons That the Plaintiff Agreed to Empower MERS to Foreclose

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The United States District Court for the District of Arizona, in Silvas v. GMAC Mortgage, LLC, et al., cv00265 (AZ Dist., 2009), reaffirmed MERS’ standing as the beneficiary of a deed of trust.

In the present case, the plaintiff brought a host of claims against the defendant. One such claim included conspiracy to commit fraud by making use of the MERS System. The court considered the plaintiff’s arguments, however the court rejected them. In rejecting the plaintiff‘s contentions, the court found that they were not only inaccurate, but that the claims were also insufficient to support the plaintiff’s assertions.

The court also reasoned that the plaintiff agreed to empower MERS to foreclose. In reaching this conclusion the court noted that the deed of trust designated MERS as the beneficiary, and authorized MERS to take any action to enforce the loan. One such right included the power to foreclose.

U.S. District Court for the District of Arizona Found the Mere Use of MERS Nid Not Constitute Common Law Fraud

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The U.S. District Court for the District of Arizona, in Cervantes v. Countrywide Home Loans, Inc., et al., No. 09-cv-00517 (D.Ariz. 2009), dismissed all state and federal claims brought by all three of the borrowers. The borrowers filed a complaint against MERS as well as a group of other defendants

After considering the borrowers’ arguments, the court found the mere use of MERS did not constitute common law fraud on the borrowers. The court found that the plaintiffs had failed to allege what effect, if any, listing the MERS system as a ‘sham’ beneficiary on the deed of trust had upon their obligations as borrowers.

Subsequently, the United States Court of Appeals for the Ninth Circuit affirmed the trial court’s judgment in favor of MERS. Accordingly, the Court held that a borrower lacked the basis to challenge the standing of an entity such as MERS. Further, the court, however, drew attention to a legal reference that such a borrower still had legal recourse by bringing an action to have the trustee’s sale set aside.

Court of Civil Appeals of Alabama, in Favor of Borrower, Vacates and Dismisses Judgment

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The court in Nelson v. Federal National Mortgage Association, 97 So.3d 770 (2012) the Court granted Fannie Mae’s summary judgment as to its ejectment action against the borrower because the Court found that Fannie Mae received valid title to the property from MERS subsequent to the foreclosure sale conducted by MERS. However, on appeal, court of civil appeals of Alabama vacated the lower court’s judgment and dismissed the appeal.

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The court of civil appeals reversed a decision by the lower court holding that under the state’s law MERS had the power and authority to conduct the foreclosure sale in its own name and the special warranty deed from MERS to Fannie Mae was valid and gave Fannie Mae superior legal title to the property. On appeal this was reversed.

Likewise, the lower court also originally held that an assignment of mortgage from MERS to the servicer was unnecessary for MERS to proceed with the foreclosure on behalf of the servicer. Accordingly the court of civil appeals also vacated this.