Editor: David Reiss
Brooklyn Law School

February 24, 2013

The California Court of Appeal holds that MERS may Foreclose on Homeowner’s Property Because an Assignee does not Have to Record an Assignment when the Power of Sale is Conferred in a Deed of Trust Rather than a Mortgage

By Robert Huberman

In Calvo v. HSBC Bank USA, N.A., 199 Cal. App. 4th 118, 130 Cal. Rptr. 3d 815 (2011), the California Court of Appeal held that MERS had the statutory right to foreclose on behalf of lender’s assignee because an assignee does not have to record an assignment when the power of sale is conferred in a deed of trust rather than a mortgage.

Eugenia Calvo obtained a loan from CBSK Financial group, Inc, which was secured by a deed of trust against her residence. CBSK assigned the loan and deed to HSBC Bank USA. MERS was also substituted after the loan was originated. After Calvo defaulted, the MERS initiated foreclosure proceedings and executed a foreclosure sale on Calvo’s residence. Plaintiff sought to set aside the trustee’s sale for an alleged violation of Civil Code § 2932.5—which requires the assignee of a mortgagee to record an assignment before exercising a power to sell real property. Defendants’ demurred.

The court held that the statutory scheme described in Civil Code § 2932.5—requiring that an assignment of the beneficial interest in a debt secured by real property must be recorded in order for the assignee to exercise the power of sale—applies only to a mortgage and not to a deed of trust. Citing the case, Stockwell v. Barnum, 7 Cal. App. 413, 94 P. 400 (1908), the court noted that a mortgage creates only a lien with title to the real property remaining with the borrower/mortgagee, whereas a deed of trust passes title to the trustee with the power to transfer marketable title to a purchaser.

The court also held that MERS had the right to initiate foreclosure on behalf of HSBC Bank pursuant to the langue of the deed of trust. Accordingly, HSBC Bank and MERS, its nominal beneficiary and agent, were entitled to invoke the power of sale in the deed of trust.

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