March 2, 2013
U.S. District Court in California Holds MERS has Standing to Foreclose and Dismisses Borrower’s Complaint Against MERS because the Claims were Premised upon MERS’ Lack of Standing
In Germon v. BAC Home Loans Servicing LP, 2011 WL 719591 (S.D.Cal. Feb. 22 2011), the U.S. District Court for the Southern District of California (“Court”) dismissed a borrower’s complaint against MERS and others (“Defendants”) because the borrower failed to state a cause of action.
In 2007, Germon (“Borrower”) executed a note in favor of Countrywide Bank, FSB (“Countrywide”). The Deed of Trust identified ReconTrust (“Recon”) as the Trustee and MERS as the beneficiary.
On May 4, 2010, following Borrower’s default under the note, Recon duly recorded a notice of default. On May 6, 2010, MERS assigned its beneficial interest in the note to BAC Home Loans Servicing, LP (“BAC”). On August 11, 2010, Recon duly recorded a notice of trustee’s sale, which was set for September 3, 2010. Borrower then requested to modify the loan, and BAC agreed to postpone the sale until October 1. Ultimately, BAC denied Borrower’s request for loan modification, and on October 1, BAC purchased the property at the trustee’s sale.
Thereafter, Borrower filed a complaint seeking to set aside the trustee’s sale, cancel the trustee’s deed and quiet title in Borrower. In its complaint, Borrower alleged, inter alia, breach of contract, breach of the implied covenant of good faith and fair dealing (“implied covenant”), and violations of the Federal Fair Debt Collection Practices Act (“FDCPA”) and Truth in Lending Act (“TILA”). The Court dismissed the complaint in its entirety for failure to state a claim.
The Court dismissed Borrower’s claims to set aside the trustee’s sale, cancel the trustee’s deed and quiet title because each claim rested upon the erroneous premise that MERS lacked authority to foreclose and to assign its beneficial interest in the note to BAC. First, the Court held the deed of trust clearly granted MERS authority to initiate foreclosure and to assign that right. Second, the Court rejected Borrower’s argument that only the “holder of the note” can initiate foreclosure because under California Law, the “trustee, mortgagee, or beneficiary” may institute nonjudicial foreclosure like the one in the present case. The Court also noted that Borrower failed to tender the balance of the unpaid debt, which is a prerequisite for claims to set aside a Trustee’s Sale and cancel a Trustee’s Deed.
Similarly, the Court dismissed Borrower’s claims alleging breach of contract and breach of the implied covenant because they too were based upon the erroneous premise that MERS lacked standing to foreclose and to assign its beneficial in the note.
Borrower also alleged BAC breached the implied covenant by “mishandling” Borrower’s financial data when reviewing the loan modification request, and by denying the request without allowing Borrower to resubmit the correct data prior to the foreclosure sale. The Court dismissed this claim because absent an express contractual term requiring loan modification, the Borrower could not create the obligation by alleging a breach of the implied covenant.
The Court dismissed Borrower’s FDCPA claim because it too relied upon the erroneous premise that MERS lacked standing to foreclose.
Finally, the Court dismissed Borrower’s TILA claim because it was time-barred by the one-year statute of limitations.