Editor: David Reiss
Brooklyn Law School

February 5, 2013

United States District Court in California Holds that MERS “Assignee” Lacked Standing Because no Evidence Showed MERS held the Note

By Robert Huberman

In Saxon Mortg. Services, Inc. v. Hillery, C-08-4357EMC, 2008 WL 5170180 (N.D. Cal. Dec. 9, 2008), the United States District Court, in the Northern District of California granted Hillery’s motion to dismiss because Saxon Mortgage Services, Inc., lacked standing.

Hillery obtained a loan from New Century Mortgage. A deed of trust for Hillery’s home secured repayment of the loan to New Century. Pursuant to the deed of trust, MERS was named as nominee for New Century, its successors, and was designated the beneficiary of the deed. Three days after obtaining the loan from New Century, Hillery tried to rescind the loan pursuant to the Truth in Lending Act (TILA). About a year later, Saxon, acting as the servicer for the loan, stated that it had received Hillery’s request to rescind. A year later, MERS, acting as nominee for New Century, assigned the deed of trust and promissory note to Consumer.

Saxon and Consumer brought suit against Hillery and Spielbauer Law Firm, asserting claims for declaratory relief pursuant to TILA. Hillery then filed a motion to dismiss claiming 1) insufficient service of process, 2) lack of subject matter jurisdiction, 3) lack of standing, 4) failure to state a claim for relief, and 5) failure to join an indispensable party.

Saxon provided proof of service, signed by a process server under penalty of perjury, supporting his assertion that substitute service was affected on Hillery. The Court acknowledged Hillery and her grandson’s declarations to the contrary, but held that those declarations were not enough to overcome the prima facie case established by Saxon. Additionally, the Court held that Saxon properly served the Spielbauer Law Firm because service was accomplished within 120 days of Saxon filing their complaint.

Hillery argued that a federal claim that is insubstantial cannot serve as the basis for federal question jurisdiction. Consumer claimed, however, that were Hillery to have filed suit first, her claims would have included allegations of TILA violations. Ultimately, the Court held that Hillery failed to demonstrate how Consumer’s TILA rescission claim would be insubstantial, since Hillerly threatened to bring a TILA rescission claim.

For Saxon to have standing, Consumer would also need to have standing. Thus on the issue of Consumer’s standing, the Court stated that there was evidence showing that the deed of trust was transferred to Consumer. New Century designated MERS as the beneficiary of the deed and gave MERS broad authority to act with respect to the property. Thus, the Court assumed that MERS had the power to assign the deed to Consumer and eventually did around June 20, 2008. But for there to be a valid assignment of the deed and the promissory note must be assigned. Here, there was no evidence establishing that MERS held the promissory note or was given authority by New Century to assign it. Thus, the Court held that Consumer did not have standing, and granted Hillery’s motion to dismiss without prejudice.

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