Recent California MERS decision in GOMES v. COUNTRYWIDE HOME LOANS, INC.
WHAT IS MERS?The Gomes case had a nice explanation: "MERS is a private corporation that administers the MERS System, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Through the MERS System, MERS becomes the mortgagee of record allowing the assignment of mortgage interests to MERS. MERS is listed as the grantee in the official county records. The lenders retain the promissory notes, as well as the servicing rights to the mortgages. The lenders can then sell these interests to investors without having to record the transaction in the public record. MERS is compensated for its services through fees charged to members. An important side effect, which prevents homeowners from determining who actually owns their home mortgages, of the MERS system is that a transfer of an interest in a mortgage loan between two MERS members is unknown to those outside the MERS system.
IS MERS A VALID DEFENSE?In the Gomes case the court said that California's non-judicial foreclosure rules, Civil Code sections 2924 through 2924k, are intended to be a one-stop-shop for how to exercise the power of sale in a deed of trust. Section 2924(a)(1) of the statute is clear that a "trustee, mortgagee, or beneficiary, or any of their authorized agents" can initiate a foreclosure. Importantly, the statute require that the agent demonstrate in court that it is authorized to initiate a foreclosure and to do so would "fundamentally undermine the non-judicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying a valid foreclosure." Therefore a homeowner cannot use the court to use lawsuits to test MERS authority to foreclose.
The court expanded its opinion and determined that MERS assignee was an authorized agent, that the deed of trust signed by the homeowner made MERS the assignee a nominee for the Lender, and had the right to foreclose. End Story.
NOCalifornia has squarely joined the 19 states that explicitly allow MERS to foreclose, a necessary result to avoid pandemonium in the markets and in spite of other statutory authority that assignments have to be recorded. California courts recently also provided some clarity on documentation irregularities in Aceves v. U.S. Bank by saying that minor errors were of no legal consequence.
Despite of minor misdeeds or process short cuts by lenders, there will not be any free homes for defaulting borrowers.