California Court Upholds MERS Standing to Foreclose

[SK in CV]

In a major decision, the California Court of Appeal found for the defendent in the case of Gomes v. Countrywide Home Loans, Inc., et al., in a case brought by a buyer against KB Home Mortgage (KB was the seller of the home), Countrywide Home Loans (the loan servicer), ReconTrust (the foreclosing trustee), and MERS (as the named nominee in the original deed of trust).

After the filing of a default notice by ReconTrust, the plaintiff sued based on the assertion that his purchase money note in favor of KB Home Mortgage had been sold into the secondary market, and that MERS, as the named nominee in the original deed of trust, could not show that it had any legal interest in the note, and that the subsequent buyer of that note had not expressly nor legally authorized it to foreclose. (There were some other causes of action, not significantly relevant, and all were related to the same affirmative defense.)

Following mostly federal court decisions, in favor of borrowers using the “show me the note” and “MERS has no standing” defense against judicial foreclosure, the CA appellate court held in favor of the defense. In granting the demurrer (essentially the equivilent of a federal motion to dismiss for failure to state a legal claim.), the San Diego based Appellate Division, affirmed the lower court’s decision dismissing the case, without leave to amend.

The demurrer centered on three arguments. First, that CA law does not require the permission from the subsequent buyer of the note for MERS to pursue foreclosure on their behalf. Second, that even if the law did require it, that MERS had that permission under the terms of the deed of trust, as nominee for Lender and Lender’s successors and assigns, and third, Gomes argument that the original note must be produced is not required under CA law.

It is currently unknown whether this decision will be appealed. In affirming the lower courts dismissal, without leave to amend, it seems likely. Without any knowledge of the financial position of the plaintiff, he is, more likely than not, facing an almost certain bankruptcy, as most notes contain clauses requiring losing litigants to pay defendents legal fees. Likely to be in the millions of dollars.

Key things to note.

This was a purchase money trust deed, and it was a non-judicial foreclosure. Had Gomes not pursued this litigation, he would have walked away without a house. There could not have been any deficiency claimed by the lender. Now he walks away (probably) with nothing.

This is a California Appellate decision. Other California Appellate courts are not bound by it. (Though it seems, based on these specific causes of action, other courts are likely to rule similarly, even if allowed to go to trial.)

Federal bankruptcy courts (where others have found some success in attacking the entire Loan Servicer/MERS/Securitization process as a foreclosure defense) may use this decision in determining rights under CA law.

Link to decision (pdf):
http://www.courtinfo.ca.gov/opinions/documents/D057005.PDF

[bearishgurl]

I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

It’s way past time to get this NOD/NOS/auction show on the road. There is really no excuse for lender delay. They are just wasting months, even years playing “modification” games with borrowers who will only default within months again, due to being so underwater that there is no way out in their lifetimes, as the only “modifications” that are occuring are for repayment terms. These “sitting duck” lenders are wasting all of our time. By their inaction, they are causing the market to remain stagnant, buyers to remain on the sidelines fearing a new “bottom,” and sellers who can’t even get an even return after =>10 years of ownership and after making modest improvements out-of-pocket.

Just like the opinion repeatedly stated:

California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924 through 2924k, which “provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust…

and

The deed of trust that Gomes signed states that “Borrower [i.e., Gomes] understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property . . . .”

Borrower Gomes agreed to those provisions when he executed his purchase money trust deed. He cannot now come back and state otherwise.

[bearishgurl]

I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

It’s way past time to get this NOD/NOS/auction show on the road. There is really no excuse for lender delay. They are just wasting months, even years playing “modification” games with borrowers who will only default within months again, due to being so underwater that there is no way out in their lifetimes, as the only “modifications” that are occuring are for repayment terms. These “sitting duck” lenders are wasting all of our time. By their inaction, they are causing the market to remain stagnant, buyers to remain on the sidelines fearing a new “bottom,” and sellers who can’t even get an even return after =>10 years of ownership and after making modest improvements out-of-pocket.

Just like the opinion repeatedly stated:

California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924 through 2924k, which “provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust…

and

The deed of trust that Gomes signed states that “Borrower [i.e., Gomes] understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property . . . .”

Borrower Gomes agreed to those provisions when he executed his purchase money trust deed. He cannot now come back and state otherwise.

[bearishgurl]

I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

It’s way past time to get this NOD/NOS/auction show on the road. There is really no excuse for lender delay. They are just wasting months, even years playing “modification” games with borrowers who will only default within months again, due to being so underwater that there is no way out in their lifetimes, as the only “modifications” that are occuring are for repayment terms. These “sitting duck” lenders are wasting all of our time. By their inaction, they are causing the market to remain stagnant, buyers to remain on the sidelines fearing a new “bottom,” and sellers who can’t even get an even return after =>10 years of ownership and after making modest improvements out-of-pocket.

Just like the opinion repeatedly stated:

California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924 through 2924k, which “provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust…

and

The deed of trust that Gomes signed states that “Borrower [i.e., Gomes] understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property . . . .”

Borrower Gomes agreed to those provisions when he executed his purchase money trust deed. He cannot now come back and state otherwise.

[bearishgurl]

I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

It’s way past time to get this NOD/NOS/auction show on the road. There is really no excuse for lender delay. They are just wasting months, even years playing “modification” games with borrowers who will only default within months again, due to being so underwater that there is no way out in their lifetimes, as the only “modifications” that are occuring are for repayment terms. These “sitting duck” lenders are wasting all of our time. By their inaction, they are causing the market to remain stagnant, buyers to remain on the sidelines fearing a new “bottom,” and sellers who can’t even get an even return after =>10 years of ownership and after making modest improvements out-of-pocket.

Just like the opinion repeatedly stated:

California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924 through 2924k, which “provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust…

and

The deed of trust that Gomes signed states that “Borrower [i.e., Gomes] understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property . . . .”

Borrower Gomes agreed to those provisions when he executed his purchase money trust deed. He cannot now come back and state otherwise.

[bearishgurl]

I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

It’s way past time to get this NOD/NOS/auction show on the road. There is really no excuse for lender delay. They are just wasting months, even years playing “modification” games with borrowers who will only default within months again, due to being so underwater that there is no way out in their lifetimes, as the only “modifications” that are occuring are for repayment terms. These “sitting duck” lenders are wasting all of our time. By their inaction, they are causing the market to remain stagnant, buyers to remain on the sidelines fearing a new “bottom,” and sellers who can’t even get an even return after =>10 years of ownership and after making modest improvements out-of-pocket.

Just like the opinion repeatedly stated:

California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924 through 2924k, which “provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust…

and

The deed of trust that Gomes signed states that “Borrower [i.e., Gomes] understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property . . . .”

Borrower Gomes agreed to those provisions when he executed his purchase money trust deed. He cannot now come back and state otherwise.

[SK in CV]

[quote=bearishgurl]I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

[/quote]

I think Gomes either got bad legal advice or didn’t pay attention when his counsel explained the extraordinarily low likelihood of prevailing. I suspect they were hoping for some sort of settlement during discovery, based on what’s happened in some other states. What you and I, and hopefully his attorney know, is that California is not those other states. As consumer friendly as it might be, non-judicial foreclosure is pretty straightforward. There may be some cause of action that borrowers have against lenders in California, but without some extraordinary circumstances, I can’t imagine what it would be as an affirmative defense against foreclosure.

Other states, it’s a whole different story. Some states have regulations requiring recording of transfers of security interests. Many have requirements of physical possession of a properly endorsed note. There are all kinds of causes that should give mortgage servicers heartburn. But not here.

I suspect he has no choice but to appeal, even if it’s spending his last penny, because that penny is likely to be gone if he pays defense costs anyway. But I agree with you, I’d be at least mildly suprrised if the state supreme court agrees to hear it.

[SK in CV]

[quote=bearishgurl]I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

[/quote]

I think Gomes either got bad legal advice or didn’t pay attention when his counsel explained the extraordinarily low likelihood of prevailing. I suspect they were hoping for some sort of settlement during discovery, based on what’s happened in some other states. What you and I, and hopefully his attorney know, is that California is not those other states. As consumer friendly as it might be, non-judicial foreclosure is pretty straightforward. There may be some cause of action that borrowers have against lenders in California, but without some extraordinary circumstances, I can’t imagine what it would be as an affirmative defense against foreclosure.

Other states, it’s a whole different story. Some states have regulations requiring recording of transfers of security interests. Many have requirements of physical possession of a properly endorsed note. There are all kinds of causes that should give mortgage servicers heartburn. But not here.

I suspect he has no choice but to appeal, even if it’s spending his last penny, because that penny is likely to be gone if he pays defense costs anyway. But I agree with you, I’d be at least mildly suprrised if the state supreme court agrees to hear it.

[SK in CV]

[quote=bearishgurl]I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

[/quote]

I think Gomes either got bad legal advice or didn’t pay attention when his counsel explained the extraordinarily low likelihood of prevailing. I suspect they were hoping for some sort of settlement during discovery, based on what’s happened in some other states. What you and I, and hopefully his attorney know, is that California is not those other states. As consumer friendly as it might be, non-judicial foreclosure is pretty straightforward. There may be some cause of action that borrowers have against lenders in California, but without some extraordinary circumstances, I can’t imagine what it would be as an affirmative defense against foreclosure.

Other states, it’s a whole different story. Some states have regulations requiring recording of transfers of security interests. Many have requirements of physical possession of a properly endorsed note. There are all kinds of causes that should give mortgage servicers heartburn. But not here.

I suspect he has no choice but to appeal, even if it’s spending his last penny, because that penny is likely to be gone if he pays defense costs anyway. But I agree with you, I’d be at least mildly suprrised if the state supreme court agrees to hear it.

[SK in CV]

[quote=bearishgurl]I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

[/quote]

I think Gomes either got bad legal advice or didn’t pay attention when his counsel explained the extraordinarily low likelihood of prevailing. I suspect they were hoping for some sort of settlement during discovery, based on what’s happened in some other states. What you and I, and hopefully his attorney know, is that California is not those other states. As consumer friendly as it might be, non-judicial foreclosure is pretty straightforward. There may be some cause of action that borrowers have against lenders in California, but without some extraordinary circumstances, I can’t imagine what it would be as an affirmative defense against foreclosure.

Other states, it’s a whole different story. Some states have regulations requiring recording of transfers of security interests. Many have requirements of physical possession of a properly endorsed note. There are all kinds of causes that should give mortgage servicers heartburn. But not here.

I suspect he has no choice but to appeal, even if it’s spending his last penny, because that penny is likely to be gone if he pays defense costs anyway. But I agree with you, I’d be at least mildly suprrised if the state supreme court agrees to hear it.

[SK in CV]

[quote=bearishgurl]I read the opinion. I’m glad to see it came out the way it did and the suit was thrown out in its entirety. Obviously, Gomes has a right of appeal but, like you said, he may be running out of $$ for legal expenses. He will also increase his exposure to pay more of Countrywide/MERS/ReconTrust’s expenses if he does so. I don’t see the CA Supreme Court taking it on.

[/quote]

I think Gomes either got bad legal advice or didn’t pay attention when his counsel explained the extraordinarily low likelihood of prevailing. I suspect they were hoping for some sort of settlement during discovery, based on what’s happened in some other states. What you and I, and hopefully his attorney know, is that California is not those other states. As consumer friendly as it might be, non-judicial foreclosure is pretty straightforward. There may be some cause of action that borrowers have against lenders in California, but without some extraordinary circumstances, I can’t imagine what it would be as an affirmative defense against foreclosure.

Other states, it’s a whole different story. Some states have regulations requiring recording of transfers of security interests. Many have requirements of physical possession of a properly endorsed note. There are all kinds of causes that should give mortgage servicers heartburn. But not here.

I suspect he has no choice but to appeal, even if it’s spending his last penny, because that penny is likely to be gone if he pays defense costs anyway. But I agree with you, I’d be at least mildly suprrised if the state supreme court agrees to hear it.

[gandalf]

What an interesting case.

[gandalf]

What an interesting case.

[gandalf]

What an interesting case.

[gandalf]

What an interesting case.

[Author]

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