The highly contentious Mortgage Electronic Registration System (MERS) has made numerous courtroom appearances since its inception, the question for homeowners being: does MERS have the authority to initiate foreclosure? We explore the answer through the lens of the recent case decision, In re Cedano.
Facts: A homeowner took out a home loan, executing a promissory note secured by a trust deed naming Mortgage Electronic Registration Systems (MERS) as the named beneficiary. The loan was sold on the secondary mortgage market and MERS substituted trustees when the homeowner went into default. The home was later sold by the substitute trustee at a trustee’s sale.
Claim: The homeowner sought to regain title to his home, claiming the trustee’s sale was invalid since MERS had no authority to substitute trustees, as it did not hold the note.
Counter claim: MERS claimed the trustee’s sale was valid since it had the authority to substitute trustees, as MERS was the named beneficiary under the trust deed.
Holding: The ninth circuit bankruptcy appeals court held the foreclosure was valid since MERs as the named beneficiary in the trust deed had the authority to substitute trustees.
Also at issue in this case:
Facts: A homeowner took out a home loan secured by a trust deed granting the beneficiary the right to appoint a successor trustee and to foreclose. The beneficiary executed a Substitution of Trustee, appointing a new trustee. The homeowner defaulted and the substitute trustee recorded a Notice of Default (NOD) before the Substitution of Trustee was recorded. The home was later sold at a trustee’s sale and the homeowner sought to regain title to his home.
Claim: The homeowner claimed the trustee wrongfully foreclosed since, without the prior recording of the Substitution of Trustee, the substitute trustee lacked authority to record the NOD and commence foreclosure.
Counter claim: The trustee claimed the trustee’s sale was valid since a Substitution of Trustee must only be executed, not recorded, for the substitute trustee to initiate foreclosure.
Holding: The ninth circuit bankruptcy appeals court held the foreclosure was valid since there is no requirement for the substitution to be recorded before initiating foreclosure, only that it be executed (signed and delivered). [In re Cedano (April 17, 2012) _BR_]
The perpetual controversy of MERS
Mortgage Electronic Recording Systems (MERS) has been the subject of countless lawsuits from homeowners who entered the market during the superheated years of the Millennium Boom. When they eventually find going to trial offers zero retribution, many of these homeowners feel justice has failed them in their claims against MERS.
As a private organization created by the mortgage banking industry, MERS provides a (legal) way for lenders to transfer ownership of home loans without having to record the transfer with the county recorder’s office, and make public the ownership of the note and trust deed. Thus, MERS enables the transfer to remain beneath the radar of county land recording offices (and the public, property owners in particular) which otherwise would collect fees on the millions of transfers MERS facilitates in this “off record” manner.
Related article:
Counties accuse secretive MERS of circumventing recording fees
MERS’ facilitations of note and trust deed assignments between lenders are difficult to track compared to publicly recorded transfers, which are transparent. Thus, homeowners often have no way of knowing who actually owns their home loan – a major point of contention for homeowners facing foreclosure (the preverbal straw these homeowners grasp at, if you will).
Homeowners whose loans are secured by a trust deed naming the beneficiary as MERS (currently, approximately three out of every five homes) rightly find this uncertainty troubling; they’re left wondering who is authorized to dictate the outcome of their fate.
It’s little wonder these homeowners believe their case will prove successful in court as the tangled knot of ownership is impenetrable, hidden by the servicing agent (a lender usually) and MERS’ participation. However, there are laws solidly in place to protect MERS, and recent court decisions have reiterated this repeatedly and consistently.
The legality of MERS
Filing a lawsuit to determine whether MERS has been authorized by the note’s holder to initiate foreclosure is a meaningless course of action and waste of money. MERS consistently gets the benefit of the doubt and homeowners get the boot. [Gomes v. Countrywide Home Loans, Inc. (2011) 192 CA4th 1149; Calif. Civil Code §2924(a)]
Related article:
Trust deed beneficiary of record needs no authority to foreclose
In In re Cedano, the trust deed named MERS as the beneficiary, authorizing it to exercise all the rights of the lender holding the note (and trust deed by legal result), including the right to foreclose. The homeowner’s claim was based on the assumption MERS’ substitute trustee was not able to record an NOD once the note has been reassigned, as it has no monetary interest in the note and the trust deed by law always follows the assignment of the note.
However, MERS (and its substitute trustee) is not required to have a financial interest in the note to initiate foreclosure. MERS is the beneficial nominee for the original lender and every succeeding lender. Thus, MERS remains the beneficiary for every succeeding lender who purchases the loan, and as the beneficiary, is perpetually able to initiate foreclosure. [CC §2924]
Who looks out for the homeowner?
MERS is allowed to skirt the law, laundering what is supposed to be public information. MERS claims the privileges of owning the loan without actually possessing any financial stake in it. Homeowners incorrectly rely on the misconception that MERS is unable to have any part in foreclosing their home, often needlessly handing over their last dime in attorney fees to pursue the issue unsuccessfully. For California homeowners, this convoluted system means they are out a house – and at the risk of throwing more good money after bad.
It is not the job of the court to look out for the homeowner’s best interests; rather, its job is to uphold the law in all its pristine glory. We are a country ruled by law, not by beliefs and hopes. It is an agent’s job to look out for the interests of the owner, meaning agents are to share their knowledge on the hazards of misunderstanding MERS, to alert their clients to avoid needlessly bringing their cases against MERS to court.
And, saving your homeowner the trauma is sure to breed goodwill towards those brokers and agents who speak up with their advice and opinion, redeemable when the homeowner returns to the market for another property.
Related articles:
MERS as trust deed beneficiary may foreclose without recording lender assignments
Cause and effect: Wall Street Bankers authorized to police themselves. Deregulate banking? Thank You Bill. Proper paper trails ? NIMBY per Bankers. LIBOR scandal samo samo! Step back to former regs, Why not? Nothing better has come out of Congress or White House. It was formerly for THE People and now it is for Self, Party and Excessive GREED. The problems submitted in your article reflect this discourse in part.
The Media has not helped. Once upon a time there was unbiased more fair reporting. There were true investigative reporters who would seek out these scams on the public and disclose them. Today we have Media Moguls who control the information passed on by reporters and manipulate the output.
For whom? Thats right you already know!!
good article. does the public have the same access to
mers as they would have to the county recorder records? Due process and fair notice? 14th amendment?
The manipulators of our economy and investment markets, the insiders of the Cabal, which continues to hold sway in the halls of power, are bent on defrauding you of every single penny you have in one way or another, be it junk fees on mortgages, fabricated derivatives, or company stock backed by fabricated accounting and fraud. Until those parasites are finally removed from controlling the markets (including LIBOR) and manipulating commodities and precious metals prices, we will have more of a decline.
The good news is that significant behind-the-scenes investigations on high levels will continue to expose and prosecute the perpetrators of the financial crimes and fraud.
So, eventually, the system can be corrected to serve the many and not just the few.
The LIBOR scandal is huge, it is monumental, and it is not going away as long as the American public and the British public realize the magnitude and implications of what was done. LIBOR can be the catalyst to uncovering many more rats under the woodpile.
Have you noticed how many huge sumptuous estates are now for sale in the North East? Not-so-honest Wall Street bankers and brokers seem to be taking “extended vacations” out of the country lately and putting their mansions up for sale. Hmmm……
The moral of the story is: If you are a homeowner and you take a mortgage wirh MERS or any other lender, do not default, or your house will be foreclosed (as you agreed when you took on the loan)!
Please refer to the Rules & Regulations of Mers…this document states in MERS own words that it cannot do what it is currently doing. Smart attorneys will add this as an exhibit into their complaints.
Yes…there is a debt hanging out there…but it does not belong to the bank. They were paid off at the time the loan was originated. How hard is it to understand that someone such as a pension fund, college fund or your grandmothers retirement is the only beneficiary to foreclose….but they are not aware you are in default because the banks aka the servicer of your loan has no financial interest or loss if you home is foreclosed on. Only the true beneficiary is the loser but they are not given the opportunity to work with these homeowner to work out a modification to everyone best interest. WHY…because the Servicers will benefit greatly by foreclosing on the home. They make loads of money off of other peoples lose.
When a home is foreclosed on the lose is felt by the homeowner, some unnamed beneficiary, the county tax collector, the neighbors, local government lose of case flow……the only one WHO DOES NOT LOSE is the BANKS………Wake up and get informed!
And the beat goes on-powerful big banks can get away with anything.Good informative article.
The bottom line seems to me should be did you, homeowner, pay the debt you agreed to pay or not… All the rest is looking for a loophole and something for nothing.