Tuesday, February 22, 2011
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C.A. Rejects Challenge to Nonjudicial Foreclosure Proceeding
Homeowner Cannot Use Court to Stop Process Based on Claim That Noteholder Did Not Authorize It—Panel
By KENNETH OFGANG, Staff Writer
A defaulting mortgagee may not bring a declaratory action challenging the noteholder’s right to initiate a non-judicial foreclosure through a nominee, the Fourth District Court of Appeal ruled Friday.
Div. One affirmed a San Diego Superior Court judge’s ruling dismissing an action against Countrywide Home Loans, Inc., Mortgage Electronic Registration Systems, Inc., and ReconTrust Company, N.A.
Mortgage Electronic Registration Systems, or MERS, operates an electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Participating members assign their interests to MERS, which is then listed as the grantee in county recorders’ offices, although the lenders retain the promissory notes and servicing rights and can sell them to investors without having to record those transactions in the public record.
The last feature allows two MERS members to transfer a loan between them without anyone outside MERS knowing about it.
‘Acting as Nominee’
The plaintiff whose action was rejected Friday, Jose Gomes, alleged that he borrowed $331,000 from KB Home Mortgage Company in 2004 to buy a house, and executed a promissory note secured by a deed of trust. The deed of trust identified KB as the lender and MERS as “acting solely as a nominee” for the lender.
In March 2009 a notice of default was recorded by ReconTrust, as agent for MERS. Accompanying the notice was a declaration by an employee of Countrywide, apparently acting as the loan servicer.
Gomes sued in May 2009, accusing the defendants of “wrongful initiation of foreclosure” and violation of consumer protection laws.
He asserted on information and belief that the current owner of the note did not authorize MERS to proceed with the foreclosure, and argued that the nonjudicial foreclosure statute does not preclude a prior judicial determination as to whether the party initiating foreclosure has legal authorization to do so. He asked for damages, a declaration of his right to challenge the nonjudicial foreclosure proceeding, and rescission of the notice of default.
Judge Steven R. Denton sustained demurrers brought on behalf of all defendants.
Gomes appealed, solely with regard to his causes of action seeking damages for wrongful foreclosure and declaratory relief.
The Court of Appeal affirmed, saying there was no legal basis for a pre-foreclosure action, and that even if there was, the defendants would prevail because Gomes agreed, by executing the deed of trust, that MERS could initiate foreclosure if he defaulted.
Not ‘Permitted or Contemplated’
Justice Joan Irion, writing for the appellate court, said allowing suits such as Gomes’ would “interject the courts into [the Civil Code’s] comprehensive nonjudicial scheme” governing foreclosures, something not “permitted or contemplated” by the statutory language.
Sec. 2924(a)(1), which expressly permits a “trustee, mortgagee, or beneficiary, or any of their authorized agents” to initiate foreclosure, she noted, makes no provision for a private action to determine whether the initiating party is so authorized.
“The recognition of the right to bring a lawsuit to determine a nominee’s authorization to proceed with foreclosure on behalf of the noteholder would fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures,” the justice wrote.
She went on to note that federal courts have upheld MERS’ right to initiate foreclosure based on provisions in deeds of trust which, like Gomes’, specifically stated that MERS was authorized, as lender’s nominee, to do so.
The case is Gomes v. Countrywide Home Loans, Inc.
Copyright 2011, Metropolitan News Company