The Inadvertent Message of Gomes v. Countrywide: File Bankruptcy First—Shift the Burden of Proof in Foreclosure, all debt collection cases

2011 Comm. Fin. News. 18
Commercial Finance Newsletter
Professor Dan Schechtera
February 28, 2011
Borrower Cannot File Suit to Determine Whether MERS Has Authority to Commence Foreclosure, and Trust Deed Expressly Authorized MERS to Do So. [Gomes v. Countrywide Home Loans, Inc.,(Cal.App.).]
A California appellate court has held that a borrower questioning the authority of MERS to commence a nonjudicial foreclosure cannot file suit to determine whether MERS has the authority to do so; in addition, the deed of trust executed by the borrower expressly authorized MERS to conduct the foreclosure. [Gomes v. Countrywide Home Loans, Inc., 2011 WL 566737 (Cal.App. 4th Dist. 2011).]
A California borrower executed a deed of trust, in which Mortgage Electronic Registration Systems (MERS) was designated as the nominee for the lender. Following the borrower’s default, an agent acting on behalf of MERS initiated nonjudicial foreclosure proceedings. The borrower filed suit challenging the authority of MERS to act on behalf of the underlying owner of the note and deed of trust. The trial court sustained the defendants’ demurrer, and the court of appeal affirmed.
The court held that the borrower had no factual basis for believing that MERS lacked authority to act on behalf of the beneficial owner of the note and deed of trust, and there was no statute permitting a private action seeking to determine whether MERS had such authority. As a fallback, the court also held that MERS did, indeed, have the authority to initiate a foreclosure, under the express terms of the deed of trust.
In holding that MERS had the authority to conduct the foreclosure, the court declined to follow Landmark Nat. Bank v. Kesler, 289 Kan. 528, 216 P.3d 158 (2009), holding that MERS had no standing to intervene in a foreclosure case (and, by implication, that MERS was simply irrelevant to the foreclosure process). The court noted that under Cal. Civ. Code § 2924(a)(1), “[t]he trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file… a notice of default.” Therefore, since MERS was an “authorized agent,” it necessarily acted properly in commencing the foreclosure.
Author’s Comment
By holding that the borrower could not even file suit in state court in order to determine whether the proper party had commenced the foreclosure, the court has sent a clear (and perhaps inadvertent) message to borrowers and their attorney’s: instead of filing suit in state court, file a bankruptcy petition. That shifts the burden to the creditor, who will have to file a motion for relief from stay in the bankruptcy court and will have to establish its right to foreclose as part of that motion. Unlike the California state courts, the California bankruptcy courts have been critical of poorly documented mortgage transactions and sloppily conducted foreclosure proceedings.
As to the substantive issue, i.e., whether MERS really has the authority to act on behalf of the lender, the case law is decidedly mixed. The cases in California tend to be more sympathetic to MERS, while the cases in much of the rest of the nation are much less deferential to MERS. For discussions of some of those cases, see:
  • — 2010 Comm. Fin. News. 51, Foreclosure Is Valid Because MERS Has Power to Designate New Trustee Under Deed of Trust, Even Though It Holds No Interest in Underlying Note.
  • — 2009 Comm. Fin. News. 103, Assignee of Mortgage Lacks Standing to Foreclose Because Assignee Failed to Show That MERS Assigned Underlying Promissory Note, Along with Mortgage.
  • — 2009 Comm. Fin. News. 59, Assignees of Mortgages Cannot Enforce Unendorsed Notes in Their Possession Because MERS Documentation Does Not Expressly Authorize Assignment of Notes.
  • — 2009 Comm. Fin. News. 57, Assignee in Possession of Mortgage Note May Not Enforce It Because Note Is Not Endorsed to Assignee.
  • — 2008 Comm. Fin. News. 104, Mortgagee May Not Obtain Relief from Automatic Stay in Order to Foreclose When Necessary Evidence Is Supplied by Low-Level Clerk Without Personal Knowledge of Underlying Facts.
  • — 2008 Comm. Fin. News. 95, Mortgage Assignee’s Failure to Record Assignment Does Not Empower Mortgagor’s Trustee in Bankruptcy to Avoid Underlying Mortgage.
  • — 2008 Comm. Fin. News. 86, Mortgagee’s Agent May Not Foreclose if Agent Cannot Properly Trace Assignment of Mortgage from Original Lender to Assignee Pursuant to Securitization.
  • — 2007 Comm. Fin. News. 93, Mortgage Holder Seeking Relief from Automatic Stay in Order to Foreclose May Be Denied Relief for Failure to Establish Chain of Title from Loan Originator to Ultimate Assignee.

Copyright Thomson Reuters


These materials were written by Dan Schechter, Professor of Law at Loyola Law School, Los Angeles, California. The opinions expressed herein are solely those of Professor Schechter.
End of Document © 2011 Thomson Reuters. No claim to original U.S. Government Works.

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