California Appeals Court Rules in Favor of MERS in Foreclosure

Another court has weighed on the MERS debacle. The California Court of Appeals in the Second Appellate District declared that MERS (Mortgage Electronic Registration Systems, Inc) can be a beneficiary on a deed of trust and that Avelo Mortgage does need to possess the promissory note on the mortgage before beginning foreclosure proceedings. Some opine that the ruling sets a precedent in California that MERS can foreclose without having a promissory note in its possession. The decision was based on another California MERS decision in which the homeowner (Gomes) argued that MERS could not initiate foreclosure and the court determined that the deed of trust “explicitly provided MERS with the authority to do so.” The Gomes decision also included a note that MERS did not have to provide the homeowner with assurances that MERS was authorized to proceed with the foreclosure. There is a distinguishing feature here – the note in question contained specific language that the home owner agreed to by executing the document. The note contained, inter alia, “that Borrower 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 has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the property,” Judge Milton indicated that contractual language was the basis for the ruling.
When trying to interpret decisions such as this, there is a tendency to view the result and not the reason. However, it is important to note the reason because another situation may have different language and it is the language that controls the decisions. Many rush to judgment and view decisions such as this as “California rules that MERS is valid” and this is not the result of this decision.
At least in California, it looks like the courts may side with MERS, although the conflicts continue to be decided on a case-by-case basis. Another case in California with different language may be decided differently. Other states such as Oregon and New York – have tended to throw out MERS cases or even decide in favor of the homeowner.