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In Herrera v. Federal National Mortgage Association
(2012) 205 Cal.App.4th 1495, the California Court of Appeal joined
other courts in rejecting the plaintiffs' attempt to avoid
their mortgage obligations on the grounds that Mortgage Electronic
Registration Systems (MERS) is a sham. MERS is a private company
that operates an electronic registry to track servicing rights and
ownership of mortgage loans. Lenders use MERS to facilitate their
transactions and avoid having to record assignments and pay
recording fees relating to mortgages. The case confirms that MERS
has the authority to assign promissory notes and deeds of trust and
that its use is legitimate.
In August 2007, the plaintiffs obtained a home loan from Indymac
Bank secured by a deed of trust naming MERS as a beneficiary. In
June 2009, MERS assigned the deed of trust to OneWest, which
recorded a notice of default. OneWest then assigned the deed of
trust to the Federal National Mortgage Association (Fannie Mae).
Soon after, Fannie Mae purchased plaintiffs' home at a
nonjudicial foreclosure sale. Plaintiffs then sued to set aside the
foreclosure, alleging that MERS lacked the authority to assign the
note and deed of trust. The trial court sustained Fannie
Mae's demurrer without leave to amend.
The court of appeal affirmed, holding that the deed of trust
properly granted MERS the right to exercise all interests and
rights held by the lender, including the right to assign the deed
of trust and foreclose. The court noted that even if MERS lacked
this authority, it was the lender—not the
plaintiffs—who was prejudiced. The plaintiffs could not
use MERS as an excuse to avoid their mortgage obligations or set
aside the foreclosure sale. Nor could they overcome the presumption
that the foreclosure sale was valid. Moreover, the court noted the
plaintiffs had not tendered the loan proceeds or cured the default,
both of which were required to set aside any foreclosure sale.
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