In other parts of the country, and in bankruptcy court, borrowers have had some success with the argument that since MERS is a "nominee" and "nominee" is not defined in the loan documents, that it does not have standing to initiate foreclosure.
That argument has been far less successful in California, in large part because of these factors:
- Non-judicial foreclosures only require that the trustee on the deed of trust conduct the foreclosure.
- The deed of trust is recorded and so are any substitutions and assignments (in other states, MERS had tried to circumvent the recording statutes by not recording this transfers with the County recorder).
- The borrower (or "Trustor") has signed the Deed of Trust and voluntarily consented to a 3rd party conducting the Trustee's sale, regardless of who the beneficiary is.
Recently, in the case of Robinson v. Countrywide and MERS, the California Court of Appeals again shot down the borrower's arguments for wrongful foreclosure and cited faithfully from the case of Gomes v. Countrywide. The Gomes case is allegedly seeking cert to go to the California Supreme court so I will be following that trend with interest.
The Robinson court stated: "We agree with the Gomes court that the statutory scheme (§§ 2924-2924k) does not provide for a preemptive suit challenging standing. Consequently, plaintiffs‟ claims for damages for wrongful initiation of foreclosure and for declaratory relief based on plaintiffs‟ interpretation of section 2924, subdivision (a), do not state a cause of action as a matter of law.
(Robinson v. Countrywide; Case no. E052011, Sept. 12, 2011)
What's the bottom line? Both the Robinson Court and the Gomes Court have made it pretty clear that in California, a borrower cannot challenge the foreclosure process solely on the grounds that the lender did not have authority to foreclose.
I want to be clear though that this could have a different result under a judicial foreclosure because in that circumstance, the court clerk is required to hand cancel the debt instrument, which requires the original promissory note.
Lastly, my comment about these types of cases from borrowers is that the borrower is in default under the loan and judges know that the borrowers owe the money so there isn't much sympathy for these types of "technical" challenges to a foreclosure.
Instead, the lawsuits that have more traction are the ones where the borrowers have taken acts in reliance of promises of the lender, and have made efforts to make payments or sell other assets to pay the lender--but the lender foreclosed anyway or "dual tracked" them during this timeframe. In those circumstances, the borrowers as plaintiffs have been able to survive the demurrer stage of the lawsuit.