Recently, there have been a series of decisions throughout the nation about Mortgage Electronic Registration Systems, Inc. (“MERS”). Some, predominantly cases in state court, hold that MERS can foreclose and there are no issues with the legality of MERS. (Taylor v. Deutsche Bank in Florida, MERS v. Barnes in Illinois, and Jackson v. MERS in Minnesota.) Others, generally decisions from the Bankruptcy court, deny proof of claims and prohibit foreclosures. (In re: Agard in New York, In re: Box in Missouri, In re: Kemp in New Jersey, and In re: Walker in California.) In the most recent case in California, Gomes v. Countrywide, the state court unequivocally held in favor of MERS.
In the Gomes decision, the Court held that MERS has the right to foreclose and the judicial system should not determine whether the foreclosing party has the right to foreclose. In reaching its decision, the Court focused on the difference between the non-judicial and judicial foreclosure systems. In the non-judicial foreclosure system, the foreclosure process is supposed to be shorter and cheaper than the judicial foreclosure system. If borrowers could sue to determine whether MERS or any other foreclosing party had the authority to foreclose, then there would be no real difference between a judicial and non-judicial foreclosure.
The Gomes Court also addresses whether MERS had a right to foreclose. The Court reasoned that the deed of trust specifically provided MERS with the right to foreclose. Whether the actual holder of the note authorized MERS to foreclose or whether anyone knew who the actual holder of the note was did not matter. If the note-holder did not want MERS to foreclose, presumably, the note-holder could sue after the foreclosure sale for damages. Similarly, if MERS or the party that foreclosed did not have the authority to do so, parties could litigate the matter after the foreclosure sale.
Ultimately, what seems to be the key to success for lenders and borrowers in foreclosure litigation is determining who has the burden of proof. In non-judicial foreclosure states such as California, the foreclosure process requires little proof from the lender. Many of the cases from the state court system that focus on the ability of lienholders to foreclose tend to favor the creditor.
On the other hand, in order to receive relief from stay or to file a claim in bankruptcy, the burden is on the bank to prove that it has the authority to foreclose or is the owner of the note. Those cases have been more favorable to debtors and their attempts to stop foreclosures.
Henry and Julia continue to receive a number of calls and requests for consultations from borrowers on similar loan issues. Though the firm primarily represents creditors, we have developed a custom consultation format for borrowers who are in the midst of a short sale, foreclosure, or who have been foreclosed upon and are being pursued by the junior lienholder’s collection agency. Please give us a call if we can assist you or your clients.