Thursday, July 11, 2013

MERS & California Homeowner Bill of Rights

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Home » Newsletters » July 2013 Foreclosure Newsletter Covers Litigation Under Homeowner Bill of Rights, Recent Cases
In July 2012, California Governor Jerry Brown signed the Homeowner Bill of Rights (HBOR).[1] 
This landmark legislation was created to combat the foreclosure crisis and hold banks accountable for 
exacerbating it.[2] HBOR became effective on January 1, 2013, on the heels of the National Mortgage 
Settlement.[3] This article provides an overview of the legislation, the developing case law, and related 
state-law causes of action often brought alongside HBOR claims. Finally, the article surveys common, 
HBOR-related litigation issues.  Continue Reading


  1. 1.    Assignments of the deed of trust
Only the holder of the beneficial interest may substitute a new trustee or take action in the foreclosure process. A beneficiary’s assignee must obtain an assignment of the deed of trust before moving forward with the foreclosure process, by recording a notice of default, for example.[37] HBOR codified this requirement in Civil Code Section 2924(a)(6).[38] Courts have allowed wrongful foreclosure claims to proceed when borrowers specifically alleged that the lender is not the current beneficiary under the deed of trust.[39] Courts in California have allowed claims that servicers backdated assignments to reach the trial stage.[40] California law, however, does not require the assignment to be recorded.[41]
Cases alleging that MERS may not assign the deed of trust have also generally failed. California law is clear: once a beneficiary signs the deed of trust over to MERS, MERS has the power to assign the beneficiary’s interests (as the beneficiary’s nominee or agent).[42] However, if a borrower alleges that a signer actually lacked an agency relationship with MERS, that issue can reach the discovery or trial stage.[43]
  1. 2.    Possession of promissory note
Challenges based on possession of the note have generally not been successful because assignees need not demonstrate physical possession of the promissory note to foreclose in California.[44] However, borrowers may succeed if they allege specific facts claiming a servicer lacked authority to foreclose.[45]
  1. 3.    Substitutions of trustee
Only the original trustee or a properly substituted trustee may carry out a foreclosure, and unlike assignments of a deed of trust, substitutions of trustee must be recorded.[46] Without a proper substitution of trustee, any foreclosure procedures (including sales) initiated by an unauthorized trustee are void.[47] Courts have upheld challenges when the signer of the substitution may have lacked authority or the proper agency relationship with the beneficiary.[48] Courts have also allowed cases to proceed when the substitution of trustee was allegedly backdated.[49]

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