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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. HBOR codified this requirement in Civil Code Section 2924(a)(6). 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. Courts in California have allowed claims that servicers backdated assignments to reach the trial stage. California law, however, does not require the assignment to be recorded.
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). However,
if a borrower alleges that a signer actually lacked an agency
relationship with MERS, that issue can reach the discovery or trial
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. However, borrowers may succeed if they allege specific facts claiming a servicer lacked authority to foreclose.
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. Without
a proper substitution of trustee, any foreclosure procedures (including
sales) initiated by an unauthorized trustee are void. Courts
have upheld challenges when the signer of the substitution may have
lacked authority or the proper agency relationship with the beneficiary. Courts have also allowed cases to proceed when the substitution of trustee was allegedly backdated.