In Herrera v. Federal National Mortgage Association (--- Cal.Rptr.3d ----, Cal.App. 4 Dist., May 17, 2012), a California Court of Appeal considered whether a nonjudicial foreclosure sale on a property was valid after the defaulting property owners brought a lawsuit alleging that beneficiary Mortgage Electronic Registration Systems, Inc., (“MERS”) failed to properly assign the deed of trust to another party prior to the sale. The court ruled that because the property owners specifically granted such authority to MERS when they signed the deed of trust, MERS did have authority to assign the deed of trust and the sale was valid. Additionally, even if the sale were found void due to an improper assignment, the owners could not show prejudice, and therefore could not prevail.
Salvador and Diana Herrera purchased a home with a loan from Indymac Bank, F.S.B. (“Indymac”). The note was secured by a deed of trust (“DOT”) signed by the Herreras. The DOT stated “Borrower understands and agrees that MERS holds only legal title to the interested granted by borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this security instrument.”
Indymac was later placed in receivership and MERS, as its nominee beneficiary, transferred its interest in the DOT to OneWest, which in turn assigned its interest in the DOT to Federal National Mortgage Association (“Fannie Mae”).
The Herreras then defaulted on their mortgage and their home was sold in a nonjudicial foreclosure sale. The Herreras sued, seeking to set aside the foreclosure sale alleging that MERS lacked authority to assign the deed of trust, that its assignment to OneWest, as well as OneWest’s Assignment to Fannie Mae, was void, and that Fannie Mae consequently could not foreclose on the property. Fannie Mae demurred and the trial court sustained the demurrer without leave to amend their complaint. The Herreras appealed.
The court cited case law to establish that a nonjudicial foreclosure sale is presumed to have been conducted regularly, and in a cause of action to set aside a foreclosure sale, there must be a specific factual basis for alleging that the foreclosure was not initiated by the correct party. The Herreras, because they agreed in their DOT that “MERS had the right to exercise all rights of the lender, including foreclosing on and selling plaintiffs’ property,” failed to meet that standard. That agreement made the subsequent assignments to OneWest and then Fannie Mae valid as well, the court ruled. As legitimate beneficiary of the DOT at the time of the foreclosure sale, Fannie Mae had the right to initiate foreclosure.
Finally, the court held that even assuming that the owners could allege facts showing the MERS assignment was void, the owners must show they were prejudiced by the procedural defect. They did not. The trial court’s judgment sustaining Fannie Mae’s demurrer and dismissing the Herreras’ action was affirmed.
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