Published on:

Assignment of California Deed of Trust Must Be Recorded Before Foreclosure- MERS Process Does Not Trump California Real Estate Law

A recent California bankruptcy court decision ( In re: Eleazar Salazar) found a foreclosure invalid because of failure to record an assignment of the Deed of Trust. In the original Deed of trust (DOT) Accredited was the lender, Chicago Title was the trustee, and MERS was the nominal beneficiary. The DOT stated that MERS only held legal title to the interests granted by the borrower.

After the borrower defaulted, MERS signed a substitution of trustee and had no apparent role in the trustee’s sale. The sale was apparently run by Litton Loan Servicing and Quality Loan Service Corp. The Trustee’s Deed Upon Sale identified US bank as the “foreclosing beneficiary”, not MERS. The recital in the trustee’s deed is presumed to be true. While MERS was the beneficiary at the inception of the loan, it was not at time of foreclosure. In addition, no assignment of Accredited’s interest to US Bank was recorded. Facts like these make experienced real estate attorneys sit up and take notice.

The court noted that under California Civil Code section 2932.5, the assignment to US Bank had to be recorded prior to sale. First, US Bank had to be entitled to payment of the secured debt to foreclose, and secondly, the public record must show US Bank’s status as foreclosing beneficiary before the sale occurs.

Though US bank claimed to be the holder of the note, satisfying the first condition, it did not record an assignment of its interest in the Deed of Trust, failing the second condition.

US Bank also argued that MERS status as ‘nominal beneficiary’ made recording of the assignment unnecessary. However, MERS was not beneficiary at the time of the foreclosure, and the deed of trust did not grant MERS more then nominal powers. US Bank was described in the trustee’s deed (which is presumed to be true) as the foreclosing beneficiary. So, MERS had no role in the foreclosure.

Lastly, US Bank argued that the assignment from Accredited to US bank could be tracked in the publicly accessible MERS system. The court refused to recognize MERS as an extra-judicial foreclosure alternative which can circumvent the public recordation system.

Bankruptcy courts in California have more readily addressed the arrogance of the MERS cabal of lenders efforts to circumvent state law. California state courts have been more reluctant, at least in published decisions. On the one hand, this is unfortunate, as it forces more borrowers into Bankruptcy. On the other hand, bankruptcy law provides more tools to reconfigure the parties relationships once a foreclosure sale is set aside.