held that the plaintiff borrowers had no cause of action against the loan
servicer or MERS for supposed wrongful foreclosure, or declaratory relief
pursuant to California Civil Code section 2943, based on alleged lack of
standing and alleged failure to comply with section 2943.
A copy of the opinion is available at:
The plaintiffs' $380,000 loan was secured by a deed of trust. The deed of
trust identified MERS as "acting solely as a nominee for Lender and
Lender's successors and assigns," and stated that "MERS is the beneficiary
under this Security Instrument." Subsequently, Countrywide Home Loans,
Inc. ("Countrywide"), identifying itself as a debt collector and the
servicer of the loan on the note holder's behalf, notified plaintiffs that
their loan was delinquent.
The plaintiffs' attorney allegedly wrote to Countrywide requesting
information concerning the loan, including a beneficiary statement and
payoff demand statement pursuant to Civil Code section 2943. The
plaintiffs' counsel allegedly repeated the requests. However, Countrywide
allegedly failed to identify the current beneficiary on the note and deed
The plaintiffs attempted to assert numerous causes of action against
Countrywide and MERS. Both defendants demurred. The trial court
sustained the demurrer without leave to amend.
On appeal, the plaintiffs challenged the order sustaining the demurrer
only with respect to the cause of action for damages for wrongful
initiation of foreclosure, and for declaratory relief based on the
plaintiffs' interpretation of California Civil Code section 2924,
As the basis for their claims, the plaintiffs alleged the note was "sold
and resold" on the secondary mortgage market, allegedly making it
difficult or impossible to ascertain the actual owner of the beneficial
interest in the note. They alleged that the identity entity that
currently held an ownership interest was unknown, and that because
Countrywide failed to comply with its statutory duty to provide them with
the documents they requested, they allegedly did not know to whom they
owed the obligation to repay the loan.
In addition, the plaintiffs alleged that the lender did not assign the
note to MERS and did not authorize MERS or any other person to assign the
note to anyone on its behalf. They alleged that the entity who directed
the initiation of the foreclosure process was not the note's rightful
owner and was acting without the rightful owner's authority.
The plaintiffs further alleged that the entity which initiated foreclosure
proceedings had no legal authority to do so, because it supposedly was
neither the current beneficiary of the deed of trust, or the agent of the
current beneficiary. They argued that section 2924, "by necessary
implication," provides that a borrower who is subject to foreclosure under
a deed of trust may file an action to challenge the foreclosing party's
standing to do so. The balance of their argument was that MERS had no
legal authority to initiate a foreclosure.
In upholding the decision of the trial court, the Appellate Court noted
that the issues the plaintiffs raised concerning MERS and the securitized
mortgage market were recently discussed in Gomes v. Countrywide Home
Loans, Inc., 192 Cal. App. 4th 1149 (4th Dist. 2011) (see our prior
The Appellate Court stated, "[w]e agree with the Gomes court that the
statutory scheme (§§ 2924-2924k) does not provide for a preemptive suit
challenging standing." Further, the "plaintiffs' claims for damages for
wrongful initiation of foreclosure and for declaratory relief based on
plaintiffs' interpretation of section 2924, subdivision (a), do not state
a cause of action as a matter of law."
The Appellate Court further held that "even if such a statutory claim were
cognizable, the second amended complaint does not state facts upon which
such a claim could be based as to MERS and Countrywide." In so holding,
the Court noted that the complaint alleged the foreclosure proceedings
were not initiated by Countrywide or MERS. Further, it did not allege the
initiating entity was acting as an agent for MERS or for Countrywide.
Accordingly, the Appellate Court held that "even if a statutory action for
damages or for declaratory relief were available to challenge the standing
of the foreclosing entity, the second amended complaint does not allege
any facts upon which such an action could be based with respect to
Countrywide or MERS."
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
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