held that: (1) a foreclosure sale in which the notice of an assignment of
a deed of trust was recorded on the same date as the notice of trustee's
sale did not violate Cal. Civil Code Section 2932.5, which requires that
an assignment of a mortgage be recorded before the exercise of the power
of sale, because Section 2932.5 applies only to mortgages, and not deeds
of trust; and (2) MERS had the right to foreclose.
A copy of the opinion is available online at:
The plaintiff borrower obtained a loan secured by a deed of trust against
her home. The deed of trust identified Mortgage Electronic Registration
Systems, Inc. ("MERS") as the nominal beneficiary. The loan and deed of
trust were eventually sold to HSBC Bank USA, N.A. ("HSBC").
Following the borrower's default, a new trustee was substituted. The new
trustee initiated foreclosure proceedings and executed a foreclosure sale
of the plaintiff's residence. Notice of the assignment of the deed of
trust appeared only in the substitution of trustee, which was recorded on
the same date as the notice of trustee's sale.
Plaintiff filed suit, seeking to set aside the trustee's sale for an
alleged violation of California Civil Code Section 2932.5, which requires
the assignee of a mortgagee to record an assignment before exercising a
power to sell real property. HSBC demurred. The trial court sustained
the demurrer without leave to amend, and plaintiff appealed.
The Appellate Court began by examining the text of Section 2932.5, which
provides: "Where a power to sell real property is given to a mortgagee.
the power is part of the security and vests in any person who by
assignment becomes entitled to payment of the money secured by the
instrument.[t]he power of sale may be exercised by the assignee if the
assignment is duly acknowledged and recorded."
However, the Court noted, it "has been established since 1908 that this
statutory requirement that an assignment. must be recorded in order for
the assignee to exercise the power of sale applies only to a mortgage and
not to a deed of trust."
In fact, the Court noted, in Stockwell v. Barnum (1908) 7 Cal. App. 413, a
prior appellate court "distinguished a trust deed from a mortgage" on the
basis that "a mortgage creates only a lien, with title to the real
property remaining in the borrower/mortgagee, whereas a deed of trust
passes title to the trustee with the power to transfer marketable title to
a purchaser." Moreover, this holding "has never been reversed or modified
in any reported California decision in the more than 100 years" and thus,
"[t]he rule that section 2932.5 does not apply to deeds of trust is part
of the law of real property in California." In fact, the Court noted,
"[a]fter 1908, only the federal courts have addressed the question whether
section 2932.5 applies to deeds of trust. [and every] federal district
court to consider the question has followed [this ruling]."
The Court also noted that MERS also had the right to initiate foreclosure
on behalf of HSBC "irrespective of the recording of a substitution of
trustee." Specifically, "Section 2924(a)(1) states that a 'trustee,
mortgagee, or beneficiary, or any of their authorized agents,' may
initiate the foreclosure process." Because "MERS was both the nominal
beneficiary and agent (nominee) of the original lender and also of HSBC,
which held the note at the time of the foreclosure sale of plaintiff's
residence, MERS had the statutory right to initiate foreclosure on behalf
of HSBC pursuant to Section 2924," the Court held.
Moreover, "MERS also had the right to initiate foreclosure on behalf of
HSBC pursuant to the express language of the deed of trust," which granted
MERS the right "the right to initiate foreclosure and instruct the trustee
to exercise the power of sale as nominee (i.e., agent) of the original
lender and its successors and assigns." Since HSBC "was the assignee of
the original lender," both "HSBC Bank and MERS, [as] its nominal
beneficiary and agent, were entitled to invoke the power of sale in the
deed of trust," the Court ruled, and affirmed the lower court's judgment.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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