Speaking Of

• 2/3 at MaxReal
• 2/13 at World Properties
• 2/15 at Century 21 Alpha, Campbell
• 2/16 at Century 21 Alpha, San Jose
• 2/17 at Starriver
• 2/28 at Intero
• 2/29 at Coldwell Banker Platinum Group
• 3/6 Baily Properties at Santa Cruz Association of Realtors
• 3/8 at Elite Real Estate
• 4/3 at FDM Properties

Miller Morton Caillat & Nevis is proud of all its attorneys and their achievements, from our broad real estate practice with expertise in all areas of the real estate industry to litigating multi-million dollar construction cases to the personal development of an estate plan.

Dessau shares this honor with his colleagues at Miller Morton Caillat & Nevis.

Miller Morton Caillat & Nevis is pleased to have these attorneys previously honored for inclusion on the Northern California Super Lawyers or Rising Stars lists: David L. Nevis,, Peter A. Kline, Stevan C. Adelman, William K. Hurley, Anthony F. Ventura and Frank J. Perretta.

Within the Law

Week of January 30, 2012

As real estate brokers and agents are aware, borrowers in California sign two documents when they take out a loan: a promissory note and a deed of trust. The lender records the deed of trust to provide notice to the public of the lender's security interest in the property. When a lender sells or assigns the loan, the lender must record the sale and the assignment of the deed of trust in the county records to provide public notice of the change in ownership.

The Mortgage Registration Electronic System, commonly known as MERS, was created to avoid the cumbersome process of recording assigned deeds of trust. MERS is a private corporation that runs a national electronic database. This database tracks the transfer of ownership interests in mortgage loans, as well as any changes in the loan servicers.

At the origination of the borrower's loan, MERS is designated as the beneficiary on the deed of trust. The beneficiary is the person or company that holds legal title to the security interest in the property. While MERS appears in county records as the holder of the deed of trust, MERS only holds the deed of trust on behalf of the lender.

If the original lender sells or assigns its interest in the loan, the change is recorded only in the MERS database. The county records are not changed because MERS continues to hold the deed of trust, although MERS now holds it in the subsequent lender's name. Lenders benefit from the MERS system because they can sell or assign their loans without having to record the transaction in the county records. But a sale or assignment of the loan between two MERS members is unknown to those outside the MERS system, including the borrower.

In 2011, MERS underwent a series of legal challenges brought by borrowers facing non-judicial foreclosures of their homes. Borrowers raised several causes of action against MERS and lenders, including fraud and wrongful foreclosure.

One of the borrowers' primary challenges was that MERS impermissibly "splits" the note and the deed of trust by allowing lenders to transfer ownership of the note while maintaining MERS as the holder of the deed of trust. Under California law, for a lender to foreclose on a property, the lender must hold both the note and the deed of trust. The reason is that only the holder of both documents is entitled to repayment of the loan and entitled to use the property to satisfy the debt.

Courts found, however, that the note and deed of trust were not impermissibly "split." A "split" only renders the loan unenforceable if MERS, as the holder of the deed of trust, is not an agent of the lender. MERS can be considered the lender's agent.

Borrowers also argued that a person or borrower outside the MERS system cannot track the sale of a loan or assignment of the deed of trust to a new lender. In response to this argument, courts pointed out that the borrowers' deeds of trust specifically state that the loan may be sold one or more times without notice to the borrower. In addition, borrowers need not be told of such a sale or assignment. Borrowers are entitled, however, to written notice if there is a change in the loan servicer, as required by California's consumer protection laws.

Before 2011, lawyers believed that homeowners facing foreclosures could challenge the validity of those foreclosures if the lender used MERS. But it is now clear from the outcome of these cases that borrowers will have little to no success in challenging the legality of the MERS system.

If you would like advice on resolving a real estate dispute, please call (408) 292-1765 to talk with Miller Morton Caillat & Nevis attorneys by Anthony F. Ventura, Esq. and Sarah E. Hammerstad, Esq.

The San Jose and Newport Beach Lawyers at Miller Morton Caillat & Nevis.

Problem-solvers. Advocates. Counselors.