at pp. 1154-1156 & fn. 5.) Such an action is “preemptive” if the plaintiff alleges no
“specific factual x” for the claim that the foreclosure was not initiated by the correct
person. (Jenkins, supra, at p. 512.) A preemptive suit does not seek a remedy for
specified misconduct in the nonjudicial foreclosure process, which may provide a basis
for a valid cause of action. Instead, a preemptive suit seeks to create an additional
requirement for the foreclosing party, apart from the comprehensive statutory
requirements, by requiring the foreclosing party to demonstrate in court that it is
8
authorized to initiate a foreclosure. (Ibid.) “[A]llowing a trustor-debtor to pursue such
an action, absent a „specific factual basis for alleging that the foreclosure was not
initiated by the correct party‟ would unnecessarily „interject the courts into [the]
comprehensive nonjudicial scheme‟ created by the Legislature, and „would be
inconsistent with the policy behind nonjudicial foreclosure of providing a quick,
inexpensive and efficient remedy. [Citation.]‟ ” (Id. at p. 512; italics in original.)
3. The Siligas Fail to Adequately Allege that MERS Lacked Authority to Assign the Deed of Trust and the Note
The Siligas argue that MERS had no authority to assign the deed of trust and the
note essentially for three reasons. First, they argue that any authority given to MERS by
Accredited as the lender lapsed when Accredited went out of business. Second, they
argue that MERS had no authority to assign the note, and an assignment of a deed of
trust without an assignment of the note is invalid as a matter of law. Third, they argue
that MERS required Accredited‟s written authorization to assign the deed of trust and
the note in order to satisfy the statute of frauds, and there is no evidence that MERS had
such written authorization.
Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 267
(Fontenot), explained: “MERS is a private corporation that administers a national
registry of real estate debt interest transactions. Members of the MERS System assign
limited interests in the real property to MERS, which is listed as a grantee in the official
records of local governments, but the members retain the promissory notes and
mortgage servicing rights. The notes may thereafter be transferred among members
9
without requiring recordation in the public records. [Citation.] [¶] Ordinarily, the
owner of a promissory note secured by a deed of trust is designated as the beneficiary of
the deed of trust. [Citation.] Under the MERS System, however, MERS is designated
as the beneficiary in deeds of trust, acting as „nominee‟ for the lender and granted the
authority to exercise legal rights of the lender.”
California courts have held that a trustor who agreed under the terms of the deed
of trust that MERS, as the lender‟s nominee, has the authority to exercise all of the
rights and interests of the lender, including the right to foreclose, is precluded from
maintaining a cause of action based on the allegation that MERS has no authority to
exercise those rights. (Gomes, supra, 192 Cal.App.4th at p. 1157; Herrera v. Federal
National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1505 (Herrera).) The deed of
trust itself, attached to the Siligas‟ complaint, establishes as a factual matter that MERS
has the authority to exercise all of the rights and interests of the lender.4 (Gomes, supra,
at p. 1157; Herrera, supra, at p. 1505.) The authority to exercise all of the rights and
interests of the lender necessarily includes the authority to assign the deed of trust.
(Herrera, supra, at p. 1505.)
The Siligas cite Civil Code section 2356, subdivision (a)(2) and (3), which states
that an agent‟s authority terminates upon the death of the principal or the principal‟s
4 The facts alleged in the complaint and those judicially noticeable fail to establish that the provision in the deed of trust granting MERS the authority to foreclose is unconscionable. Contrary to the Siligas‟ argument, this provision does not purport to authorize MERS to initiate a foreclosure in violation of the law, is not “unfairly one-sided” or “ „ “ „overly harsh‟ ” ‟ ” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071), and therefore is not substantively unconscionable.
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incapacity to contract unless the agent‟s power is coupled with an interest in the subject
of the agency. They argue that MERS‟s authority was terminated upon Accredited‟s
going out of business and filing for bankruptcy protection. But they do not allege in
their complaint that Accredited has gone out of business, dissolved or suffered either
death or an incapacity to contract in any manner. Accredited‟s chapter 11 bankruptcy
petition, which we have judicially noticed at the Siligas‟ request, relates to
a reorganization and shows neither the company‟s death nor an incapacity to contract.
The Siligas have not alleged facts showing any lapse in MERS‟s authority to assign the
deed of trust and the note on this basis; nor do they argue, if given the opportunity, that
they could do so.
The Siligas also fail to allege facts supporting the conclusion that MERS lacked
authority to assign the note. “The extent of MERS‟s authority as a nominee was defined
by its agency agreement with the lender, and whether MERS had the authority to assign
the lender‟s interest in the note must be determined by reference to that agreement.
[Citations.] Accordingly, the allegation that MERS was merely a nominee is
insufficient to demonstrate that MERS lacked authority to make a valid assignment of
the note on behalf of the original lender.” (Fontenot, supra, 198 Cal.App.4th at
pp. 270-271.) The Siligas allege that “MERS did not and could not have assigned the
Promissory Note to DEUTSCHE BANK,” but they allege no specific factual basis for
this claim. Absent a specific factual basis, this claim amounts to a preemptive claim
seeking to require the foreclosing party to demonstrate in court its authority to initiate
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a foreclosure. Such a claim is invalid and subject to demurrer.5 (Jenkins, supra,
216 Cal.App.4th at pp. 511-513; Gomes, supra, 192 Cal.App.4th at pp. 1154-1156
& fn. 5.) Similarly, the claim that there is no evidence that MERS had written
authorization to assign the deed of trust and the note is merely a challenge to the
foreclosing party to prove in court its authority to initiate a foreclosure. This claim fails
for the same reason.
4. QLS Had the Authority to Record the Notice of Default
The Siligas contend QLS had no authority to record the notice of default because
it was not the trustee at the time. A notice of default may be recorded by a “trustee,
mortgagee, or beneficiary, or any of their authorized agents.” (Civ. Code, § 2924,
subd. (a)(1).) The notice of default stated that QLS recorded the notice of default not as
trustee but as agent for the beneficiary. This was proper, and the Siligas have shown no
error in this regard.
5. The Siligas Fail to Adequately Allege any Prejudice Resulting from an Alleged Irregularity in the Foreclosure Process
Separate and apart from the foregoing, the Siligas fail to allege any facts showing
that they suffered prejudice as a result of any lack of authority of the parties
participating in the foreclosure process. The Siligas do not dispute that they are in
5 We reject the argument that MERS as nominee of the original lender could not assign the note because it did not possess the note. The Siligas allege no factual basis for this argument, and there is no legal basis. (Fontenot, supra, 198 Cal.App.4th at pp. 270-271.) Similarly, there is no legal basis for the claim that the foreclosing party must possess the original note. Nothing in the foreclosure statutes imposes such a requirement. (Debrunner v. Deutsche Bank National Trust Co. (2012) 204 Cal.App.4th 433, 440.)
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default under the note. The assignment of the deed of trust and the note did not change
the Siligas‟ obligations under the note, and there is no reason to believe that Accredited
as the original lender would have refrained from foreclosure in these circumstances.
Absent any prejudice, the Siligas have no standing to complain about any alleged lack
of authority or defective assignment. (Herrera, supra, 205 Cal.App.4th at
pp. 1507-1508; Fontenot, supra, 198 Cal.App.4th at p. 272.)
6. The Siligas Have Shown No Prejudicial Error as to the Sustaining of the Demurrer to the Counts for Breach of Contract, Unfair Business Practices and Quiet Title
The Siligas contend they are entitled to leave to amend their counts for breach of
contract and unfair business practices and contend they have adequately alleged a count
for quiet title. These contentions are based on the discussion in the latter part of the
order ruling on the demurrer. The trial court, however, expressly did not rely on that
discussion in sustaining the demurrer to those counts without leave to amend. Instead,
the order stated that the discussion explained as to each count “what the outcome of
their pleading would have been had that cause of action not been barred.” We conclude
that the discussion in the latter part of the order was not part of the trial court‟s decision
and that the Siligas have shown no prejudicial error based on that discussion.
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DISPOSITION
The judgment is affirmed. Defendants shall recover their costs on appeal.
CERTIFIED FOR PUBLICATION
CROSKEY, J.
WE CONCUR:
KLEIN, P. J.
KITCHING, J.
14
AI Brief
AI-generated · verify before citing
Holding. The court held that trustors cannot maintain a preemptive judicial action challenging a foreclosing party's authority to initiate a nonjudicial foreclosure absent a specific factual basis for the claim. Furthermore, the court affirmed that MERS, as the lender's nominee, possesses the authority to assign a deed of trust and note under the terms of the security instrument.
Issues
Whether a trustor may maintain a preemptive judicial action challenging the authority of a foreclosing beneficiary or its agent.
Whether MERS, as a nominee under a deed of trust, has the authority to assign the deed of trust and the promissory note.
Whether the plaintiffs adequately alleged prejudice resulting from the alleged irregularities in the foreclosure process.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“California courts have refused to allow trustors to delay the nonjudicial foreclosure process by pursuing preemptive judicial actions challenging the authority of a foreclosing “beneficiary” or beneficiary‟s “agent.””
“The deed of trust itself, attached to the Siligas‟ complaint, establishes as a factual matter that MERS has the authority to exercise all of the rights and interests of the lender.”
“Absent any prejudice, the Siligas have no standing to complain about any alleged lack of authority or defective assignment.”