Archive for February, 2011

Case Closed? MERS Can Foreclose in California

Friday, February 25th, 2011

As the national debate continues over whether MERS (Mortgage Electronic Registration System) has standing to foreclose, a recent San Diego, California based Appellate Court decision considering the issue has clearly sided with MERS. Last week, the 4th District Court of Appeals issued a published opinion in that held (1) California’s nonjudicial foreclosure statute does not allow speculative lawsuits by homeowners to determine whether MERS is authorized to initiate a foreclosure; and (2) even if they did, the homeowner consented to the use of MERS to initiate the foreclosure when he signed the deed of trust.

For those who may still be unclear, let’s begin with what MERS is? The Gomes case had a nice explanation: “MERS is a private corporation that administers the MERS System, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Through the MERS System, MERS becomes the mortgagee of record for participating members through assignment of the members’ interests to MERS. MERS is listed as the grantee in the official records maintained at county register of deeds offices. The lenders retain the promissory notes, as well as the servicing rights to the mortgages. The lenders can then sell these interests to investors without having to record the transaction in the public record. MERS is compensated for its services through fees charged to participating MERS members. A side effect of the MERS system is that a transfer of an interest in a mortgage loan between two MERS members is unknown to those outside the MERS system.”

In the Gomes case the court said that California’s nonjudicial foreclosure rules, Civil Code sections 2924 through 2924k, are intended to be a one-stop-shop for how to exercise the power of sale in a deed of trust. Section 2924(a)(1) of the statute is clear that a “trustee, mortgagee, or beneficiary, or any of their authorized agents” can initiate a foreclosure (and this court found MERS was an agent, as will be discussed in a moment.) Importantly, the statute does not provide an additional requirement that the agent demonstrate in court that it is authorized to initiate a foreclosure and to do so would “fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying a valid foreclosure.” So, the court concluded, they would not allow speculative lawsuits to test MERS authority to initiate a foreclosure.

The court went on to volunteer that even if MERS was required to demonstrate that it was an authorized agent, it could do so. In a footnote, the court stated in conclusionary fashion that “MERS may initiate a foreclosure as the nominee, or agent of the noteholder” under Civil Code section 2924(a)(1) without further discussion. But on top of that, the court pointed to the deed of trust signed by the homeowner that provided that MERS was a nominee for the Lender and the Lender’s successors and assigns had the right to foreclose. Case closed.

California has squarely joined the ranks that allow MERS to foreclose that according to has grown to 19 states, thus providing us with a little more certainty going forward when it comes to this particular aspect of the nonjudicial foreclosure process. Just as the California courts recently provided some clarity on documentation irregularities in saying that minor errors were of .

This reinforces our belief that despite minor misdeeds or process short cuts by lenders there will ultimately be for defaulting borrowers.


While get facts technically a half-hour, the show is not a comedy

Reaffirming Car Loans in Bankruptcy

Wednesday, February 23rd, 2011

If you file for , the lender may require you to reaffirm your car loan in order to keep the car. Here’s why, and what happens if the reaffirmation agreement is, or is not, approved by the bankruptcy court.

When you are making payments on a car, your car note has two different parts — the promissory note that makes you personally liable for the debt and the security agreement that allows the lender to repossess the car if you default on the payments. To be enforceable, the security agreement must be registered with the DMV or other state registry — which results in a lien being placed on your car.

When you file Chapter 7 bankruptcy you can get rid of the promissory note (the amount you owe pursuant to the promissory note is discharged in the bankruptcy) — and your personal liability — but you can’t get rid of the lien. This means you will have to continue making your payments if you want to keep the car, even though you don’t actually owe anything on it. If your head is spinning by now, don’t worry. It’s hard to get a grasp on this principle.

Many Lenders Require Reaffirmation Agreements

Lots of lenders don’t like the idea of borrowers being off the liability hook for the car note, especially if the loan is for a new model car. Not surprisingly, lenders look for ways to keep borrowers on the hook, so that the borrower is liable for any deficiency if the car is turned in or repossessed after the bankruptcy.

In 2005 Congress gave lenders the option of requiring borrowers to sign a reaffirmation agreement in order to keep the car after bankruptcy. In bankruptcy, reaffirmation simply means that the borrower will be liable after bankruptcy on the debt that is reaffirmed, whereas the borrower will not be liable without the reaffirmation.

If the lender requires you to reaffirm, you’ll have to sign an agreement the lender will send you, and file the agreement with the court. The court will give you a date for a court hearing at which the judge will decide whether you can afford to make the car payments.

The Best Case Scenario: The Judge Doesn’t Approve the Reaffirmation

If the judge decides you can’t make the car payments, the judge will disapprove the reaffirmation agreement and you’ll be off the hook. But what if you remain current on the payments, even though there is no reaffirmation agreement? In this case, you can keep the car.

Here’s the rule: If the only reason you don’t reaffirm the car note is because the judge has disapproved the agreement, you can keep the car just as if the lender had not required the reaffirmation the first place. If you want to read an explanation of this confusing and non-intuitive process, read the in In re Moustafi, 371 Bankruptcy Reporter 434 (Bankr. Ariz. 2007). 

This means the best case scenario is that the judge disapproves the reaffirmation agreement. If the judge approves it, you’ll be on the hook for the car note after your bankruptcy, which can be catastrophic if you later default on your payments and have the car repossessed.

To learn more about reaffirming a car loan in bankruptcy, and your other options for keeping your car in bankruptcy, read Nolo’s article .

Das kultusministerium mache neben büchern, die teil des lehrstoffs sind, sowie literaturempfehlungen für fachlehrer keine weiteren vorgaben zur bücherwahl, sagte eine sprecherin am donnerstag in dresden