CALIFORNIA BANKRUPTCY COURT HOLDS THAT MERS CANNOT TRANSFER NOTE FOR WANT OF OWNERSHIP; CITES BOYKO, LANDMARK (KANSAS), LAMY, AND VARGAS CASES

July 9, 2010

The United States Bankruptcy Court for the Eastern District of California has issued a ruling dated May 20, 2010 in the matter of In Re: Walker, Case No. 10-21656-E-11 which found that MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp. The Court’s opinion is headlined stating that MERS and Citibank are not the real parties in interest.

The court found that MERS acted “only as a nominee” for Bayrock under the Deed of Trust and there was no evidence that the note was transferred. The opinion also provides that “several courts have acknowledged that MERS is not the owner of the underlying note and therefore could not transfer the note, the beneficial interest in the deed of trust, or foreclose on the property secured by the deed”, citing the well-known cases of In Re Vargas (California Bankruptcy Court), Landmark v. Kesler (Kansas decision as to lack of authority of MERS), LaSalle Bank v. Lamy (New York), and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court).

The opinion states: “Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.”

Read that again: “Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note IS VOID UNDER CALIFORNIA LAW.” This conclusion was based upon California law cited in the opinion that the note and the mortgage are inseparable, with the former being essential while the latter is “an incident”, and that an assignment of the note carries the mortgage with it, “while an assignment of the latter [the mortgage] alone is a nullity.” As MERS must own the note in order to assign the incident deed of trust, MERS is legally precluded from assigning the deed of trust for want of ownership of the note, and cannot assign the note in any event as it never owned it. MERS’ lack of ownership interest in promissory note is a matter of decided case law based on a record stipulation of MERS’ own lawyers in the MERS v. Nebraska Dept. of Finance decision.

This opinion thus serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

The Court concluded by stating: “Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.” Thus, any foreclosing party which is not the original lender which purports to claim payment due under the note and the right to foreclose in California on the basis of a MERS assignment does not have the right to do so under the principles of this opinion.

This ruling is more than significant not only for California borrowers, but for borrowers nationwide, as this California court made it a point to cite non-bankruptcy cases as to the lack of authority of MERS in its opinion. Further, this opinion is consistent with the prior rulings of the Idaho and Nevada Bankruptcy courts on the same issue, that being the lack of authority for MERS to transfer the note as it never owned it (and cannot, per MERS’ own contract which provides that MERS agrees not to assert any rights to mortgage loans or properties mortgaged thereby).

We thank one of our dedicated readers for providing this opinion to us.

Jeff Barnes, Esq.;, www.ForeclosureDefenseNationwide.com