case 2:08-cv-01733-lrh-rjj document 6-4 filed 12/15/2008 page 1 of 25 · 2009-01-08 · case...

Case 2:08-cv-01733-LRH-RJJ Document 6-4 Filed 12/15/2008 of 25


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the foreclosure or exercise of power of sale." See, Collins v. Union Federal Sav. & Loan Ass'n.,

99 Nev. 284, 662 P.2d 610 (1983).7

Plaintiffs eighth claim is based essentially on the allegations that Mortgage Electronic

Registration Systems, Inc. ("MERS") wrongfully acted as the loan beneficiary and the note and

documents were not provided showing that Greenpoint Mortgage, MERS, or Aurora were the

beneficiary andlor entitled to payments. {CpIt. 41-42,45,49,51).8 Based on these cursory

allegations, Plaintiff concludes that the foreclosure completed through the duly appointed

foreclosure trustee, Defendant Quality Loan Service ("QLS"), was wrongful because "they had

no right to foreclose." (CpIt. 4, 11,48). As established below, Plaintiffs allegations must be

disregarded as erroneous deductions of law or fact and contrary to the public record.

A. The Residential Mortgage Market and Function of MERS

When a mortgage lender loans money to a home buyer, it obtains a promissory note in

the form of a negotiable instrument from the borrower, as well as a mortgage instrument in the

form of a deed of trust which is recorded in the county official records. The lender often does

not continue to hold the note. Instead, the lender sells the note into the secondary mortgage

7 Even if there is some minor discrepancy in the foreclosure notices, cases in Nevada and California uphold the foreclosure sale as proper unless the borrower can establish prejudice other than the loss of the property. See, Matter of Stanfield, 6 B.R. 265 (Bk.Ct. D.Nev. 1980); Knapp v. Doherty 20 Cal.Rptr.3d 1, 13-19,2004 W.L. 209,2002 (Cal.App. 2004).

8 Incidentally, Nevada law does not require a loan assignee or servicer to provide the original wet ink note as proof of its standing as assignee or servicer prior to foreclosure. Indeed, it would be foolish for a holder to tum over the original negotiable instrument before it was satisfied. Courts across the country reject claims by plaintiffs asserting duties by an assignee lender or loan servicer to provide the original note under the U.C.c. to prove a holder in due course status. See,

The Frances Kenny Trust v. World Savings Bank FSB, Not Reported in F.Supp., 2005 WL 106792 (Order, N.D.Cal. Jan. 19,2005); Alcorn v. Washington Mutual Bank, F.A., 111 S.W.3d 264 (Tex.App. July 3,2003); U.S. Bank N.A. v. Phillips 366 Ill.App.3d 593, 852 N.E.2d 380 (Ill.App.Ct. June 26,2006). In any event, copies of the Adjustable Rate Note and Deed of Trust are sufficient evidence and are submitted herewith. N.R.S. § 52.245 ("duplicate is admissible to the same extent as an original). (RJN Exhs. 3, 4).

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market, most often to one of the government or government-sponsored entities created by statute

to purchase residential mortgage loans from banks and other lenders. See 12 U.S.C. §§ 1451-59,

1716-23 et seq. (creating the Government National Mortgage Association ("Ginnie Mae"),

Federal National Mortgage Association ("Fannie Mae"), and Federal Home Loan Mortgage

Corporation ("Freddie Mac")). In turn, these entities re-sell the notes into a tertiary mortgage-

backed securities market, usually as part of a bundle of notes held in trust for investors. As a

result, the notes are held for the benefit of numerous people simultaneously, whose identities

change as these negotiable instruments are sold and resold in these markets, and as the investors

sell and re-sell their shares in the mortgage-backed securities.

Because of the secondary and tertiary mortgage markets, the original lender is then able 12

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to make the funds from the first sale of the note available to additional home buyers. The

availability of these funds is the specific and intended result of the statutes that created the

government and government sponsored entities - to increase funds for home ownership in the

United States. See 12 U.S.C. §§ 1451, 1716.

MERSCORP, Inc. and MERS were companies formed to play an integral part in the

federally established free-market system created to increase liquidity in the market for home

loans. In 1993, the Mortgage Bankers Association, Ginnie Mae, Fannie Mae, Freddie Mac and

others in the real estate finance industry created an electronic registration and tracking system

that is similar to the process used with great success by the Depository Trust Company for the

securities industry. MERSCORP, Inc. was formed to track both beneficial ownership interests

in, and servicing rights to, mortgage loans as they change hands throughout the life of the loan.

This tracking assists the mortgage banking industry by reducing questions regarding these

contractual interests as they are bundled into mortgage-backed securities. In this manner,

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MERSCORP, Inc. facilitates liquidity in the secondary mortgage markets. MERS serves as the

mortgagee or beneficiary for the MERS member lender.

Upon the purchase of a home, the borrower signs a loan contract that names MERS as the

beneficiary (as "nominee" for the lender and its successors and assigns as here). In the loan

contract, the borrower assigns his or her right, title, and interest in the property to MERS. The

borrower contractually agrees that, in the event of default, MERS is a proper party to foreclose

on the home. The mortgage or deed of trust with MERS as a named beneficiary is recorded.

When the note is sold by the original lender to others, the sales of the notes are tracked on the

MERS® System. As long as the sale of the note involves a member ofMERS, MERS remains a

named mortgagee or beneficiary of record and continues to act as a nominee for the new holder.

This relationship is memorialized in the original mortgage or deed of trust to which the borrower

is a party. If a member is no longer involved upon sale, an assignment from MERS to the non-

MERS member is made, executed and recorded in the county where the real estate is located, an

the loan is "de-activated" from the MERS® System.

B. MERS Had the Right and Standing as the Nominee Beneficiary

Courts across the country affIrm the legal standing ofMERS as a nominee beneficiary

and to commence foreclosure in this capacity. Mortgage Electronic Registration

Systems, Inc., v. Oscar Revoredo. 955 So.2d 33, 34 (Fl.App. 3 Dist. 2007) (MERS had standing

to foreclose, "there is no reason why mere form should overcome the statutory substance of

permitting the use of this commercially effective means of business); Mortgage Electronic

Registration Systems, Inc., v. George Azize. 965 So.2d 151 (Fl.App. 2 Dist. 2007) (fact that

MERS lacked the beneficial interest in the note did not deprive it of standing); Mortgage

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case 2:08-cv-01733-lrh-rjj document 6-4 filed 12/15/2008 page 1 of 25 · 2009-01-08 · case...

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