Since the mortgage crisis began, there have been a series of legal challenges to the Mortgage Electronic Registration System or “MERS.” Until recently, there was little California authority on the validity of MERS. In 2011, however, we have had three Court of Appeal decisions, all rejecting challenges to MERS. Ferguson v. Avelo Mortgage, LLC (2d Dis. 2011) 195 Cal. App. 4th 1618, Gomes v. Countrywide Home Loans (4th Dis. 2011) and Fontenot v. Wells Fargo (1st Dist. August 11, 2011) 2011 WL3506177.

MERS is a fairly new development in real estate law. Traditionally, all real estate documents, such as deeds of trust, and assignments of deeds of trust, must be recorded in the recorder’s office of the county in which the real property is located. With the rise of mortgage securitization, in which many mortgages will be owned, not by one owner, but by dozens of owners, each holding fractional interests, and in which ownership rights in mortgages are frequently transferred, this traditional system has become cumbersome. To get around the problem, MERS was created. As the Court of Appeal in Fontenot described it, “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 without requiring recordation in the public records.”

MERS, in short, is a privately-owned system of mortgage registration, which seems to do an end-run around the traditional system of recording mortgages. As the mortgage crisis has intensified, many home-owners lawyers have become very creative in finding ways to attack mortgages and foreclosures. One line of attack used by many is to argue that the MERS system is invalid. The three recent Court of Appeal decisions indicate that the California courts are not likely to uphold any basic challenges to MERS.

In Ferguson, the homeowner argued that MERS could not foreclose, because it did not own any part of the mortgage. No, said the Court of Appeal, ownership is not necessary to foreclose. In addition, the homeowner argued that both the Notice of Default and the Notice of Sale were irregular. The Court of Appeal found that the Notice of Default was technically defective, but found this defect washed away by the properly done Notice of Sale.

In Gomes, the homeowner argued that MERS had not proven that the owner of the note (whoever he or she might be, the homeowner did not know) had authorized the foreclosure. The Court of Appeal rejected this challenge, ruling that the agent need not prove its authority to act.

In Fontento, the homeowner argued that MERS had not proven a valid assignment of the deed of trust. The Court of Appeal disagreed, holding that MERS could rely on validly recorded documents, which would be presumed regular.

All three courts relied heavily on the well-established principle that the non-judicial foreclosure statutes establish a comprehensive scheme for foreclosure, and that regularly conducted foreclosures will be presumed valid.