Balancing the Scales of Justice for Pro Se Homeowners

Recording the Notice of Default – DO NOT LET THE BANKS TWIST THIS TO THEIR BENEFIT!

Posted by on Jul 6, 2012

This is an interesting case in which the homeowner alleged that the Notice of Default was filed by someone other than the note holder because the Note cannot be assigned through the Deed of Trust; and the NOD was filed by the Trustee prior to the Trustee’s Substitution – both arguments FAILED with the Court of Appeals and the Plaintiff (property owner) lost.

Debrunner v. Deutsche Bank  Cal.App. 6th Dist. (H036379) 3/16/12  (click here for Debrunner_v_DeutscheBank)

TRUSTEE’S SALES: The court upheld the trial court’s grant of a demurrer in favor of the lender without leave to amend, holding:

1. Since each assignment of deed of trust provided for the assignment “together with the note or notes therein described”, it was not necessary to separately endorse the promissory note.
2. Physical possession of the note is not a precondition to nonjudicial foreclosure.
3. A notice of default does not need to be filed by the person holding the note. C.C. 2924(a)(1) permits a notice of default to be filed by the “trustee, mortgagee or beneficiary, or any of their authorized agents”.
4. A notice of default (NOD) is valid even though the substitution of the trustee identified in the NOD is not recorded until after the NOD records.

It is true that the Notice of Default can be filed by the “trustee, mortgagee, or beneficiary or any of their authorized agents”  – but  according to Calif. Civil Code Section 2936 only the holder of the Note has the right to foreclose. Kelley v Upshaw (1952) 39 C2d 179.  Meaning that while the Servicer or Trustee or one of their “agents” can file the Notice of Default, the Note Holder and ONLY the Note holder can incur the default upon which it then issues a “declaration of default” upon which to invoke the “power of sale”.   In this matter, the assignments of Deed of Trust apparently were done by the entities that held BOTH documents.

At this time Chiu was already a trustor on a first deed of trust on the property,     having borrowed $975,000 from Quick Loan Funding, Inc. (Quick Loan) in June 2004.   The trustee named on that deed of trust was Chicago Title Company. The following month Quick Loan assigned the deed of trust and Chiu’s promissory note to Option One Mortgage Corporation (Option One), which shortly thereafter assigned both interests to FV-1, Inc.

The final assignment of the deed of trust was from FV-1 to Deutsche Bank, with respondent Saxon Mortgage Services, Inc. (Saxon) acting as “Attorney in Fact.” This document  bore three dates:     September 2,2008, when the assignment was originally executed; September 21, 2009, when it was notarized; and January 5, 2010, when it     was recorded.

The Court of Appeals held that because the Deed of Trust assignments claim to assign the Deed of Trust ALONG  with the Note – that the assignment was valid and the Note need not be endorsed!?  To understand this logic one first must read the path of assignments as outlined by the Court in the complaint.

(Interesting that the Court did not comment on nor was there any discussion that the document was notarized 19 days after it was signed/executed!)

The Court found that the assignment assigned beneficial interest in both the Deed and the Note:

Because those assignments conveyed     all beneficial interest in     the deed of trust, “[t]ogether with     the note or notes therein described or referred to,” a chain of     title had been established on     the face of     the first amended     complaint.

Now this is what I find fascinating about this, many homeowners have MERS named on their Deeds of Trust; but not on their Promissory Note.  I can see the banks using this ruling (because it is published) as a basis to argue that the Note can be assigned with the Deed of Trust.    But is that really true?  If MERS (or any entity assigning the Deed of Trust) is NOT named on the Promissory Note and does not possess the Note as a “holder” how could they assign the Note?

MERS often purports to assign the Note and Deed of Trust, however if MERS does NOT own the Note and/or is not named on the Note, it CANNOT assign the Note and MERS assignment of the Deed of Trust to a new entity separate from the Note  is of no force and effect.  As the United States Supreme Court so clearly explained 140 years ago:

The Note and mortgage are inseparable; the former is essential, the latter as an incident.  An assignment of the Note carries the mortgage with it; while an assignment of the latter alone is a nullity.  Carpenter v. Longan, 83 U.S. 271, 274 (1871)

 This basic proposition has been reaffirmed.  National Live Stock Bank v. First Nat’l Bank, 203 U.S. 296/ 306 (1906); Kirby Lumber Co. v. Williams, 230 F.2d 330, 336 (5th Cir. 1956); In reVeal, 450 B.R. 897, 916-17 (B.A.P. 9th Cir. 2011); In re Vargas, 396 B.R. 511, 516 (Bankr. C.D. Cal. 2008); In re Leisure Time Sports, Inc., 194 B.R. 859, 861 (B.A.P. 9th Cir. 1996); Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. Ct. App. E.D. 2009).

If the holder of the deed of trust does not own or hold the note, the deed of trust serves no purpose, is impotent, and cannot be a vehicle for depriving the grantor of the deed of trust of ownership or the property described in the deed of trust.  The sole purpose of the deed of trust is to secure payment of the Note.

The very, and sole, purpose of a foreclosure sale pursuant to the deed of trust is to obtain funds for payment of the note.  If the holder of the deed of trust does not own or hold the note, and there were to be a foreclosure under the deed of trust, there is no assurance that the proceeds of the foreclosure would be used for the purpose intended by the deed of trust, i.e. to be applied to payment of, or on, the note.  That is not to say that the owner or holder of the note cannot arrange for an agent or nominee, acting on its behalf, to conduct a foreclosure for the benefit of owner or holder of the note.  But that is quite a different proposition from assertions that the holder of the deed of trust who does not own the note or hold the note has the power to transfer the note from the original note holder to another and that an entity that does not own or hold the note can conduct a foreclosure under a deed of trust.

Civil Code §2936  has always held that the transferee of the note will prevail over the transferee of the mortgage, and is the only one entitled to foreclose (See Adler v Sargent (1895) 109 Cal. 42, 41 P. 799, 41 P. 2d 799); being assignee of the deed of trust from MERS does not seem to accomplish much when that assignee is not the holder of the financial interest in the note. MERS v Saunders (2010) 2 A3d 289.)  see also Restatement (3d) of Property (Mortgages) § 5.4[“[a] mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation that the mortgage secures.”)

The only entity with the right to order a foreclosure is the holder in due course of the promissory note — no one else. Kelley v Upshaw (1952) 39 C2d 179.

I think it is important to recognize how YOUR situation may be different from this Plaintiff’s situation; do NOT assume that an assignment of the Deed of Trust can and does actually assign the Promissory Note, making an endorsement unnecessary.

As I get more feedback and updates on this ruling will be sure to share them with you!

 

KEEP UP THE FIGHT!

Simonee

 

 

 

 

 

 

 

 

 

 

 

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