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Jose Gomes v. Countrywide Home Loans

February 18, 2011


(Super. Ct. No. 37-2009-00090347-CU-OR-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Steven R. Denton, Judge. Affirmed.

The opinion of the court was delivered by: Irion, J.


Jose Gomes appeals from a judgment entered following the trial court's order sustaining, without leave to amend, a demurrer filed by defendants Countrywide Home Loans, Inc. (Countrywide); Mortgage Electronic Registration Systems, Inc. (MERS); and ReconTrust Company, N.A. (ReconTrust) (collectively "Defendants").

As we will explain, we conclude that the trial court properly sustained the demurrer without leave to amend.



In February 2004 Gomes borrowed $331,000 from lender KB Home Mortgage Company to finance the purchase of real estate. In connection with that transaction, he executed a promissory note (the Note), which was secured by a deed of trust. The deed of trust identifies KB Home Mortgage Company as the "Lender" and identifies MERS as "acting solely as a nominee for Lender and Lender's successors and assigns," and states that "MERS is the beneficiary under this Security Instrument."*fn1

The role of MERS is central to the issues in this appeal. As case law explains, "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." (Mortgage Elec. Registration Sys. v. Nebraska Dept. of Banking & Fin. (2005) 270 Neb. 529, 530 [704 N.W.2d 784, 785].) "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." (Jackson v. Mortgage Elec. Registration Sys., Inc. (Minn. 2009) 770 N.W.2d 487, 491.)

The deed of trust that Gomes signed states that "Borrower [i.e., Gomes] understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property . . . ."

Gomes defaulted on his loan payments, and he was mailed a notice of default and election to sell -- recorded on March 10, 2009 -- which initiated a non-judicial foreclosure process. The notice of default was sent to Gomes by ReconTrust, which identified itself as an agent for MERS. Accompanying the notice of default was a declaration signed by an employee of Countrywide, which apparently was acting as the loan servicer.*fn2

In May 2009 Gomes filed a lawsuit against Countrywide, MERS and ReconTrust, alleging several causes of action and attaching as exhibits the deed of trust and the notice of default.

The only causes of action at issue in this appeal are the first and second causes of action, which are asserted against all Defendants.*fn3

The first cause of action is titled "Wrongful Initiation of Foreclosure." In that cause of action, Gomes states that he "does not know the identity of the Note's beneficial owner" -- as he believes that KB Home Mortgage Company sold it on the secondary mortgage market. He alleges on information and belief that "the person or entity who directed the initiation of the foreclosure process, whether through an agent of MERS or otherwise, was neither the Note's rightful owner nor acting with the rightful owner's authority." In short, the first cause of action alleges, on information and belief, that MERS did not have authority to initiate the foreclosure because the current owner of the Note did not authorize MERS to proceed with the foreclosure. As a remedy, the first cause of action states that Gomes seeks damages in an amount "not less than $25,000."*fn4

The second cause of action seeks declaratory relief on the issue of whether "[Civil Code section 2924, subdivision (a)] allows a borrower, before his or her property is sold, to bring a civil action in order to test whether the person electing to sell the property is, or is duly authorized to so by, the owner of a beneficial interest in it." Although designated a cause of action for declaratory relief, the second cause of action appears to serve simply as a legal argument in support of the first cause of action. Specifically, the second cause of action alleges that section 2924, subdivision (a) provides the legal authority for Gomes to assert the claim he has ...

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