In Herrera v. Federal National Mortgage Association (2012) 205 Cal.App.4th 1495, the California Court of Appeal joined other courts in rejecting the plaintiffs’ attempt to avoid their mortgage obligations on the grounds that Mortgage Electronic Registration Systems (MERS) is a sham. MERS is a private company that operates an electronic registry to track servicing rights and ownership of mortgage loans. Lenders use MERS to facilitate their transactions and avoid having to record assignments and pay recording fees relating to mortgages. The case confirms that MERS has the authority to assign promissory notes and deeds of trust and that its use is legitimate.

In August 2007, the plaintiffs obtained a home loan from Indymac Bank secured by a deed of trust naming MERS as a beneficiary. In June 2009, MERS assigned the deed of trust to OneWest, which recorded a notice of default. OneWest then assigned the deed of trust to the Federal National Mortgage Association (Fannie Mae). Soon after, Fannie Mae purchased plaintiffs’ home at a nonjudicial foreclosure sale. Plaintiffs then sued to set aside the foreclosure, alleging that MERS lacked the authority to assign the note and deed of trust. The trial court sustained Fannie Mae’s demurrer without leave to amend.

The court of appeal affirmed, holding that the deed of trust properly granted MERS the right to exercise all interests and rights held by the lender, including the right to assign the deed of trust and foreclose. The court noted that even if MERS lacked this authority, it was the lender—not the plaintiffs—who was prejudiced. The plaintiffs could not use MERS as an excuse to avoid their mortgage obligations or set aside the foreclosure sale. Nor could they overcome the presumption that the foreclosure sale was valid. Moreover, the court noted the plaintiffs had not tendered the loan proceeds or cured the default, both of which were required to set aside any foreclosure sale.