Vincent Howard and our Norco foreclosure defense attorneys were interested to see a "show me the note" case arising out of Nevada's foreclosure mediation program. Foreclosure mediation became popular a few years ago, when foreclosures were at their height, because it appeared to offer a way to stop the mechanical process of foreclosures by making the parties sit down together. In Edelstein v. Bank of New York Mellon, however, homeowner David Edelstein alleged that BNYM participated in mediation in bad faith because it did not have the authority to negotiate, because it couldn't show it had the right to foreclose. The Nevada Supreme Court ultimately disagreed, but found that lenders must both hold the promissory note and be the beneficiary of the deed of trust to proceed through foreclosure mediation.
Edelstein took out a mortgage in 2006, naming MERS as the beneficiary of the deed of trust and New American Funding as the note holder, but permitting the "note holder" to be anyone who is entitled to receive payments and take the note by transfer. Both documents were transferred several times, with the note ending up endorsed in blank by Countrywide Home Loans and in the hands of BNYM's trustee; the beneficial interest in the deed was assigned from MERS to BNYM. After Edelstein started having trouble paying his mortgage, he went into foreclosure mediation in 2010 with his own attorney and an attorney for his loan servicer, which was acting on behalf of BNYM. The mediation ended without a deal but without the mediator reporting any problems. A month later, Edelstein petitioned Nevada state court for review of the foreclosure mediation, alleging that BNYM participated in bad faith because, in essence, it lacked the authority to foreclose because the deed and note were split by the use of MERS. The court ultimately rejected his arguments, and Edelstein appealed.
The Nevada high court said the primary issue on appeal was whether BNYM meets Nevada's requirements to bring a non-judicial foreclosure, and thus whether it could participate in a valid foreclosure mediation. It found that the bank met requirements. A promissory note is a promise to repay the home loan; the deed of trust secures the home loan. Both must be held by the entity seeking a non-judicial foreclosure. Though the documents were split at the beginning of the loan, the Nevada Supreme Court said, they do not need to be unified except during a non-judicial foreclosure, the court said. Adopting the Third Restatement of Property, it found MERS can be a valid beneficiary of a deed of trust, separate from its role as nominee for the lender. Because MERS assigned its interest to BNYM, which had possession of a note endorsed in blank, the court found that BNYM had authority to foreclose. Thus, it upheld the trial court.
Vincent Howard and our Ontario foreclosure defense lawyers were disappointed to see at least two interesting issues not considered in this case. According to the opinion, Edelstein failed to raise two issues before the appeal, thus waiving them on review. One was that the date on the assignment of the note was different from the date of notarization, raising suspicions of deceit. The other was that the note--endorsed in blank, and therefore payable to bearer--was technically owned by the trustee for BNYM rather than BNYM itself. It's possible that neither of these would have changed the outcome, but at Howard Law, P.C., our Fullerton foreclosure defense attorneys have been issues like these derail foreclosures in other cases, or at least spur courts to require clearer documentation before allowing a foreclosure to continue. When lenders cannot clearly document their right to foreclose, we believe it's the right choice to stop a foreclosure until they can.
If you're in default or foreclosure, or expect to be soon, and you'd like to discuss your rights and your legal options, you should talk to Vincent Howard and the team at Howard Law. You can send us an email or call us toll-free at 1-800-872-5925.