It is a basic premise in the world of foreclosures in California, that to stop a non-judicial foreclosure, the borrower must tender, or pay, the full amount owed. Well, many borrowers have successfully argued that a tender is not necessary if the company that foreclosed on the property is not the holder of the original promissory note and, thus, not entitled to be paid. But, a recent California appellate court opinion, Ferguson v. Avelo Mortgage, LLC (Cal.App. 2 Dist. Jun. 1, 2011) — Cal.Rptr.3d —, 2011 WL 2139143, held that if the Deed of Trust assigns the right to foreclose to another company and its successor or assigns, that assignment is valid and any company that has been assigned the right to foreclose may do so. Essentially, the original holder of the promissory note may grant the right to foreclose to another company who in turn can pass on their right to foreclose.
In Ferguson, the plaintiffs attempted to avoid the tender rule by arguing it did not apply because neither the company that foreclosed, Avelo Mortgage, nor its predecessor, Mortgage Electronic Registration Systems (MERS), owned the original note for the property. This argument fell flat. The original note specifically stated that the mortgage holder assigned its right to foreclose to MERS, its successors or assigns. So, when MERS assigned its right to foreclose to Avelo, Avelo was acting with full authority to foreclose.
But, what about the tender – if the foreclosing company does not hold the original promissory note, do you still have to pay? The court noted that “it does not follow that a beneficiary may initiate non-judicial foreclosure proceedings under a deed of trust without the original promissory note, but cannot seek tender from a defaulting borrower attempting to set aside the foreclosure.” In essence, the plaintiffs still had to tender to Avelo full payment of the amount due to stop the foreclosure proceedings.
The Ferguson’s court’s decision, which is consistent with several recent federal court decisions, essentially cut off the argument that plaintiffs have been making in courts throughout California to avoid the tender rule. The rule of thumb – property owners will have to tender to stop a foreclosure regardless if the company foreclosing owns the note.