MERS to big to punish

31 Jul

The issue before the court boils down to whether MERS qualifies for certain exemptions from corporate tax registration required under section 23305 of the California Revenue and Tax Code. If it does not qualify for exemption, then MERS’ contracts are voidable under White Dragon Productions, Inc. vs. Performance Guarantees, Inc. (1987)
196 Cal.App.3d 163, and MERS may not appear to defend itself in this matter. (While Defendant presents a contrary 9th circuit decision on the issue of voidability of contract, the doctrine of stare decisis prevents the court from choosing to elect to follow that advisory opinion over California’s own precedent. Auto Equity Sales, Inc. v. Superior Court, 57 Cal. 2d 450 (1962). In Auto Equity Sales, the Court explained:
Under the doctrine of stare decisis, all tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction. Otherwise, the doctrine of stare decisis makes no sense. The decisions of this court are binding upon and must be followed by all the state courts of California. Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. Courts exercising inferior jurisdiction must accept the law declared by courts of superior jurisdiction. It is not their function to attempt to overrule decisions of a higher court.” Therefore, White Dragon controls.)

With regard to the matter instantly before the court, MERS’ claimed exemptions are laid out at Corporations Code sections 191(c)(7) and 191(d)(3). Each of these statutory provisions provides narrow grounds for a foreign corporation to gain exemption from registration with our Secretary of State and payment of taxes so long as that corporation meets certain requirements and only conducts certain limited activities.
To rule on the question of MERS’ exemption under Corp. Code section 191(c)(7), the court must make three determinations: first, the court must make a legal determination as to the meaning of the language “creating evidences” in the statute; second and third, the court must make factual determinations to what activities MERS has been alleged in the FAC to have been conducting, and whether those activities are “creating evidences” and thereby exempted.
To answer the question of MERS’ exemption under Corp. Code section 191(d)(3), the court need make only two factual determinations, which are: is MERS a foreign lending institution, and if so, does it own the instant note, or any note in any of the thousands of MERS foreclosures in this state?
Finally, the court must decide whether, under either section, the operation of a database, selling memberships, and providing access to a database constitute exempted activities, and whether the acting as an agent of an exempt institution extends the exemption to MERS?

1. A Finding That MERS’ Foreclosure Activities Constitute Merely “Creating Evidences” Of Mortgages Would Render Subsection (d)(3) Dead Letter.

California Corporations Code section 191 (c)(7) provides an exemption to tax registration for foreign corporations engaged in “[c]reating evidences of debt or mortgages, liens or security interests on real or personal property.” Id. The statute does not expressly define “creating evidences,” and so the court is called upon to apply the rules of statutory construction to interpret the code prior to applying it. This is a matter of first impression, as there is no California precedent on this issue. (However, both parties have submitted federal court opinions on both sides of the issue).

California courts do not favor constructions of statutes that render them advisory only, or a dead letter. Petropoulos v. Department of Real Estate (2006) 142 Cal.App.4th 554, 567; People v. Stringham (1988) 206 Cal.App.3d 184, 197. Because Corp Code section 191(d)(7) expressly reserves the activities of assigning mortgages, conducting foreclosures, and substituting trustees for foreign lending institutions, these activities must, by definition, go beyond what is intended by “creating evidences” of transactions, or else, the gateway consideration of being a foreign lending institution required at section 191(d) would be dead letter, because such activities would already apply to ALL foreign corporations, who are exempted at (c)(7) for “creating evidences.” If the legislature included these foreclosurerelated activities in a new subsection expressly reserved for a certain type of foreign entity, then it clearly did not intend for them to be included by the term “creating evidences” which is provided to all foreign corporations.

2. All of MERS’ Activities Go Beyond The Plain Meaning Of The Term “Creating Evidences.”
Because there is no express definition of “creating evidences” provided in the Corporations Code, this phrase should be given its common meaning. “Creation” is defined by Mirriam Webster’s Dictionary as “the act of making, inventing or producing.”
“Evidence” is defined by the California Code of Evidence as “testimony, writings, material objects, or other things presented to the senses that are offered to prove the existence or nonexistence of a fact.” Evidence Code 140.
The evidences referred to in Corp. Code section 191(c)(7) are “of debt or mortgages, liens or security interest on real or personal property.”

Hence, when the words are taken together, the statute exempts: “making, inventing, or producing testimony, writings, material objects, or other things presented to the senses that are offered to prove the existence or nonexistence of debt or mortgages, liens or security interest on real or personal property.”

MERS’s California activities go far beyond these activities. In contrast to MERS, a foreign corporation who might qualify for exemption for “making, inventing, or producing testimony, writings, material objects, or other things presented to the senses that are offered to prove the existence or nonexistence of debt, mortgages, liens or security interest on real or personal property” is Socrates Legal Media, LLC, 227 West Monroe Suite 500 Chicago, IL 60606.

The business of Socrates Legal Media includes selling pre-packaged contract forms at Office Depot for people who conduct routine real estate transactions, such as taking liens on real property to secure debts. If a dispute arose between two parties to such an agreement within our state, and Socrates was brought in by the Plaintiff and alleged as being an unregistered foreign corporation who does not to have capacity to defend, Socrates could point out that it merely CREATES EVIDENCES of transactions, and seek exemption from the registration requirement to defend itself in the case. MERS, on the other hand, does not merely provide forms for agreements, or “create evidences” of them; MERS participates in California transactions.

Therefore, MERS’ activities go beyond what “creating evidences” could possibly mean. However, the trouble with MERS’s argument does not end with that.

3. None of MERS’ Activities Meet The Definition of “Creating Evidences.”

The real trouble with MERS’ argument is that it clearly did not even create these evidences to begin with, nor does it claim to. To wit, the evidences of debt, liens on property, or mortgages at issue in this case – the Note and the Deed of Trust – are “made, invented, and produced” respectively by the Lender and by federal government bodies known as “Fannie Mae” (short for the Federal National Mortgage Agency) and “Freddie Mac” (short for the Federal Home Loan Mortgage Corporation).

The court may take judicial notice of the fact that these uniform instruments, used more commonly than any other to evidence the fact of a real estate mortgage transaction in our state, may be downloaded at The mortgages at issue in this and every other MERS related case are not MERS’ forms. MERS did not “create” these “evidences.”

Rather, MERS’ involvement in the transaction was wholly participatory. MERS was named beneficiary on the deeds of trust. MERS participated in the foreclosure activities, though it was never entitled to collect a single penny under the notes. Characteristically, MERS only participated in the transaction for the sole purpose of avoiding paying California taxes. See: MERS’ admission in MERS v. Nebraska, that its purpose for being a phantom beneficiary on these deeds of trust is to avoid state real property transfer taxes at Plaintiff’s RJN in Support of Supplemental Briefing Exh. A (For the Nebraska Supreme Court’s finding that ” Mortgage lenders hire MERS to act as their nominee for mortgages, which allows the lenders to trade the mortgage note and servicing rights on the market without recording subsequent trades with the various register of deeds throughout Nebraska.”). See also: the admission of Bill Hultman at Plaintiffs RJN in Support of Supplemental Briefing Exh. B at Paragraph 8 (for MERS’ admission that “MERS is not a party to or obligee under the terms of the Promissory Note, and MERS does not appear on the Promissory Note.”).

Nor was the execution of the documents at closing MERS’ doing; that was conducted at a title company or by mobile notary. MERS does not claim that any person from MERS was present at a single mortgage closing in this state. Nor does MERS claim that any agent or representative of MERS even so much as signed the Fannie/Freddie uniform instruments.

The record in this case clearly establishes that only the Plaintiffs signed the Deed of Trust. Therefore, MERS’ activities do not render it exempt from tax registration under Corp Code 191(c)(7) because its activities go beyond “creating evidences” and do not include “creating evidences” in the first instance.


1. As a Gateway Consideration, The Court Must Find That MERS Is A Foreign Lending Institution (Or Wholly Owned By One) to Qualify for ANY of the Exemptions at Corp. Code Section 191(d).

Under Corporations Code Section 191(d)(3), MERS must both 1) be the right type of entity (the gateway consideration to the exemptions), and 2) own the note to qualify for exemption.

Corporations Code Section 191(d) provides exemption solely for any:
“…foreign lending institution, including, but not limited to: any foreign banking corporation, any foreign corporation all of the capital stock of which is owned by one or more foreign banking corporations, any foreign savings and loan association, any foreign insurance company or any foreign corporation or association authorized by its charter to invest in loans secured by real and personal property, whether organized under the laws of the United States or of any other state, district or territory of the United States, shall not be considered to be doing, transacting or engaging in business in this state solely by reason of engaging in any or all of the following activities either on its own behalf or as a trustee of a pension plan, employee profit sharing or retirement plan, testamentary or inter vivos trust, or in any other fiduciary capacity…”

Firstly, MERS does not argue that it is a foreign lending institution in this case. In its Demurrer, Reply, oral argument, or anywhere on this record, there is NO factual averment that MERS is a foreign lending institution or wholly owned by one, or is an investor in mortgage notes.

Secondly, MERS has not submitted any evidence which would support such a finding.

Thirdly, in MERS v. Nebraska, MERS judicially admitted to the Supreme Court of Nebraska that it has never lent a dollar in any state, and is also not the holder of the note on any of its Deeds of Trust. Plaintiff’s Supplemental RJN Exh. A. In that case, MERS appealed a finding of the trial court that MERS was a foreign banking institution and therefore had to register as one in Nebraska. While the legal issue in the instant case is distinguishable, the factual problem before the court is identical to that case: is MERS a bank?.
Whereas there, MERS did everything it could to prove it was NOT a foreign lending institution, here MERS attempts the opposite. Where in Nebraska, MERS sought to avoid registration as a financial institution by swearing to God that it does not ever own the note, here MERS seeks to avail itself of an exemption reserved for foreign lending institutions, asserting the bald-faced conclusion that it should not have to register as a foreign corporation and pay California state taxes under a statute which clearly requires both status as a financial institution, AND ownership of the note, which it also disclaims.


At Corporations Code Section 191(d)(3) the legislature expressly states MERS’claimed exemption:

“The ownership of any loans and the enforcement of any loans by trustee’s sale, judicial process or deed in lieu of foreclosure or otherwise.” Id. [Emphasis Added].

Corp. Code section 191(d)(3) is written in the conjunctive: “own and enforce.” MERS’ averments to its ability to participate in trustee sales without registration by way of this statute is therefore patently unfounded.

There is no averment in this case that MERS owns the note. In fact, by judicial admission, there is the opposite: MERS submits in its own joint Request for Judicial Notice in Support of Demurrer, an Assignment of the Deed of Trust to Wells Fargo. Consistent with MERS’ practice of hiding the true noteholder from the borrower to facilitate foreclosure fraud, the transfer to Wells Fargo suggests that it was Wells Fargo who had been the holder of the note entitled to enforce the Deed of Trust all along, never MERS.


1. MERS’ Foreclosure Agent Activities Are Not Exempt Under Either Statute at Issue.

In reality, MERS operates as more of an agent than as a beneficiary on any given Deed of Trust (using the dubious title “nominee”). In support, MERS claims that Civil Code section 2924 allows “agents” to begin the non-judicial foreclosure process in California, and therefore, its agency activities should enjoy exemption from taxation. This is a non-sequitur.

The statutory exemption provided at Corp. Code section 191(d)(3) does not extend to companies in the business of “acting as foreclosure agents,” nor is any such interpretation of the statute even possible. While the Civil Code does allow agents to perform certain foreclosure functions, such allowance has no impact on the operation of the Tax Code.

MERS’ exemption argument leaps from one unfounded conclusion to the next. Nowhere in either statute does it aver that agents of the true noteholders are subject to the same exemptions simply by reason of agents being allowed to act on behalf of the noteholder.

Finally, and perhaps most telling, if you “follow the money” the distinction is clear: MERS profits by posing as the beneficiary to the deed of trust and generating foreclosure paperwork; a foreign lending institution profits by lending, and, when that doesn’t work out, by selling its security to collect on an unpaid debt. The business activities, or “profit generating activities”, of MERS are quite distinct from those of its principals, and there is no indication in any of the statutes that the legislature intended for the two to be interchangeable.

2. MERS’ Database Maintenance and Subscription Activities Are Not Exempt.

In their FAC, the Plaintiffs allege a set of activities which is neither included nor discussed above or by MERS at all in any of its arguments in favor of exemption: MERS operates a subscription-based information database for profit within the state of California.
MERS sells memberships to the database, provides access to records, and charges its customers accordingly. Similar to Westlaw, LexisNexis, or any other database provider, this activity is no more “creation of” the information contained therein, than is Westlaw the Creator of judicial opinion in any jurisdiction in this state or country.

Thus, regardless of the applicability to either claimed exemption to MERS’ other activities, MERS’ subscription-based activities exceed what the legislature intended a foreign corporation to do in this state without paying taxes to support the courts, schools, infrastructure, and other benefits of which it avails itself.

Therefore, MERS does not qualify for exemption from Revenue and Tax Code 23305 by way of either Corporations Code section 191(c)(7) or section 191(d)(3).


There is an argument that because MERS has embroiled itself in so many California mortgages, that it would be detrimental to industry to enforce our laws against it. However, because of the fact that the potential detriment to MERS pales in comparison to the impact MERS has had on this state, and will continue to have if allowed to be above our law, it would not be sound judicial policy to disregard the laws of California solely because of the sheer volume in which the defendant has violated them. It should be the opposite.

To enforce compliance with California’s tax code against MERS would not be any detriment to the mortgage industry, because the mortgage industry has already profited far beyond what was legal or fair in the first place due to these unlawful activities, as has MERS. To now disregard that those monies were ill-gotten based on the idea that it was just so much money that we’ll hurt the industry, truly, is to incentivize wholesale violation of California laws, as long as the issue stays under the radar long enough for the wrongful
conduct to become “too big to punish.”

Indeed, the mortgage industry has already received $700 billion in TARP funds, which came from taxpayer dollars, MERS itself as saved hundreds of millions of tax dollars by refusing to register in this state, and MERS’ customers have saved hundreds of millions by abusing the recording system and the unsupervised nonjudicial foreclosure statute.

It should be noted that secondary market mortgage holders have a remedy to all this: judicial foreclosure. The California codes are not set up without some recourse for those who are RIGHTFULLY owed a debt and RIGHTFULLY entitled to collect on it. Indeed, judicial foreclosure is the due process right of every California citizen whose mortgagee is not entitled to foreclose under Civil Code section 2924. (While Civil Code 2924 was not found to be a violation of due process by the California Supreme Court, a judicial seal of approval on abuse of that statute by those without any right title or interest most certainly is.)

On the flip side of this coin is the already felt crushing impact of these activities on the state of California. The courts are closed the third Wednesday of every month, and clerk staff has been cut to the bones. Public schools and universities are cutting both staff and course options as well as increasing tuition. The roads and bridges are in disrepair. Record foreclosures have caused record joblessness and record inflation. And meanwhile, MERS’ participation in the subprime securitized mortgage scheme was essential to the volume of bad loans being made, to the alacrity with which Wall Street was jamming these pools down our throats, and to the vigor with which mortgage brokers working for yield spread premiums were cold calling and loan flipping.

Clearly MERS was and is conducting business in this state, without paying a dollar on its own tax-free profits, and while aiding its customers in the avoidance of essential property transfer taxes. Its activities not only cost the state in the sheer loss of income, but also in the expense that will go into correcting thousands of real property records which have been deranged by MERS’ wholesale disregard for California law.

2 Responses to “MERS to big to punish”

  1. LAURIE MENDOZA July 31, 2010 at 2:26 pm #

    dear mr. mccandless,
    could you or someone from your staff walk me through on how t find my original pooling and service agreement on the SEC website? i have tried and tried and i just dont know what im doing wrong. im looking for the form 8k and form 424b5. where it shows name and phone number of any trustee pooling or servicing agreement, investors ect. my loan started with american mortgage brockers in fair oaks, california. they are no longer working under that name. world savings was the lender and golden west was the trustee. then wachovia took over till the notice of default which was wachovia and wells fargo bank, na.
    i have a unlawful detainer hearing coming up which really doesnt matter. wells fargo has the judges favor. i just want this information for my own knowledge. i really dont think the loan was one of that was recorded at the SEC because no assignments or successors of interest was ever recorded at the sacramento recorders office. when wells foreclosed on me the deed of trust was still in world savings and golden west name and of course my name too.
    your help would really be helpfull. ive been trying for days and im so frustrated i could cry.
    laurie mendoza

  2. Ruth D. August 2, 2010 at 10:33 pm #


    My husband and I are preparing to go to war with these “bank robbers” (banks that are “robbing” us), and keep them from fraudulently taking our home! The odds are stacked against us homeowners, especially Pro Se litigants, which is like sending a sheep into a courtroom only to be surrounded by a pack of wolves! In our case, we are the Plaintiffs, but that does not make things any easier…in fact, it is that much harder due to the “burden of proof”! There are many laws that we can cite because they are the “law” and are right, but convincing judges is not an easy task, so I have heard. We have 2 cases going on simultaneously: the 1st is a civil lawsuit in which we are suing 4 corporations and 1 bank, and the 2nd case is in a different court 1.3 hours away from the other, and is an Unlawful Detainer case, where the bank proceeded ahead with the UD despite the fact the case is “in litigation” in another court! We may request to have the cases consolidated, but we have been told that perhaps we should not, because if the judge that was so harsh on us with our Ex Parte/TRO, denies the civil case, we will lose the UD part as well. We may stand a better chance if we keep them separate and fight on two fronts. We still have not ruled out Bankruptcy, which we will use as a last resort.

    We have yet to have our first “real” hearing. All we have experienced is a 3-minute long Ex Parte hearing in which my husband barely got to say a few sentences. The judge even said at opening, “I have read your complaint and I have already made my decision…” He asked a few questions and said, “I am denying your request of a Temporary Restraining Order.” [gavel slams down]. Wow. THAT was NOT how we thought it would go! We picked our jaws up off the floor, and walked like stunned, shocked zombies to the court clerk and asked for the transcripts. We did not get them until 3 weeks later, too late to appeal that decision, so we are told. (the transcripts were far from accurate, but that is a matter for the FBI), and we are going to appeal the first chance we get after the judge rules against us, which we are expecting, not because we are being pessimistic, but we are seeing the trends in other cases. It is just not right that the laws are there, and the court is “supposed” to follow the law…but…do they? Believe you me, we are going to fight and not quit…all the way to the Supreme Court if need be! We will appeal every chance we get, and object up a storm! We are not about to succumb to their traps of roping us back into a mortgage in which we are at their mercy. We owned our home outright before taking out an equity loan for some home improvements, and we are losing our entire home and all of our life savings tied up in our home…all because we believed their lies about a “loan modification”! Believe it or not, we were told the reason we did not qualify for a loan mod is because we had “too much equity” in our home, and we were “too poor for them to help us” (our income could not “support” a loan mod). Outrageous! !!So we have too much equity…and they move in for the kill to steal our home! We don’t want any settlement they have to offer…we just want them to cancel the so-called “obligation”, which is really a lie because they have made money on our signatures and our Notes. Here again is proving it. We have someone helping us trace our loan, and to prove the original lender sold it right off the bat before the ink from our signatures even dried! Why is it the banks can’t even find most of the Notes, and if they do find one, no one seems to know who really owns it, let alone prove it! And many times, the Note is forged or is a counterfeit, so they are finding!

    My husband and I are planning ahead for us and our children, hoping for the best but preparing should the worst occur. We have our adult son’s camp trailer all stocked and ready to go should the bank that is breathing down our necks like a monster ready to devour everything we own, follow through on the Unlawful Detainer. When the sheriff comes a knocking, we have it all planned out, who will grab what…the computer, our copy/fax/scan/pritnter, our phones, all our case files. We will get our phone/internet service transferred to the RV park we are going to be living in, and we will set up our “office” and keep fighting away! We are unlikely to win in the UD case, and the bank will most likely pursue the eviction. We have an appeal ready to follow the UD hearing should the judge deny our request to put a “stay” on further action pending the outcome of the other open and pending case (although we can’t yet add the finishing touches to the appeal until we hear what the judge has to say). We are planning to file an appeal to the “possible” and very likely unfavorable ruling in our UD. We will have a 3 day time limit to do so. We know that the bank will probably file a motionswithin weeks to have the injunction lifted, but we are going to oppose every move they make…until one of the judges in one of the courts we plan on appealing to, hears us and sees what is really happening, and then does something about it! If they would just stop long enough to see that the Loan Servicer, the Foreclosure Mill, MERS, and the Bank all filed bogus and fraudulent documents into the county in the beginning, we’d win our case and our house back! And we have many TILA and RESPA violations to boot! If the judges would just give us a chance to prove these things! We have heard that we can actually ask the judge to prohibit the opposing counsel from interrupting us as we prove our case, unless it is a serious objection. That way, we can keep our minds on the points we are trying to make. Afterall, we stand to lose 100% of our equity, life savings, inheritance, etc…but to the bank that has its sites set on robbing us, our home is just a drop in the bucket for them!

    My heart does go out to all those who have already lost their homes to the banks! Here is an inspirational quote that is going around, “A void judgement is a nullity, a ‘brutum fulmen’…and is subject to collateral attack and may be stricken at any time. The passage of time cannot make valid that which has always been void”. quote from the case “Ramagli Realty v. Craver, 121 So. 2d.648. to me, that says it is never too late to go back to court and try again to prove your case. You may not get to have the very house that was stolen from you, but you may be able to get the money they robbed of you 4 times over, so I have heard. I have read it somewhere in a Federal law citing. Ask Timothy McCandless, Neil Garfield, or Matt Wiedner…they can tell you. I want to encourage all of you
    “Foreclosure Fighters” to keep going! Don’t quit or give up! Keep appealing, objecting, citing, researching, writing motions, letter, emailing, calling, blogging, sharing, encouraging, and so on! We homeowners are fighting the same war on different fronts around the country, and we need to root each other on in the fight! This is a civil war of sorts…it is us against our banks on our own soil! Tell your story to the President (haven’t you heard of his “purple folder” he reads 10 letters a day from the public? Maybe he’ll read yours one day if you keep writing! I am!) I even got a phone call from a local Eye Witness News television station that wants to do a story on our case and follow us from beginning to end! They (per our permission) put in a request to the court to allow a camera into the courtroom to film our first hearing. Of course the judge has to approve it, and he most likely won’t, but nonetheless, the Investigative Producer is going to have several reporters in the audience writing every thing down. We are also (per some advice we read online) that we can hire our own “Court Reporter” to record the verbatum account, providing “accurate” transcripts of the hearing(s). If this does not put pressure on the judge to be fair, follow the law, and listen to us, nothing will. We in no way want to sway the judge into ruling wrongfully, but at least knowing that the media is following our case, this may encourage him to take his time and really hear us out. If we win our case, it should set a few precedents due to all the horrible flaws, mistakes, blunders, blatant fraud, willful criminal acts, and so much more that we cannot mention (FYI, FBI). Please root for us! And we will pray for and encourage all of you “FELLOW FORECLOSURE FIGHTERS”! Please share any and all ideas and advice as to how we can use this upcoming media coverage to help the fight against this crisis nationwide! My email is

    Hang in there!
    ~Ruth D.~

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