“While I recognize that plaintiffs have failed to make any payments on the note since September 2009, that failure does not permit defendants to violate Oregon law regulating non-judicial foreclosure. The Oregon Trust Deed Act “represents a well-coordinated statutory scheme to protect grantors from the unauthorized foreclosure and wrongful sale of property, while at the same time providing creditors with a quick and efficient remedy against a defaulting grantor.” Staffordshire Investments, Inc. v. Cal-Western Reconveyance Corp., 209 Or.App. 528, 542, 149 P.3d 150, 157 (2006). In part due to the legislature’s desire ” to protect the grantor against the unauthorized loss of its property,” a party conducting a non-judicial foreclosure must demonstrate strict compliance with the Act. Id. As demonstrated above, the MIN Summary demonstrates the defendants failed to comply with the Oregon Trust Deed Act.” – Honorable Owen M. Panner, Memorandum Order, Ivan Hooker and Katherine Hooker, Plaintiffs v. Northwest Trustee Services, Inc., Bank of America, N.A., Mortgage Electronic Registration System, Inc., Defendants.
It seems things have been ominously quiet since U.S. Bankruptcy Judge Alley’s holding in McCoy. Well, no more. On May 25, 2011, the Honorable Owen M. Panner, U.S. District Court, came to the same conclusion as Judge Alley:
“I agree with Judge Alley that “Oregon law permits foreclosure without the benefit of a judicial proceeding only when interest of the beneficiary is clearly documented in a public record.” In re McCoy, 2011 WL 477820, at *4.”
In the Hooker case, the plaintiff borrowers, sought a judicial declaration – known as a “declaratory judgment” – that Bank of America’s nonjudicial trust deed foreclosure was wrongful, since the bank had failed to record on the Jackson County public records, all successive assignments of the trust deed sought to be foreclosed.
As I have posted on multiple occasions [here, here, here, here, and here], ORS 86.735(1) is pretty clear. It reads in relevant part as follows:
“The trustee may foreclose a trust deed by advertisement and sale in the manner provided in ORS 86.740 (Notice of sale to be given to certain persons) to 86.755 (Sale of property) if: (1) The trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in the mortgage records in the counties in which the property described in the deed is situated….”
So what would prompt the banks to think that this statute, written long before MERS existed, didn’t mean what it said? Why would they think MERS, that great electronic registry in the sky, would be an adequate and legal substitute for recording on the public record? Since the lenders and their attorneys aren’t confiding in me, I will submit my own theory: First, I suspect back in the early 90’s, when MERS was just a doodle on the back of a bar napkin, it seemed like a good idea. It permitted the Big Banks to pass around their trust deeds like a bottle of bourbon at a frat party. There was no public accountability – just a members-only “registry”, where, in theory, participants would “electronically register” the transfer of their mortgages and trust deeds. In this way, Big Banks could securitize their loans faster, rather than complying with those time consuming and pesky state recording laws. But wait! There’s more! As an added bonus, lenders would save millions of dollars in recording fees! The opportunity seemed too good to pass up – back then.
However, it appears that the Big Banks Brain Trust ignored an essential fact that every first year lawyer knows – real estate laws, conveyancing laws, recording laws, and foreclosure laws, are all state-specific. One cannot simply open a book of federal regulations and learn how to legally convey and foreclose real property. Rather, one must review the statutes of each state. Oregon’s laws could be significantly different than, say, Florida’s laws on the same subjects. So while the Big Banks and their lawyers focused on certain national uniform laws, such as the Uniform Commercial Code, or the “UCC,” they ignored the real estate laws at the state level. Had they checked Oregon’s trust deed foreclosure law, which was in existence long before MERS, they would have quickly noted that recording of all trust deed assignments was a necessary condition.
ORS 86.735 came into existence long before MERS and the era of rampant securitization. During the easy credit boom years of 2005 through 2007, no one much cared about what the foreclosure statutes said; it was assumed that there would be never be a “last call” at this party. But in the post apocalypse years of 2008 through today, people are starting to wake up to the fact that recording of successive assignments is, in fact, necessary to nonjudicially foreclose trust deeds in Oregon.
Judge Panner quickly disposed of the bank’s argument that somehow MERS was a satisfactory substitute to public recording:
“Defendants appear to argue that rather than requiring the recording of every assignment of the trust deed, the [Oregon Trust Deed] Act allows defendants to instead track every assignment of the trust deed within the MERS system, recording only the final assignment of the trust deed in the county land records. Because the Oregon Trust Deed Act requires the recording of all assignments by the beneficiary, defendants’ argument fails.”
Although Judge Panner resolved the Hooker case on these narrow grounds, he didn’t stop there. He also addressed the bank’s argument, frequently made in other cases, that as a nominee of the beneficiary [i.e. the originating bank and all successive assignees of that bank – PCQ] MERS had the authority to assign the trust deed itself. Here’s what he said about that argument:
“Although the trust deed lists MERS as the nominal beneficiary “solely as a nominee for Lender . ..,” ***, the deed makes clear that MERS is not “the person for whose benefit a trust deed is given,” ORS 86.705(1). Instead, the trust deed confirms that GN [the lender, GN Mortgage LLC, who made the original loan and was named as the ‘lender’ in the note and trust deed – PCQ] holds the beneficial interest. The trust deed lists GN, not MERS, as ‘Lender.’ ****” [Emphasis mine. – PCQ]
“All payments on the loan are owed to GN, not MERS. *** GN, not MERS, ‘may invoke the power of sale and any other remedies permitted by Applicable Law.’ ****”
“While the trust deed lists MERS as the nominal beneficiary, the trust deed does not authorize MERS to take any actions on its own behalf. First, MERS holds only legal title to the trust deed. *** Second, MERS acts solely as nominee for GN. *** Finally, MERS may act as GN’s nominee only “if necessary to comply with law or custom[.] ****”[Emphasis mine. – PCQ]
“The trust deed emphasizes that MERS is not the beneficiary, but rather the nominee or agent of the Lender. Because the trust deed clearly demonstrates GN, and not MERS, is the person for whose benefit the trust deed was given, GN (or its successor in interest) is the beneficiary of the trust deed. ORS 86.705(1); see In re McCoy, 2011 WL 477820, at *3 (Bankr. D. Or. Feb. 7).” [Emphasis mine. – PCQ]
[And in Footnote 2 of the Opinion] “The note reinforces my conclusion that plaintiffs granted the trust deed for the benefit of GN , not MERS. The note states the trust deed ‘protects the Note Holder from possible losses that might result if I do not keep the promises that I make in this Note.’ *** GN , not MERS, is the “Note Holder.” *** MERS is not mentioned in the note.” [Emphasis mine. – PCQ]
Going beyond his narrow holding, but clearly sending a message to other foreclosing banks and foreclosure trustees, Judge Panner let them know he “gets it.” Here are some of his observations, which, though not necessary to his finding in the Hooker case, were interesting, insightful and on the mark:
- “Although not affecting my conclusion here, the MIN Summary [MERS’ internal members-only record of the note and trust deed transfers – PCQ] raises an additional concern relevant to numerous cases pending before me. As noted above, GN [the original lender – PCQ] is listed as Lender on both the trust deed and the note. The MIN Summary, however, makes no mention of GN. In fact, the MIN Summary is silent as to how or when Guaranty Bank [the original servicer of the loan – PCQ] became an “Investor” holding the beneficial interest in the trust deed. *** The MIN Summary indicates only that on December 1, 2005, Guaranty Bank registered the loan in the MERS system. What occurred before registration, and how or when Guaranty Bank obtained any interest the loan (from GN or another) is not revealed.”
- In discussing a problem that I also frequently observed, i.e. documents signed, notarized and recorded out of order, Judge Panner noted: “The “out-of-order” recordings demonstrate problems, not atypical in my view, often caused by foreclosing parties rushing to expedite non-judicial foreclosures. “
- Quoting a dissenting opinion by Justice Page of the Supreme Court of Minnesota: “MERS claims to hold legal title, but only legal title to the mortgage being foreclosed. MERS also claims that in foreclosing mortgages it acts only as nominee for its members. But MERS can act as nominee for only the particular MERS member who holds the promissory note at any particular time and, when that promissory note is assigned between members, the member for which MERS acts as nominee, and on whose behalf MERS holds legal title, necessarily changes. In other words, the entity on whose behalf MERS holds 1egal title to the mortgage changes every time the promissory note is assigned.” Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487, 503-04 (Minn. 2009) (Page, J., dissenting). Judge Panner adds: “Although Justice Page wrote in dissent in a case involving a Minnesota statute, his concerns apply to numerous cases pending before me.”
- And lastly, Judge Panner sent a warning to all those lenders, their robo-signers, and successor trustees acting as “officers” for MERS and the Big Banks: “Foreclosure by advertisement and sale, which is designed to take place outside of any judicial review, necessarily relies on the foreclosing party to accurately review and assess its own authority to foreclose. Considering that non-judicial foreclosure of one’s home is a particularly harsh event, and given the numerous problems I see in nearly every non-judicial foreclosure case I preside over, a procedure relying on a bank or trustee to self-assess its own authority to foreclose is deeply troubling to me.”
Judge Panner gets it. Judge Alley gets it. Several of their fellow judges on the federal bench get it. Why don’t the Big Banks? I suspect the explanation is simply that this is what happens when an entire industry, with their money, power and political juice, come to believe that they are the smartest guys in the room.
