Introduction. Federal District Court Judge Michael W. Mosman ruled in favor of Bank of America and others in the recent foreclosure case of Jon Charles Beyer and Shelley Renee Beyer, Plaintiffs v Bank of America, et al., Defendants.It appears that he has bought into the argument that MERS can legally act as a beneficiary under the banks’ trust deeds.[1]
What does this all mean? Well, first, it means that federal judges can disagree among themselves, which isn’t exactly late-breaking news. As pointed out here, here, and here, there have been other recent foreclosure and bankruptcy cases that have come out squarely against the Big Banks on similar issues.
This judicial disagreement may ultimately be resolved once an Oregon appellate court rules on the matter.[2] But for the present time, the Mosman decision implies – in my opinion[3] – that there is continuing confusion about the role of MERS in Oregon’s non-judicial foreclosure process.
Background Facts. In June 2006, Mr. Beyers took out a loan to purchase a home in St. Helens. According to the opinion, MERS was identified as the “beneficiary” of the Beyer trust deed. Three years later, when Mr. Beyer went into default, MERS assigned all beneficial interest in the trust deed to Deutsche Bank National Trust Company (“Deutsche Bank”). This assignment was recorded in the county records.
Discussion. It is no secret that I have severe disagreement with much of the Court’s decision. This post will only focus on a single issue – the Court’s conclusion that MERS may legally act as a beneficiary.
ORS 86.705(1) defines a “beneficiary” under the Oregon Trust Deed Act as “…the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or the person’s successor in interest….” [Underscore mine. PCQ] Most MERS trust deeds, including the Beyer trust deed, distinguish between the beneficiary, i.e. MERS, and the “lender,” i.e. the entity that actually funded the loan and is identified in the promissory note as the payee of that loan.
Before MERS, trust deeds identified the lender as the beneficiary. ORS 86.705(1), the statute defining a beneficiary, existed long before MERS was born. There is no evidence that ORS 86.705(1) was drafted with MERS, or any other electronic registry, in mind. In all bank loans, the promissory note was customarily signed by the borrower and given to the lender to memorialize the repayment obligation for the loan. The accompanying trust deed was similarly signed and delivered, to “secure” to the lender the power of foreclosure in the event of nonpayment of the note.[4] If the note was not paid, the trust deed authorized the “trustee” or a “successor trustee,” to foreclose on the property. Clearly, when ORS 86.705(1) was created, the “beneficiary”, i.e. the lender, was regarded as the person for whose “benefit” the trust deed was given.
Conceding that other judges in the Oregon Federal District Court have ruled that the lenders identified in the trust deed – not MERS – are the real beneficiaries as under ORS 86.705(1), Judge Mosman observed:
“Neither line of cases discusses why the named person should trump the designated person, or vice-versa. However, because I find that MERS is both named and designated as the person receiving the benefit, I need not resolve this dispute.” [Italics mine. – PCQ]
However, MERS does not, under any stretch of the imagination, claim any beneficial interest in the promissory note. In order to make his decision “work” – i.e. to find that MERS receives some “benefit” as required of a legal “beneficiary” under ORS 86.705(1) – Judge Mosman concludes that MERS indeed, receives some “benefit,” as it has a right to collect the borrower’s payments made under the promissory note. This conclusion is not even supported by MERS’ own public statements about its rights and duties.[5]
PCQ Analysis. Until MERS made its appearance on the lending scene, the “lender” was the “beneficiary” in Oregon trust deeds. Today, lender trust deeds frequently identify MERS as the “beneficiary” and the “lender” as the party identified in the promissory note.
So how does MERS, the nominal beneficiary, with a splash of judicial alchemy, acquire the right to receive payments under the promissory note? Judge Mossman relies upon the following clause found in the trust deed:
Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to releasing and cancelling this Security Instrument.
The bolding and underscoring are mine. They were made to emphasize that the words “those interests”, refers only to the Security Instrument, i.e. the trust deed. The reference to “action required of Lender”, refers to the powers of either enforcement or cancellation of the debt – which until fairly recently, MERS was doing. Nowhere in the Beyer trust deed are any rights or powers delegated to MERS under the promissory note. If this were so, then MERS could theoretically sue borrowers for collection, and to my knowledge that is not something MERS has ever sought to do – or wants to do.
However, based upon the above-cited clause in the Beyer trust deed, Judge Mosman concluded: “This provision grants MERS the right to exercise all rights and interests of the lender. *** One right of the lender is to receive payment of the obligation, so this clause must grant that right to MERS as well.”
Nowhere in any MERS trust deeds does it say that MERS has the right to collect payments under the promissory note. Nevertheless, Judge Mosman reasons thusly:
“…the trust deed repeatedly calls MERS the beneficiary, a statement which would not comply with law or custom unless MERS’s powers were expanded to include the right to receive payment of the obligation.”[6] [Emphasis mine. – PCQ]
This statement is unsupported by any reference to the MERS membership rules or bylaws, or any other literature promulgated by MERS. Most people familiar with MERS today would acknowledge that it has never claimed any ownership of the promissory note and certainly no right to receive payments under it.
On April 7, 2010 William C. Hultman, then attorney and Secretary Treasurer for MERS[7] gave a deposition in the case of Bank of New York as Trustee for the Certificate Holders, CWABS, Inc. Asset-Backed Certificates, Series 2005-AB3, Plaintiffs, vs. Victor and Enoabasi Ukpe, Defendants, Superior Court of New Jersey Chancery Division, Atlantic County, Docket No. F-10209-08. What follows are snippets of that testimony:
Question: Let me break the question down then. Does MERS have an ownership interest in the promissory note that the Ukpes signed?
*** [Objection by counsel]
Answer: If you mean ownership interest in the sense that are we entitled to any of the proceeds of the promissory note, the answer is no. [p. 138]
_______________________________________
Question: Did MERS pay anything for whatever interest it claims to have in the Ukpes’ promissory note?
Answer: We were granted a security interest in the promissory note. That’s our interest. We did not
receive — we did not pay anything for it. It was granted to us by the borrower.
Question: And if I recall your answers earlier, you have no entitlement to any payments under the note, is that correct?
Answer: That’s correct. (p. 151)
_______________________________________
Question: The term beneficial interest is one that is used in connection with MERS. Could you define what a beneficial interest is, please?
Answer: A person who is entitled to the benefits of the proceeds of the note.
Question: And just so if I understand you correctly, is it your testimony MERS was owed nothing by the Ukpes on the promissory note, MERS was not entitled to any payment from the Ukpes?
Answer: That’s my understanding.
Question: In terms of the meaning of beneficial interest, does beneficial interest, does it equate to the right to proceeds under the note?
Answer: Among other things.
Question: And in addition to the right to proceeds what else is meant by the concept of beneficial interest?
Answer: Well, they are the ones who have the ultimate direction of disposition of an asset.
***
Question: When you used the word “holder” in your answer a few moments ago, what do you mean by the use of the phrase “holder”?
Answer: The party who is in possession of the note.
Question: So you’re just talking about pure physical possession, not an ownership interest, is that correct?
Answer: Whether it’s characterized ownership interest or not, I didn’t say. What I said was the holder is the person who is in physical possession of the note.
Question: When MERS is the holder, does MERS claim any beneficial interest in the note?
Answer: No. [pp 152-153]
_________________________________________
So my take on the above testimony is that:
- A “beneficial interest” means the right to receive payments under the note [which is essentially one of the “benefits” accruing to the lender under ORS 86.705(1). – PCQ];
- A “beneficial interest” also refers to those “who have the ultimate direction of disposition of an asset.”
- MERS claims no direct beneficial interest under the note; and
- MERS claims no right to receive payments under the note.
Judge Mosman’s finding demonstrates a misunderstanding of the MERS business model – i.e. it is nothing more than the alter ego of the lender. An avatar. A strawman. A puppet. It serves at the behest of its member banks. It is incapable of any independent action or decision making. It has no beneficial interest in the promissory note, since such an interest would include (a) the right to receive installment payments and (b) make decisions regarding the ultimate disposition of the secured property.
Significantly, MERS itself has never contended that it has any beneficial or ownership interest in the promissory note. Nor could it. Rather, as stated by Mr. Hultman in his deposition, “What I’m saying is we have — we are the agents of the note holder holding title to the mortgage, securing the repayment of the promissory note when the borrower pledges the property to them.” [p.151] So, even if MERS could receive payments as “agent” for the lender – which I don’t concede…but could – one cannot characterize the receipt of those funds as a “benefit” to the agent, rather than the principal – any more than the payment of your dinner bill to the waiter “benefits” the waiter.
Conclusion. According to Judge Mosman, the “law and custom” provision[8] in the Beyers’ trust deed requires that MERS’ authority be expanded to include the “benefit” of payments under the promissory note. Otherwise, he could not conclude that MERS may act as a legal “beneficiary” under ORS 86.705(1). Based upon Mr. Hultman’s testimony, above, one must wonder whether MERS itself would even agree with Judge Mosman’s conclusion.
There is no “law” in Oregon that permits a person who receives no “benefit” under a trust deed, to serve as a “beneficiary” of that trust deed. Moreover, there is no “custom” that permits a person who receives no benefit under the trust deed, to serve as a “beneficiary” under that trust deed. Whatever the “law and custom” provision in the trust deed is intended to mean – which is not entirely clear – it certainly can’t be said to make legal today, what was illegal yesterday. Yet that is exactly what the Court’s ruling has sought to do in Beyer.
[1] It appears that Judge Mosman had a prior run-in with the Beyers. He dismissed an earlier suit filed by them in 2010 against Brian Moynihan, Angelo Mozillo and others. It also appears in the present case that he was somewhat exasperated by some of Mr. Beyers’ “legal” arguments, which he dismissed as “unmeritorious.” See, footnote 1, in the written opinion. Since this slapdown added nothing to his legal conclusions, and was merely described in a footnote, it appears the Judge felt compelled to include the discussion just to “send a message” to Mr. Beyer that he had little patience with silly arguments – which this clearly was.
[2] State law generally controls foreclosure issues. But absent any Oregon appellate court precedent, our federal judges are free to reach their own conclusions based upon their interpretation of what the law should be.
[3] Like everything else on this blog site, the opinions expressed are mine alone, and do not represent those of my clients, especially the Portland Metropolitan Association of Realtors®, its officers, directors, employees and members. – PCQ
[4][4] If the note was paid off according to its terms, the trust deed authorizes the “trustee” to execute a “Deed of Reconveyance” which has the effect of deeming the note “satisfied”, and removing the trust deed from the borrower’s title.
[5] I anxiously await the day MERS sends out its own collection letters to borrowers, demanding that it receive their monthly payments instead of the lender or its servicer for whose “benefit” the payments are actually made.
[6] I suspect even MERS shudders when it reads this. The last thing it must want is to be viewed as a collection agent for half of all loans in the country.
[7] I do not know his status today.
[8] To my knowledge – although I’ve not researched the matter, and could be entirely wrong –I regard this provision as “fluff” i.e. vague mushy language that was inserted by bank attorneys for something to point to when all other MERS arguments fail.
