MERS Smackdown! Niday Analyzed – Part One

In the first Oregon appellate court ruling on the issue, the Court of Appeals, addressed, head on, whether MERS may be appointed as the “beneficiary” in an Oregon trust deed, for purposes of avoiding the law. The full opinion may be accessed here.

The decision, written by Justice Lynn R. Nakamoto’s was a “textbook” opinion; clear, concise and methodical, demonstrating a good grasp of the legal issues at play.

The Parties.  The persons and entities discussed in the case included two banks. One was GreenPoint Mortgage Funding, Inc. (“GreenPoint”) the lender that originated, i.e. funded, the loan at the time of closing.  The other bank was GMAC Mortgage, LLC (“GMAC”), the company that was servicing the loan.  GMAC, the servicer, was named as a defendant.   In a bit of cosmic comeuppance, in May 2012, GMAC filed for Chapter 11 bankruptcy protection.  [Apparently, defaulting is OK if you’re a Big Bank, but not if you’re a Bantam Borrower. – PCQ]   The plaintiff in the case was the borrower, Rebecca Niday.  Mortgage Electronic Registration Systems, Inc. (“MERS”) was also named as a defendant, along with Executive Trustee Services.

The Attorneys. The lawyers on the side of the angels were W. Jeffrey Barnes, who argued the case for Rebecca Niday.  With him on the briefs were Elizabeth Lemoine and the Luby Law FirmDavid L. Koen and Legal Aid Services of Oregon filed the brief amicus curiae [“friend of the court”] for the Oregon Trial Lawyers Association.  Congratulations all!

Factual Background.  In August 2006, Ms. Niday obtained a home loan from GreenPoint.  She signed a promissory note that obligated her to repay the $236,000 debt.  She also signed a trust deed, which, as security for the note to GreenPoint, was recorded in Clackamas County, where her home was located.

Significantly, GreenPoint was a member of MERS.  Accordingly, the trust deed identified GreenPoint as the “Lender” and MERS as the “Beneficiary.”[1]  The “Trustee” was First American Title Insurance Company (“FATCO”).  In describing MERS, the trust deed states that it is “…a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.” Elsewhere in the trust deed, in a section titled “Transfer of Rights in the Property,” it provided:

“The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender’s successors and assigns) and the successors and assigns of MERS. This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note, and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale, the following described property located in [Clackamas County]. 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 canceling this Security Instrument.”

On April 17, 2009, Ms. Niday defaulted on her promissory note with GreenPoint. Thereupon, MERS, as “nominal beneficiary” under the trust deed, replaced FATCO with LSI Title Company of Oregon, LLC (“LSI”).[2] 

Once LSI became the successor trustee, it had its agent, Executive Trustee Services, Inc. (“Executive”) [3] send Ms. Niday a “Trustee’s Notice of Sale,” informing her that her home would be sold to satisfy the remainder of the debt due under the promissory note.  The sale was scheduled for September 2, 2009.

Ms. Niday, upon receiving the Trustee’s Notice of Sale, demanded through her attorney that it be canceled, and requested various documents establishing the “entire chain of title to the Deed of Trust and note.” A lawsuit for an injunction and declaratory relief against the defendants was filed.  Ms. Niday lost in the Clackamas County Circuit Court, and appealed to the Oregon Court of Appeals.  The remainder of this post will discuss the court’s ruling.

MERS.  I am currently suffering an acute bout of “MERS Fatigue.”  This is an affliction brought on from hearing too many Foreclosure Mill Attorneys trying to explain with a straight face how a 1959 law[4] was intended to include MERS, a system of electronically registering mortgages thirty years before MERS even existed.  If Nostradamus served in the Oregon Legislature in 1959, I could understand the prescience.  Unfortunately, Nostradamus died about four centuries earlier.

So in order to avoid this wave of nausea passing over me as I write about MERS one more time, I will simply quote Judge Nakamoto’s description:

“… companies that participate in the mortgage industry, such as lenders and servicing institutions, can become members of MERS and pay a fee to use the MERS system, a private electronic database that tracks the transfer of beneficial interests in loan obligations.  When a MERS member originates a home loan, the loan is assigned an 18-digit “Mortgage Identification Number” in the MERS database. If, as is often the case, the loan obligation is secured by a trust deed, MERS is designated in that trust deed as the “nominee” for the member and for the member’s successors and assigns.[5] MERS is also named as the “beneficiary” of the trust deed. If the MERS member sells or assigns the beneficial interest in the loan obligation to another member, that transfer is tracked in the MERS database (by the loan’s Mortgage Identification Number). The transfer is not    recorded in the county records, and MERS continues to act as “beneficiary” of the trust deed.”


“The question before us–and one that homeowners and MERS are litigating throughout the country under similar state laws [footnote omitted – PCQ]–is whether MERS and its members can avail themselves of Oregon’s statutory, nonjudicial foreclosure process for trust deeds. Plaintiff is a homeowner who, like many other borrowers, executed a trust deed that named MERS as the “beneficiary.” After plaintiff defaulted on her loan repayment obligation, she received a notice of trustee’s sale that identified MERS as the “beneficiary” of the sale and that asserted a power of sale under the trust deed. Plaintiff then filed this declaratory judgment and injunctive relief action to stop the trustee’s sale, arguing that, notwithstanding the labels used in the trust deed, MERS is not the “beneficiary” of the trust deed for purposes of Oregon’s nonjudicial foreclosure laws.”

The issues in Niday were now squarely framed:

Issue  One

Do Unrecorded Transfers of the Promissory Note Constitute an “Assignment” of the Trust Deed That Must Be Recorded under  ORS 86.735(1)?

In Niday, the evidence showed that the borrower’s note to GreenPoint had been transferred [i.e. “indorsed” in UCC speak] to Aurora at some point in time, although it was off the public record.  Ms. Niday’s legal counsel argued that since Oregon law holds that a transfer of the note is an automatic transfer of the trust deed, there was an unrecorded assignment of the trust deed which violated ORS 86.735(1) which requires that before conducting a non-judicial foreclosure:  “The trust deed, any assignments of the trust deed by the trustee or the beneficiary *** are recorded in the mortgage records in the counties in which the property described in the deed is situated….” [Emphasis mine.]

The defendants argued that the ORS 86.735(1) requirement of recording trust deed assignments only referred to “…formal, written assignments rather than assignment by transfer of the note” and a written assignment “is capable of recording” but “a transfer of a note is not.”  Secondly, they argued that if “assignment” of  the trust deed were to automatically occur by a transfer of the promissory note [i.e. by “operation of law”] “…it would create a conflict with ORS 86.110….”[6] [The statute addressing how an unrecorded trust deed is discharged on the public record, when the mortgage was transferred off record by indorsement of the promissory note, i.e. without a formal recorded assignment of the trust deed.]

Judge Nakamoto disagreed, holding that “… the underlying debt and the security for that debt were not separately transferrable; the party who benefitted from the mortgage and the party to whom the obligation was owed were one and the same.”


“First, the text of the OTDA, which refers broadly to “any assignment,” does not suggest any distinction between those assignments that are readily recordable and those that are not. But, in any event–and contrary to defendants’ assertion–an assignment by “transfer of a note” is, in fact, capable of being recorded. Nothing prevents parties from recording a copy of the indorsed note or a separate writing memorializing that transfer.”

As for ORS 86.110(1), the Judge noted that the bank’s “…argument actually cuts against defendants’ position….”

ORS 86.110(1),[7] as it read when the OTDA was enacted and as it still reads today, refers to the discharge of a mortgage that has been transferred by indorsement “without a formal assignment” of the mortgage. ***. That statutory language is consistent with the understanding, well established at the time the OTDA was enacted, that there were two methods of assignment, one “formal” and the other by indorsement. As noted above, the text of the OTDA–“any assignments”–is broad enough to encompass both. Moreover, we do not perceive a conflict between, on the one hand, a requirement that “any assignment” be recorded before proceeding with nonjudicial foreclosure, and, on the other hand, a statutory procedure that governs proof of satisfaction where a mortgage is transferred without a “formal assignment.” The statutes address different subjects and use different language.”

The defendants’ argument backfired like a Wile E.  Coyote cartoon.[8] The statute they cited, ORS 86.110(1), merely underscored the legislative acknowledgment that mortgages and trust deeds can be “assigned” by indorsement of the promissory note, rather than a formal recording.

Holding on Issue One

The Niday court held that when ORS 86.735(1) says that “any” assignments of the trust deed must be recorded, it means both formal, i.e. written assignments, and informal, i.e. assignments occurring by a transfer of the promissory note [i.e. “by operation of law”].

[Continued in Part Two]

[1] Before MERS appeared on the scene, lenders were always identified as the “beneficiaries” in their loans secured by trust deeds.  That was because, in plain English, the banks were the ones receiving the “benefit” of the note secured by the trust deed, i.e. the repayment obligation.  However, when MERS was spawned, by agreement, all lenders who were MERS members appointed MERS as the “nominal” beneficiary.  The primary purpose of the ruse was so that lenders could freely transfer their paper between themselves without having to pay to publicly record their transfers in the county courthouse.  What apparently seemed like a good idea at the time became a nightmare with the onslaught of the subprime crisis, circa 2007-2008, because the lack of a public record of transfers made foreclosure much more difficult. The result, as we know, is that the lending and servicing industries began making up their own paperwork, passing them off as legal documents, and had low paid employees with false titles (e.g. “Assistant Vice President”) sign and notarize them.

[2]This transfer of duties is not unusual when the lender tees up a foreclosure.  Frequently, your local title company that wants to be everybody’s friend is replaced by a lower profile, lesser known, more elusive entity – like The Shadow, who wreaks violence and vengeance invisibly.  This is the same reason that executioners wear hoods – anonymity.  However, what isn’t as well known is that most successor trustees are affiliated with the lending industry in general, and frequently with specific banks.  For example, Recontrust is owned by Bank of America.  In this case, LSI is an affiliate of Lender Processing Services, or LPS, a default management service company out of Jacksonville, Florida.  LPS and its once infamous affiliate, DocX, became known for fabricating foreclosure documents in order to assist the Big Banks in kicking folks out of their homes faster.  See the federal Consent Order here, for the sordid details. How is it that Florida pond scum like LSI is permitted to seep into the Northwest and foreclose Oregonians out of their homes? ORS 86.790(1)(c) says that to qualify as a foreclosure trustee in Oregon one may be a “…title insurance company authorized to insure title to real property in this state, its subsidiaries, affiliates, insurance producers or branches….” Is LSI actually licensed to issue title insurance in Oregon?  It does not appear to be.

[3] But wait! If LSI is illegal, how can it lawfully appoint an agent to do what it can’t? And what’s more, Executive’s website says that it is “A GMAC Company.” So Riddle Me This, Batman: Oregon law ORS 86.705(8) defines a “Trustee” as “…a person, other than the beneficiary, to whom a trust deed conveys an interest in real property, or the person’s successor in interest, or an employee, of the beneficiary, if the employee, is qualified to be a trustee under ORS 86.790.” [Underscore mine.] So is Executive qualified under ORS 86.790?  Read the statute here.  The only possible alternative for Executive to operate is as an Oregon licensed escrow company.  Is it a licensed escrow in Oregon? Nada!  You can verify this by going to the Oregon Real Estate Agency lookup link here.  So it appears in another sterling example of Big Bank horizontal marketing, Executive, a “GMAC company,” gets to make a little extra money, possibly unlawfully, in the foreclosure business. The Big Bank makes the loan, and the Big Bank takes the loan. But I digress….

[4] The Oregon Trust Deed Act, ORS 86.705 to 86.795.

[5] Query: How can MERS become a nominee for a later assignee of the beneficiary, if that assignee is not a MERS member and therefor never consented to this ruse? Remember, according to some estimates, MERS has only 60% of the marketplace. That leaves out 40% of the lending industry.

[6] 86.110 Discharge of record by owner and holder of mortgage note who is not the mortgagee of record. (1) Whenever a promissory note secured by mortgage on real property is transferred by indorsement without a formal assignment of the mortgage, and the mortgage is recorded, the mortgage, upon payment of the promissory note, may be discharged of record by the owner and holder of the promissory note making and filing with the appropriate recording officer a certificate, verified by oath, proving the satisfaction of mortgage and declaring, in substance, that the owner and holder is the owner and holder of the note secured by the mortgage by indorsement of the mortgagee and that the note has been fully paid and proving that fact to the satisfaction of the recording officer.

(2) Upon receiving the certificate, the recording officer shall record the document and index the document as a satisfaction of mortgage. The record shall have the same effect as a deed of release of the mortgagee duly acknowledged and recorded. [Amended by 1965 c.252 §3; 2001 c.577 §1]

[7] This statute deals with the method of removing a mortgage from the public record when the note has been transferred (“indorsed”) but there has been no formal recording of an assignment of the mortgage to the current noteholder.

[8] You have to watch this!