MERS Smackdown! Niday Analyzed – Part Two

This is the second post of two, analyzing the recent Oregon Court of Appeals ruling on MERS.  The first post can be found here.  The Court’s written decision can be found here.

Issue Two

Can MERS act as a “Nominal Beneficiary” in the trust deed for purposes of avoiding the requirement under  ORS 86.735(1) that to conduct a non-judicial foreclosure in Oregon, any successive assignments of the trust deed must be recorded?

Besides the epic battle between Good and Evil, Right and Wrong, Light and Darkness, reduced to its simplest form, the disagreement between Big Banks and Bantam Borrowers is this:

  • Borrowers maintain that ORS 86.735(1) means what it says, i.e. that before a non-judicial foreclosure may be lawfully commenced, any time the trust deed has been assigned, the event must be recorded in the county records.  
  • Banks argue that since MERS is the “beneficiary” under the trust deed, the only assignment that is necessary to record is the one from MERS to the foreclosing bank.  They say that all of the intermediary assignment that may or may not[1] have been electronically “registered” should not have to be recorded, since MERS is the nominal beneficiary for everyone, now and in the future. [This results in what I have referred to as the “Hail Mary Pass” in prior posts on the subject, here and here: When a borrower goes into default, MERS, as the “nominal beneficiary” for the original lender [and all successive transferees of the lender’s promissory note], makes a “single assignment” pass over the heads of the intermediate transferees, and the trust deed lands neatly in the waiting arms of another Big Bank to commence the foreclosure in its own name.]

GMAC argued that the Niday Trust Deed clearly provided that MERS was the “Beneficiary” for GreenPoint and all of its successors and assigns.  Therefore, according to their theory, the transfer to Aurora did not need to be publicly recorded, since MERS was still holding the trust deed as the named “Beneficiary.”  [It is this ruse that has caused jurists, such as senior federal Judge Owen Panner in the Hooker case, to observe that MERS appears to be acting simply as a “strawman.” – PCQ]  And digging deeper and deeper into their Bag O’ Tricks, the bank lawyers emphasized that nothing in the Oregon Trust Deed Act “…expressly prohibits the parties from contractually agreeing to designate MERS in that way.”[2]

Judge Nakamoto summarily dismissed this non-benefited beneficiary argument:

“We are not persuaded that the legislature intended circularity and redundancy in defining beneficiary. The legislature could have simply defined “beneficiary” as the person named or otherwise designated in a trust deed as the beneficiary. Instead, the legislature used the phrase ‘the person for whose benefit a trust deed is given[.]’ We presume that the legislature used that different language for a reason.” [Underscore mine.]

“That is, we presume that the legislature intended the phrase ‘person for whose benefit a trust deed is given’ to add some content to the definition of beneficiary. Considering the statutory and historical context of the OTDA, we are persuaded, further, that the legislature understood the ‘person for whose benefit a trust deed is given’ to refer to a particular person–namely, the person to whom the underlying secured obligation is owed.”

And when the bank attorneys argued that the borrowers agreed to the ruse by signing the trust deed saying that MERS could act as the nominal beneficiary, the judge responded:

“…this case is not about the parties’ freedom of contract or their intent; it is about legislative intent. That is, the OTDA authorizes nonjudicial foreclosure only when certain statutory requirements are met, regardless of what the parties might have believed when they executed the trust deed. Thus, the fact that plaintiff “contractually agreed that MERS was the beneficiary in its capacity as agent (nominee) for the lender, its successors and assigns” does not determine whether MERS is the beneficiary for purposes of the OTDA.”

Smackdown!  Gosh!  I guess this means that for the time being, the Big Banks can’t create their own legal loophole to avoid Oregon recording and foreclosure laws, insert it into their trust deeds that borrowers sign, but neither read nor understand, and then enforce that loophole against the Little Guy.

  Holding on Issue Two

The Niday court held that in order to come within the definition of a “beneficiary” in ORS 86.705(2), one must be the “person for whose benefit a trust deed is given.” MERS is not a “beneficiary” under the statute because it isn’t the one receiving the benefit – rather, in this case, the original lender identified in the promissory note was the real “Beneficiary.” Thus, under the facts of Niday, only the original lender – or its legal assignee who has the right to receive payments – not MERS, may assign the trust deed.  Ergo, recording an assignment from MERS to GMAC failed to comply with ORS 86.735(1).

Combining the two holdings together, and paraphrasing Judge Nakamoto, Niday stands for the general proposition that:  The “beneficiary” of a trust deed under the Oregon Trust Deed Act is the person designated in that trust deed as the person to whom the underlying loan repayment obligation is owed. If a trust deed designates a lender as the party to whom the secured obligation is owed, and there is evidence that the lender assigned its beneficial interest in the trust deed [by formal assignment of the trust deed or informally by indorsement of the promissory note] but failed to record that assignment, it violates ORS 86.735(1). Thus, the resulting foreclosure is void. 

Is there a take-away – a message, perhaps – that we might glean from Niday?  Yes.  It is this: Plain English Prevails.  Despite the efforts of the FMA’s, words are best understood in their simplest, most common sense.  “Beneficiary” is one who is “benefited.”  “Any” means “any.”  Dissecting, parsing, and contorting simple words to fit one’s argument flies in the face of common sense.   Obfuscation is the hallmark of a losing argument.

Conclusion.  How much of a victory is Niday for the Little Guy?  Well, it’s another nail in the MERS coffin, especially in Oregon.  But issues remain, and it’s too early to write the obituary of this fictional, flawed, and fatuous business model.  What other industry would have the temerity to think that it could circumvent all the recording laws across the country by simply writing into its boilerplate legal documents language that permits them to do so?  What’s wrong with going to the state legislatures and working within the system? [3] The answer, of course, is that for the Big Banks, it’s easier to seek forgiveness than permission.  So far, though, they’ve sought neither.

It is expected that Big Bank Attorneys will do their best to dissect Judge Nakamoto’s words, syllable by syllable, arguing that white is black and black is white.  And lest I be accused of giving aid and comfort to the enemy, I am not going to discuss, examine, or predict, where they will go next. Suffice it to say, the ball’s in their court.

Epilogue From the Nuts and Dolts Department:  Following this decision, one disgruntled Big Bank attorney was heard to complain that Ms. Niday’s suit should never have been filed, inasmuch as she was already in default and couldn’t cure. This mindless remark ignores basic American concepts of justice, in favor of a “Might Makes Right” mentality.

My response: In law school we learned of a principle in criminal law with the colorful name “The Fruit of the Poisonous Tree.”  The rule, which has been followed by most courts for years, was harsh.  It held that if evidence was illegally obtained, say by the failure to give a Miranda warning, or an unlawful warrantless search, that evidence would be excluded from trial.  The purpose of the rule was to discourage law enforcement from violating basic constitutional rights of the accused – even if they might be guilty.  If the tree is poisoned, then so is its fruit.

The underlying principle in Niday is exactly the same.  If the process leading up to the foreclosure is illegal, then the result will not stand.  It is irrelevant whether the homeowner was in default, any more than whether a criminal is guilty.  All are entitled to be judged under the rule law.  The principles announced in Niday exist to deter Big Banks from ignoring borrowers’ legal rights.  They should not be rewarded with the recovery of someone’s home through the non-judicial foreclosure process, if they have illegally flaunted that process.  Or, as explained in the closing words of Justice Nakamoto’s opinion:

 “[T]he import of our holding is this: A beneficiary that uses MERS to avoid publicly recording assignments of a trust deed cannot avail itself of a nonjudicial foreclosure process that requires that very thing– publicly recorded assignments.”

[1] Memo to Big Banks: Nothing is “required” except for MERS members to pay their dues for the privilege of participating in this massive sham.  This is one of the reasons that the “electronic registry” is unreliable.  Banks are not required to register their transfers.

[2] This is the sort of argument that gives attorneys a bad name – i.e. a willingness to make absurd arguments.  Of course the OTDA doesn’t expressly exclude the MERS model of appointing a “nominee” or “agent” as a Blanket Beneficiary under a trust deed into perpetuity.  Oregon law doesn’t expressly prohibit lenders from appointing The Mad Hatter as a nominal beneficiary either.  The absence of a prohibition doesn’t make it legal within the framework of the Oregon Trust Deed Act.  Remember, from 1959 on, until MERS entered the scene, the “beneficiary” in all Oregon trust deeds was the lender – not some fictional strawman.

[3]It can’t be that hard to find other Quislings, like State Senator Whisnant from Sunriver in Deschutes County – Oregon’s “Ground Zero” for the housing and foreclosure crisis – and getting him to carry some Draconian pro-lender bill to the Oregon Legislature.  He’s done it for the Big Banks in the past, so maybe he’ll do it again.