Background. As mentioned in an earlier post here, the Niday case, which I have previously commented on here and here as it was winding its way up the appellate process, and its companion case, Brandrup, were recently decided by the Oregon Supreme Court.
- Brandrup presented to the Court four “certified questions” for the judges, sitting as a full panel “en banc”, regarding MERS and its role as henchman for the Big Banks in the Oregon trust deed foreclosure process. The Brandrup opinion is found here.
- Niday, was decided based of the Court’s answers to the certified questions in Brandrup. The Niday opinion is found here.
Before commenting, I have set forth below, the text of the questions and Court’s answers in Brandrup. In an effort to provide a “scorecard”, I have commented in bold text below the questions and answers.
Oregon Supreme Court Decision – Brandrup.
Certified Question No. 1:
May an entity, such as MERS, that is neither a lender nor successor to a lender, be a ‘beneficiary’ as that term is used in the Oregon Trust Deed Act?
[MERS’ and the Big Banks have argued over the years that under MERS’ rules and agreements with its members, that it may be named as the “beneficiary” under the trust deed, and foreclose the borrower in its own name. Borrowers have argued that this is a patent violation of ORS 86.735(1) and 86.705(2), which together say that only a beneficiary may foreclose, and a beneficiary is one that is “benefited” by the note and trust deed. Since MERS is not benefited – i.e. it cannot collect payments as the lender does, for example – it cannot be the “beneficiary.”]
No. For purposes of ORS 86.735(1), the “beneficiary” is the lender to whom the obligation that the trust deed secures is owed or the lender’s successor in interest. Thus, an entity like MERS, which is not a lender, may not be a trust deed’s “beneficiary,” unless it is a lender’s successor in interest.
[Slapdown! MERS and the Big Banks take a wicked left jab to the jaw!]
Certified Question No. 2 [Reframed as follows]:
Is MERS eligible to serve as beneficiary under the Oregon Trust Deed Act where the trust deed provides 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”?
[This argument is based upon the same rationale as the Plan B Pill; always have a back-up plan. So in event that MERS’ primary arguments were rejected, they could resort to their second tier argument and perhaps save themselves from the ignominy of defeat. In short, “law and custom” language in Question No. 2, was argued by MERS to say that if its current business model didn’t comply with Oregon law, then voila! the borrower automatically granted it to MERS as “necessary to comply with law or custom….” This simplistic wish-fulfillment provision was included in all of the Big Bank trust deed forms was because MERS found the ruse far easier than actually researching the law of each state to determine if its business model complied with state law. Ahhh, if life were so simple…. I humbly submit that it is the height of hubris for MERS and the Big Banks to institute a private system for handling the transfer of trust deeds across the entire country, ignoring local recording offices and fees, by foisting this artifice onto the public with not a single law or ordinance permitting it.]
No. A “beneficiary” for purposes of the OTDA is the person to whom the obligation that the trust deed secures is owed. At the time of origination, that person is the lender. The trust deeds in these cases designate the lender as the beneficiary, when they provide: “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.” Because the provision 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 * * * has the right to exercise any or all of those interests,” does not convey to MERS the beneficial right to repayment, the inclusion of that provision does not alter the trust deed’s designation of the lender as the “beneficiary” or make MERS eligible to serve in that capacity.
[Slapdown! MERS and the Big Banks take a solid right hook to the midsection!]
Certified Question No. 3:
Does the transfer of a promissory note from the lender to a successor result in an automatic assignment of the securing trust deed that must be recorded prior to the commencement of nonjudicial foreclosure proceedings under ORS 86.735(1)?
[A short explanation behind this issue is in order: ORS 86.735(1) says all assignments of the trust deed must be recorded if a bank wants to foreclose non-judicially. However, the question remained, was the Oregon legislature referring only to the actual written assignments that accompany the transfer of a trust deed between banks, or did it intend that bank transfers of the promissory note (which resulted in an automatic assignment of the trust deed “by operation of law”) also be recorded?]
No. ORS 86.735(1) does not require recordation of assignments” of a trust deed by operation of law that result from the transfer of the secured obligation.
[Ooops! MERS and the Forces of Evil just got a reprieve – a standing 8-count, so they could collect their thoughts and clear their heads. This is a ruling that MERS clearly won. However, this seems to be a minor setback for the Little Guy, since the Oregon Supreme Court did affirm the purpose of ORS 86.735(1), saying that all trust deed assignments must be recorded before a non-judicial foreclosure can be legally commenced. Speaking for myself alone – not any of the excellent foreclosure defense attorneys out there in the trenches who may strenuously disagree – I am not surprised by this ruling. Why? Because, it seemed to be a backup argument that was being made by foreclosure defense attorneys, “just in case.” Again, speaking for myself, I do not believe the Oregon legislature ever intended it, and to my knowledge, the argument does not appear in appellate cases before the recent series of arguments stemming from the foreclosure crisis, circa 2008+.]
Certified Question No. 4 [Reframed as follows]:
Does the Oregon Trust Deed Act allow MERS to retain and transfer legal title to a trust deed as nominee for the lender, after the note secured by the trust deed is transferred from the lender to a successor or series of successors?
We answer the question, as reframed below, in two parts:
Question No. 4(a):
Does the Oregon Trust Deed Act allow MERS to hold and transfer legal title to a trust deed as nominee for the lender, after the note secured by the trust deed is transferred from the lender to a successor or series of successors?
[This issue arises from MERS business model, which provides that it is the “nominee” of the original bank that loaned funds to the borrower, but also all subsequent transferees of that lender.]
No. For purposes of the OTDA, the only pertinent interests in the trust deed are the beneficial interest of the beneficiary and the legal interest of the trustee. MERS holds neither of those interests in these cases, and, therefore, it cannot hold or transfer legal title to the trust deed. For purposes of our answer to the first part of the fourth certified question, it is immaterial whether the note secured by the trust deed has previously been “transferred from the lender to a successor or series of successors.”
[Slapdown! MERS and the Demon Seed take a hard uppercut to the jaw!]
Question No. 4(b):
Does MERS nevertheless have authority as an agent for the original lender and its successors in interest to act on their behalves with respect to the transfer of the beneficial interest in the trust deed or the nonjudicial foreclosure process?
[In other words, the question is, even though MERS could not call itself a “beneficiary” under the trust deed, was it possible to still conduct foreclosures for its member banks, acting solely as their “agent”?].
The power to transfer the beneficial interest in a trust deed or to foreclose it follows the beneficial interest in the trust deed. The beneficiary or its successor in interest holds those rights. MERS’s authority, if any, to perform any act in the foreclosure process therefore must derive from the original beneficiary and its successors in interest. We are unable to determine the existence, scope, or extent of any such authority on the record before us. [Underscore mine. PCQ]
[The Court is again saying to MERS and the Big Banks: “We already told you that only the beneficiary and its successors in interest can foreclose. But IF you had the authority from them to conduct the foreclosure, i.e. under some delegation of authority such as that given to an agent by a principal, then perhaps you can participate in the foreclosure process. However, when you filed your appeal, you didn’t designate any part of the trial court record supporting this argument.” Hmmm. Here’s my take-away from the Court’s answer to Question 4(b): (i) The agency argument was a fall-back position. If it was one the MERS and Big Banks really believed in, why didn’t they designate any trial court evidence for the Supreme Court to review?; (ii) If it was that simple to foreclose homeowners under simple agency principles, why did MERS create a huge artifice of “memberships”, “membership rules”, phony “Assistant Vice Presidents” and the rest of the sham rules and roles for its members? Why didn’t it just have everyone sign a principal-agent agreement enumerating MERS’ rights, duties and responsibilities as the foreclosure agent for the Big Banks? (iii) I do not read this portion of the Court’s decision to mean that
the Hounds From Hell MERS will soon be unleashed as foreclosure agents on Oregon homeowners anytime soon.]
The following portion of the Oregon Supreme Court’s opinion on this issue provides a hint of the difficulty MERS and the Big Banks still face if they decide to step back into the business of non-judicially foreclosing Oregon homeowners:
According to defendants and MERS, courts examining the issue recognize that MERS’s role as nominee or agent carries forward to subsequent obligees — indeed, defendants assert, that was one of the very purposes for the creation of MERS. [Citations omitted.] Those propositions notwithstanding, the difficulty is that, on the record before us, it is unclear whether such a broad common agency relationship exists in these cases among MERS and the original lenders and their successors in interest. The trust deeds, by themselves, do not establish the necessary relationship; they instead confuse the issue by first granting MERS the seemingly-narrow status of a “nominee” and then purporting to grant MERS authority to “exercise” other “interests” if “necessary.” More importantly, although the trust deeds are signed by the borrowers, the original lenders and their successors, who are the other parties under defendants’ theory of “common agency,” are not signatories. Accordingly, the answer to the second part of the fourth question depends, in large measure, on evidence with respect to who ultimately holds the relevant interests in the notes and trust deeds, and their behalves in the necessary respects. And that evidence is not present in the record before us. [Underscore mine. PCQ]
Oregon Supreme Court Decision – Niday
This case came to the Oregon Supreme Court from the Oregon Court of Appeals. My analysis of the Court of Appeals’ decision is found here and here. The Court of Appeals overruled the trial judge’s granting of a summary judgment in favor of the lender, GMAC Mortgage, LLC and Executive Trustee Services, Inc., and against Mr. and Mrs. Niday.
The Oregon Supreme Court affirmed the Court of Appeals decision [undoubtedly after reading my riveting analysis], and reversed the trial court’s granting of summary judgment in favor of the lender and foreclosure trustee. Double Slapdown! There is no question that the Niday Supreme Court holding gives the Little Guy, a “W” in the Win Column. Now the case will go back to the trial court, and following the guidance provided in Brandrup, evidence and testimony will focus on whether sufficient agency authority existed for MERS to have acted in the capacity of the beneficiary, i.e. GMAC Mortgage, LLC.
So Who “Won” and Who “Lost”? In Brandrup, Questions No. 1 and No. 2 were in favor of the Little Guy. Question No. 3 [note transfers need not be publicly recorded] was in favor of the Devil’s Spawn. However, as pointed out above, I do not regard this pro-MERS ruling as fatal to the cause of Good vs. Evil. All trust deed assignments still must be recorded – exactly as ORS 90.635(1) has said for decades. The only thing the Dark Side won was the right to continue passing around promissory notes like STDs – something they’d been doing for years [until some enterprising foreclosure defense attorney made the argument that under the Uniform Commercial Code, note transfers resulted in an assignment of the trust deed “by operation of law” and therefore also needed to be recorded under ORS 86.735(1)].
Had the Oregon Supreme Court ruled that note transfers had to be recorded – something the Oregon legislature had likely never intended when the law was enacted over fifty years ago – it would have imposed an almost impossible burden on the Big Banks to retrace their steps, create formal assignment documents, and record them, should they ever want to conduct non-judicial foreclosures again. Thus, while I may have liked to see the Court require it, the final ruling on Question No. 3 probably reached the most pragmatic result.
In Niday, the Oregon Supreme Court affirmed the Court of Appeals decision. It reversed the trial court. This was clearly a win for the Nidays. So by my count, it appears MERS and the Big Banks came out holding the short straw. The only thing they “won” was a single issue that they could never have complied with anyway, and that win did not disturb the inviolability of ORS 86.735(1) requiring the recording of formal trust deed assignments, or ORS 86.705(2) affirming that the beneficiary under a trust deed must be “…the person for whose benefit a trust deed is given….”
So Riddle Me This Batman: Why Are Brandrup and Niday Being Hailed as Big Wins For MERS and the Dark Side? Here’s what appears on the MERS, Inc. website under the headline: “MERS’ Core Functions Unaffected by Oregon Supreme Court Rulings”:
Reston, Virginia, June 6, 2013 — We view today’s opinions from the Oregon State Supreme Court as consistent with Mortgage Electronic Registration Systems, Inc.’s (MERS) role and authority to act on behalf of lenders in Oregon. Ruling in Brandrup v. Recontrust Company, N.A and Niday v. GMAC Mortgage, LLC., the Court said, “if it can be shown that the original lenders and their successors conferred sufficient authority on MERS, to act on their behalves in the necessary respects, MERS may have the authority, as the true beneficiary’s agent, to hold and transfer interests in the trust deed.” We are confident that we have and can prove such authority.
The Court also held that Oregon’s nonjudicial foreclosure statute “does not require recordation of ‘assignments’ of the trust deed by operation of law that result from the transfer of the secured obligation.” These rulings will allow lenders to move forward with nonjudicial foreclosure proceedings in the state.
Hmmm. Have I got this right? The Forces of Good didn’t lay a glove on you? MERS got a goose egg in Niday, and scored only one point out of three for the Little Guy in Brandrup.1] Of course, MERS’ press release isn’t very specific, but the real story is that it lost almost every argument that it made to the Oregon Supreme Court, which, in a final flip of the judicial finger to MERS and Hades’ Henchmen, also affirmed the Court of Appeals ruling in favor of Mr. and Mrs. Niday.
So what’s this BS Bank Stuff about the Court’s rulings not affecting MERS’ “core functions”? Are they referring to MERS’ bogus business model of creating fictitious directors, with fictitious signing authority, fictitiously calling MERS a “beneficiary” in clear violation of Oregon law, and using an off-record private electronic system to circumvent the public recording rules and fees? Is this the “core function” that remains “intact” following Niday and Brandrup? If so, then presumably we can expect the Big Banks to immediately cancel their judicial foreclosures and go back to foreclosing Oregonians non-judicially, just like they did Good Ol’ Pre-Niday Days. After the Big Banks get through high-fiving and fist-bumping each other over the Court’s ruling, I suspect they will catch their breath and, in a rare moment of introspection, ask themselves if this really was a “victory.”
I doubt little will change on the foreclosure front. I hope I’m wrong; I believe that the non-judicial foreclosure process is much more humane than the slow drip, drip, drip, water torture Oregon homeowners must endure in the judicial foreclosure process. Here is what MERS and its Big Bank lawyers will have to decide:
- Does it, under its membership rules in effect at the time of the creation of the note and trust deed, have adequate agency authority to participate in Oregon non-judicial foreclosures? We know from what the Court said in its answer to Question No. 4(b) in Brandrup that: ‘The trust deeds, by themselves, do not establish the necessary relationship; they instead confuse the issue by first granting MERS the seemingly-narrow status of a “nominee” and then purporting to grant MERS authority to exercise other interests “if necessary.”’
- Is being a “Nominee” for the lender sufficient for purposes of conferring agency authority on MERS to act? In the Glossary Section of the MERS® System Rules of Membership [March 18, 2013], the word “agent, “agency,” or “principal” do not appear. The word “Nominee” is defined as follows: “Nominee means one designated to act for another as his representative in a limited sense; the agency relationship specifically expressed in the terms of the Fannie Mae / Freddie Mac Uniform Security Instruments identifying MERS as the Original Mortgagee (MOM).” [Underscore mine.]
- And quoting the challenge from Harry Callahan in Dirty Harry (1971), when considering resuming non-judicial foreclosures, the Big Banks are going to have to ask, “Do I feel lucky?” Speaking as a majority of one, I believe MERS and the Big Banks will have to examine the current judicial climate in Oregon and consider the Court’s observation in Brandrup that “…the original lenders and their successors, who are the other parties under defendants’ theory of “common agency,” are not signatories [to the trust deed].” [Answer to Question No. 4(b)] In other words, the essential theory that MERS may act as agents in futuro for unknown and unidentified assignees, will depend upon the answer to an issue the Oregon Supreme Court did not address – but seemed skeptical about.
The Take-Away. My guess is that the Oregon foreclosure process will not change for the foreseeable future. The only nod MERS got from the Oregon Supreme Court was that IF it could establish the necessary authority under agency principals that: (a) Are not articulated in their trust deeds; (b) Are intended to apply over the life of the note and trust deed, to banks that were never identified at the time of the original loan; and (c) Are not even defined in its members’ rules, then maybe – just maybe – it can begin non-judicially foreclosing Oregonians again.
So if the Big Banks resume non-judicial foreclosures, borrowers contesting them in court will likely avoid dismissal or summary judgment – thus forcing the Evil One to trial on an unanswered question of fact – do MERS’ bogus membership rules create a true agency relationship sufficient to participate in Oregon’s non-judicial foreclosure process? It is for this reason that I would be surprised to see non-judicial foreclosures resume anytime soon. And if I’m wrong, that’s OK with me, since non-judicial foreclosures are far faster than judicial foreclosures, and thus, will hasten the flow of shadow housing inventory back into the marketplace – which is a good thing.
 Brandrup won Question No. 1, Question No. 2, and Question No. 4(a); Question No. 3 went to MERS; As for Question 4(b), the Supreme Court said that it could not determine if MERS was entitled to act as the agent for the beneficiary in non-judicial foreclosures because it did not present any evidence on the appellate record to support the argument.