In a important decision on the future role of MERS in Oregon’s non-judicial foreclosure process, the Oregon Supreme Court answered four certified questions that had been submitted to it. Herewith, verbatim, is a copy of the media release. This is not the court’s written opinion. The release contains a link to the official opinion. [Note: I changed the formatting slightly for readability. PCQ]
SUPREME COURT Media Release Contact: The full text of these opinions can be found at http://www.publications.ojd.state.or.us/ Stephen P. Armitage Staff Attorney (503) 986-7023
Cases decided June 6, 2013
Bart G. Brandrup, et al., v. Recontrust Company, N.A., et al., (USDC Case No. 311CV1390HZ, 311CV1399HZ, 311CV1533SI, 312CV0010HA) (SC S060281)
On certified questions from the United States District Court. The certified questions are answered. Opinion of the Court by Justice David V. Brewer. Justice Rives Kistler concurred in part and dissented in part, and filed an opinion in which Chief Justice Thomas A. Balmer joined.
Today, the Oregon Supreme Court issued an opinion answering four questions that had been certified to it by the United States District Court. The questions all pertain to the Oregon Trust Deed Act (OTDA) and how it is affected by the practice in the home mortgage industry of drafting mortgages and trust deeds so that a certain Delaware corporation, Mortgage Electronic Registration Systems, Inc. (MERS), rather than the lender, is identified as the security instrument’s “beneficiary.” The questions arose when home loan borrowers in four separate cases brought actions in state court against MERS and other entitles that were attempting to use the nonjudicial foreclosure procedures of the OTDA to foreclose the trust deeds securing plaintiffs’ home loans. In each case, plaintiffs sought to enjoin the foreclosure on the ground that a condition for nonjudicial foreclosure set out in ORS 86.735(1) — that any assignments of the trust deed by the “beneficiary” be recorded in the relevant county real property records — had not been satisfied. In each case, defendants removed the case to federal court and then filed a motion to dismiss under FRCP 12(b)(6), arguing that MERS was the lawful beneficiary under the trust deeds and that all assignments of the trust deeds by MERS had been recorded. Uncertain as whether MERS could be deemed the “beneficiary” of the trust deeds in question under the OTDA, and, if not, what role MERS could play under the statute, the United States District Court certified the following (reframed) questions to the Oregon Supreme Court:
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?
2. 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”?
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)?
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?
(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 an opinion authored by Justice David V. Brewer, the Supreme Court answered the first question “No.” The Court observed that, for purpose of the OTDA, the “beneficiary” of a trust deed is the person to whom the obligation that the trust deed secures is owed (or that person’s successor in interest) and that, in the typical trust deed, that person is the lender whose right to repayment the trust deed secures. The Court concluded that, unless MERS somehow succeeded to the lender’s right to repayment, it could not be the trust deed’s beneficiary for purposes of the OTDA.
The Court’s answer to the second certified question also was “No.” The Court explained that the quoted “law or custom” provision in the trust deed does not convey to MERS the interest in the secured obligation that a party must have to qualify as the trust deed’s “beneficiary” — the right to repayment of the underlying obligation.
The Court explained that the third certified question focused on the meaning of the word “assignments” in ORS 86.735(1), which allows nonjudicial foreclosure under the OTDA only if “any assignments of the trust deed by the * * * beneficiary” have been recorded. The Court acknowledged that, in Oregon, ownership of a trust deed is automatically transferred, by operation of law, when the underlying promissory note is transferred. However, it concluded that the term “assignments” in ORS 86.735(1) did not pertain to transfers of that kind.
Finally, with respect to the fourth question, the Court opined that (a) insofar as MERS does not have the right to receive repayment of the notes that the trust deeds in these cases secures, it cannot hold legal title to those trust deeds under the OTDA, or transfer legal title to another entity; but (b) 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 authority, as the true beneficiary’s agent, to hold and transfer interests in the trust deed. 3
Justice Rives Kistler concurred in part and dissented in part in an opinion joined by Chief Justice Thomas A. Balmer. Justice Kistler concurred in the majority’s answers to the last two certified questions, agreeing that not every assignment of the lender’s interest in the trust deed must be recorded and that MERS may serve as the agent for both the lender and its successors if the record shows that the parties agreed to that arrangement. Justice Kistler would answer the first two certified questions differently, however. In his view, the statutory definition of “beneficiary” in ORS 86.705(2) is broad enough to permit the parties to a trust deed to designate MERS as the beneficiary as long as MERS is the nominee or agent of the lender and its successors in interest.
Rebecca Niday v. GMAC Mortgage, LLC, et al., (TC CV1002001) (CA A147430) (SC S060655)
On review from the Court of Appeals in an appeal from Clackamas County Circuit Court, Henry C. Breithaupt, Judge. 251 Or App 278, 284 P3d 1157 (2012). The decision of the Court of Appeals is affirmed. The judgment of the circuit court is reversed, and the case is remanded to that court for further proceedings. Opinion of the Court by Justice David V. Brewer. Justice Rives Kistler concurred in part and specially concurred in part, and filed an opinion in which Chief Justice Thomas A. Balmer joined.
Today, in a home loan borrower’s challenge to a nonjudicial home foreclosure instigated under the Oregon Trust Deed Act (OTDA) on behalf of Mortgage Electronic Recording System, Inc. (MERS), the Oregon Supreme Court held that a trial court had erred in granting summary judgment to MERS and the other defendants. The court concluded that there were genuine, unresolved issues of fact with respect to the issue of MERS’ authority to initiate or direct a foreclosure under the OTDA.
The case arose when plaintiff Rebecca Niday, a home loan borrower who had signed a trust deed to secure her home loan, received notice from defendant Executive Trustee Services, Inc. (ETS) that it intended to employ the “advertisement and sale” provisions of the OTDA to foreclose on her home on behalf of MERS, the purported beneficiary of the trust deed. Plaintiff brought an action for declaratory and injunctive relief against ETS, MERS, and the servicer of her home loan, GMAC Mortgage, LLC, alleging and arguing that, although the trust deed identified MERS as the “beneficiary” of the trust deed, neither MERS nor any of the other defendants had any apparent legal or beneficial interest in the trust deed that would allow them to foreclose under the OTDA (MERS purports to serve as the beneficiary of all trust deeds that belong to the lenders and investors who are its members). Plaintiff also argued that, insofar as the original true beneficiary — her lender — apparently had transferred its interest in the promissory note underpinning the trust deed to another entity without recording an assignment of the trust deed in the relevant county land records, a statutory prerequisite for foreclosure under the OTDA — that “any assignments of the trust deed by * * * the beneficiary * * * [be] recorded,” ORS 86.735(1) — had not been satisfied. Defendants moved for summary judgment, arguing that plaintiff’s arguments failed because MERS in fact was the trust deed’s “beneficiary” within the meaning of the OTDA. The trial court agreed with defendants and granted the motion. On Niday’s appeal, the Court of Appeals reversed, holding that MERS was not the trust deed’s “beneficiary,” and that there was a genuine issue of fact as to whether the prerequisite of ORS 86.735(1) had been satisfied (i.e., as to whether the true beneficiary had assigned the trust deed without recording the assignment).
In an opinion authored by Justice David V. Brewer, the Oregon Supreme Court affirmed. Applying the answers it had provided in Brandrup v. ReconTrust Co., __ Or __ (June 6, 2013) to questions about MERS and the OTDA certified by the United States District Court, the Court held that MERS was not and could not be the trust deed’s beneficiary within the meaning of the OTDA, but that any transfer of the promissory note by the original true beneficiary to another entity was not an assignment within the meaning of ORS 86.735(1) (and, as such, need not be recorded in the relevant county land records as a condition precedent to nonjudicial foreclosure under the OTDA). Accordingly, the Court disagreed with the Court of Appeals’ conclusion that a genuine issue of material existed as to whether the recording requirement of ORS 86.735(1) had been satisfied.
However, the Court concluded that an issue of fact did remain with respect to whether MERS possessed a legal interest in the trust deed and underlying note that would allow it to initiate foreclosure under the OTDA. The Court explained that, although MERS clearly had no such interest in its own right, it might have authority to act on behalf of the true beneficiary — if it could demonstrate that it had an agency relationship with the beneficiary and the agency agreement was sufficiently expansive. But, the Court concluded, the summary judgment record did not contain evidence that established those matters beyond genuine dispute, and summary judgment therefore was improper.
Justice Rives Kistler concurred in part and specially concurred, joined by Chief Justice Thomas A. Balmer. For the reasons stated in Justice Kistler’s opinion concurring in part and dissenting in part in Brandrup v. Recontrust Company, N.A., __ Or __, __ P3d __ (June 6, 2013), Justice Kistler concurred in part in the majority’s reasoning and in its judgment in Niday.
I will evaluate these decisions in a later post after the chatter dies down. Part of the significance of the two cases depends on how the banks react to them; e.g. will they go back to doing non-judicial foreclosures? How will they deal with SB 558, the new law that says they have to sit down with borrowers eye-to-eye, and try to negotiate foreclosure avoidance solutions? The Big Banks hold their cards notoriously close to their chest, so it will likely be their actions – not their words – that will really tell us what they’re up to. ~PCQ