Friday, July 20, 2012

FYI: Oregon App Ct Holds MERS Cannot Initiate Non-Judicial Foreclosure

The Oregon Court of Appeals recently held that MERS did not have authority to initiate a non-judicial foreclosure under Oregon's Trust Deed Act, because MERS was not the party to whom the underlying repayment obligation was owed. 
A copy of the opinion is available at:
Plaintiff ("Borrower") entered into a home loan agreement with a lender ("Lender"), executing a deed of trust that named Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary under the trust deed.   The promissory note indicated that Borrower would pay Lender the amounts specified therein.
Borrower eventually defaulted on the loan, and a successor trustee was appointed under the trust deed.  Borrower later received a notice of trustee's sale that identified MERS as Lender's nominee and as the beneficiary under the deed of trust with the power of sale.  Borrower allegedly contacted the trustee's agent, demanding among other things cancellation of the sale and a chain of title to the trust deed and note.  Although Borrower claimed that she never received a response to her communications, the trustee's sale was apparently rescheduled. 
In an effort to stop the trustee's sale, Borrower filed an action against the servicer of the loan ("Servicer"), MERS, and others (collectively "Defendants"), seeking declaratory and injunctive relief.  Borrower argued in part that, notwithstanding the trust deed's designation of MERS as the "beneficiary," MERS was not the true beneficiary under Oregon's non-judicial foreclosure law, as MERS was not entitled to receive payments on the underlying obligation.  Borrower also contended that Defendants had failed to provide evidence that they had any legal interest in the Note or trust deed in the form of recorded assignments that allowed them to foreclose.
Defendants moved for summary judgment, arguing that Servicer, as the note holder, and MERS, as the beneficiary, were entitled to foreclose the trust deed.  The trial court granted summary judgment in favor of Defendants, ruling that MERS was the beneficiary of the trust deed under Oregon's Trust Deed Act (OTDA) and that the statutory requirements for non-judicial foreclosure had been satisfied.
Borrower appealed.  The Court of Appeals reversed and remanded, ruling that MERS was not the true "beneficiary" under the deed of trust, and that there was a question as to whether Lender, as the true beneficiary, had satisfied the requirement to record the assignment of its interest in the trust deed.
As you may recall, the OTDA provides:  "As used in [the OTDA], unless the context requires otherwise:  . . . (1)'Beneficiary' means 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. . . ."  ORS 86.705.
In addition, the OTDA specifies that a trust deed is "deemed to be a mortgage on real property" generally "subject to all laws relating to mortgages on real property." ORS 86.715.  The OTDA further provides that a trustee under a trust deed may undertake a non-judicial foreclosure if: (1) "the trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in the mortgage records in the counties in which the property described in the deed is situated"; (2) the grantor defaults; (3) the trustee or beneficiary has recorded a notice of default in the county clerk's office; and (4) no action has been instituted to recover the debt. See ORS 86.735(1)-(4).
Noting that one of the requirements for a non-judicial foreclosure is the recording of "any assignments of the trust deed by the trustee or the beneficiary," the Appellate Court focused on whether there had been an unrecorded assignment by the "beneficiary" under the trust deed. 
In so doing, the Court examined the OTDA's definition of the term "beneficiary" and ultimately concluded that the statutory phrase, "the person for whose benefit a trust deed is given" referred in this case to Lender, who was identified in the trust deed as the party to whom Borrower owed the obligation.
Thus identifying Lender as the "beneficiary" under the trust deed, the Appellate Court rejected Defendants' argument that the parties had contractually agreed that MERS would be the beneficiary under the trust deed.  The Court stated, "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."
The Appellate Court also rejected Defendants' assertion that the OTDA allows the appointment of an agent of the beneficiary of record, such as MERS, in that the language in the OTDA itself expressly states that the statute's definitions apply "unless the context requires otherwise." See ORS 86-705.  Applying the historical treatment of mortgages to this case, the Court observed that "the underlying debt and the security for that debt were not separately transferrable; the party who benefited from the mortgage and the party to whom the obligation was owed were one and the same."  
Moreover, in noting that the OTDA distinguishes between a "beneficiary" and a "beneficiary of record," the Court pointed out that the beneficiary of a trust deed might not be reflected in the public records where the promissory note has been transferred by indorsement without a recorded assignment, in which case a non-judicial foreclosure would not be permissible, since the OTDA requires that "any assignments" be recorded. 
Accordingly, the Court of Appeals ruled that the trial court erred in granting summary judgment for the Defendants, because there was no evidence that Lender had recorded the assignment of its interest in the note to any of the Defendants.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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