IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

IVAN
HOOKER,
HOOKER and KATHERINE
Plaintiffs, Civ. No. 10-3111-PA
v.
ORDER
NORTHWEST TRUSTEE SERVICES,
INC.; BANK OF AMERICA, N.A.;
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.,
Defendants.
PANNER, J.
Before the court is a mot to dismiss (#8) and request for
judicial notice (#6) by Bank of America, N.A. and Mortgage
Electronic Registration Systems, Inc. (MERS).: Defendants'
request for judi al notice is GRANTED. Defendants' motion to
dismiss is DENIED. Plaint if ' request for a de ratory judgment
is GRANTED.
Plainti dismissed their claims against Northwest Trustee
Services, Inc (Northwest).
ORDER 1
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 1 of 16 Page ID#: 393
BACKGROUND
where noted, the following background is
or judicially noticeable materials.
On November 17, 2005, plaintiffs obtained a loan from GN
Mortgage, LLC. A trust deed secured the loan. The note and trust
list GN as the lender. The trust deed lists MERS as the
MERS is not listed on the note. The trust deed lists
Trustee Services Corp. as trustee. On November 23, 2005,
trust was recorded in the Jackson County land records.
In r 2009, plaintiffs defaulted. On May 3, 2010,
MERS ass trust deed to Bank of America. Also on May 3,
MERS appointed Northwest successor trustee. That same day,
Northwest executed a notice of default and election to sell. On
May 7, 2010, defendants recorded the May 3 assignment of the
trust deed, appointment of successor trustee, and notice of
It and election to sell.
On September 7, 2010, plaintiffs filed the complaint in
state court. On September 13, 2010, Wells Fargo Bank, N.A., as
attorney in for Bank of America, appointed Northwest
successor trustee. On September 16, 2010, Northwest executed a
res ssion of the notice of default recorded on May 7, 2010. Also
on r 16, 2010, Northwest executed a second notice of
e ion to sell. On September 20, 2010, defendants
the September 16, 2010 appointment, rescission, and
2 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 2 of 16 Page ID#: 394
second notice of default.
On October 7, 2010, defendants removed the case to this
court. On January 19, 2011, pursuant to my order, defendants
submitted a complete chain of title for the note and trust deed.
Defendants' chain of title included a copy of a January 3, 2011
"MIN Summary and Milestones." (Jan. 31, 2011 McCarthy Decl., Ex.
1, 1-2.) The MIN Summary is how MERS members track transfers of
servicing and ownership rights of loans within the MERS system.
According to the MIN Summary, on December 9, 2005, Guaranty Bank,
FSB transferred the beneficial interest in the trust deed to
Wells Fargo Home Mortgage. (Jan. 31, 2011 McCarthy Decl., Ex. 1,
1-2.) Although Guaranty Bank appears to have been the original
servicer of the loan, the record is silent as to how or when
Guaranty Bank obtained the beneficial interest in the trust deed.
On December 14, 2005, Guaranty Bank transferred the
servicing rights to Wells Fargo Home Mortgage. (Jan. 31, 2011
McCarthy Decl., Ex. 1, 2.) On July 15, 2006, Wells Fargo Home
Mortgage transferred the benefic interest in the trust deed to
Bank of America. (Jan. 31, 2011 McCarthy Decl., Ex. 1, 2.)
Defendants did not record the transfer of the beneficial interest
in the trust deed from Guaranty Bank to Wells Fargo or from Wells
Fargo to Bank of America in the Jackson County land records. As
noted above, defendants did record a May 3, 2010 assignment of
the trust ed from MERS to Bank of America.
3 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 3 of 16 Page ID#: 395
STANDARDS
On a motion to smiss, the court reviews the s ficiency of
the comp into Scheuer V. Rhodes, 416 U.S. 232, 236 (1974). This
review is generally limited to the allegations in the complaint,
exhibits attached to the complaint, and judicially noticeable
materials. Swartz V. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007).
To survive a motion to smiss under Rule 12(b) (6), a complaint
must contain sufficient cts that "state a cia to rei f that
is plausib on s face." Ashcroft v. Iqbal, 129 S.Ct. 1937,
1949 (2009). This plausibil y standard requires the pleader to
present facts that demonstrate "more than a sheer possibility"
that defendant is liable for the alleged misconduct. Id.
In considering a motion to dismiss, a court must distinguish
between the factual allegations and legal conclusions asserted in
the complaint. 1 allegations of material fact are taken as
true and construed in the light most favorable to the nonmoving
party. American Family Ass'n, Inc. V. City & County of San
Francisco, 277 F.3d 1114, 1120 (9th Cir. 2002). At the pleadings
stage, "a plaintiff's obligation to provide the 'grounds' of his
'entitle[ment] to relief' requires more than labels and
conclusions." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007). Therefore, if the well-pleaded factual allegations
plausibly give rise to the relief sought, a court shall deny the
motion to dismiss. Iqbal, 129 S.Ct. at 1950.
4 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 4 of 16 Page ID#: 396
DISCUSSION
I. Judicial Notice
ral Rule of Evidence 201 states a court may take
judicial notice of a ct outside the ngs if the is
"capable of accurate and ready determination by resort to sources
whose accuracy cannot reasonably be questioned." Lee v. City of
250 F.3d 668, 689 (9th Cir. 2001), impliedly
overruled on other grounds as discussed in Gallardo v. Dicarlo,
203 F.Supp.2d 1160, 1162 n.2 (C.D. Cal. 2002). Defendants st
the court take judicial notice of the following documents
reco September 20, 2010: (1) rescission of the May 3, 2010
notice of default and e ction to sell; (2) September 13, 2010
appointment of successor trustee; and (3) ember 16, 2010
notice of default and election to sell. document is recorded
in the Jackson County land records. De s' request r
judici notice (#6) is GRANTED.
II. Motion to Dismiss
Under the Oregon Trust Deed Act, means
person or otherwise ignated in a trust deed as the
person whose benefit a trust deed is given, or the person's
successor in interest " ORS 86.705(1). The trust at
issue states:
The ficiary of this Security Instrument is MERS
(so ly as nominee r Lender and r's successors
and assigns) and successors and assigns of MERS.
5 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 5 of 16 Page ID#: 397
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.
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 ght to foreclose and s 1 the
Property; and to take any action reguired of Lender
including, but not limited to, releasing and cancelling
this Security Instrument.
(Notice of Removal, Ex. 1, 8 (emphasis added).)
Although the trust deed lists MERS as the nominal
bene ciary "solely as a nominee for Lender . .. ," (Notice of
Removal, Ex. 1, 7), the deed makes clear that MERS is not "the
person for whose benefit a trust deed is given," ORS 86.705(1).
Instead, the trust deed con rms that GN holds the beneficial
interest. The trust deed lists GN, not MERS, as "Lender." (Notice
of Removal, Ex. 1, 6.) All payments on the loan are owed to GN,
not MERS. (Notice of Removal, Ex. 1, 8.) GN, not MERS, "may
invoke the power of sale and any other remedies permitted by
Applicable Law." (Notice of Removal, Ex. 1, 18, ~ 22.)
While the trust deed lists MERS as the nominal beneficiary,
the trust deed does not authorize MERS to take any actions on its
own behalf. First, MERS holds only legal t Ie to the trust deed.
(Notice of Removal, Ex. 1, 8.) Second, MERS acts solely as
ORDER 6
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 6 of 16 Page ID#: 398
nominee for GN. (Notice of Removal, Ex. I, 7-8.) Finally, MERS
may act as GN's nominee only "if necessary to comply with law or
custom[.]" (Notice of Removal, Ex. I, 8.) The trust deed
emphasizes that MERS is not the beneficiary, but rather the
nominee or agent of the lender. Because the trust deed clearly
demonstrates GN, and not MERS, is the person for whose benefit
the trust deed was given, GN (or its successor in interest) is
the beneficiary of the trust deed. ORS 86.705(1); see In re
McCoy, 2011 WL 477820, at *3 (Bankr. D. Or. Feb. 7).2
That MERS was the agent or nominee of the benefi ry does
not mean the non-judicial foreclosure proceedings necessarily
violated Oregon law. In re McCoy, 2011 WL 477820, at *4. As
in other recent cases in this district, "The problem that
defendants run into in this case is an apparent failure to record
assignments necessary r the foreclosure." Burgett v. MERS, 2010
WL 4282105, at *3 (D. Or. Oct. 20); see also In re McCoy, 2011 WL
477820, at *4. In Oregon, a trustee may conduct a non-judicial
foreclosure sale only if:
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
2The note reinforces my conclusion that aintiffs granted
the trust deed for the benefit of GN , not MERS. The note states
the trust deed "protects the Note Holder from possible losses
that might result if I do not keep the promises that I make in
this Note." (Notice of Removal, Ex. 1, 28, 1 11.) GN , not MERS,
is the "Note Holder." (Notice of Removal, Ex. 1, 26, 1 1.) MERS
is not mentioned in the note.
7 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 7 of 16 Page ID#: 399
t counties in which the property described in the
deed is situated .
ORS 86.735 (1) (emphasis added).
Should the beneficiary choose to itiate non-judicial
foreclosure proceedings, the Act's recording requirements mandate
the recording of any assignments of the beneficial interest
the trust deed. Burgett, 2010 WL 4282105, at *2; In re McCoy,
2011 WL 477820, at *3. Defendants appear to argue that rather
than requiring the recording of every assignment of the trust
deed, the Act allows defendants to instead track every assignment
of the trust deed within the MERS system, recording only the
final assignment of the trust deed in the county land records.
Because the Oregon Trust Deed Act requires the recording of all
assignments by the beneficiary, defendants' argument fails. ORS
86.735(1); see In re McCoy, 2011 WL 477820, at *3 4.
Oregon's recording requirement is consistent with the
longstanding rule that the trust deed or mortgage generally
follows the note. Carpenter v. Longan, 83 U.S. 271, 274 (1872);
U.S. Nat'l Bank of Portland v. Holton, 99 Or. 419, 427 9, 195 P.
823, 826 (1921) (collecting cases). As not by defendants, "the
assignment of the note automatically assigns the underlying
interest in the trust deed because MERS is nominee for whichever
entity is the owner (if the owner is a MERS member)." (Defs.'
Reply, 10.) Defendants also state, "the content of the deed of
trust itself . . . established the parties' intent that the trust
8 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 8 of 16 Page ID#: 400
deed, and MERS' agency relationship, follow the note." (Id. at
11.) In fact, the trust deed expressly states, "The Note or a
partial interest in the Note (together with this Security
Instrument) can be sold one or more times without prior notice to
Borrower." (Notice of Removal, Ex. 1, 16, 'J[ 20 (emphasis added).)
If there were transfers of the benefi al interest in the trust
deed, defendants were required to record those transfers prior to
initiating a non-judicial foreclosure in the manner provided in
ORS 86.740 to 86.755. ORS 86.735(1).
Considering what is commonly known about the MERS system and
the secondary market in mortgage loans, plaintiffs allege
sufficient facts to make clear that defendants violated the
Oregon Trust Deed Act by iling to record all assignments of the
trust deed.
3
Therefore, defendants' motion to dismiss is DENIED.
The record demonstrates that in addition to requiring the
denial of defendants' motion to dismiss, plaintiffs are entitled
to declaratory relief. Pursuant to my order, defendants submitted
the MIN Summary and Milestones for the loan at issue. The MIN
Summary demonstrates that on December 9, 2005, Guaranty Bank, FSB
transferred the beneficial interest in the trust deed to Wells
3For background information on MERS, see generally Gerald
Korngold, Legal and Policy Choices in the Aftermath of the
Subprime and Mortgage FiNancinc Crisis, 60 S.C. L. Rev. 727, 741
42 (Spring 2009) and Christopher L. Peterson, Foreclosure,
Subprime Mortgage Lending, and the Mortgage Electronic
Registration System, 78 U. Cin. L. Rev. 1359, 1368-1374 (Summer
2010) .
9 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 9 of 16 Page ID#: 401
Fargo Home Mortgage. (Jan. 31, 2011 McCarthy Decl., Ex. 1, 2.) As
noted above, the record is silent as to how or when Guaranty Bank
acquired any interest in the loan. On July 15, 2006, Wells Fargo
transferred the benefi 1 interest in the trust deed to Bank of
America. (Jan. 31, 2011 McCarthy Decl., Ex. 1, 2.) Defendants did
not record Guaranty Bank's transfer of the beneficial interest in
trust deed to Wells Fargo. Defendants' chain of tit
submission therefore demonstrates that defendants vio ed ORS
86.735(1) by initiating non-judicial foreclosure proceedings
prior to recording all assignments of the trust deed in the
Jackson County land records.
While I recognize that plaintiffs have failed to ma any
payments on the note since September 2009, that failure does not
permit defendants to violate Oregon law regulating non-judicial
foreclosure. The Oregon Trust Deed Act "represents a well
coordinated statutory scheme to protect grantors from the
unauthorized foreclosure and wrongful sale of property, whi at
the same time providing creditors with a quick and efficient
remedy against a defaulting grantor." Staffordshire Investments,
Inc. v. Cal-Western Reconveyance Corp., 209 Or.App. 528, 542, 149
P.3d 150, 157 (2006). In part due to the legislature's desire "to
protect the grantor against the unauthoriz loss of its
property," a party conducting a non-judicial foreclosure must
demonstrate strict compliance with the Act. As demonstrated
10 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 10 of 16 Page ID#: 402
above, the MIN Summary demonstrates fendants led to comply
with the Oregon Trust Deed Act.
Although not affecting my conclusion here, the MIN Summary
ses an additional concern relevant to numerous cases pending
fore me. As noted above, GN is listed as Lender on both the
trust deed and the note. The MIN Summary, however, makes no
mention of GN. In fact, MIN Summary is silent as to how or
when Guaranty Bank became an "Investor" ho ng the ficial
interest in the trust deed. (Jan. 31, 2011 McCarthy Decl., Ex. 1,
2.) The MIN Summary indicates only that on December 1, 2005,
Guaranty Bank registered the in the MERS system. What
occurred before registration, and how or when Guaranty Bank
obtained any erest the loan (from GN or another) is not
revealed.
The apparent gap in chain of title is not the only issue
that causes me concern. On May 7, 2010, defendants recorded: ( 1 )
an assignment of trust deed from MERS to Bank of America; (2 )
MERS's appointment of Northwest as successor trustee; and (3) a
ce of fault and e ion to sell. Regarding the May 7
recordings, defendants state, "After rece ng plaintiffs'
complaint, Northwest Trustee Services, Inc. recognized that
certain documents were recorded out-of-order." (Oct. 14, 2010
Mem. Supp. Mot. Di ss, 4.) Upon recognizing the problems
after initiating non-judi al foreclosure proceedings and only
11 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 11 of 16 Page ID#: 403
after receiving plaintiffs' complaint alleging improper
recordings - defendants rescinded the May 7, 2010 notice of
default and election to sell. The "out-of-order" recordings
demonstrate problems, not atypical in my view, often caused by
foreclosing parties rushing to expedite non judicial
foreclosures.
On May 3, 2010, a "Vice President" MERS assigned the
trust deed to Bank of America. (Notice of Removal, Ex. 1, 32.)
That same day, another "Vice President" of MERS appointed
Northwest successor trustee. (Notice of Removal, Ex. 1, 34.) Also
on May 3, 2010, an "Assistant Vice President" of Northwest signed
the notice of de It and election to sell. (Notice of Removal,
Ex. 1, 36-37.) The same notary publ apparently witnessed all
three executives sign the documents on the same day. Cons ring
de ndants relied on the May 3, 2010 documents to justi non-
judicial foreclosure proceedings, defendants' document review
appears rushed. Considering the time spent reviewing the
documents, assigning the trust deed, appointing a successor
trustee, and issuing a notice of default and election to sell, I
am not surprised to learn that "[a]fter receiving plainti
complaint, Northwest Trustee Services, Inc. recognized that
certain documents were recorded out-of-order."
Notwithstanding the above concerns, I note the May 3, 2010
assignment states that MERS assigns "all beneficial interest"
12 ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 12 of 16 Page ID#: 404
the trust deed to Bank of America. (Notice of Removal, Ex. 1,
32.) As explained above, MERS never had any bene 1 interest
in the trust ed. MERS held only legal title as an agent or
nominee of GN (or GN's successors). If MERS acted only as an
agent or nominee, why is the principal not identif in t May
3, 2010 assignment? confusion is ightened as the MIN
Summary demonstrates at least two unrecorded transfers of the
benefi al interest in trust deed occurred be re May 3,
2010. As Justice Page of the Supreme Court of Minnesota
summariz
MERS claims to hold legal title, but only legal tit
to the mortgage ing foreclosed. MERS also claims that
in losing mortgages it acts only as nominee
its members. But MERS can act as nominee for only the
particular MERS member who holds the promissory note at
any parti ar time and, when that promissory note is
assigned between members, the member for which MERS
acts as nominee, and on whose behalf MERS holds 1 1
title, necessarily changes. In other wo ,the entity
on whose behalf MERS holds 1 1 title to the mortgage
changes every time the promissory note is assigned.
Jackson v. Mortgage Electronic Registration Systems, Inc., 770
N.W.2d 487, 503-04 (Minn. 2009) (Page, J., dissenting). Although
Justice Page wrote in dissent in a case involving a Minnesota
statute, his concerns apply to numerous cases pending fore me.
Fo sure by advertisement and sale, which is designed to
take place outs of any judi al review, necessa ly relies on
the foreclosing party to accurately review and assess its own
authority to forec se. Considering that non-judicial
13 ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 13 of 16 Page ID#: 405
foreclosure of one's home is a particularly harsh event, and
given the numerous problems I see in nearly every non-judicial
foreclosure case I preside over, a procedure relying on a bank or
trustee to self-assess its own authority to foreclose is deeply
troubling to me.
I recognize that MERS, and its registered bank users,
created much of the confusion involved in the foreclosure
process. By listing a nominal beneficiary that is clearly
described in the trust deed as anything but tactual
beneficiary, the MERS system creates confusion as to who has t
authority to do what with the trust deed. The MERS system raises
serious concerns regarding the appropriateness and validity of
foreclosure by advertisement and sale outside of any judi al
proceeding.
Additionally, the MERS system allowed the rise of the
secondary market and securitization of home loans. A lender
ending to immediat y sell a loan on the secondary mar is
not concerned with the sk involved in the loan, but with the
fees generated. If a lender aims to quic y pass a loan off onto
an investor, a stated-income loan appears not as an unacceptable
risk, but as an income stream. MERS makes it much more difficult
for all rties to scover who "owns
H
the loan. When a borrower
on the verge of default cannot find out who has the authority to
modify the loan, a modification or a rt sale, even if
14 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 14 of 16 Page ID#: 406
beneficial to both the borrower and the beneficiary, cannot
occur.
When no borrowers default, the problems inherent in the MERS
system may go unnoticed. Unfortunately for banks, borrowers,
investors, and courts throughout the country, many borrowers are
now defaulting. Countless grantors of trust deeds now the
harsh prospect of losing a home outside of any judicial
proceeding. At the same time, the MERS s tern greatly increased
the number of investors stuck holding worthless notes. A lender
that knows it will immediately sell a loan on the secondary
market has no incentive to ensure the appraisal of the security
is accurate. Similarly, the lender need not concern itself with
the veracity of any representations made to the borrower. In
short, the MERS system allows the lender to shirk its traditional
due diligence duties. The requirement under Oregon law that all
assignments be recorded prior to a non-judicial foreclosure is
sound public policy:
[I]t is apparent with the benefit of hindsight that the
abil y of 1 rs to freely and anonymously transfer
notes among themselves fa 1 ated, if not created, the
financial banking crisis in which our country currently
finds itself. It is not only borrowers but also other
lenders who rightfully are interested in who has held a
particular promissory note. For example, a lender who
holds a promissory note that has become worthless may
have an interest in knowing the hands through which
that note passed.
Jackson, 770 N.W.2d at 504 (Page, J., dissenting). Justice Page
wrote in dissent, but s views are persuasive.
15 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 15 of 16 Page ID#: 407
Although t concerns raised in this 0 r appear in many
foreclosure cases before me, I reso the current
controversy on narrow grounds. Following de s' removal of
the complaint, pla i still seek declarato relief that
defendants' non-j al foreclosure is wrongful. I agree with
Judge Alley that "Oregon law permits foreclosure without the
benefit of a judicial proceeding only when interest of the
beneficiary is clearly documented in a public record." In re
McCoy, 2011 WL 477820, at *4. Because de nts failed to record
all assignments of trust deed, the non-judicial foreclosure
proceedings 1 Oregon Trust Act. Therefore,
plaintiffs are ent led to declaratory relief on that claim.
CONCLUSION
Defendants' t for judicial notice (#6) is GRANTED.
Defendants' motion to dismiss (#8) is DENIED. Plaintiffs are
entitled to a ratory judgment stati fendants violated
ORS 86.735(1). This non-judicial foreclosure proceeding is
dismissed. Judgement and costs r plaintiffs.
IT IS SO ORDERED.
DATED t s ~ d a y of May, 2011.
OWEN M. PANNER
U.S. DISTRICT JUDGE
16 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 16 of 16 Page ID#: 408