Case 3:11-cv-00324-ST

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON PORTLAND DIVISION DOUGLAS A. JAMES and EILEEN M. JAMES, Husband and Wife, CV-11-CV-324-ST Plaintiffs, v. RECONTRUST COMPANY, an Unknown Entity Operating in the State of Oregon; BANK OF AMERICA, N.A., successor by merger to BAC HOME LOAN SERVICING, LP, a Texas Limited Partnership; and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware Corporation, Defendants. STEWART, Magistrate Judge: On February 14, 2011, plaintiffs, Douglas and Eileen James, filed this action in Clackamas County Circuit Court, alleging claims for wrongful foreclosure and declaratory judgment. James v. Recontrust Co., et al., Clackamas County Circuit Court Case 1 - FINDINGS AND RECOMMENDATION FINDINGS AND RECOMMENDATION

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No. CV11020389. They named the following entities as defendants: ReconTrust Company, N.A. (RTC), BAC Home Loans Servicing, L.P. (BACHLS),1 Mortgage Electronic Registration Systems, Inc. (MERS), and Northwest Mortgage Group, Inc. (NWMG). Four days later, plaintiffs filed a motion for an order to temporarily restrain defendants from foreclosing on their real property. Notice of Removal, Ex. 1, pp. 50-51. Defendants responded by cancelling the foreclosure sale. Id, Ex. 1, pp. 52-60. On March, 3, 2011, the state court entered an Order granting plaintiffs motion which remains in effect as long as plaintiffs pay $1,500 per month into the court (a little more than half of plaintiffs monthly loan payment of $2,3863,14) as a bond. Id, Ex. 1, pp. 86-90. On March 16, 2011, RTC, BACHLS, and MERS filed a Notice of Removal (docket #1), contending that NWMG was fraudulently joined as a defendant and alleging diversity jurisdiction under 42 USC 1332. On May 13, 2011, plaintiffs filed an Amended Complaint (docket #15) which does not name NWMG as a defendant. Plaintiffs are citizens of Oregon.2 At the time the case was filed, BACHLS was a limited partnership and a citizen of North Carolina. Notice of Removal, 5(b). RTC is a national banking association with its main office and citizenship in California. Id, 5(c). MERS is a Delaware corporation and has its principal place of business in Virginia. Id, 5(d). The amount in controversy exceeds $75,000.00, exclusive of interest and costs. Therefore, this court has diversity jurisdiction pursuant to 28 USC 1332.
BAC Home Loans Servicing, LP was merged into Bank of America, N.A. effective July 1, 2011. See Notice of Merger and Name Change (docket #33). The caption reflects this change (docket #34). The Amended Complaint does not allege that plaintiffs are citizens of Oregon. However, plaintiffs agree that the controversy is between citizens of different states and identifies them as residents of Oregon. Amended Complaint, 1-2.
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BACHLS, RTC, and MERS have now filed a Motion to Dismiss (docket #24). For the reasons that follow, that motion should be granted. LEGAL STANDARD In order to state a claim for relief, a pleading must contain a short and plain statement of the claim showing that the pleader is entitled to relief[.] FRCP 8(a)(2). This standard does not require detailed factual allegations, but does demand more than an unadorned, the-defendantunlawfully-harmed-me accusation. Ashcroft v. Iqbal, 129 S Ct 1937, 1949 (2009), quoting Bell Atl. Corp. v. Twombly, 550 US 544, 555 (2007). A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Id. In order to survive a motion to dismiss under FRCP 12(b)(6) for failure to state a claim, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Id, quoting Twombly, 550 US at 570. When reviewing a motion to dismiss, this court must accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party. Knievel v. ESPN, 393 F3d 1068, 1072 (9th Cir 2005), citing Cervantes v. United States, 330 F3d 1186, 1187 (9th Cir 2003). ALLEGATIONS This action arises from a loan that plaintiffs obtained from NWMG to purchase property in Wilsonville, Clackamas County, Oregon (subject property). Amended Complaint, 10-14. On June 21, 2007, plaintiffs signed a promissory note for $346,438.00 in favor of NWMG secured by a Deed of Trust on the subject property. Id, Ex.1; French Decl. (docket # 36), Ex. 3. The Deed of Trust names plaintiffs as the Borrower, NWMG as the Lender, MERS as the Beneficiary acting solely as a nominee for Lender and Lenders successors and assigns, and 3 - FINDINGS AND RECOMMENDATION

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Fidelity National Title Company of Oregon (Fidelity National) as the Trustee. Amended Complaint, Ex. 1, p. 1. On some unknown date, NWNG endorsed the note to Countrywide Bank, the predecessor in interest to BACHLS. Id, 15; French Decl., Ex. 3, p. 3. At that time, NWMG was paid in full for the loan and no longer had any interest in either the note or Deed of Trust. Amended Complaint, 15. On some unknown date, BACHLS assigned the Deed of Trust to third parties in an effort to securitize the loan and, according to BACHLSs business practice, the Deed of Trust was ultimately transferred to a Fannie Mae investment trust. Id, 16, 20. As a result, BACHLS was fully paid by an investment trust for the note and no longer holds any interest in either the note or the Deed of Trust. Id, 17. The note was never transferred to Fannie Mae, and no assignments of the Deed of Trust to BACHLS or Fannie Mae were ever recorded as required under ORS 86.735(1). Id, 18, 20. As a result, the note and Deed of Trust became separated, with the note held by BACHLS and the Deed of Trust purportedly assigned to the investment trust, such that BACHLS no longer has a security interest in the subject property and lacks the authority to foreclose. Id, 21. MERS is an electronic tracking system created by the real estate finance industry to eliminate the need to prepare and record assignments when transferring the financial interests in mortgage loans among lenders. Id, 7-9. MERS provided no funds for the loan, is not mentioned in the note, and therefore is not the Lender. Id, 19. Thus, listing MERS as the Beneficiary under the Deed of Trust is a sham and inconsistent with Oregon law. Id, 26. In addition, any assignments in or out of MERS are void because MERS was created to avoid paying taxes in the form of recording fees each time a deed of trust is assigned. Id, 35-40. 4 - FINDINGS AND RECOMMENDATION

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In April 2010, plaintiffs became delinquent on their loan. Id, 27. On July 8, 2010, MERS, as the purported beneficiary of the Deed of Trust, assigned the Deed of Trust to BACHLS. Id. This assignment was signed by Leticia Quintana (Quintana) as the Assistant Secretary of MERS before a notary public in Ventura County, California, and recorded on July 13, 2010, in the official records of Clackamas County, Oregon. Id, 27-29, Ex. 2. Also on July 8, 2010, BACHLS purported to appoint RTC as the successor trustee. Id, 30. This appointment was also signed by Quintana as the Assistant Secretary of BACHLS before the same notary public and also recorded on July 13, 2010. Id, 30-31. Plaintiffs believe that Quintana is a robo-signer and not an officer of either MERS or BACHLS and lacked authority to sign anything on their behalf, rendering the assignment of the Deed of Trust to BACHLS from MERS void. Id, 32. In addition, plaintiffs believe that BACHLS transferred no valuable consideration to MERS, also rendering the assignment void. Id, 33. Also on July 8, 2010, RTC executed a Notice of Default and Election to Sell before the same notary public. Id, 34, Ex. 4. The Notice is void because only the Lender can declare a default under the note and neither MERS nor RTC has the authority to do so. Id. Based on the above, plaintiffs allege two claims for relief. The First Claim alleges that the threatened foreclosure is wrongful and should be halted because the trustee (BACHLS) lacks the authority to foreclose under Oregons Trust Deed Act (OTDA). Id, 42. On the First Claim, plaintiffs seek an award of their actual damages in an amount to be proven at trial plus their costs, disbursements, and attorney fees, and also seek to enjoin the threatened foreclosure. The Second Claim seeks a declaratory judgment pursuant to ORS 28.010 that: (1) neither MERS, BACHLS nor RTS is a beneficiary under the Deed of Trust with authority to foreclose 5 - FINDINGS AND RECOMMENDATION

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under the OTDA; (2) neither NWMG, MERS, BACHLS, nor RTC is the current Lender with authority to declare the note in default; (3) the Deed of Trust is void because it was assigned without recording in violation of ORS 86.0735 and 86.060; (4) any assignments by or through MERS are void; and (5) the contemplated foreclosure is wrongful and should be enjoined. Id, 43. On the Second Claim, plaintiffs seek their costs, disbursements and attorney fees. FINDINGS Defendants make a number of arguments in support of dismissal of the Amended Complaint based on plaintiffs failure to state a claim for relief. They argue that declaratory relief is precluded because plaintiffs have defaulted on the loan and fail to allege their ability to cure the default. They also argue that MERS is a proper beneficiary under the Deed of Trust and remained so, regardless of the subsequent transfers of the note, and that no assignments of the Deed of Trust are missing from the chain of title. They also contend that plaintiffs fail to allege sufficient facts to support the conclusory allegations concerning Quintana acting as a robosigner. I. Unclean Hands Defendants first seek dismissal of the Amended Complaint because plaintiffs fail to allege that they have the financial ability to cure their admitted default under the note. They base this argument on the unclean hands rule which is grounded on the notion that a party who comes into equity must come with clean hands. Osborne v. Nottley, 206 Or App 201, 205, 136 P3d 81, 83 (2006) (citation omitted). Defendants contend that plaintiffs claims are equitable in nature and cite ORS 86.742 as authority that plaintiffs must allege that they can cure their default. 6 - FINDINGS AND RECOMMENDATION

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The difficulty with this line of reasoning is threefold. First, plaintiffs claims concern their legal rights under the OTDA. That is a purely legal issue, though it may eventually entitle one party or the other to equitable relief. Second, the OTDA does not require that plaintiffs allege their financial inability to cure their default. The statute at issue, ORS 86.735, allows a trustee to foreclose trust deed by advertisement and sale if four requirements are met: (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; and (2) There is a default by the grantor or other person owing an obligation, the performance of which is secured by the trust deed . . . ; and (3) The trustee or beneficiary has filed for record . . . a notice of default . . . and . . . election to sell the property to satisfy the obligation; and (4) No action has been instituted to recover the debt or any part of it then remaining secured by the trust deed . . . . Since plaintiffs concede that they are in default (Amended Complaint, 27), the second requirement is met. Since a notice of default has been recorded (Smith Decl. Ex. 2) and no other action has been initiated to recover the debt, the third and fourth requirements also are met. Plaintiffs claims rest on defendants alleged failure to comply with the first requirement which requires recording of the trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee. ORS 86.735(1). Plaintiffs allege that this statutory requirement cannot be met because not all of the assignments of the Deed of Trust were recorded and because the last recorded assignment of the Deed of Trust and Appointment of Successor Trustee are void. If plaintiffs are correct, the trustee may not

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foreclose, regardless of whether plaintiffs are in default. However, until defendants satisfy the statutory prerequisites to a nonjudicial foreclosure, it is irrelevant whether plaintiffs can cure their default. Thus, in order to challenge defendants compliance with the OTDA, it would be illogical to require plaintiffs to allege that they have the financial ability to cure their default. Third, the concept of unclean hands is a judicial rule designed to protect the integrity of the judicial system. It does not, by inverse operation, act as an affirmative pleading rule that a plaintiff allege clean hands before being heard: The maxim is applied for the protection of the court and not for the benefit of the defendant, who may in fact be equally affected with the improper transaction. Osborne, 206 Or App at 205, 136 P3d at 83 (citation omitted). The cases applying the unclean hands rule involve some nefarious conduct on the part of the party barred from equitable relief, not merely a head-to-head disagreement over the legal rights under a statute. Id (citing cases applying unclean hands rule where barred party either attempted to evade taxation or conceal stock transactions). However, it is not inequitable conduct for plaintiffs to file a lawsuit to have a court decide the issue and, therefore, does not serve as a basis for this court to invoke the unclean hands rule against them. Fourth, the implication that ORS 86.742 is premised upon the unclean hands rule is flawed. That statute provides a remedy for damages to an omitted person who was entitled to receive, but did not receive, prior notice of a trustees sale. To avoid dismissal, the omitted person must establish, by clear and convincing evidence, that he or she had the financial ability to cure the default prior to the date of the trustees sale and would have done so had he or she received prior notice of the sale. ORS 86.742(3). Citing this statute, defendants argue by analogy that plaintiffs claims must be dismissed for failure to allege that they had the financial 8 - FINDINGS AND RECOMMENDATION

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ability to cure their default either before the sale or by outbidding the highest bidder at any such sale. That statute is designed to give some semblance of finality to trustees sales. It both creates an exclusive remedy and sets a heightened evidentiary burden for those seeking damages due to lack of notice of a trustees sale. However, nowhere does it purport to set those requirements based on improper conduct by the omitted party. It simply attempts to balance the rights of those claiming to have been omitted parties for notice purposes against those who participated in the sale. The cases cited by defendants in support of their position are inapposite. Stations West, LLC v. Pinnacle Bank of Oregon, Civil No. 06-1419-KI, 2007 WL 1219952 (D Or April 23, 2007), dismissed a post-foreclosure claim against the foreclosure trustee based on violations of the notice requirements in ORS 86.735. To state a claim under ORS 86.742 for defects in the notice, the court held that the plaintiff must allege lack of actual notice and ability to cure the default. In contrast, plaintiffs claims in this case are not based on any alleged defects in the notice of sale. See Vida v. OneWest Bank, F.S.B., Civil No. 10-987-AC, 2010 WL 5148473, at *9 (D Or Dec. 13, 2010) (distinguishing Stations West on grounds that ORS 86.742 does not apply where plaintiff's claims are not premised on a failure to comply with statutory notice provisions). Defendants also cite Domingo v. Anderson, 138 Or App 521, 525-26, 910 P2d 402 (1996), affd in part and revd in part on other grounds, 325 Or 385, 938 P2d 206 (1997), which affirmed summary judgment for the mortgagors based on the plaintiffs failure to prove that the defective notice of sale caused their damages. That is not the claim alleged by plaintiffs in this case. 9 - FINDINGS AND RECOMMENDATION

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In sum, the record reveals no basis for dismissing plaintiffs claims based on application of the unclean hands rule. Thus, that argument by defendants should be rejected. II. Justiciable Controversy Defendants also contend that plaintiffs fail state a claim because they fail to allege the existence of an actual controversy relating to the legal rights and duties of the parties. Dry Canyon Farms, Inc. v. U. S. Natl Bank of Or., 84 Or App 686, 689, 735 P2d 620 (1987). A justiciable controversy requires the courts decision in the matter [to] have some practical effect on the rights of the parties to the controversy. Brumnett v. Psychiatric Sec. Review Bd., 315 Or 402, 405, 848 P2d 1194 (1993). To meet this requirement, plaintiffs must plead facts establishing that they have suffered an actual or imminent injury in fact. Peebler v. Reno, 965 F Supp 28, 30 (D Or 1997), quoting, in part, Lujan v. Defenders of Wildlife, 504 US 555, 560 (1992). Furthermore, there must be a causal connection between the alleged injury and the conduct complained of. Am.-Arab Anti-Discrimination Comm. v. Thornburgh, 970 F2d 501, 506, 510 (9th Cir 1991); VanNatta v. Keisling, 899 F Supp 488, 493 (D Or 1995). That actual or imminent injury has to be fairly traceable to the actions of the defendants. Peebler, 965 F Supp at 30. First, defendants contend that plaintiffs have suffered no actual or imminent injury because the foreclosure sale has been cancelled and is no longer imminent due to the injunction issued in state court. However, once the injunction in this case is lifted, defendants can commence a new foreclosure proceeding at any time and have not indicated any contrary intention. Therefore, the temporary cessation of the foreclosure does not render either the wrongful foreclosure claim or declaratory judgment claim moot. 10 - FINDINGS AND RECOMMENDATION

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Second, defendants contend that there is no causal connection between the alleged injury (the threatened foreclosure) and the alleged conduct (violations of Oregon law) because the sole cause of the foreclosure is plaintiffs default on the loan and failure to cure that default. However, as discussed above, plaintiffs default is irrelevant to their claims. Instead, the issue presented is whether the trustee has the authority under ORS 86.735 to pursue a nonjudicial foreclosure, even though plaintiffs are admittedly in default. If plaintiffs are right, then defendants must pursue a judicial foreclosure or breach of contract claim to collect the amount due on the note. III. Trustees Authority to Foreclose Plaintiffs challenge the trustees legal authority to foreclose the Deed of Trust under ORS 86.735 based on several theories. Defendants contend that none of those theories state a viable claim for relief based on the terms of the Deed of Trust and the OTDA. Instead, defendants categorize plaintiffs as strategic defaulters who are riding out their admitted default by raising frivolous legal challenges while continuing to live in the subject property rent-free until foreclosure of the Deed of Trust, knowing that they will be immunized by the OTDA from any deficiency judgment upon eventual foreclosure. Some of these same theories have been addressed by various trial courts in Oregon, as well as by this court, but without any firm consensus. Because the parties here are wellrepresented by counsel, they have briefed the issues more fully than in most other cases. Although this court longs for the guidance of the Oregon appellate courts as to the proper interpretation of the OTDA, the parties are aware of only one state court case that is currently on appeal to the Oregon Court of Appeals, Niday v. GMAC Mortg., LLC, Clackamas County Circuit 11 - FINDINGS AND RECOMMENDATION

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Court Case No. CV-10-02-0001 (Smith Decl., Ex. 5). Since that appeal likely will not be decided for many months, this court must do its best to interpret Oregon law.3 A. Whether MERS is a Sham Beneficiary Plaintiffs acknowledge that the Deed of Trust names MERS as the Beneficiary, but allege that as a nominee for the Lender and Lenders successor and assigns, MERS holds only legal title with no economic or beneficial interest and, thus, is not a legitimate or full-throated beneficiary under the OTDA. As a result, plaintiffs contend that MERS lacked the power to assign all beneficial interest under the Deed of Trust to BACHLS and, accordingly, BACHLS was not empowered to appoint RTC as successor trustee to proceed with foreclosure on the subject property. The OTDA defines a beneficiary of a trust deed as follows: As used in ORS 86.705 to 86.795, 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 persons successor in interest, and who shall not be the trustee unless the beneficiary is qualified to be a trustee under ORS 86.790(1)(d). ORS 86.705(1) (emphasis added). Plaintiffs argue that MERS does not satisfy this definition because it is not the person for whose benefit a trust deed is given. In support, they point to the following statutory definition of a Trust Deed as: a deed executed in conformity with ORS 86.705 to 87.795, and conveying an interest in real property to a trustee in trust to secure
3

The parties have rejected this courts suggestion to certify the state law issues to the Oregon Supreme Court.

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the performance of an obligation owed by the grantor or other person named in the deed to a beneficiary. ORS 86.705(5) (emphasis added). Here the Deed of Trust secured the performance of an obligation owed by plaintiffs, as the Borrower, only to the Lender, NWNG, as the beneficiary of the note. Thus, they reason that the person for whose benefit a trust deed is given can only be the note holder (originally NWNG) and not MERS. In fact, plaintiffs purport to be uncertain to whom they owe the note since it was endorsed by NWNG, as the original Lender, to Countrywide/BACHLS, but, as they allege on information and belief, BACHLS was fully paid by an investment trust (Fannie Mae) for the note and no longer holds any interest in the note. Amended Complaint, 17. Plaintiffs argument fails for several reasons. First, nothing in Oregon law prohibits the Lender (NWNG) from designating MERS as its nominee or agent in the Deed of Trust. A nominee means one designated to act for another as his representative in a rather limited sense and is used sometimes to signify an agent or trustee. Schuh Trading Co. v. Commr of Internal Revenue, 95 F2d 404, 411 (7th Cir 1938). It is a common occurrence in public land records and has long been sanctioned as a legitimate practice. In re Cushman Bakery, 526 F2d 23, 30 (1st Cir 1975 (citing cases). Plaintiffs fail to explain why MERS cannot act both as a designated beneficiary and a nominee for the lender. See Beyer v. Bank of Am., Case No. CV 10-523-MO, slip op. dated August 1, 2011 (docket # 123), pp. 7-8. Second, plaintiffs ignore the following provision of the Deed of Trust that defines the broad scope of MERS authority to act as an agent on the Lenders behalf: Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, 13 - FINDINGS AND RECOMMENDATION

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but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lenders successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling the Security Instrument. Amended Complaint, Ex. 1, p. 3 (emphasis added). As more fully explained by Judge Mosman when interpreting identical language, this provision grants MERS the right to exercise all rights and interests of the lender, including the right to receive payment of the note secured by the trust deed, if (1) it is necessary to comply with law or custom, and (2) the statutes and trust deed do not otherwise prevent MERS from being a beneficiary. Beyer, slip op., p. 7. This clause is triggered because the trust deed repeatedly calls MERS the beneficiary, a statement that would not comply with law or custom unless MERSs powers were expanded to include the right to receive payment of the obligation. Id. Thus, MERS and its successor, BACHLS, as the beneficiary under the Deed of Trust, need not be the note holder in order to enforce any covenants or obligations of note holder under the Deed of Trust. Third, other judges in this district have reached the same conclusion. In the context of whether ORS 86.720(3) required notice to MERS, Bankruptcy Judge Alley concluded that MERS was not in any real sense of the word, particularly as defined in ORS 86.705(1), the beneficiary of the trust deed and more akin to that of a straw man for the lender. In Re Allman, 2010 WL 3366405, at *10 (Bankr. D. Or. Aug. 24, 2010). However, a few months later, Judge Hogan disagreed with conclusion and stated that foreclosure initiated by MERS or its substitute trustee is consistent with ORS 86.705(1) where the trust deed specifically designates

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MERS as the beneficiary. Burgett v. MERS, Civil No. 09-6244-HO, 2010 WL 4282105, at *2 n1 (D Or Oct. 20, 2010). He denied summary judgment to MERS only because the record did not demonstrate that all the transfers have been recorded. Id at *3. Also see Thomas v. OneWest Bank, FSB, Civil No. 10-6234-AA, 2011 WL 867880, at *8 (D OR, March 10, 2011) (Judge Aiken was inclined to agree with defendant, but declined to dismiss [u]ntil case law within this jurisdiction is developed regarding MERS role as beneficiary); Ekerson v. MERS, Civil No. 11-178-HU, 2011 WL 597056, at *2-4 (D Or Feb. 11, 2011) (following Burgett, Judge Brown found that MERS is a beneficiary but granted a TRO for failure to record the appointment of a successor trustee). Recently in Bertrand v. SunTrust Mortg., Inc., Civil No. 09-857-JO, 2011 WL 1113421 (D Or March 23, 2011), citing cases from several other jurisdictions and Burgett, Judge Jones concluded that MERS may serve as a beneficiary if the parties expressly agreed to MERSs role in the Deed of Trust and that both the language of the trust deed and the OTDA permit MERS to serve as the beneficiary in a trust deed. Interpreting identical language in a trust deed, he found that the subsequent assignment from MERS to the loan servicer was valid. The majority of Oregon trial courts similarly have concluded that because MERS is named in the trust deed as the beneficiary, it is a beneficiary under the OTDA. Somers v. Deutsche Bank Natl Trust Co., Clackamas County Circuit Court, Case No. CV11020133 & FE 110027, slip op., p. 4 (July 6, 2011) (French Decl., Ex. 1) (That MERS and its successors, as the named beneficiary, is the nominee of the Lender and its successors is not contrary to Oregon law and is consistent with the express terms of the Deed of Trust . . .); Nigro v. Nw. Tr. Servs., Josephine County Circuit Court Case No. 11 CV0135, slip op., p. 2 (May 11, 2011) (Smith Decl., 15 - FINDINGS AND RECOMMENDATION

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Ex. 11) (following Bertrand); Spencer v. Guaranty Bank, FSB, Deschutes County Circuit Court Case No. 10CV0515ST, slip op. (May 5, 2011) (Smith Decl. Ex. 6, p. 2) (The court is unpersuaded that [MERS] cannot act in that capacity [as beneficiary], even if it is not the holder of the note.); Buckland v. Aurora Loan Servs., Josephine County Circuit Court, Case No. 10 CV 1023, General Judgment of Dismissal (March 18, 2011) and Defendants Memorandum in Support of Motion to Dismiss (Smith Decl., Ex. 7); Yovko v. Nw. Tr. Servs., Washington County Circuit Court Case No. C110703CV (transcript of April 25, 2011 hearing denying plaintiffs requests for preliminary injunction) (Smith Decl., Ex. 10, pp. 48-50) (MERS issue is just essentially a . . . red herring); Niday v. GMAC Mortg., LLC, Clackamas County Circuit Court Case No. CV-10-02-0001 (transcript of October 28, 2010, hearing on summary judgment) (Smith Decl., Ex. 5, pp. 17-27, 39-40) (rejecting In re Allman). To the contrary, in Hooker v. Nw. Tr. Servs., Inc., Civil No. 10-3111-PA, 2011 WL 2119103, at *5-7 (D Or May 25, 2011), denying a motion to dismiss, Judge Panner rejected Burgett and concluded that MERS may not be the actual beneficiary under the OTDA, explaining: 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 title to the trust deed. Second, MERS acts solely as nominee for [the lender]. Finally, MERS may act as [the lenders] nominee only if necessary to comply with law or custom[.] 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 [the lender], and not MERS, is the person for whose benefit the trust deed was given, [the lender] (or its successor in interest) is the beneficiary of the trust deed. Id at *3 (citations omitted). 16 - FINDINGS AND RECOMMENDATION

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He also relied on the fact that the lender is the note holder and MERS is not mentioned in the note. Id at *3 n2. Because MERS never had any beneficial interest in the trust deed and held only legal title as an agent or nominee of the lender which held the note, he questioned how it could assign all beneficial interest to another entity. Id at *5. Also see U.S. Bank Natl Assn, N.A. v. Flynn, Columbia County Circuit Case No. 11-8011, slip op. at 2 (June 23, 2011); Enderlin v. GMAC Mortg., LLC, Jackson County Circuit Court Case. No. 110114-E-2, slip op. (June 10, 2011) (agreeing with Hooker). Noting these conflicting decision, Judge Mosman noted that [n]either line of cases discusses why the named person should trump the designated person or vice-versa. Beyer, slip op., p. 6. He saw no need to resolve the dispute because he found that MERS is both named and designated as the person receiving the benefit of the trust deed. Id. This court agrees. Thus, the next issue is whether all necessary assignments were recorded as required for a nonjudicial foreclosure under the OTDA. B. Whether All Assignments of the Deed of Trust Were Recorded

MERS, as the beneficiary of the Deed of Trust, assigned all beneficial interest in the Deed of Trust to BACHLS which was duly recorded on July 13, 2010. As discussed above, the Deed of Trust authorized MERS to take any action required of Lender. Thus, MERS, as the Lenders agent, had the authority to execute the assignment to BACHLS. Paragraph 24 of the Deed of Trust allows the Lender to appoint a successor trustee. As the new beneficiary under the Deed of Trust with the same authority as MERS to take any action required of Lender, BACHLS then appointed RTC as the successor trustee which was also recorded on July 13, 2010. The Deed of Trust, its assignment by MERS to BACHLS, and BACHLSs Appointment 17 - FINDINGS AND RECOMMENDATION

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of a Successor Trustee were all recorded. Thus, defendants contend that they have satisfied the requirement of ORS 86.735(1). Plaintiffs disagree, alleging that the Deed of Trust has been assigned multiple times during the securitization process (from NWMG to Countrywide (now BACHLS) to Fannie Mae) without being recorded in violation of ORS 86.735(1) and that the sole recorded assignment of the Deed of Trust and the Appointment of Successor Trustee are both void. In support, plaintiffs make several arguments. 1. Trust Deed Following Note Plaintiffs contend that each time the note was transferred, so was the Deed of Trust, thus requiring that each such transfer be recorded pursuant to ORS 86.735(1). Although they posit a correct statement of the law, they draw the wrong conclusion from it. The legal concept that the trust deed follows the note, or is incident to the debt, was developed over time to protect the assignee of a secured note when an assignment of the trust deed is not recorded. In Bamberger v. Geiser, 24 Or 203, 207, 33 P 609, 610 (1893), a note was assigned, along with the mortgage securing the note, but the assignment of the mortgage was not recorded. The court held that the assignment of the note carried the mortgage, such that the assignee of the note was subject to the mortgage: The question presented for our determination is whether an assignee, under the circumstances of this case, takes the mortgage as he takes the note, free from the objections to which it was liable in the hands of the mortgagee. We hold the affirmative. The contract, as regards the note, was that the maker should pay it at maturity to any bona fide indorsee, without reference to any defenses to which it might have been liable in the hands of the payee. The mortgage was conditioned to secure the fulfillment of that contract. To let in such a defense against such a holder would 18 - FINDINGS AND RECOMMENDATION

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be a clear departure from the agreement of the mortgagor and the mortgagee, to which the assignee subsequently, in good faith, became a party. If the mortgagor desired to reserve such an advantage, he should have given a nonnegotiable instrument. Id, 24 Or at 207, 33 P at 610 (1893) (internal quotations omitted); see also Roberts v. Sutherlin, 4 Or 219, 223-24, 1872 WL 1014, at *4-5 (1872); RESTATEMENTS (THIRD ) OF PROPERTY (MORTGAGES), 5.4(a) ( A transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise . . .). That concept is embodied in Oregon law. ORS 86.110(1) (a promissory note secured by a mortgage on real property [can be] transferred by indorsement without a formal assignment of the mortgage). Since the trust deed follows the note, whoever holds the note by transfer also has the power to foreclose the trust deed, even without recording an assignment of the mortgage. Barringer v. Loder,, 47 Or 223, 227-29, 81 P 778, 780 (1905). Simply put, the security interest embodied in the trust deed follows any transfer of the note in favor of the lender and its successors, such that the trust deed does not become split or separated from the note. However, plaintiffs seek to use this legal fiction to defeat its very purpose by depriving the note holder of the full benefit of its security instrument and the right to foreclose by advertisement and sale. The court can find no authority to support plaintiffs novel theory. Nothing in Oregon law requires recording of each assignment of the trust deed when the underlying note is transferred. The only recording requirement is found in ORS 86.735(1) for all assignments of the trust deed by the trustee or the beneficiary before a non-judicial foreclosure by advertisement and sale. However, this statute by its express terms only requires the recording

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of assignments by the parties who have a recorded interest in the real property providing security, that is, the trustee or the beneficiary. Although a transfer or assignment of the note transfers the security interest for the protection of the beneficiary, it is not the same act as an assignment of the trust deed by the trustee or the beneficiary contemplated by ORS 86.735(1). That statute makes no mention of recording a transfer of the promissory note, opposed to the deed of trust. A promissory note is not a conveyance of real property and is not recorded or even susceptible to recordation. ORS 93.610, 93.630, 205.130. Recording interests in a promissory note would not serve the purpose of the recording statutes because the promissory note does not contain a description of the property, does not transfer title to real property, and does not affect title. Plaintiffs do not allege that either the Trustee (Fidelity National) or the Beneficiary (MERS) made any assignment of the Deed of Trust prior to the assignment by MERS to BACHLS.4 Until that point in time, MERS remained the Beneficiary to act for the Lender (NWNG) and its successors and assigns, even if the note was sold to an assignee or acquired by a successor. By recording the assignment of the Deed of Trust from MERS to BACHLS, BACHLS then acquired the power to act as the Beneficiary, rendering valid its subsequent appointment of RTC as the successor trustee. This court acknowledges that Judge Panner came to the oppositive conclusion in Hooker, but must respectfully disagree for several reasons. First, he granted declaratory relief sua sponte in response to defendants motion to dismiss without giving defendants an opportunity to address
Plaintiffs allege that after acquiring the loan from NWNG, BACHLS then securitized it by transferring it to Fannie Mae. However, any such assignment of the Deed of Trust by BACHLS, if it occurred, was not by either the Beneficiary (MERS) or the Trustee (Fidelity National) and did not need to be recorded prior to a nonjudicial foreclosure under ORS 86.735(1).
4

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many of his concerns. In contrast here, the parties have fully briefed all the issues regarding the role of MERS. Second, it appears that Judge Panner misconstrued some of the information presented by the parties about transfers of the interests in the mortgage loans. He relied on a two-page MIN Summary and Milestones which is a printout from the MERS System that tracks the changes in servicing rights and transfers of the beneficial interests in the promissory note. Smith Decl. Ex. 9, pp. 9-11. This document does not, as Judge Panner assumed, track every assignment of the trust deed. It only tracks transfers of the note. As discussed above, transfers of the note must be distinguished from assignments of the trust deed by the trustee or the beneficiary referenced in ORS 86.735(1). Third, Judge Panner expressed concern about MERS making it much more difficult for all parties to discover who owns the loan for the purpose of modifying it. Id, p. 14. However, plaintiffs agreed in paragraph 20 the Deed of Trust that the note could be sold one or more times without prior notice to them and that [t]here also might be one or more changes of the Loan Servicer unrelated to a sale of the Note. This is not a case where plaintiffs do not know the point of contact for addressing concerns about their loan. As plaintiffs admit, BACHLS is the loan servicer and the party responsible for addressing all concerns about their loan. As a loan servicer, BACHLS has the authority to service or collect any . . . mortgage loan in its own name or the name of the lender, note owner, note holder or other holder of interest in the note. ORS 86A.175(1). That authority includes collecting payments from the borrower and exercising all remedies, including foreclosure. ORS 86A.175(3)(e).

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Finally, Judge Panner was persuaded by the one-judge dissent in Jackson v. MERS, 770 NW2d 487, 498 (Minn 2009) (Page, J., dissenting), that the entity on whose behalf MERS holds legal title to the mortgage changes every time the promissory note is assigned. However, as the majority recognized, a mortgagee of record does not lose legal title simply due to transfers of interests in the promissory note. The Jackson court ultimately and, in this courts view, correctly held that the transfer of the promissory note, which carries with it the security instrument, is not an assignment of legal title that must be recorded for purposes of a nonjudicial foreclosure. 2. Possession of the Note In addition to alleging violations of the OTDA, plaintiffs also contend that the foreclosing party did not have possession of a properly endorsed promissory note at the time foreclosure was commenced. To support this contention, they rely on ORS 73.031 which defines the person entitled to enforce a negotiable instrument as: the holder of the instrument, a nonholder in possession of the instrument who has the rights of the holder, or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to ORS 73.0309 or 73.0418(4). Plaintiffs allege that BACHLS did not transfer possession of the note when it sold the loan to Fannie Mae. Amended Complaint, 16, 18. As a result, Fannie Mae, or its successor, is not a holder or a nonholder in possession and, thus, had no right to enforce the note at the time foreclosure was commenced. This argument is nothing more than a show-me-the-note claim masquerading as a viable claim for relief. There is no requirement under Oregon law that a foreclosing entity must

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produce the note prior to a non-judicial foreclosure. Whether the UCC requires presentment of the note is irrelevant since this case is not an action on a promissory note or a judicial foreclosure. 3. Robo-Signing Plaintiffs make a conclusory allegation that [o]n information and belief, Ms. Quintana, is a so called robo-signer who did not have the authority to assign the Deed of Trust on behalf of either BAC or MERS. Amended Complaint, 32. In support, plaintiffs allege only that Quintana signed both the Assignment of the Deed of Trust to BACHLS as an Assistant Secretary of MERS and the Appointment of Successor Trustee as an Assistant Secretary of BACHLS. Id, 27-30. Quintanas dual role is not sufficient to state a facially plausible claim in light of the MERS Rules of Membership cited by both parties. Plaintiffs Ex. 2. According to Rule 3, MERS will designate an officer of a member, such as Ms. Quintana as an officer of BACHLS, as certifying officers of MERS to execute documents. Thus, Ms. Quintana can wear two hats on behalf of both BACHLS and MERS. That she did so is insufficient to prove that she lacked authority to sign either or both documents. 4. Other Arguments Plaintiffs allege that the assignment of the Deed of Trust from MERS to BACHLS if void for lack of valuable consideration. Amended Complaint, 33. The lack of consideration may be a defense available to MERS, but is not a basis for plaintiffs, as third parties, to void the transfer. Plaintiffs also allege that any assignments in or out of MERS are void because MERS was created to avoid paying taxes in the form of recoding fees for each assignment of a trust deed. Id, 35-40; see Automobile Club of Or. v. State of Or., 314 Or 479, 840 P2d 674 (1992) 23 - FINDINGS AND RECOMMENDATION

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(underground storage tank assessment was a tax on motor vehicle fuel under a provision of the Oregon Constitution). Even if recording fees are taxes, plaintiffs allege no facts to establish their standing to accuse MERS of failing to pay taxes to Oregon. 5. Conclusion This court concludes that MERS is both a named and legitimate beneficiary in the Deed of Trust and that all necessary assignments were recorded as required for a nonjudicial foreclosure under the OTDA. Thus, the claims premised on any lack of authority by BACHLS to foreclose the Deed of Trust under the OTDA or failure to comply with the OTDA should be dismissed. RECOMMENDATION The Motion to Dismiss by BACHLS, RTC, and MERS (docket #24) should be GRANTED, and this case should be dismissed with prejudice. SCHEDULING ORDER These Findings and Recommendations will be referred to a district judge. Objections, if any, are due September 12, 2011. If no objections are filed, then the Findings and Recommendations will go under advisement on that date. If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement. DATED this 26th day of August, 2011. s/ Janice M. Stewart________ Janice M. Stewart United States Magistrate Judge 24 - FINDINGS AND RECOMMENDATION