Sovereign et al v. Deutsche Bank et al

Filing 7

Temporary Restraining Order. Signed on 8/31/2011 by Judge Anna J. Brown. (tll)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

RICK L. SOVEREIGN and AMY J.
SOVEREIGN,
Plaintiffs,
v.
DEUTSCHE BANK; MORTGAGEIT,
INC.; MORTGAGE ELECTRONIC
REGISTRATION SYSTEM, a
foreign corporation;
CITIMORTGAGE, INC., a foreign
corporation; and CAL-WESTERN
RECONVEYANCE, a foreign
corporation,
Defendants.

RICK L. AND AMY J. SOVEREIGN
401 Cherry Avenue
Oregon City, OR 97045
Plaintiffs, Pro Se

BROWN, Judge.
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3:11-CV-995-br

TEMPORARY RESTRAINING
ORDER

This matter came before the Court on August 31, 2011, on
Plaintiffs’ Verified Complaint (#1) for Emergency Declaratory
Relief seeking, inter alia, to halt a foreclosure and sale of
their home.

Plaintiffs appeared personally and pro se. Without

making a formal appearance and reserving all defenses, counsel
Lita Gorman appeared to observe on behalf of Citimortgage and
MERS.

The Court construes Plaintiffs’ request for emergency

injunctive relief as a Motion for a Temporary Restraining Order
Pursuant to FRCP 65.

For the reasons that follow, the Court

GRANTS Plaintiffs’ Motion and temporarily RESTRAINS Defendants
from proceeding with the September 1, 2011, foreclosure sale of
Plaintiffs’ property.

BACKGROUND
The Court takes the following facts from Plaintiff’s filings
and as supplemented during a colloquy with the Court on August
31, 2011.
On January 24, 2007, Plaintiffs entered into a refinance
loan on their home, which is located at 401 Cherry Avenue, Oregon
City, Oregon, 97045.

In exchange for their promise to pay

secured by a Deed of Trust in their home, Plaintiffs accepted a
loan in excess of $300,000.

The loan named Mortgageit, Inc.

(MIT) as the Lender, Western Title and Escrow as Trustee, and
appointed MERS as nominee of the Lender and as beneficiary of the
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Deed of Trust.
loan documents,

Although MIT is designated as the "Lender" in the
Plaintiffs alleges MIT did not fund the loan.

Plaintiffs assert Defendants, each of them in association,
has filed an illegal Notice of Default and Election to Sell
Plaintiffs' home.

Plaintiffs allege they do not owe any

obligation to any of the Defendants and that Plaintiffs have not
defaulted on the loan at issue.
In August 2010, Plaintiffs sought a loan modification with
Citimortgage (CM).

During that process, which failed to yield an

agreement to restructure the loan, Plaintiffs assert CM
instructed them to stop making payments on their mortgage.
On March 15, 2011, MERS assigned the Deed of Trust to CM.
That same day, CM appointed Cal-Western Reconveyance Corporation
(CWRC) as Trustee.

Both actions were recorded in the Clackamas

County records.
On April 7, 2011, Plaintiffs received the Notice of Default
and Election of Sale and the Trustee Notice of Sale from CWRC.
Both documents were recorded in the Clackamas County records.
Plaintiffs assert a subsequent records search revealed
Fannie Mae may have an ownership interest in their mortgage.
Although the nonjudicial sale of Plaintiffs’ home was
originally scheduled for August 1, 2011, the sale has been
postponed to September 1, 2011.

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STANDARDS
A party seeking a temporary restraining order or preliminary
injunction must demonstrate (1) it is likely to succeed on the
merits, (2) it is likely to suffer irreparable harm in the
absence of preliminary relief, (3) the balance of equities tips
in its favor, and (4) an injunction is in the public interest.
Winter v. Natural Res. Def. Council, 129 S. Ct. 365, 374 (2008).
"The elements of [this] test are balanced, so that a stronger
showing of one element may offset a weaker showing of another.
For example, a stronger showing of irreparable harm to plaintiff
might offset a lesser showing of likelihood of success on the
merits."

Alliance For The Wild Rockies v. Cottrell,

No. 09-35756, 2011 WL 208360, at *4 (9th Cir. Jan. 25,
2011)(citing Winter, 129 S. Ct. at 392).

Accordingly, the Ninth

Circuit has held "'serious questions going to the merits' and a
balance of hardships that tips sharply towards the plaintiff can
support issuance of a preliminary injunction, so long as the
plaintiff also shows that there is a likelihood of irreparable
injury and that the injunction is in the public interest."

Id.,

at *7.
"An injunction is a matter of equitable discretion" and is
"an extraordinary remedy that may only be awarded upon a clear
showing that the plaintiff is entitled to such relief."
129 S. Ct. at 376, 381.
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Winter,

DISCUSSION
I.

Merits
Plaintiff seeks an order preventing Defendants from

proceeding with the proposed foreclosure sale of Plaintiffs’
property as scheduled.

Plaintiffs allege claims for breach of

contract and violations of the Oregon Trust Deed Act and contend
the original mortgage and the subsequent assignment of the
mortgage were unlawful.
alia:

Specifically, Plaintiffs contend, inter

(1) MIT defrauded Plaintiffs in the original loan by

falsely stating it was the lender and by arranging a loan for
Plaintiffs that was to be securitized at greater cost to
Plaintiffs, (2) because MIT was not the actual lender, it did not
have the authority granted to the lender in the Deed of Trust to
assign th mortgage or foreclose in the instance of a default,
(3) MERS is not the actual beneficiary of the Deed of Trust and
did not have the power to assign the mortgage; and (4) the
assignment of the Deed of Trust without the promissory note
nullifies any purported assignment.

At the hearing Plaintiffs

also emphasized the recorded promissory note did not include
their signatures and noted the signatures on the assignment and
appointment of trustee CWRC bear signatures by the same person
attesting to be an officeholder of two different entities.
In Burgett v. Mortgage Electronic Registration Systems,
District Judge Michael Hogan explained the mortgage practice
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engaged in by MERS as follows:
"In 1993, the Mortgage Bankers Association, Fannie
Mae, Freddie Mac, the Government National Mortgage
Association (Ginnie Mae), the Federal Housing
Administration, and the Department of Veterans
Affairs created MERS. MERS provides ‘electronic
processing and tracking of [mortgage] ownership
and transfers.’ Mortgage lenders, banks,
insurance companies, and title companies become
members of MERS and pay an annual fee. They
appoint MERS as their agent to act on all
mortgages that they register on the system. A
MERS mortgage is recorded with the particular
county's office of the recorder with ‘Mortgage
Electronic Registration System, Inc.’ named as the
lender's nominee or mortgagee of record' on the
mortgage. The MERS member who owns the beneficial
interest may assign those beneficial ownership
rights or servicing rights to another MERS member.
These assignments are not part of the public
record, but are tracked electronically on MERS's
private records. Mortgagors are notified of
transfers of servicing rights, but not of
transfers of beneficial ownership."
2010 WL 4282105, at *2 (D. Or. Oct. 20, 2010)(quoting Gerald
Korngold, Legal and Policy Choices in the Aftermath of the
Subprime and Mortgage Financing Crisis, 60 S.C. L.Rev. 727,
741-42 (2009)).

In Burgett, the plaintiff, a mortgagee, brought

an action against MERS and the servicer of the plaintiff's
mortgage loan alleging, among other things, a claim for breach of
contract and seeking declaratory relief to prevent a foreclosure
sale of his property.

The plaintiff contended the MERS practice

set out above was not permitted under Oregon trust-deed law
because it allowed assignment of beneficial interests without
recording.

Id.

Judge Hogan reasoned:

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Under ORS 86.705(1) a "'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,
and who shall not be the trustee unless the
beneficiary is qualified to be a trustee under ORS
86.790(1)(d)." Plaintiff contends that MERS
cannot meet this definition because there is no
evidence that the trust deed was made to benefit
MERS. However, the trust deed specifically
designates MERS as the beneficiary. Judge Henry
C. Breithaupt provides a persuasive discussion
related to this issue:
[T]he interest of MERS, and those for whom it
was a nominee, in question here was recorded
and known to Plaintiff when it received the
litigation guarantee document prior to
starting this action.
The Statutes do not prohibit liens to be
recorded in the deed of records of counties
under an agreement where an agent will appear
as a lienholder for the benefit of the
initial lender and subsequent assignees of
that lender-even where the assignments of the
beneficial interest in the record lien are
not recorded. It is clear that such
unrecorded assignments of rights are
permissible under Oregon's trust deed statute
because ORS 86.735 provides if foreclosure by
sale is pursued all prior unrecorded
assignments must be filed in connection with
the foreclosure. The trust deed statutes
therefore clearly contemplate that
assignments of the beneficial interests in
obligations and security rights will occur
and may, in fact, not have been recorded
prior to foreclosure. The legislature was
clearly aware such assignments occurred and
nowhere provided that assignments needed to
be recorded to maintain rights under the lien
statutes except where foreclosure by sale was
pursued.
Letter Decision in Parkin Electric, Inc. v.
Saftencu, No. LV08040727, dated March 12, 2009
(attached as Exhibit C to the second declaration
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of David Weibel (# 60)).
The problem that defendants run into in this case
is an apparent failure to record assignments
necessary for the foreclosure. As Judge
Breithaupt notes, ORS § 86.735 provides that if
foreclosure by sale is pursued, all prior
unrecorded assignments must be filed in connection
with the foreclosure. ORS § 86.735(1)
specifically provides
The trustee may foreclose a trust deed by
advertisement and sale in the manner provided
in ORS 86.740 to 86.755 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.
Id., at *2-*3.

Judge Hogan noted Oregon Revised Statute § 86.735

requires any assignments of the trust deed by the trustee or the
beneficiary and any appointment of a successor trustee to be
recorded.

The record in Burgett, however, did not reflect all

transfers to the subsequent lenders/servicers had been recorded.
Id.
Similarly, in Rinegard-Guirma v. Bank of America, District
Judge Garr M. King granted the plaintiff, a mortgagee, a
temporary restraining order against the defendants, MERS and
others, prohibiting the defendants from conducting a foreclosure
sale of the plaintiff's home because the plaintiff established
"nothing [was] recorded with Multnomah County [that] demonstrates
that LSI Title Company of Oregon, LLC is the successor trustee."

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No. 10-CV-1065-PK, 2010 WL 3655970, at *2 (D. Or. Sept. 15,
2010).

Judge King reasoned:
Pursuant to ORS 86.790, the beneficiary may
appoint a successor trustee. However, only “[i]f
the appointment of the successor trustee is
recorded in the mortgage records of the county or
counties in which the trust deed is recorded” is
the successor trustee “vested with all the powers
of the original trustee.” ORS 86.790(3).
Accordingly, unless the appointment of LSI Title
Company of Oregon, LLC was recorded, the purported
successor trustee has no “power of sale”
authorizing it to foreclose Rinegard-Guirma's
property. See ORS 86.710 (describing trustee's
power of sale); ORS 86.735 (permitting foreclosure
by advertisement and sale but only if “any
appointment of a successor trustee [is] recorded
in the mortgage records in the counties in which
the property described in the deed is situated”).
Similarly, she is likely to experience irreparable
harm if her home is foreclosed upon.

Id.

In Hooker v. Northwest Trustee Services, Inc., Judge Panner

reached a similar conclusion with respect to a non-judicial
foreclosure in which the assignments had not been recorded in
accordance with Oregon law.
(D. Or., May 25, 2011).

No. 10-CV-3111-PA, 2010 WL 2119103

Judge Panner assessed a Deed of Trust

very similar to the one Plaintiffs submitted in this matter that
designated MERS as the nominee of the lender and as the
beneficiary of the Deed of Trust with all the powers of the
lender.

Id.

Based on his assessment of Oregon law, Judge Panner

concluded there were legitimate questions as to whether MERS was
an actual “beneficiary” under Oregon Revised Statute § 86.705(1)
or had the legal right to act on its own to foreclose on the
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plaintiffs’ property.

Id.

In In re McCoy, cited favorably by Judge Panner, the Federal
Bankruptcy Court for the District of Oregon reached a similar
conclusion and questioned the whether MERS is the lawful
beneficiary under the Deed of Trust if the benefits of the loan
remain with the lender.

446 B.R. 453 (Bkrtcy. D. Or., Feb. 07,

2011).
Here the assignment to CM and the appointment of CWRC appear
to have been properly recorded in the Clackamas County record.
Plaintiffs’ however, also assert that Fannie Mae has some
interest in their mortgage that does not appear in the record.
On this record, it is not clear whether all of the assignments of
Plaintiffs’ mortgage have, in fact, been recorded.

Although

Plaintiffs have not demonstrated a strong likelihood of success
on the merits, the Court notes, as Judge Panner did in Hooker,
that the system of non-judicial foreclosures requires strict
adherence to the rules of Oregon’s recording and Trust Deed
statutes because the “foreclosure of one’s home is a particularly
harsh event.”

2010 WL 2119103, at *6.

Moreover, the involvement

of MERS and its system of assignments raises serious concern
about whether the proper procedures have been followed.

Id.

Plaintiff also has established they will likely to
experience irreparable harm, the loss of their home, if the
scheduled foreclosure proceeds unabated and that harm hardship

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outweighs a short delay suffered by Defendants in executing a
sale.

The Court, therefore, concludes the balance of hardships

tips sharply in Plaintiffs’ favor, and there are at least
legitimate questions raised on this record as to the merits of
Plaintiffs’ request for declaratory judgment.
Accordingly, the Court GRANTS Plaintiffs’ Motion for a
Temporary Restraining Order and hereby RESTRAINS Defendants from
proceeding with the September 1, 2011, foreclosure sale of
Plaintiffs’ property.
II.

Notice under Federal Rule of Civil Procedure 65
Federal Rule of Civil Procedure 65(b) provides in pertinent

part:
(1) Issuing Without Notice. The court may issue a
temporary restraining order without written or
oral notice to the adverse party or its attorney
only if:
(A) specific facts in an affidavit or a
verified complaint clearly show that
immediate and irreparable injury, loss, or
damage will result to the movant before the
adverse party can be heard in opposition; and
(B) the movant's attorney certifies in
writing any efforts made to give notice and
the reasons why it should not be required.
Here the Court issues the order temporarily restraining
Defendants from proceeding with the proposed foreclosure sale of
Plaintiffs’ property without notice to Defendants because there
is insufficient time before the scheduled foreclosure sale to

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compel Defendants to appear and to respond to the Motion.

The

Court concludes the risk of irreparable harm to Plaintiffs is
significant when weighed against the temporary delay authorized
by this Order.
III. Security
Pursuant to Rule 65(c), the Court requires Plaintiffs to
post a $500.00 bond with the Clerk of Court by 4 p.m., September
14, 2011., as a reasonable security for any costs or damages
sustained by any party found to have been wrongfully restrained.

CONCLUSION
For these reasons, the Court GRANTS Plaintiffs’ Motion (#1)
for a Temporary Restraining Order and hereby RESTRAINS Defendants
from proceeding with the September 1, 2011, foreclosure sale of
Plaintiffs’ property.

The Court DIRECTS Plaintiffs to post a

$500.00 bond with the Clerk of Court by 4 p.m., September 14,
2011.
The Court also ORDERS Plaintiffs and all Defendants who
receive notice of this matter to appear in Courtroom 14A on
September 12, 2011, at 2:30 p.m., to be heard regarding this TRO
and future proceedings in this matter.
IT IS SO ORDERED.
DATED this 31st day of August, 2011.

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This order is issued on August 31, 2011, at 5:00 p.m., and
expires on September 12, 2011, at 2:30 p.m., unless extended by
order of the Court.
/s/ Anna J. Brown
ANNA J. BROWN
United States District

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