Petrashishin v. BAC Home Loans Servicing, Limited Partnership et al

Filing 22

ORDER: Defendant's request for judicial notice 8 ia granted and, for the reasons stated, defendants' Motion 6 to Dismiss for Failure to State a Claim is denied. Signed on 4/13/12 by U.S. District Judge Michael R. Hogan. (sln)

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

PAVEL G. PETRASHISHIN,
Plaintiffs,

No. 3:11-cv-ll05-HO

v.

ORDER

BAC HOME LOANS SERVICING, LIMITED
PARTNERSHIP RECONTRUST COMPANY,
N. A. ,

Defendants.

Pavel

Petrashishin

brings

this

suit

seeking

declaratory

judgment.
On or about July 11, 2007, plaintiff executed a deed of trust
in which Mortgage Electronic Registration systems, Inc.
listed as the beneficiary,
America's Wholesale Lender.

(MERS) is

solely as the nominee of the lender,
The deed secures a promissory note

executed by plaintiff for a loan to purchase real property in Happy

1 - ORDER

Valley, Oregon.
On August 20, 2010, MERS assigned the trust deed to defendant
BAC Home Loans.
the

BAC then appointed defendant ReconTrust Company as

successor trustee.

On AprilS,

2011,

notice of default and election to sell,
August 17, 2011.

ReconTrust

issued a

setting a sale date of

It appears that the foreclosure sale has yet to

occur.
Plaintiff alleges that ReconTrust lacks authority to conduct
a non-judicial sale because MERS assigned beneficial interest in
plaintiff's property without recording assignments, in violation of
ORS § 86.735(1), and because BAC and ReconTrust failed to file an
affidavit of compliance with SB 628, in violation of ORS

§

86.737.

Defendants move to dismiss contending that plaintiff is not
entitled

to

equitable

relief,

that

plaintiff

cannot

cure

the

default, that there are insufficient allegations of assignments of
an unrecorded bene

cial interest in the deed,

that recording of

assignments of the underlying mortgage are not required, and that
county records refute the allegation that the necessary affidavit
of compliance was not recorded.

The motion to dismiss is denied

because defendant's motion raises issues more properly determined
in a summary judgment motion.
Although it is not apparent from the face of the complaint
whether plaintiff can cure the default, a non-judicial foreclosure
may only occur if,
certain

in addition to a default, the trustee has met

conditions.

One

of

those

conditions

is

that

all

assignments of beneficial interest in the trust deed have been
2 - ORDER

properly recorded.

This does not mean that a defaulting borrower

may retain the property without ever curing the default, it simply
means that either requirements of the trustee must be met or a
judicial route must be utilized to foreclose.
Although defendants assert ORS § 86.735(1) does not require
recording of beneficial interests in the trust deed, this court has
concluded

otherwise.

Registration Systems,
2010).
pursued,

ORS

Inc.,

Burgett

prior

v.

2010 WL 4282105

86.735 provides

§

all

See

unrecorded

connection with the foreclosure.

that

if

Mortgage
(D.Or.

October 20,

foreclosure

assignments

must

Section 86.735(1)

Electronic

by sale is

be

filed

in

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 ...
The

foreclosure

statute

specifically

contemplates

"any

assignments of the trust deed by the trustee or the beneficiary and
any appointment of a successor trustee" must be recorded. (emphasis
added) .

Accordingly,

a transfer of the mortgage via the note,

which is secured by the trust deed,

is transfer in a beneficial

interest that must be recorded in order to pursue a non-judicial
foreclosure.
In essence,

MERS has created a

system that splits the two

interests (in the note and in the deed) to such a degree that the
3 - ORDER

borrower can be foreclosed upon by a party that has no interest in
the payments that the deed secures.

Removing the necessity to

record could lead to many problems in the real estate markets, not
the least of which is a lack of incentive to enter into a loan
modification even if in the best interest of both the lender and
borrower.

In addition, such a system could conceivably prevent the

borrower from discovering who is the most appropriate party to
negotiate

such

a

modification.

As

has

been

noted

by

MERS,

mortgagors are notified of transfers of servicing rights, but not
of transfers of beneficial ownership.

Moreover, such a system may

lead to profit taking that it is detached from the health of the
loan itself,

such as may be the case when a mortgage is bundled

into a mortgage-backed security.

Given this potential, it is not

difficult to see why the legislature saw fit to require recordation
prior to a non-judicial foreclosure.
A correct reading of the statute must include all beneficial
transfers

so

as

dissemination of
foreclosure.
been recorded.

to

facilitate

information

negotiations

from all

with

an

and

the

proper

interest

in the

Plaintiff has alleged that not all transfers have
Even though defendants assert all transfers have

been recorded, plaintiff must be permitted discovery to test such
an assertion.

MERS should be able to

produce such discovery as it

has previously noted that these assignments are not part of the
public record,

but are tracked electronically on MERS's private

records.
This interpretation of ORS § 86.735(1) is correct or the cases
4 - ORDER

of West v.

White,

307 Or.

296,

300

(1988) (assignment of a note

carries with it a security interest in real property because the
security is merely an incident to the debt) and U.S. Nat'l Bank of
Portland v. Holton,

99 Or.

419,

428

(1921)

(the assignment of a

mortgage, independent of the debt which it is given to secure, is
an unmeaning ceremony) would have to establish that the splitting
of the note and the trust deed effectively made the note unsecured
and the right to foreclose would be precluded.

This was not the

legislature's intention in the Oregon Trust Deed Act.

It simply

makes sense to require all transfers to be recorded.

The MERS

system could have great bene
and

over

again,

etc.,

but

in reducing costs to record over
records

must

be

kept

meticulously.

Otherwise the purpose of the statute could be eviscerated leading
to shoddy paperwork and the sale of valueless loans, unbeknownst to
the

potential

purchasers

of

such

loans.

Wi thout

good

record

keeping, the mortgagor isn't the only one who loses, but so does
the last purchaser of the mortgage and the note themselves.

Simply

put, the note is secured by the deed, and thus assignment of the
note is assignment of a beneficial interest

in the deed.

The

statute requires recordation of that transfer upon foreclosure.
Whether there have been transfers in violation of the Oregon
Trust Deed Act is not an issue appropriately resolved on a motion
to dismiss.

The motion to dismiss is denied and to the extent that

the foreclosure has yet to occur, the court hereby enjoins the sale
during the pendency of this action.

5 - ORDER

CONCLUSION

Defendants' request for judicial notice (#8) is granted and,
for the reasons stated above, defendants' motion to dismiss (#6) is
denied.

DATED this

~

day of April,

2012.

States

6 - ORDER