Peterson et al v. Deutsch Bank National Trust Company et al
Filing
14
ORDER: Granting in Part Denying in Part Defendants' Motion to Dismiss for Failure to State a Claim 8 . GRANTED with respect to Plaintiffs' claim against Balandran and DENIED in all other respects with leave to renew. This case is STAYED pending a decision by the Oregon supreme Court regarding the certified questions. Signed on 5/18/2012 by Chief Judge Ann L. Aiken. (lg)
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
BRADLEY PETERSON and DAWN
PETERSON,
Plaintiffs,
v.
DEUTSCHE BANK NATIONAL TRUST
COMPANY, BAC; HOME LOAN
SERVICING LP, RECON TRUST, NA, a
California corporation, MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS,
INC., a Delaware corporation, and
CHRISTINE BALANDRAN,
•
Defendants.
Gregory P. Dolinajec
3735 SE Clay Street
Portland, OR 97214
Attorney for plaintiffs
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- OPINION AND ORDER
Civ. No. 3: 12-cv-476-AA
OPINION AND ORDER
Gregory A. Chaimov
Kevin H. Kono
Davis Wright Tremaine LLP
1300 SW Fifth Ave., Suite 2400
Portland, OR 97201-5630
Attorneys for defendants
Aiken, Chief Judge:
Plaintiffs brings this action for wrongful foreclosure against defendants Deutsche Bank
National Trust (Deutsche Bank) as trustee for the HSI Asset Securitization Corporation Trust 2006HE2; BAC Home Loan Servicing LP (BAC); ReconTrust Company N.A. (ReconTrust); Mortgage
Electronic Registration Systems, Inc. (MERS); and Christine Balandran. Plaintiffs' claims arise from
the nonjudicial foreclosure of their property on January 23, 2012. Plaintiffs contend that the trustee
sale of their property was unauthorized and void under the Oregon Trust Deed Act (OTDA). See Or.
Rev. Stat. § 86.705 et. seq. Defendants move to dismiss the complaint with prejudice for failure to
state a claim upon which relief may be granted pursuant to Fed. R. Civ. P. 12(b)(6). Defendants
argue that plaintiffs are precluded from challenging the trustee sale and that the sale was valid and
complied with all requirements of the OTDA.
Defendants' motion is granted with respect to plaintiffs' claim against Balandran and denied
with leave to renew in all other respects. In light of this Court's recent certification of questions to
the Oregon Supreme Court, plaintiffs' remaining claims are stayed.
I. Factual Background
Except where otherwise noted, the following facts are take from plaintiffs' Complaint and
accepted as true and construed in the light most favorable to plaintiffs for purposes of this motion.
Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012).
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On or about August 3, 2006, plaintiffs financed the purchase of their property with a loan in
the amount of $349,950.00 from Paramount Equity Mortgage (Paramount), as evidenced by a
promissory note (Note). A Deed of Trust (DOT) to the property secured plaintiffs' repayment
obligations under the Note. The DOT identifies Paramount as the "Lender," plaintiffs as the
"Borrower," and MERS as the "beneficiary" of the DOT, acting "solely as a nominee for Lender and
Lender's successors and assigns." Kono Decl. Ex. A at 1. The DOT also provides:
Borrower understands and agrees that MERS holds only legal title to the interests
granted by Borrower in this [DOT], 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 right to
foreclose and sell the Property; and to take any action required of Lender including,
but not limited to, releasing and canceling this [DOT].
Id. Ex. A at 3. The DOT further states that "[t]he Note or a partial interest in the Note (together with
[the DOT]) can be sold one or more times without prior notice to Borrower." Id. Ex. A at 11.
Plaintiffs allege that "the ownership of their mortgage loan and the beneficial interest under
the Deed of Trust was transferred several times on the MERS data base without compliance with
Oregon law and without notice to plaintiffs." Compl. ~ 6.
In 2009, plaintiffs had difficulty making their mortgage payments. Plaintiffs were contacted
by BAC and made good faith attempts to "engage BAC in negotiations to modify the terms of their
loan." Compl. ~ 7.
On March 17, 2010, MERS as "beneficiary" assigned the DOT to Deutsche Bank, and
Deutsche Bank appointed ReconTrust as a successor trustee. Kono Dec!. Exs. B, C. The assignment
of the DOT and the appointment of successor trustee were signed by defendant Balandran as
"Assistant Secretary" for MERS and Deutsche Bank, respectively.
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Also on March 17, 2010, ReconTrust executed a Notice of Default (NOD) and Election to
Sell. Dolinajec Dec!. Ex. A.
On January 25, 2011, ReconTrust rescinded the NOD "by reason of the default being cured"
and "removed, paid, and overcome so that said Trust Deed should be reinstated." Id. Ex. E.
On April 20, 2011, ReconTrust again issued a NOD and notified plaintiffs of their right to
meet with their lender. Kono Dec!. Ex. D. Plaintiffs requested such a meeting but never met with the
lender or servicer.
Plaintiffs allege that BAC fraudulently represented that it was the loan servicer for Bank of
America and that Bank of America was plaintiffs' lender. BAC also represented that it possessed the
authority to enter into a Loan Modification Agreement. Plaintiffs attempted to negotiate the terms
of a loan modification, though BAC was not responsive and lost submitted documents.
In December 2011, BAC informed plaintiffs that its "investor" had rejected plaintiffs' loan
modification application because plaintiffs did not meet the "criteria." Comp!. ~ 14. BAC did not
explain why plaintiffs did not meet the criteria or describe the relevant criteria.
On January 23, 2012, plaintiffs' property was sold at a trustee's sale, and the property
reverted to Deutsche Bank.
On February 13, 2012, plaintiffs filed suit in Claekamas County Circuit Court and defendants
removed the action to this Court. Defendants now move to dismiss plaintiffs' claims.
On April 2, 2012, this Court certified the following four questions to the Oregon Supreme
Court pursuant to Or. Rev. Stat. § 28.200 and L.R. 83-15(a):
I.
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Mayan entity such as MERS, that is neither a lender nor successor to a
lender, be a "beneficiary" as that term is used in the Oregon Trust Deed Act?
- OPINION AND ORDER
2.
May MERS be designated as beneficiary under the Oregon Trust Deed Act
where the trust deed provides that MERS "holds only legal title to the
interests granted by Borrower in this Security Instrument, but, ifnecessary 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"?
3.
Does the transfer of a promissory note from the lender to a successor result
in an automatic assignment of the securing trust deed that must be recorded
prior to the commencement of nonjudicial foreclosure proceedings under
ORS 86.735(1)?
4.
Does the Oregon Trust Deed Act allow MERS to retain and transfer legal title
to a trust deed as nominee for the lender, after the note secured by the trust
deed is transferred from the lender to a successor or series of successors?
See Brandrup v. ReconTrust Co" Civ, No, 3:11-cv-1390-HZ (D. Or. Apr. 2, 2012) (doc. 20). To
date, the Oregon Supreme Court has not issued a decision regarding the certified questions.
II. Discussion
In addition to other claims, plaintiffs allege that MERS was not a proper beneficiary of the
DOT under the OTDA and that unrecorded assignments of the DOT occurred each time the Note was
transferred. Plaintiffs seek a declaratory judgment that the trustee sale was null and void and quieting
title to the property in their favor.
At the time of the foreclosure in this case, four conditions must have been met to proceed
with nonjudicial foreclosure under the OTDA. First, "[tJhe trust deed, any assignments of the trust
deed by the trustee or the beneficiary and any appointment of a successor trustee" must have been
recorded in the county where the property is located. Former Or. Rev, Stat. § 86.735(1 )(2009). The
OTDA defines "beneficiary" as 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." Id. § 86. 705( 1).
Second, there must have been a default of an obligation secured by the trust deed. Id. § 86.735(2).
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Third, the trustee or beneficiary must have filed a notice of default and election to sen the property.
Id. § 86.735(3). Lastly, no other action may have been instituted to recover the debt secured by the
trust. Id. § 86.735(4). Plaintiffs allege that the trustee sale in this case did not comply with the
recording requirements of § 86.735(1).
As a threshold matter, defendants argue that all of plaintiffs' claims must be dismissed
because plaintiffs have not alleged an ability to cure their default and are barred from challenging
a completed trustee sale. See Or. Rev. Stat. §§ 86.742(3) (debtors alleging defective notice must
present evidence of an ability to cure the default), 86.770(1) (trustee sale conducted under OTDA
"forecloses and terminates the interest in the property that belongs to a person to which notice of the
sale was given"). I disagree.
A purpose of the OTDA is to "'counterbalance the foreclosure advantages given [to] the
creditor .... The creditor is favored only as long as he follows the statute.'" James v. ReconTrust
Co .. N.A., 2012 WL 653871, at *5 (D. Or. Feb. 29, 2012) (quoting Ronald Brady Tippetts, Note,
Trust-Deed History in Oregon, 44 OR. L. REv. 149, 150 (1965». The OIDA thus '''represents a
well-coordinated statutory scheme to protect grantors [borrowers] from the unauthorized foreclosure
and wrongful sale of property, while at the same time providing creditors with a quick and efficient
remedy against a defaulting grantor... without the necessity for judicial action. ", Id. (quoting
Staffordshire mv., Inc. v. Cal-Western Reconveyance CO!l'., 209 Or. App. 528, 542, 149 PJd 150
(2006». Accordingly, a creditor's failure to comply strictly with the statutory process outlined in the
OTDA is generally fatal to any nonjudieial foreclosure proceeding. "[T]here is nothing in the
language of that section or, indeed, elsewhere in the Act, to indicate that the legislature intended the
auction to be final in the absence oflegal authority to sell the property." Staffordshire, 209 Or. App.
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at 542,149 P.3d 150 (emphasis in original); see also id. at 543 & n.8, 149 P.3d 150. In other words,
absent compliance with the preconditions set forth in § 86.735, there is no authority to foreclose by
advertisement and sale under the OIDA.
Consequently, I do not find plaintiffs' alleged inability to cure the default sufficient grounds
to dismiss this action in its entirety. See Hooker v. Nw. Tr. Servs .. Inc., 2011 WL 2119103, *4 (D.
Or. May 25, 2011) (noting that default does not permit or excuse OTDA violations). Despite
defendants' argument to the contrary, Or. Rev. Stat. § 86.742(3), requiring evidence of financial
ability to cure a default, does not apply where a plaintiff challenges the authority to pursue
nonjudicial foreclosure; rather, that provision applies when a plaintiff alleges the failure to give
notice of a foreclosure sale.
For the same reasons, the completion of the trustee sale does not bar plaintiffs' claims. In
Staffordshire, the court found that the failure to comply with a condition precedent to nonjudicial
foreclosure was grounds to invalidate a foreclosure sale. Staffordshire, 209 Or. App. at 543, 149 P.3d
150 ("We see no basis for holding that a foreclosure sale entered into in violation of this statutory
prohibition should be enforced."); see also In re Names, 2011 WL 1837819, at *4 (Bankr. D. Or.
May 13,2011) ("This case is different. Here, all of the preconditions for the trustee's authority to sell
were met."). The case cited by defendants is inapposite. See, e.g. Bell v. ReconTrust Co .. N.A., Civ.
No.6: l1-cv-6390-HO (D. Or. Feb. 29, 2012) ("The foreclosure was not caused by any VlTongdoing
on the part of defendants (nor is there even any appropriate statement of claim of violation of the
OTDA with respect to the non-judicial foreclosure .... "). Regardless, I find defendants' arguments
unpersuasive in light of the underlying purpose of the OTDA. Thus, § 86.770 and completion of the
trustee sale does not bar plaintiffs' claims challenging the validity of the sale.
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Plaintiffs argue that MERS was not a proper beneficiary, because it had no interest in the
underlying Note and the DOT was not granted for MERS' benefit. 1 Consequently, ifMERS was not
a valid beneficiary, it could not assign the DOT to Deutsche Bank, and Deutsche Bank was not
authorized to appoint ReconTrust as successor trustee. Plaintiffs also allege that their loan was
transferred several times within the MERS database, and that conveyances of the Note resulted in
assignments ofthe DOT that should have been recorded prior to foreclosure. Defendants counter that
the language of the DOT designates MERS as the beneficiary and grants MERS the authority to
exercise all rights of the lender, thus rendering MERS a valid beneficiary under the OTDA.
Defendants also argue that MERS held the DOT as beneficiary until it was assigned to Deutsche
Bank, and that transfers of the Note did not result in assigmnents of the DOT.
Aside fromMERS' status as beneficiary, this case raises serious questions regarding whether
transfers of the Note resulted in assignments of the DOT under Oregon law. To date, neither the
Oregon Court of Appeals nor the Oregon Supreme Court has addressed whether MERS may serve
as beneficiary of a DOT or whether transfers of a note result in assignments of the securing trust deed
that must be recorded prior to nonjudicial foreclosure. This Court has attempted to resolve these
issues, without consensus. See. e.g., James, 2012 WL 653871; Reeves v. ReconTrust Co., 2012 WL
652681 (D. Or. Feb. 28, 2012); Beyer v. Bank of Am., 800 F. Supp. 2d 1157 (D. Or. 2011); Hooker,
lMERS is an electronic system that "tracks the transfer of the 'beneficial interest' in home
loans, as well as any changes in loan servicers." Cervantes v. Countrywide Home Loans. Inc.,
656 F.3d 1034, 1038-39 (9th Cir. 2011). Its members are composed of mortgage lenders, banks,
insurance companies, and title companies, all of whom pay a yearly fee. Burgett v. Mortg. Elec.
Registration Sys., Inc., 2010 WL 4282105, at *2 (D. Or. Oct. 20, 2010). Each member lender
appoints MERS as its agent for each mortgage or trust deed it registers with the system, and
MERS is listed as the lender's nominee or beneficiary of record when the trust deed is first
recorded in the appropriate county~s recording office. Id.; Cervantes, 656 F.3d at 1039. MERS is
not a lender and generally possesses no interest in the loan or note secured by a trust deed.
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2011 WL 2119103; Burgett v. Mortg. Elec. Registration Sys., Inc., 2010 WL 4282105 (D. Or. Oct.
20,2010). Ultimately, this Court certified four questions to the Oregon Supreme Court to resolve
these important issues of Oregon law. See IDJllli\ at 4-5.
The parties' primary arguments raise questions similar to those certified. Therefore, I find
it appropriate to stay plaintiffs' claims pending a decision by the Oregon Supreme Court. If
certification is declined, defendants may renew their motion.
However, I decline to stay plaintiffs' claim against Balandran in her individual capacity for
wrongful foreclosure. Plaintiffs submit no authority to allow a wrongful foreclosure claim against
an alleged employee and representative of a DOT beneficiary based on actions performed on behalf
of the beneficiary. Accordingly, plaintiffs' claim against Balandran is dismissed.
Conclusion
For the reasons set forth above, defendants' Motion to Dismiss (doc. 8) is GRANTED with
respect to plaintiffs' claim against Balandran and DENIED in all other respects with leave to renew.
This case is STAYED pending a decision by the Oregon Supreme Court regarding the certified
questions.
IT IS SO ORDERED.
Dated this
~~ay, 2012.
Ann Aiken
United States District Judge
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