Kraus v. Hershner Hunter, LLP, et al
OPINION and ORDER: Granting Defendants' Motions to Dismiss for Failure to State a Claim 8 and 9 with prejudice. Signed on 12/19/2016 by Judge Michael J. McShane. (cp) Modified text to add opinion on 12/19/2016 (kf).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
MARY E. KRAUS,
Case No. 6:16-cv-01776-MC
OPINION AND ORDER
HERSHNER HUNTER, LLP, et al.,
Defendants Hershner Hunter, LLP, Umpqua Bank, Mortgage Electronic Registration
Systems, Inc. (MERS), and the Federal National Mortgage Association (Fannie Mae) filed twin
motions to dismiss plaintiff Mary Kraus’s claims against them. Mrs. Kraus, proceeding pro se,
alleges eight causes of action stemming from Umpqua Bank’s 2015 non-judicial foreclosure and
sale of her former property.
1 – OPINION AND ORDER
Mrs. Kraus’s claims depend on the invalidity of Umpqua Bank’s non-judicial foreclosure
and trustee’s sale of the property. Because the sale fully complied with the Oregon Trust Deed
Act (OTDA), Or. Rev. Stat. §§ 86.705–.795, Mrs. Kraus’s complaint fails to state a plausible
claim. Therefore, under Fed. R. Civ. P. 12(b)(6), this Court GRANTS the defendants’ motions to
Mary Kraus and her late husband signed a Deed of Trust on May 20, 2011, securing a
loan with their home. The parties to the Deed of Trust were as follows: Mary E. and Elmer J
Kraus, Borrowers; Umpqua Bank, Lender; Fidelity National Title Company, Trustee; and
MERS, “beneficiary.” Umpqua later assigned Nancy K. Carey, a partner at Hershner Hunter, as
its successor trustee.
In 2013, the Oregon Supreme Court addressed the then common practice of listing MERS
as “beneficiary” on deeds of trust. Brandrup v. ReconTrust, 353 Or. 668, 672 (2013). Under
Brandrup, MERS cannot be a “beneficiary” for the purposes of the OTDA. Id. at 673–74. In
2015, possibly in recognition of Brandrup, MERS recorded an assignment of trust deed
transferring all of its rights as “beneficiary” to Umpqua. However, Umpqua already held all
rights as beneficiary, because the lender on a deed of trust involving MERS is automatically the
“beneficiary” for the purposes of the OTDA. Niday v. GMAC Mortg., LLC, 353 Or. 648, 660
After Mrs. Kraus defaulted, Umpqua started the proceedings for non-judicial foreclosure.
On October 5, 2015, Umpqua, through its successor trustee, sold the foreclosed property to
Fannie Mae. On August 3, 2016, Mrs. Kraus brought this action in state court alleging eight
causes of action arising from the sale. The defendants removed the action to federal court on
2 – OPINION AND ORDER
September 6, 2016. As noted, defendants moved to dismiss the complaint. Mrs. Kraus did not
respond and the time to do so has passed.
STANDARD OF REVIEW
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must contain
sufficient factual matter that “state[s] a claim to relief that is plausible on its face.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face when the factual
allegations allow the court to infer the defendant’s liability based on the alleged conduct.
Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). The factual allegations must present more than “the
mere possibility of misconduct.” Id. at 678.
When considering a motion to dismiss, the court must accept all allegations of material
fact as true and construe those facts in the light most favorable to the non-movant, Burget v.
Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000), but the court is “not
bound to accept as true a legal conclusion couched as a factual allegation,” Twombly, 550 U.S. at
555. If the complaint is dismissed, leave to amend should be granted unless the court
“determines that the pleading could not possibly be cured by the allegation of other facts.” Doe v.
United States, 58 F.3d 494, 497 (9th Cir. 1995).
Umpqua Bank conducted a valid non-judicial foreclosure and sale of Mrs. Kraus’s
property. Under the OTDA, the trustee’s sale of the foreclosed property terminates the original
grantor’s interest in that property. Or. Rev. Stat. § 86.770(1). To give the foreclosure proceedings
appropriate finality, “a post-sale challenge must be based on lack of notice or on some other
fundamental flaw in the foreclosure proceedings, such as the sale being completed without the
borrower actually being in default.” Woods v. U.S. Bank N.A., 831 F.3d 1159, 1166 (9th Cir.
3 – OPINION AND ORDER
2016). Technical defects, such as listing the wrong beneficiary on the notice of sale, are not
significant enough to overturn the foreclosure. Id. Mrs. Kraus alleges mere technical defects that
do not invalidate the foreclosure or sale.
Mrs. Kraus’s first cause of action, for wrongful foreclosure, alleges MERS’s participation
rendered the non-judicial foreclosure invalid. As Mrs. Kraus correctly notes, MERS is not a
suitable “beneficiary” under the OTDA. Brandrup, 353 Or. at 678. However, Brandrup did not
render invalid every deed of trust listing MERS as “beneficiary.” Instead, courts simply treat the
lender as the true beneficiary. Niday, 353 Or. at 660. Here, that means Umpqua Bank, the lender,
was the true beneficiary. As the beneficiary of Mrs. Kraus’s Deed of Trust, Umpqua Bank had
the legal authority to appoint a successor trustee, conduct a non-judicial foreclosure and trustee’s
sale of Mrs. Kraus’s property, and eventually transfer the title to Fannie Mae.
Mrs. Kraus does not allege she could have paid her loan but for the sale. Mrs. Kraus does
not allege she took any action to stop the foreclosure before the final sale. Mrs. Kraus does not
allege Umpqua Bank failed to provide proper notice of the foreclosure or sale.1 Mrs. Kraus
alleges only that listing MERS as “beneficiary” on the original deed of trust rendered Umpqua
Bank’s subsequent conduct invalid. As stated above, the courts correct this technicality by
treating the lender as the true beneficiary. Id. Therefore, the facts as alleged by Mrs. Kraus
demonstrate this was a valid non-judicial foreclosure.
In fact, the documents submitted with defendants’ request for judicial notice, ECF No. 13, demonstrate Mrs. Kraus
received proper notice of the sale. At any stage of the proceeding, the court may take judicial notice of “matters of
public record.” Fed. R. Evid. § 201(d); Lee v. County of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). This Court
takes notice of the following documents, recorded in the Coos County Oregon Records: (1) Deed of Trust, dated
May 20, 2011; (2) Assignment of Trust Deed by Beneficiary, dated March 31, 2015; (3) Appointment of Successor
Trustee, dated March 31, 2015; (4) Trustee’s Notice of Default and Election to Sell Under Terms of Trust Deed,
dated April 22, 2015; (5) Trustee’s Deed, dated October 5, 2015; and (6) various proofs of notice and service,
recorded August 25, 2015. See Def.’s Mot. to Dismiss Exs. 1–5, ECF Nos. 9-1 to 9-5; Def.’s Mot. to Dismiss Ex. A,
ECF No. 8-1; Def.’s Req. for Judicial Notice in Supp. of Mot. to Dismiss Ex. A, ECF No. 13-1. This Court may
properly consider each of the above-listed documents as part of the defendants’ motions to dismiss, as Mrs. Kraus’s
complaint specifically refers to and relies on each. Lee, 250 F.3d at 689; Notice of Removal Ex. 1, ECF. No. 1.
4 – OPINION AND ORDER
Mrs. Kraus’s seven other causes of action also rely on MERS’s inability to conduct a
valid non-judicial foreclosure. Mrs. Kraus’s second cause of action alleges Umpqua violated the
OTDA by assigning a successor trustee. However, Umpqua, which has always been the true
beneficiary to Mrs. Kraus’s deed of trust, had the power to assign a successor trustee. Even in the
light most favorable to Mrs. Kraus, Umpqua’s conduct was legal and proper. Therefore, Mrs.
Kraus’s second cause of action alleges no facts making her claim plausible.
Mrs. Kraus’s third cause of action alleges Umpqua breached the implied covenant of
good faith and fair dealing, as set out by the Restatement (Second) of Contracts § 205. However,
as explained above, Umpqua fully complied with the OTDA and conducted a valid non-judicial
foreclosure. Umpqua did not “avoid the OTDA.” Therefore, Mrs. Kraus’s third cause of action
alleges no facts making her claim plausible.
Mrs. Kraus’s fourth cause of action alleges trespass against Fannie Mae, the eventual
owner of the subject property. Fannie Mae purchased the property at the trustee’s sale. The
trustee’s sale terminated Mrs. Kraus’s interest in the property. Or. Rev. Stat. § 86.770(1).
Afterwards, Fannie Mae was the legal owner of the subject property and could not have
trespassed thereon. Therefore, Mrs. Kraus’s fourth cause of action alleges no facts making her
Mrs. Kraus’s fifth cause of action alleges Umpqua violated the OTDA because “[t]he
MERS filing is invalid.” The document Mrs. Kraus is likely referencing, the assignment from
MERS to Umpqua, may have been technically invalid because MERS was never actually the
proper beneficiary. However, there was no need for MERS to assign any rights to Umpqua; the
courts correct this technicality automatically. Niday, 353 Or. at 660. The MERS filing, though
5 – OPINION AND ORDER
redundant, did not render the subsequent proceedings invalid. Therefore, Mrs. Kraus’s fifth cause
of action alleges no facts making her claim plausible.
Mrs. Kraus’s sixth cause of action alleges Defendant Hershner Hunter violated the Fair
Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692. Foreclosing on a security interest is
not “debt collection” within the meaning of the FDCPA. Barnes v. Routh Crabtree Olsen, PC,
2016 WL 81799, at *4 (and other cases cited therein). Even if the foreclosure was actionable
under the FDCPA, Mrs. Kraus alleges only that Hershner Hunter violated the FDCPA by
participating in Umpqua’s non-judicial foreclosure of her former property. As explained above,
Umpqua’s foreclosure and sale were legal and valid. Therefore, even in the light most favorable
to Mrs. Kraus, her sixth cause of action contains no facts making her claim plausible.
Mrs. Kraus’s seventh cause of action alleges all defendants slandered the title to her
former property by “preparing, posting, publishing, and recording” the documents necessary to
give notice of and carry out the non-judicial foreclosure and trustee’s sale. As with her other
causes of action, Mrs. Kraus relies on the invalidity of the non-judicial foreclosure and trustee’s
sale. As repeatedly explained above, the foreclosure proceedings were both legal and valid. The
defendants had the right—and indeed, under the OTDA, the obligation—to prepare, post,
publish, and record the relevant documents. Therefore, Mrs. Kraus’s seventh cause of action
alleges no facts making her claim plausible.
Mrs. Kraus’s eighth cause of action simply reiterates all of her previous allegations and
requests declaratory relief on the validity of the foreclosure, trustee’s sale, and all related
documents. With reference to the explanations above, this Court declares valid and legal each
and every aspect of the proceedings outlined in Mrs. Kraus’s complaint. Therefore, Mrs. Kraus’s
eighth cause of action alleges no facts making her claim plausible.
6 – OPINION AND ORDER
Umpqua Bank conducted a valid non-judicial foreclosure and trustee’s sale of Mrs.
Kraus’s former property. MERS’s role in the proceedings did not affect the validity of the
foreclosure or the trustee’s sale, and Mrs. Kraus’s complaint alleges no other facts making her
claims plausible. Therefore, this Court GRANTS the defendants’ motions to dismiss. Because
the complaint and judicially noticed documents establish the foreclosure and sale were valid, the
complaint is dismissed with prejudice.
IT IS SO ORDERED.
DATED this 19th day of December, 2016.
______/s/ Michael McShane_______
United States District Judge
7 – OPINION AND ORDER
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