niday, mers opening brief oregon supreme court
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Niday MERS Oregon Supreme CourtTRANSCRIPT
IN THE SUPREME COURT OF THE STATE OF OREGON
REBECCA NIDAY, fka REBECCA LEWIS, Plaintiff-Appellant, Respondent on Review,
v.
GMAC MORTGAGE, LLC, a foreign limited liability company, and
EXECUTIVE TRUSTEE SERVICES, INC., a California corporation, Defendants-Respondents,
and
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
a Delaware corporation, Defendant-Respondent, Petitioner on Review.
Clackamas County Circuit Court Case No. 1002-0001
CA A147430
S060655
BRIEF ON THE MERITS OF PETITIONER ON REVIEW
_____________________________________
Review of the decision of the Court of Appeals on appeal from a judgment of the Circuit Court for Multnomah County, Honorable Henry C. Breithaupt,
Judge pro tempore Opinion Filed: July 18, 2012
Author of Opinion: Nakamoto, Judge Concurring Judges: Schuman, Presiding Judge, and Wollheim, Judge
(Counsel Listed on Inside Cover) November, 2012
Gregory A. Chaimov, OSB #822180 [email protected] Frederick B. Burnside, OSB #096617 [email protected] Kevin H. Kono, OSB #023528 [email protected] Davis Wright Tremaine LLP 1300 SW Fifth Avenue, Suite 2400 Portland, Oregon 97201 Telephone: 503-241-2300 Facsimile: 503-778-5299 Attorneys for Defendant-Respondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.
Elizabeth Lemoine, OSB # 040811 Makler Lemoine & Goldberg, PC 515 NW Saltzman Rd Ste 811 Portland OR 97229 Telephone: 503-718-7672 W. Jeff Barnes (adm. pro hac vice) W.J. Barnes, PA 9350 Wilshire Blvd, Ste 308 Beverly Hills CA 90212 Attorneys for Plaintiff-Appellant, Respondent on Review Rebecca Niday
William G. Fig, OSB # 952618 Sussman Shank, LLP 1000 SW Broadway Ste 1400 Portland OR 97205 Telephone: 503-227-1111 Robert Pratte DLA Piper LLP 90 South Seventh St #1500 Minneapolis MN 55402 Attorneys for Defendants-Respondents GMAC Mortgage, LLC and Executive Trustee Services, Inc.
David L. Koen, OSB No. 080941 Legal Aid Services of Oregon 921 SW Washington St Ste 500 Portland OR 97205 Telephone: 503-224-4086
Attorneys for Amicus Curiae Oregon Trial Lawyers Association
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TABLE OF CONTENTS
I. LEGAL QUESTIONS PRESENTED ........................................................ 1
II. PROPOSED RULES OF LAW .................................................................. 1
III. STATEMENT OF THE CASE .................................................................. 2 A. Nature of the action and relief sought. ............................................. 2 B. Nature of the judgment..................................................................... 3
IV. STATEMENT OF FACTS ......................................................................... 4 A. Plaintiff’s loan, trust deed, and default. ........................................... 4
B. The role of MERS in the real estate industry. .................................. 6
V. SUMMARY OF ARGUMENT .................................................................. 8
VI. ARGUMENT............................................................................................ 11 A. A “beneficiary” as defined and used in the OTDA may be
any person whom the parties identify as the beneficiary by contractual agreement in the trust deed, regardless of whether that person is the lender or lender’s successor. ................ 11
1. Under the statutory text, the trust deed “beneficiary” is not limited to the lender or its successor, and any designated entity may be “beneficiary.” .............................. 12
2. The statutory context shows that an entity such as MERS may be a trust deed “beneficiary.” ........................... 15 a. The statutory context shows the intent to
maximize contractual freedom. ................................. 15 b. Related mortgage statutes show that the
“beneficiary” is not limited to the lender or its successors. ................................................................. 17
c. The law of negotiable instruments shows that the beneficiary is not necessarily the lender or note holder. ................................................................ 18
3. The legislature left designation of the trust deed “beneficiary” to the contracting parties’ choice and any contrary holding will cause dramatic change under Oregon real estate law and practice. .......................... 21
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4. The contractual choice of MERS as beneficiary is consistent with traditional agency principles. ...................... 28
5. MERS is a valid agent for lenders and their successors. ............................................................................ 33
6. MERS is authorized by the trust deed to exercise all rights of the lender. .............................................................. 34
B. “Transfers” of a promissory note do not result, by operation of law, in “assignments of the trust deed” within the meaning of ORS 86.735(1). ........................................................... 37 1. The text of ORS 86.735(1) reflects the legislative
intent to require recordation only of formal written assignments of the trust deed. .............................................. 38
2. The context of ORS 86.735 shows that the legislature did not intend to require recordation of note transfers. ....... 40 a. Other statutory provisions show that the
legislature did not intend “assignments of the trust deed” to include transfers by indorsement. ....... 41
(1) Mortgage statutes support MERS’s position. ........................................................... 41
(2) Oregon’s law of negotiable instruments shows that “assignments” did not include “transfers by indorsement.” ............................. 45
(3) Other statutes show that, when the legislature intends to refer to the note or underlying debt, the legislature does so expressly. ......................................................... 50
b. Pre-1959 case law shows that note transfers do not need to be recorded.............................................. 51
3. The legislative history of the OTDA supports that the legislature did not understand transfers of the note to be assignments of the trust deed. ......................................... 53
VII. CONCLUSION ........................................................................................ 54
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TABLE OF AUTHORITIES
Page
Cases
Andrews v. Kelleher, 214 P 1056 (Wash 1923) .................................................................................25
Barbour v. Johnson, 201 Or 375, 269 P2d 531 (1954) .....................................................................30
Barkhausen v. Cont’l Ill. Nat’l Bank Trust Co., 120 NE2d 649, cert den, 348 US 897 (Ill 1954) .............................................32
Barringer v. Loder, 47 Or 223, 81 P 778 (1905) .................................. 10, 41, 42, 43, 47, 51, 52, 53
Beyer v. Bank of America, 800 F Supp 2d 1157 (D Or 2011) ...................................................................36
Callaghan v. Scandling, 178 Or 449, 167 P2d 119 (1946) .....................................................................32
Carius v. Ohio Contract Purchase Co., 164 NE 234 (Ohio Ct App 1928) ....................................................................50
Carr v. Cohn, 87 P 926 (Wash 1906) .....................................................................................31
Corales v. Flagstar Bank, FSB, 822 F Supp 2d 1102 (WD Wash 2011) .................................................... 23, 24
Halperin v. Pitts, 352 Or 482, ___ P3d ___ (2012) .............................................................. 17, 20
In re Childs Co., 163 F2d 379 (2d Cir 1947) ..............................................................................31
In re Cushman Bakery, 526 F2d 23 (1st Cir 1975) ...............................................................................31
In re Leisure, 336 Or 244, 82 P3d 144 (2003) .......................................................................26
In re Martinez, 444 BR 192 (D Kan Bankr 2011) ...................................................................35
In re Tucker, 441 BR 638 (WD Mo Bankr 2010) .................................................................33
iv
In re Veal, 450 BR 897 (9th Cir BAP 2011) .............................................................. 22, 27
Jerstad v. Warren, 73 Or App 387, 698 P2d 1033 (1985) .............................................................50
Kantola v. Lovell Auto Co., 157 Or 534, 72 P2d 61 (1937) .........................................................................29
Kiah v. Aurora Loan Serv., LLC, 2011 WL 841282 (D Mass 2011) ....................................................................34
Lantz v. Safeco Title Ins. Co., 93 Or App 664, P2d 744 (1988), rev den, 307 Or 405 (1989) ........................23
MERSCORP, Inc. v. Romaine, 8 NY3d 90, 861 NE2d 81 (NY 2006) .............................................................34
Mortgage Elec. Registration Sys., Inc. v. Azize, 965 So2d 151 (Fla 2007) .................................................................................35
Mortgage Elec. Registration Sys., Inc. v. Coakley, 41 AD3d 674 (NY 2007) .................................................................................35
Mortgage Elec. Registration Sys., Inc. v. Neb. Dep’t of Banking & Fin., 704 NW2d 784 (Neb 2005) ...................................................................... 35, 36
Niday v. GMAC Mortgage, LLC, 251 Or App 278, 284 P3d 1157 (2012) . 4, 6, 7, 8, 9, 13, 16, 22, 23, 26, 27, 29, 38, 40, 44, 49
Perry & Greer, Inc. v. Manning, 282 Or 25, 576 P2d 791 (1978) .......................................................................50
Phez Co. v. Salem Fruit Union, 113 Or 398, 233 P 547 (1925) .........................................................................30
Pokorny v. Williams, 199 Or 17, 260 P2d 490 (1953) .......................................................................30
Roth v. Troutdale Land Co., 83 Or 500, 162 P 1069 (1917) .........................................................................52
Ruddy v. Oregon Auto. Credit Corp., 179 Or 688, 174 P2d 603 (1946) .............................................................. 29, 33
Scheid v. Shields, 269 Or 236, 524 P2d 1209 (1974) ...................................................................49
Schleef v. Purdy, 107 Or 71, 214 P 137 (1923) ...........................................................................52
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Schuh Trading Co. v. Comm’r, 95 F2d 404 (7th Cir 1938) ...............................................................................31
Smith v. Caro, 9 Or 278 (1881) ...............................................................................................47
State v. Gaines, 346 Or 160, 206 P3d 1042 (2009) ...................................................................11
State v. Shaw, 338 Or 586, 113 P3d 898 (2005) .....................................................................28
State v. Vasquez-Rubio, 323 Or 275, 917 P2d 494 (1996) .....................................................................47
Taylor v. Ramsay-Gerding Constr. Co., 345 Or 403, 196 P3d 532 (2008) ....................................................................35
Thayer v. Nehalem Mill Co., 31 Or 437, 51 P 202 (1897) .............................................................................31
United States Nat. Bank v. Holton, 99 Or 419, 195 P 823 (1921) ...........................................................................23
Statutes
ORS 174.010 .......................................................................................................14 ORS 205.130 .......................................................................................................39 ORS 71.001, et seq. (1959) .................................................................................18 ORS 71.019 (1959) .............................................................................................31 ORS 71.030 (1959) ...................................................................................... 19, 45 ORS 71.032 (1959) .............................................................................................19 ORS 71.033 (1959) .............................................................................................19 ORS 71.034 (1959) .............................................................................................45 ORS 71.036 (1959) .......................................................................... 19, 20, 31, 48 ORS 71.037(2) (1959) ........................................................................................48 ORS 71.038 (1959) ...................................................................................... 19, 48 ORS 71.039 (1959) .............................................................................................48 ORS 71.069 (1959) .............................................................................................31 ORS 71.091 (1959) .............................................................................................31 ORS 71.094 (1959) .............................................................................................31 ORS 71.1030(1)(b); (2) ...................................................................................5, 30
vi
ORS 73.0201(1) ..................................................................................................45 ORS 73.0205(2) ..................................................................................................45 ORS 73.0206(2) ..................................................................................................48 ORS 73.0301 ................................................................................................ 20, 46 ORS 73.0309 .......................................................................................................20 ORS 73.0418 (4) .................................................................................................20 ORS 86.060 ................................................................................ 41, 42, 43, 44, 53 ORS 86.070 ...................................................................................... 41, 42, 44, 53 ORS 86.070 (1957) .............................................................................................42 ORS 86.070 (1959) .............................................................................................10 ORS 86.110 .......................................................................... 18, 43, 44, 47, 50, 51 ORS 86.110(1) ............................................................................................. 18, 43 ORS 86.140 ............................................................................................ 44, 45, 51 ORS 86.205(4) ....................................................................................................17 ORS 86.705 .....................................................................................................1, 12 ORS 86.705(1) ............................................................................................. 13, 14 ORS 86.705(1) (1959) ........................................................................................12 ORS 86.705(1) (2009) ........................................................................................12 ORS 86.705(2) ................................................................................................9, 16 ORS 86.705(2) (2011) ........................................................................................12 ORS 86.705(2), (5) .............................................................................................16 ORS 86.705(5) ....................................................................................................16 ORS 86.710 .........................................................................................................16 ORS 86.715 .................................................................................................. 17, 18 ORS 86.735 .........................................................................................................40 ORS 86.735(1) ......................................................... 1, 2, 9, 37, 38, 39, 40, 41, 51 ORS 86.735(1)(d) (1959) ....................................................................................51 ORS 86.735(4) ....................................................................................................50 ORS 86.759 .........................................................................................................28 ORS 86.790 .........................................................................................................28 ORS 86A.175(3)(e) .............................................................................................23
vii
ORS 93.010 .................................................................................................. 30, 34 ORS 93.020 .................................................................................................. 30, 34 ORS 93.610 .........................................................................................................39 ORS 93.630 .........................................................................................................39
Other Authorities
Bank of Am. Nat’l Trust & Sav. Ass’n, Rel. No. 1977 SEC No-Act LEXIS 1343 (May 19, 1977)................................ 8
Black’s Law Dictionary 533 (4th ed 1951) ........................................................14 Jeffrey J. Miller, The Effect of the S&L Bailout on Title to Real Prop., 5 PROB.
& PROP. 44, 47-49 (Sept/Oct 1991) ................................................................. 7 Negotiable Instruments Law ...............................................................................45 Or Laws 1965, ch 252, § 1 ..................................................................................42 Or Laws 1983, ch 719, § 1 ..................................................................................12 Or Laws 2011, ch 712 § 1 ...................................................................................12 Or Laws 1961, ch 726 .........................................................................................45 R.K. Arnold, Yes, There Is Life On MERS, 11 PROB. & PROP. 33, 34
(July/Aug 1997) ................................................................................................. 7 RESTATEMENT (FIRST) OF AGENCY (1933), § 1 ...................................................30 RESTATEMENT (FIRST) OF AGENCY § 1 ...............................................................33 RESTATEMENT (THIRD) OF AGENCY § 1.01 (2006) .............................................30 RESTATEMENT (THIRD) OF AGENCY § 1.04 .................................................. 30, 34 RESTATEMENT (THIRD) OF AGENCY § 2.02(1).....................................................30 RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) § 5.4, cmt. e (1997) .. 32, 36 Webster’s Third New Int’l Dictionary 612 (unabridged ed 1981) .....................14
1 I. LEGAL QUESTIONS PRESENTED
1. Does the term “beneficiary,” as used in the Oregon Trust Deed
Act, ORS 86.705 et seq. (“OTDA”), mean only the party to whom the
underlying secured obligation is owed, or may Mortgage Electronic
Registration Systems, Inc. (“MERS”), which is neither a lender nor successor to
a lender, act as a “beneficiary”?
2. Is MERS a “beneficiary” within the meaning of the OTDA, where
the Deed of Trust states that “Borrower understands and agrees that MERS
holds only legal title to the interests granted by Borrower in this Security
Instrument, 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”?
3. Does the “transfer” of a promissory note result, by operation of
law, in an automatic “assignment[] of the trust deed” within the meaning of
ORS 86.735(1)?
II. PROPOSED RULES OF LAW
“Beneficiary” as used in the OTDA is not limited to the party to whom
the underlying secured obligation is owed. A “beneficiary” is any person whom
the parties designate as beneficiary in the trust deed, including a person who is
neither a lender nor successor to a lender. The “person named or otherwise
designated in a trust deed as the person for whose benefit a trust deed is given”
2 may be a nominee holding legal and record title to the beneficial interest under
the trust deed.
The obligation in ORS 86.735(1) to record “any assignment[] of the trust
deed” as a condition of nonjudicial foreclosure requires recordation only of an
existing written assignment, executed and acknowledged with the same
formality as required in deeds and mortgages of real property. By contrast,
“transfer” of a trust deed by operation of law through transfer of the underlying
promissory note is not an “assignment” of the trust deed under ORS 86.735(1)
that must be recorded to foreclose nonjudicially. There is a difference between
“transfer” of a note by assignment and transfer by indorsement and delivery.
“Transfer” of a note may occur by delivery without indorsement, but requires a
formal assignment of the note (which is typically combined with a formal trust
deed assignment), whereas negotiation by indorsement and delivery makes the
recipient a “holder,” and person entitled to enforce the Note within the meaning
of the Uniform Commercial Code (and formerly under the Negotiable
Instruments Law).
III. STATEMENT OF THE CASE
A. Nature of the action and relief sought.
Plaintiff Rebecca Niday sued Defendants GMAC Mortgage, LLC,
MERS, and Executive Trustee Services, Inc., for declaratory and injunctive
relief in connection with a then-pending nonjudicial foreclosure and related
3 trustee’s sale of residential property located in Rhododendron, Oregon. ER 1-
11. Plaintiff sought temporary and permanent injunctive relief “precluding and
cancelling the foreclosure sale” based on the allegation that the Defendants had
“failed to demonstrate that they legally or lawfully acquired the full and
unencumbered interest in either the Note or the Deed of Trust” and that they
had “not demonstrated any legal interest in either the Note or the Deed of Trust
* * *.” ER 8. Plaintiff also sought a declaration
“(a) that Defendants “have no legal standing or the proper legal, ownership, or equitable interest in either the Note or Deed of Trust to institute or maintain a foreclosure; and (b) there is no legal assignment of either the Note or the Deed of Trust from the original lender to any of the Defendants; and (c) that the attempt by Defendants to conduct a foreclosure sale of the Property is legally defective and precluded from enforcement[.]”
ER 11.
B. Nature of the judgment.
The trial court, Honorable Pro Tem Judge Henry C. Breithaupt, entered
an order granting summary judgment to Defendants on November 15, 2010, and
a General Judgment based on the order granting summary judgment on
November 30, 2010. The Court of Appeals reversed, holding that there is
evidence in the record that the original lender assigned its interest in the Note
and no longer has any beneficial interest in the Deed of Trust, but that there is
no evidence that the county mortgage records reflect an assignment of the Deed
4 of Trust by the original lender. Niday v. GMAC Mortgage, LLC, 251 Or App
278, 299, 284 P3d 1157 (2012).
IV. STATEMENT OF FACTS
A. Plaintiff’s loan, trust deed, and default.
In August 2006, plaintiff borrowed $236,000 from GreenPoint Mortgage
Funding, Inc. (“GreenPoint”), evidenced by a promissory note (“Note”). ER
48-54. The Note was secured by a Deed of Trust, which plaintiff executed and
which was recorded in the Clackamas County records (“Deed of Trust”). ER
55-69. The Deed of Trust identified plaintiff as “Borrower,” GreenPoint as
“Lender,” and “First American Title Insurance Comp” as “Trustee.” ER 55.
The Deed of Trust also states “MERS is a separate corporation that is acting
solely as a nominee for Lender and Lender’s successors and assigns. MERS is
the beneficiary under this Security Instrument.” ER 56 (italics added; bold
in original). Finally, the Deed of Trust defines the “Note” to mean the
promissory note plaintiff signed, and the “Loan” to mean the debt evidenced by
the Note, plus other amounts owed under the Note and Deed of Trust. ER 56.
In the Deed of Trust, plaintiff agreed that:
“The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender’s successors and assigns) and the successors and assigns of MERS. This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably grants and conveys to Trustee, in trust,
5 with power of sale, the following described property located in [Clackamas County]”
ER 57. Plaintiff further agreed:
“Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, 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 Security Instrument.”
ER 57. The Deed of Trust thus names or otherwise designates MERS the
beneficiary. Consistent with Oregon’s UCC and with the intent of the
legislature that the parties have maximum freedom to designate whose debt a
trust deed secures and who is the trust beneficiary, the parties contractually
agreed to the designation of MERS as a beneficiary, and to MERS’s role as
nominee for the Lender and its successors. See, e.g., ORS 71.1030(1)(b); (2)
(UCC “must be liberally construed and applied to promote its underlying
purposes” of “expansion of commercial practices through custom, usage and
agreement of the parties”; and UCC “principles of law and equity, including
* * * the law relative to capacity to contract, principal and agent [and] estoppel
* * * supplement its provisions”).
In September 2006, GreenPoint sold and transferred the Note to Aurora
Bank FSB (“Aurora”). ER 46. Plaintiff concedes she was subsequently told
that GMAC Mortgage LLC had taken over loan servicing for her loan. Id.; see
6 also ER 30. Approximately four years ago, in January 2009, plaintiff defaulted.
ER 92. MERS appointed LSI Title Company of Oregon, LLC (“LSI”)
successor trustee under the Deed of Trust in April 2009, and recorded the
Appointment of Successor Trustee. ER 42-43. LSI then sent plaintiff a
Trustee’s Notice of Sale, describing plaintiff’s default and stating the
beneficiary’s election to exercise the power of sale under the Deed of Trust. ER
92-93. The sale date was set for September 2, 2009. ER 92. The sale date was
apparently later rescheduled for February 1, 2010. ER 1. At the time
foreclosure was initiated, Aurora owned plaintiff’s loan. ER 46. MERS at all
times remained the beneficiary of record (as nominee for GreenPoint and later
Aurora, as GreenPoint’s successor). See ER 56-57. There is no evidence in the
record of any written assignment of the Deed of Trust.
B. The role of MERS in the real estate industry.
The Court of Appeals provided a background of the history of real estate
financing in Oregon and of Oregon’s recording laws. Niday, 251 Or App at
281-86. To the extent the history of Oregon’s real estate financing and
recording laws provides relevant context in connection the matters of statutory
interpretation at issue here, those laws are discussed in the Argument section
below.
The Court of Appeals also purported to provide a background regarding
MERS, and stated that the parties “do not disagree fundamentally about what
7 MERS is and does.” Id. at 286 n 7. MERS does not provide a detailed
description of its purpose and inner workings here, but does not agree with the
Court of Appeals’ characterization—without citation—that MERS “was created
by the mortgage industry in the early 1990s to make it easier to bundle and sell
promissory notes and their related interests on the secondary market.” Id. at
280. That is incorrect. “MERS * * * [was] created by the mortgage banking
industry to streamline the mortgage process by using electronic commerce to
eliminate paper.” http://www.mersinc.org/about-us/about-us (last visited
November 6, 2012); App 5. Indeed, MERS and the MERS® System evolved
not as a basis to securitize loans, but in the aftermath of problems facing
borrowers during the savings and loan crisis of the 1980s when their banks no
longer existed—an inability to obtain assignments, releases, or a Deed of
Reconveyance after satisfaction of the loan. See, e.g., Jeffrey J. Miller, The
Effect of the S&L Bailout on Title to Real Prop., 5 PROB. & PROP. 44, 47-49
(Sept/Oct 1991) (discussing various title-related issues with S&Ls in the
1980s); R.K. Arnold, Yes, There Is Life On MERS, 11 PROB. & PROP. 33, 34
(July/Aug 1997) (discussing delays). To the extent MERS’s role facilitated a
secondary market for loans, that fact benefits Oregon borrowers because after
mortgage loans are sold to investors, lenders then have the ability to make new
loans to Oregon consumers, thereby increasing the total credit available and
decreasing borrowing costs for consumers. Regardless, the market for
8 mortgage-backed securities existed for many years before MERS’s creation—
the first issuance of private label mortgage-backed securities (i.e. not issued by
Fannie Mae, Freddie Mac, or Ginnie Mae) occurred in 1977. See Bank of Am.
Nat’l Trust & Sav. Ass’n, Rel. No. 1977 SEC No-Act LEXIS 1343 (May 19,
1977).
V. SUMMARY OF ARGUMENT
The Court of Appeals erroneously limited the statutorily defined term
“beneficiary” to the “person to whom the underlying loan repayment obligation
is owed.” Niday, 251 Or App at 281. The consequence of this too-narrow
reading of “beneficiary” was to limit the terms of the contract into which the
borrower and lender entered, which had designated an agent of the lender,
MERS, to be the beneficiary. The statutory text and context do not support the
Court of Appeals’ interpretation. To the contrary, in enacting the OTDA, the
legislature intended the parties to have contractual freedom to designate
whomever they wanted as the parties under the trust deed. The legislature
provided that a “grantor” of a trust deed does not need to be the person who
owes the debt the trust deed secures. Likewise, the legislature allowed
contractual freedom for the parties to name or otherwise designate the trust
deed “beneficiary,” regardless of whether the person named or otherwise
designated is the person to whom the secured obligation is owed. Moreover, at
the time the legislature enacted the OTDA, long-established Oregon statutory
9 and common law principles authorized agents (such as MERS) to act as
beneficiary and hold legal and record title to interests in real estate. Through its
definition of “beneficiary,” the legislature recognized that the beneficiary may
be an agent or nominee of the lender. Permitting the parties to designate MERS
as a beneficiary gives effect to the contractual freedom the legislature intended.
The Court of Appeals, however, failed to give due regard to the “named
or otherwise designated” language in ORS 86.705(2). Instead, the Court of
Appeals appeared to consider the OTDA to limit the contractual relationships
that may exist between the borrower and lender and other parties who provide
services to the borrower or lender, such as a lender’s agent and a trustee, and
the OTDA’s definition of “beneficiary” to be intended to protect borrowers in
the manner of, for example, the federal Truth in Lending Act. The OTDA does
not.
Having erroneously concluded that the trust deed beneficiary can only be
the lender or its successor, the Court of Appeals compounded its error by
concluding that a transfer of the note from the lender to a successor constitutes,
by operation of law, an automatic “assignment” of the trust deed by the
beneficiary that must be recorded under ORS 86.735(1) as a prerequisite to
nonjudicial foreclosure. Niday, 251 Or App at 299-300. In essence, the Court
of Appeals held that when one lender transfers a note to a successor, the parties
to that transaction must create and record a form of “assignment” or else the
10 successor loses the ability to foreclose nonjudicially. There is no support in the
OTDA’s text, context, or legislative history for the notion that the legislature
intended to impose a requirement to create a paper trail where none existed or
that the legislature understood or intended “assignment” to mean or include
“transfer of the note.”
In fact, the text, context, and legislative history all show that the
legislature intended to require recordation only of formal, written assignments
of the trust deed, not the post hoc creation and recordation of documents
memorializing note transfers. Indeed, it had been Oregon law for over 50 years
before the legislature enacted the OTDA that the then-existing statute requiring
recordation of assignments of mortgages, former ORS 86.070 (1959), required
recordation only of assignments executed in writing with the same formality of
deeds and mortgages. Barringer v. Loder, 47 Or 223, 230, 81 P 778 (1905).
Requiring recordation only of formal assignments also was consistent with
Oregon’s then-existing Negotiable Instruments Law and later Oregon’s
Uniform Commercial Code, which provide a variety of methods of transfer of a
note by indorsement and a variety of ways in which a person could be entitled
to enforce a note—all without a formal assignment of the underlying security.
The legislature understood these differences between a transfer of a note and an
assignment of a trust deed and purposefully required recordation only of formal
assignments of a trust deed.
11 Here, the parties’ designation of MERS a beneficiary in the Deed of
Trust, as agent and nominee of the lender and its successors, is consistent with
and authorized by the OTDA. The record reflects only a transfer of the note
and contains no evidence of any formal assignment of the trust deed. There is
no assignment to record, and the trial court correctly granted summary
judgment to MERS. The Court of Appeals should be reversed, and the
judgment of the trial court reinstated.
VI. ARGUMENT
A. A “beneficiary” as defined and used in the OTDA may be any person whom the parties identify as the beneficiary by contractual agreement in the trust deed, regardless of whether that person is the lender or lender’s successor.
In interpreting a statute, the Court’s “paramount goal” is to discern the
legislature’s intent. State v. Gaines, 346 Or 160, 171, 206 P3d 1042 (2009).
“[T]here is no more persuasive evidence of the intent of the legislature” than the
text of the statute. Id. Thus, the first step in statutory analysis is to consider the
statutory text and context. Id. The court may consider legislative history at any
point in the interpretive process; however, the court determines the probative
value of the legislative history, and legislative history carries no weight “[w]hen
the text of a statute is truly capable of having only one meaning[.]” Id. at 173.
“If the legislature's intent remains unclear after examining text, context, and
legislative history, the court may resort to general maxims of statutory
construction to aid in resolving the remaining uncertainty.” Id. at 172.
12 Here, the text and context of ORS 86.705(1) (2009)1 do not reflect an
intent to limit the definition of a “beneficiary” to the lender or its successor—
certainly the word “lender” does not appear anywhere in the OTDA as enacted,
let alone in the definition of “beneficiary.” The words the legislature did use
show the legislature’s intent to allow a trust deed “beneficiary” to be whomever
the parties agree to name or designate as the beneficiary.
1. Under the statutory text, the trust deed “beneficiary” is not limited to the lender or its successor, and any designated entity may be “beneficiary.”
When the legislature enacted the OTDA in 1959, it defined “beneficiary.”
“[U]nless the context requires otherwise,” “beneficiary” means “the person
named or otherwise designated in a trust deed as the person for whose benefit a
trust deed is given, or his successor in interest[.]” See ORS 86.705(1) (1959).
The Court of Appeals took the word “benefit” in the statutory definition,
construed it to mean “security for the underlying obligation,” and concluded
that “the person named or otherwise designated in a trust deed as the person for ________________________
1 The statute was amended in 2011 to renumber the definitions due to the addition of a defined term and to remove the phrase “unless the context requires otherwise” and to read “a person named or otherwise designated in a trust deed” instead of “the person named or otherwise designated in a trust deed.” Compare ORS 86.705(1) (2009) with ORS 86.705(2) (2011) (emphasis added); see also Or Laws 2011, ch 712 § 1. In 1983, the legislature also changed “his” in the phrase “his successor in interest” to “the person’s.” Or Laws 1983, ch 719, § 1. Otherwise, the relevant portions of the definition of “beneficiary” are the same as at the time of enactment. All references to ORS 86.705 refer to the 2009 version, unless otherwise noted.
13 whose benefit a trust deed is given” means “the person named or designated in
the trust deed as the party to whom the underlying, secured obligation is owed.”
Niday, 251 Or App at 298. The Court of Appeals did not properly apply this
Court’s statutory interpretation methodology.
Even if the “benefit” is “security for the underlying obligation,” the
conclusion that a “beneficiary” is the “party to whom the underlying, secured
obligation is owed” fails to give meaning to the statutory language “named or
otherwise designated.” ORS 86.705(1). In essence, the Court of Appeals held
that the “beneficiary” must always be the note holder—regardless who is
“named or otherwise designated * * * as the person for whose benefit a trust
deed is given.” The statutory language does not support that interpretation.
If “beneficiary” always means note holder or note owner, then the parties
would have no ability to “name or designate” anyone else in the trust deed as
“the person for whose benefit the trust deed is given.” The Court of Appeals re-
wrote “beneficiary” to mean note-holder (or lender or its successor) and wrote
out of the statute the phrase “named or otherwise designated.” The legislature
did not intend any such limitations. The “named or otherwise designated”
language shows that the legislature embraced the idea that parties to a contract
allowing nonjudicial foreclosure were free to decide contractually who a
“beneficiary” would be. The only limitation the legislature imposed on who
could be beneficiary is that the beneficiary “shall not be the trustee.” ORS
14 86.705(1).2
Further, by using two different terms—“named” and “otherwise
designated”—the legislature is presumed to have intended each to have a
different meaning. See ORS 174.010 (“In the construction of a statute, the
office of the judge is simply to ascertain and declare what is, in terms or in
substance, contained therein, not to insert what has been omitted, or to omit
what has been inserted; and where there are several provisions or particulars
such construction is, if possible, to be adopted as will give effect to all.”). Even
if the person “named” in the trust deed as “the person for whose benefit a trust
deed is given” somehow must mean the lender or its successor, “otherwise
designated” must mean something different. The most relevant definition of
“designate” is “to assign officially by executive or military authority.”
Webster’s Third New Int’l Dictionary 612 (unabridged ed 1981). Black’s Law
Dictionary at the time of the OTDA’s enactment defined “designate” as “[t]o
indicate or set apart for a purpose or duty—with, to or for—as, to designate an
officer for a command.” Black’s Law Dictionary 533 (4th ed 1951). This
shows that the legislature intended “designated”—as opposed to “named”—to
mean the parties had the contractual freedom to “designate” a person not
________________________
2 As of 2011, this language reads “who is not the trustee unless the beneficiary is qualified to be a trustee under ORS 86.790(1)(d).” ORS 86.705(2) (2011).
15 otherwise involved in the transaction to be the “person for whose benefit a trust
deed is given,” such as an agent or nominee. Thus, the legislature invited
parties to designate non-note holders as “beneficiary”; as a result, designating
MERS as beneficiary is not an attempt to contract around the OTDA, but to
fully implement its objectives.
In the end, the text of the definition of “beneficiary” does not define or
limit “beneficiary” as the lender or other person who holds or owns the note, or
who lent money to the borrower. If the legislature had intended the beneficiary
always to mean the lender or note owner, it would have said so (and then there
would be no need to give parties the opportunity to designate another person as
the beneficiary because the trust deed identifies the lender). Instead, the
statute’s plain language requires reference to the trust deed to determine the
identity of the person “named or otherwise designated” as the person for whose
benefit the instrument is given.
2. The statutory context shows that an entity such as MERS may be a trust deed “beneficiary.”
a. The statutory context shows the intent to maximize contractual freedom.
The statutory context reinforces that “beneficiary” is not limited to the
“party to whom the underlying, secured obligation is owed” and that an entity
such as MERS may be a trust deed “beneficiary.” In rewriting the statutory text
“for whose benefit a trust deed is given” to read “the party to whom the
16 underlying, secured obligation was owed,” the Court of Appeals looked to the
statutory definitions of “grantor” and “trust deed,” ORS 86.705(2), (5), and to
the statute authorizing trust deeds, ORS 86.710.3 Niday, 251 Or App at 294-95.
The Court noted the references in those provisions to securing the performance
of an obligation. Id. The Court, however, overlooked whose obligation is
secured. The OTDA defines a “grantor” as “the person conveying an interest in
real property by a trust deed as security for the performance of an obligation.”
ORS 86.705(2). But the definition of trust deed refers to securing “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). Similarly, ORS
86.710 states “[t]ransfers in trust of an interest in real property may be made to
secure the performance of an obligation of a grantor, or any other person
named in the trust deed, to a beneficiary.” (Emphasis added.)
These provisions show that a “grantor” may sign a trust deed to secure
someone else’s debt (as set forth in the trust deed). Consistent with that
flexibility and freedom of contract, the legislature crafted a definition of
“beneficiary” that likewise embodies the intent that the lender similarly could
designate another person to be the person for whose benefit the trust deed was
given. Reading the statutory language “named or otherwise designated” in any
________________________
3 Each of these provisions is substantially the same as when enacted.
17 other way fails to give meaning to that language.
It would make little sense for the legislature to devise a statutory scheme
that does not require the grantor to be the person who owes the debt yet
requires the beneficiary to be the person to whom the debt is owed. Instead, the
statutory scheme requires reference to the trust deed to determine whether the
trust deed grantor or some “other person named in the deed” owes the secured
debt, and whether the person to whom the debt is owed, or some other
designated person, is beneficiary.
b. Related mortgage statutes show that the “beneficiary” is not limited to the lender or its successors.
Under ORS 86.715, except to the extent inconsistent with the provisions
of the OTDA, a “trust deed is deemed to be a mortgage on real property and is
subject to all laws relating to mortgages on real property * * *.” Although
enacted in 1975, mortgage law defines “lender” to mean “any person who
makes, extends, or holds a real estate loan agreement and includes, but is not
limited to, mortgagees, beneficiaries under trust deeds, and vendors under
conditional land sales contracts.” ORS 86.205(4); see Halperin v. Pitts, 352 Or
482, 490, ___ P3d ___ (2012) (“[T]his court not infrequently refers to later-
enacted statutes for the purpose of demonstrating consistency (or inconsistency)
in word usage over time as indirect evidence of what the enacting legislature
most likely intended.”). This definition of “lender” shows that although the
18 trust deed beneficiary may be the lender, the two are not coextensive. The
legislature does not view the trust deed beneficiary solely as the “lender.”
Another mortgage statute (made applicable to trust deeds by ORS
86.715) similarly shows that the legislature did not equate “beneficiary”
exclusively with “lender” or “note owner.” Under ORS 86.110(1)—which
addresses discharge of debt—if a “promissory note secured by a mortgage on
real property is transferred by indorsement without a formal assignment of the
mortgage,” then “the owner and holder of the promissory note” may record
statement discharging the debt. This statutory context shows the legislature
understood “the owner and holder of the promissory note” may be different
than the record title holder. ORS 86.110 also shows that when the legislature
intended to specify “owner and holder of the note” the legislature knew how to
do so. Had the legislature intended “beneficiary” to mean “lender” or “owner
or holder of the note,” the legislature expressly referred to “owner or holder of
the note,” as it did in ORS 86.110.
c. The law of negotiable instruments shows that the beneficiary is not necessarily the lender or note holder.
Oregon’s former Negotiable Instrument Law, ORS 71.001, et seq.
(1959), in effect when the legislature adopted the ODTA, provides important
statutory context outside the mortgage-specific statutory scheme, particularly in
light of the Court of Appeals’ conclusion that the beneficiary is the note
19 holder.4 The Negotiable Instrument Law allowed for transfer of a note by
indorsement and delivery. Former ORS 71.030 (1959). A note could be
indorsed using any one of several methods. For example, an indorsement could
“be either restrictive or qualified or conditional.” Former ORS 71.033 (1959).
A restrictive indorsement prohibited further negotiation of the instrument,
constituted the indorsee the agent of the indorser, or vested title to the
instrument in the indorsee in trust. Former ORS 71.036 (1959). With a
“qualified indorsement,” an indorser was deemed “a mere assignor of the title to
the instrument.” Former ORS 71.038 (1959). The Negotiable Instruments Law
also required indorsement of the entire instrument to constitute negotiation.
Former ORS 71.032 (1959). (“An indorsement which purports to transfer to
the indorsee a part only of the amount payable, or which purports to transfer the
instrument to two or more indorsees severally, does not operate as a negotiation
of the instrument.”).
The Negotiable Instruments Law thus created a regime in which a formal,
written assignment of a trust deed made sense, at least where there was a
“qualified indorsement” or an indorsement of less than the entire instrument.
The Negotiable Instruments Law also expressly contemplated allowing a person
to be an agent of the indorser. See Former ORS 71.036 (1959). This context ________________________
4 The Negotiable Instruments Law was enacted in 1899. Or Laws 1899 p 18. As noted citations here are to the version in effect in 1959.
20 shows that there are a variety of ways a person may be a “beneficiary” entitled
to enforce a note and trust deed—i.e. a person may receive a note and trust deed
through a variety of indorsement, transfer, or assignment mechanisms—and the
legislature did not intend to undercut the then-existing law of negotiable
instruments by limiting “beneficiary” to the owner or holder of the note.
The current UCC similarly reflects the legislature’s understanding that a
trust deed beneficiary is not limited to the person to whom the underlying
secured obligation is owed. See Halperin, 352 Or at 490 (although later-
enacted statutes are not “context” for original enactment, they may still be
relevant to interpretation of statute). Under ORS 73.0301 (enacted in 1993), a
person may be a “person entitled to enforce” an instrument regardless whether
the person is a “holder” of the note or even wrongfully possesses the note.5
That a person need not be the rightful owner or a “holder” of the note to be
entitled to enforce the note shows that the trust deed “beneficiary” is not limited
to the lender or note owner.
________________________
5 ORS 73.0301 provides:
“‘Person entitled to enforce’ an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a 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). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.”
21 3. The legislature left designation of the trust deed “beneficiary”
to the contracting parties’ choice and any contrary holding will cause dramatic change under Oregon real estate law and practice.
The statutory phrase “named or otherwise designated in a trust deed”
shows that the legislature left it to the parties to the trust deed to decide the
identity of the trust deed beneficiary as a matter of contractual choice. Just as
the legislature allowed a trust deed “grantor” to convey an interest in real
property via contract to secure another’s debt, the legislature allowed the party
to whom the secured obligation is owed to elect whom to designate as the
“beneficiary.” Any interpretation that limits the beneficiary (to the lender, its
successor, or otherwise) undercuts the contractual freedom the legislature
intended and the statutory language reflects.
In a MERS trust deed, the parties contractually choose the beneficiary as
contemplated by the statute’s “named or otherwise designated” language.
Borrowers (and the other parties to the trust deed) contractually authorize
MERS to act as “beneficiary” and to hold legal title as the nominee for the
lender, and the lender’s “successors and assigns.” The parties to the trust deed
also expressly agree that MERS is entitled to exercise any of the lender’s rights,
including the right to foreclose and to release the trust deed.6 This is consistent
________________________
6 Allowing MERS to release the trust deed supports why MERS was created, i.e. to avoid a situation like the savings and loan crisis of the 1980s in which
(continued…)
22 with the legislative intent to allow contracting parties the freedom to name or
designate the beneficiary. As explained above, the Court of Appeals’ holding
that the beneficiary must be the person to whom the underlying obligation is
owed, see Niday, 251 Or App at 298, is inconsistent with the contemplated
freedom of contract and long standing Oregon law, and would effect a
significant change extending well beyond MERS.
The Court of Appeals’ interpretation is also inconsistent with the
Uniform Commercial Code and prior Oregon case law, and would have a
dramatic effect on nonjudicial foreclosure, well beyond the role of MERS,
because it would mean that a “beneficiary” is limited to the entity that owns the
loan. This holding is a dramatic shift in Oregon law. The “party to whom the
underlying, secured obligation is owed” is the owner of the note, which may or
may not be the note holder. See, e.g., In re Veal, 450 BR 897, 912 (9th Cir
BAP 2011) (“[O]ne can be an owner of a note without being” the holder, and
although “[t]his distinction may not be an easy one to draw, * * * it is one the
UCC clearly embraces.”; “While in many cases the owner of a note” and the
holder “are one and the same, this is not always the case.”). Because Oregon
law has historically recognized that the right to enforce the trust deed follows
the right to enforce the note, see Niday, 251 Or App at 295, it is the note holder ________________________ (…continued)
borrowers could not obtain mortgage or trust deed releases from defunct lenders and therefore could not refinance. See Section IV.B, supra.
23 as defined by UCC Article 3—or its servicer on behalf of the note holder, see
ORS 86A.175(3)(e)—with the right to foreclose. The note owner—the party to
whom the obligation is owed—may not be the entity with the right to foreclose
because it may not be the note holder or servicer. This distinction was
explained in Lantz v. Safeco Title Ins. Co., 93 Or App 664, 763 P2d 744 (1988),
rev den, 307 Or 405 (1989), where the Court observed that even though one
may be the owner of a note and entitled to payment under it, the entity with the
right to enforce the note (and foreclose any corresponding trust deed) may be a
different entity altogether. Id. at 668-69 (noting that an “assignee not in
possession was an owner of the note, [but] his rights were subject to those of
the assignee in possession”) (citing United States Nat. Bank v. Holton, 99 Or
419, 195 P 823 (1921)). That the owner and holder of a note may have entered
into a separate contract with another entity (e.g. Fannie Mae) for ownership
rights in the note—whereby the owner sells to a new owner the right to receive
payments on the note but maintains possession—does not change the fact that
the holder (and former owner) remains the entity with the right to foreclose
even though it is no longer the “party to whom the underlying, secured
obligation is owed.” See, e.g., Corales v. Flagstar Bank, FSB, 822 F Supp 2d
1102, 1108 (WD Wash 2011). In Corales, the plaintiffs argued that Fannie
Mae had an ownership interest in the loan payments, and thus the lender
(Flagstar) could not foreclose because it was not the owner of the loan—the
24 same mistake the Court of Appeals made here. The Corales court rejected that
argument: “[E]ven if a lender sells a loan to Fannie Mae, the lender’s
possession of the Note endorsed in blank means that it may foreclose * * *.
Thus, even if Fannie Mae has an [ownership] interest in the Plaintiffs’ loan,
Flagstar has the authority to enforce it” and foreclose. Id. Thus, the holding
that the beneficiary with the right to foreclose nonjudicially may only be the
“party to whom the underlying, secured obligation is owed” would overturn a
century of jurisprudence holding that the security (trust deed) follows the debt
(note).
Indeed, whether a designated beneficiary must always be the owner (or
even the holder) of the debt raises issues that upset myriad common commercial
transactions. In many municipal and corporate bond transactions, an indenture
trustee is appointed to act for a large group of widely dispersed bondholders
and, if there is real property collateral for the bonds, the indenture trustee is
named as beneficiary of the deeds of trust securing the bonds. Similarly, in
large multi-bank commercial loans, the lead bank is generally appointed as the
“administrative agent” and the administrative agent is named as the secured
party under the security agreements and as beneficiary under any deeds of trust.
In that capacity, the lead bank has the power to act for the entire bank group in
matters relating to the collateral. For example, in Andrews v. Kelleher, a
mortgage was held by a bond trustee for the benefit of a group of bondholders
25 and the court treated that as an unremarkable situation. See 214 P 1056 (Wash
1923). If creditors in these types of arrangements are not allowed to act through
an agent as beneficiary, management of deeds of trust securing bonds and
syndicated credit facilities would become unwieldy to the detriment of both
borrowers and creditors. Indeed, if every bondholder must be named
individually as one of a group of beneficiaries consisting of all the bondholders,
every bondholder would have to sign any request for reconveyance upon payoff
of the debt—potentially many hundreds of bondholders, or in the case of a
syndicated commercial credit facility, often dozens of banks. This impractical
requirement would throw commercial transactions into chaos and disadvantage
all parties. Any challenge to MERS’s role as beneficiary has wide-spread
consequences beyond the residential real estate market, and both the plain
language of the OTDA and public policy support the designation of
beneficiaries like MERS.
Further, even if, notwithstanding the statutory language, “beneficiary”
under the OTDA is limited in the way the Court of Appeals held (or otherwise),
there is no reason parties cannot agree to waive rights under the OTDA. To the
extent that a borrower as a “right” to require each “beneficiary” to record each
“assignment of the trust deed,” the borrower can waive that “right.” See, e.g.,
In re Leisure, 336 Or 244, 253, 82 P3d 144 (2003) (“Statutory rights may be
waived, but only to the extent that they serve no broader public policy but are
26 directed solely to the protection of the individual who purports to waive
them.”).
Here, the Court of Appeals correctly explained that Oregon’s recording
laws are to give notice of a lien to prospective purchasers and for the protection
of the lender and its assignees (not borrowers). Niday, 251 Or App at 284-85.
It is undisputed that GreenPoint recorded the Deed of Trust (satisfying the first
purpose) and there are no assignments to record. As such, a contractual
agreement that MERS may act as beneficiary of record regardless of the
number of note transfers taking place has no effect on plaintiff, and the parties
may freely waive any potential right to require recordation of intervening
assignments. Indeed, as the Court of Appeals explains, it is GMAC and Aurora,
not plaintiff, which gain protection through recordation of assignments, making
this contractual waiver one that cannot affect plaintiff. Id. The parties to the
Deed of Trust here waived any “right” that the “beneficiary” be the party to
whom a secured debt is owed and that “such” beneficiary record all
assignments.
Yet, the Court of Appeals appeared to believe designation in the trust
deed of MERS as beneficiary is an attempt to “contract around” the OTDA’s
definition of “beneficiary.” See Niday, 251 Or App at 293 n 12. The Court
likewise declined to address whether the contractual agreement to MERS’s
designation estops plaintiff from contesting that designation because MERS
27 purportedly did not make that argument, and, in any event, “plaintiff is [not]
somehow estopped from insisting upon compliance with the OTDA.” Id.
Implicit in this analysis is the notion that the OTDA is a consumer-protection
statute or that its definition of “beneficiary” is somehow intended to protect
borrowers such that they might “insist” upon “compliance.” This argument
might make sense if contract at issue—the trust deed—were not essential to the
operation of the underlying statute (the Oregon Trust Deed Act). If MERS
were asking a borrower to execute an extraneous contract waiving some
fundamental right or protection, then the Court of Appeals’ analysis would
apply. But because the OTDA requires a trust deed, and expressly
contemplates that the parties may “designate” a beneficiary, there is no right or
protection that has been lost by doing precisely what the statute contemplates.
The borrower is economically indifferent to whether MERS, GreenPoint, or
Aurora is beneficiary, and designation of that role is for the protection of the
lender, not the borrower. Plaintiff admits she knew who to pay, and her
agreement to MERS’s designation as beneficiary has no effect on her. ER 89;
see, e.g., Veal, 450 BR at 912 (borrower “should be indifferent as to who owns
or has an interest in the note so long as it does not affect the maker's ability to
make payments on the note”). Interpreting the OTDA to ignore the parties’
agreement in the trust deed, with no appreciable benefit to a borrower (other
than delay), makes no sense.
28 Whether an interpretation of law is correct can be measured in part by the
extent to which the interpretation advances the public policy that the legislature
intended to foster. See State v. Shaw, 338 Or 586, 605-06, 113 P3d 898 (2005)
(public policy underlying law assists in resolving ambiguity). A point the Court
of Appeals never addressed is why the Legislative Assembly would have
intended for the OTDA to prohibit a borrower and lender from designating as
the beneficiary a nominee or other agent of the lender. There is no good reason.
At first blush, providing notice to a borrower of the person to whom the
borrower owes repayment could conceivably be a reason to limit whom the
parties could designate as beneficiary. But in the context of nonjudicial
foreclosure, it is the identity of the trustee that becomes relevant, as the trustee
takes legal action for the beneficiary. For that reason, the OTDA requires the
trustee, not the beneficiary, to provide the borrower with information. See, e.g.,
ORS 86.759 (prescribing information trustee must provide borrower, including
amount owing on loan). Likewise, the OTDA, ORS 86.790, prescribes a
procedure for appointing and giving notice of a successor trustee, but not of a
successor beneficiary. The difference in treatment of trustees and beneficiaries
confirms that the legislature did not intend for a change in the identity of the
beneficiary to be of material consequence to the borrower.
4. The contractual choice of MERS as beneficiary is consistent with traditional agency principles.
The legislature enacted the OTDA in the context of long-established
29 Oregon statutory and common law principles authorizing agents (such as
MERS) to act as beneficiary and hold legal and record title to interests in real
estate. The Court of Appeals failed to address MERS’s role as agent and
nominee. Niday, 251 Or App at 296 (saying defendants “conflated” who is a
“beneficiary” and “who can act on behalf of that beneficiary” (emphasis in
original)); see also id. at 297 n 14 (“This case is not about whether, as a policy
matter, an agent should be allowed to enforce a deed of trust.”). As noted
above, the import of the “named or otherwise designated language” in the
definition of “beneficiary” is precisely that an agent or nominee of the lender
may be a “beneficiary.” By failing to address MERS’s role as agent and
nominee, the Court of Appeals ended its analysis too soon, and reached an
incorrect conclusion—one that limits the ability of an agent like MERS to act
on behalf of a lender or its successor.
The legislative recognition that the beneficiary may be an agent or
nominee of the lender is consistent with longstanding principles of agency law.
An agency relationship exists when a principal manifests assent to have an
agent act on its behalf, subject to the principal’s control and consent of the
agent. See Ruddy v. Oregon Auto. Credit Corp., 179 Or 688, 702, 174 P2d 603
(1946); Kantola v. Lovell Auto Co., 157 Or 534, 537, 72 P2d 61 (1937)
(“agency” defined as “the relationship which results from the manifestation of
consent by one person to another that the other shall act on his behalf and
30 subject to his control, and consent by the other so to act”) (quoting
RESTATEMENT (FIRST) OF AGENCY (1933), § 1); RESTATEMENT (THIRD) OF
AGENCY § 1.01 (2006). An agent may act on behalf of both a disclosed
principal (i.e. the original lender) and a later unidentified principal (i.e. original
lender’s successor and assign). See RESTATEMENT (THIRD) OF AGENCY § 1.04.
“‘It is a fundamental principle of the law of agency that the power of every
agent to bind his principal rests upon the authority conferred upon him by the
principal.’” Barbour v. Johnson, 201 Or 375, 383, 269 P2d 531 (1954)
(quoting Phez Co. v. Salem Fruit Union, 113 Or 398, 429, 233 P 547 (1925)).
Agency authority “confers by implication all powers necessary for or incident
to its proper execution.” Pokorny v. Williams, 199 Or 17, 41, 260 P2d 490
(1953); see also RESTATEMENT (THIRD) OF AGENCY § 2.02(1) (“An agent has
actual authority to take action designated or implied in the principal’s
manifestations to the agent and acts necessary or incidental to achieving the
principal’s objectives.”).
Consistent with these general agency principles, Oregon law has long
authorized a “lawful agent” to hold interests in real property and take action on
behalf of another. ORS 93.010; ORS 93.020. Oregon’s UCC provisions
relating to negotiable instruments likewise support the use of agency law to
facilitate the market for commercial transactions. See, e.g., ORS 71.1030(1)(b);
(2) (UCC “must be liberally construed and applied to promote its underlying
31 purposes” of “expansion of commercial practices through custom, usage and
agreement of the parties”; and UCC “principles of law and equity, including
* * * the law relative to capacity to contract, principal and agent [and] estoppel
* * * supplement its provisions”). The Negotiable Instruments Law similarly
included provisions contemplating the use of agents. See, e.g., former ORS
71.019 (1959); Former ORS 71.036 (1959); Former ORS 71.069 (1959);
Former ORS 71.091 (1959); Former ORS 71.094 (1959). Indeed, use of an
agent or “nominee,” which means “one designated to act for another as his
representative in a rather limited sense,” Schuh Trading Co. v. Comm’r, 95 F2d
404, 411 (7th Cir 1938), is a common and long-sanctioned practice in real
estate, where owners have frequently conferred rights on a “nominee” or
“agent” for a variety of purposes, including to execute or hold security
instruments. See, e.g., Thayer v. Nehalem Mill Co., 31 Or 437, 440-42, 51 P
202 (1897) (confirming that agent had authority to execute mortgage on behalf
of principal); Carr v. Cohn, 87 P 926, 927 (Wash 1906) (nominee to whom
property has been deeded without consideration and merely as title-holder for
grantors, to convey as they might direct, can bring quiet title action on deed); In
re Cushman Bakery, 526 F2d 23, 30 (1st Cir 1975) (citing cases); see also In re
Childs Co., 163 F2d 379, 382 (2d Cir 1947); Barkhausen v. Cont’l Ill. Nat’l
Bank Trust Co., 120 NE2d 649, 655, cert den, 348 US 897 (Ill 1954); accord
Callaghan v. Scandling, 178 Or 449, 451, 167 P2d 119 (1946) (quoting contract
32 language: “The owners agree to pay to the broker or his nominee or nominees
one section of property * * *.”). If an agent may execute a mortgage or trust
deed, it follows that an agent may also enforce the mortgage or trust deed.
Indeed, the Restatement (Third) of Property (Mortgages) confirms that agents
may enforce a trust deed on behalf of a lender, even instructing courts to “be
vigorous in seeking to find such [an agency] relationship, since the result is
otherwise likely to be a windfall for the mortgagor and the frustration of [the
lender’s] expectation of security.” RESTATEMENT (THIRD) OF PROPERTY
(MORTGAGES) § 5.4, cmt. e (1997). Consistent with these longstanding agency
principles, the legislature provided that a lender, in lending money and
obtaining a trust deed, could designate an agent or nominee as the trust deed
“beneficiary.”
In the end, “beneficiary” as used in the OTDA is not limited to the party
to whom the underlying secured obligation is owed. A “beneficiary” may be
any person whom the parties designate as the beneficiary by contractual
agreement in the trust deed, including one who is neither a lender nor successor
to a lender. A “person named or otherwise designated in a trust deed as the
person for whose benefit a trust deed is given” may properly be the nominee
holding legal and record title to the beneficial interest under the trust deed. By
the parties’ contractual agreement, and consistent definition of “beneficiary”
and the related statutory scheme, MERS is a valid trust deed “beneficiary” even
33 if MERS is neither a lender nor successor to the lender.
5. MERS is a valid agent for lenders and their successors.
The trust deed provides MERS “holds only legal title to the interests
granted by the Borrower in this Security Instrument, 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[.]” ER 57.
All parties to the trust deed—borrower, lender, and trustee—agree to be bound
by this term, which designates MERS the beneficiary and the agent for the
lender. Any successors or assigns of the lender similarly take the trust deed
contract subject to the provision. ER 65 (“The Note or a partial interest in the
Note (together with this Security Instrument) can be sold one or more times
without prior notice to Borrower.”). Thus, principals (lenders) manifest assent
to have an agent (MERS) act on their behalf: the hallmark of a classic agency
relationship. See Ruddy, 179 Or at 702; RESTATEMENT (FIRST) OF AGENCY § 1,
supra. And under MERS’s agreement with its members, all lenders and
servicers—which includes any successor or assignee lenders—agree to allow
MERS to serve as their common agent. See In re Tucker, 441 BR 638, 646
(WD Mo Bankr 2010) (“MERS was the agent for New Century under the Deed
of Trust from the inception, and MERS became agent for each subsequent note-
holder under the Deed of Trust * * *.”); Kiah v. Aurora Loan Serv., LLC, 2011
WL 841282, *4 (D Mass 2011) (“dissolution of [lender] would not and could
34 not prevent [Note holder] from obtaining an assignment of the mortgage from
MERS, both as a matter of law and according to the arrangement that existed
between MERS and Aurora as a ‘successor and assign’”); MERSCORP, Inc. v.
Romaine, 8 NY3d 90, 96, 861 NE2d 81 (NY 2006); see also RESTATEMENT
(THIRD) OF AGENCY § 1.04 (An agent may act on behalf of both a disclosed
principal (i.e. the original lender) and a later unidentified principal (i.e. original
lender’s successor and assign)).
As noted above, the use of a nominee agent has long been a feature of
real property law in Oregon and other jurisdictions. See Section VI.A.4, supra.
Indeed, the legislature has statutorily authorized a “lawful agent” to execute
trust deeds or create, transfer, or declare any interest in real property on
another’s behalf. ORS 93.010; 93.020. This evinces the legislature’s intent to
permit agents to hold interests in real property and take action on behalf of
another. MERS acts precisely in this agent’s role.
6. MERS is authorized by the trust deed to exercise all rights of the lender.
The trust deed empowers MERS, as nominee for the lender, “if necessary
to comply with law or custom * * * to exercise any or all” of the interests
granted to the lender in the trust deed. ER 57. This is consistent with the
agency law concept that anything a principal can do may also be done through
an authorized agent. Taylor v. Ramsay-Gerding Constr. Co., 345 Or 403, 410,
196 P3d 532 (2008). Accordingly, MERS has the right to act on behalf of the
35 lender to—as the trust deed states—“foreclose and sell the Property; and to
take any action required of the Lender including but not limited to releasing
and cancelling this Security Instrument.” ER 57. The agreement between
MERS and its members further defines the agency relationship described in
the trust deed, providing that “MERS shall at all times comply with the
instructions of the beneficial owner of mortgage loans”; and granting MERS
authority to execute important documents (such as release or assign a security
interest), foreclose, and take all other actions necessary to protect the interests
of the note holder.7 Mortgage Elec. Registration Sys., Inc. v. Neb. Dep’t of
Banking & Fin., 704 NW2d 784, 787 (Neb 2005); In re Martinez, 444 BR
192, 205-06 (D Kan Bankr 2011). Finally, MERS also has the right to receive
payment of the loan obligations on behalf of the lender.8 In short, MERS is
________________________
7 MERS is also authorized to hold the note if necessary to foreclose judicially on behalf of a member, and has done so in the past. See, e.g., Mortgage Elec. Registration Sys., Inc. v. Coakley, 41 AD3d 674, 674-75 (NY 2007); Mortgage Elec. Registration Sys., Inc. v. Azize, 965 So2d 151, 153-54 (Fla 2007).
8 MERS anticipates that plaintiff may cite Mortgage Elec. Registration Sys., Inc. v. Neb. Dep’t of Banking & Fin., 704 NW2d 784 (Neb 2005), an administrative law appeal, to argue MERS has previously disclaimed any right to receive payments from borrowers. Close reading of the Nebraska Supreme Court’s opinion, however, shows that MERS contended (and the court agreed) only that MERS does not have an independent right to receive payments from a borrower on MERS’s own account. See id. at 787 (citing MERS’s terms and conditions with members, which state that “MERS shall have no rights whatsoever to any payments made on account of such mortgaged loans, to any
(continued…)
36 the duly empowered agent of the lender for all the lender’s rights under the
trust deed.
MERS’s contractually derived right to receive payments on behalf of a
lender in order to enforce a trust deed, even if the right is rarely exercised
given the role of loan servicers, flows naturally from MERS’s powers and
duties as the lender’s agent. RESTATEMENT (THIRD) OF PROPERTY
(MORTGAGES) § 5.4, cmt. e (1997), supra; see also id. § 5.4(c) (“A mortgage
may be enforced only by, or on behalf of, a person who is entitled to enforce
the obligation the mortgage secures.”) (emphasis added). The Court of
Appeals did not consider MERS’s power to receive the payments owed to the
lender, “if necessary to comply with law or custom[.]” See also Beyer v. Bank
of America, 800 F Supp 2d 1157, 1161 (D Or 2011) (finding “law and custom”
provision of trust deed “is triggered, and MERS has the right to receive
payment of the obligation”). MERS, acting as agent for the lender and any
successors, has the right to obtain all benefits of the trust deed on its principal’s
behalf.
Plaintiff may argue that the Deed of Trust itself disavows any interest for
MERS beyond bare “legal title” because the Deed of Trust provides that
“MERS holds only legal title to the interests granted by Borrower in this ________________________ (…continued)
servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans”).
37 Security Instrument.” ER 57. But this argument would read the immediately
following clause—“law and custom”—out of the trust deed. The “law and
custom” provision makes clear that MERS may exercise “any and all” lender
interests to comply with law or custom. The “law and custom” provision
provides that even though MERS holds only “legal title to the interests granted
by Borrower,” MERS, as the lender’s nominee, may nonetheless exercise the
lender’s rights if necessary. ER 57. The “legal title” reference does not limit
MERS’s authority as agent to act on behalf of the lender.
In the end, MERS is the agent authorized to act on behalf of the lender
or its successor and meets the definition of “beneficiary.” Because MERS
meets the definition of “beneficiary,” there has been no assignment of the trust
deed by the beneficiary here, and defendants were entitled to summary
judgment.
B. “Transfers” of a promissory note do not result, by operation of law, in “assignments of the trust deed” within the meaning of ORS 86.735(1).
The Court of Appeals reversed summary judgment in Defendants’ favor
under the following syllogism: (a) the OTDA requires recordation of any trust
deed assignments as a precondition to nonjudicial foreclosure; (b) there was
evidence that the note was transferred from GreenPoint to Aurora; (c) there was
no recorded assignment from GreenPoint to Aurora; (d) the trust deed follows
the note as a matter of law, and therefore a transfer of the note was a trust deed
38 “assignment”; and (e) therefore the “missing” assignment from GreenPoint to
Aurora violates the OTDA and bars nonjudicial foreclosure. But the OTDA
does not require recordation of a transfer of a promissory note by indorsement.
Transfers by indorsement and transfers by assignment are different. A
note may be transferred by indorsement and delivery or by assignment and
delivery. The latter requires a recorded assignment; the former requires only
delivery. The Court of Appeals, however, concluded that a transfer of a note by
indorsement constituted an “assignment” of the trust deed that must be
recorded. Niday, 251 Or App at 299. It declared that there existed “the
understanding, well established at the time the OTDA was enacted, that there
were two methods of assignment, one ‘formal’ and the other by indorsement.”
Id. at 300. That description of methods of assignment is incorrect, but even if
the description were true, it does not follow that the phrase “assignments of the
trust deed” includes “assignments” by operation of law when the note is
transferred. In fact, the statutory text, context, and legislative history all point
to the opposite conclusion.
1. The text of ORS 86.735(1) reflects the legislative intent to require recordation only of formal written assignments of the trust deed.
The OTDA does not define “assignments,” but refers only to
“assignments of the trust deed,” without reference to transfers of the underlying
debt instrument. ORS 86.735(1) (emphasis added). This statutory language
39 suggests that the legislature was referring only to written assignments of the
trust deed itself, not to a transfer or assignment of the underlying note. That
makes sense: a promissory note is not a conveyance of real property and is not
susceptible to recordation. See, e.g., ORS 93.610; ORS 93.630; ORS 205.130.
Further, a transfer by indorsement is not necessarily reflected in a writing.
Nothing in ORS 86.735(1) or any other OTDA provision requires creation of a
formal written assignment where none exists—but that is precisely what would
be required if note transfers are deemed to be “assignments of the trust deed”
that must be recorded order ORS 86.735(1).
In addition, the statute requires recordation only of “assignments of the
trust deed by the trustee or the beneficiary * * *.” Id. (emphasis added). The
inclusion of the term “assignments” only once, modified by the single phrase
“by the trustee or the beneficiary,” shows the legislature contemplated a single
kind of assignment that either the trustee or the beneficiary could effect. An
assignment of the trust deed by the trustee, of course, has nothing to do with
transfer of the underlying note. An assignment of the trust deed by the trustee
could only be accomplished by a formal document with stand-alone legal effect.
The text shows that “assignments” means existing, formal written assignments.
Finally, ORS 86.735(1) requires recordation of “any assignments of the
trust deed by * * * the beneficiary * * *.” Applying the statutory definition of
“beneficiary,” ORS 86.735(1) requires recordation of “any assignments of the
40 trust deed” by “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[.]” ORS 86.735(1). The Court of Appeals took this statutory language,
rewrote “the person for whose benefit a trust deed is given, or the person’s
successor in interest” to mean “the party to whom the underlying, secured
obligation is owed,” and rewrote “assignment” to include “transfer by
indorsement.” Niday, 251 Or App at 298-300. After the Court of Appeals’
revision, ORS 86.735(1) requires recordation of “any formal written assignment
of the trust deed or transfer by indorsement of the promissory note by the
trustee or party to whom the underlying, secured obligation is owed.” The
statutory text does not support that judicial revision. To the contrary,
“assignment,” read in the context of the immediately following words, refers to
written assignments of the trust deed.9
2. The context of ORS 86.735 shows that the legislature did not intend to require recordation of note transfers.
When the legislature enacted the OTDA and required that “any
assignments of the trust deed” be recorded, it was the law of Oregon that the
nearly identical statute requiring that “[e]very assignment of mortgage shall be
recorded” required recordation only of formal, written assignments. Barringer, ________________________
9 The Court of Appeals also seemed to give weight to the word “any” before “assignments.” Niday, 251 Or App at 299-300. “Any” does not give meaning to “assignments;” it merely identifies which assignments must be recorded.
41 47 Or at 230; Former ORS 86.070. In enacting ORS 86.735(1), the legislature
similarly intended “assignments” to refer only to formal, written assignments of
the trust deed, not transfers by indorsement of underlying debt instrument.
a. Other statutory provisions show that the legislature did not intend “assignments of the trust deed” to include transfers by indorsement.
The statutory context supports the conclusion that the legislature did not
intend for “assignments of the trust deed” to include transfers of the promissory
note by indorsement and delivery. The statutory context shows that a person
can receive a note by indorsement, or a person can receive a legal interest in a
note by formal assignment, without becoming the holder of the note (as that
term is used in the UCC and the Negotiable Instruments Law before it). The
two acts are different, giving rise to different legal rights and obligations.
(1) Mortgage statutes support MERS’s position.
At the time the legislature enacted the OTDA, the mortgage statutes
contained provisions relating to assignments of mortgages and the recordation
of assignments of mortgages. Those statutes show that the legislature
understood “assignment” to mean a formal written assignment, not transfers of
the promissory note. For example, ORS 86.060, titled “Assignment of
Mortgage,” has long provided that “[m]ortgages may be assigned by an
instrument in writing, executed and acknowledged with the same formality as
required in deeds and mortgages of real property, and recorded in the records of
42 mortgages of the county where the land is situated.” ORS 86.060.10 At the time
the OTDA was enacted, the mortgage statutes required: “Every assignment of
mortgage shall be recorded at full length, and a reference shall be made to the
book and page containing such assignment upon the margin of record of the
mortgage.” ORS 86.070 (1957) (emphasis added).11 By describing an
“assignment of mortgage” generally as a specific written instrument executed
“with the same formality as required in deeds,” ORS 86.060, and then, in the
immediately following statute requiring recordation of “[e]very assignment * *
* at full length,” former ORS 86.070 (emphasis added), these statutes show that
the only “assignment” the legislature had in mind was an assignment by a
specific written instrument. A purported “assignment” by indorsement and
delivery of the note could not be recorded at all, let alone “at full length.” The
legislature in 1959 would not have understood that, by requiring recordation of
“any assignments of the trust deed,” the legislature was requiring recordation of
every note transfer, when the then-analogous statute addressing recordation of
“[e]very assignment of mortgage,” ORS 86.070, was part of a statutory scheme
that described an “assignment of mortgage” as “an instrument in writing,
executed and acknowledged with the same formality as required in deeds and ________________________
10 The statute was enacted in 1895. See Barringer, 47 Or at 228. It remains in effect today in identical form.
11 The legislature enacted ORS 86.070 in 1895, see Barringer, 47 Or at 228, and repealed it in 1965, Or Laws 1965, ch 252, § 1.
43 mortgages of real property,” ORS 86.060.
Oregon’s real property discharge statute further recognizes this difference
between “assignment” and transfer by indorsement, providing the express
means by which a lien holder may record the discharge of a lien where there has
only been negotiation of a note, and no formal assignments:
“Whenever a promissory note secured by mortgage on real property is transferred by indorsement without a formal assignment of the mortgage, and the mortgage is recorded, the mortgage, upon payment of the promissory note, may be discharged of record by the owner and holder of the promissory note making and filing with the appropriate recording officer a certificate, verified by oath, proving the satisfaction of mortgage and declaring, in substance, that the owner and holder is the owner and holder of the note secured by the mortgage by indorsement of the mortgagee and that the note has been fully paid and proving that fact to the satisfaction of the recording officer.”
ORS 86.110(1) (emphasis added).12 The legislature understood the distinction
between a transfer by indorsement and an assignment, and used the terms
differently.
The Court of Appeals, however, emphasized the word “formal” and
concluded that its use in ORS 86.110 reflects a distinction between
“assignments” by indorsement and “formal assignments.” Niday, 251 Or App
at 300. The single word “formal” in a statute enacted in 1889 does not show
that the legislature in 1959 intended to refer to a transfer of a note by ________________________
12 ORS 86.110 was enacted in 1889. See Barringer, 47 Or at 228.
44 indorsement when using the term “assignment.” Moreover, the context of ORS
86.110 shows that in enacting the mortgage statutes, the legislature was not
drawing the distinction on which the Court of Appeals relied. ORS 86.060
describes assignments only as formal written instruments, and ORS 86.070
required recordation only of those assignments. It is far more likely that the use
of the word “formal” in ORS 86.110 was intended to have a meaning consistent
with the requirements of ORS 86.060, which describes an “assignment of
mortgage” as an instrument “executed and acknowledged with the same
formality as required in deeds and mortgages of real property.” (Emphasis
added.)
Indeed, reading ORS 86.110 in its statutory context affirmatively shows
that the legislature did not consider a transfer of the promissory note by
indorsement to constitute an assignment of the mortgage. The provision
governing liability of a mortgagee for failure to discharge a mortgage, ORS
86.140, refers to the “mortgagee or the personal representative or assignee of
the mortgagee” and says “[t]he owner and holder of the promissory note
referred to in ORS 86.110 is deemed the personal representative of the
mortgagee for purposes of this section.” If “transferred by indorsement” in
ORS 86.110 meant some kind of informal “assignment,” then the “owner and
holder of the note” would be an assignee of the mortgagee. But “owner and
holder of the note” is not an assignee of the mortgagee—the legislature
45 considered the owner and holder of a note transferred by indorsement to be the
“personal representative” of the mortgagee, not the mortgagee’s assignee. The
Court of Appeals’ distinction between “formal” assignments and “assignments”
by indorsement is incorrect because the legislature did not consider a transfer
by indorsement to effect an assignment of the mortgage.13
(2) Oregon’s law of negotiable instruments shows that “assignments” did not include “transfers by indorsement.”
The Negotiable Instruments Law provides further statutory context that
shows that a “transfer by indorsement” is not a type of “assignment” that must
be recorded. Under the Negotiable Instruments Law (and, later, the Oregon’s
Uniform Commercial Code, Or Laws 1961, ch 726), an “instrument is
negotiated when it is transferred from one person to another in such manner as
to constitute the transferee the holder thereof.” Former ORS 71.030 (1959); cf.
ORS 73.0201(1). “An indorsement in blank specifies no indorsee, and an
instrument so indorsed is payable to bearer and may be negotiated by delivery.”
Former ORS 71.034 (1959); cf. 73.0205(2). Delivering possession of the
________________________
13 ORS 86.140 also shows that the “owner and holder of the note” and the mortgagee may be different. Likewise, the trust deed “beneficiary” and the “owner and holder of the note” may be different. See Section VI.A, supra.
46 instrument in blank constituted a “transfer by indorsement.”14 This manner of
transfer by indorsement could occur innumerable times—without any additional
writing that could be recorded because the transactions do not necessarily
generate any paper trail.
Indeed, a hypothetical example shows the absurd results the Court of
Appeals decision produces. If, for example, a thief stole a borrower’s note, and
the police recovered and returned it, even the original lender could not foreclose
nonjudicially without obtaining and recording both an assignment to the thief
and another back from the thief, because even one in wrongful possession of the
endorsed note has the right to enforce it. See ORS 73.0301 (“A person may be
a person entitled to enforce the instrument even though the person is not the
owner of the instrument or is in wrongful possession of the instrument.”); see
also Official Comment to ORS 73.0301 (“The quoted phrase includes a person
enforcing a lost or stolen instrument”). This cannot possibly be what the
legislature intended, and interpreting the OTDA to require the creation and
recordation of a new document every time a note changes hands is improper.
See State v. Vasquez-Rubio, 323 Or 275, 282-83, 917 P2d 494 (1996) (“[T]he
court will refuse to adopt [a] meaning that would lead to an absurd result that is
________________________
14 Although transfer of an instrument indorsed in blank does not necessarily require further indorsement, it is still a “transfer by indorsement” because the possessor’s legal interest in the instrument exists by virtue of the indorsement.
47 inconsistent with the apparent policy of the legislation as a whole.”).
There is no support for the notion that when the legislature referred to
“transfer[] by indorsement without a formal assignment of the mortgage” in
ORS 86.110 in 1889 it intended parties who negotiated an instrument to create
and record an “assignment” or intended the land records reflect every investor
who held a promissory note during the life of a loan.15 Evidence of the
legislature’s intent to do so in 1959 is equally absent. Yet, if the Court of
Appeals were correct, every time a note is negotiated—including transfer of
possession of a note indorsed in blank—the trust deed securing it would
become unenforceable nonjudicially unless the parties created and recorded a
separate “formal written assignment of the mortgage.” There is no support in
the statutory text or context for that proposition.
Moreover, as discussed above in section VI.A.2.c, “transfer by
indorsement” did not uniformly effect an assignment of the deed of trust in
1959. Where the indorser added “to the indorser’s signature the words ‘without
recourse,’ or any words of similar import,” the indorsement was a “qualified
indorsement” and the indorser was deemed “a mere assignor of the title to the
________________________
15 Transfer of a note by indorsement in blank and delivery existed when the legislature enacted ORS 86.110 in 1889, see, e.g., Smith v. Caro, 9 Or 278 (1881) (addressing dispute involving note indorsed in blank), but no mechanism then existed for recordation of assignments of a mortgage, Barringer, 47 Or at 228.
48 instrument.” Former ORS 71.038 (1959) (emphasis added). Although a
qualified indorsement would constitute a “transfer by indorsement,” it is
unlikely that such a transfer resulted in an automatic “assignment” of any
underlying security, the indorsement merely having effected assignment of title
to the instrument.16
Similarly, under the Negotiable Instruments Law, an indorsement could
be “conditional.” Former ORS 71.039 (1959); cf. ORS 73.0206(2). Where an
indorsement was conditional, the borrower could pay the indorsee, but “any
person to whom an instrument so indorsed is negotiated will hold the same, or
the proceeds thereof, subject to the rights of the person indorsing
conditionally.” Former ORS 71.039 (1959). With a “conditional
indorsement,” whether the “transfer by indorsement” resulted in any
“assignment” of the underlying security likely depended on the nature of the
condition.
A “restrictive indorsement”—another type of indorsement described in
the Negotiable Instruments Law—included one which “[c]onstitutes the
indorsee the agent of the indorser.” Former ORS 71.036 (1959). The indorsee
had the right “to receive payment of the instrument,” former ORS 71.037(2)
(1959), but because that right existed as an agent, the indorser (principal) must
________________________
16 MERS does not find any cases interpreting former ORS 71.038 (1959).
49 have retained that right as well. The indorsee as agent may also have had the
resulting ability to enforce the note via whatever security instrument secured it,
but as a basic tenet of agency law, the agent’s ability derived from the
principal’s authority.
This statutory scheme governing negotiable instruments and the multiple
ways a note could (and still can) be “transferred by indorsement,” with differing
effects with respect to the underlying security, shows that to conclude that it
was “well established” in 1959 that “there were two methods of assignment,
one ‘formal’ and the other by indorsement[,]” Niday, 251 Or App at 300, is an
oversimplification. Indeed, as described above, there is a meaningful difference
between transfer by indorsement and transfer by assignment. “Transfer” is an
“all-encompassing term used by the UCC to describe the act which passes an
interest in the instrument to another.” Scheid v. Shields, 269 Or 236, 238, 524
P2d 1209 (1974). Negotiating an instrument (i.e. transfer of possession, making
the recipient a holder), is one method of transfer. Id. “A transfer of an
instrument may be by endorsement making the transferee a holder; by transfer
for value, making the transferee a holder in due course; or by transfer without
value or endorsement giving the transferee those rights possessed by the
transferor.” Perry & Greer, Inc. v. Manning, 282 Or 25, 31-32, 576 P2d 791
(1978). An “assignment” is substantively different. See, e.g., Carius v. Ohio
Contract Purchase Co., 164 NE 234, 235 (Ohio Ct App 1928) (“The word
50 ‘assign’ has a definite and distinct meaning, and a transfer of a contract by
assignment is quite different from a transfer of a contract for the payment of
money only by indorsement; in other words, a promissory note.”).
For example, a person can have an assigned ownership interest in a note
or trust deed without actually having the note indorsed to the person in
possession or indorsed in blank. See, e.g., Jerstad v. Warren, 73 Or App 387,
393-94, 698 P2d 1033 (1985). A note holder may transfer both the note and
trust deed through a formal assignment so long as the assignment agreement
provides both are assigned. Because the note would not be indorsed in that
scenario, the new holder would not be a holder in due course, but would have
the right to enforce the note and trust deed. ORS 86.110 recognized the
difference between transfer of a promissory note by indorsement and an
assignment, and so did the 1959 legislature when it referred to “assignments of
the trust deed” without reference to transfer of the promissory note.
(3) Other statutes show that, when the legislature intends to refer to the note or underlying debt, the legislature does so expressly.
The legislature does not refer to the underlying note by referring to the
trust deed that secures the note. The legislature knows the difference between a
trust deed (or other security) and the underlying debt, and when the legislature
intends to refer to one or the other, the legislature does so expressly. For
example, in ORS 86.735(4), which existed in substantially the same form in the
51 original OTDA, see ORS 86.735(1)(d) (1959), the legislature referred to the
“debt or any part of it then remaining secured by the trust deed[.]” Similarly,
ORS 86.110 distinguishes between the promissory note and the mortgage that
secures it. ORS 86.140, describing liability of a mortgagee for failure to
discharge a mortgage, refers to the “owner and holder of the promissory note”
as distinct from the mortgagee. When the legislature chose in ORS 86.735(1) to
require recordation only of assignments of the trust deed, the legislature
intended to exclude any transfer of the note.
b. Pre-1959 case law shows that note transfers do not need to be recorded.
This Court’s opinion in Barringer v. Loder shows that the legislature
required recordation only of “formal” mortgage assignments and not transfers
of a note by indorsement.
In Barringer, Mr. and Mrs. Barringer loaned money to Mr. Hayden,
evidenced by a note and secured by a mortgage, the latter of which was
recorded. The Barringers divorced, and Mrs. Barringer received the note and
mortgage as part of the separation. Later, Mr. Barringer signed an
“assignment” of the mortgage to Mr. Loder, but refused to sign an affidavit
verifying the claim that Mr. Barringer had lost the note and mortgage.
Regardless, Mr. Loder recorded the assignment, convinced Mr. Hayden to pay
him the full amount due under the loan, and then recorded a notice canceling
the mortgage (which was actually held by Mrs. Barringer). Mrs. Barringer later
52 sued Mr. Loder to foreclose on the mortgage. Barringer, 47 Or at 224-26.
It is true that Barringer described the idea that indorsement of a note
(there, to Mrs. Barringer) carries the mortgage with the indorsement, and called
the security following the debt a “manner of assignment” of the mortgage, and
also referred to an ability to “assign by indorsement of the note.” Id. at 229.
But this Court in Barringer was not focusing on distinctions between
“assignment” and “transfer” (although this Court referred to “the assignee or
indorsee of the note,” seemingly recognizing the difference). See id. (emphasis
added). Indeed, subsequent cases citing Barringer refer to transfer by
indorsement without denominating the transfer as an “assignment.” See, e.g.,
Schleef v. Purdy, 107 Or 71, 78, 214 P 137 (1923) (“A mortgage given as
security for the payment of a note may be transferred, either by the indorsement
of the note and the surrender of its possession or, if the note is payable to
bearer, by the mere delivery thereof and the surrender of its possession, and this
transfer of the note, without any formal transfer of the mortgage, transfers the
mortgage.”); Roth v. Troutdale Land Co., 83 Or 500, 506-07, 162 P 1069
(1917) (“The indorsement and transfer by a mortgagee of a promissory note
secured by a mortgage carries with it the mortgage security without a formal
assignment of the mortgage.”).
Even if “transfer by indorsement” constitutes an “assignment,” Barringer
shows that such an “informal” assignment does not need to be recorded.
53 Construing ORS 86.060, Barringer said the statute’s use of the permissive
“word ‘may’ with reference to an assignment by separate writing” recognized
the separate right to “assign by indorsement of the note.” Barringer, 47 Or at
229. When the legislature enacted ORS 86.060 in 1895 “[a]ssignments of the
method designated [in ORS 86.060, i.e. formal written assignments] then could
be made before the statute as well as by assignment of the note, and the act
simply prescribes that this may still be done by that method, but that such
assignments shall be recorded in the manner pointed out.” Id. at 230 (emphasis
added). Thus, even though ORS 86.070 required recordation of “[e]very
assignment of mortgage” (emphasis added), and even though Barringer
characterized indorsement of a note as an “assignment,” only assignments
described in ORS 86.060 (i.e. assignments by a written instrument with the
formalities of a deed or mortgage) were required to be recorded.
3. The legislative history of the OTDA supports that the legislature did not understand transfers of the note to be assignments of the trust deed.
The legislative history also suggests the legislature had in mind only
formal, written assignments when it enacted the OTDA. Although admittedly
sparse, the legislative history materials reflect that, at the time of enactment, the
practice appears to have been to transfer loans by “endorsing the trust deed as
means of modernizing the mortgage system.” See Petition for Review, App 1
(Minutes, House Judiciary Comm, SB 117, Apr 16, 1959, 1, 2). Recording an
54 endorsement of the trust deed, as the legislative history references, makes more
sense than recording indorsements of the note. The latter would not serve the
purpose of the recording statutes because the note does not contain a description
of the property or transfer title to real property. Only the trust deed describes
the property and affects title.
Nothing in the text, context, or legislative history of the OTDA supports
a construction under which “assignments of the trust deed by * * * the
beneficiary” means or includes “transfers by indorsement of the note.” Such a
construction not only would contradict the statutory text and context, it would
make no practical sense. “Assignments of the trust deed” means written
assignments of legal effect, not some post hoc memorialization of note transfers
created solely for the purpose of recording.
VII. CONCLUSION
For the foregoing reasons, the decision of the Court of Appeals should be
reversed, and the judgment of the trial court affirmed.
Dated this 8th day of November, 2012.
55 Respectfully submitted, /s/ Kevin H. Kono Gregory A. Chaimov, OSB #822180 [email protected] Frederick B. Burnside, OSB #096617 [email protected] Kevin H. Kono, OSB #023528 [email protected] Davis Wright Tremaine LLP 1300 SW Fifth Avenue, Suite 2400 Portland, Oregon 97201 Telephone: 503-241-2300 Facsimile: 503-778-5299 Attorneys for Defendant-Respondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.
1 CERTIFICATE OF COMPLIANCE WITH ORAP 5.05(2)(d)
Brief Length
I certify that (1) this brief complies with the word-count limitation in
ORAP 5.05(2)(b) and (2) the word-count of this brief (as described in ORAP
5.05(2)(a)) is 13,566 words.
Type Size
I certify that the size of the type in this brief is not smaller than 14 point
for both the text of the brief and footnotes as required by ORAP 5.05(4)(f).
Dated: November 8, 2012.
/s/ Kevin H. Kono Gregory A. Chaimov, OSB #822180 Frederick B. Burnside, OSB #096617 Kevin H. Kono, OSB #023528 Attorneys for Defendant-Respondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.
1 CERTIFICATE OF FILING AND SERVICE
I hereby certify that, on November 8, 2012, I directed the BRIEF ON THE MERITS OF PETITIONER ON REVIEW to be electronically filed with the Appellate Court Administrator, Appellate Records Section, by using the court’s electronic filing system.
I further certify that, on November 8, 2012, I directed the BRIEF ON THE MERITS OF PETITIONER ON REVIEW to be served on the following attorneys by mailing two copies thereof in a sealed, first-class postage prepaid envelope, addressed to said attorneys’ last known addresses and deposited in the U.S. Mail at Portland, Oregon:
Elizabeth Lemoine, OSB # 040811 Makler Lemoine & Goldberg, PC 515 NW Saltzman Rd Ste 811 Portland OR 97229 Telephone: 503-718-7672 W. Jeff Barnes (adm. pro hac vice) W.J. Barnes, PA 9350 Wilshire Blvd, Ste 308 Beverly Hills CA 90212 Attorneys for Appellant Niday
William G. Fig, OSB # 952618 Sussman Shank, LLP 1000 SW Broadway Ste 1400 Portland OR 97205 Telephone: 503-227-1111 Robert J. Pratte Fulbright & Jaworski L.L.P. 2100 IDS Center 80 South Eighth Street Minneapolis, Minnesota 55402-2112 Telephone: 612-321-2244 Facsimile: 612-321-2288 [email protected] Attorneys for Respondents GMAC Mortgage, LLC and Executive Trustee Services, Inc.
2 David L. Koen, OSB No. 080941 Legal Aid Services of Oregon 921 SW Washington St Ste 500 Portland OR 97205 Telephone: 503-224-4086 Attorneys for Amicus Curiae Oregon Trial Lawyers Association
/s/ Kevin H. Kono Kevin H. Kono, OSB #023528 Davis Wright Tremaine LLP Attorneys for Defendant-Respondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.