Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 1 of 16 Page ID#: 393

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

IVAN HOOKER and KATHERINE

HOOKER,

Plaintiffs, Civ. No. 10-3111-PA

ORDER
v.
NORTHWEST TRUSTEE SERVICES,
INC.; BANK OF AMERICA, N.A.;
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.,

Defendants.

PANNER, J.

Before the court is a mot to dismiss (#8) and request for

judicial notice (#6) by Bank of America, N.A. and Mortgage

Electronic Registration Systems, Inc. (MERS).: Defendants'

request for judi al notice is GRANTED. Defendants' motion to

dismiss is DENIED. Plaint if ' request for a de ratory judgment

is GRANTED.

Plainti dismissed their claims against Northwest Trustee

Services, Inc (Northwest).

1 ORDER
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BACKGROUND

where noted, the following background is

or judicially noticeable materials.

On November 17, 2005, plaintiffs obtained a loan from GN

Mortgage, LLC. A trust deed secured the loan. The note and trust

list GN as the lender. The trust deed lists MERS as the

MERS is not listed on the note. The trust deed lists

Trustee Services Corp. as trustee. On November 23, 2005,

trust was recorded in the Jackson County land records.

In r 2009, plaintiffs defaulted. On May 3, 2010,

MERS ass trust deed to Bank of America. Also on May 3,

MERS appointed Northwest successor trustee. That same day,

Northwest executed a notice of default and election to sell. On

May 7, 2010, defendants recorded the May 3 assignment of the

trust deed, appointment of successor trustee, and notice of

It and election to sell.

On September 7, 2010, plaintiffs filed the complaint in

state court. On September 13, 2010, Wells Fargo Bank, N.A., as

attorney in for Bank of America, appointed Northwest

successor trustee. On September 16, 2010, Northwest executed a

res ssion of the notice of default recorded on May 7, 2010. Also

on r 16, 2010, Northwest executed a second notice of

e ion to sell. On September 20, 2010, defendants

the September 16, 2010 appointment, rescission, and

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second notice of default.

On October 7, 2010, defendants removed the case to this

court. On January 19, 2011, pursuant to my order, defendants

submitted a complete chain of title for the note and trust deed.

Defendants' chain of title included a copy of a January 3, 2011

"MIN Summary and Milestones." (Jan. 31, 2011 McCarthy Decl., Ex.

1, 1-2.) The MIN Summary is how MERS members track transfers of

servicing and ownership rights of loans within the MERS system.

According to the MIN Summary, on December 9, 2005, Guaranty Bank,

FSB transferred the beneficial interest in the trust deed to

Wells Fargo Home Mortgage. (Jan. 31, 2011 McCarthy Decl., Ex. 1,

1-2.) Although Guaranty Bank appears to have been the original

servicer of the loan, the record is silent as to how or when

Guaranty Bank obtained the beneficial interest in the trust deed.

On December 14, 2005, Guaranty Bank transferred the

servicing rights to Wells Fargo Home Mortgage. (Jan. 31, 2011

McCarthy Decl., Ex. 1, 2.) On July 15, 2006, Wells Fargo Home

Mortgage transferred the benefic interest in the trust deed to

Bank of America. (Jan. 31, 2011 McCarthy Decl., Ex. 1, 2.)

Defendants did not record the transfer of the beneficial interest

in the trust deed from Guaranty Bank to Wells Fargo or from Wells

Fargo to Bank of America in the Jackson County land records. As

noted above, defendants did record a May 3, 2010 assignment of

the trust ed from MERS to Bank of America.

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Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 4 of 16 Page ID#: 396

STANDARDS

On a motion to smiss, the court reviews the s ficiency of

the comp into Scheuer V. Rhodes, 416 U.S. 232, 236 (1974). This

review is generally limited to the allegations in the complaint,

exhibits attached to the complaint, and judicially noticeable

materials. Swartz V. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007).

To survive a motion to smiss under Rule 12(b) (6), a complaint

must contain sufficient cts that "state a cia to rei f that

is plausib on s face." Ashcroft v. Iqbal, 129 S.Ct. 1937,

1949 (2009). This plausibil y standard requires the pleader to

present facts that demonstrate "more than a sheer possibility"

that defendant is liable for the alleged misconduct. Id.

In considering a motion to dismiss, a court must distinguish

between the factual allegations and legal conclusions asserted in

the complaint. 1 allegations of material fact are taken as

true and construed in the light most favorable to the nonmoving

party. American Family Ass'n, Inc. V. City & County of San

Francisco, 277 F.3d 1114, 1120 (9th Cir. 2002). At the pleadings

stage, "a plaintiff's obligation to provide the 'grounds' of his

'entitle[ment] to relief' requires more than labels and

conclusions." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

(2007). Therefore, if the well-pleaded factual allegations

plausibly give rise to the relief sought, a court shall deny the

motion to dismiss. Iqbal, 129 S.Ct. at 1950.

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DISCUSSION

I. Judicial Notice

ral Rule of Evidence 201 states a court may take

judicial notice of a ct outside the ngs if the is

"capable of accurate and ready determination by resort to sources

whose accuracy cannot reasonably be questioned." Lee v. City of

250 F.3d 668, 689 (9th Cir. 2001), impliedly

overruled on other grounds as discussed in Gallardo v. Dicarlo,

203 F.Supp.2d 1160, 1162 n.2 (C.D. Cal. 2002). Defendants st

the court take judicial notice of the following documents

reco September 20, 2010: (1) rescission of the May 3, 2010

notice of default and e ction to sell; (2) September 13, 2010

appointment of successor trustee; and (3) ember 16, 2010

notice of default and election to sell. document is recorded

in the Jackson County land records. De s' request r

judici notice (#6) is GRANTED.

II. Motion to Dismiss

Under the Oregon Trust Deed Act, ~'Beneficiary' means

person or otherwise ignated in a trust deed as the

person whose benefit a trust deed is given, or the person's

successor in interest " ORS 86.705(1). The trust at

issue states:

The ficiary of this Security Instrument is MERS

(so ly as nominee r Lender and r's successors
and assigns) and successors and assigns of MERS.

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Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 6 of 16 Page ID#: 398

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.

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 ght to foreclose and s 1 the
Property; and to take any action reguired of Lender
including, but not limited to, releasing and cancelling
this Security Instrument.

(Notice of Removal, Ex. 1, 8 (emphasis added).)

Although the trust deed lists MERS as the nominal

bene ciary "solely as a nominee for Lender . . . ," (Notice of

Removal, Ex. 1, 7), the deed makes clear that MERS is not "the

person for whose benefit a trust deed is given," ORS 86.705(1).

Instead, the trust deed con rms that GN holds the beneficial

interest. The trust deed lists GN, not MERS, as "Lender." (Notice

of Removal, Ex. 1, 6.) All payments on the loan are owed to GN,

not MERS. (Notice of Removal, Ex. 1, 8.) GN, not MERS, "may

invoke the power of sale and any other remedies permitted by

Applicable Law." (Notice of Removal, Ex. 1, 18, ~ 22.)

While the trust deed lists MERS as the nominal beneficiary,

the trust deed does not authorize MERS to take any actions on its

own behalf. First, MERS holds only legal t Ie to the trust deed.

(Notice of Removal, Ex. 1, 8.) Second, MERS acts solely as

6 ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 7 of 16 Page ID#: 399

nominee for GN. (Notice of Removal, Ex. I, 7-8.) Finally, MERS

may act as GN's nominee only "if necessary to comply with law or

custom[.]" (Notice of Removal, Ex. I, 8.) The trust deed

emphasizes that MERS is not the beneficiary, but rather the

nominee or agent of the lender. Because the trust deed clearly

demonstrates GN, and not MERS, is the person for whose benefit

the trust deed was given, GN (or its successor in interest) is

the beneficiary of the trust deed. ORS 86.705(1); see In re

McCoy, 2011 WL 477820, at *3 (Bankr. D. Or. Feb. 7).2

That MERS was the agent or nominee of the benefi ry does

not mean the non-judicial foreclosure proceedings necessarily

violated Oregon law. In re McCoy, 2011 WL 477820, at *4. As

in other recent cases in this district, "The problem that

defendants run into in this case is an apparent failure to record

assignments necessary r the foreclosure." Burgett v. MERS, 2010

WL 4282105, at *3 (D. Or. Oct. 20); see also In re McCoy, 2011 WL

477820, at *4. In Oregon, a trustee may conduct a non-judicial

foreclosure sale only if:

The trust deed, any assignments of the trust deed by

the trustee or the beneficiary and any appointment of a
successor trustee are recorded in the mortgage records

2The note reinforces my conclusion that aintiffs granted

the trust deed for the benefit of GN , not MERS. The note states
the trust deed "protects the Note Holder from possible losses
that might result if I do not keep the promises that I make in
this Note." (Notice of Removal, Ex. 1, 28, 1 11.) GN , not MERS,
is the "Note Holder." (Notice of Removal, Ex. 1, 26, 1 1.) MERS
is not mentioned in the note.

7 - ORDER

Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 8 of 16 Page ID#: 400

t counties in which the property described in the

deed is situated .

ORS 86.735 (1) (emphasis added).

Should the beneficiary choose to itiate non-judicial

foreclosure proceedings, the Act's recording requirements mandate

the recording of any assignments of the beneficial interest

the trust deed. Burgett, 2010 WL 4282105, at *2; In re McCoy,

2011 WL 477820, at *3. Defendants appear to argue that rather

than requiring the recording of every assignment of the trust

deed, the Act allows defendants to instead track every assignment

of the trust deed within the MERS system, recording only the

final assignment of the trust deed in the county land records.

Because the Oregon Trust Deed Act requires the recording of all

assignments by the beneficiary, defendants' argument fails. ORS

86.735(1); see In re McCoy, 2011 WL 477820, at *3 4.

Oregon's recording requirement is consistent with the

longstanding rule that the trust deed or mortgage generally

follows the note. Carpenter v. Longan, 83 U.S. 271, 274 (1872);

U.S. Nat'l Bank of Portland v. Holton, 99 Or. 419, 427 9, 195 P.

823, 826 (1921) (collecting cases). As not by defendants, "the

assignment of the note automatically assigns the underlying

interest in the trust deed because MERS is nominee for whichever

entity is the owner (if the owner is a MERS member)." (Defs.'

Reply, 10.) Defendants also state, "the content of the deed of

trust itself . . . established the parties' intent that the trust

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Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 9 of 16 Page ID#: 401

deed, and MERS' agency relationship, follow the note." (Id. at

11.) In fact, the trust deed expressly states, "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." (Notice of Removal, Ex. 1, 16, 'J[ 20 (emphasis added).)

If there were transfers of the benefi al interest in the trust

deed, defendants were required to record those transfers prior to

initiating a non-judicial foreclosure in the manner provided in

ORS 86.740 to 86.755. ORS 86.735(1).

Considering what is commonly known about the MERS system and

the secondary market in mortgage loans, plaintiffs allege

sufficient facts to make clear that defendants violated the

Oregon Trust Deed Act by iling to record all assignments of the

trust deed. 3 Therefore, defendants' motion to dismiss is DENIED.

The record demonstrates that in addition to requiring the

denial of defendants' motion to dismiss, plaintiffs are entitled

to declaratory relief. Pursuant to my order, defendants submitted

the MIN Summary and Milestones for the loan at issue. The MIN

Summary demonstrates that on December 9, 2005, Guaranty Bank, FSB

transferred the beneficial interest in the trust deed to Wells

3For background information on MERS, see generally Gerald

Korngold, Legal and Policy Choices in the Aftermath of the
Subprime and Mortgage FiNancinc Crisis, 60 S.C. L. Rev. 727, 741­
42 (Spring 2009) and Christopher L. Peterson, Foreclosure,
Subprime Mortgage Lending, and the Mortgage Electronic
Registration System, 78 U. Cin. L. Rev. 1359, 1368-1374 (Summer
2010) .

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Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 10 of 16 Page ID#: 402

Fargo Home Mortgage. (Jan. 31, 2011 McCarthy Decl., Ex. 1, 2.) As

noted above, the record is silent as to how or when Guaranty Bank

acquired any interest in the loan. On July 15, 2006, Wells Fargo

transferred the benefi 1 interest in the trust deed to Bank of

America. (Jan. 31, 2011 McCarthy Decl., Ex. 1, 2.) Defendants did

not record Guaranty Bank's transfer of the beneficial interest in

trust deed to Wells Fargo. Defendants' chain of tit

submission therefore demonstrates that defendants vio ed ORS

86.735(1) by initiating non-judicial foreclosure proceedings

prior to recording all assignments of the trust deed in the

Jackson County land records.

While I recognize that plaintiffs have failed to ma any

payments on the note since September 2009, that failure does not

permit defendants to violate Oregon law regulating non-judicial

foreclosure. The Oregon Trust Deed Act "represents a well­

coordinated statutory scheme to protect grantors from the

unauthorized foreclosure and wrongful sale of property, whi at

the same time providing creditors with a quick and efficient

remedy against a defaulting grantor." Staffordshire Investments,

Inc. v. Cal-Western Reconveyance Corp., 209 Or.App. 528, 542, 149

P.3d 150, 157 (2006). In part due to the legislature's desire "to

protect the grantor against the unauthoriz loss of its

property," a party conducting a non-judicial foreclosure must

demonstrate strict compliance with the Act. As demonstrated

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Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 11 of 16 Page ID#: 403

above, the MIN Summary demonstrates fendants led to comply

with the Oregon Trust Deed Act.

Although not affecting my conclusion here, the MIN Summary

ses an additional concern relevant to numerous cases pending

fore me. As noted above, GN is listed as Lender on both the

trust deed and the note. The MIN Summary, however, makes no

mention of GN. In fact, MIN Summary is silent as to how or

when Guaranty Bank became an "Investor" ho ng the ficial

interest in the trust deed. (Jan. 31, 2011 McCarthy Decl., Ex. 1,

2.) The MIN Summary indicates only that on December 1, 2005,

Guaranty Bank registered the in the MERS system. What

occurred before registration, and how or when Guaranty Bank

obtained any erest the loan (from GN or another) is not

revealed.

The apparent gap in chain of title is not the only issue

that causes me concern. On May 7, 2010, defendants recorded: (1 )

an assignment of trust deed from MERS to Bank of America; (2 )

MERS's appointment of Northwest as successor trustee; and (3) a

ce of fault and e ion to sell. Regarding the May 7

recordings, defendants state, "After rece ng plaintiffs'

complaint, Northwest Trustee Services, Inc. recognized that

certain documents were recorded out-of-order." (Oct. 14, 2010

Mem. Supp. Mot. Di ss, 4.) Upon recognizing the problems ­

after initiating non-judi al foreclosure proceedings and only

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Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 12 of 16 Page ID#: 404

after receiving plaintiffs' complaint alleging improper

recordings - defendants rescinded the May 7, 2010 notice of

default and election to sell. The "out-of-order" recordings

demonstrate problems, not atypical in my view, often caused by

foreclosing parties rushing to expedite non judicial

foreclosures.

On May 3, 2010, a "Vice President" MERS assigned the

trust deed to Bank of America. (Notice of Removal, Ex. 1, 32.)

That same day, another "Vice President" of MERS appointed

Northwest successor trustee. (Notice of Removal, Ex. 1, 34.) Also

on May 3, 2010, an "Assistant Vice President" of Northwest signed

the notice of de It and election to sell. (Notice of Removal,

Ex. 1, 36-37.) The same notary publ apparently witnessed all

three executives sign the documents on the same day. Cons ring

de ndants relied on the May 3, 2010 documents to justi non-

judicial foreclosure proceedings, defendants' document review

appears rushed. Considering the time spent reviewing the

documents, assigning the trust deed, appointing a successor

trustee, and issuing a notice of default and election to sell, I

am not surprised to learn that "[a]fter receiving plainti

complaint, Northwest Trustee Services, Inc. recognized that

certain documents were recorded out-of-order."

Notwithstanding the above concerns, I note the May 3, 2010

assignment states that MERS assigns "all beneficial interest"

12 ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 13 of 16 Page ID#: 405

the trust deed to Bank of America. (Notice of Removal, Ex. 1,

32.) As explained above, MERS never had any bene 1 interest

in the trust ed. MERS held only legal title as an agent or

nominee of GN (or GN's successors). If MERS acted only as an

agent or nominee, why is the principal not identif in t May

3, 2010 assignment? confusion is ightened as the MIN

Summary demonstrates at least two unrecorded transfers of the

benefi al interest in trust deed occurred be re May 3,

2010. As Justice Page of the Supreme Court of Minnesota

summariz

MERS claims to hold legal title, but only legal tit

to the mortgage ing foreclosed. MERS also claims that
in losing mortgages it acts only as nominee
its members. But MERS can act as nominee for only the
particular MERS member who holds the promissory note at
any parti ar time and, when that promissory note is
assigned between members, the member for which MERS
acts as nominee, and on whose behalf MERS holds 1 1
title, necessarily changes. In other wo ,the entity
on whose behalf MERS holds 1 1 title to the mortgage
changes every time the promissory note is assigned.

Jackson v. Mortgage Electronic Registration Systems, Inc., 770

N.W.2d 487, 503-04 (Minn. 2009) (Page, J., dissenting). Although

Justice Page wrote in dissent in a case involving a Minnesota

statute, his concerns apply to numerous cases pending fore me.

Fo sure by advertisement and sale, which is designed to

take place outs of any judi al review, necessa ly relies on

the foreclosing party to accurately review and assess its own

authority to forec se. Considering that non-judicial

13 ORDER
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foreclosure of one's home is a particularly harsh event, and

given the numerous problems I see in nearly every non-judicial

foreclosure case I preside over, a procedure relying on a bank or

trustee to self-assess its own authority to foreclose is deeply

troubling to me.

I recognize that MERS, and its registered bank users,

created much of the confusion involved in the foreclosure

process. By listing a nominal beneficiary that is clearly

described in the trust deed as anything but t a c t u a l

beneficiary, the MERS system creates confusion as to who has t

authority to do what with the trust deed. The MERS system raises

serious concerns regarding the appropriateness and validity of

foreclosure by advertisement and sale outside of any judi al

proceeding.

Additionally, the MERS system allowed the rise of the

secondary market and securitization of home loans. A lender

ending to immediat y sell a loan on the secondary mar is

not concerned with the sk involved in the loan, but with the

fees generated. If a lender aims to quic y pass a loan off onto

an investor, a stated-income loan appears not as an unacceptable

risk, but as an income stream. MERS makes it much more difficult

for all rties to scover who "owns H the loan. When a borrower

on the verge of default cannot find out who has the authority to

modify the loan, a modification or a rt sale, even if

14 - ORDER
Case 1:10-cv-03111-PA Document 32 Filed 05/25/11 Page 15 of 16 Page ID#: 407

beneficial to both the borrower and the beneficiary, cannot

occur.

When no borrowers default, the problems inherent in the MERS

system may go unnoticed. Unfortunately for banks, borrowers,

investors, and courts throughout the country, many borrowers are

now defaulting. Countless grantors of trust deeds now the

harsh prospect of losing a home outside of any judicial

proceeding. At the same time, the MERS s tern greatly increased

the number of investors stuck holding worthless notes. A lender

that knows it will immediately sell a loan on the secondary

market has no incentive to ensure the appraisal of the security

is accurate. Similarly, the lender need not concern itself with

the veracity of any representations made to the borrower. In

short, the MERS system allows the lender to shirk its traditional

due diligence duties. The requirement under Oregon law that all

assignments be recorded prior to a non-judicial foreclosure is

sound public policy:

[I]t is apparent with the benefit of hindsight that the

abil y of 1 rs to freely and anonymously transfer
notes among themselves fa 1 ated, if not created, the
financial banking crisis in which our country currently
finds itself. It is not only borrowers but also other
lenders who rightfully are interested in who has held a
particular promissory note. For example, a lender who
holds a promissory note that has become worthless may
have an interest in knowing the hands through which
that note passed.

Jackson, 770 N.W.2d at 504 (Page, J., dissenting). Justice Page

wrote in dissent, but s views are persuasive.

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Although t concerns raised in this 0 r appear in many

foreclosure cases before me, I reso the current

controversy on narrow grounds. Following de s' removal of

the complaint, pla i still seek declarato relief that

defendants' non-j al foreclosure is wrongful. I agree with

Judge Alley that "Oregon law permits foreclosure without the

benefit of a judicial proceeding only when interest of the

beneficiary is clearly documented in a public record." In re

McCoy, 2011 WL 477820, at *4. Because de nts failed to record

all assignments of trust deed, the non-judicial foreclosure

proceedings 1 Oregon Trust Act. Therefore,

plaintiffs are ent led to declaratory relief on that claim.

CONCLUSION

Defendants' t for judicial notice (#6) is GRANTED.

Defendants' motion to dismiss (#8) is DENIED. Plaintiffs are

entitled to a ratory judgment stati fendants violated

ORS 86.735(1). This non-judicial foreclosure proceeding is

dismissed. Judgement and costs r plaintiffs.

IT IS SO ORDERED.

DATED t s ~day of May, 2011.

OWEN M. PANNER
U.S. DISTRICT JUDGE

16 - ORDER