BREWER, J.
These cases come before this court on four certified questions of law from the United States District Court for the District of Oregon. See Brandrup v. ReconTrust Co., 352 Or. 320, 287 P.3d 423 (2012) (accepting certified questions); ORS 28.200 to 28.255 (providing procedure for certifying questions to the Oregon Supreme Court and authorizing court to answer certified questions). The questions all are concerned with a practice that has arisen in the home mortgage industry in the last twenty years — that of drafting mortgages and trust deeds so that a certain Delaware corporation, Mortgage Electronic Registration Systems, Inc. (MERS), rather than the lender, is identified as the security instrument's "mortgagee" or "beneficiary." That practice allows lenders and other entities dealing in home loans to track their transactions in a database maintained by MERS. In Oregon, the practice has come under scrutiny in a number of foreclosure cases arising under the Oregon Trust Deed Act (OTDA), ORS 86.705 to ORS 86.795.
As will be explained more fully below, the OTDA provides an alternative to the traditional judicial foreclosure process that is available only when the home loan is secured by a trust deed, and, even then, only when certain conditions are satisfied. One condition for foreclosing under the OTDA is that "any assignments" of the trust deed by the trust deed "beneficiary" be recorded in the real property records of the county where the encumbered property is situated. ORS 86.735(1). Some homeowners threatened with foreclosure under the OTDA have recognized that, although the original lenders transferred their interests to other parties, the changes in beneficial ownership were not recorded in the real property records of the counties where their properties are situated. Those homeowners have resisted foreclosure under the OTDA on the ground that the transfers were not recorded. They argue, inter alia, that ORS 86.735(1) requires the recording of any assignment of a trust deed by the owner of the beneficial interest in the trust deed and that the identification of MERS as the trust deed "beneficiary" is ineffective.
Some cases filed in Oregon state courts that have raised these issues have been removed to federal court, and the judges within the District of Oregon have used differing analyses and reached differing conclusions. See, e.g., Sovereign v. Deutsche Bank, 856 F.Supp.2d 1203 (D.Or.2012); James v. ReconTrust Co., 845 F.Supp.2d 1145 (D.Or. 2012); Reeves v. ReconTrust Co., 846 F.Supp.2d 1149 (D.Or.2012); Beyer v. Bank of America, 800 F.Supp.2d 1157 (D.Or.2011). Recognizing
We accepted the district court's certification and allowed the parties in the federal cases to present their views. We answer those questions — in two instances as reframed — as follows:
As a preface to our explanation of those answers, we set out the following legal and factual background.
When a person borrows money to purchase a home, in Oregon as elsewhere, the loan usually is memorialized in a promissory note that contains the borrower's written, unconditional promise to pay certain sums at a specified time or times. Generally, the borrower and lender also enter into a separately-memorialized security agreement — a mortgage or, more commonly in Oregon, a trust deed. See generally Grant Nelson and Dale Whitman, Real Estate Finance Law §§ 2.1, 5.27, 5.28 (5th ed. 2007); Joseph L. Dunne, Enforcing the Oregon Trust Deed Act, 49 Willamette L Rev. 77, 81-85 (2012). Oregon subscribes to the "lien theory," rather than the "title theory," of mortgages. Under the title theory, the borrower conveys actual title to the burdened property to the lender to secure the obligation to repay. Under the lien theory, the borrower merely conveys a "right, upon condition broken, to have the mortgage foreclosed and the mortgaged property sold to satisfy [the underlying debt]." Schleef v. Purdy, 107 Or. 71, 78, 214 P. 137 (1923). Thus, in the traditional security arrangement — the mortgage — the borrower conveys to the lender a lien on the property being purchased, to secure the promise to repay that is contained in a promissory note. If the borrower defaults on the note, the lender, or the lender's successor in interest, may exercise its right to sell the property to satisfy the obligation, but it must do so by bringing a judicial action against the borrower. Id. at 75-79, 214 P. 137; ORS 88.010 (except as otherwise provided by law, lien upon real property shall be foreclosed by a suit).
The OTDA, Or. Laws 1959, ch. 625, codified at ORS 86.705 to ORS 86.795, was enacted in 1959 to provide an alternative to the judicial foreclosure process. Ronald Brady Tipperts, Note, Mortages — Trust Deeds in Oregon, 44 Or. L. Rev. 149, 149-50 (1965). That nonjudicial alternative is available when the parties use a trust deed to secure the loan. A trust deed is a deed executed under the OTDA that "conveys an interest in real property to a trustee in trust to secure the performance of an obligation the grantor or other person named in the deed owes to a beneficiary." ORS 86.705(7). The OTDA permits the trustee appointed under a trust deed to advertise and sell the property to the highest bidder without judicial involvement. ORS 86.710; ORS 86.755. Like a mortgage, a trust deed creates a lien on real property to secure an underlying obligation in the event of a default. See ORS 86.705(7); see also Sam Paulsen Masonry v. Higley, 276 Or. 1071, 1075, 557 P.2d 676 (1976) (mortgage or trust deed creates only lien on real property). Indeed, a trust deed creates two distinct interests — a legal interest and a beneficial interest. First, a trust deed "conveys an interest in real property to a trustee in trust to secure the performance of an obligation." ORS 86.705(7). That legal interest includes the power to sell the obligated property in the manner prescribed in the statute on the grantor's default. ORS 86.710. However,
A trustee may conduct a nonjudicial foreclosure sale only when certain conditions are satisfied. See ORS 86.735 (setting out conditions). Those conditions include: (1) recording of "[t]he trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee * * * in the mortgage records of the counties in which the property described in the deed is situated," ORS 86.735(1); (2) a default on the obligation, "the performance of which is secured by the trust deed," ORS 86.735(2); (3) recording of a notice of default containing the trustee's or beneficiary's election to sell the property to satisfy the obligation, ORS 86.735(3); and (4) the absence of any pending or completed action for recovery of the debt, with limited exceptions. See, e.g., ORS 86.735(4).
In addition to those conditions, the OTDA prescribes notice requirements that protect trust deed grantors from unauthorized nonjudicial foreclosures and sales of property. Among other things, a trustee is required to provide to the grantor and other interested parties at least 120 days' advance notice of the trustee's sale. ORS 86.740(1). Although judicial involvement is not required to complete a foreclosure by advertisement and sale, the 120-day advance notice period gives a grantor time to seek judicial intervention in certain circumstances, as plaintiffs in these cases have done.
The grantor has a right to cure the default at any time up to five days before the date last set for the sale. ORS 86.753. If the trustee has complied with the statutory notice requirements and the default is not cured, the trustee may sell the property at a public auction to the highest bidder without judicial oversight. ORS 86.755. In contrast to the judicial foreclosure process, a grantor has no statutory right to redeem the property after a completed trustee's sale. Compare ORS 88.080 (providing right of redemption after sale) with ORS 86.770(1) (trustee's sale forecloses and terminates interests in property of any person to whom required notice of the sale was given). After a trustee's sale, the trustee must execute and deliver a trustee's deed to the purchaser, which must recite details of the foreclosure. ORS 86.775. If the trustee's deed is recorded in the pertinent county records, the facts recited in the deed are considered prima facie evidence of the truth of the matters set forth therein, and are conclusive in favor of a purchaser for value who relies on them in good faith. ORS 86.780.
Of course, only a small portion of the property transactions involving trust deeds end in foreclosure. If the borrower repays the loan secured by the trust deed in full, the trustee must "reconvey the estate of real property described in the trust deed" (that is, release the lien on the property) to the borrower, ORS 86.720, and that reconveyance may be publicly recorded in the pertinent real property records.
Mortgages or trust deeds may be transferred in a variety of ways. By statute, mortgages may be "assigned by an instrument in writing," and such written assignments may be recorded in the pertinent real property records. ORS 86.060 ("mortgages may be assigned by an instrument in writing * * * and recorded in the records of mortgages of the county where the land is situated").
Although the recordation of a mortgage or trust deed assignment generally is not required to make the transfer legally effective between the parties, it is necessary and desirable for protecting an assignee's interest under the security instrument against a purchaser in good faith for valuable consideration. See Willamette Col. & Credit Serv. v. Gray, 157 Or. 77, 83, 70 P.2d 39 (1937) (assignee of mortgage was not obliged to take and record written assignment to acquire title as between immediate parties but was required to do so to maintain lien against innocent purchaser); see also ORS 93.640 (every conveyance, deed, or assignment affecting an interest in real property which is not recorded as provided by law is void as against any subsequent purchaser in good faith for valuable consideration). The recordation of a trust deed assignment is necessary for an additional reason: As described above, 353 Or. at 676-78, 303 P.3d at 305-06, the trust deed and "any assignments of the trust deed by the trustee or the beneficiary" must be recorded in the relevant land records before the nonjudicial foreclosure procedure set out at ORS 86.740-ORS 86.755 may be invoked. ORS 86.735(1).
MERS is a creature of the real estate finance industry. In the mid-1990's, large players in the industry, including the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), decided to create a database that would electronically track ownership in secured real estate loans as they were bought and sold in a secondary market, generally in packages now known as mortgage-backed securities. R.K. Arnold, Yes, There is Life on MERS, 11 Prob & Prop 33, 33-34 (1997). They created MERSCorp Holdings, a "member-based organization made up of thousands of lenders, servicers, sub-servicers, investors and government institutions." See MERSCORP Holdings, Inc., http://www.mersinc.org/about-us/faq (accessed May 22, 2013). The primary product of MERSCorp Holdings was and is the "MERS System," a "national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in loans secured by residential real estate." Id.
But there is another significant aspect of MERS; that entity serves as the designated mortgagee or beneficiary, as the nominee of the lender, for all mortgages and trust deeds registered in the MERS System. Id. Christopher L. Peterson, Foreclosure, Subprime Lending, and the Mortgage Electronic Registration System, 78 U Cincinnati L Rev. 1359, 1361-62 (2009). MERS, however, does not make, service, or invest in loans. Id. at 1371.
The certified questions that are before this court arise out of four separate actions challenging a trustee's attempt to nonjudicially foreclose a trust deed securing residential property. In each case, homeowners (collectively, "plaintiffs") financed the purchase of a residence in Oregon with a loan from a lender that is a member of MERS. In each case, the homeowners signed (1) a promissory note pledging to repay the money borrowed, plus interest, according to a prescribed schedule and by a specified date, and (2) a "Deed of Trust," granting to a named trustee the property they had purchased with the loan, "in trust, with power of sale," to secure the payment of the promissory note and other related promises.
In a section entitled "Transfer of Rights in the Property," the trust deed states:
(Emphases added.)
Those provisions appear to turn the traditional three-party trust deed arrangement — debtor/grantor, trustee, and lender/beneficiary — into a four-party arrangement, with the functional role of the beneficiary being split between two entities. Although the benefit of the trust deed is reserved to the "Lender" (because the trust deed "secures to the Lender" the obligations of repayment and performance of other covenants), MERS purports to be the beneficiary "as nominee for Lender and Lender's successors and assigns."
Plaintiffs in all four cases signed the promissory notes and trust deeds as described, and, after a period of years, allegedly defaulted on their loans. Following each default, MERS executed a written assignment of the trust deed to the reputed ultimate successor in interest of the original lender and recorded that assignment in the pertinent real property records. Each of those assignees then appointed a new trustee, ReconTrust Company, N.A., and that assignment also was recorded. Thereafter, ReconTrust, as trustee, commenced the process of nonjudicial foreclosure under each trust deed, issuing notices of the grantor's default and the trustee's election to sell.
In all four cases, plaintiffs brought an action in state court against ReconTrust, MERS, and the reputed ultimate successor in interest of their original lender, seeking to enjoin the nonjudicial foreclosure proceeding on a number of grounds, including that (1) a condition for nonjudicial foreclosure had not been satisfied — specifically, the requirement in ORS 86.735(1) that any assignments of the trust deed by the "beneficiary" be publicly recorded in the pertinent real property records; and (2) MERS's purported assignment of the trust deed to the reputed ultimate successor in interest was ineffective, because, at the time of the purported assignment, "the principal for whom MERS purported to act as `beneficiary' did not hold plaintiff's loan at that date." Defendants removed the cases to federal court, and then filed motions to dismiss under FRCP 12(b)(6), arguing that MERS was the lawful beneficiary under the trust deeds, that all assignments of the trust deeds by the named "beneficiary," MERS, had been recorded, and that ORS 86.735(1) did not require assignments of the trust deeds by the lenders to be recorded. The
This question is one of statutory construction, which we approach using the methodology described in State v. Gaines, 346 Or. 160, 206 P.3d 1042 (2009). We focus first on the text, context, and any legislative history brought to our attention by the parties that we find useful, and proceed to general maxims of statutory construction if the legislature's intent remains obscure. Id. at 171-72, 206 P.3d 1042. The pertinent text is the definition of "beneficiary" that appears in ORS 86.705:
There is no dispute about the meaning of the last clause. Rather, the parties square off over the meaning of the requirements that the person (1) be "named or otherwise designated in [the] trust deed," (2) "as the person for whose benefit the trust deed is given." Taking the latter phrase first, the "benefit" of a trust deed is the security it provides with respect to an obligation owed by the grantor to the beneficiary. That is made clear in many of the surrounding statutes. For example, as noted, the term "trust deed" is defined as "a deed executed in conformity with ORS 86.705 to 86.795 that conveys an interest in real property to a trustee in trust to secure the performance of an obligation the grantor or other person named in the deed owes to a beneficiary." ORS 86.705(7) (emphasis added). Similarly, "grantor" is defined as "the person that conveys an interest in real property by a trust deed as security for the performance of an obligation." ORS 86.705(4) (emphasis added). Finally, ORS 86.710, which generally describes the power of a trustee to nonjudicially foreclose, begins with a general description of a trust deed: "Transfers 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 deed, to a beneficiary" (Emphasis added.) Thus, the person "for whose benefit the trust deed is given" is the person to whom the grantor owes an obligation, the performance of which the trust deed secures.
That analysis, however, speaks only to the second half of the wording of the definition. Plaintiffs suggest that the initial phrase "the person named or otherwise designated as" means that the trust deed must identify (name or otherwise designate) the person who meets the definition of "beneficiary" as that term is used in the statute. Defendants contend, to the contrary, that the legislature used that phrase to signify that that the parties to the trust deed could agree to "name" or "designate" whomever they chose to serve "as" beneficiary — and that, for purposes of ORS 86.705(2), the "beneficiary" would be the person so designated. Thus, as defendants conceive it, designation of a beneficiary is purely a matter of contract. Plaintiffs' contrary interpretation, defendants assert, essentially turns the initial phrase of the definition into surplusage, violating a fundamental principle of statutory construction set out at ORS 174.010; that is, "not * * * to omit what has been inserted."
As discussed, in a typical residential trust deed transaction, the obligation secured by the trust deed is memorialized in a promissory note that contains a borrower's promise to repay a home loan to a lender. At inception, the lender is the person who is entitled to repayment of the note and, thus, functionally is "the person for whose benefit the trust deed is given." That person's "successor in interest," whom ORS 86.705(2) also recognizes as a beneficiary, is a person who succeeds to the lender's rights.
Defendants contend that another provision of the OTDA, ORS 86.720(3), undermines that construction of ORS 86.705(2). ORS 86.720 addresses the circumstance in which the obligation secured by a trust deed has been satisfied, but either the beneficiary or trustee has failed or refused to release the trust deed. In such a circumstance, where a title insurance company or insurance producer has satisfied the obligation through an escrow, ORS 86.720(1) authorizes the insurer, in a backup role, to issue and record a release of the trust deed to clear title. In that context, ORS 86.720(3) provides:
(Emphasis added.)
Defendants assert that the emphasized text shows that the legislature understood that the "beneficiary" need not be the lender or the lender's successor in interest. We do not agree that the statutory text necessarily — or even probably — bears such a construction. It is equally, if not more plausible, to conclude that the phrase "if different, the party to whom the full satisfaction was made," was meant instead to acknowledge the circumstance where a lender's successor in interest is not the beneficiary "of record," but is entitled to repayment of the underlying obligation. Ironically, that is precisely the circumstance that defendants assert permissibly occurred in these cases and that is the subject of the third certified question discussed below. When the statute is viewed in that light, it reinforces the conclusion that the beneficiary is the lender or the lender's successor in interest. In short, ORS 86.720(3) does not furnish persuasive context that supports defendants' proposed meaning of the term "beneficiary" under the OTDA.
Defendants next contend that the statutory meaning of "beneficiary" must be interpreted in the context of common law principles of agency, freedom of contract, and commercial law. Defendants point to case law showing that Oregon recognizes that an agent, even one without a pecuniary interest, may engage in land transactions and hold title on behalf of a principal. See, e.g., Halleck v. Halleck et
We disagree. The resolution of this question does not hinge on the parties' intent; rather, it depends on legislative intent. That is, the OTDA authorizes nonjudicial foreclosure only when certain statutory requirements are met. In these circumstances, the meaning of "beneficiary," as used in ORS 86.735(1), is determined by statute, and that meaning is incorporated into, and cannot be altered by, the party's agreement. See, e.g. Ocean A. & G. Corp., Ltd. v. Albina M.I. Wks., 122 Or. 615, 617, 260 P. 229 (1927) ("law of the land applicable thereto is a part of every valid contract"); see also, R. Lord, 11 Williston on Contracts § 30:24 (4th ed. 1999) ("[i]ncorporation of existing law may act to supersede inconsistent clauses purporting to define the terms of the agreement. For instance, where a statute regulates the amount the government is to pay for a particular service, the statute controls despite a contract between the government and the provider of the service agreeing to a lower rate."). If the legislature had intended to make the parties' agreement paramount over the statute in this regard, it could have, and likely would have, included an "unless otherwise agreed" caveat, as it has in some statutes. See, e.g., ORS 72.3070 ("Unless otherwise agreed, all goods called for by a contract for sale must be tendered in a single delivery * * *."). But, in light of the structure of the OTDA, it is unsurprising that it did not do so.
The OTDA contemplates a unitary beneficiary status, so that the person with the right to repayment of the underlying obligation also controls the foreclosure process. The interaction of a number of statutory provisions demonstrates the point. For example, ORS 86.710 gives the beneficiary the power to decide whether to foreclose judicially or nonjudicially. Under ORS 86.720, the beneficiary must request reconveyance after the secured obligation is satisfied. ORS 86.737(2)(b)(B) provides that notice to the grantor of a foreclosure sale must include "a telephone number that will allow the grantor access during regular business hours to person-to-person consultation with an individual authorized by the beneficiary to discuss the grantor's payment and loan term negotiation and modification." In addition, under ORS 86.745(1), a notice of sale must include the name of the "beneficiary." ORS 86.753(1) provides that the grantor (and others) may cure a default before a foreclosure sale by making payment, and paying costs and expenses "to the beneficiary." ORS 86.759(5) provides that statutory requirements that the trustee provide default and cure-related information
That functional unity has longstanding roots in the common law itself. A fundamental principle in mortgage law holds that a foreclosing party must have the power to enforce the underlying note. See United States Nat. Bank v. Holton, 99 Or. 419, 429, 195 P. 823 (1921) ("It has always been the law of this state that the assignment of the note carries the mortgage * * *. The assignment of a mortgage independent of the debt which it is given to secure, is an unmeaning ceremony."). That concern underlies the standard doctrine in judicial foreclosure proceedings that the foreclosing party must provide proof that it has the power to enforce the note. See generally Alan M. White, Losing the Paper — Mortgage Assignments, Note Transfers and Consumer Protection, 24 Loy Consumer L Rev. 468, 476-77 (2012) (collecting cases).
Neither can the statutory meaning of "beneficiary" yield to an obligee's decision to use another party as its agent or nominee. Although the cases and statutes cited by defendants show that a lawful agent can have broad authority to act on a trust deed beneficiary's behalf in regard to the exercise of rights under the trust deed, even to the point of appearing on documents in the beneficiary's stead, the agent cannot become the "beneficiary" for purposes of a statutory requirement that is defined, in part, by the status of the "beneficiary." To reinforce the point, the legislature, in recent amendments to the OTDA, has plainly distinguished between a beneficiary and its agents in the nonjudicial foreclosure context. See, e.g., ORS 86.735(4) (requiring either "the beneficiary or the beneficiary's agent" to certify compliance with statutory requirements as a condition of nonjudicial foreclosure).
In sum, our answer to the first question certified by the district court is as follows: For purposes of ORS 86.735(1), the "beneficiary" is the lender to whom the obligation that the trust deed secures is owed or the lender's successor in interest. Thus, an entity like MERS, which is not a lender, may not be a trust deed's "beneficiary," unless it is a lender's successor in interest.
This question goes to defendants' theory that, under the OTDA, MERS is eligible to serve as "beneficiary" of a trust deed in a role as the obligee's agent or nominee. The theory behind the question is: If ORS 86.705(2), in fact, defines "beneficiary" in terms of a beneficiary's function in the trust arrangement, which function is defined, in turn, by the beneficiary's rights that are secured by the trust deed, then an agent or nominee who has been delegated sufficient rights should qualify as a beneficiary under the statute. Defendants contend that the obligees that MERS serves, as agent or nominee, have delegated to MERS sufficient rights for that purpose. Because the more precise question is whether MERS is eligible to serve as a beneficiary under the OTDA, not whether it may be "designated" as such, we amend the certified question and answer it accordingly.
Defendants argue, first, that by defining MERS as the beneficiary "acting solely as a nominee for Lender and Lender's successors and assigns," the trust deeds in these cases clearly convey an intention that MERS act as the lender's or its successors' agent. Defendants also contend that MERS's agreement with its members explicitly provides that MERS will serve as the members' common agent — allowing MERS to act as agent or nominee for the initial lender and any successors in interest who are members of MERS.
Defendants argue that if MERS, as the obligee's nominee, must have some or all of the obligee's rights to qualify as the trust deed beneficiary for purposes of ORS 86.705(3), then the broad delegation of power to MERS contained in the quoted provision would be sufficient to make MERS eligible to serve as the "beneficiary."
It is unspoken, but evident, that the necessity to which the above provision refers is the necessity of having MERS be recognized as the trust deed beneficiary for purposes of any requirement that must be satisfied before the trust deed may be nonjudicially foreclosed. That the provision imbues the word "necessary" with an unnatural meaning, with the result that the provision is circular, does not render the provision unenforceable, as plaintiffs seem to suggest. We accept the provision in the way it apparently was intended: It is triggered by any apparent deficiency in MERS's authority to serve as beneficiary, and, according to defendants' theory, results in the delegation to MERS of any of the obligee's rights or interests that MERS might be required to have for that purpose.
The problem with defendants' theory, however, is that, while asserting MERS's authority to exercise all of the obligee's rights and interests, the provision fails to speak to the
And it is clear that the "law or custom" provision does not have that legal effect. The provision first states that MERS holds "only legal title to the interests granted by Borrower in this Security Instrument." When the provision thereafter states that MERS has the right "to exercise any or all of those interests," if necessary to comply with law or custom, it refers to the interests "granted by the borrower in this security instrument." But the interests that are granted by the grantor in a trust deed are different from the right to repayment under a related promissory note. As discussed above, 353 Or. at 676-77, 303 P.3d at 305-06, the grantor conveys two interests by signing a trust deed: to the trustee, a legal interest in the subject real property, which may be foreclosed upon the obligor's default on the underlying obligation; and to the beneficiary, the beneficial counterpart to that legal interest. In each of the four trust deeds that are at issue, the first (legal) interest is conveyed in the following sentence in the "Transfer of Rights in the Property" provision: "Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale, the following described property." That the lender obtains the benefit of the legal interest that is granted to the trustee is conveyed in the preceding sentence:
Thus, the interests and rights that were "granted by the borrower under this security instrument" were only (1) a legal interest in the property that the trust deed burdens, in the form of a lien; and (2) an equitable or beneficial interest in that lien.
In contrast, in these cases, the interest in the secured obligation that a party must have to qualify as the trust deed's "beneficiary" — the obligation that the trust deed secures — is the right to repayment of the obligation. Although related to the above-mentioned interests that are granted in the trust deed by the grantor, that right to repayment is not one of those interests. That is, the obligee's right to repayment is secured by the lien on the property that the grantor grants in the trust deed, but that right exists apart from the trust deed and is not "granted by the borrower in the [trust deed]." It follows that, even if the "law or custom" clause were triggered so that the right to exercise "any or all" interests granted in the trust deed by the borrower was delegated to MERS, MERS still would not have an interest that would qualify it as the trust deed's beneficiary.
To conclude: A "beneficiary" for purposes of the OTDA is the person to whom the obligation that the trust deed secures is owed. At the time of origination, that person is the lender. The trust deeds in these cases designate the lender as the beneficiary, when they provide: "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." Because the provision 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 * * * has the right to exercise any or
As we already have mentioned, 353 Or. at 678-79, 303 P.3d at 306-07, Oregon law provides that the transfer of a promissory note that is secured by a mortgage automatically effects, by operation of law, an assignment of the mortgage. Because a trust deed is a species of mortgage and is "subject to all laws relating to mortgages on real property," ORS 86.715, the same principle applies to trust deeds: A trust deed follows the promissory note that it secures. The third certified question thus asks whether such assignments by operation of law are included in the statutory requirement of ORS 86.735(1) that "any assignments of the trust deed by the * * * beneficiary * * * [be] recorded" in the pertinent real property records. If the answer to that question is "yes," then the fact that the promissory notes have been transferred without corresponding recorded assignments of the trust deeds would stand as a bar to nonjudicial foreclosure under ORS 86.735 in the cases before the federal court. Defendants argue, however, that the term "assignments," as used in ORS 86.735(1), refers only to assignments of a trust deed that are memorialized in a writing other than a writing that may serve to transfer the promissory note. Therefore, as defendants argue, the statute does not require that assignments that result from the transfer of a promissory note be recorded before a nonjudicial foreclosure can proceed. The issue is (again) one of statutory construction, this time focusing on the meaning of the phrase "any assignments" in ORS 86.735(1).
The text is not conclusive. Although the term "assignment" may carry a connotation of a written transfer of the trust deed itself, it appears to be broad enough to encompass any manner of transfer of the trust deed, such as by operation of law. The first definition of the word "assign" that appears in Webster's Third New Int'l Dictionary 132 (unabridged ed. 2002) reflects the narrow connotation: "to transfer to another in writing." However, other definitions that appear in Webster's, and those that appear in Black's Law Dictionary, do not refer to a writing. In any event, the notion that a security interest may be transferred by operation of law has a long and unchallenged history in this state, and the word "assignment" at times has been used by this court in connection with that concept. See, e.g., First National Bk. v. Jack Mathis Gen. Cont., 274 Or. 315, 321, 546 P.2d 754 (1976) ("assignment of a debt carries with it the security for the debt"); Willamette Col. & Credit Serv., 157 Or. at 81-82, 70 P.2d 39 (using term "assignment" to refer to "mortgage follows the note" principle); Barringer, 47 Or. at 229, 81 P. 778 (in enacting statute, legislature "recognize[ed] the right * * * to assign [a mortgage] by indorsement of the note"). In short, the choice of the word "assignments" in ORS 86.735(1) does not negate the possibility that the legislature intended to include transfers of trust deeds that occur by operation of law, without a separate writing.
The use of the expansive modifier "any" ("any assignments") is similarly inconclusive. Although it might convey a specific legislative intent that any manner of assignments, including those that occur by operation of law, be included in the recordation requirement, it also might simply refer to every "assignment" within the intended (possibly narrower) meaning of that term.
The parties also debate the import of statutes related to ORS 86.735(1) that have been offered as context for interpreting that statute. Among others, they point to ORS 86.110(1), which was in effect when the
(Emphasis added.) Defendants contend that the emphasized wording shows that, although this court's cases speak of a transfer of a secured note by indorsement as assigning an associated mortgage by operation of law, the legislature has drawn a distinction between such "transfers" and "assignments" of the mortgage. However, the emphasized wording could support an alternative inference — that "formal assignment" is only one form of "assignment," and that another occurs by operation of law when a note is transferred.
What does seem significant is that the recording requirement in ORS 86.735 assumes the existence of an assignment in recordable form and that the transfer of a promissory note cannot serve that function. Because a promissory note generally contains no description of real property and does not transfer, encumber, or otherwise affect the title to real property, it cannot be recorded in land title records. See ORS 93.600 (real property shall be described for recordation according to United States survey, or by lots, blocks, etc.); ORS 93.610 (providing for separate records for recording deeds and mortgages and "all other real property interests"); ORS 93.630 (requiring index to the record of "deeds, mortgages, and all other real property interests"); ORS 205.130 (county clerk shall have custody of records of deeds and mortgages of real property and record of all maps, plats, contracts, etc. "affecting the title to real property). Although it is true that the parties to the transfer of a promissory note can always memorialize the transfer in a separate writing that is recordable, plaintiffs' reading of ORS 86.735(1) would turn that practice into a requirement, at least when nonjudicial foreclosure is contemplated. But ORS 86.735(1) does not appear to express such a requirement, and certain mortgage statutes that existed at the time ORS 86.735(1) was enacted, one of which bears a remarkable resemblance to ORS 86.735(1), suggest that the legislature did not intend one.
Those mortgage statutes, ORS 86.060 and former ORS 86.070 (1959),
This court discussed the combined effect of those two statutes, at considerable length, in Barringer. In that case, Mr. and Mrs. Barringer loaned money to 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 their divorce settlement. Later, Mr. Barringer executed an "assignment" of the mortgage to Loder, but Barringer refused to sign an affidavit verifying his claim that he had lost the note and mortgage. Regardless, Loder recorded the assignment, convinced 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 sued Loder to foreclose on the mortgage. Barringer, 47 Or. at 224-26, 81 P. 778. Loder observed that Mr. Barringer's name appeared in the record, and he argued, based on the two statutes quoted above, that he was entitled to rely solely on the record. In particular, Loder argued that the statutes required all assignments of mortgages to be made in the manner provided therein, and that a mortgage "[could] not be otherwise assigned or transferred than as by these section prescribed." 47 Or. at 228, 81 P. 778.
This court held, instead, that the first statute's use of the permissive word "may," with reference to an assignment by an instrument in writing, "recognize[ed] the right * * * to assign by indorsement of the note." Id. at 229, 81 P. 778. The court then added:
Id. at 229-30, 81 P. 778 (emphasis added). Thus, even though former ORS 86.070 required recordation of "every assignment of mortgage," and even though Barringer characterized indorsement of a note as an "assignment," only those assignments described in ORS 86.060 — that is, assignments by a written instrument with the formalities of a deed or mortgage — were required to be recorded.
ORS 86.060 and former ORS 86.070 — and Barringer — were the law in Oregon when the OTDA was enacted in 1959. It is reasonable to infer that the legislature had that statutory framework in mind when it enacted wording in ORS 86.735(1) that requires "any assignments of the trust deed" to be recorded as a prerequisite to nonjudicial foreclosure. That inference leads to the conclusion that, like the requirement in former ORS 86.070 (1959) that "every assignment of mortgage shall be recorded," the requirement in ORS 86.735(1) that "any assignments" be recorded refers only to assignments like those described in ORS 86.060, which are "in writing, executed and acknowledged with the same formality as required in deeds and mortgages of real property." Again, the same reasoning logically applies to assignments of trust deeds, which are "subject to all laws relating to mortgages." ORS 86.715.
The legislature may have intended to impose a different recording regime in the nonjudicial foreclosure context — to require, in that context alone, that a recordable instrument be executed and recorded to document every transfer of a trust deed by indorsement of the associated promissory note, so that a borrower faced with nonjudicial foreclosure could determine whether the person giving notice of foreclosure possessed the beneficial interest in the trust deed at issue and had the right to foreclose. However, the legislature did not clearly express that intent. When the legislature enacted the OTDA and required that "any assignments of the trust deed" be recorded, the nearly identical statute stating that [e]very assignment of mortgage
In giving that answer, we acknowledge a practical concern that appears to loom in the background of these cases — that construing the phrase "any assignments" in ORS 86.735(1) as applying only to formal, written assignments of a trust deed renders the provision meaningless. In particular (the concern posits), a recording requirement that is so easily bypassed can have no conceivable function in the OTDA's statutory scheme; indeed, read in that way, the requirement precludes homeowners in foreclosure from ascertaining the identity of the true beneficiary. That concern, however, rests on the mistaken assumption that the right of a defaulting homeowner to establish the identity of the true beneficiary depends exclusively on plaintiffs' preferred reading of the recording requirement in ORS 86.735(1).
To the contrary, the OTDA is laced with provisions that indicate that the grantor is entitled to know the identity of the beneficiary. As discussed above, ORS 86.753(1), for example, provides that the grantor (and others) may cure a default before a foreclosure sale by making payment, and paying costs and expenses "to the beneficiary." Under ORS 86.737(2)(b)(B), notice to the grantor of a foreclosure sale must include "a telephone number that will allow the grantor access during regular business hours to person-to-person consultation with an individual authorized by the beneficiary to discuss the grantor's payment and loan term negotiation and modification." Similarly, under ORS 86.745(1), a notice of sale must include the name of the "beneficiary." Finally, ORS 86.759(5) provides that statutory requirements that the trustee provide default and cure-related information to the grantor and others "do not affect the duty of beneficiaries to provide information to grantors." In sum, those provisions all assume that the true beneficiary must be identifiable. Thus, no part of our answer to the third certified question should be taken to suggest that, where the foreclosing party is not the original lender, the foreclosing party need not provide definitive documentation of its status as the lender's successor in interest to establish its right to foreclose.
For that same reason, the fourth certified question, relating to MERS's authority to act as an agent for a lender or a lender's successor in interest, is important. Although we have concluded that the lender or its successors need not record assignments of the trust deeds that occur by operation of law, the fact remains that, when those persons fail to do so, they are vulnerable to challenges that may force them to judicially establish their interests and authority to act.
Plaintiffs assert:
Plaintiffs also assert that MERS's powers as an agent are derived from and limited to those of its principal. Thus, plaintiffs argue, MERS has no power or authority to act as an agent of a principal that has divested itself of its interest in a trust deed.
Defendants reply, first, that "legal and equitable rights to property can be separated and held by different parties." It follows, they assert, that the OTDA allows MERS to hold legal title to a trust deed as nominee for the lender, after the note secured by the trust deed is transferred from the lender to a successor or series of successors. Alternatively, defendants argue that MERS has authority as an agent of the original lender and its successors to execute any assignments required or convenient to facilitate the nonjudicial foreclosure process.
Because of the way in which the parties have presented their arguments with respect to the fourth certified question, it is useful to reframe it in two parts. The first part of the question is:
The second part of the question is:
For the reasons now explained, the answer to the first part of the question is "no." As discussed, a beneficiary's interest under a trust deed is analogous to a mortgagee's interest under a mortgage. ORS 86.715. Further, a mortgage conveys no legal or equitable interest in fee or for life to the mortgagee, but merely creates a lien that constitutes security for the underlying obligation and grants the mortgagee, upon the mortgagor's default, the right to have the property sold to satisfy the obligation. See ORS 86.010; Stout v. Van Zante, 109 Or. 430, 435-36, 219 P. 804, 220 P. 414 (1923); Schleef, 107 Or. at 74-79, 214 P. 137; Ukase Inv. Co. v. Smith, 92 Or. 337, 340, 181 P. 7 (1919). Although no Oregon case has considered which parties hold legal and equitable interests in the lien embodied in a trust deed in the context of the OTDA, a trustee typically holds legal title to the subject of the trust and the beneficiary holds equitable title. "When a trust is created, the legal title is vested in the trustee * * *. `A trust implies two estates, — one legal, and the other equitable; it also implies that the legal title is held
Relying on this court's decision in Klamath Irrigation District v. United States, 348 Or. 15, 227 P.3d 1145 (2010), defendants remonstrate that "legal and equitable rights to property can be separated and held by different parties." In Klamath Irrigation District, several irrigation districts and agricultural landowners brought consolidated suits against the United States, claiming that temporary reductions of irrigation water by a federal agency had breached contracts for the supply of irrigation water from the Klamath River Basin reclamation project, had breached an interstate compact, and had violated the Fifth Amendment by the uncompensated taking of property. In answering certified questions from a federal appeals court, we held that Oregon law recognized distinct legal and equitable interests in the right to use water from the Klamath River Basin that belonged to the irrigation districts and the landowners for whose benefit the irrigation districts held water rights. Id. at 43-44, 227 P.3d 1145.
Defendants' reliance on Klamath is unavailing for two reasons. First, in Klamath, this court reiterated the principle that, in determining whether an equitable property right exists, "a court of equity will look beyond the form of the proceeding and if possible consider the substance of the right." Id. at 44, 227 P.3d 1145. As discussed above, any analysis of the substance of the transaction or the actual roles of the parties articulated in the trust deed compels the conclusion that MERS owns neither legal nor equitable title to the lien of the trust deed. Second, although defendants assert that "Oregon law explicitly recognizes that each of the foregoing property interests is capable of further division between holders of legal and equitable title," neither Klamath nor any other authority that defendants have identified so holds. Certainly, an equitable interest may be fractionally divided among a number of owners (as this court recognized to be the case among the members of a water district in Klamath), but that is not the circumstance with MERS.
Rather, defendants' point seems to be that, even though MERS does not have the right to receive repayment of the notes in these cases, it can nevertheless hold legal title to the trust deeds, including the legal right to foreclose them. That proposition is not correct for two reasons. First, as discussed in detail in our answer to the first and second certified questions, the beneficiary of a trust deed under the OTDA is the lender or the lender's successor in interest as respects the right to repayment. And it is the same beneficiary that has the other statutory rights and obligations that the OTDA confers and imposes, including the power to control the foreclosure decision and process through the right to appoint a successor trustee. Second, as explained in our answer to the first certified question, the policy choice that the OTDA reflects (that the "beneficiary" must be the person entitled to repayment of the secured obligation) is rooted in the common-law principle that a foreclosing party must have the power to enforce the underlying note. See Holton, 99 Or. at 429, 195 P. 823. Accordingly, we conclude that the OTDA does not allow MERS to hold or transfer legal title to a trust deed separately from the right to receive repayment of the obligation that it secures. Because MERS does not have the right to receive repayment of the notes in these cases, the OTDA does not allow MERS to hold and transfer legal title to the trust deeds that secure them.
Plaintiffs assert that, even if MERS is an agent of the beneficiaries in these cases, MERS's interests in the trust deeds cannot extend beyond those of the beneficiaries for whom it purports to act, because its powers as an agent cannot exceed those held by its principals. Thus, when the interest of its principal is conveyed, plaintiffs argue, MERS's authority to act for that principal is simultaneously terminated. According to plaintiffs, nothing in Oregon law "supports the idea of freestanding agency on which MERS relies." Moreover, plaintiffs note that at least two other courts recently have agreed with their arguments. For example, the Arkansas Supreme Court has held, under virtually identical statutory language:
Mortgage Electronic Registration System, Inc. v. Southwest Homes of Arkansas, 2009 Ark. 152, 301 S.W.3d 1, 5 (2009).
Bain v. Metropolitan Mortg. Group, Inc., 175 Wn.2d 83, 107, 285 P.3d 34, 45-46 (2012).
Here, plaintiffs allege that their original lenders sold and terminated their respective interests in the trust deeds and underlying promissory notes shortly after the origination of plaintiffs' loans. More to the point, they allege that those original lenders transferred their interests in their promissory notes and trust deeds (followed by multiple subsequent transfers as well) long before MERS executed or recorded an assignment of the trust deeds to the purported ultimate successors in interest of the original lenders. In each of the cases, the plaintiffs assert "that the promissory note was sold and the trust deed was assigned from the originating lender of each respective loan through a series of subsequent intervening purchasers until it was purportedly conveyed to the current party on whose behalf each of the nonjudicial foreclosures was being conducted." In particular, plaintiffs assert that "their loans were sold first to a separate entity known as a Sponsor, which subsequently sold the promissory note and assigned the trust deed to an entity known as a Depositor, which subsequently sold the promissory note and assigned the trust deed to Defendant, Bank of New York Mellon FKA The Bank of New York, ("BNYM") as Trustee for the
As an initial matter, it is worth noting that, in each case, it is MERS itself, not MERS as "nominee" for the actual beneficiary, that executed a written assignment of the trust deed to the reputed ultimate successor of the original lender and recorded that assignment in the pertinent real property records. Because MERS does not qualify as the beneficiary, an assignment in such capacity is invalid. See ORS 86.705(2); 86.735(1). But, assuming, as it asserts, that MERS also acts as an agent or nominee for the original beneficiary and successor beneficiaries, a different set of rules applies.
In Oregon, agency is "[t]he relationship which results from the manifestation of consent by one person to another that the other shall act on behalf and subject to his control, and consent by the other so to act." Hampton Tree Farms, Inc. v. Jewett, 320 Or. 599, 617, 892 P.2d 683, 694 (1995) (quoting Ruddy v. Ore. Auto. Credit Corp., 179 Or. 688, 702, 174 P.2d 603, 609 (1946)) (internal quotations omitted). The principal-agent relationship is defined by, among other things, the ongoing ability of the principal to maintain control over the agent by giving the agent instructions. See Vaughn, 346 Or. at 136, 206 P.3d 181 (quoting Restatement (Third) of Agency § 1.01 comment f (2006)).
Defendants assert that, even where multiple trust deed transfers have occurred, MERS has ongoing authority to act for its past and present principals under the MERS system. MERS explains that,
Similarly, amicus Oregon Land Title Association asserts:
According to defendants and MERS, courts examining the issue recognize that MERS's role as nominee or agent carries forward to subsequent obligees — indeed, defendants assert, that was one of the very purposes for the creation of MERS.
The answers to the two parts of the fourth certified question thus may be stated in the following terms:
Certified questions answered.
KISTLER, J., concurred in part and dissented in part, an filed an opinion in which BALMER, C.J., joined.
KISTLER, J., concurring in part and dissenting in part.
The United States District Court for the District of Oregon has certified four state law questions to this court. In answering the first two questions, the majority concludes that only the lender and its successors can be designated as the beneficiary on a trust deed. In answering the last two questions, the majority concludes that not every assignment of the lender's interest in the trust deed must be recorded and that Mortgage Electronic Recording Systems, Inc. (MERS) can serve as the agent for both the lender and its successors if the record shows that those entities agreed to that arrangement. I agree with the majority's answers to the last two questions but would answer the first two questions differently. In my view, nothing in state law precludes the parties to a trust deed from designating MERS as the beneficiary as long as MERS is serving as the agent for the lender and its successors.
The majority finds a complete answer to that issue in the definition of "beneficiary" in the Oregon Trust Deed Act. See ORS 86.705(2). That Act authorizes a borrower to grant a trust deed on real property to secure an underlying obligation
It is one thing, however, to say that the statutory definition identifies the lender and its successors as the persons who ordinarily will be the beneficiaries of the trust deed. It is quite another to find in that definition a legislative intent to preclude the parties to a trust deed from designating the agent of the lender and its successors as the beneficiary. We should be hesitant to find in that run-of-the-mill definition a limitation on the parties' customary authority to structure their transactions as they see fit, unless the text, context, or history of that definition requires it. In my view, the statutory definition of beneficiary serves a more modest role than the one the majority assigns it. Certainly, nothing in the text of the definition expressly forecloses the parties from designating the lender's agent as the beneficiary in the trust deed. Nor does the legislative history lend any support for the majority's conclusion. Rather, the legislative history shows only that, in authorizing the use of trust deeds, the legislature sought to provide a more cost-effective means of foreclosing liens on real property and, in doing so, to expand the pool of capital available for small homeowners. See Minutes, House Committee on Judiciary, SB 117, April 16, 1959, at 1. It is difficult to derive from that history any legislative intent to limit the parties' ability to designate the lender's agent as the beneficiary.
To be sure, the context provides a limitation on the persons whom the parties may designate as the beneficiary. As noted, a trust deed, like a mortgage, serves as security for the underlying obligation — in this case, a promissory note. Ordinarily, the mortgage follows the note. See Restatement (Third) of Property: Mortgages § 5.4(a) (1997) ("A transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise."). Moreover, "[a] mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures." Id. § 5.4(c). Put differently, "in general a mortgage is unenforceable if it is held by one who has no right to enforce the secured obligation." Id. § 5.4 comment e. One exception to that general rule occurs when the person who holds the mortgage does so as the "trustee or agent" of the person who has the right to enforce the obligation secured by the mortgage. Id. In that circumstance, the trustee or agent may
On the one hand, that context suggests that the authority to name or otherwise designate the beneficiary does not extend to naming a person whose designation would render the trust deed unenforceable and thus defeat its purpose. See id. (noting that "in general a mortgage is unenforceable if it is held by one who has no right to enforce the secured obligation"). On the other hand, that context suggests that the class of persons statutorily authorized to be "named or otherwise designated in [the] trust deed" as the beneficiary is not limited to the lender and its successors, as the majority concludes. Rather, it extends to persons (agents and trustees) who also may enforce the mortgage on behalf of the lender and its successors. Accordingly, I would hold that the statutory definition of beneficiary is broad enough to permit the parties to a trust deed to designate MERS as the beneficiary as long as MERS is the nominee or agent of the lender and its successors in interest.
Ultimately, the difference between my answer and the majority's answer may be more semantic than substantive. After all, in answering the fourth question, the majority recognizes that, in theory, MERS can serve as the agent for the lender and its successors. The problem, as the majority correctly observes, with applying that theory in this case is that the record does not disclose whether the lender's successors in interest also have authorized MERS to act as their agent. As I understand the majority's answers, they effectively lead to the same conclusion that I would reach. However, because I would answer the first two certified questions differently from the majority, I dissent in part and concur in part in its answers.
BALMER, C.J., joins in this opinion concurring in part and dissenting in part.
(Differences in italics.)
