Brandrup v. Recontrust Co., N.A.

668 June 6, 2013 No. 27

IN THE SUPREME COURT OF THE

STATE OF OREGON

Bart G. BRANDRUP

and Jessica D. Brandrup,

husband and wife,

Plaintiffs,

v.

RECONTRUST COMPANY, N.A.;

Bank of America, N.A.,

successor by merger with

BAC Home Loans Servicing, LP;

The Bank of New York Mellon,

fka The Bank of New York,

as Trustee for The Certificate Holders Cwalt, Inc.,

Alternative Loan Trust 2006-2CB,

Mortgage Pass-through Certificates;

and Mortgage Electronic Registration Systems, Inc.,

Defendants.

United States District Court 311CV1390HZ

Russell R. POWELL

and Diane L. Powell,

husband and wife,

Plaintiffs,

v.

RECONTRUST COMPANY, N.A.;

Bank of America, N.A.,

successor by merger with

BAC Home Loans Servicing, LP;

The Bank of New York Mellon,

fka The Bank of New York,

as Trustee for The Certificate Holders Cwalt, Inc.,

Alternative Loan Trust 2007-OH3,

Mortgage Pass-through Certificates, Series 2007-OH3;

and Mortgage Electronic Registration Systems, Inc.,

Defendants.

United States District Court 311CV1399HZ

Cite as 353 Or 668 (2013) 669

Deanira MAYO

and Reynalda Paez Plancarte,

Plaintiffs,

v.

RECONTRUST COMPANY, N.A.;

Bank of America, N.A.,

successor by merger with

BAC Home Loans Servicing, LP;

Deutsche Bank National Trust Company,

as Trustee for The Certificate Holders of the

Morgan Stanley ABS Capital I, Inc., Trust 2005-HE2,

Mortgage Pass-through Certificates, Series 2005-HE2;

and Mortgage Electronic Registration Systems, Inc.,

Defendants.

United States District Court 311CV1533SI

Omid MIRARABSHAHI,

Plaintiff,

v.

RECONTRUST COMPANY, N.A.;

Bank of America, N.A.,

successor by merger with

BAC Home Loans Servicing, LP;

The Bank of New York Mellon,

fka The Bank of New York,

as Trustee for The Certificate Holders of CWMBS, INC.,

CHL Mortgage Pass-Through Trust 2007-4,

Mortgage Pass-through Certificates, Series 2007-4;

and Mortgage Electronic Registration Systems, Inc.,

Defendants.

United States District Court 312CV0010HA

(SC S060281)

En Banc

On certified questions from the United States District

Court; certification order dated April 2, 2012, certification

accepted July 19, 2012, argued and submitted January 8,

2013.

670 Brandrup v. ReconTrust Co.

Jeffrey A. Myers, Bowles Fernández Law LLC, Lake

Oswego, argued the cause for plaintiffs. With him on

the briefs were Jeffrey A. Myers, John Bowles, and Rick

Fernández.

Gregory A. Chaimov, Davis Wright Tremaine LLP,

Portland argued the cause for defendant Mortgage Electronic

Registration Systems, Inc. With him on the brief were Kevin

H. Kono, Frederick B. Burnside, and P. Andrew McStay, Jr.,

Davis Wright Tremaine LLP, Portland.

Thomas M. Hefferon, Goodwin Proctor LLP, Washington

DC, argued the cause for defendants ReconTrust Company,

N.A.; Bank of America, N.A.; The Bank of New York Mellon;

and Deutsche Bank National Trust Company. With him on

the brief were Steven A. Ellis, Washing ton DC, and Thomas

W. Sondag, Pilar C. French, and Peter D. Hawkes, Lane

Powell PC, Portland.

Rolf C. Moan, Assistant Attorney General, Ellen F.

Rosenblum, Attorney General, and Anna M. Joyce, Solicitor

General, filed a brief on behalf of amicus curiae State of

Oregon.

Nanina D. Takla, Law Office of Phil Goldsmith, Portland,

filed a brief on behalf of amicus curiae Oregon Trial Lawyers

Association.

Sara Kobak, W. Michael Gillette, and Jordan Silk,

Schwabe, Williamson & Wyatt, PC, Portland, filed a brief on

behalf of amicus curiae Oregon Land Title Association.

Thomas W. Brown, Thomas M. Christ, and Robert E.

Sabido, Cosgrave Vergeer Kester LLP, Portland, filed a brief

on behalf of amici curiae Mortgate Bankers Association,

Oregon Bankers Association, and Independent Community

Banks of Oregon.

BREWER, J.

Certified questions answered.

Kistler, J., concurred in part and dissented in part, and

filed an opinion in which Balmer, C. J., joined.

In four separate cases, home loan borrowers brought actions in state court

against the Mortgage Electronic Registration System, Inc. (MERS) and other

Cite as 353 Or 668 (2013) 671

entitles that were attempting to use the nonjudicial foreclosure procedures of the

Oregon Trust Deed Act (OTDA), ORS 86.705 to ORS 86.795, to foreclose the trust

deeds securing plaintiffs’ home loans. In each case, plaintiffs sought to enjoin

the foreclosure on the ground that a condition for nonjudicial foreclosure set out

in ORS 86.735(1)—that any assignments of the trust deed by the “beneficiary”

be recorded in the relevant county real property records—had not been satisfied.

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 and that all assignments of the trust deeds by MERS had been

recorded. Uncertain as whether MERS could be deemed the “beneficiary” of the

trust deeds in question under the OTDA, and, if not, what role MERS could play

under the statute, the United States District Court certified four questions.

Held: (1) For purposes of ORS 86.735(1), the “beneficiary” of a trust deed is the

lender to whom the obligation that the trust deed secures is owed or the lender’s

successor in interest, and an entity like MERS, which is not the lender of the

lender’s successor in interest, may not be the “beneficiary” in a trust deed; (2)

A provision in the trust deed stating that, if necessary to comply with law or

custom, MERS has the right to exercise interests granted in the trust deed to the

lender, does not make MERS eligible to serve as the trust deed’s “beneficiary”;

(3) ORS 86.735(1) does not require recordation of “assignments” of the trust deed

that occur by operation of law as a result of the transfer of the promissory note

or other obligation that the trust deed secures; and (4) Because MERS cannot be

a trust deed’s “beneficiary” within the meaning of the OTDA, it cannot hold and

transfer legal title to the trust deed to a successor as nominee for the lender, but,

depending on the facts of the particular case, it may have authority to do so as

the true beneficiary’s agent.

Certified questions answered.

672 Brandrup v. ReconTrust Co.

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 P3d 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.

Cite as 353 Or 668 (2013) 673

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 that the issues turn on the proper

construction of Oregon statutes and that this court is the

ultimate arbiter of such matters, the district court in these

cases certified the following questions to this court:

Certified Question No. 1:  May an entity, such as

MERS, that is neither a lender nor successor to a lender,

be a ‘beneficiary’ as that term is used in the Oregon Trust

Deed Act?

Certified Question No. 2:  May MERS be designated as

beneficiary under the Oregon Trust Deed Act where the

trust deed provides that MERS “holds only legal title to the

interests granted by Borrower in this Security Instrument,

but, 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”?

Certified Question No. 3:  Does the transfer of a

promissory note from the lender to a successor result in

an automatic assignment of the securing trust deed that

must be recorded prior to the commencement of nonjudicial

foreclosure proceedings under ORS 86.735(1)?

Certified Question No 4:  Does the Oregon Trust Deed

Act allow MERS to retain and transfer legal title to a trust

deed as nominee for the lender, after the note secured by

the trust deed is transferred from the lender to a successor

or series of successors?

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:

(1)  “No.” 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

674 Brandrup v. ReconTrust Co.

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.

(2)  We reframe the second question as follows:

Is MERS eligible to serve as beneficiary under the

Oregon Trust Deed Act where the trust deed provides

that MERS “holds only legal title to the interests

granted by Borrower in this Security Instrument,

but, 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”?

Answer:  “No.” 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 all of those interests,” does not convey to MERS

the beneficial right to repayment, the inclusion of that

provision does not alter the trust deed’s designation of

the lender as the “beneficiary” or make MERS eligible

to serve in that capacity.

(3)  “No.” ORS 86.735(1) does not require recordation

of “assignments” of a trust deed by operation of

law that result from the transfer of the secured

obligation.

(4)  We answer the question, as reframed below, in

two parts:

(4)(a)  “Does the Oregon Trust Deed Act allow

MERS to hold and transfer legal title to a trust deed

as nominee for the lender, after the note secured by

Cite as 353 Or 668 (2013) 675

the trust deed is transferred from the lender to a

successor or series of successors?”

Answer:  “No.” For purposes of the OTDA, the

only pertinent interests in the trust deed are the

beneficial interest of the beneficiary and the legal

interest of the trustee. MERS holds neither of those

interests in these cases, and, therefore, it cannot hold

or transfer legal title to the trust deed. For purposes

of our answer to the first part of the fourth certified

question, it is immaterial whether the note secured

by the trust deed has previously been “transferred

from the lender to a successor or series of successors.”

(4)(b)  “Does MERS nevertheless have authority as

an agent for the original lender and its successors in

interest to act on their behalves with respect to the

transfer of the beneficial interest in the trust deed or

the nonjudicial foreclosure process?”

Answer:  The power to transfer the beneficial

interest in a trust deed or to foreclose it follows the

beneficial interest in the trust deed. The beneficiary

or its successor in interest holds those rights. MERS’s

authority, if any, to perform any act in the foreclosure

process therefore must derive from the original

beneficiary and its successors in interest. We are

unable to determine the existence, scope, or extent of

any such authority on the record before us.

As a preface to our explanation of those answers, we set out

the following legal and factual background.

I. BACKGROUND

A.  Mortgages, Trust Deeds, and the Oregon Trust Deed Act

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

676 Brandrup v. ReconTrust Co.

(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; 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

Tippetts, 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 P2d 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

Cite as 353 Or 668 (2013) 677

default. ORS 86.710. However, if the trustee utilizes its

power of sale, the proceeds of the sale, after expenses, must

be applied “to the obligation secured by the trust deed”—

that is, to satisfy the obligation that the borrower owes to

the beneficiary. ORS 86.765(2). Accordingly, the trustee

holds and exercises its legal interest in the encumbered

property for the benefit of the trust deed’s “beneficiary”—the

person “named or otherwise designated in [the] trust deed

as the person for whose benefit [the] trust deed is given.”

ORS 86.705(1). The second interest that is created by a trust

deed—the beneficial or equitable interest in the lien granted

therein—thus is held by the beneficiary. That interest is the

security for the performance of the obligation that is owed to

the beneficiary. ORS 86.705(7).

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.

678 Brandrup v. ReconTrust Co.

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.

B.  Assignment and Recording of Trust Deeds

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”).1 But mortgages also have

been held to “follow” the promissory notes that they secure so

that, by operation of law, the sale or transfer of a promissory

1

Although that statute initially was enacted with mortgages in mind, it

applies equally to trust deeds. See ORS 86.715 (“a trust deed is deemed to be a

mortgage on real property and is subject to all laws relating to mortgages on real

property except to the extent that such laws are inconsistent with [the OTDA]”).

Cite as 353 Or 668 (2013) 679

note effects an equitable transfer of the mortgage that

secures that note. Bamberger v. Geiser, 24 Or 203, 206-07,

33 P 609 (1893) (“where a debt is secured by mortgage,

the debt is the principal and the mortgage is the incident,

and * * * an assignment of the debt is an assignment of the

mortgage”); Barringer v. Loder, 47 Or 223, 229, 81 P 778

(1905) (same).2

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 P2d 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 677, 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 - 86.755 may be invoked. ORS 86.735(1).

C.  The MERS Corporation

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

2

Again, that principle applies equally when the promissory note is secured by

a trust deed; the trust deed follows the note by operation of law.

680 Brandrup v. ReconTrust Co.

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.

D.  The Trust Deeds and Plaintiffs’ Challenges

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.

Except for the names and property descriptions, the

trust deeds in the four cases are identical. In a “definition”

section, each trust deed identifies the “Borrower,” “Lender”

and “Trustee” by name, and then sets out the following

definition of “MERS”:

“  ‘MERS’ is Mortgage Electronic Registration System,

Inc. 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.”

Cite as 353 Or 668 (2013) 681

In a section entitled “Transfer of Rights in the Property,” the

trust deed states:

“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, with power of sale, the

following described property *  *, [t]ogether with all the

*

improvements now or hereafter erected on the property, and

all easements, appurtenances, and fixtures now or hereafter

a part of the property. All replacements and additions

shall also be covered by this Security Instrument. All of

the foregoing is referred to in this Security Instrument as

the Property. 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.

(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

682 Brandrup v. ReconTrust Co.

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 federal district

court certified the questions set out above to this court. We

consider the questions in order.

II.  FIRST CERTIFIED QUESTION

“May an entity, such as MERS, that is neither a lender

nor successor to a lender, be a ‘beneficiary’ as that term is

used in the Oregon Trust Deed Act?”

This question is one of statutory construction, which

we approach using the methodology described in State v.

Gaines, 346 Or 160, 206 P3d 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

Cite as 353 Or 668 (2013) 683

intent remains obscure. Id. at 171-72. The pertinent text is

the definition of “beneficiary” that appears in ORS 86.705:

“As used in ORS 86.705 to 86.795 [that is, the Oregon

Trust Deed Act]:

“* * * * *

“(2)  ‘Beneficiary’ means a 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, and

who is not the trustee unless the beneficiary is qualified to

be a trustee under ORS 86.790(1)(d).” 3

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.”

3

We use the current version of the statute, which is numbered differently but

does not otherwise vary materially from the version in effect when the parties

signed the trust deeds. That version, ORS 86.705 (2005), provided:

“As used in ORS 86.705 - 86.795, unless the context requires otherwise;

“(1) ‘Beneficiary’ means 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, and who shall not be the trustee unless the beneficiary is

qualified to be a trustee under ORS 86.790(1)(d).”

(Differences in italics.)

684 Brandrup v. ReconTrust Co.

(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 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.”

We do not agree that plaintiffs’ reading removes the

phrase “named or otherwise designated as” from the statute.

As noted above, plaintiffs read the statutory definition as

providing that, in addition to being the person “for whose

benefit the trust deed is given,” the beneficiary must be

“named or otherwise designated” as such in the trust deed.

That reading uses all of the words of the statute. Indeed, we

find plaintiffs’ reading of the definition to be more compelling,

on a purely textual level, than defendants’. If defendant’s

reading were correct, then anyone—even a person with no

connection to or interest in the transaction at all—could be

designated in the agreement. If the legislature had intended

“beneficiary” to have the circular meaning that defendants

suggest—that “beneficiary” means whomever the trust deed

names as the “beneficiary”—it would have had no reason to

include any description of the beneficiary’s functional role

in the trust arrangement. The fact that the statute does

include such a description (“the person for whose benefit the

trust deed is given”) strongly suggests that the legislature

Cite as 353 Or 668 (2013) 685

intended to define “beneficiar[ies]” by their functional role,

not their designation. Stated differently, by including such

a functional description, it is apparent that the legislature

intended that the beneficiary of the trust deed be the person

to whom the obligation that the trust deed secures is owed.

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:

“Prior to the issuance and recording of a release [of the

lien upon performance of the obligation secured by the trust

deed], the title insurance company or insurance producer

shall give notice of the intention to record a release of trust

deed to the beneficiary of record and, if different, the party

to whom the full satisfaction was made.”

(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

686 Brandrup v. ReconTrust Co.

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 al., 216 Or 23, 38, 337 P2d 330 (1959) (“  ‘Conveyances

of lands *  * may be made by deed, signed by the person

*

* * * or by his lawful agent’ ”) (quoting former ORS 93.010));

Bowns v. Bowns, 184 Or 603, 613, 200 P2d 586 (1948) (estate

or interest in real property may be transferred by one’s

“ ‘lawful agent, under written authority’  (quoting former

”)

ORS 93.020)); Kern v. Hotaling, 27 Or 205, 207, 40 P 168

(1895) (note and mortgage executed to member of brokerage

firm as agent for principal).4 Defendants also point to the

“bedrock” principle that “contracts, when entered into freely

and voluntarily, shall be held sacred and shall be enforced

by courts,” unless contrary to some “overpowering rule

of public policy.” McDonnal and McDonnal, 293 Or 772,

779, 652 P2d 1247 (1982) (quoting Feves v. Feves, 198 Or

151, 159-60, 254 P2d 694 (1953)). Defendants assert that

proper consideration of those common law principles in

interpreting the trust deed statutes supports their reading

that ORS 86.735(1) allows someone other than an obligee

to be the “beneficiary,” either because the parties have

freely and voluntarily agreed to designate someone else as

the beneficiary or because the obligee has chosen to have

4

Defendants also cite a federal case, In re Cushman Bakery, 526 F2d 23, 30

(1st Cir 1975) cert den, 425 US 937 (1976) for the proposition that a lien may be

recorded in the name of a nominee.

Cite as 353 Or 668 (2013) 687

someone act as its agent or nominee. More specifically—

although the premise is implicit—the core of defendants’

“freedom of contract” argument appears to be that, although

MERS has no right to repayment of the notes in these

cases, it nevertheless may be designated by contract as the

beneficiary for other functions, in particular those functions

relating to the control of the foreclosure process.

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.

688 Brandrup v. ReconTrust Co.

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 to the grantor and others “do not affect

the duty of beneficiaries to provide information to grantors.”

And, significantly, it is the beneficiary alone who has

authority to appoint a successor trustee. ORS 86.790(3). In

sum, the integrated effect of those provisions presumes that

the collective rights and obligations that define beneficiary

status are functionally united; that is, the person entitled

to repayment of the secured obligation also controls the

foreclosure process.

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

Cite as 353 Or 668 (2013) 689

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).5 Here, the “beneficiary” to which

ORS 86.735(1) refers must be “the person for whose benefit

the trust deed [was] given,” that is (as discussed), the person

to whom the obligation that the trust deed secures is owed

or that person’s successor in interest. By the terms of the

trust deeds at issue in these cases, those persons are the

lenders (“[t]his Security Instrument secures to Lender:

(i) the repayment of the Loan”) or their successors. Unless

the lenders have transferred such interests to their agents or

nominees, the latter persons cannot become “beneficiaries”

for purposes of the OTDA.6 7

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.

5

The 2012 legislature significantly amended the OTDA. The quoted wording

from ORS 86.735(4) was one of the amendments. Or Laws 2012, ch 112, § 6.

6

We discuss defendants’ other arguments pertaining to the law of agency,

including their argument that MERS, as the lender’s “nominee,” may hold “legal

title” to the lender’s rights under the trust deed, in our answer to the fourth

certified question.

7

Defendants also argue that the legislative history of the OTDA supports

their interpretation of the statute and have included portions of the legislative

history in support of that claim. Defendants’ theory is that, insofar as the legislative

history discloses that the legislature’s general purpose in enacting the OTDA was

to provide a simpler and more economical method of foreclosure to attract more

lenders to Oregon, an interpretation that permits the parties to contractually

appoint a beneficiary would advance that purpose. We do not find the proffered

history, or defendants’ theory of its relevance, to be helpful, and do not discuss it

further.

690 Brandrup v. ReconTrust Co.

III.  SECOND CERTIFIED QUESTION

“Is MERS eligible to serve as beneficiary under the

Oregon Trust Deed Act where the trust deed provides that

MERS ‘holds only legal title to the interests granted by

Borrower in this Security Instrument, but, 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’?”

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.8 Finally, defendants point to wording in the trust

8

The MERS membership agreement is not in the record, but MERS asserts,

in its brief to this court, that the agreement provides that “MERS shall at all times

comply with the instruction of the beneficial owner of mortgage loans,” and that

it grants MERS authority to “execute important documents, foreclose and take all

other actions necessary to protect the interests of the noteholder.” Defendants also

note that other courts have determined, in cases in which the MERS membership

agreement was placed in the record, that the agreement spells out MERS’s duties

to its members in those terms. Neither defendants’ bare assertions nor the cases

Cite as 353 Or 668 (2013) 691

deeds that purports to authorize MERS to exercise all of the

lender’s rights under the trust deeds:

“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.”

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 eligble

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 one interest that an entity must have to qualify as

a beneficiary under ORS 86.705(2). As discussed above,

353 Or at 689, the beneficiary under that definition is the

person to whom the obligation that the trust deed secures

cited provide a basis for this court to determine what the agreements actually

provide in the cases before the district court.

692 Brandrup v. ReconTrust Co.

is owed. Unless the “law or custom” provision transforms

MERS into such an obligee, it cannot transform MERS into

the “beneficiary” of the trust deed.

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, 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:

“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.”

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

Cite as 353 Or 668 (2013) 693

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.9

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 all of those

*

interests,” does not convey to MERS the beneficial right to

repayment of the secured obligation, the inclusion of that

provision does not alter the trust deed’s designation of the

lender as the “beneficiary” or make MERS eligible to serve

in that capacity.

IV.  THIRD CERTIFIED QUESTION

“Does the transfer of a promissory note from the lender

to a successor result in an automatic assignment of the

securing trust deed that must be recorded prior to the

9

Moreover, the “law or custom” provision purports to delegate to MERS the

right “to exercise” any of the interests granted in the trust deed by the grantor;

it does not purport to actually convey those interests to MERS. Given that the

OTDA defines “beneficiary” in terms of an interest that the beneficiary has (the

right to payment that the trust deed secures), and not in terms of the interests

that the beneficiary does or may exercise, it is doubtful that conveying to MERS a

right “to exercise” the beneficiary’s interest could bring MERS within the statutory

definition.

694 Brandrup v. ReconTrust Co.

commencement of nonjudicial foreclosure proceedings

under ORS 86.735(1)?”

As we already have mentioned, 353 Or at 678-79,

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

Cite as 353 Or 668 (2013) 695

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

P2d 754 (1976) (“assignment of a debt carries with it the

security for the debt”); Willamette Col. & Credit Serv., 157

Or at 81-82 (using term “assignment” to refer to “mortgage

follows the note” principle); Barringer, 47 Or at 229 (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 OTDA was

enacted,10 and which pertains to the discharge of record of a

mortgage:

“(1)  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 *  * proving the

*

satisfaction of the mortgage, * * * that the owner and holder

is the owner and holder of the note, * * * and that the note

has been fully paid and proving that fact to the satisfaction

of the recording officer.”

10

We set out the current version of ORS 86.110(1), which differs from the

version that was in effect in 1959 when ORS 86.735(1) was adopted. The differences

are slight and are not relevant to our analysis here.

696 Brandrup v. ReconTrust Co.

(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.11 Because that alternative construction is at

least as plausible as defendants’ construction, we conclude

that ORS 86.110(1) is of little contextual help in our

interpretive endeavor.

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

11

Defendants contend that it is evident that the word “formal” in ORS

86.110(1) “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’ ”—and that, as such, it cannot signal a legislative

recognition of “assignment” by indorsement of a note as an alternative to “formal

assignment.” However, because ORS 86.060 was enacted after ORS 86.110,

defendants’ argument about the legislative intention behind the phrase “formal

assignment” is speculative.

Cite as 353 Or 668 (2013) 697

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),12 were enacted together in 1895, in

apparent response to pronouncements by this court in

Bamberger, 24 Or at 210-13, about the absence of any

provision in Oregon law for the recording of assignments of

mortgages. The first statute, ORS 86.060, provides:

“Mortgages 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 mortgages of the

county where the land is situated.”

The second statute, former ORS 86.070 (1959), provided:

“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.”

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. Loder observed that Mr. Barringer’s name

appeared in the record, and he argued, based on the two

12

Former ORS 86.070(1959) was repealed in 1965. Or Laws 1965, ch 252, § 1.

698 Brandrup v. ReconTrust Co.

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.

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. The court

then added:

“When it comes to the manner of recording the assignment,

the word ‘shall’ is used. Why use the word ‘may’ in one

section and ‘shall’ in the succeeding one? The relationship

indicates an intendment that there should be a distinction

in their application in practice. *  * Assignments in the

*

method designated 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 229-30 (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

Cite as 353 Or 668 (2013) 699

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 shall be recorded” required recordation only

of formal, written assignments. Barringer, 47 Or at 230;

former ORS 86.070 (1959). There is nothing to indicate

that, when it enacted ORS 86.735(1), the legislature did not

similarly intend for “assignments” of a trust deed to refer

only to formal, written assignments of the trust deed, not

transfers by indorsement of the underlying debt instrument.

By describing an “assignment of mortgage” as a written

instrument executed “with the same formality as required in

deeds,” ORS 86.060, and then, in the immediately following

section, requiring recordation of “[e]very assignment * * * at

full length,” former ORS 86.070 (1950), it is apparent that

the only “assignment” the 1959 legislature had in mind in

enacting ORS 86.735(1) was an assignment by a written

instrument. It follows that, for purposes of ORS 86.735(1),

“assignments of the trust deed” means written assignments

that are executed and acknowledged with such formalities,

not a post hoc memorialization of a transfer of the secured

obligation created solely for the purpose of recording. Thus,

the answer to the third certified question is “no.” ORS

86.735(1) does not require recordation of “assignments”

of the trust deed by operation of law that result from the

transfer of the secured obligation.

700 Brandrup v. ReconTrust Co.

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

Cite as 353 Or 668 (2013) 701

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.13

With that foundation in place, we turn to the fourth certified

question.

V.  FOURTH CERTIFIED QUESTION

“Does the Oregon Trust Deed Act allow MERS to

retain and transfer legal title to a trust deed as nominee

for the lender, after the note secured by the trust deed

is transferred from the lender to a successor or series of

successors?”

Plaintiffs assert:

“The OTDA does not allow MERS to retain or transfer

legal title to a trust deed after the promissory note is

transferred from the original lender to a successor. This is

because MERS has no legal title to the interests conveyed

under a trust deed and because once its principal has no

legal interests under a trust deed, it may not act on behalf

of that principal to do for itself what its principal could not

do. Even if it had some claim of legal title to the trust deed

document, that would make MERS nothing more than a

document custodian, not a beneficiary with rights to assign.

“In addition, even if the trust deeds could somehow be

construed to convey legal title to MERS, such a conveyance

would be expressly forbidden under the OTDA. As the only

interest granted by the Borrower in the security instrument

is a lien on the land as security for the repayment on the

obligation and that legal title is conveyed to the trustee

who holds it in trust for the beneficiary, there is simply no

interest for MERS to hold.”

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

13

Depending on whether MERS is an agent of the initial lender and its

successors in interest, one commentator has suggested that MERS can establish a

satisfactory chain of title “by recording a memorandum of the series of assignments

from itself as an agent of the original lender to itself as an agent of each successive

noteholder.” Dunne, 49 Willamette L Rev at 100-01. As explained in our answer

to the fourth certified question below, these cases do not furnish an opportunity

to decide whether such a course of action would effectively establish the ultimate

beneficiary’s identity and right to proceed with nonjudicial foreclosure.

702 Brandrup v. ReconTrust Co.

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:

“Does the Oregon Trust Deed Act allow MERS to

hold and transfer legal title to a trust deed as nominee

for the lender, after the note secured by the trust deed

is transferred from the lender to a successor or series of

successors?”

The second part of the question is:

“If the answer to the first part of the question is ‘no,’

does MERS nevertheless have authority as an agent for

the original lender and its successors in interest to act on

their behalves with respect to the nonjudicial foreclosure

process?”

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; Ukase Inv. Co. v. Smith, 92

Cite as 353 Or 668 (2013) 703

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

by one person, the trustee, while another person, the cestui

que trust [the beneficiary], has the beneficial interest.’ ”

Morse et al. v. Paulson et al., 182 Or 111, 117, 186 P2d 394

(1947) (quoting Allen v. Hendrick, 104 Or 202, 223, 206

P 733 (1922)) (emphasis added). ORS 86.705(7) provides that

a trust deed is “a deed * * * 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.” Under the OTDA, therefore, it

is logical to conclude that the trustee holds legal title to the

lien conveyed by the trust deed and the beneficiary holds

equitable title to that lien. It follows that, because MERS is

neither the trustee nor the beneficiary, it holds no interest at

all in the lien conveyed by the trust deed.

Relying on this court’s decision in Klamath Irrigation

District v. United States, 348 Or 15, 227 P3d 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

704 Brandrup v. ReconTrust Co.

whose benefit the irrigation districts held water rights. Id.

at 43-44.

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. 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. Accordingly, we conclude that the OTDA does

not allow MERS to hold or transfer legal title to a trust

Cite as 353 Or 668 (2013) 705

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.

That conclusion brings us to defendants’ and

MERS’s alternative argument that MERS has authority

as an agent of the original beneficiary and any successor

beneficiaries of the subject trust deeds to take any steps

that are required or convenient to carry out the nonjudicial

foreclosure process. The accuracy of that assertion depends

on whether MERS qualifies as an agent of those entities for

purposes of Oregon law. See Restatement (Third) of Agency

§ 1.02 (2006) (“Whether a relationship is characterized as

agency in an agreement between parties or in the context

of industry or popular usage is not controlling.”). This court

has defined agency in the following terms: “[T]o be an

‘agent’—using the well-defined legal meaning of that term—

two requirements must be met: (1) the individual must be

subject to another’s control; and (2) the individual must ‘act

on behalf of’ the other person.” Vaughn v. First Transit, Inc.,

346 Or 128, 136, 206 P3d 181 (2009).

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:

“MERS was at best the agent of the lender. The only

recorded document provides notice that [Lender] is the

lender and, therefore, MERS’s principal. MERS asserts

[Lender] is not its principal. Yet no other lender recorded

706 Brandrup v. ReconTrust Co.

its interest as an assignee of [Lender]. Permitting an agent

such as MERS purports to be to step in and act without a

recorded lender directing its action would wreak havoc on

notice in this state.”

Mortgage Electronic Registration System, Inc., v. Southwest

Homes of Arkansas, 2009 Ark 152, 301 SW3d 1, 8 (2009).14

The Supreme Court of Washington recently reached a

similar conclusion:

“MERS attempts to sidestep this portion of traditional

agency law by pointing to the language in the deeds of

trust that describe MERS ‘as acting solely as a nominee

for Lender and Lender’s successors and assigns.’ *  * But

*

MERS offers no authority for the implicit proposition that

the lender’s nomination of MERS as a nominee rises to an

agency relationship with successive noteholders.”

Bain v. Metropolitan Mortg. Group, Inc., 175 Wash 2d 83,

107, 285 P3d 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

14

Under the Arkansas statute, “beneficiary” means “the person named or

otherwise designated in a deed of trust as the person for whose benefit a deed of

trust is given or his successor in interest” Ark. Code Ann. § 18-50-101(1) (2010).

Cite as 353 Or 668 (2013) 707

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 respective securitized trusts of

which BNYM acts as Trustee.”

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);

ORS 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.15

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 P2d 683, 694

(1995) (quoting Ruddy v. Ore. Auto. Credit Corp., 179 Or 688,

702, 174 P2d 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 (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,

15

In their arguments to this court, defendants at times refer to MERS as

lender’s “agent,” and at other times as lender’s “nominee” (the status MERS is

accorded in the trust deeds). Although the distinction is far from clear, there is

some basis for concluding that the authority of a nominee vis-à-vis its principal

can be more limited than that of an ordinary agent. In that regard, we observe

that Black’s Law Dictionary defines a “nominee,” as “2. A person designated to act

in place of another, usu. in a very limited way[;] 3. A party who holds bare legal

title for the benefit of others or who receives and distributes funds for the benefit of

others.” Black’s Law Dictionary 1076 (8th ed 2004). It may be, however, that MERS

and its members understood the word as a synonym for “agent.” The record before

us does not illuminate that issue.

708 Brandrup v. ReconTrust Co.

“[w]hen MERS executes an assignment of the trust deed,

it is doing so as nominee agent of the then-note owner.

Plaintiffs and amicus OTLA wrongly view MERS as acting

on behalf of the former principal, the original lender.

Agency principles permit MERS to serve as a common

agent of the original lender and all successors and assigns,

and all parties to the trust deed—including the borrower—

acknowledge that MERS will do this. Accordingly, when

MERS executes a written assignment of ‘all beneficial

interest under that certain Deed of Trust[,]’ it is acting

on behalf of the current owner of equitable title to the

beneficial interests under the trust.”

Similarly, amicus Oregon Land Title Association asserts:

“Finally, as to the answer on the fourth certified question,

MERS has authority to retain and transfer legal title to a

trust deed after a transfer of the underlying promissory

note as long as the lender’s successors and assigns also are

members of MERS. In such circumstances, the lender’s

successors and assigns have given MERS the requisite

authority to act on their behalf. Thus, as long as MERS

remains constant as a nominee holding legal title to the

trust deed for the lender and any successors or assigns,

MERS has authority to transfer legal title to the trust

deed.”

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.16 Those propositions notwithstanding,

the difficulty is that, on the record before us, it is unclear

whether such a broad common agency relationship exists in

these cases among MERS and the original lenders and their

16

See In re Tucker, 441 BR 638, 646 (Bankr. WD Mo 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 Services, LLC, 2011 WL 841282 at 4 (D Mass 2011)

(“dissolution of [lender] would not and could 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, 861 NE2d 81, 83 (NY 2006)

(“Members contractually agree to appoint MERS to act as their common agent on

all mortgages they register in the MERS system.”); 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).

Cite as 353 Or 668 (2013) 709

successors in interest. The trust deeds, by themselves, do not

establish the necessary relationship; they instead confuse

the issue by first granting MERS the seemingly-narrow

status of a “nominee” and then purporting to grant MERS

authority to “exercise” other “interests” if “necessary.” More

importantly, although the trust deeds are signed by the

borrowers, the original lenders and their successors, who

are the other parties under defendants’ theory of “common

agency,” are not signatories. Accordingly, the answer to

the second part of the fourth question depends, in large

measure, on evidence with respect to who ultimately holds

the relevant interests in the notes and trust deeds, and

whether that person and each of its predecessors in interest

conferred authority on MERS to act on their behalves in the

necessary respects. And that evidence is not present in the

record before us.

The answers to the two parts of the fourth certified

question thus may be stated in the following terms:

(4)(a)  “Does the Oregon Trust Deed Act allow MERS to

hold and transfer legal title to a trust deed as nominee

for the lender, after the note secured by the trust deed

is transferred from the lender to a successor or series of

successors?”

Answer:  “No.” For purposes of the OTDA, the only

pertinent interests in the trust deed are the beneficial

interest of the beneficiary and the legal interest of the

trustee. MERS holds neither of those interests in these

cases, and therefore, it cannot hold or transfer legal title to

the trust deed. For purposes of our answer to the first part

of the fourth certified question, it is immaterial whether

the note secured by the trust deed has previously been

“transferred from the lender to a successor or series of

successors.”

(4)(b)  “Does MERS nevertheless have authority as an

agent for the original lender and its successors in interest

to act on their behalves with respect to the nonjudicial

foreclosure process?”

Answer:  The power to transfer the beneficial interest in a

trust deed or to foreclose it follows the beneficial interest in

710 Brandrup v. ReconTrust Co.

the trust deed. The beneficiary or its successor in interest

holds those rights. MERS’s authority, if any, to perform any

act in the foreclosure process therefore must derive from

the original beneficiary and its successors in interest. We

are unable to determine the existence, scope, or extent of

any such authority on the record before us.

Certified questions answered.

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.1

Bart and Jessica Brandrup executed a trust deed on

their property to secure a debt evidenced by a note that they

gave their lender, America’s Wholesale Lender. In their trust

deed, the Brandrups designated MERS “acting solely as a

nominee for Lender and Lender’s successors and assigns” as

the “beneficiary under this Security Instrument.” The issue

that the first two certified questions pose is whether state law

required the Brandrups to designate America’s Wholesale

Lender as the beneficiary rather than MERS acting as the

nominee or agent for the lender and its successors.2

1

In referring to the lender’s successors, I am referring to those successors in

interest that are entitled to enforce the obligation that the trust deed secures.

2

As the majority notes, a nominee is a limited agent. See 353 Or at 707 n 15.

Cite as 353 Or 668 (2013) 711

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

obligation3 and, in a definitional section, provides that

“ ‘[b]eneficiary’ means a person named or otherwise

designated in a trust deed as the person for whose benefit

a trust deed is given, or the person’s successor in interest

* * *.” Id. As the majority observes, a trust deed secures an

obligation, frequently evidenced by a promissory note, and

the lender and its successors are the persons for whose

benefit the trust deed is given; that is, the trust deed is

given to secure the obligation that the grantor of the trust

deed owes the lender. That much is unexceptional.

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, Apr 16,

1959, at 1. It is difficult to derive from that history any

3

Essentially, a trust deed is a mortgage with the power of sale. A trust deed

differs from a mortgage primarily in that it conveys an interest in real property to

a trustee to secure an obligation owed the beneficiary, see ORS 86.705(7), and, in

the event of the grantor’s default, authorizes the trustee to conduct a nonjudicial

foreclosure sale on behalf of the beneficiary, see ORS 86.710.

712 Brandrup v. ReconTrust Co.

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 enforce the mortgage on behalf of

the lender and its successors.

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.4

4

The terms of the trust deed could be much clearer about the role that MERS

plays. However, defendant argues that, under the terms of the trust deed, MERS

Cite as 353 Or 668 (2013) 713

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.

serves as the agent for the lender and its successors, and the terms of the trust

deed permit that understanding.