The Wrong Remedy at the Wrong Time, Part 2

The Wrong Remedy at the Wrong Time, Part 2

By Daniel Edstrom
DTC Systems, Inc.

New Note added on 1/22/2012 thanks to Simonee.  California Probate Code does not seem to apply based on this California Supreme Court decision: Monterey S.P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454 , 261 Cal.Rptr. 587; 777 P.2d 623 (download here: http://dtc-systems.net/wp-content/uploads/2012/01/Monterey_SP_Partnership_vs_WL_Bangham.pdf)

This is a continuation from The Wrong Remedy at the Wrong Time, Part 1 (http://dtc-systems.net/2011/01/wrong-remedy-wrong-time-part-1/).

It turns out that if you want to modify the Trust created by your Deed of Trust, or if you want to determine if the trust exists, you need to petition the court under California Probate Code 17200.  If you are not in California, but are in a Deed of Trust state, your state probably has similar probate laws.

In order to petition the court, California Probate Code 17200 has the following provision:

“(a) Except as provided in Section 15800, a trustee or beneficiary of a trust may petition the court under this chapter concerning the internal affairs of the trust or to determine the existence of the trust.”

Right off the bat we find that only a trustee or a beneficiary has the ability to petition the court under 17200.  If no trustee is specified, the default trustee is the trustor (the parties that executed the note – i.e. the homeowners).  The beneficiaries can easily substitute in a new trustee if that occurs.  But what if Mortgage Electronic Registration Systems (MERS) is named as the beneficiary?  Consider California Mortgage and Deed of Trust Practice § 1.39 (3d ed Cal CEB 2008) § 1.39 (1) the Beneficiary Must Be Obligee:  The beneficiary must be an obligee of the secured obligation (usually the payee of a note), because otherwise the deed of trust in its favor is meaningless. Watkins v Bryant (1891) 91 C 492, 27 P 775; Nagle v Macy (1858) 9 C 426. See §§ 1.8-1.19 on the need for an obligation. The deed of trust is merely an incident of the obligation and has no existence apart from it. Goodfellow v Goodfellow (1933) 219 C 548, 27 P2d 898; Adler v Sargent (1895) 109 C 42, 41 P 799; Turner v Gosden (1932) 121 CA 20, 8 P2d 505. The holder of the note, however, can enforce the deed of trust whether or not named as beneficiary or mortgagee. CC § 2936; see § 1.23.

First of all, the named payee is not the obligee of the note as they have no pecuniary interest in the note.  If you don’t understand that argument, consider that the transaction is table funded, which means an undisclosed and unnamed source provided the funds, as well as the fact that under Regulation “Z” the presumption is that a table funded loan is predatory.  The money advanced by this “creditor” was already secured to them, and this “secured party” superseded the payee of the note (ab initio).  Anyway, MERS has no pecuniary interest in the note, is not entitled to payments, paid no consideration and does not have the power to enforce the trust (the trust created by the Deed of Trust).  Further, it is very likely that MERS was not registered to do business at the time the original note was executed and probably was not registered to do business in the state when any assignment was executed.  It is also highly probable that MERS has not paid any taxes that may be owed for business it did conduct in the state while it was not authorized to do business.  Because of these reasons and more, MERS cannot be the beneficiary of the Deed of Trust.  Should the beneficiary be invalid, I have been told by numerous sources that the trustor is the remainder beneficary.

Regardless of whether or not MERS is named as the beneficiary, once the note is sold, the rights of the originally named lender are extinguished.  For loans where the lender is named the beneficiary, at this point the status of the beneficiary is in question.  It is my opinion that the original lender can no longer be the beneficiary once their rights have been extinguished and they have been paid in full.  This is a classic fatal flaw in securitization where the loan is sold and the recorders office isn’t updated with an assignment executed by the assignor.

So again, if the beneficiary is invalid (for whatever reason), the trustor (homeowner) is the remainder beneficiary.  As the remainder beneficiary, the homeowner can petition the probate court.  I have discussed a few reasons, but let’s look at Probate Code 17200 to find other (with the important ones highlighted).

(b) Proceedings concerning the internal affairs of a trust include, but are not limited to, proceedings for any of the following purposes:

   (1) Determining questions of construction of a trust instrument.

   (2) Determining the existence or nonexistence of any immunity, power, privilege, duty, or right.

   (3) Determining the validity of a trust provision.

   (4) Ascertaining beneficiaries and determining to whom property shall pass or be delivered upon final or partial termination of the trust, to the extent the determination is not made by the trust instrument.

   (5) Settling the accounts and passing upon the acts of the trustee, including the exercise of discretionary powers.

   (6) Instructing the trustee.

   (7) Compelling the trustee to report information about the trust or account to the beneficiary, if (A) the trustee has failed to submit a requested report or account within 60 days after written request of the beneficiary and (B) no report or account has been made within six months preceding the request.

   (8) Granting powers to the trustee.

   (9) Fixing or allowing payment of the trustee’s compensation or reviewing the reasonableness of the trustee’s compensation.

   (10) Appointing or removing a trustee.

   (11) Accepting the resignation of a trustee.

   (12) Compelling redress of a breach of the trust by any available remedy.

   (13) Approving or directing the modification or termination of the trust.

   (14) Approving or directing the combination or division of trusts.

   (15) Amending or conforming the trust instrument in the manner required to qualify a decedent’s estate for the charitable estate tax deduction under federal law, including the addition of mandatory governing instrument requirements for a charitable remainder trust as required by final regulations and rulings of the United States Internal Revenue Service.

   (16) Authorizing or directing transfer of a trust or trust property to or from another jurisdiction.

   (17) Directing transfer of a testamentary trust subject to continuing court jurisdiction from one county to another.

   (18) Approving removal of a testamentary trust from continuing court jurisdiction.

   (19) Reforming or excusing compliance with the governing instrument of an organization pursuant to Section 16105.

   (20) Determining the liability of the trust for any debts of a deceased settlor. However, nothing in this paragraph shall provide standing to bring an action concerning the internal affairs of the trust to a person whose only claim to the assets of the decedent is as a creditor.

   (21) Determining petitions filed pursuant to Section 15687 and reviewing the reasonableness of compensation for legal services authorized under that section. In determining the reasonableness of compensation under this paragraph, the court may consider, together with all other relevant circumstances, whether prior approval was obtained pursuant to Section 15687.

So, we can ask the court questions like:

Is MERS a valid beneficiary?

Is the named lender a valid beneficiary?

Am I the beneficiary?

Is the trustee valid?

Am I the trustee?

Was a lawful substition of trustee accomplished?

Does the trust document (Deed of Trust) need to be followed punctiliously?

The original trustee was never lawfully substituted and the original trustee has disappeared or otherwise failed to respond, allow the trustor to be the trustee or appoint a new trustee.

I would like to modify the trust to change ______________ for the following reasons _____________________.

It may be possible to request a TRO until the court rules on these issues. 

This is newly discovered information (for me), so it would be prudent to get the advice of an attorney who practices in this area and who has an understanding of securitization and foreclosure in this new era.

Author: dmedstrom

Reverse Engineering and Failure Analysis - Reverse Engineering Wall Street

14 thoughts on “The Wrong Remedy at the Wrong Time, Part 2”

  1. I appreciated this article and thought it was well-written and easy to comprehend. What’s the point of writing if you’re writing over your
    audience’s head?
    People are now working on elements which are actually relevant and grounded in ‘real’ law. Is it time for good minds to look at the laws of agency, as well as intent in the formation of a contract? I’m thinking Mers’ member contracts. Mers consciously avoided the word “agent” tho it’s been around a long time. They did not intend to be an ‘agent’, as they are now calling themselves in a hopefully mistaken belief the coast is clear. And whether or not a nominee is allowed in a deed of trust specifically, in my opinion has not been resolved. A deed of trust is a unique instrument.
    I say this knowing the deed of trust refers to them both as
    nominee and beneficiary. Dang, Mers (and ABC lender), which did ya’ all mean? You must’ve meant nominee since Mers cannot be the beneficiary. Even if Mers were the nominee (arguendo) for the company whose name appears on the deed of trust, there is no evidence of its authority to act for any one subsequenty, regardless of the “its successors and or assigns” recitation.
    Mers is toast when the beneficial interest in a note belongs to a non-Mers member, such as those “trusts”. See Hultman declaration, dkt no. 74-1 in NV District Court, No. 09-16226. By its own rules, Mers is compelled to record an assignment of the deed of trust in the land records when the beneficial interest in the note leaves a Mers member. Dang again! I guess they forgot about this. Okay, so we know they didn’t and aren’t. By the way, didn’t the homeowner have a need to know about this provision?
    As to beneficiary, they’re not an intended 3rd party beneficiary, which at any rate is not legislated for deeds of trust., as they are by definition three party instruments, not four. They’re not an incidental beneficiary, either, as they have the right to nothing.

    Mers isn’t licensed ,that’s true, but I just dont know that as a matter of law this invalidates their status as nominee or w/e for that reason . It shouldn’t make them popular with a court, however. And as I have understood it, courts generally frown on straw men, at least once they get it.

  2. If not licensed, then not protected as standing to sue or be sued, it means that default can be taken from them at any time as they are not allowed to defend themselves unless they pay the piper

    just my opinion-consult an attorney or look at prior legal authorities if you are a pro-per

    1. Wrong! The unfortunate remedy for non-registration in NV, anyway, is to stay the proceeding and allow the offender to get its registration
      act together. I think this is a crock, but there you have it.

  3. Hmmm. I don’t know about this, but I am not a CA attorney. In many (if not most) states, the statutes provide that deeds of trust are in the nature of a contract, and are governed by contract rules. Also, one of the well known cases (MERS v Southwest or Kesler) states that a trustee under a deed of trust is not a true trustee. What I am getting at is that I am quite skeptical at this point that DOTs in CA will end up being governed by the probate code. I have not seen what Deutsche did in the CA state court, but just from looking at it it appears that trust law with respect to DOTs is not gonna have much application.

      1. I believe what you both are saying is that no trust is created by a Deed of Trust OR that the Probate court does not have jurisdiction over the internal affairs of any trust that is created by a Deed of Trust.

        The definition (from my other reply) is in part:

        a deed conveying real property in trust

        That would seem to create a trust, so I would assume you mean that the Probate Court would not have jurisdiction over this type of trust. That could be. Where does the trust exist and where is it managed?

        -Dan

    1. Gregory,
      I am not an attorney at all, but I must disagree with your statements. This doesn’t mean I am right of course. Here is a quote from Landmark vs. Kessler (I believe you were quoting Landmark vs. Kessler and/or MERS vs. Southwest Homes):

      Further, under Arkansas foreclosure law, a deed of trust is defined as “a deed conveying real property in trust to secure the performance of an obligation of the grantor or any other person named in the deed to a beneficiary and conferring upon the trustee a power of sale for breach of an obligation of the grantor contained in the deed of trust.” Ark. Code Ann. § 18-50-101(2) (Repl. 2003). Thus, under the statutes, and under the common law noted above, a deed of trust grants to the trustee the powers MERS purports to hold. Those powers were held by East as trustee. Those powers were not conveyed to MERS.

      So yet, the power of the trustee is limited, but that wouldn’t necessarily mean that a trust wasn’t created. Remember – I am not bringing up the trustee’s fiduciary duty (well maybe I might have, but if I did it was a very minor part of the entire article, and certainly not dependent on it).

      The quote says “in trust” … I am talking about the establishment of a trust. Was a trust created or not? Was the intention to create a trust? These are answers that the California Probate Court can provide. It may turn out that it is not to my liking, but either way it sure seems to me that we have an established trust.

      On a side note, remember that in securitization the trustee’s duties of a securitized trust are very restricted also. This doesn’t mean a trust was not created. Although there are numerous reasons why the securitized trusts may not have been created (failure to convey assets to the trust, failure of the settlor to give up control of the assets, etc).

      – Dan

      1. No, no, no, no! A deed of trust is a special animal, kind of like a special investment vehicle, in that it was formulated for a single purpose. .
        Agents per se can’t perform foreclosures statutorily. Mers does NOT allege to be the trustee, ever. Mers’ racket is entirely different.

        A deed of trust is a three party instrument by definition – the grantor,
        grantee (by any other names), and the trustee. It is the trustee who may hold naked, or bare legal, title to the property which is the subject of the deed of trust. In many states, nothing is actually passed to the trustee, depending on whether the state is a title theory or lien theory state.
        The trustee’s interest is limited to his duty to the terms of the deed of
        trust. There are no other rights conferred on the trustee.

        The beneficiary holds nothing in regard to ‘title. So exactly to WHAT it is that Mers alleges it holds title? (Those are the words Mers has used) Mers attempts to create a 3rd estate which does not exist as a matter of law. I don’t know that a nominee of the beneficiary would be prohibited by the intent in the formulation of the deed of trust as a (collateral )instrument. I canNOT find legiislative / committee notes.

        It is the trustee and the trustee only who is statutorily empowered to garner the collateral in the event of default for the owner of the note. This is the essence of how a deed of trust differs from a ‘mortgage’ (the doc prior to the implementation of the deed of trust and still used in some states), and with the deed of trust and hence the ‘trustee’, we saw the advent of the non-judicial foreclosure.

        A trustee may act as an agent for the beneficiary, perhaps,(and this is a BIG perhaps) but an ‘agent’ may NOT act as trustee unless he has been properly (hugely key word) appointed as trustee of record. I can’t see how one describing himself as Party A’s ‘agent’ can also allege to be a fiduciary to Party B. My own feeling is the trustee has dual fiduciary, as that is what i was always taught..
        Case law is very scant on the fiduciary of the trustee. A District
        of Columbia decision – with other cites – recognized the’ long-standing” tenet that a trustee has a dual fiduciary, while a 9th circuit case says the trustee’s fiduciary is limited to the beneficiary, a proposition I find absurd.

        Some trustees are in fact alleging to be the agent of the Pretend Lenders.
        And so does Mers in some cases. And speaking of agents, Mers is not an agent, altho it is now using that convenient word in this case or that. Had it been their intent to be “agent”, they would have expressed that intent. Their allegedly-tacit-“implied” agency can NOT be found in their contractual intent. They did not want the liability or to deal with the laws of agency.
        Mers’ membership agreement calls for indemnification to Mers for any ‘trouble’ caused by its members. This would be much more difficult to enforce if Mers were that members ‘agent’.

        Regardless, there is no ‘room’ in a deed of trust for an agent in the first place. No court has addressed whether there is ‘room’ in this three-party instrument for a ‘nominee’, either, that I know of.

        An agent is one who owes a fiduciary to at least one party. ‘Agent’
        in the context of a deed of trust and foreclosure proceedings is actually an adjective, if that.
        According to case law, what makes a trustee also an agent is the amount of control which the beneficiary has over the trustee – perhaps any control makes a trustee an agent. But, this case law is only applicable to ‘regular’ trustees and has not encompassed dot trustees to my knowledge.

        Mers cannot be a trustee as a matter of law unless is it properly
        and EXPRESSLY appointed as such. Mers could have been expressly appointed as trustee in the deeds of trust: it wasn’t – someone else always was. Mers could be appointed substitute trustee, but that is not its function. Mers is NOT a trustee.

        1. John,
          I appreciate your comments but I didn’t say MERS was a trustee, I was quoting from a case. They are saying that MERS is claiming rights that belong to the trustee.

          -Dan

      2. Dan, you is so right about what the court said. I got stoned and missed it. I’m aware ,like the rest of the country of the Kessler case, but appar., I didn’t read the darn thing. I did NOT know the court said Mers was trying to do the trustee’s job. That’s huge (especially it’s impossible for them to do for the reason’s I tried to cite.)!!
        Thanks!

  4. Re: ‘Mers tries to create a 3rd estate’ in my last comment. This would have been more comprehensible had I included the fact that there are only two ‘titles’ to real estate: legal and equitable. That’s it.
    There are no more. In Nevada, for instance, which is a lien theory
    state I believe, the homeowner has legal title while the deed of trust trustee retains an equitable interest in the property until the loan is paid off. In’ title’ states, the opposite is true. So when Mers says they have’ title to the interests created in the deed of trust,’ (in any state), I canNOT figure out what it is they think they mean. No one has challenged them on ‘head-on’ that I have seen.

  5. And I said that wrong. Sorry. “…nothng is actualy passed to the trustee…”
    Yes, something is – either equitable or legal title.

  6. Ooops. I did it again. Mers could not be substitute trustee because of its relationship with the true beneficiary as ‘nominee’ or calling ITSELF beneficiary or whatever Mers is claiming these days. Because it claims an interest in the dot, Mers could not be a trustee.

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