Idaho Takes a Big Bite Out of MERS
By Daniel Edstrom
DTC Systems, Inc.
Idaho takes a big bite out of MERS in this ruling. Summary judgment for the homeowner is granted, summary judgment for the MetLife Home Loans is denied. Check out this (rather long) excerpt:
B. Defendant Lacks Statutory Authority to Maintain a Non-Judicial Foreclosure Under I.C. 45-1505(1) the trustee may foreclose a trust deed if “The trust deed, any assignments of the trust deed by … the beneficiary … are recorded in mortgage records in counties in which the property described in the deed is situated”. The only recorded assignment of the trust deed is by Mortgage Electronic Registration Systems, Inc. (MERS) to MetLife Bank, N.A. dated February 23, 2009. That document purports to transfer all beneficial interest MERS had to MetLife.
In order to comply with I.C. 45-1505(1) then, MERS must have been the beneficiary of the trust deed and must have had a beneficial interest to transfer. The definition of beneficiary under I.C. 45-1502(1) is “the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or his successor in interest, and who shall not be the trustee”. While Idaho’s statute allows a designated beneficiary, and MERS is given the title “beneficiary” under the deed of trust, in no way is it the party whose benefit the trust deed is given. This is because the lender is retaining all the hallmarks of the beneficiary and the language in the deed limits what MERS is. This interpretation of I.C. 45-1502(1) is similar to that of a federal district court’s interpretation of ORS 86.705(1), an Oregon statute nearly identical to I.C. 45-1502(1), when applying identical MERS language in a deed of trust. Hooker v. Northwest Trustee Services, Inc., 2011 WL 2119103 (D.Or. May 25, 2011). In one case in an Idaho District bankruptcy court, counsel for MFRS has conceded that it is not an “economic beneficiary” as it will receive no value from the foreclosed property or collect money under the note. In re Sheridan, No. 08-20381-TLM (Bkrtcy.D.Idaho March 12, 2009).
Under that concession, it is difficult to see any benefit that MERS receives from the deed of trust. Pursuant to I.C. 45-1502(1), the real beneficiary under this deed of trust is the lender, First Horizon Home Loans, a Division of First Tennessee Bank N.A. (First
Horizon) and any of its assigns.The specific language of the deed of trust states that MERS holds only the legal title in the deed of trust, not the equitable title. This language clearly states that MERS has no beneficial interest in the deed of trust. There is also nothing in the deed of trust to
suggest that MERS has authority to transfer the Note. In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009). As such, the only interest MERS was capable of assigning was its legal interest in the deed of trust. This is the only interest that MERS was capable of assigning when it recorded the February 23, 2009 Assignment of Deed of Trust. While this may be sufficient to allow for non-judicial foreclosure in some states, under Idaho law the assignment of the beneficial interest, or equitable title, in the deed of trust must be recorded prior to initiating a non-judicial foreclosure. Once again this same conclusion was reached by a federal district court when applying ORS 86.735(1), an Oregon statute nearly identical to I.C. 45-1505(1). Hooker, 2011 WL 2119103 at *3.This interpretation of the statute is also in line with the longstanding rule that the security follows the note. Hooker, 2011 WL 2119103 at *4 citing: Carpenter v. Longan, 83 U.S. 271, 274 (1872). Transferring the security without the note is a legal nullity. Id. If the defendant’s interpretation of MERS’s abilities was correct, MERS would be able to transfer the deed of trust to an infinite number of parties without any public record. However, these transfers, absent a simultaneous transfer of the note, result in nothing more than an infinite number of legal nullities under federal and Idaho law. Id; 1.C. 45-1505(1). The language in the deed of trust regarding MERS does not expressly, or implicitly, grant MERS that authority to transfer any interest in the note. In re Wilhelm, 40713.R. 392 (Bankr. D. Idaho 2009). So even if MERS was capable of transferring a beneficial interest in the deed of trust, a legal nullity would arise. It appears that MetLife is now the holder of the note. However, MetLife conceded it could not prove the date of the transfer.
The defendant has cited case law from different jurisdictions that have reached varying conclusions. In Gomes v. Countrywide Home Loans, Inc., 192 Cal.App.4hh1 1149 (Cal.App. 2011), a court found that MERS had authority to foreclose on behalf of the note holder because of the authority granted to it under the Deed of Trust. While the language in that Deed of Trust is identical to the language found in the current Deed of Trust, the issues are very different. Rather the current issue is similar to that found in Doble, a California Bankruptcy case that distinguished Gomes. In re Doble, No. 10-11296-MM13 (Bkrtcy.S.D.Cal. April 14, 2011). In Doble that court found MERS had no statutory authority to assign the beneficial interest of the deed of trust under identical deed of trust language. Id.
This court is not deciding whether MERS does, or does not, have the authority to foreclose on behalf of the note holder. Rather this court must determine whether a beneficiary, as defined under Idaho law, has the ability to foreclose prior to recording its beneficial interest in the property. Hypothetically, assuming this court was to adopt the Gomes interpretation of MERS authority, MetLife would have been able to foreclose on the property on the behalf of First Horizon, as MERS was capable of assigning its nominee status to MetLife. Yet under Idaho law, MetLife would be unable to foreclose on its own behalf until its beneficial interest was recorded in Minidoka County. As this is not the present issue, Gomes is inapplicable in this situation.
Another case cited by the defense is a federal district court decision applying Utah law, Fowler v. Recontrust Company, N.A., 2011 WL 839863 (D. Utah March 10, 2011). In that decision, the court found that in applying Utah law, identical Deed of Trust language made MERS the beneficiary, and as such, MERS was able to transfer that beneficial interest to another bank. Id. Fowler highlights the struggle of the courts over MERS. Utah courts looking at the same trust deed language have come to the opposite conclusion of this court and the cases cited in this order. This court finds the reasoning in Wilhehn, Hooker, Doble, and Sheridan more persuasive. In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009); Hooker v. Northwest Trustee Services, Inc., 2011 WL 2119103 (D.Or. May 25, 2011); In re Doble, No. 10-11296-MM13 (Bkrtcy.S.D.CaI. April 14, 2011); In re Sheridan, No. 08-20381-TLM (Bkrtcy.D.Idaho March 12, 2009). An important reason is the conflicting language in the deed of trust injecting MERS into the transaction. Essentially MERS wants to limit its status on one hand but gain all the rights of a beneficiary or the lender if something goes wrong on the other. There is no good reason to allow MERS to define itself in a conflicting manner to the detriment of the grantor of the deed of trust, or potentially to the lender, or in derogation of the Idaho statute.
Additionally, neither party argued the Statute of Frauds. However, to be an agent for the purposes of a transfer of real property, the authority of the agent must be in writing. 1.C. §9-505(4). The ambiguous language as to MERS in the deed of trust poses a problem on this issue. Nothing in the deed of trust suggests MERS itself has the authority to sell or assign the beneficial interest. Thus, it is not clear how MERS could purport to transfer First Horizon’s beneficial interest in the deed of trust to MetLife.
There is also nothing in the record showing how MERS’s actions were necessary to comply with law or custom, as the language in the deed of trust describes. Commercial convenience does not equal necessity, and the law in Idaho can be followed. In re Salazar, 448 B.R. 814, 824 (Bankr. S.D. Cal. 2011). A bit of work by First Horizon does not make the transaction impossible. As there is no recorded assignment from First Horizon, the lender under the deed of trust that holds the beneficial interest, to the defendant, Met Life Home Loans, a division of Met Life Bank, N.A. (MetLife), the defendant lacks statutory authority to proceed with a non-judicial foreclosure at this time.
Download the Ruling Here: http://dtc-systems.net/wp-content/uploads/2012/01/Ralph_v_MetLife_and_MERS2.pdf
