Oregon Supreme Court in Niday Case

Here’s an excerpt of a great summary of the Niday case, from HouseKeeping Report.  Go to the site and read the whole thing; it is worth your time:

Niday Gets Interesting

Up to this point, the opinion is little more than a recap of Brandrup. The court makes simple work of showing that MERS is not the beneficiary but that there is no evidence that Defendants violated the OTDA’s recording requirement. But then things get interesting.

If you read Part One: Breaking Down Brandrup, you may recall the court’s warning to lenders that, if they choose not to record a complete chain of assignments, the resulting information gaps will leave lenders “vulnerable to challenges that may force them to judicially establish their interests and authority to act”. Niday exemplifies how courts must proceed when a grantor challenges a nonjudicial foreclosure in Oregon. That process bears little resemblance to how some courts have disposed of contested foreclosures…until now.

The trial court erred in Niday not because there were unrecorded assignments, but because there was another issue of material fact that remained in dispute, making summary judgment inappropriate. The contested fact? Whether any defendant “possessed a qualifying legal interest in the trust deed or note that would allow them to initiate foreclosure under the OTDA.”

Why does that issue arise at all? Because Niday alleged that she received a Notice of Sale that identified MERS as beneficiary, MERS was not the beneficiary, and she had “no knowledge or information as to whether or how any of defendants had acquired any legal rights in the note and trust deed.” Since there were no publicly recorded assignments to provide clarity, it was impossible for Niday to identify the true beneficiary of her trust deed.

Recall that in Brandrup, the court expressly held that “a notice of sale must include the name of the ‘beneficiary’.” The court also found that “the OTDA is laced with provisions that indicate that the grantor is entitled to know the identity of the beneficiary,” and together “those provisions all assume that the true beneficiary must be identifiable.”

In Niday, the notice of sale did not include the name of the true beneficiary and nothing in the record established that person’s identity—i.e., the identity of the successor-in-interest to Greenpoint who held the right to enforce the note and trust deed. Even though a beneficiary is not legally required to record assignments that occur by operation of law, the resulting information gaps in the land records render the foreclosure “vulnerable to challenges.” Consistent with Brandrup, Niday could therefore require Defendants to “judicially establish their interests and authority” to foreclose through “definitive documentation.”

What Constitutes “Definitive Documentation”?

It is notable in Niday what evidence is not sufficient to establish authority to foreclose. Defendants submitted copies of the note and trust deed, an affidavit of the loan servicer describing “the relevant transactions,” a MERS Milestone Report, and a copy of MERS’s appointment of the successor trustee. But all of that evidence was insufficient to justify summary judgment in Defendants’ favor.

Defendants also produced the original note at the hearing. Merely producing the note, however, is also insufficient to establish the right to foreclose. The original note by itself does not establish who qualifies as its holder (i.e., the person in possession with the right to enforce the note). The note by itself does not establish who is its owner (i.e., the person ultimately entitled to the economic benefit of the note). Although GMAC claimed to “hold” the note as servicer, GMAC did not claim to be the owner or to be acting on its own behalf in the foreclosure proceeding. Of equal importance, there was “no evidence in the record as to whether or how the note had been transferred” to GMAC.

To establish that the foreclosing party is the person entitled to enforce the note and trust deed requires something more than merely producing the note or a MERS Milestone Report. According to the court, the foreclosing party needs to come forward with admissible evidence demonstrating who presently possesses the note, who owns the note, and how those interests were acquired from the original lender. Defendants’ evidence fell far short.

Establishing Agency

It gets worse for lenders. In a case like Niday, in which the true beneficiary is acting through an agent, even judicially establishing interests in the note and trust deed is not sufficient. In Niday MERS purported to act as the agent of Greenpoint and its successors-in-interest. Therefore, the court held that, in addition to establishing the identity and authority of the beneficiary, Defendants also needed to establish the existence and scope of MERS’s authority to act on behalf of the beneficiary.

More specifically, the court held that MERS must “demonstrate that it has an agency relationship with the beneficiary and that the agency agreement is sufficiently expansive.” To establish that agency relationship, MERS must introduce admissible evidence showing “who succeeded to the lender’s [Greenpoint’s] rights, whether those persons manifested consent that MERS act on their behalf and subject to their control, and whether MERS has so agreed to act.”

As you may have gathered, the required inquiry is fact-intensive, which translates into litigator lingo as “expensive and uncertain.” If lenders think recording paper assignments is a hassle, imagine what they think about the court’s alternative.

Ultimately, Niday affirms the Court of Appeal’s reversal of summary judgment, but on different grounds. The trial court erred by granting judgment because there remained disputed issues of fact relating not to assignments but to the identity of the beneficiary and the scope of MERS’s authority as an agent. For Rebecca Niday, the fight goes on.

What Do Brandrup and Niday Mean Going Forward?

But what do Brandrup and Niday mean for homeowners facing nonjudicial foreclosure in the future? In plain language, the court effectively said, “Lenders, you can transfer your interests without obtaining recordable assignments and the law will not prevent you from foreclosing nonjudicially in Oregon, but neither will the law prevent the grantor from challenging the foreclosure and forcing you to establish your right to foreclose in court.” More tersely, you can do it the easy way (record a complete chain of assignments) or you can do it the hard way (provide definitive documentation of how and to whom the interests were transferred and, if relying on an agent, proof of the existence and scope of the agent’s authority to act). Lenders were hoping to do neither.

The failure to record assignments by operation of law is no longer a legal bar to nonjudicial foreclosure in Oregon. Significantly, lenders won that battle. And lenders only have to do things “the hard way” if a homeowner challenges the foreclosure in court, an expensive and uncertain process that few struggling homeowners can afford. If lenders have their paperwork in order, then they should be able to make the required showing, allowing even contested foreclosures to move forward with minimal delay. Lenders no doubt despise the uncertainty, but it could have come out worse for them. Much worse.

In short, due process is alive and well in Oregon, even for homeowners in default; but for those asking tough questions, getting answers may come at a steep price.

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