Edelstein v. Bank of N.Y. Mellon

• Decision Date: 27 September 2012
• Docket Number: No. 57430.,57430.
• Citation: 128 Nev. Adv. Op. 48,286 P.3d 249
• Parties: David EDELSTEIN, Appellant, v. BANK OF NEW YORK MELLON, Respondent.
• Court: Nevada Supreme Court

286 P.3d 249

128 Nev. Adv. Op. 48

David EDELSTEIN, Appellant,

v.BANK OF NEW YORK MELLON, Respondent.

No. 57430.

Supreme Court of Nevada.

Sept. 27, 2012.

Law Office of Jacob Hafter & Associates and Jacob L. Hafter and Michael K. Naethe, Las Vegas, for Appellant.

Pite Duncan, LLP, and Gregg A. Hubley and Allison R. Schmidt, Las Vegas, for Respondent.

Before the Court En Banc.

OPINION

By the Court, HARDESTY, J.:

In this appeal, which arises out of Nevada's Foreclosure Mediation Program (FMP), we examine the note-holder and beneficial-interest status of a party seeking to foreclose. We conclude that, to participate in the FMP and ultimately obtain an FMP certificate ¹ to proceed with the nonjudicial foreclosure of an owner-occupied residence, the party seeking to foreclose must demonstrate that it is both the beneficiary of the deed of trust and the current holder of the promissory note.

In determining whether the party seeking to foreclose in this case met those requirements, we also address whether, as is argued here, the designation of Mortgage Electronic Registration System, Inc. (MERS), as the initial beneficiary of the deed of trust irreparably splits the promissory note and the deed of trust so as to preclude foreclosure. We conclude that when MERS is the named beneficiary and a different entity holds the promissory note, the note and the deed of trust are split, making nonjudicial foreclosure by either improper. However, any split is cured when the promissory note and deed of trust are reunified. Because the foreclosing bank in this case became both the holder of the promissory note and the beneficiary of the deed of trust, we conclude that it had standing to proceed through the FMP.

FACTS AND PROCEDURAL HISTORY

In 2006, appellant David Edelstein executed a promissory note (the note) in favor of lender New American Funding, which provided Edelstein with a loan to buy a house. The note provided that “the Lender may transfer [the] [n]ote,” and that “[t]he Lender or anyone who takes [the] [n]ote by transfer and who is entitled to receive payments under this [n]ote is called the ‘Note Holder.’ ”

Edelstein and New American Funding also executed a deed of trust to secure the note, which named New American Funding as the lender, Chicago Title as the trustee, and MERS as the beneficiary. Specifically, the deed of trust described “MERS [as] a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns.” It also characterized “MERS [as] the beneficiary under this Security Instrument,” and later characterized MERS as “[t]he beneficiary of this Security Instrument ... (solely as nominee for Lender and Lender's successors and assigns) and the successors and assigns of MERS.” The deed of trust also stated that “Borrower understands and agrees that MERS holds only legal title to the Interests granted by Borrower in this Security Instrument,” but that “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....”

Subsequently, both the note and the deed of trust were transferred several times. With regard to the note, New American Funding created an allonge (the allonge),² endorsing the note to the order of Countrywide Bank, N.A. Countrywide Bank then endorsed the note to the order of Countrywide Home Loans, Inc., which in turn endorsed the note in blank, as follows: “Pay to the order of ____ Without Recourse.” Meanwhile, the deed of trust was also conveyed when MERS granted, assigned, and transferred “all beneficial interest” under the deed of trust to respondent Bank of New York Mellon (BNY Mellon); the conveyance language on the assignment stated that it was assigned and transferred “together with the [N]ote....” ³ BNY Mellon designated ReconTrust Company as its new trustee, replacing Chicago Title. At the time of the mediation, ReconTrust physically possessed (1) the note, which was endorsed in blank, and (2) an assignment of the deed of trust, which named BNY Mellon as the beneficiary.

The foreclosure mediation

Edelstein stopped paying on the note and consequently received a notice of default and election to sell; he subsequently elected to participate in the FMP.

Attending the July 2010 foreclosure mediation was Edelstein and his counsel, as well as counsel for BNY Mellon's loan servicer, Bank of America, who appeared as BNY Mellon's agent and representative. A Bank of America representative with purported authority to negotiate the loan participated by telephone. Bank of America provided certified copies of the note, endorsed in blank, the deed of trust and its assignment, and the substitution of trustee. It also provided a short sale proposal and a broker's price opinion.

After the mediation concluded without resolving the foreclosure issue, the mediator filed a report determining that “[t]he parties participated but were unable to agree to a loan modification or make other arrangements.” Notably, the mediator did not report that the beneficiary or its representative failed to attend the mediation, failed to participate in good faith, failed to bring the required documents to the mediation, or did not have authority to mediate.

The proceedings before the district court

On August 5, 2010, Edelstein, acting in proper person, filed a petition for judicial review with the district court, seeking a determination that BNY Mellon had participated in the mediation in bad faith and sanctions for statutory violations. He argued that BNY Mellon failed to “provide sufficient documents concerning the assignment of the mortgage note, deed of trust[,] and interest in the trust,” and an appraisal or broker's price opinion. He further argued that BNY Mellon failed to “have the authority or access to a person with the authority” to modify the loan as required by NRS 107.086 because the “person representing [BNY Mellon] was not available to fully negotiate in good faith, and did not provide sufficient documentation that [BNY Mellon] held a legal claim to the beneficial proceeds of the [D]eed.” Finally, he argued that BNY Mellon “failed to offer any modification offers.” Edelstein requested sanctions from the district court based on “bad faith or failure to comply with statutory requirements.”

Bank of America (on behalf of BNY Mellon) responded, generally disagreeing with each of Edelstein's arguments and also arguing that Edelstein's petition should not be considered because it was untimely. Edelstein, now represented by counsel, replied. He argued that because the allonge was an invalid “assignment,” BNY Mellon was “required legally to show that it own[ed] those rights[,] or it ha[d] no legal authority to be attempting any foreclosure of the Edelstein home.” Moreover, he contended that MERS' assignment of the deed of trust was invalid because MERS was a “sham” beneficiary. Edelstein also argued that his petition for judicial review was timely filed.

The parties reiterated their arguments in multiple hearings before the district court. Edelstein emphasized that “[BNY] Mellon ha[d] no standing in [the] matter” because “[t]here was no chain of title that [came] from New American [Funding] to the acting party, ... [BNY] Mellon.” The district court subsequently issued two separate orders. In the first order, the district court found that Edelstein timely filed his petition for judicial review and that BNY Mellon had properly appeared at the mediation. In its second order, the court found that BNY Mellon did not participate in bad faith, that the parties agreed to negotiate further, and that “absent a timely appeal, a Letter of Certification will issue.” Edelstein now appeals.

DISCUSSION

The primary issue on appeal is whether BNY Mellon may properly participate in the FMP and obtain an FMP certificate to proceed with foreclosure proceedings against Edelstein.⁴ To resolve this issue, we first address the party-status requirements to pursue nonjudicial foreclosure in Nevada and next address whether BNY Mellon met those requirements in the context of NRS 107.086.

Requirements to pursue nonjudicial foreclosure in Nevada

Edelstein argues that “[t]he first step [within the FMP] requires the beneficiary of a deed of trust to prove to the homeowner that the beneficiary has a right to foreclose on the property.” With some explanation, we agree.

Background of nonjudicial foreclosures in Nevada

In Nevada, promissory notes on real estate loans are typically secured by deeds of trust on the property. “The note represents the right to the repayment of the debt, while the [deed of trust] ... represents the security interest in the property that is being used to secure the note.” Robert E. Dordan, Mortgage Electronic Registration Systems (MERS), Its Recent Legal Battles, and the Chance for a Peaceful Existence, 12 Loy. J. Pub. Int. L. 177, 180 (2010). Thus, the borrower, or grantor, executes both the note and the deed of trust in favor of the lender, who was historically the beneficiary under both, and who names a trustee on the deed of trust “to assure the payment of the debt secured by the trust deed.” 54A Am.Jur.2d Mortgages § 122 (2009); see alsoNRS 107.028; NRS 107.080. The deed of trust may then be recorded. Former NRS 106.210.⁵

Considered a form of mortgage in Nevada,⁶ the deed of trust does not convey title so as to allow the beneficiary to obtain the property without foreclosure and sale, but is considered merely a lien on the property as security for the debt, subject to the laws on foreclosure and sale. Hamm v. Arrowcreek Homeowners' Ass'n, 124 Nev. 290, 298–99, 183 P.3d 895, 901–02 (2008); Orr v. Ulyatt, 23 Nev. 134, 140, 43 P. 916, 917–18 (1896). To enforce the obligation by nonjudicial foreclosure and sale, “[t]he deed and note must be held together because the holder of the note is only entitled to...