Weingartner v. Finance, 2:09-cv-02255-RCJ-RJJ.

• Decision Date: 15 March 2010
• Docket Number: No. 2:09-cv-02255-RCJ-RJJ.,2:09-cv-02255-RCJ-RJJ.
• Citation: 702 F.Supp.2d 1276
• Parties: Michelle WEINGARTNER et al., Plaintiffs, v. CHASE HOME FINANCE, LLC et al., Defendants.
• Court: U.S. District Court — District of Nevada

702 F.Supp.2d 1276

Michelle WEINGARTNER et al., Plaintiffs,
v.
CHASE HOME FINANCE, LLC et al., Defendants.

No. 2:09-cv-02255-RCJ-RJJ.

United States District Court,D. Nevada.

March 15, 2010.

702 F.Supp.2d 1277

COPYRIGHT MATERIAL OMITTED.

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Michelle Weingartner, Henderson, NV, pro se.

Peter Weingartner, Henderson, NV, pro se.

Shadd A. Wade, The Cooper Castle Law Firm, LLP, Las Vegas, NV, for Defendants.

ORDERROBERT C. JONES, District Judge.

Plaintiffs Michelle and Peter V. Weingartner have sued Defendants Chase Home Finance, LLC (“Chase”) and the Cooper Castle Law Firm, LLP (“Cooper”) on multiple causes of action related to the foreclosure of their mortgage. Pending before the Court is Defendants' Motion to Dismiss with Prejudice or in the Alternative Motion for Summary Judgment, and

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to Expunge Lis Pendens (# 5). For the reasons given herein, the Court grants the motion in part and denies it in part, dismissing all causes of action except those for violations of Fair Debt Collection Practices Act, Injunctive Relief, Declaratory Relief, and Negligence, as pled against Cooper. Chase is dismissed as a Defendant. The lis pendens is not expunged.

I. FACTS

On or about June 16, 2006, Plaintiffs jointly purchased a property located at 2106 Polynesia Circle, Henderson, NV 89074 (the “Property”). (# 5 at 3:18-21). Plaintiffs executed a promissory note (the “Note”) in the amount of $360,000 and a deed of trust with lender Lime Financial Services, Ltd. (“Lime”). ( Id., Exs. A-B). ¹ The deed of trust lists Fidelity National Title Agency of Nevada (“Fidelity”) as trustee and Mortgage Electronic Registration Systems (“MERS”) as “nominee” and “beneficiary.” ( Id., Ex. B, at 1).

Further examination of the role of various entities with respect to deeds of trust is in order, as the present glut of mortgage-related lawsuits has brought into controversy the scope of the powers of various kinds of parties listed on deeds of trust. Black's Law Dictionary lists three definitions for “nominee.” Black's Law Dictionary 1076 (8th ed.2004). The first definition has to do with political candidates. The second definition is relevant in the present context. “2. A person designated to act in place of another, [usually] in a very limited way.” Id. In short, a nominee is an agent with limited powers, akin to a special power of attorney. This applies to cases such as the present one, where an entity is nominated on a deed of trust by the holder of a promissory note, with the limited role of administering the deed of trust on the holder's behalf. Part of the confusion seems to result from the fact that the scope of this role is not often stated clearly on the deed of trust, but is simply taken for granted by those in the industry. Plaintiffs also sometimes allude to the third and last definition of “nominee,” pointing out that the nominee only has legal title: “A party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Id. Plaintiffs then claim that this does not entitle such a nominee to substitute a trustee on behalf of the holder. This argument, however, conflates the concept of a “nominee” with its definition. Concepts listed in dictionaries often have several definitions, as in this case, which amount to different ways of describing the concept. Here, the second definition of nominee indicates that a nominee is a limited agent. In the context of a nominee on a deed of trust, this implies that the nominee is granted authority as an agent to act on behalf of the nominator (holder of the promissory note) as to administration of the deed of trust, which would include authority for substitution of trustees-what other duty would the administrator of a deed of trust have to perform? The third definition of “nominee” does not negate the second. It simply claims that a nominee is a party holding legal title (as opposed to equitable title) to the property. This third definition is given in the context of receiving and distributing funds. Assuming it can be applied to the mortgage context, the nominee would be a person who administers the deed of trust for the benefit of others. This creates no conflict with the second definition. It still indicates that a nominee is a kind of agent working for the benefit of another. In the present case, that other person is the holder of the promissory note or its assigns.

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The trouble typically begins when a nominee substitutes a new trustee on the deed of trust, which it has the right to do as the holder's nominee. The substituted trustee then forecloses when the mortgagor/trustor defaults on the promissory note. The mortgagor/trustor then complains that the foreclosing trustee is acting wrongly because it does not itself hold the promissory note, or because it was not the original trustee on the deed of trust, or because the foreclosing trustee was substituted by an entity (usually MERS) that was not an agent of the original or subsequent holder of the note. Oftentimes, the argument the mortgagor/trustor makes is not clear. But one thing is clear: so long as the note is in default and the foreclosing trustee is either the original trustee or has been substituted by the holder of the note or the holder's nominee, there is simply no defect in foreclosure, at least in states such as Nevada where a trustee may foreclose non-judicially.

Another source of confusion is the fact that entities such as MERS are often not only named as a nominee, but as a “beneficiary” on deeds of trust. This unorthodox usage of the word “beneficiary” causes all manner of havoc upon foreclosure. Oftentimes, it is clear that defendants in these actions do not understand the source of the confusion themselves, as they use the word “beneficiary” without attempting to untangle the confusion. Black's gives three definitions for this word. The first definition is the most common one: “A person for whose benefit property is held in trust; esp., one designated to benefit from an appointment, disposition, or assignment (as in a will, insurance policy, etc.), or to receive something as a result of a legal arrangement or instrument.” Id. at 165. From this most common definition of the word, plaintiffs typically conclude that because MERS does not stand to benefit directly from the foreclosure and has no right to sue on the promissory note (which is almost always true), that MERS cannot possibly be a “beneficiary.” It is correct that MERS is not a beneficiary. MERS is the nominee of the beneficiary. Often, the true beneficiary (the lender/nominator) will obfuscate this distinction on the deed of trust by referring to MERS as the “beneficiary of record.” This is a fiction. MERS is not a beneficiary in any ordinary sense of the word. Calling MERS a beneficiary is what causes much of the confusion. To a large extent, defendants in these actions have brought this mass of litigation upon themselves by this confusing, unorthodox, and usually unnecessary use of the word “beneficiary” to describe MERS' role. A lender/nominator need only refer to MERS as a “nominee.” This is sufficient to establish that MERS is the agent of the lender with respect to administration of the deed of trust.

Calling MERS a “beneficiary” is both incorrect and unnecessary. In Nevada, the beneficiary is not the only entity that can record the notice of breach and election to sell-the trustee may do this. Nev.Rev.Stat. § 107.080(2)(b). So there is simply no need for a lender to call MERS a “beneficiary.” The trustee or “other person authorized to make the sale under the terms of the trust deed” may make the sale. § 107.080(4). There is no need for any “beneficiary” to make the sale. Courts often hold that MERS does not have standing as a beneficiary because it is not one, regardless of what a deed of trust says, but that it does have standing as an agent of the beneficiary where it is the nominee of the lender (who is the “true” beneficiary). See Gerald Korngold, Legal and Policy Choices in the Aftermath of the Subprime and Mortgage Financing Crisis, 60 S.C. L.Rev. 727, 741-43 (2009); Carol Mills & Brian Langford, Recent Bankruptcy Decisions Expose Pitfalls and Opportunities, Advocate, Idaho State Bar (June/July 2009). A possible defect in foreclosure remains when a note has been

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negotiated, and there is no evidence that the foreclosing trustee is the nominee of the current holder or that the foreclosing trustee was substituted by a nominee of the current holder.

According to Defendants, the following transactions have occurred since Plaintiffs mortgaged the property: (1) Plaintiffs defaulted; (2) MERS assigned “all beneficial interest” in the deed of trust to U.S. Bank National Association (“U.S. Bank”) as trustee for Citigroup Mortgage Loan Trust Inc., Asset-Backed Pass-Through Certificates, Series 2006-HE3 (“Citigroup”), ( see id., Ex. C); (3) U.S. Bank substituted Cooper for itself as trustee, ( see id., Ex. D); (4) Cooper recorded the Notice of Breach and Default and of Election to Cause Sale of Real Property Under Deed of Trust, ( see id., Ex. E). There are at least three problems with the above sequence of events. First, MERS is not a beneficiary and does not have the ability to transfer the beneficial interest in a promissory note without more evidence of its agency in this capacity than being named as a nominee on a deed of trust. Second, even if MERS were a beneficiary, or the scope of its agency for the beneficiary extended to the transfer of the beneficial interest without the principal's signature, the form of transfer here is strange and shows a lack of knowledge of, or purposeful disregard for, basic legal principles. MERS purported to transfer the beneficial interest in the loan not to the principal, Citigroup, who then named U.S. Bank as its trustee. No, the language of the purported transfer indicates that MERS intended to...