Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-36037/USCOURTS-ca9-13-36037-0/pdf.json

Parties Involved:
ReconTrust Company, NA
Appellee
U.S. Bank N.A.
Appellee
Dennis O. Woods
Appellant
Golda J. Woods
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DENNIS O. WOODS; GOLDA J.

WOODS,

Plaintiffs-Appellants,

v.

U.S. BANK N.A., as Trustee for

Harborview Mortgage pass

through certificates, Series 2006-

4; RECONTRUST COMPANY, NA,

Defendants-Appellees.

No. 13-36037

D.C. No.

3:12-cv-01052-BR

OPINION

Appeal from the United States District Court

for the District of Oregon

Anna J. Brown, District Judge, Presiding

Argued and Submitted November 6, 2015

Portland, Oregon

Filed August 3, 2016

Before: Marsha S. Berzon, and Paul J. Watford, Circuit

Judges, and James Alan Soto,* District Judge.

Opinion by Judge Soto

 

* The Honorable James Alan Soto, United States District Judge for the

District of Arizona, sitting by designation.

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2 WOODS V. U.S. BANK

SUMMARY**

Oregon Trust Deed Act / Foreclosure

The panel affirmed the district court’s dismissal of

plaintiff borrowers’ amended complaint challenging a

completed non-judicial foreclosure sale of residential real

property in Clackamas, Oregon because plaintiffs’ claims

were barred by a provision of the Oregon Trust Deed Act,

ORS 86.770(1).

ORS 86.770(1) provides that “[i]f, under ORS 86.705 to

86.795, a trustee sells property covered by a trust deed, the

trustee’s sale forecloses and terminates the interest in the

property that belongs to a person to which notice of the sale

was given.”

The only defect in the foreclosure process identified by

plaintiffs had to do with the content of the notice, which

included an incorrect listing of the beneficiary in the notice

the plaintiffs received.

The panel held that plaintiffs’ post-sale claims were

barred because their property interests were terminated and

foreclosed pursuant to ORS 86.770(1). Specifically, the

panel held that technical defects that do not have a substantial

impact on grantors’ rights – as in this case, where the

trustee’s sale notice listed the wrong beneficiary – were not

significant enough to warrant upsetting the finality of a

trustee’s sale.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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WOODS V. U.S. BANK 3

COUNSEL

Jeffrey A. Myers (argued) and John Patrick Bowles, Bowles

Fernandez Law LLC, Lake Oswego, Oregon, for PlaintiffsAppellants.

Steven Andrew Ellis (argued), Goodwin Procter LLP, Los

Angeles, California; Peter D. Hawkes and Pilar C. French,

Lane Powell PC, Portland, Oregon; for DefendantsAppellees.

OPINION

SOTO, District Judge:

In this case, two borrowers allege that the notice of nonjudicial foreclosure sale required by the Oregon Trust Deed

Act (“OTDA”) failed to identify the proper beneficiary, and,

therefore, the sale of their home was invalid. The district

court dismissed the complaint, and we affirm.

A.

I.

In 2006, Dennis Woods and Golda Woods (hereinafter

referred to collectively as “Woods”) executed a promissory

note (“Note”) with Homefield Financial, Inc. (“Homefield”). 

Pursuant to the Note, Homefield loaned Woods $359,500 to

purchase residential real property in Clackamas, Oregon

(“Property”). The Note was secured by a deed of trust

(“Trust Deed”) granting Homefield a security interest in the

Property, and the Note was subsequently recorded in

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4 WOODS V. U.S. BANK

Clackamas County. The Trust Deed identifies the following

parties: Woods as the borrowers; Homefield as the lender;

Mortgage Electronic Systems (“MERS”) as the beneficiary;

and Fidelity National Title as the trustee.

Woods defaulted on the Note in 2008. In September of

2010, MERS executed an assignment of the Trust Deed to

U.S. Bank National Association (“USB”), and recorded the

assignment in Clackamas County. Thereafter, USB

appointed ReconTrust Company (“Recon”) as successor

trustee. USB executed an assignment of the Trust Deed to

BAC Home Loans Servicing, L.P. (“BAC”) in May of 2011,

recording the assignment in Clackamas County; BAC

serviced the loan on behalf of USB. Later in May of 2011,

Recon executed a Notice of Default and Election to Sell,

which was recorded, and a Trustee’s Notice of Sale, which

was published.1 The trustee’s sale occurred on February 14,

2012, and Recon issued a trustee’s deed on the property to

Bank of America (for the benefit of the Harborview 2006-4

Trust Fund) which was recorded in Clackamas County on

February 24, 2012.

II.

Approximately four months later, on June 12, 2012,

Plaintiffs filed this action against USBand Recon challenging

the completed foreclosure sale. In their initial complaint,

Plaintiffs sought a declaratoryjudgment that the trustee’s sale

was invalid under the OTDA because several assignments of

the Trust Deed that took place prior to the 2010 assignment

1 Appellants have not argued that they failed to receive either notice, that

the notices were improperly served on them, or that they had the funds to

cure the default prior to the sale.

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WOODS V. U.S. BANK 5

to USB were never recorded. Those assignments occurred by

operation of law when the underlying promissory note was

sold between entities. However, subsequent to the filing of

Plaintiffs’ initial Complaint, the Oregon Supreme Court

rejected the argument that the OTDA requires recording of

assignments of a trust deed that result by operation of law

from the transfer of a secured obligation.2 Plaintiffs,

therefore, filed an Amended Complaint arguing instead that

the completed trustee’s sale was void because the Notice of

Sale Plaintiffs received did not contain the name of the proper

beneficiary. Defendants moved to dismiss the Amended

Complaint for failure to state a claim. The District Court

granted Defendants’ motion, holding that ORS 86.770(1)3

barred Plaintiffs’ claims.4 Plaintiffs filed a timely appeal

challenging the dismissal.

B.

I.

The District Court had jurisdiction in this case pursuant

to 28 U.S.C. § 1332(a), because the parties were citizens of

different states, and the amount in controversy exceeded

$75,000. This Court has jurisdiction pursuant to 28 U.S.C.

 

2

See Brandrup v. ReconTrust Co., 353 Or. 668, 673–74 (2013).

3 All statutory references are to the Oregon Revised Statutes in effect in

2012, before the statute was renumbered in 2013.

4 That statute reads in relevant part that if “a trustee sells property

covered by a trust deed, the trustee’s sale forecloses and terminates the

interest in the property that belongs to a person to which notice of the sale

was given . . .” ORS 86.770(1).

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6 WOODS V. U.S. BANK

§ 1291 because the timely appeal was taken from a final

judgment of the district court.

This Court reviews de novo a district court’s dismissal for

failure to state a claim. See Pride v. Correa, 719 F.3d 1130,

1133 (9th Cir. 2013). The Court determines whether

Plaintiffs pled “enough facts to state a claim to relief that is

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.

544, 547 (2007); Fed. R. Civ. P. 12(b)(6). “[A] formulaic

recitation of the elements of a cause of action will not do,” id.

at 555; “[n]or does a complaint suffice if it tenders ‘naked

assertion[s]’ devoid of ‘further factual enhancement.’”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting

Twombly, 550 U.S. at 557). A complaint may fail to show a

right to relief either by lacking a cognizable legal theory or by

lacking sufficient facts alleged under a cognizable legal

theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699

(9th Cir. 1990).

II.

“As we are construing a state statute, our role is to

interpret the law as would the [Oregon] Supreme Court.” 

Planned Parenthood of Idaho, Inc. v. Wasden, 376 F.3d 908,

925 (9th Cir. 2004), cert. denied, 544 U.S. 948 (2005). A

recent decision by that Court provides a roadmap for

interpreting the OTDA provisions at issue in this case. See

Brandrup, 353 Or. at 682–713. “We focus first on the text,

context, and any legislative history brought to our attention

by the parties that we find useful, and proceed to general

maxims of statutory construction if the legislature’s intent

remains obscure.” Id. at 682–83.

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WOODS V. U.S. BANK 7

Oregon Revised Statutes 86.770(1) provides that “[i]f,

under ORS 86.705 to 86.795, a trustee sells property covered

by a trust deed, the trustee’s sale forecloses and terminates

the interest in the property that belongs to a person to which

notice of the sale was given.” This case requires us to

determine whether – as Appellants argue – the prefatory

clause “if, under ORS 86.705 to 86.795” requires strict

compliance with all provisions of the OTDA before

terminating grantors’ interest in the property sold at a

trustee’s sale. Certainly, Appellant’s interpretation is

possible; however, “there are several other reasonable

interpretations of when a trustee’s sale is ‘under ORS 86.705

to 86.795.’” Mikityuk v. Nw. Tr. Servs., Inc., 952 F.Supp.2d

958, 964 (D. Or. 2013). For example, “[a]nother

interpretation is that if a trustee utilizes the OTDA to conduct

a trustee’s sale, the trustee’s sale ‘forecloses and terminates’

the interest of the party receiving notice, despite any errors

alleged after-the-fact.” Id. at 963. “Indeed, there are several

other reasonable interpretations [that] fall somewhere in

between the interpretations noted above.” Id. at 964.

Because the text of ORS 86.770(1) is ambiguous, we turn

next to the context of the provision in the statute as a whole.

Oregon Revised Statutes 86.705 to 86.795 covers the

entire OTDA, including substantive provisions and technical

provisions with little impact on grantors’ rights. For

example, ORS 86.755(3) provides that within 10 days of a

purchase of real property at a foreclosure sale, the trustee

shall execute and deliver the deed to the purchaser. Under an

interpretation requiring strict compliance with all provisions,

if the deed was delivered eleven days after purchase, the

grantor’s interest in the property would not be foreclosed and

terminated. Likewise, if the trustee received compensation in

excess of “50 percent of the compensation allowable to an . . .

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8 WOODS V. U.S. BANK

administrator under ORS 116.173 or a minimum charge of

$100,” ORS 86.795, the grantor’s interest in the property

would not be foreclosed and terminated because the trustee

failed strictly to comply with a provision of the OTDA.

However, the OTDA also includes more substantial

provisions with greater effect on a grantor’s rights. For

example, ORS 86.740 details the parties that must receive

notice of a trustee’s sale, and ORS 86.750 details the process

by which those parties must be served. These provisions

together play an important part in ensuring that an interested

party receives sufficient notice before his interest in a

property is terminated. Likewise, ORS 86.735(2) sets an

absolute requirement “that there must be a default on an

obligation secured by a deed of trust in order for the trustee

to conduct a non-judicial foreclos[ure] sale.” Mikityuk,

952 F.Supp.2d at 964.

Comparing the range of impact these provisions have on

grantors’ rights suggests a more nuanced approach to

understanding the OTDA. For example, allowing a grantor

who did not receive notice of a trustee’s sale pursuant to ORS

86.750 to challenge that sale after it has occurred protects

important rights, while allowing a post-sale challenge because

a trustee received faulty compensation in violation of ORS

86.795 undercuts the benefit of finality while not vindicating

importantrights.Auniform strict compliance approach would

treat alike violations of substantive and of technical

provisions.

Additionally, reading ORS 86.770(1) in the context of the

OTDA suggests that the drafters used the phrase “ORS

86.705 to 86.795” throughout the statute to refer to the OTDA

provisions as a whole rather than to require strict compliance

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WOODS V. U.S. BANK 9

with each particular provision. For example, ORS 86.705

provides definitions of terms “[a]s used in ORS 86.705 to

86.795.” Likewise, ORS 86.710 provides in full that

Transfers in trust of an interest in real

property may be made to secure the

performance of an obligation of a grantor, or

any other person named in the deed, to a

beneficiary. Where any transfer in trust of an

interest in real property is made pursuant to

the provisions of ORS 86.705 to 86.795 to

secure the performance of an obligation, a

power of sale is conferred upon the trustee.

The power of sale may be exercised after a

breach of the obligation for which the transfer

is security; and a trust deed, executed in

conformity with ORS 86.705 to 86.795, may

be foreclosed by advertisement and sale in the

manner provided in ORS 86.705 to 86.795,

or, at the option of the beneficiary, may be

foreclosed by the beneficiary as provided by

law for the foreclosure of mortgages on real

property.

ORS 86.710 (emphasis added). In addition, ORS 86.715

states in part that a “trust deed is deemed to be a mortgage on

real property and is subject to all laws relating to mortgages

on real property except to the extent that such laws are

inconsistent with the provisions of ORS 86.705 to 86.795, in

which event the provisions of ORS 86.705 to 86.795 shall

control.” The frequent use of the beginning and end section

numbers throughout the OTDA signals that the drafters were

likely not requiring strict compliance with each provision as

a condition of applying other subsections, but rather were

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10 WOODS V. U.S. BANK

using numerical references to signify the statutory scheme as

a whole.

The legislative history of the OTDA reinforces the

conclusion that ORS 86.770(1) does not allow post-sale

challenges based on a violation of each and every one of

OTDA’s technical requirements. Prior to the late 1950s, real

estate loans in Oregon were primarily secured by mortgages. 

See Niday v. GMAC Mortg., LLC, 251 Or. App. 278, 282

(2012), aff’d. by 353 Or. 648 (2013). While the mortgage

created a lien on the property to secure payment on the loan,

the property could only be foreclosed by way of a judicial

action after a lawsuit was filed. See id. Furthermore, even

after a court issued a decree in favor of the mortgagee, the

mortgagor who defaulted on the loan retained the right to

satisfy the debt and redeem the property after the foreclosure

sale. See id. Because this process was inefficient and created

a cloud on the title to property, “there was a movement afoot

[by the late 1950s] to streamline certain features of Oregon’s

mortgage laws—particularly, judicial involvement and the

statutory right to redemption by borrowers and junior

lienholders.” Id. “In 1959, the legislature responded by

enacting what is known as the Oregon Trust Deed Act

(OTDA), ORS 86.705 to 86.795, as an alternative to the

judicial foreclosure process.” Id.

Under the OTDA, the grantor executes a promissory note

and a deed of trust agreeing to pay the owed amount to the

beneficiary, which gives the beneficiary a lien on the property

to secure payment. See id. at 283. In the event of a default,

the OTDA allows the trustee to foreclose the trust deed by

advertisement or sale without judicial involvement, and to

sell the property at an auction to the highest bidder, provided

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WOODS V. U.S. BANK 11

that the necessary parties are served with the statutorily

required notice. See id. at 282–84.

As recognized by the Oregon Court of Appeals, the

“[OTDA] represents a well-coordinated statutory scheme to

protect grantors from the unauthorized foreclosure and

wrongful sale of property, while at the same time providing

creditors with a quick and efficient remedy against a

defaulting grantor . . . . [I]t confers upon a trustee the power

to sell property securing an obligation under a trust deed in

the event of default, without the necessity for judicial action.

However, the trustee’s power of sale is subject to strict

statutory rules designed to protect the grantor, including

provisions relating to notice and reinstatement.” 

Staffordshire Invs., Inc. v. Cal-Western Reconveyance Corp.,

209 Or. App. 528, 542 (2006).

The OTDA, for example, has numerous provisions to

ensure that the grantor is given ample notice of a proposed

sale, and opportunity to cure any default and to challenge any

potentially unlawful foreclosure, prior to the completion of

any sale. See ORS 86.737 (describing the form and contents

of the specific notice that must be given to the grantor); ORS

86.740 (listing all the potential parties, including the grantor,

that may have an interest in the property to whom notice of

the sale must be given 120 days before any foreclosure sale);

ORS 86.745 (describing contents of the general notice); ORS

86.750 (detailing service and publication requirements of the

notice of sale and requiring personal service of the notice of

sale on the grantor-occupant). These provisions collectively

require personal service and advanced notice which includes:

listing the grantor, trustee, and beneficiary; describing the

property; stating the details regarding default and the sum

owing on the obligation; stating the property will be sold to

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12 WOODS V. U.S. BANK

satisfy the obligation; listing the date, time, and place the

property will be sold; and stating that there exists the right to

cure the default, stop the sale, and reinstate the obligation and

deed of trust by paying the amount then due at least five days

before the sale.

While these provisions serve one purpose of the OTDA –

protecting grantors from unlawful foreclosures and allowing

them adequate time to cure a default prior to a foreclosure

sale – ORS 86.770(1) serves another purpose of the ODTA –

streamlining the process by eliminating the continuing right

to redemption post-sale and bringing finality to the sale by

providing creditors with an efficient remedy against

defaulting grantors. See Niday, 251 Or. App. at 282–84;

Staffordshire Invs., Inc., 209 Or. App. at 542. This carefully

struck balance represents the Oregon legislature’s intent of

streamlining the process of foreclosure while providing

adequate protections to borrowers. Appellants’ reading

would cast aside that balance, stripping the incentive for

lenders to accept trust deeds in place of mortgages and

gutting the purpose of the OTDA.

In addition to the specific text of ORS 86.770(1), which

reflects the legislature’s intention to have finality after the

foreclosure sale is completed5, other provisions of the OTDA

also reflect the importance of finality. For example, ORS

86.780 states that once a trustee’s deed is recorded after the

foreclosure sale, the recitals in the deed (which include

5

“[T]he trustee’s sale forecloses and terminates the interest in the

property that belongs to a person to which notice of the sale was given . . . 

A person whose interest the trustee’s sale foreclosed and terminated may

not redeem the property from the purchaser at the trustee’s sale.” ORS

86.770(1).

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WOODS V. U.S. BANK 13

details as to the default, notice, and sale pursuant to ORS

86.750) “shall be conclusive in favor of a purchaser for value

in good faith relying upon them.” In addition, pursuant to

ORS 86.739, even if the grantor does not receive the grantorspecific notice required by ORS 86.737, the grantor must

nonetheless challenge the sale within 60 days of the purchaser

taking possession of the property. Furthermore, even if the

grantor challenges the sale within 60 days, the grantor only

has the same rights as those of a junior lien holder who had

an interest in the property and who did not receive notice of

the sale. See id. These rights do not include the right to void

the sale; rather, it allows the right to sue the trustee for

damages. See ORS 86.739(1); ORS 86.742(1), (2), (3), and

(6). Additionally, the grantor, junior lien holder, or the other

interested party ordinarily must show that they had the

financial ability to cure the entire amount in default prior to

the trustee’s sale to avoid summary dismissal of their claim. 

See 86.742(3). Taken as a whole, the legislative history of the

OTDA confirms that the strict compliance reading advanced

by Appellants tilts the balance sharply in favor of grantors,

undercutting the purpose of the OTDA.

To give proper effect to the carefully struck balance

between protecting grantors’ rights and providing a

streamlined process with finality, “a post-sale challenge must

be based on lack of notice or on some other fundamental flaw

in the foreclosure proceedings, such as the sale being

completed without the borrower actually being in default.” 

Angels Alliance Group, LLC v. ReconTrust Co., NA,

617 Fed.Appx. 740, 742 (9th Cir. 2015) (unpublished

decision). Technical defects that do not have a substantial

impact on grantors’ rights – as in this case, where the

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14 WOODS V. U.S. BANK

trustee’s sale notice lists the wrong beneficiary6– are not

significant enough to warrant upsetting the finality of a

trustee’s sale. In contrast, violations of subsections that grant

substantive rights – such as the right to personal service and

advance notice – can support post-sale challenges. This rule

hews more closely to the intent of the Oregon legislature

revealed by the context of the OTDA and the history

surrounding the passage of the statute.

Conclusion

The only defect in the foreclosure process identified by

Appellants has to do with the content of the notice. The

defect is the incorrect listing of the beneficiary in the notice

they received. However, Appellants do not dispute that:

(1) they were in default; (2) they were served in the manner

required by ORS 86.740 (requiring, at a minimum, service by

certified mail 120 days before the sale) and ORS 86.750

(requiring personal service on grantors who occupy the

property 120 days before the sale); (3) they had no financial

ability to cure the default and redeem the property; (4) they

took no action to challenge the sale prior to it becoming final;

and (5) they only challenged the foreclosure sale many

months after the foreclosure sale was completed. Based on

the foregoing, Appellants’ post-sale claims are barred as their

property interests have been terminated and foreclosed

pursuant to ORS 86.770(1).

The District Court’s dismissal is AFFIRMED.

 

6 Appellees argue that a proper reading of the OTDA reveals that their

notice of sale correctly lists the beneficiary. As we affirm the district

court on other grounds, we do not address that issue.

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