Court Opinion

ID: 2824335
Source: CourtListenerOpinion
Date Created: 2015-08-11 04:41:46.928484+00
Date Added: 2024-06-11T11:31:13.115294
License: Public Domain

131 Nev., Advance Opinion 55
                       IN THE SUPREME COURT OF THE STATE OF NEVADA

                IN RE BRYCE L. MONTIERTH AND                         No. 62745
                MAILE L. MONTIERTH, DEBTORS.

                BRYCE L. MONTIERTH AND MAILE L.
                MONTIERTH,
                                                                             FILED
                Appellants,                                                  JUL 3 0 2015
                vs.
                                                                           TANXCIE !C. UNDEMAN
                DEUTSCHE BANK,                                          CLE

                Respondent.                                            BY
                                                                            CHIEF DE

                            Certified questions under NRAP 5 concerning the status of a
                promissory note when the note and deed of trust on a mortgage are split at
                the time of foreclosure. United States Bankruptcy Court, District of
                Nevada; Bruce A. Markell, Bankruptcy Court Judge.
                            Questions answered in part.

                Crosby & Fox, LLC, and Troy S. Fox and David M. Crosby, Las Vegas,
                for Appellants.

                Tiffany & Bosco, P.A., and Gregory L. Wilde, Las Vegas; Severson &
                Werson and Jan Timothy Chilton, San Francisco, California,
                for Respondent.

                Snell & Wilmer, LLP, and Andrew M. Jacobs and Kelly H. Dove, Las
                Vegas;
                for Amicus Curiae Mortgage Electronic Registration Systems, Inc.

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                BEFORE THE COURT EN BANC.

                                                    OPINION

                By the Court, HARDESTY, C.J.:
                            The United States Bankruptcy Court for the District of
                Nevada has certified two questions of law to this court concerning the
                legal effect on a foreclosure when the promissory note and the deed of
                trust are split at the time of foreclosure.' The bankruptcy court asks
                "what occurs when the promissory note and the deed of trust remain split
                at the timeS of the foreclosure" and whether recordation of an assignment
                of a deed of trust "is a purely ministerial act [that] would not violate the
                automatic stay." However, under the facts of this case, the real question
                involves what occurs when the promissory note is held by a principal and
                the beneficiary under the deed of trust is the principal's agent at the time
                of foreclosure. We conclude that reunification of the note and the deed of
                trust is not required to foreclose because the beneficiary of the deed of
                trust is authorized to foreclose on behalf of the note holder as its agent.
                We also conclude that, as a matter of law, the recording of an assignment
                of a deed of trust is a ministerial act; however, we decline to determine the
                effect of that ministerial act on the application of the stay statute as this is
                a question involving federal law.

                       'In certifying its questions to this court, the bankruptcy court seeks
                clarification of footnote 14 in this court's opinion in Edelstein v. Bank of
                New York Mellon, where we Stated that "[Necause it is not at issue in this
                case, we need not address what occurs when the promissory note and the
                deed of trust remain split at the time of the foreclosure." 128 Nev., Adv.
                Op. 48, 286 P.3d 249, 262 n.14 (2012).

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                                                  FACTS
                            In June 2005, appellants Bryce and Maile Montierth signed a
                promissory note in favor of 1st National Lending Services for $170,400.
                The note provided that "the Lender may transfer [the] Inlote." The note
                was subsequently transferred to respondent Deutsche Bank. 2
                            The note was secured by a deed of trust on the Montierths'
                property in Logandale, Nevada. The beneficiary of the deed of trust was
                Mortgage Electronic Registration Systems, Inc. (MERS), "solely as
                nominee for Lender and Lender's successors and assigns." Additionally,
                the deed of trust provided:
                            MERS holds only legal title to the interests
                            granted by Borrower in this Security Instrument;
                            but, if necessary. . . , 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 including, but not limited to,
                            releasing and canceling this Security Instrument.
                            The Montierths' last payment on the note was made in June
                2009. Deutsche Bank recorded a notice of default and initiated
                foreclosure. The Montierths opted into Nevada's Foreclosure Mediation
                Program (FMP), but the first two mediation attempts were unsuccessful.
                The Montierths petitioned for judicial review of the attempted mediation,
                and the district court found that Deutsche Bank failed to participate in the
                mediation in good faith.

                      The full title of the transferee is Deutsche Bank National Trust
                      2

                Company, as Trustee of the IndyMac INDX Mortgage Loan Trust
                2005-AR31, Mortgage Pass-Through Certificates, Series 2005-AR31 under
                the Pooling and Servicing Agreement dated November 1,2005.

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                            Deutsche Bank then filed another notice of default, and the
                Montierths again elected to mediate. Less than two weeks before the
                scheduled mediation, the Montierths filed for bankruptcy. At the time the
                Montierths filed for bankruptcy, the note and the deed of trust were
                separate—Deutsche Bank held the note and MERS was the beneficiary of
                the deed of trust.
                            After the Montierths filed for bankruptcy, MERS assigned its
                interest in the deed of trust to Deutsche Bank on November 25, 2011, but
                the assignment was not recorded until December 23, 2011. Prior to the
                recordation of the assignment, Deutsche Bank filed a proof of claim in the
                Montierths' bankruptcy, claiming that it was a secured creditor.
                             On September 5, 2012, Deutsche Bank filed a motion for relief
                from the automatic bankruptcy stay so that it could foreclose on the
                Montierths' property. The Montierths objected to Deutsche Bank's
                standing to bring the motion. The Montierths also objected to Deutsche
                Bank's proof of claim insofar as it alleged secured creditor status. Both
                objections were premised on the argument that Deutsche Bank was not a
                secured creditor because it did not have a unified note and deed of trust
                when the bankruptcy petition was filed and the automatic stay precluded
                the reunification of the instruments.
                             Before reaching a decision on Deutsche Bank's motion and the
                Montierths' claim objection, the bankruptcy court issued an order
                certifying the following questions of law to this court:
                             [W]hat occurs when the promissory note and the
                             deed of trust remain split at the time of
                             foreclosure?
                             [What is] the legal effect of the recordation of an
                             assignment of a beneficial interest in a deed of
                             trust?
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                We previously accepted these questions pursuant to NRAP(5) and Volvo
                Cars of North America, Inc. v. Ricci, 122 Nev. 746, 137 P.3d 1161 (2006).
                                               DISCUSSION
                             The Montierths argue that Nevada is a "Restatement state"
                and, pursuant to the Restatement (Third) of Property, the note is
                unsecured until it is reunited with the deed of trust. Relying on the
                Restatement, the Montierths argue that w[w]hen the right of enforcement
                of the note and the mortgage are split, the note becomes, as a practical
                matter, unsecured." (quoting Restatement (Third) of Prop.: Mortgages
                § 5.4 cmt. a (1997)).
                             Deutsche Bank argues that the splitting of the note and the
                deed of trust does not alter the status of or void either instrument.
                Deutsche Bank further argues that "catastrophic results" would occur if
                this court accepts the Montierths' argument that a note split from its deed
                of trust is unsecured upon the filing of bankruptcy because hundreds of
                thousands of home loans are secured by deeds of trust held by MERS, and,
                upon bankruptcy, if lenders were unsecured, they would receive a fraction
                of the debt owed and be unable to foreclose.
                Deutsche Bank held secured creditor status, and reunification is not
                necessary
                             "[Am n unrecorded deed is valid immediately between the
                mortgagor and the mortgagee." 59 C.J.S. Mortgages § 256 (2009). In
                Nevada, "perfection of a deed of trust occurs upon proper execution and
                recordation."    In re Madrid, 725 F.2d 1197, 1200 (9th Cr. 1984),
                superseded by statute on other grounds, Bankr. Amendments & Fed.
                Judgeship Act of 1984, Pub. L. No. 98-353, 98 Stat. 333, as recognized in
                In re Ehring, 900 F.2d 184, 187 (9th Cir. 1990). Thus, a security interest

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                   attaches to the property as between the mortgagor and mortgagee upon
                   execution and as against third parties upon recordation.
                               In Edelstein v. Bank of New York Mellon,         this court stated
                   that "[s]eparation of the note and security deed creates a question of what
                   entity would have authority to foreclose, but does not render either
                   instrument void." 128 Nev., Adv. Op. 48, 286 P.3d 249, 259 (2012)
                   (internal quotation omitted). After being split, "Whe documents, and their
                   respective interests, survive even if held by different parties."        In re
                   Phillips, 491 B.R. 255, 275 (Bankr D Nev. 2013) (citing Edelstein, 128
                   Nev., Adv. Op. 48, 286 P.3d at 259). Further, "[i]f an agency relationship
                   exists between those two parties such that [the note holder], as principal,
                   can require its agent, MERS, to assign the [m]ortgage to it, then the [n] ote
                   remains secured. . . ." In it Martinez, 444 RR. 192, 204 (Bankr D Kan.
                   2011).
                               To be sure, in Edelstein we discussed that "both the
                   promissory note and the deed must be held together to foreclose; `[t]he
                   [general] practical effect of [severance] is to make it impossible to foreclose
                   the mortgage." 128 Nev., Adv. Op. 48, 286 P.3d at 258 (alterations in
                   original) (quoting Restatement (Third) of Prop.: Mortgages § 5.4 cmt. c
                   (1997)). Because it was not pertinent to our analysis in Edelstein, we did
                   not include the exceptions provided in the Restatement. The Restatement
                   specifies that foreclosure is not impossible if there is either a principal-
                   agent relationship between the note holder and the mortgage holder, or
                   the mortgage holder "otherwise has authority to foreclose in the [note
                   holdet]'s behalf." See Restatement (Third) of Prop.: Mortgages § 5.4 cmts.
                   c, e (1997). We agree with the Restatement's reasoning.

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                             Here, the deed of trust was first recorded in favor of MERS in
                June 2005, when the mortgage was first created. Like in Martinez, the
                deed of trust in this case designated MERS as nominee, or agent, for the
                note holder and the note holder could compel an assignment of the deed of
                trust.   See Martinez, 444 B.R. at 195, 204; see also Edelstein, 128 Nev.,
                Adv. Op. 48, 286 P.3d at 258. Because the security interest attached and
                was perfected before bankruptcy, and separation of the note from the deed
                of trust did not alter the interests of the parties in this instance,     see
                Phillips, 491 B.R. at 275; In re Corley, 447 B.R. 375, 380-81 (Bankr S D
                Ga. 2011) (explaining that MERS, as the designated nominee of the note
                holder, had a "fully-secured, first priority deed to ]the] secure debt"), we
                conclude that Deutsche Bank was a secured creditor when the Montierths
                filed for bankruptcy. Accordingly, this court rejects the notion that
                separating the note and the deed of trust between a principal and an agent
                renders either instrument "void," or that the deed becomes unenforceable
                even though the named beneficiary is acting as agent for the note holder.
                See Edelstein, 128 Nev., Adv. Op. 48, 286 P.3d at 257-58.
                             Reunification of the note and the deed of trust is not required
                to foreclose because of an existing principal-agent relationship between
                MERS and Deutsche Bank. The Restatement (Third) of Property permits
                the beneficiary of the deed of trust, or mortgagee, to enforce the mortgage
                on behalf of the note holder if the mortgagee has authority to foreclose
                from the note holder. "A mortgage may be enforced only by, or in behalf
                of, a person who is entitled to enforce the obligation the mortgage secures."
                Restatement (Third) of Prop.: Mortgages § 5.4(c) (1997); see id. at § 5.4
                cmt. e & illus. 9 (illustrating that an agent can "enforce the mortgage at
                [the principal's] direction"). Thus, in the present case, MERS would be

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                authorized to foreclose on behalf of Deutsche Bank at Deutsche Bank's
                direction because MERS is its agent, and reunification of the instruments
                would not be required.
                Recordation of an assignment is a "ministerial act"
                              The Montierths argue that under NRS 106.210, an assignment
                would be required from MERS to Deutsche Bank to proceed with the
                foreclosure. Deutsche Bank maintains that no assignment is required
                from an agent to its principal, but even if an assignment is necessary, it is
                not required until the trustee exercises its power of sale pursuant to NRS
                106.210. 3
                              Based on these conflicting arguments, the bankruptcy court's
                second certified question would require this court to determine whether
                the recordation of an assignment is a "ministerial act" such that it falls
                within an exception to the automatic stay mandated by bankruptcy law. 4
                This is a question of federal law and outside of the purview of this court's
                authority to answer questions from the certifying court "if there are

                      3 The bankruptcy court did not ask this court to comment on, and
                thus we do not address, the validity of the foreclosure process in the
                instant case. Furthermore, based on our conclusions in this opinion, it is
                not necessary for us to address the parties' arguments regarding NRS
                106.210.

                      4 Theautomatic bankruptcy stay is governed by 11 U.S.C. § 362, and
                the United States Court of Appeals for the Ninth Circuit put forth the
                "ministerial act" exception in In re Pettit, 217 F.3d 1072, 1080 (9th Cir.
                2000). Further, whether "the assignment of the mortgage, once the
                original grant by the mortgagor to the mortgagee has been perfected"
                involves a "transfer of the property of the debtor" is governed by the
                definitions found in 11 U.S.C. § 544. See In re Halabi, 184 F.3d 1335,
                1337 (11th Cir. 1999).

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                involved in any proceeding before [the certifying] court] ] questions of law
                of this state." NRAP 5(a) (emphasis added); see Reinkemeyer v. Safeco Ins.
                Co. of Am., 117 Nev. 44, 50, 16 P.3d 1069, 1072 (2001) (explaining that
                this court lacks authority to answer certified questions that fall outside
                the purview of NRAP 5). This court may reframe the certified questions
                presented to it, see Chapman v. Deutsche Bank Nat'l Trust Co., 129 Nev.,
                Adv. Op. 34, 302 P.3d 1103, 1105-06 (2013), and thus, we reframe the
                bankruptcy court's second question to narrow its focus: "Is the state law
                effect of the recordation of an assignment of a beneficial interest in a deed
                of trust by an agent of the note holder a ministerial act under Nevada
                law?" We conclude that an agent's recordation at the direction of its
                principal is a ministerial act under Nevada's characterization of
                ministerial acts. And to the extent that the definition of "ministerial act"
                used by the federal court in In re Pettit, 217 F.3d 1072, 1080 (9th Cir.
                2000), is determined by state law, we conclude that MERS' recordation of
                its assignment to Deutsche Bank was a ministerial act.
                            The Montierths argue that the assignment of the deed of trust
                from MERS to Deutsche Bank was not a "ministerial act" because it gives
                the benefited party the right to enforce the note. In addition, they argue
                that recordation of the assignment is not a ministerial act because
                recording the assignment is a discretionary act that can occur whenever
                MERS decides. We disagree.
                            The United States Court of Appeals for the Ninth Circuit
                adopted the "ministerial act" exception to the automatic stay in
                bankruptcy procedures in Pettit. 217 F.3d at 1080-81. A ministerial act
                exception applies to "automatic occurrences that entail no deliberation,
                discretion, or judicial involvement. ." Id. at 1080. Ministerial acts are

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                "essentially clerical in nature," In re Scares, 107 F.3d 969, 974 (1st Cir.
                1997), and "involve[ ] obedience to instructions or laws instead of
                discretion, judgment, or skill." In re Rugroden, 481 RR. 69, 78 (Bankr
                N.D. Cal. 2012) (internal quotation omitted).
                            Examples of ministerial acts include a lower court clerk's
                entry of a judgment following proceedings in the lower court but filed after
                a bankruptcy proceeding was initiated by a party to the judgment,
                Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527-28 (2d Cir. 1994),
                and the IRS's issuance and recording of deeds to the debtor's property at
                the end of the statutory redemption period, Rugroden, 481 B.R. at 79. In
                Rexnord, the court concluded that "the simple and 'ministerial' act of the
                entry of a judgment by the court clerk" does not constitute the
                continuation of a judicial proceeding. 21 F.3d at 527 Likewise in
                Rugroden, the court concluded that because the statutes required the IRS
                to issue and record the deeds, there was absolutely no discretion involved
                in the action, and it was therefore ministerial. 481 B.R. at 79.
                            Nevada has also clarified the distinction between ministerial
                acts and discretionary acts:
                            We have defined a discretionary act as that "which
                            require[s] the exercise of personal deliberation,
                            decision and judgment." A ministerial act is an
                            act performed by an individual in a prescribed
                            legal manner in accordance with the law, without
                            regard to, or the exercise of, the judgment of the
                            individual.
                Pittman v. Lower Court Counseling, 110 Nev. 359, 364, 871 P.2d 953, 956
                (1994) (alteration in original) (citation omitted) (quoting Travelers Hotel,
                Ltd. v. City of Reno, 103 Nev. 343, 345-46, 741 P.2d 1353, 1354 (1987)),
                overruled on other grounds by Nunez v. City of N. Las Vegas, 116 Nev. 535,
                1 P.3d 959 (2000). For example, in Humboldt Mill & Mining Co. v. Terry,
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                this court recognized the statutory obligations of a clerk's duties in
                recording a judgment. 11 Nev. 237 (1876). There, this court concluded
                that a clerk's "duties are purely ministerial" and "[II] e has nothing to
                consider, order, adjudge or decree." Id. at 242. Only after prompting and
                direction by an authorized party does a "clerk act[ I as the agent of the
                statute" to enter a judgment. Id.
                            While this court has primarily recognized ministerial acts
                based on statutory requirements, we now recognize a similar contractual
                obligation to recording an assignment based on a principal-agent
                relationship. Here, the deed of trust that the Montierths executed
                provided that:
                            Borrower understands and agrees that MERS
                            holds only legal title to the interests granted by
                            Borrower in this Security Instrument; but, if
                            necessary to comply with law or custom, 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. . . .
                MERS has but one choice in Deutsche Bank's demand for assignment in
                order to comply with NRS 106.210: performance in accordance with the
                contract terms. MERS has "nothing to consider," Humboldt Mill, 11 Nev.
                at 242, and only after Deutsche Bank's prompting and direction does
                MERS fulfill its agency role and perform according to the agreement.
                            We conclude that MERS' recordation of its assignment to
                Deutsche Bank was a ministerial act. MERS was operating as the agent
                of Deutsche Bank, and both the assignment and the recordation "involved
                obedience to instructions" from Deutsche Bank.     See In re Rugroden, 481
B.R. at 78; see also In re Bower, 462 B.R. 347, 354 (Bankr. D. Mass. 2012)

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                  ("While MERS admittedly holds more than a mere possessory interest in
                  the [m]ortgage, it lacks the authority to act without direction from the
                  note holder or servicer in light of its nominee status."); cf. Edelstein, 128
                  Nev., Adv. Op. 48, 286 P.3d at 258 (concluding that MERS has an agency
                  relationship with a lender and its successors and assigns). Thus, MERS
                  could not exercise discretion in assigning its interest to Deutsche Bank
                  and recording that assignment.
                               Accordingly, we answer the bankruptcy court's first question
                  by concluding that Deutsche Bank's interest was secured at the time of the
                  filing of bankruptcy. Reunification of the note and the deed of trust is not
                  necessary to foreclose because the beneficiary is an agent for the principal
                  note holder. We modify and answer the bankruptcy court's second
                  question by concluding that in Nevada, the recordation of an assignment
                  from a beneficiary of a deed of trust is a ministerial act, because the agent
                  is fulfilling a contractual obligation and has no discretion to disobey.

                                                                    C.J.
                                           Hardesty

                  We concur:

                                                              DTiuglas

                                                                                             , J.
                  Cherry                                      Saitta

                  Gibbons
                                                                  Aeku
                                                              IIHHHHHHH:
                                                                                             '   J.

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