Court Opinion

ID: 4021502
Source: CourtListenerOpinion
Date Created: 2016-08-03 17:01:01.600855+00
Date Added: 2024-06-11T14:34:52.875633
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 DENNIS O. WOODS; GOLDA J.                       No. 13-36037
 WOODS,
            Plaintiffs-Appellants,                 D.C. No.
                                              3:12-cv-01052-BR
                    v.

 U.S. BANK N.A., as Trustee for                    OPINION
 Harborview Mortgage pass
 through certificates, Series 2006-
 4; RECONTRUST COMPANY, NA,
             Defendants-Appellees.

        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.
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.
                   WOODS V. U.S. BANK                       3

                        COUNSEL

Jeffrey A. Myers (argued) and John Patrick Bowles, Bowles
Fernandez Law LLC, Lake Oswego, Oregon, for Plaintiffs-
Appellants.

Steven Andrew Ellis (argued), Goodwin Procter LLP, Los
Angeles, California; Peter D. Hawkes and Pilar C. French,
Lane Powell PC, Portland, Oregon; for Defendants-
Appellees.

                         OPINION

SOTO, District Judge:

    In this case, two borrowers allege that the notice of non-
judicial 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
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 USB and Recon challenging
the completed foreclosure sale. In their initial complaint,
Plaintiffs sought a declaratory judgment 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.
                        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).
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.
                    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 . . .
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
important rights. A uniform 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
                    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
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
                    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
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).
                    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 grantor-
specific 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
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.