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IN THE SUPREME COURT OF THE STATE OF OREGON REBECCA NIDAY, fka REBECCA LEWIS, Plaintiff-Appellant, Respondent on Review, v.

GMAC MORTGAGE, LLC, a foreign limited liability company, and EXECUTIVE TRUSTEE SERVICES, INC., a California corporation, Defendants-Respondents, and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware corporation, Defendant-Respondent, Petitioner on Review.

Clackamas County Circuit Court Case No. 1002-0001 CA A147430 S060655

BRIEF ON THE MERITS OF PETITIONER ON REVIEW _____________________________________ Review of the decision of the Court of Appeals on appeal from a judgment of the Circuit Court for Multnomah County, Honorable Henry C. Breithaupt, Judge pro tempore Opinion Filed: July 18, 2012 Author of Opinion: Nakamoto, Judge Concurring Judges: Schuman, Presiding Judge, and Wollheim, Judge

(Counsel Listed on Inside Cover)

November, 2012

Gregory A. Chaimov, OSB #822180 gregorychaimov@dwt.com Frederick B. Burnside, OSB #096617 fredburnside@dwt.com Kevin H. Kono, OSB #023528 kevinkono@dwt.com Davis Wright Tremaine LLP 1300 SW Fifth Avenue, Suite 2400 Portland, Oregon 97201 Telephone: 503-241-2300 Facsimile: 503-778-5299 Attorneys for DefendantRespondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.

Elizabeth Lemoine, OSB # 040811 Makler Lemoine & Goldberg, PC 515 NW Saltzman Rd Ste 811 Portland OR 97229 Telephone: 503-718-7672

W. Jeff Barnes (adm. pro hac vice) W.J. Barnes, PA 9350 Wilshire Blvd, Ste 308 Beverly Hills CA 90212 Attorneys for Plaintiff-Appellant, Respondent on Review Rebecca Niday

William G. Fig, OSB # 952618 Sussman Shank, LLP 1000 SW Broadway Ste 1400 Portland OR 97205 Telephone: 503-227-1111

David L. Koen, OSB No. 080941 Legal Aid Services of Oregon 921 SW Washington St Ste 500 Portland OR 97205 Telephone: 503-224-4086 Attorneys for Amicus Curiae Oregon Trial Lawyers Association

Robert Pratte DLA Piper LLP 90 South Seventh St #1500 Minneapolis MN 55402 Attorneys for DefendantsRespondents GMAC Mortgage, LLC and Executive Trustee Services, Inc.

TABLE OF CONTENTS I. II. III. LEGAL QUESTIONS PRESENTED ........................................................ 1 PROPOSED RULES OF LAW .................................................................. 1 STATEMENT OF THE CASE .................................................................. 2 A. B. IV. Nature of the action and relief sought. ............................................. 2 Nature of the judgment..................................................................... 3

STATEMENT OF FACTS ......................................................................... 4 A. B. Plaintiffs loan, trust deed, and default. ........................................... 4 The role of MERS in the real estate industry. .................................. 6

V. VI.

SUMMARY OF ARGUMENT.................................................................. 8 ARGUMENT............................................................................................11 A. A beneficiary as defined and used in the OTDA may be any person whom the parties identify as the beneficiary by contractual agreement in the trust deed, regardless of whether that person is the lender or lenders successor. ................ 11 1. Under the statutory text, the trust deed beneficiary is not limited to the lender or its successor, and any designated entity may be beneficiary. ..............................12 The statutory context shows that an entity such as MERS may be a trust deed beneficiary. ...........................15 a. b. The statutory context shows the intent to maximize contractual freedom. .................................15 Related mortgage statutes show that the beneficiary is not limited to the lender or its successors. .................................................................17 The law of negotiable instruments shows that the beneficiary is not necessarily the lender or note holder. ................................................................18

2.

c.

3.

The legislature left designation of the trust deed beneficiary to the contracting parties choice and any contrary holding will cause dramatic change under Oregon real estate law and practice. ..........................21

ii 4. 5. 6. B. The contractual choice of MERS as beneficiary is consistent with traditional agency principles.......................28 MERS is a valid agent for lenders and their successors.............................................................................33 MERS is authorized by the trust deed to exercise all rights of the lender. ..............................................................34

Transfers of a promissory note do not result, by operation of law, in assignments of the trust deed within the meaning of ORS 86.735(1). ...........................................................37 1. The text of ORS 86.735(1) reflects the legislative intent to require recordation only of formal written assignments of the trust deed. ..............................................38 The context of ORS 86.735 shows that the legislature did not intend to require recordation of note transfers. ....... 40 a. Other statutory provisions show that the legislature did not intend assignments of the trust deed to include transfers by indorsement. ....... 41 (1) (2) Mortgage statutes support MERSs position. ...........................................................41 Oregons law of negotiable instruments shows that assignments did not include transfers by indorsement..............................45 Other statutes show that, when the legislature intends to refer to the note or underlying debt, the legislature does so expressly. .........................................................50

2.

(3)

b. 3.

Pre-1959 case law shows that note transfers do not need to be recorded..............................................51

The legislative history of the OTDA supports that the legislature did not understand transfers of the note to be assignments of the trust deed. .........................................53

VII. CONCLUSION ........................................................................................54

iii TABLE OF AUTHORITIES Page Cases Andrews v. Kelleher, 214 P 1056 (Wash 1923) .................................................................................25 Barbour v. Johnson, 201 Or 375, 269 P2d 531 (1954) .....................................................................30 Barkhausen v. Contl Ill. Natl Bank Trust Co., 120 NE2d 649, cert den, 348 US 897 (Ill 1954) .............................................32 Barringer v. Loder, 47 Or 223, 81 P 778 (1905) .................................. 10, 41, 42, 43, 47, 51, 52, 53 Beyer v. Bank of America, 800 F Supp 2d 1157 (D Or 2011) ...................................................................36 Callaghan v. Scandling, 178 Or 449, 167 P2d 119 (1946) .....................................................................32 Carius v. Ohio Contract Purchase Co., 164 NE 234 (Ohio Ct App 1928) ....................................................................50 Carr v. Cohn, 87 P 926 (Wash 1906) .....................................................................................31 Corales v. Flagstar Bank, FSB, 822 F Supp 2d 1102 (WD Wash 2011) .................................................... 23, 24 Halperin v. Pitts, 352 Or 482, ___ P3d ___ (2012) .............................................................. 17, 20 In re Childs Co., 163 F2d 379 (2d Cir 1947) ..............................................................................31 In re Cushman Bakery, 526 F2d 23 (1st Cir 1975) ...............................................................................31 In re Leisure, 336 Or 244, 82 P3d 144 (2003) .......................................................................26 In re Martinez, 444 BR 192 (D Kan Bankr 2011) ...................................................................35 In re Tucker, 441 BR 638 (WD Mo Bankr 2010) .................................................................33

iv In re Veal, 450 BR 897 (9th Cir BAP 2011) .............................................................. 22, 27 Jerstad v. Warren, 73 Or App 387, 698 P2d 1033 (1985) .............................................................50 Kantola v. Lovell Auto Co., 157 Or 534, 72 P2d 61 (1937) .........................................................................29 Kiah v. Aurora Loan Serv., LLC, 2011 WL 841282 (D Mass 2011)....................................................................34 Lantz v. Safeco Title Ins. Co., 93 Or App 664, P2d 744 (1988), rev den, 307 Or 405 (1989) ........................23 MERSCORP, Inc. v. Romaine, 8 NY3d 90, 861 NE2d 81 (NY 2006) .............................................................34 Mortgage Elec. Registration Sys., Inc. v. Azize, 965 So2d 151 (Fla 2007) .................................................................................35 Mortgage Elec. Registration Sys., Inc. v. Coakley, 41 AD3d 674 (NY 2007).................................................................................35 Mortgage Elec. Registration Sys., Inc. v. Neb. Dept of Banking & Fin., 704 NW2d 784 (Neb 2005)...................................................................... 35, 36 Niday v. GMAC Mortgage, LLC, 251 Or App 278, 284 P3d 1157 (2012) . 4, 6, 7, 8, 9, 13, 16, 22, 23, 26, 27, 29, 38, 40, 44, 49 Perry & Greer, Inc. v. Manning, 282 Or 25, 576 P2d 791 (1978) .......................................................................50 Phez Co. v. Salem Fruit Union, 113 Or 398, 233 P 547 (1925) .........................................................................30 Pokorny v. Williams, 199 Or 17, 260 P2d 490 (1953) .......................................................................30 Roth v. Troutdale Land Co., 83 Or 500, 162 P 1069 (1917) .........................................................................52 Ruddy v. Oregon Auto. Credit Corp., 179 Or 688, 174 P2d 603 (1946) .............................................................. 29, 33 Scheid v. Shields, 269 Or 236, 524 P2d 1209 (1974) ...................................................................49 Schleef v. Purdy, 107 Or 71, 214 P 137 (1923) ...........................................................................52

v Schuh Trading Co. v. Commr, 95 F2d 404 (7th Cir 1938) ...............................................................................31 Smith v. Caro, 9 Or 278 (1881) ...............................................................................................47 State v. Gaines, 346 Or 160, 206 P3d 1042 (2009) ...................................................................11 State v. Shaw, 338 Or 586, 113 P3d 898 (2005) .....................................................................28 State v. Vasquez-Rubio, 323 Or 275, 917 P2d 494 (1996) .....................................................................47 Taylor v. Ramsay-Gerding Constr. Co., 345 Or 403, 196 P3d 532 (2008) ....................................................................35 Thayer v. Nehalem Mill Co., 31 Or 437, 51 P 202 (1897) .............................................................................31 United States Nat. Bank v. Holton, 99 Or 419, 195 P 823 (1921) ...........................................................................23 Statutes ORS 174.010 .......................................................................................................14 ORS 205.130 .......................................................................................................39 ORS 71.001, et seq. (1959) .................................................................................18 ORS 71.019 (1959) .............................................................................................31 ORS 71.030 (1959) ...................................................................................... 19, 45 ORS 71.032 (1959) .............................................................................................19 ORS 71.033 (1959) .............................................................................................19 ORS 71.034 (1959) .............................................................................................45 ORS 71.036 (1959) .......................................................................... 19, 20, 31, 48 ORS 71.037(2) (1959) ........................................................................................48 ORS 71.038 (1959) ...................................................................................... 19, 48 ORS 71.039 (1959) .............................................................................................48 ORS 71.069 (1959) .............................................................................................31 ORS 71.091 (1959) .............................................................................................31 ORS 71.094 (1959) .............................................................................................31 ORS 71.1030(1)(b); (2)...................................................................................5, 30

vi ORS 73.0201(1) ..................................................................................................45 ORS 73.0205(2) ..................................................................................................45 ORS 73.0206(2) ..................................................................................................48 ORS 73.0301 ................................................................................................ 20, 46 ORS 73.0309 .......................................................................................................20 ORS 73.0418 (4) .................................................................................................20 ORS 86.060 ................................................................................ 41, 42, 43, 44, 53 ORS 86.070 ...................................................................................... 41, 42, 44, 53 ORS 86.070 (1957) .............................................................................................42 ORS 86.070 (1959) .............................................................................................10 ORS 86.110 .......................................................................... 18, 43, 44, 47, 50, 51 ORS 86.110(1) ............................................................................................. 18, 43 ORS 86.140 ............................................................................................ 44, 45, 51 ORS 86.205(4) ....................................................................................................17 ORS 86.705 .....................................................................................................1, 12 ORS 86.705(1) ............................................................................................. 13, 14 ORS 86.705(1) (1959) ........................................................................................12 ORS 86.705(1) (2009) ........................................................................................12 ORS 86.705(2) ................................................................................................9, 16 ORS 86.705(2) (2011) ........................................................................................12 ORS 86.705(2), (5) .............................................................................................16 ORS 86.705(5) ....................................................................................................16 ORS 86.710 .........................................................................................................16 ORS 86.715 .................................................................................................. 17, 18 ORS 86.735 .........................................................................................................40 ORS 86.735(1) ......................................................... 1, 2, 9, 37, 38, 39, 40, 41, 51 ORS 86.735(1)(d) (1959)....................................................................................51 ORS 86.735(4) ....................................................................................................50 ORS 86.759 .........................................................................................................28 ORS 86.790 .........................................................................................................28 ORS 86A.175(3)(e) .............................................................................................23

vii ORS 93.010 .................................................................................................. 30, 34 ORS 93.020 .................................................................................................. 30, 34 ORS 93.610 .........................................................................................................39 ORS 93.630 .........................................................................................................39 Other Authorities Bank of Am. Natl Trust & Sav. Assn, Rel. No. 1977 SEC No-Act LEXIS 1343 (May 19, 1977)................................8 Blacks Law Dictionary 533 (4th ed 1951) ........................................................14 Jeffrey J. Miller, The Effect of the S&L Bailout on Title to Real Prop., 5 PROB. & PROP. 44, 47-49 (Sept/Oct 1991) .................................................................7 Negotiable Instruments Law ...............................................................................45 Or Laws 1965, ch 252, 1 ..................................................................................42 Or Laws 1983, ch 719, 1 ..................................................................................12 Or Laws 2011, ch 712 1 ...................................................................................12 Or Laws 1961, ch 726 .........................................................................................45 R.K. Arnold, Yes, There Is Life On MERS, 11 PROB. & PROP. 33, 34 (July/Aug 1997).................................................................................................7 RESTATEMENT (FIRST) OF AGENCY (1933), 1 ...................................................30 RESTATEMENT (FIRST) OF AGENCY 1 ...............................................................33 RESTATEMENT (THIRD) OF AGENCY 1.01 (2006) .............................................30 RESTATEMENT (THIRD) OF AGENCY 1.04 .................................................. 30, 34 RESTATEMENT (THIRD) OF AGENCY 2.02(1).....................................................30 RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) 5.4, cmt. e (1997) .. 32, 36 Websters Third New Intl Dictionary 612 (unabridged ed 1981) .....................14

1 I. 1. LEGAL QUESTIONS PRESENTED Does the term beneficiary, as used in the Oregon Trust Deed

Act, ORS 86.705 et seq. (OTDA), mean only the party to whom the underlying secured obligation is owed, or may Mortgage Electronic Registration Systems, Inc. (MERS), which is neither a lender nor successor to a lender, act as a beneficiary? 2. Is MERS a beneficiary within the meaning of the OTDA, where

the Deed of Trust states 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 Lenders successors and assigns) has the right to exercise any or all of those interests? 3. Does the transfer of a promissory note result, by operation of

law, in an automatic assignment[] of the trust deed within the meaning of ORS 86.735(1)? II. PROPOSED RULES OF LAW

Beneficiary as used in the OTDA is not limited to the party to whom the underlying secured obligation is owed. A beneficiary is any person whom the parties designate as beneficiary in the trust deed, including a person who is neither a lender nor successor to a lender. The person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given

2 may be a nominee holding legal and record title to the beneficial interest under the trust deed. The obligation in ORS 86.735(1) to record any assignment[] of the trust deed as a condition of nonjudicial foreclosure requires recordation only of an existing written assignment, executed and acknowledged with the same formality as required in deeds and mortgages of real property. By contrast, transfer of a trust deed by operation of law through transfer of the underlying promissory note is not an assignment of the trust deed under ORS 86.735(1) that must be recorded to foreclose nonjudicially. There is a difference between transfer of a note by assignment and transfer by indorsement and delivery. Transfer of a note may occur by delivery without indorsement, but requires a formal assignment of the note (which is typically combined with a formal trust deed assignment), whereas negotiation by indorsement and delivery makes the recipient a holder, and person entitled to enforce the Note within the meaning of the Uniform Commercial Code (and formerly under the Negotiable Instruments Law). III. A. STATEMENT OF THE CASE

Nature of the action and relief sought. Plaintiff Rebecca Niday sued Defendants GMAC Mortgage, LLC,

MERS, and Executive Trustee Services, Inc., for declaratory and injunctive relief in connection with a then-pending nonjudicial foreclosure and related

3 trustees sale of residential property located in Rhododendron, Oregon. ER 111. Plaintiff sought temporary and permanent injunctive relief precluding and cancelling the foreclosure sale based on the allegation that the Defendants had failed to demonstrate that they legally or lawfully acquired the full and unencumbered interest in either the Note or the Deed of Trust and that they had not demonstrated any legal interest in either the Note or the Deed of Trust * * *. ER 8. Plaintiff also sought a declaration (a) that Defendants have no legal standing or the proper legal, ownership, or equitable interest in either the Note or Deed of Trust to institute or maintain a foreclosure; and (b) there is no legal assignment of either the Note or the Deed of Trust from the original lender to any of the Defendants; and (c) that the attempt by Defendants to conduct a foreclosure sale of the Property is legally defective and precluded from enforcement[.] ER 11. B. Nature of the judgment. The trial court, Honorable Pro Tem Judge Henry C. Breithaupt, entered an order granting summary judgment to Defendants on November 15, 2010, and a General Judgment based on the order granting summary judgment on November 30, 2010. The Court of Appeals reversed, holding that there is evidence in the record that the original lender assigned its interest in the Note and no longer has any beneficial interest in the Deed of Trust, but that there is no evidence that the county mortgage records reflect an assignment of the Deed

4 of Trust by the original lender. Niday v. GMAC Mortgage, LLC, 251 Or App 278, 299, 284 P3d 1157 (2012). IV. A. STATEMENT OF FACTS

Plaintiffs loan, trust deed, and default. In August 2006, plaintiff borrowed $236,000 from GreenPoint Mortgage

Funding, Inc. (GreenPoint), evidenced by a promissory note (Note). ER 48-54. The Note was secured by a Deed of Trust, which plaintiff executed and which was recorded in the Clackamas County records (Deed of Trust). ER 55-69. The Deed of Trust identified plaintiff as Borrower, GreenPoint as Lender, and First American Title Insurance Comp as Trustee. ER 55. The Deed of Trust also states MERS is a separate corporation that is acting solely as a nominee for Lender and Lenders successors and assigns. MERS is the beneficiary under this Security Instrument. ER 56 (italics added; bold in original). Finally, the Deed of Trust defines the Note to mean the promissory note plaintiff signed, and the Loan to mean the debt evidenced by the Note, plus other amounts owed under the Note and Deed of Trust. ER 56. In the Deed of Trust, plaintiff agreed that: The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lenders successors and assigns) and the successors and assigns of MERS. This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrowers covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably grants and conveys to Trustee, in trust,

5 with power of sale, the following described property located in [Clackamas County] ER 57. Plaintiff further agreed: 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 Lenders 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. ER 57. The Deed of Trust thus names or otherwise designates MERS the beneficiary. Consistent with Oregons UCC and with the intent of the legislature that the parties have maximum freedom to designate whose debt a trust deed secures and who is the trust beneficiary, the parties contractually agreed to the designation of MERS as a beneficiary, and to MERSs role as nominee for the Lender and its successors. See, e.g., ORS 71.1030(1)(b); (2) (UCC must be liberally construed and applied to promote its underlying purposes of expansion of commercial practices through custom, usage and agreement of the parties; and UCC principles of law and equity, including * * * the law relative to capacity to contract, principal and agent [and] estoppel * * * supplement its provisions). In September 2006, GreenPoint sold and transferred the Note to Aurora Bank FSB (Aurora). ER 46. Plaintiff concedes she was subsequently told that GMAC Mortgage LLC had taken over loan servicing for her loan. Id.; see

6 also ER 30. Approximately four years ago, in January 2009, plaintiff defaulted. ER 92. MERS appointed LSI Title Company of Oregon, LLC (LSI) successor trustee under the Deed of Trust in April 2009, and recorded the Appointment of Successor Trustee. ER 42-43. LSI then sent plaintiff a Trustees Notice of Sale, describing plaintiffs default and stating the beneficiarys election to exercise the power of sale under the Deed of Trust. ER 92-93. The sale date was set for September 2, 2009. ER 92. The sale date was apparently later rescheduled for February 1, 2010. ER 1. At the time foreclosure was initiated, Aurora owned plaintiffs loan. ER 46. MERS at all times remained the beneficiary of record (as nominee for GreenPoint and later Aurora, as GreenPoints successor). See ER 56-57. There is no evidence in the record of any written assignment of the Deed of Trust. B. The role of MERS in the real estate industry. The Court of Appeals provided a background of the history of real estate financing in Oregon and of Oregons recording laws. Niday, 251 Or App at 281-86. To the extent the history of Oregons real estate financing and recording laws provides relevant context in connection the matters of statutory interpretation at issue here, those laws are discussed in the Argument section below. The Court of Appeals also purported to provide a background regarding MERS, and stated that the parties do not disagree fundamentally about what

7 MERS is and does. Id. at 286 n 7. MERS does not provide a detailed description of its purpose and inner workings here, but does not agree with the Court of Appeals characterizationwithout citationthat MERS was created by the mortgage industry in the early 1990s to make it easier to bundle and sell promissory notes and their related interests on the secondary market. Id. at 280. That is incorrect. MERS * * * [was] created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. http://www.mersinc.org/about-us/about-us (last visited November 6, 2012); App 5. Indeed, MERS and the MERS System evolved not as a basis to securitize loans, but in the aftermath of problems facing borrowers during the savings and loan crisis of the 1980s when their banks no longer existedan inability to obtain assignments, releases, or a Deed of Reconveyance after satisfaction of the loan. See, e.g., Jeffrey J. Miller, The Effect of the S&L Bailout on Title to Real Prop., 5 PROB. & PROP. 44, 47-49 (Sept/Oct 1991) (discussing various title-related issues with S&Ls in the 1980s); R.K. Arnold, Yes, There Is Life On MERS, 11 PROB. & PROP. 33, 34 (July/Aug 1997) (discussing delays). To the extent MERSs role facilitated a secondary market for loans, that fact benefits Oregon borrowers because after mortgage loans are sold to investors, lenders then have the ability to make new loans to Oregon consumers, thereby increasing the total credit available and decreasing borrowing costs for consumers. Regardless, the market for

8 mortgage-backed securities existed for many years before MERSs creation the first issuance of private label mortgage-backed securities (i.e. not issued by Fannie Mae, Freddie Mac, or Ginnie Mae) occurred in 1977. See Bank of Am. Natl Trust & Sav. Assn, Rel. No. 1977 SEC No-Act LEXIS 1343 (May 19, 1977). V. SUMMARY OF ARGUMENT

The Court of Appeals erroneously limited the statutorily defined term beneficiary to the person to whom the underlying loan repayment obligation is owed. Niday, 251 Or App at 281. The consequence of this too-narrow reading of beneficiary was to limit the terms of the contract into which the borrower and lender entered, which had designated an agent of the lender, MERS, to be the beneficiary. The statutory text and context do not support the Court of Appeals interpretation. To the contrary, in enacting the OTDA, the legislature intended the parties to have contractual freedom to designate whomever they wanted as the parties under the trust deed. The legislature provided that a grantor of a trust deed does not need to be the person who owes the debt the trust deed secures. Likewise, the legislature allowed contractual freedom for the parties to name or otherwise designate the trust deed beneficiary, regardless of whether the person named or otherwise designated is the person to whom the secured obligation is owed. Moreover, at the time the legislature enacted the OTDA, long-established Oregon statutory

9 and common law principles authorized agents (such as MERS) to act as beneficiary and hold legal and record title to interests in real estate. Through its definition of beneficiary, the legislature recognized that the beneficiary may be an agent or nominee of the lender. Permitting the parties to designate MERS as a beneficiary gives effect to the contractual freedom the legislature intended. The Court of Appeals, however, failed to give due regard to the named or otherwise designated language in ORS 86.705(2). Instead, the Court of Appeals appeared to consider the OTDA to limit the contractual relationships that may exist between the borrower and lender and other parties who provide services to the borrower or lender, such as a lenders agent and a trustee, and the OTDAs definition of beneficiary to be intended to protect borrowers in the manner of, for example, the federal Truth in Lending Act. The OTDA does not. Having erroneously concluded that the trust deed beneficiary can only be the lender or its successor, the Court of Appeals compounded its error by concluding that a transfer of the note from the lender to a successor constitutes, by operation of law, an automatic assignment of the trust deed by the beneficiary that must be recorded under ORS 86.735(1) as a prerequisite to nonjudicial foreclosure. Niday, 251 Or App at 299-300. In essence, the Court of Appeals held that when one lender transfers a note to a successor, the parties to that transaction must create and record a form of assignment or else the

10 successor loses the ability to foreclose nonjudicially. There is no support in the OTDAs text, context, or legislative history for the notion that the legislature intended to impose a requirement to create a paper trail where none existed or that the legislature understood or intended assignment to mean or include transfer of the note. In fact, the text, context, and legislative history all show that the legislature intended to require recordation only of formal, written assignments of the trust deed, not the post hoc creation and recordation of documents memorializing note transfers. Indeed, it had been Oregon law for over 50 years before the legislature enacted the OTDA that the then-existing statute requiring recordation of assignments of mortgages, former ORS 86.070 (1959), required recordation only of assignments executed in writing with the same formality of deeds and mortgages. Barringer v. Loder, 47 Or 223, 230, 81 P 778 (1905). Requiring recordation only of formal assignments also was consistent with Oregons then-existing Negotiable Instruments Law and later Oregons Uniform Commercial Code, which provide a variety of methods of transfer of a note by indorsement and a variety of ways in which a person could be entitled to enforce a noteall without a formal assignment of the underlying security. The legislature understood these differences between a transfer of a note and an assignment of a trust deed and purposefully required recordation only of formal assignments of a trust deed.

11 Here, the parties designation of MERS a beneficiary in the Deed of Trust, as agent and nominee of the lender and its successors, is consistent with and authorized by the OTDA. The record reflects only a transfer of the note and contains no evidence of any formal assignment of the trust deed. There is no assignment to record, and the trial court correctly granted summary judgment to MERS. The Court of Appeals should be reversed, and the judgment of the trial court reinstated. VI. A. ARGUMENT

A beneficiary as defined and used in the OTDA may be any person whom the parties identify as the beneficiary by contractual agreement in the trust deed, regardless of whether that person is the lender or lenders successor. In interpreting a statute, the Courts paramount goal is to discern the

legislatures intent. State v. Gaines, 346 Or 160, 171, 206 P3d 1042 (2009). [T]here is no more persuasive evidence of the intent of the legislature than the text of the statute. Id. Thus, the first step in statutory analysis is to consider the statutory text and context. Id. The court may consider legislative history at any point in the interpretive process; however, the court determines the probative value of the legislative history, and legislative history carries no weight [w]hen the text of a statute is truly capable of having only one meaning[.] Id. at 173. If the legislature's intent remains unclear after examining text, context, and legislative history, the court may resort to general maxims of statutory construction to aid in resolving the remaining uncertainty. Id. at 172.

12 Here, the text and context of ORS 86.705(1) (2009) 1 do not reflect an intent to limit the definition of a beneficiary to the lender or its successor certainly the word lender does not appear anywhere in the OTDA as enacted, let alone in the definition of beneficiary. The words the legislature did use show the legislatures intent to allow a trust deed beneficiary to be whomever the parties agree to name or designate as the beneficiary. 1. Under the statutory text, the trust deed beneficiary is not limited to the lender or its successor, and any designated entity may be beneficiary.

When the legislature enacted the OTDA in 1959, it defined beneficiary. [U]nless the context requires otherwise, beneficiary means the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or his successor in interest[.] See ORS 86.705(1) (1959). The Court of Appeals took the word benefit in the statutory definition, construed it to mean security for the underlying obligation, and concluded that the person named or otherwise designated in a trust deed as the person for
________________________

The statute was amended in 2011 to renumber the definitions due to the addition of a defined term and to remove the phrase unless the context requires otherwise and to read a person named or otherwise designated in a trust deed instead of the person named or otherwise designated in a trust deed. Compare ORS 86.705(1) (2009) with ORS 86.705(2) (2011) (emphasis added); see also Or Laws 2011, ch 712 1. In 1983, the legislature also changed his in the phrase his successor in interest to the persons. Or Laws 1983, ch 719, 1. Otherwise, the relevant portions of the definition of beneficiary are the same as at the time of enactment. All references to ORS 86.705 refer to the 2009 version, unless otherwise noted.

13 whose benefit a trust deed is given means the person named or designated in the trust deed as the party to whom the underlying, secured obligation is owed. Niday, 251 Or App at 298. The Court of Appeals did not properly apply this Courts statutory interpretation methodology. Even if the benefit is security for the underlying obligation, the conclusion that a beneficiary is the party to whom the underlying, secured obligation is owed fails to give meaning to the statutory language named or otherwise designated. ORS 86.705(1). In essence, the Court of Appeals held that the beneficiary must always be the note holderregardless who is named or otherwise designated * * * as the person for whose benefit a trust deed is given. The statutory language does not support that interpretation. If beneficiary always means note holder or note owner, then the parties would have no ability to name or designate anyone else in the trust deed as the person for whose benefit the trust deed is given. The Court of Appeals rewrote beneficiary to mean note-holder (or lender or its successor) and wrote out of the statute the phrase named or otherwise designated. The legislature did not intend any such limitations. The named or otherwise designated language shows that the legislature embraced the idea that parties to a contract allowing nonjudicial foreclosure were free to decide contractually who a beneficiary would be. The only limitation the legislature imposed on who could be beneficiary is that the beneficiary shall not be the trustee. ORS

14 86.705(1).2 Further, by using two different termsnamed and otherwise designatedthe legislature is presumed to have intended each to have a different meaning. See ORS 174.010 (In the construction of a statute, the office of the judge is simply to ascertain and declare what is, in terms or in substance, contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars such construction is, if possible, to be adopted as will give effect to all.). Even if the person named in the trust deed as the person for whose benefit a trust deed is given somehow must mean the lender or its successor, otherwise designated must mean something different. The most relevant definition of designate is to assign officially by executive or military authority. Websters Third New Intl Dictionary 612 (unabridged ed 1981). Blacks Law Dictionary at the time of the OTDAs enactment defined designate as [t]o indicate or set apart for a purpose or dutywith, to or foras, to designate an officer for a command. Blacks Law Dictionary 533 (4th ed 1951). This shows that the legislature intended designatedas opposed to namedto mean the parties had the contractual freedom to designate a person not
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As of 2011, this language reads who is not the trustee unless the beneficiary is qualified to be a trustee under ORS 86.790(1)(d). ORS 86.705(2) (2011).

15 otherwise involved in the transaction to be the person for whose benefit a trust deed is given, such as an agent or nominee. Thus, the legislature invited parties to designate non-note holders as beneficiary; as a result, designating MERS as beneficiary is not an attempt to contract around the OTDA, but to fully implement its objectives. In the end, the text of the definition of beneficiary does not define or limit beneficiary as the lender or other person who holds or owns the note, or who lent money to the borrower. If the legislature had intended the beneficiary always to mean the lender or note owner, it would have said so (and then there would be no need to give parties the opportunity to designate another person as the beneficiary because the trust deed identifies the lender). Instead, the statutes plain language requires reference to the trust deed to determine the identity of the person named or otherwise designated as the person for whose benefit the instrument is given. 2. The statutory context shows that an entity such as MERS may be a trust deed beneficiary. a. The statutory context shows the intent to maximize contractual freedom.

The statutory context reinforces that beneficiary is not limited to the party to whom the underlying, secured obligation is owed and that an entity such as MERS may be a trust deed beneficiary. In rewriting the statutory text for whose benefit a trust deed is given to read the party to whom the

16 underlying, secured obligation was owed, the Court of Appeals looked to the statutory definitions of grantor and trust deed, ORS 86.705(2), (5), and to the statute authorizing trust deeds, ORS 86.710. 3 Niday, 251 Or App at 294-95. The Court noted the references in those provisions to securing the performance of an obligation. Id. The Court, however, overlooked whose obligation is secured. The OTDA defines a grantor as the person conveying an interest in real property by a trust deed as security for the performance of an obligation. ORS 86.705(2). But the definition of trust deed refers to securing the performance of an obligation owed by the grantor or other person named in the deed to a beneficiary. ORS 86.705(5) (emphasis added). Similarly, ORS 86.710 states [t]ransfers 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 trust deed, to a beneficiary. (Emphasis added.) These provisions show that a grantor may sign a trust deed to secure someone elses debt (as set forth in the trust deed). Consistent with that flexibility and freedom of contract, the legislature crafted a definition of beneficiary that likewise embodies the intent that the lender similarly could designate another person to be the person for whose benefit the trust deed was given. Reading the statutory language named or otherwise designated in any
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Each of these provisions is substantially the same as when enacted.

17 other way fails to give meaning to that language. It would make little sense for the legislature to devise a statutory scheme that does not require the grantor to be the person who owes the debt yet requires the beneficiary to be the person to whom the debt is owed. Instead, the statutory scheme requires reference to the trust deed to determine whether the trust deed grantor or some other person named in the deed owes the secured debt, and whether the person to whom the debt is owed, or some other designated person, is beneficiary. b. Related mortgage statutes show that the beneficiary is not limited to the lender or its successors.

Under ORS 86.715, except to the extent inconsistent with the provisions of the OTDA, a trust deed is deemed to be a mortgage on real property and is subject to all laws relating to mortgages on real property * * *. Although enacted in 1975, mortgage law defines lender to mean any person who makes, extends, or holds a real estate loan agreement and includes, but is not limited to, mortgagees, beneficiaries under trust deeds, and vendors under conditional land sales contracts. ORS 86.205(4); see Halperin v. Pitts, 352 Or 482, 490, ___ P3d ___ (2012) ([T]his court not infrequently refers to laterenacted statutes for the purpose of demonstrating consistency (or inconsistency) in word usage over time as indirect evidence of what the enacting legislature most likely intended.). This definition of lender shows that although the

18 trust deed beneficiary may be the lender, the two are not coextensive. The legislature does not view the trust deed beneficiary solely as the lender. Another mortgage statute (made applicable to trust deeds by ORS 86.715) similarly shows that the legislature did not equate beneficiary exclusively with lender or note owner. Under ORS 86.110(1)which addresses discharge of debtif a promissory note secured by a mortgage on real property is transferred by indorsement without a formal assignment of the mortgage, then the owner and holder of the promissory note may record statement discharging the debt. This statutory context shows the legislature understood the owner and holder of the promissory note may be different than the record title holder. ORS 86.110 also shows that when the legislature intended to specify owner and holder of the note the legislature knew how to do so. Had the legislature intended beneficiary to mean lender or owner or holder of the note, the legislature expressly referred to owner or holder of the note, as it did in ORS 86.110. c. The law of negotiable instruments shows that the beneficiary is not necessarily the lender or note holder.

Oregons former Negotiable Instrument Law, ORS 71.001, et seq. (1959), in effect when the legislature adopted the ODTA, provides important statutory context outside the mortgage-specific statutory scheme, particularly in light of the Court of Appeals conclusion that the beneficiary is the note

19 holder.4 The Negotiable Instrument Law allowed for transfer of a note by indorsement and delivery. Former ORS 71.030 (1959). A note could be indorsed using any one of several methods. For example, an indorsement could be either restrictive or qualified or conditional. Former ORS 71.033 (1959). A restrictive indorsement prohibited further negotiation of the instrument, constituted the indorsee the agent of the indorser, or vested title to the instrument in the indorsee in trust. Former ORS 71.036 (1959). With a qualified indorsement, an indorser was deemed a mere assignor of the title to the instrument. Former ORS 71.038 (1959). The Negotiable Instruments Law also required indorsement of the entire instrument to constitute negotiation. Former ORS 71.032 (1959). (An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument.). The Negotiable Instruments Law thus created a regime in which a formal, written assignment of a trust deed made sense, at least where there was a qualified indorsement or an indorsement of less than the entire instrument. The Negotiable Instruments Law also expressly contemplated allowing a person to be an agent of the indorser. See Former ORS 71.036 (1959). This context
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The Negotiable Instruments Law was enacted in 1899. Or Laws 1899 p 18. As noted citations here are to the version in effect in 1959.

20 shows that there are a variety of ways a person may be a beneficiary entitled to enforce a note and trust deedi.e. a person may receive a note and trust deed through a variety of indorsement, transfer, or assignment mechanismsand the legislature did not intend to undercut the then-existing law of negotiable instruments by limiting beneficiary to the owner or holder of the note. The current UCC similarly reflects the legislatures understanding that a trust deed beneficiary is not limited to the person to whom the underlying secured obligation is owed. See Halperin, 352 Or at 490 (although laterenacted statutes are not context for original enactment, they may still be relevant to interpretation of statute). Under ORS 73.0301 (enacted in 1993), a person may be a person entitled to enforce an instrument regardless whether the person is a holder of the note or even wrongfully possesses the note. 5 That a person need not be the rightful owner or a holder of the note to be entitled to enforce the note shows that the trust deed beneficiary is not limited to the lender or note owner.
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ORS 73.0301 provides: Person entitled to enforce an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder, or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to ORS 73.0309 or 73.0418 (4). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

21 3. The legislature left designation of the trust deed beneficiary to the contracting parties choice and any contrary holding will cause dramatic change under Oregon real estate law and practice.

The statutory phrase named or otherwise designated in a trust deed shows that the legislature left it to the parties to the trust deed to decide the identity of the trust deed beneficiary as a matter of contractual choice. Just as the legislature allowed a trust deed grantor to convey an interest in real property via contract to secure anothers debt, the legislature allowed the party to whom the secured obligation is owed to elect whom to designate as the beneficiary. Any interpretation that limits the beneficiary (to the lender, its successor, or otherwise) undercuts the contractual freedom the legislature intended and the statutory language reflects. In a MERS trust deed, the parties contractually choose the beneficiary as contemplated by the statutes named or otherwise designated language. Borrowers (and the other parties to the trust deed) contractually authorize MERS to act as beneficiary and to hold legal title as the nominee for the lender, and the lenders successors and assigns. The parties to the trust deed also expressly agree that MERS is entitled to exercise any of the lenders rights, including the right to foreclose and to release the trust deed.6 This is consistent

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Allowing MERS to release the trust deed supports why MERS was created, i.e. to avoid a situation like the savings and loan crisis of the 1980s in which
(continued)

22 with the legislative intent to allow contracting parties the freedom to name or designate the beneficiary. As explained above, the Court of Appeals holding that the beneficiary must be the person to whom the underlying obligation is owed, see Niday, 251 Or App at 298, is inconsistent with the contemplated freedom of contract and long standing Oregon law, and would effect a significant change extending well beyond MERS. The Court of Appeals interpretation is also inconsistent with the Uniform Commercial Code and prior Oregon case law, and would have a dramatic effect on nonjudicial foreclosure, well beyond the role of MERS, because it would mean that a beneficiary is limited to the entity that owns the loan. This holding is a dramatic shift in Oregon law. The party to whom the underlying, secured obligation is owed is the owner of the note, which may or may not be the note holder. See, e.g., In re Veal, 450 BR 897, 912 (9th Cir BAP 2011) ([O]ne can be an owner of a note without being the holder, and although [t]his distinction may not be an easy one to draw, * * * it is one the UCC clearly embraces.; While in many cases the owner of a note and the holder are one and the same, this is not always the case.). Because Oregon law has historically recognized that the right to enforce the trust deed follows the right to enforce the note, see Niday, 251 Or App at 295, it is the note holder
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borrowers could not obtain mortgage or trust deed releases from defunct lenders and therefore could not refinance. See Section IV.B, supra.

23 as defined by UCC Article 3or its servicer on behalf of the note holder, see ORS 86A.175(3)(e)with the right to foreclose. The note ownerthe party to whom the obligation is owedmay not be the entity with the right to foreclose because it may not be the note holder or servicer. This distinction was explained in Lantz v. Safeco Title Ins. Co., 93 Or App 664, 763 P2d 744 (1988), rev den, 307 Or 405 (1989), where the Court observed that even though one may be the owner of a note and entitled to payment under it, the entity with the right to enforce the note (and foreclose any corresponding trust deed) may be a different entity altogether. Id. at 668-69 (noting that an assignee not in possession was an owner of the note, [but] his rights were subject to those of the assignee in possession) (citing United States Nat. Bank v. Holton, 99 Or 419, 195 P 823 (1921)). That the owner and holder of a note may have entered into a separate contract with another entity (e.g. Fannie Mae) for ownership rights in the notewhereby the owner sells to a new owner the right to receive payments on the note but maintains possessiondoes not change the fact that the holder (and former owner) remains the entity with the right to foreclose even though it is no longer the party to whom the underlying, secured obligation is owed. See, e.g., Corales v. Flagstar Bank, FSB, 822 F Supp 2d 1102, 1108 (WD Wash 2011). In Corales, the plaintiffs argued that Fannie Mae had an ownership interest in the loan payments, and thus the lender (Flagstar) could not foreclose because it was not the owner of the loanthe

24 same mistake the Court of Appeals made here. The Corales court rejected that argument: [E]ven if a lender sells a loan to Fannie Mae, the lenders possession of the Note endorsed in blank means that it may foreclose * * *. Thus, even if Fannie Mae has an [ownership] interest in the Plaintiffs loan, Flagstar has the authority to enforce it and foreclose. Id. Thus, the holding that the beneficiary with the right to foreclose nonjudicially may only be the party to whom the underlying, secured obligation is owed would overturn a century of jurisprudence holding that the security (trust deed) follows the debt (note). Indeed, whether a designated beneficiary must always be the owner (or even the holder) of the debt raises issues that upset myriad common commercial transactions. In many municipal and corporate bond transactions, an indenture trustee is appointed to act for a large group of widely dispersed bondholders and, if there is real property collateral for the bonds, the indenture trustee is named as beneficiary of the deeds of trust securing the bonds. Similarly, in large multi-bank commercial loans, the lead bank is generally appointed as the administrative agent and the administrative agent is named as the secured party under the security agreements and as beneficiary under any deeds of trust. In that capacity, the lead bank has the power to act for the entire bank group in matters relating to the collateral. For example, in Andrews v. Kelleher, a mortgage was held by a bond trustee for the benefit of a group of bondholders

25 and the court treated that as an unremarkable situation. See 214 P 1056 (Wash 1923). If creditors in these types of arrangements are not allowed to act through an agent as beneficiary, management of deeds of trust securing bonds and syndicated credit facilities would become unwieldy to the detriment of both borrowers and creditors. Indeed, if every bondholder must be named individually as one of a group of beneficiaries consisting of all the bondholders, every bondholder would have to sign any request for reconveyance upon payoff of the debtpotentially many hundreds of bondholders, or in the case of a syndicated commercial credit facility, often dozens of banks. This impractical requirement would throw commercial transactions into chaos and disadvantage all parties. Any challenge to MERSs role as beneficiary has wide-spread consequences beyond the residential real estate market, and both the plain language of the OTDA and public policy support the designation of beneficiaries like MERS. Further, even if, notwithstanding the statutory language, beneficiary under the OTDA is limited in the way the Court of Appeals held (or otherwise), there is no reason parties cannot agree to waive rights under the OTDA. To the extent that a borrower as a right to require each beneficiary to record each assignment of the trust deed, the borrower can waive that right. See, e.g., In re Leisure, 336 Or 244, 253, 82 P3d 144 (2003) (Statutory rights may be waived, but only to the extent that they serve no broader public policy but are

26 directed solely to the protection of the individual who purports to waive them.). Here, the Court of Appeals correctly explained that Oregons recording laws are to give notice of a lien to prospective purchasers and for the protection of the lender and its assignees (not borrowers). Niday, 251 Or App at 284-85. It is undisputed that GreenPoint recorded the Deed of Trust (satisfying the first purpose) and there are no assignments to record. As such, a contractual agreement that MERS may act as beneficiary of record regardless of the number of note transfers taking place has no effect on plaintiff, and the parties may freely waive any potential right to require recordation of intervening assignments. Indeed, as the Court of Appeals explains, it is GMAC and Aurora, not plaintiff, which gain protection through recordation of assignments, making this contractual waiver one that cannot affect plaintiff. Id. The parties to the Deed of Trust here waived any right that the beneficiary be the party to whom a secured debt is owed and that such beneficiary record all assignments. Yet, the Court of Appeals appeared to believe designation in the trust deed of MERS as beneficiary is an attempt to contract around the OTDAs definition of beneficiary. See Niday, 251 Or App at 293 n 12. The Court likewise declined to address whether the contractual agreement to MERSs designation estops plaintiff from contesting that designation because MERS

27 purportedly did not make that argument, and, in any event, plaintiff is [not] somehow estopped from insisting upon compliance with the OTDA. Id. Implicit in this analysis is the notion that the OTDA is a consumer-protection statute or that its definition of beneficiary is somehow intended to protect borrowers such that they might insist upon compliance. This argument might make sense if contract at issuethe trust deedwere not essential to the operation of the underlying statute (the Oregon Trust Deed Act). If MERS were asking a borrower to execute an extraneous contract waiving some fundamental right or protection, then the Court of Appeals analysis would apply. But because the OTDA requires a trust deed, and expressly contemplates that the parties may designate a beneficiary, there is no right or protection that has been lost by doing precisely what the statute contemplates. The borrower is economically indifferent to whether MERS, GreenPoint, or Aurora is beneficiary, and designation of that role is for the protection of the lender, not the borrower. Plaintiff admits she knew who to pay, and her agreement to MERSs designation as beneficiary has no effect on her. ER 89; see, e.g., Veal, 450 BR at 912 (borrower should be indifferent as to who owns or has an interest in the note so long as it does not affect the maker's ability to make payments on the note). Interpreting the OTDA to ignore the parties agreement in the trust deed, with no appreciable benefit to a borrower (other than delay), makes no sense.

28 Whether an interpretation of law is correct can be measured in part by the extent to which the interpretation advances the public policy that the legislature intended to foster. See State v. Shaw, 338 Or 586, 605-06, 113 P3d 898 (2005) (public policy underlying law assists in resolving ambiguity). A point the Court of Appeals never addressed is why the Legislative Assembly would have intended for the OTDA to prohibit a borrower and lender from designating as the beneficiary a nominee or other agent of the lender. There is no good reason. At first blush, providing notice to a borrower of the person to whom the borrower owes repayment could conceivably be a reason to limit whom the parties could designate as beneficiary. But in the context of nonjudicial foreclosure, it is the identity of the trustee that becomes relevant, as the trustee takes legal action for the beneficiary. For that reason, the OTDA requires the trustee, not the beneficiary, to provide the borrower with information. See, e.g., ORS 86.759 (prescribing information trustee must provide borrower, including amount owing on loan). Likewise, the OTDA, ORS 86.790, prescribes a procedure for appointing and giving notice of a successor trustee, but not of a successor beneficiary. The difference in treatment of trustees and beneficiaries confirms that the legislature did not intend for a change in the identity of the beneficiary to be of material consequence to the borrower. 4. The contractual choice of MERS as beneficiary is consistent with traditional agency principles.

The legislature enacted the OTDA in the context of long-established

29 Oregon statutory and common law principles authorizing agents (such as MERS) to act as beneficiary and hold legal and record title to interests in real estate. The Court of Appeals failed to address MERSs role as agent and nominee. Niday, 251 Or App at 296 (saying defendants conflated who is a beneficiary and who can act on behalf of that beneficiary (emphasis in original)); see also id. at 297 n 14 (This case is not about whether, as a policy matter, an agent should be allowed to enforce a deed of trust.). As noted above, the import of the named or otherwise designated language in the definition of beneficiary is precisely that an agent or nominee of the lender may be a beneficiary. By failing to address MERSs role as agent and nominee, the Court of Appeals ended its analysis too soon, and reached an incorrect conclusionone that limits the ability of an agent like MERS to act on behalf of a lender or its successor. The legislative recognition that the beneficiary may be an agent or nominee of the lender is consistent with longstanding principles of agency law. An agency relationship exists when a principal manifests assent to have an agent act on its behalf, subject to the principals control and consent of the agent. See Ruddy v. Oregon Auto. Credit Corp., 179 Or 688, 702, 174 P2d 603 (1946); Kantola v. Lovell Auto Co., 157 Or 534, 537, 72 P2d 61 (1937) (agency defined as the relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and

30 subject to his control, and consent by the other so to act) (quoting RESTATEMENT (FIRST) OF AGENCY (1933), 1); RESTATEMENT (THIRD) OF AGENCY 1.01 (2006). An agent may act on behalf of both a disclosed principal (i.e. the original lender) and a later unidentified principal (i.e. original lenders successor and assign). See RESTATEMENT (THIRD) OF AGENCY 1.04. It is a fundamental principle of the law of agency that the power of every agent to bind his principal rests upon the authority conferred upon him by the principal. Barbour v. Johnson, 201 Or 375, 383, 269 P2d 531 (1954) (quoting Phez Co. v. Salem Fruit Union, 113 Or 398, 429, 233 P 547 (1925)). Agency authority confers by implication all powers necessary for or incident to its proper execution. Pokorny v. Williams, 199 Or 17, 41, 260 P2d 490 (1953); see also RESTATEMENT (THIRD) OF AGENCY 2.02(1) (An agent has actual authority to take action designated or implied in the principals manifestations to the agent and acts necessary or incidental to achieving the principals objectives.). Consistent with these general agency principles, Oregon law has long authorized a lawful agent to hold interests in real property and take action on behalf of another. ORS 93.010; ORS 93.020. Oregons UCC provisions relating to negotiable instruments likewise support the use of agency law to facilitate the market for commercial transactions. See, e.g., ORS 71.1030(1)(b); (2) (UCC must be liberally construed and applied to promote its underlying

31 purposes of expansion of commercial practices through custom, usage and agreement of the parties; and UCC principles of law and equity, including * * * the law relative to capacity to contract, principal and agent [and] estoppel * * * supplement its provisions). The Negotiable Instruments Law similarly included provisions contemplating the use of agents. See, e.g., former ORS 71.019 (1959); Former ORS 71.036 (1959); Former ORS 71.069 (1959); Former ORS 71.091 (1959); Former ORS 71.094 (1959). Indeed, use of an agent or nominee, which means one designated to act for another as his representative in a rather limited sense, Schuh Trading Co. v. Commr, 95 F2d 404, 411 (7th Cir 1938), is a common and long-sanctioned practice in real estate, where owners have frequently conferred rights on a nominee or agent for a variety of purposes, including to execute or hold security instruments. See, e.g., Thayer v. Nehalem Mill Co., 31 Or 437, 440-42, 51 P 202 (1897) (confirming that agent had authority to execute mortgage on behalf of principal); Carr v. Cohn, 87 P 926, 927 (Wash 1906) (nominee to whom property has been deeded without consideration and merely as title-holder for grantors, to convey as they might direct, can bring quiet title action on deed); In re Cushman Bakery, 526 F2d 23, 30 (1st Cir 1975) (citing cases); see also In re Childs Co., 163 F2d 379, 382 (2d Cir 1947); Barkhausen v. Contl Ill. Natl Bank Trust Co., 120 NE2d 649, 655, cert den, 348 US 897 (Ill 1954); accord Callaghan v. Scandling, 178 Or 449, 451, 167 P2d 119 (1946) (quoting contract

32 language: The owners agree to pay to the broker or his nominee or nominees one section of property * * *.). If an agent may execute a mortgage or trust deed, it follows that an agent may also enforce the mortgage or trust deed. Indeed, the Restatement (Third) of Property (Mortgages) confirms that agents may enforce a trust deed on behalf of a lender, even instructing courts to be vigorous in seeking to find such [an agency] relationship, since the result is otherwise likely to be a windfall for the mortgagor and the frustration of [the lenders] expectation of security. RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) 5.4, cmt. e (1997). Consistent with these longstanding agency principles, the legislature provided that a lender, in lending money and obtaining a trust deed, could designate an agent or nominee as the trust deed beneficiary. In the end, beneficiary as used in the OTDA is not limited to the party to whom the underlying secured obligation is owed. A beneficiary may be any person whom the parties designate as the beneficiary by contractual agreement in the trust deed, including one who is neither a lender nor successor to a lender. A person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given may properly be the nominee holding legal and record title to the beneficial interest under the trust deed. By the parties contractual agreement, and consistent definition of beneficiary and the related statutory scheme, MERS is a valid trust deed beneficiary even

33 if MERS is neither a lender nor successor to the lender. 5. MERS is a valid agent for lenders and their successors.

The trust deed provides MERS holds only legal title to the interests granted by the Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lenders successors and assigns) has the right: to exercise any or all of those interests[.] ER 57. All parties to the trust deedborrower, lender, and trusteeagree to be bound by this term, which designates MERS the beneficiary and the agent for the lender. Any successors or assigns of the lender similarly take the trust deed contract subject to the provision. ER 65 (The Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower.). Thus, principals (lenders) manifest assent to have an agent (MERS) act on their behalf: the hallmark of a classic agency relationship. See Ruddy, 179 Or at 702; RESTATEMENT (FIRST) OF AGENCY 1, supra. And under MERSs agreement with its members, all lenders and servicerswhich includes any successor or assignee lendersagree to allow MERS to serve as their common agent. See In re Tucker, 441 BR 638, 646 (WD Mo Bankr 2010) (MERS was the agent for New Century under the Deed of Trust from the inception, and MERS became agent for each subsequent noteholder under the Deed of Trust * * *.); Kiah v. Aurora Loan Serv., LLC, 2011 WL 841282, *4 (D Mass 2011) (dissolution of [lender] would not and could

34 not prevent [Note holder] from obtaining an assignment of the mortgage from MERS, both as a matter of law and according to the arrangement that existed between MERS and Aurora as a successor and assign); MERSCORP, Inc. v. Romaine, 8 NY3d 90, 96, 861 NE2d 81 (NY 2006); see also RESTATEMENT (THIRD) OF AGENCY 1.04 (An agent may act on behalf of both a disclosed principal (i.e. the original lender) and a later unidentified principal (i.e. original lenders successor and assign)). As noted above, the use of a nominee agent has long been a feature of real property law in Oregon and other jurisdictions. See Section VI.A.4, supra. Indeed, the legislature has statutorily authorized a lawful agent to execute trust deeds or create, transfer, or declare any interest in real property on anothers behalf. ORS 93.010; 93.020. This evinces the legislatures intent to permit agents to hold interests in real property and take action on behalf of another. MERS acts precisely in this agents role. 6. MERS is authorized by the trust deed to exercise all rights of the lender.

The trust deed empowers MERS, as nominee for the lender, if necessary to comply with law or custom * * * to exercise any or all of the interests granted to the lender in the trust deed. ER 57. This is consistent with the agency law concept that anything a principal can do may also be done through an authorized agent. Taylor v. Ramsay-Gerding Constr. Co., 345 Or 403, 410, 196 P3d 532 (2008). Accordingly, MERS has the right to act on behalf of the

35 lender toas the trust deed statesforeclose and sell the Property; and to take any action required of the Lender including but not limited to releasing and cancelling this Security Instrument. ER 57. The agreement between MERS and its members further defines the agency relationship described in the trust deed, providing that MERS shall at all times comply with the instructions of the beneficial owner of mortgage loans; and granting MERS authority to execute important documents (such as release or assign a security interest), foreclose, and take all other actions necessary to protect the interests of the note holder.7 Mortgage Elec. Registration Sys., Inc. v. Neb. Dept of Banking & Fin., 704 NW2d 784, 787 (Neb 2005); In re Martinez, 444 BR 192, 205-06 (D Kan Bankr 2011). Finally, MERS also has the right to receive payment of the loan obligations on behalf of the lender. 8 In short, MERS is

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MERS is also authorized to hold the note if necessary to foreclose judicially on behalf of a member, and has done so in the past. See, e.g., Mortgage Elec. Registration Sys., Inc. v. Coakley, 41 AD3d 674, 674-75 (NY 2007); Mortgage Elec. Registration Sys., Inc. v. Azize, 965 So2d 151, 153-54 (Fla 2007). MERS anticipates that plaintiff may cite Mortgage Elec. Registration Sys., Inc. v. Neb. Dept of Banking & Fin., 704 NW2d 784 (Neb 2005), an administrative law appeal, to argue MERS has previously disclaimed any right to receive payments from borrowers. Close reading of the Nebraska Supreme Courts opinion, however, shows that MERS contended (and the court agreed) only that MERS does not have an independent right to receive payments from a borrower on MERSs own account. See id. at 787 (citing MERSs terms and conditions with members, which state that MERS shall have no rights whatsoever to any payments made on account of such mortgaged loans, to any
(continued) 8

36 the duly empowered agent of the lender for all the lenders rights under the trust deed. MERSs contractually derived right to receive payments on behalf of a lender in order to enforce a trust deed, even if the right is rarely exercised given the role of loan servicers, flows naturally from MERSs powers and duties as the lenders agent. RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) 5.4, cmt. e (1997), supra; see also id. 5.4(c) (A mortgage may be enforced only by, or on behalf of, a person who is entitled to enforce the obligation the mortgage secures.) (emphasis added). The Court of Appeals did not consider MERSs power to receive the payments owed to the lender, if necessary to comply with law or custom[.] See also Beyer v. Bank of America, 800 F Supp 2d 1157, 1161 (D Or 2011) (finding law and custom provision of trust deed is triggered, and MERS has the right to receive payment of the obligation). MERS, acting as agent for the lender and any successors, has the right to obtain all benefits of the trust deed on its principals behalf. Plaintiff may argue that the Deed of Trust itself disavows any interest for MERS beyond bare legal title because the Deed of Trust provides that MERS holds only legal title to the interests granted by Borrower in this
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servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans).

37 Security Instrument. ER 57. But this argument would read the immediately following clauselaw and customout of the trust deed. The law and custom provision makes clear that MERS may exercise any and all lender interests to comply with law or custom. The law and custom provision provides that even though MERS holds only legal title to the interests granted by Borrower, MERS, as the lenders nominee, may nonetheless exercise the lenders rights if necessary. ER 57. The legal title reference does not limit MERSs authority as agent to act on behalf of the lender. In the end, MERS is the agent authorized to act on behalf of the lender or its successor and meets the definition of beneficiary. Because MERS meets the definition of beneficiary, there has been no assignment of the trust deed by the beneficiary here, and defendants were entitled to summary judgment. B. Transfers of a promissory note do not result, by operation of law, in assignments of the trust deed within the meaning of ORS 86.735(1). The Court of Appeals reversed summary judgment in Defendants favor under the following syllogism: (a) the OTDA requires recordation of any trust deed assignments as a precondition to nonjudicial foreclosure; (b) there was evidence that the note was transferred from GreenPoint to Aurora; (c) there was no recorded assignment from GreenPoint to Aurora; (d) the trust deed follows the note as a matter of law, and therefore a transfer of the note was a trust deed

38 assignment; and (e) therefore the missing assignment from GreenPoint to Aurora violates the OTDA and bars nonjudicial foreclosure. But the OTDA does not require recordation of a transfer of a promissory note by indorsement. Transfers by indorsement and transfers by assignment are different. A note may be transferred by indorsement and delivery or by assignment and delivery. The latter requires a recorded assignment; the former requires only delivery. The Court of Appeals, however, concluded that a transfer of a note by indorsement constituted an assignment of the trust deed that must be recorded. Niday, 251 Or App at 299. It declared that there existed the understanding, well established at the time the OTDA was enacted, that there were two methods of assignment, one formal and the other by indorsement. Id. at 300. That description of methods of assignment is incorrect, but even if the description were true, it does not follow that the phrase assignments of the trust deed includes assignments by operation of law when the note is transferred. In fact, the statutory text, context, and legislative history all point to the opposite conclusion. 1. The text of ORS 86.735(1) reflects the legislative intent to require recordation only of formal written assignments of the trust deed.

The OTDA does not define assignments, but refers only to assignments of the trust deed, without reference to transfers of the underlying debt instrument. ORS 86.735(1) (emphasis added). This statutory language

39 suggests that the legislature was referring only to written assignments of the trust deed itself, not to a transfer or assignment of the underlying note. That makes sense: a promissory note is not a conveyance of real property and is not susceptible to recordation. See, e.g., ORS 93.610; ORS 93.630; ORS 205.130. Further, a transfer by indorsement is not necessarily reflected in a writing. Nothing in ORS 86.735(1) or any other OTDA provision requires creation of a formal written assignment where none existsbut that is precisely what would be required if note transfers are deemed to be assignments of the trust deed that must be recorded order ORS 86.735(1). In addition, the statute requires recordation only of assignments of the trust deed by the trustee or the beneficiary * * *. Id. (emphasis added). The inclusion of the term assignments only once, modified by the single phrase by the trustee or the beneficiary, shows the legislature contemplated a single kind of assignment that either the trustee or the beneficiary could effect. An assignment of the trust deed by the trustee, of course, has nothing to do with transfer of the underlying note. An assignment of the trust deed by the trustee could only be accomplished by a formal document with stand-alone legal effect. The text shows that assignments means existing, formal written assignments. Finally, ORS 86.735(1) requires recordation of any assignments of the trust deed by * * * the beneficiary * * *. Applying the statutory definition of beneficiary, ORS 86.735(1) requires recordation of any assignments of the

40 trust deed by the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or the persons successor in interest[.] ORS 86.735(1). The Court of Appeals took this statutory language, rewrote the person for whose benefit a trust deed is given, or the persons successor in interest to mean the party to whom the underlying, secured obligation is owed, and rewrote assignment to include transfer by indorsement. Niday, 251 Or App at 298-300. After the Court of Appeals revision, ORS 86.735(1) requires recordation of any formal written assignment of the trust deed or transfer by indorsement of the promissory note by the trustee or party to whom the underlying, secured obligation is owed. The statutory text does not support that judicial revision. To the contrary, assignment, read in the context of the immediately following words, refers to written assignments of the trust deed.9 2. The context of ORS 86.735 shows that the legislature did not intend to require recordation of note transfers.

When the legislature enacted the OTDA and required that any assignments of the trust deed be recorded, it was the law of Oregon that the nearly identical statute requiring that [e]very assignment of mortgage shall be recorded required recordation only of formal, written assignments. Barringer,
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The Court of Appeals also seemed to give weight to the word any before assignments. Niday, 251 Or App at 299-300. Any does not give meaning to assignments; it merely identifies which assignments must be recorded.

41 47 Or at 230; Former ORS 86.070. In enacting ORS 86.735(1), the legislature similarly intended assignments to refer only to formal, written assignments of the trust deed, not transfers by indorsement of underlying debt instrument. a. Other statutory provisions show that the legislature did not intend assignments of the trust deed to include transfers by indorsement.

The statutory context supports the conclusion that the legislature did not intend for assignments of the trust deed to include transfers of the promissory note by indorsement and delivery. The statutory context shows that a person can receive a note by indorsement, or a person can receive a legal interest in a note by formal assignment, without becoming the holder of the note (as that term is used in the UCC and the Negotiable Instruments Law before it). The two acts are different, giving rise to different legal rights and obligations. (1) Mortgage statutes support MERSs position.

At the time the legislature enacted the OTDA, the mortgage statutes contained provisions relating to assignments of mortgages and the recordation of assignments of mortgages. Those statutes show that the legislature understood assignment to mean a formal written assignment, not transfers of the promissory note. For example, ORS 86.060, titled Assignment of Mortgage, has long provided that [m]ortgages may be assigned by an instrument in writing, executed and acknowledged with the same formality as required in deeds and mortgages of real property, and recorded in the records of

42 mortgages of the county where the land is situated. ORS 86.060. 10 At the time the OTDA was enacted, the mortgage statutes required: Every assignment of mortgage shall be recorded at full length, and a reference shall be made to the book and page containing such assignment upon the margin of record of the mortgage. ORS 86.070 (1957) (emphasis added).11 By describing an assignment of mortgage generally as a specific written instrument executed with the same formality as required in deeds, ORS 86.060, and then, in the immediately following statute requiring recordation of [e]very assignment * * * at full length, former ORS 86.070 (emphasis added), these statutes show that the only assignment the legislature had in mind was an assignment by a specific written instrument. A purported assignment by indorsement and delivery of the note could not be recorded at all, let alone at full length. The legislature in 1959 would not have understood that, by requiring recordation of any assignments of the trust deed, the legislature was requiring recordation of every note transfer, when the then-analogous statute addressing recordation of [e]very assignment of mortgage, ORS 86.070, was part of a statutory scheme that described an assignment of mortgage as an instrument in writing, executed and acknowledged with the same formality as required in deeds and
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The statute was enacted in 1895. See Barringer, 47 Or at 228. It remains in effect today in identical form. The legislature enacted ORS 86.070 in 1895, see Barringer, 47 Or at 228, and repealed it in 1965, Or Laws 1965, ch 252, 1.
11

10

43 mortgages of real property, ORS 86.060. Oregons real property discharge statute further recognizes this difference between assignment and transfer by indorsement, providing the express means by which a lien holder may record the discharge of a lien where there has only been negotiation of a note, and no formal assignments: Whenever a promissory note secured by mortgage on real property is transferred by indorsement without a formal assignment of the mortgage, and the mortgage is recorded, the mortgage, upon payment of the promissory note, may be discharged of record by the owner and holder of the promissory note making and filing with the appropriate recording officer a certificate, verified by oath, proving the satisfaction of mortgage and declaring, in substance, that the owner and holder is the owner and holder of the note secured by the mortgage by indorsement of the mortgagee and that the note has been fully paid and proving that fact to the satisfaction of the recording officer. ORS 86.110(1) (emphasis added).12 The legislature understood the distinction between a transfer by indorsement and an assignment, and used the terms differently. The Court of Appeals, however, emphasized the word formal and concluded that its use in ORS 86.110 reflects a distinction between assignments by indorsement and formal assignments. Niday, 251 Or App at 300. The single word formal in a statute enacted in 1889 does not show that the legislature in 1959 intended to refer to a transfer of a note by
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12

ORS 86.110 was enacted in 1889. See Barringer, 47 Or at 228.

44 indorsement when using the term assignment. Moreover, the context of ORS 86.110 shows that in enacting the mortgage statutes, the legislature was not drawing the distinction on which the Court of Appeals relied. ORS 86.060 describes assignments only as formal written instruments, and ORS 86.070 required recordation only of those assignments. It is far more likely that the use of the word formal in ORS 86.110 was intended to have a meaning consistent with the requirements of ORS 86.060, which describes an assignment of mortgage as an instrument executed and acknowledged with the same formality as required in deeds and mortgages of real property. (Emphasis added.) Indeed, reading ORS 86.110 in its statutory context affirmatively shows that the legislature did not consider a transfer of the promissory note by indorsement to constitute an assignment of the mortgage. The provision governing liability of a mortgagee for failure to discharge a mortgage, ORS 86.140, refers to the mortgagee or the personal representative or assignee of the mortgagee and says [t]he owner and holder of the promissory note referred to in ORS 86.110 is deemed the personal representative of the mortgagee for purposes of this section. If transferred by indorsement in ORS 86.110 meant some kind of informal assignment, then the owner and holder of the note would be an assignee of the mortgagee. But owner and holder of the note is not an assignee of the mortgageethe legislature

45 considered the owner and holder of a note transferred by indorsement to be the personal representative of the mortgagee, not the mortgagees assignee. The Court of Appeals distinction between formal assignments and assignments by indorsement is incorrect because the legislature did not consider a transfer by indorsement to effect an assignment of the mortgage.13 (2) Oregons law of negotiable instruments shows that assignments did not include transfers by indorsement.

The Negotiable Instruments Law provides further statutory context that shows that a transfer by indorsement is not a type of assignment that must be recorded. Under the Negotiable Instruments Law (and, later, the Oregons Uniform Commercial Code, Or Laws 1961, ch 726), an instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. Former ORS 71.030 (1959); cf. ORS 73.0201(1). An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer and may be negotiated by delivery. Former ORS 71.034 (1959); cf. 73.0205(2). Delivering possession of the

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ORS 86.140 also shows that the owner and holder of the note and the mortgagee may be different. Likewise, the trust deed beneficiary and the owner and holder of the note may be different. See Section VI.A, supra.

13

46 instrument in blank constituted a transfer by indorsement. 14 This manner of transfer by indorsement could occur innumerable timeswithout any additional writing that could be recorded because the transactions do not necessarily generate any paper trail. Indeed, a hypothetical example shows the absurd results the Court of Appeals decision produces. If, for example, a thief stole a borrowers note, and the police recovered and returned it, even the original lender could not foreclose nonjudicially without obtaining and recording both an assignment to the thief and another back from the thief, because even one in wrongful possession of the endorsed note has the right to enforce it. See ORS 73.0301 (A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.); see also Official Comment to ORS 73.0301 (The quoted phrase includes a person enforcing a lost or stolen instrument). This cannot possibly be what the legislature intended, and interpreting the OTDA to require the creation and recordation of a new document every time a note changes hands is improper. See State v. Vasquez-Rubio, 323 Or 275, 282-83, 917 P2d 494 (1996) ([T]he court will refuse to adopt [a] meaning that would lead to an absurd result that is
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Although transfer of an instrument indorsed in blank does not necessarily require further indorsement, it is still a transfer by indorsement because the possessors legal interest in the instrument exists by virtue of the indorsement.

14

47 inconsistent with the apparent policy of the legislation as a whole.). There is no support for the notion that when the legislature referred to transfer[] by indorsement without a formal assignment of the mortgage in ORS 86.110 in 1889 it intended parties who negotiated an instrument to create and record an assignment or intended the land records reflect every investor who held a promissory note during the life of a loan. 15 Evidence of the legislatures intent to do so in 1959 is equally absent. Yet, if the Court of Appeals were correct, every time a note is negotiatedincluding transfer of possession of a note indorsed in blankthe trust deed securing it would become unenforceable nonjudicially unless the parties created and recorded a separate formal written assignment of the mortgage. There is no support in the statutory text or context for that proposition. Moreover, as discussed above in section VI.A.2.c, transfer by indorsement did not uniformly effect an assignment of the deed of trust in 1959. Where the indorser added to the indorsers signature the words without recourse, or any words of similar import, the indorsement was a qualified indorsement and the indorser was deemed a mere assignor of the title to the
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Transfer of a note by indorsement in blank and delivery existed when the legislature enacted ORS 86.110 in 1889, see, e.g., Smith v. Caro, 9 Or 278 (1881) (addressing dispute involving note indorsed in blank), but no mechanism then existed for recordation of assignments of a mortgage, Barringer, 47 Or at 228.

15

48 instrument. Former ORS 71.038 (1959) (emphasis added). Although a qualified indorsement would constitute a transfer by indorsement, it is unlikely that such a transfer resulted in an automatic assignment of any underlying security, the indorsement merely having effected assignment of title to the instrument. 16 Similarly, under the Negotiable Instruments Law, an indorsement could be conditional. Former ORS 71.039 (1959); cf. ORS 73.0206(2). Where an indorsement was conditional, the borrower could pay the indorsee, but any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally. Former ORS 71.039 (1959). With a conditional indorsement, whether the transfer by indorsement resulted in any assignment of the underlying security likely depended on the nature of the condition. A restrictive indorsementanother type of indorsement described in the Negotiable Instruments Lawincluded one which [c]onstitutes the indorsee the agent of the indorser. Former ORS 71.036 (1959). The indorsee had the right to receive payment of the instrument, former ORS 71.037(2) (1959), but because that right existed as an agent, the indorser (principal) must
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16

MERS does not find any cases interpreting former ORS 71.038 (1959).

49 have retained that right as well. The indorsee as agent may also have had the resulting ability to enforce the note via whatever security instrument secured it, but as a basic tenet of agency law, the agents ability derived from the principals authority. This statutory scheme governing negotiable instruments and the multiple ways a note could (and still can) be transferred by indorsement, with differing effects with respect to the underlying security, shows that to conclude that it was well established in 1959 that there were two methods of assignment, one formal and the other by indorsement[,] Niday, 251 Or App at 300, is an oversimplification. Indeed, as described above, there is a meaningful difference between transfer by indorsement and transfer by assignment. Transfer is an all-encompassing term used by the UCC to describe the act which passes an interest in the instrument to another. Scheid v. Shields, 269 Or 236, 238, 524 P2d 1209 (1974). Negotiating an instrument (i.e. transfer of possession, making the recipient a holder), is one method of transfer. Id. A transfer of an instrument may be by endorsement making the transferee a holder; by transfer for value, making the transferee a holder in due course; or by transfer without value or endorsement giving the transferee those rights possessed by the transferor. Perry & Greer, Inc. v. Manning, 282 Or 25, 31-32, 576 P2d 791 (1978). An assignment is substantively different. See, e.g., Carius v. Ohio Contract Purchase Co., 164 NE 234, 235 (Ohio Ct App 1928) (The word

50 assign has a definite and distinct meaning, and a transfer of a contract by assignment is quite different from a transfer of a contract for the payment of money only by indorsement; in other words, a promissory note.). For example, a person can have an assigned ownership interest in a note or trust deed without actually having the note indorsed to the person in possession or indorsed in blank. See, e.g., Jerstad v. Warren, 73 Or App 387, 393-94, 698 P2d 1033 (1985). A note holder may transfer both the note and trust deed through a formal assignment so long as the assignment agreement provides both are assigned. Because the note would not be indorsed in that scenario, the new holder would not be a holder in due course, but would have the right to enforce the note and trust deed. ORS 86.110 recognized the difference between transfer of a promissory note by indorsement and an assignment, and so did the 1959 legislature when it referred to assignments of the trust deed without reference to transfer of the promissory note. (3) Other statutes show that, when the legislature intends to refer to the note or underlying debt, the legislature does so expressly.

The legislature does not refer to the underlying note by referring to the trust deed that secures the note. The legislature knows the difference between a trust deed (or other security) and the underlying debt, and when the legislature intends to refer to one or the other, the legislature does so expressly. For example, in ORS 86.735(4), which existed in substantially the same form in the

51 original OTDA, see ORS 86.735(1)(d) (1959), the legislature referred to the debt or any part of it then remaining secured by the trust deed[.] Similarly, ORS 86.110 distinguishes between the promissory note and the mortgage that secures it. ORS 86.140, describing liability of a mortgagee for failure to discharge a mortgage, refers to the owner and holder of the promissory note as distinct from the mortgagee. When the legislature chose in ORS 86.735(1) to require recordation only of assignments of the trust deed, the legislature intended to exclude any transfer of the note. b. Pre-1959 case law shows that note transfers do not need to be recorded.

This Courts opinion in Barringer v. Loder shows that the legislature required recordation only of formal mortgage assignments and not transfers of a note by indorsement. In Barringer, Mr. and Mrs. Barringer loaned money to Mr. Hayden, evidenced by a note and secured by a mortgage, the latter of which was recorded. The Barringers divorced, and Mrs. Barringer received the note and mortgage as part of the separation. Later, Mr. Barringer signed an assignment of the mortgage to Mr. Loder, but refused to sign an affidavit verifying the claim that Mr. Barringer had lost the note and mortgage. Regardless, Mr. Loder recorded the assignment, convinced Mr. Hayden to pay him the full amount due under the loan, and then recorded a notice canceling the mortgage (which was actually held by Mrs. Barringer). Mrs. Barringer later

52 sued Mr. Loder to foreclose on the mortgage. Barringer, 47 Or at 224-26. It is true that Barringer described the idea that indorsement of a note (there, to Mrs. Barringer) carries the mortgage with the indorsement, and called the security following the debt a manner of assignment of the mortgage, and also referred to an ability to assign by indorsement of the note. Id. at 229. But this Court in Barringer was not focusing on distinctions between assignment and transfer (although this Court referred to the assignee or indorsee of the note, seemingly recognizing the difference). See id. (emphasis added). Indeed, subsequent cases citing Barringer refer to transfer by indorsement without denominating the transfer as an assignment. See, e.g., Schleef v. Purdy, 107 Or 71, 78, 214 P 137 (1923) (A mortgage given as security for the payment of a note may be transferred, either by the indorsement of the note and the surrender of its possession or, if the note is payable to bearer, by the mere delivery thereof and the surrender of its possession, and this transfer of the note, without any formal transfer of the mortgage, transfers the mortgage.); Roth v. Troutdale Land Co., 83 Or 500, 506-07, 162 P 1069 (1917) (The indorsement and transfer by a mortgagee of a promissory note secured by a mortgage carries with it the mortgage security without a formal assignment of the mortgage.). Even if transfer by indorsement constitutes an assignment, Barringer shows that such an informal assignment does not need to be recorded.

53 Construing ORS 86.060, Barringer said the statutes use of the permissive word may with reference to an assignment by separate writing recognized the separate right to assign by indorsement of the note. Barringer, 47 Or at 229. When the legislature enacted ORS 86.060 in 1895 [a]ssignments of the method designated [in ORS 86.060, i.e. formal written assignments] then could be made before the statute as well as by assignment of the note, and the act simply prescribes that this may still be done by that method, but that such assignments shall be recorded in the manner pointed out. Id. at 230 (emphasis added). Thus, even though ORS 86.070 required recordation of [e]very assignment of mortgage (emphasis added), and even though Barringer characterized indorsement of a note as an assignment, only assignments described in ORS 86.060 (i.e. assignments by a written instrument with the formalities of a deed or mortgage) were required to be recorded. 3. The legislative history of the OTDA supports that the legislature did not understand transfers of the note to be assignments of the trust deed.

The legislative history also suggests the legislature had in mind only formal, written assignments when it enacted the OTDA. Although admittedly sparse, the legislative history materials reflect that, at the time of enactment, the practice appears to have been to transfer loans by endorsing the trust deed as means of modernizing the mortgage system. See Petition for Review, App 1 (Minutes, House Judiciary Comm, SB 117, Apr 16, 1959, 1, 2). Recording an

54 endorsement of the trust deed, as the legislative history references, makes more sense than recording indorsements of the note. The latter would not serve the purpose of the recording statutes because the note does not contain a description of the property or transfer title to real property. Only the trust deed describes the property and affects title. Nothing in the text, context, or legislative history of the OTDA supports a construction under which assignments of the trust deed by * * * the beneficiary means or includes transfers by indorsement of the note. Such a construction not only would contradict the statutory text and context, it would make no practical sense. Assignments of the trust deed means written assignments of legal effect, not some post hoc memorialization of note transfers created solely for the purpose of recording.

VII. CONCLUSION For the foregoing reasons, the decision of the Court of Appeals should be reversed, and the judgment of the trial court affirmed. Dated this 8th day of November, 2012.

55 Respectfully submitted, /s/ Kevin H. Kono Gregory A. Chaimov, OSB #822180 gregorychaimov@dwt.com Frederick B. Burnside, OSB #096617 fredburnside@dwt.com Kevin H. Kono, OSB #023528 kevinkono@dwt.com Davis Wright Tremaine LLP 1300 SW Fifth Avenue, Suite 2400 Portland, Oregon 97201 Telephone: 503-241-2300 Facsimile: 503-778-5299 Attorneys for Defendant-Respondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.

1 CERTIFICATE OF COMPLIANCE WITH ORAP 5.05(2)(d) Brief Length I certify that (1) this brief complies with the word-count limitation in ORAP 5.05(2)(b) and (2) the word-count of this brief (as described in ORAP 5.05(2)(a)) is 13,566 words. Type Size I certify that the size of the type in this brief is not smaller than 14 point for both the text of the brief and footnotes as required by ORAP 5.05(4)(f). Dated: November 8, 2012.

/s/ Kevin H. Kono Gregory A. Chaimov, OSB #822180 Frederick B. Burnside, OSB #096617 Kevin H. Kono, OSB #023528 Attorneys for Defendant-Respondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.

1 CERTIFICATE OF FILING AND SERVICE I hereby certify that, on November 8, 2012, I directed the BRIEF ON THE MERITS OF PETITIONER ON REVIEW to be electronically filed with the Appellate Court Administrator, Appellate Records Section, by using the courts electronic filing system. I further certify that, on November 8, 2012, I directed the BRIEF ON THE MERITS OF PETITIONER ON REVIEW to be served on the following attorneys by mailing two copies thereof in a sealed, first-class postage prepaid envelope, addressed to said attorneys last known addresses and deposited in the U.S. Mail at Portland, Oregon: Elizabeth Lemoine, OSB # 040811 Makler Lemoine & Goldberg, PC 515 NW Saltzman Rd Ste 811 Portland OR 97229 Telephone: 503-718-7672 William G. Fig, OSB # 952618 Sussman Shank, LLP 1000 SW Broadway Ste 1400 Portland OR 97205 Telephone: 503-227-1111

W. Jeff Barnes (adm. pro hac vice) W.J. Barnes, PA 9350 Wilshire Blvd, Ste 308 Beverly Hills CA 90212 Attorneys for Appellant Niday

Robert J. Pratte Fulbright & Jaworski L.L.P. 2100 IDS Center 80 South Eighth Street Minneapolis, Minnesota 55402-2112 Telephone: 612-321-2244 Facsimile: 612-321-2288 rpratte@fulbright.com Attorneys for Respondents GMAC Mortgage, LLC and Executive Trustee Services, Inc.

2 David L. Koen, OSB No. 080941 Legal Aid Services of Oregon 921 SW Washington St Ste 500 Portland OR 97205 Telephone: 503-224-4086 Attorneys for Amicus Curiae Oregon Trial Lawyers Association

/s/ Kevin H. Kono Kevin H. Kono, OSB #023528 Davis Wright Tremaine LLP Attorneys for Defendant-Respondent, Petitioner on Review Mortgage Electronic Registration Systems, Inc.