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Mahaffey v. Quality Loan Service Corp. of Washington

United States District Court, D. Oregon

August 3, 2017

ROBERT J. MAHAFFEY and TAMERA K. MAHAFFEY, tenants by the entirety, Plaintiffs,


          Michael McShane United States District Judge

         Yesterday, plaintiffs Robert and Tamera Mahaffey moved for a temporary restraining order (TRO) prohibiting defendants from evicting plaintiffs (via a pending Forcible Entry and unlawful Detainer/Eviction state action in Decshutes County) or selling, transferring, conveying, or otherwise disposing of plaintiffs' home. ECF No. 3. In addition to the motion for a TRO, plaintiffs filed a 43-page complaint two days ago against several banks, trustees, and servicing entities bringing several claims related to the alleged improper, illegal, and void foreclosure proceedings on plaintiffs' home.

         Like many actions challenging foreclosure proceedings, plaintiffs' arguments appear to center on alleged improper assignments of the note and deed of trust, resulting in the foreclosing parties allegedly violating the Oregon Trust Deed Act. Broadly speaking, plaintiffs allege the violations render the foreclosure, and the Trustee's Deed Upon Sale, void.

         According to the Complaint, plaintiffs at some point signed a promissory note, secured by a deed of trust on the property, in the amount of $467, 000. Compl, ¶ 5. A March 21, 20016 Notice of Default and Election to Sell the property was recorded in the county land records on March 23, 2016. Id. at ¶ 16. The Notice of Default lists a payoff amount of $871, 365.27 with an amount to reinstate of $353, 540.91. Id. at ¶ 5. On March 24, 2016, plaintiffs were served with a Notice of Sale. Id. at ¶ 18.

         On October 27, 2016, defendant Quality Loan Service Corporation of Washington recorded a Trustees Deed Upon Sale. Id. at ¶ 1. The Trustee's Deed states title to the property owned by plaintiffs passed to the “Current Beneficiary” following the October 17, 2016 foreclosure trustee's sale. Id. at ¶ 2. At that sale, the beneficiary purchased the property for $385, 000. Id. at ¶ 22.

         The Complaint's 43-pages do not detail what actions plaintiffs took to stop this allegedly illegal foreclosure sale between March 23, 2016 and October 17, 2016, the date of the foreclosure sale. Likewise, the Complaint is silent as to the actions taken by plaintiffs in the months following the sale.

         On July 6, 2017, defendant U.S. Bank NA filed a motion for Forcible Entry and Detainer in Deschutes County regarding the property. Mot. for TRO, ¶ 3. An eviction trial was set for yesterday, the same day plaintiffs moved for a TRO in this Court restraining defendants from proceeding with the eviction. Judge Alton Brady “took the eviction case upon advisement and will rule in this matter unless the U.S. District Court grants a stay of her ruling in Deschutes County.” Id. As noted, plaintiffs seek a TRO enjoining defendants from evicting plaintiffs or selling the property.

         While the Complaint's allegations are not a model of clarity, the Court construes the general claims relating to the TRO as: there were irregularities regarding who was the beneficiary at any given time; there were irregularities regarding who was the trustee at any given time, and; these irregularities led to violations of the Oregon Trust Deed Act, which requires certain interests (such as the beneficiary and the trustee) be recorded before the trustee's sale. Plaintiffs argue that because defendants violated the Oregon Trust Deed Act, the foreclosure sale was void and defendants have no right to evict them or dispose of the property.

         As alleged by plaintiffs:

Trust Deeds and Notes are supposed to follow one another and are expected to be recorded as ownership changes occur. This allows for a perfect chain of title of the trust deed and note and then allows lien holders to set the “priority” of said lien. Recordings also determine who had beneficial interest in the respective Note. MERS and current WILMINGTON Trust ownership of the Note and Trust Deed is exacerbating the two concerns mentioned in that it is not readily apparent who was in actual ownership of the beneficial interest in the Note from 2007 to the present time and creates an imperfect chain of title.

Compl., ¶ 51.

         During the foreclosure crisis following the economic collapse nearly ten years ago, many borrowers raised similar arguments to those plaintiffs appear to raise here. The Oregon Supreme Court discussed similar arguments (amongst others) in Brandrup v. ReconTrust, 353 Or. 668 (2013) and Niday v. GMAC Mortg., LLC, 353 Or. 648 (2013).

         While Brandrup and Niday provided much-needed guidance to courts charged with reviewing foreclosure proceedings, especially those cases involving MERS, questions remained regarding how much compliance-strict or something less-the Oregon Trust Deed Act required to complete a foreclosure sale. In other words, Brandrup and Niday did not resolve issues involved with challenges to completed foreclosure sales, like the one at issue here.

         Last year, analyzing Brandrup, Niday, and the language and legislative history of Oregon Trust Deed Act, the Ninth Circuit provided answers as to what a foreclosed homeowner, like plaintiffs here, must allege to successfully challenge a completed foreclosure sale. See Woods v. U.S. Bank N.A., 831 F.3d 1159 (9th Cir. 2016). Noting the delicate balance between protecting homeowner's (i.e., “grantors”) rights and providing banks (i.e., “grantees”) a “streamlined process with finality, ” the Ninth Circuit concluded that to successfully challenge a completed sale, the grantor must provide specific factual allegations of some “fundamental flaw in the foreclosure proceedings, such as the sale being completed without the borrower actually being in default.” Id. at 1166 (citation omitted). Technical defects, such as listing the wrong beneficiary on the notice of sale, are not significant enough to overturn the foreclosure. Id. At this stage, though they challenge a completed foreclosure sale, plaintiffs only ...

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