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Arnot v. Servicelink Title Company of Oregon

United States District Court, D. Oregon

December 9, 2019

STEPHEN P. ARNOT, Trustee for the Estate of Jason Daniel Neel and Connie Lee Neel, Plaintiff,
SERVICELINK TITLE COMPANY OF OREGON, f/k/a LSI Title Company of Oregon, LLC, Defendant.



         On October 17, 2019, 1 heard oral argument in two companion cases-Arnot v. ServiceLink Title Company of Oregon (3:17-cv-00591-MO) and Arnot v. Weibel et al. (3:17-cv-00592-MO)-regarding multiple motions for summary judgment filed by the various defendants. Min. of Proceedings [ECF 45].[1]As stated on the record, I granted the motions for summary judgment and dismissed both cases with prejudice. In both cases, I granted summary judgment on two independent grounds: 1) that Plaintiff failed to join required parties, and 2) that Plaintiffs claims are barred by the two-year statute of limitations for avoidance actions under bankruptcy law. In Arnot v. Weibel et al. only, I granted summary judgment for a third reason: that Plaintiffs claims are barred by the five-year statute of limitations under Oregon Revised Statute ("ORS") 86.767(6). The following opinion supplements my comments made at oral argument and further explains my decision.


         I. General Background

         Both cases arise out of a similar set of facts. In both cases, Plaintiff is the chapter 7 trustee of the bankruptcy estate of a married couple. Years ago, each couple financed the purchase of a home by signing a "trust deed" with a lender, pursuant to the Oregon Trust Deed Act ("OTDA"). See, e.g., Notice of Removal [ECF 1 - Attach. 1] Ex. A ("Compl") at ¶ 6. Under the OTDA, a debtor secures a home loan with a trust deed by granting a legal interest to a "trustee" and a beneficial interest to a "beneficiary." See Brandrup v. ReconTrust Co., 353 Or. 668, 676 (2013). Should the debtor default on the loan, the trustee has the right to initiate a nonjudicial foreclosure sale (the legal interest), the proceeds of which would go to the beneficiary to satisfy the loan obligation (the beneficial interest). Id.

         In accordance with a common practice in the Oregon mortgage industry at the time, each of the couples' trust deeds named the Mortgage Electronic Registration System ("MERS") as the beneficiary to the trust deed-but solely as the "nominee" for the lender. Compl. [1-1] at ¶ 6; Decl. of MERS, Arnot v. ServiceLink, No. 3:17-cv-00591-MO [ECF 34 - Attach. 1] Ex. A at 2; see generally Brandrup, 353 Or. at 675-83 (2013) (describing the OTDA and the practice of naming MERS as the beneficiary to a trust deed). Generally speaking, in its capacity as beneficiary/nominee, MERS would handle the transfer of rights in a trust deed by appointing successors in interest and recording the assignment. See Brandrup, 353 Or. at 675-83. For example, when a transaction called for assigning the legal interest of the "trustee" to a new entity, MERS would appoint the "successor trustee" and record the assignment. See Id. Thus, in Oregon, it was frequently the case that a non-judicial foreclosure sale would be initiated by a "successor trustee" that had been appointed by MERS. See Id. However, in June 2013, the Oregon Supreme Court held that MERS was ineligible to serve as a "beneficiary" to a trust deed under the OTDA. Brandrup, 353 Or. at 674 ("[A]n entity like MERS, which is not a lender, may not be a trust deed's 'beneficiary,' unless it is a lender's successor in interest."); see also Niday v. GMAC, 353 Or. 648 (2013). That holding cast serious doubt upon the validity of non-judicial foreclosure sales that had been initiated by a "successor trustee" appointed by MERS.

         Both of the couples here eventually defaulted on their loan obligations and went into bankruptcy.[2] Sure enough, each of their homes was sold-years ago-in a non-judicial foreclosure sale initiated by a MERS-appointed successor trustee. Since then, purported ownership of these homes has changed hands multiple times and the homes are currently resided in by individuals who assuredly believe they lawfully purchased and own the homes. Plaintiff- the trustee of both couples' bankruptcy estates-now asks this court to declare that these nonjudicial foreclosure sales are void and that any purported subsequent conveyance is therefore invalid, thus reestablishing the couples' (or their bankruptcy estates') ownership interest in the properties. See Pl.'s Resp. to Mot. for Summ. J. [ECF 37] at 5.

         II. Case-Specific Factual Background

         A. Arnot v. Servicelink (3:17-cv-00591-MO)[3]

         On August 12, 2005, Jason and Connie Neel ("the Neels") purchased a home financed by a trust deed (as described above). First Am. Compl. ¶¶ 5-7, Arnot v. ServiceLink et al., No. 16-03044-DWH (Bankr. D. Or. Aug. 15, 2016) [ECF 52] ("ServiceLink FAC"). They eventually stopped making payments on their loan.[4] See Id. ¶ 10. On January 19, 2010, MERS appointed Defendant ServiceLink as the "successor trustee" of the Neel's trust deed. Id. On August 6, 2010, a non-judicial foreclosure sale, initiated by ServiceLink, was conducted and the home was purchased by GMAC Mortgage, LLC ("GMAC"). Id. On October 18, 2010, Philip and Marianne Prodehl, a married couple, along with Joseph Prodehl, an unmarried man, jointly purchased the home from GMAC. Cleverley Am. Decl. [ECF 45] Ex. 14 at 1. On December 12, 2014, Phillip and Marianne Prodehl conveyed their interest in the property to Joseph Prodehl. Id. Ex. 20 at 1. Joseph Prodehl is the current occupant of the home and has encumbered the property with a new deed of trust and other lines of credit. Def Mot. Summ. J. [ECF 23] at 6; Cleverley Am. Decl. [45] Ex. 21, 23.

         B. Arnot v. Weibel et al. (3:17-cv-592-MO)

         On December 1, 2000, Robert and Marlene Christensen ("the Christensens") purchased a home financed by a trust deed (as described above). Rosenberg Decl. [ECF 34 - Attach. 1] Ex. 1 ("Weibel FAC") at ¶¶ 5-7. On August 1, 2009, the Christensens defaulted on their home loan.[5] Capital One Decl. [ECF 26 - Attach. 1] at ¶ 11. On December 11, 2009, MERS appointed Defendant David Weibel as the "successor trustee" of the Christensen's trust deed. Weibel FAC ¶ 8. On June 30, 2010, Weibel conducted a non-judicial foreclosure sale where the home was purchased by LaSalle Bank National Association, who eventually conveyed the property to Defendant U.S. Bank. Id. ¶ 12. On March 16, 2011, U.S. Bank sold the property Michael Kennedy and Eva Thanheiser, who financed the purchase by executing a new trust deed with Wells Fargo. Compl. [1-1] at¶¶ 14-15.


         On March 17, 2016, Plaintiff commenced these cases by filing three claims for relief in state court: declaratory relief (declaring the foreclosure sales void), trespass, and invalid encumbrance. See, e.g., Compl. [1-1] at 4, 6, 7. The original complaints, in addition to naming the present Defendants, also named and asserted claims against the Prodehls, Mr. Kennedy and Ms. Thanheiser. Id., at 1; Bankr. Doc, ServiceLink, No. 3:17-cv-00591-MO [ECF 1 - Attach. 1] at 8 ("ServiceLink Compl.")[6]. The action was removed to Bankruptcy Court where Plaintiff moved to remand the case back to state court. See Def U.S. Bank's Resp. [ECF 36] at 2-3. Judge Randall Dunn denied Plaintiffs motion, holding that Plaintiffs claim for declaratory relief was really an avoidance action under bankruptcy law:

[A]lthough the complaints in the Adversaries purport to raise only state law issues, ultimately seeking damages for alleged trespasses and invalid encumbrances, the first, foundation claim for relief in each of the Adversaries seeks a declaratory judgment that the subject foreclosure sales are void, effectively nullifying any transfers resulting from or subsequent to the foreclosure sales. As defendants have pointed out, Mr. Arnot effectively seeks declaratory relief avoiding all such transfers to support his further claims. However, ยง 546(a)(1) establishes a two-year statute of limitations from the petition date in the main case for the exercise of a trustee's avoidance powers under the Bankruptcy Code. The question as to whether a trustee, ...

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