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Trustees Fiduciary and Breach of Fiduciary

Trustees Fiduciary and Breach of Fiduciary

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Published by johngaultwhoam
The deed of trust trustee's fiduciary and duty of good faith and fair dealing to the borrower
The deed of trust trustee's fiduciary and duty of good faith and fair dealing to the borrower

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Published by: johngaultwhoam on Oct 27, 2011
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03/31/2013

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Trustees, Fiduciary, and Breach of Fiduciaryby johngaultThis material deals with the duties and fiduciary of the deed of trusttrustee, breach of that fiduciary and third party breach of fiduciary.A deed of trust is a three party instrument by definition - the trustor,beneficiary, (by any other names), and the trustee. It is the trustee whomay hold 1) legal (or 'bare naked'), title or 2) equitable title to theproperty which is the subject of the deed of trust. Some states are 'titletheory' states and hold that the trustee holds legal title to the propertyin trust for the benefit of the beneficiary with the borrower retainingequitable title. Other states, known as 'lien theory' states, hold thatthe borrower retains legal title with the trustee holding equitable titlefor the benefit of the beneficiary.There are two forms of title: legal and equitable.The trustee's interest is limited to his duty to the terms of the deed oftrust.There are no other rights conferred on the trustee. There is no provisionin a deed of trust which allows the trustee to abrogate his duties,which is what is going on just now. An agent may not foreclose, at leastthat was not the legislative intent of the deed of trust.The beneficiary holds nothing in regard to title. So exactly to WHAT itis that MERS alleges it holds title? (Those are the words MERS uses) Therights of the beneficiary created by the deed of trust? No, that can't beit. MERS has no rights in regard to the debt. No (independent) right isor ever can be created without interest in the note. For instance, anassignment of the deed of trust without a transfer of the note is a legalnullity. The alternative is the note and deed of trust are fatallybifurcated and the note is unsecured. MERS attempts to create aform of title which does not exist as a matter of law. The debt-and-its-collateral are the province of the note owner.I don't know that a nominee of the beneficiary would be prohibited by thelegislative intent in the formulation of the deed of trust as a collateralinstrument, although there are reasons against it. In any event, confusionas to the identity of the beneficiary in a deed of trust has been held toinvalidate the instrument.I don't believe this issue regarding 'nominee' has been fully decided, orat least there is no national consensus. However, at least two cases haveaddressed the matter of nominee (though not as to 'confusion'): The Kesslercourt and Rutland Superior Court in Vermont, 420-6-09, MERS v Johnston, etal.Regardless, there is never any evidence submitted that 'MERS' (otherwiseknown as members' certifying officers) has any nexus whatsoever with thenote owners, mainly because there isn't any.It is the trustee and the trustee only who is contractually empowered togarner the collateral in the event of default for the owner of the note,called the beneficiary in the deed of trust, at least until MERS came along.If a deed of trust (or a statute) alleges a beneficiary may forecloseper se, there is no such thing as a deed of trust. What there is is amortgage (wehich is a two-party instrument, not a three-party instrument)sans the judicial f/c mandates, with some bare contingencies,conditions precedent, of notice of default to the borrower. This isentirely inconsistant with the legislative intent in allowing a deed oftrust as a collateral instrument avoiding judicial foreclosure. To findotherwise is to say that the legislators, when allowing the document to beused in the place of a mortgage, meant to deprive the borrower of all
 
safeguards and all due process.If a beneficiary could foreclose, the trustee would not be anecessary party to a deed of trust, and NO trust would have been created.This is the essence of how a deed of trust differs from a 'mortgage' (thedocument prior to the implementation of the deed of trust and still usedin some states), and with the deed of trust and hence the 'trustee', wesaw the advent of the non-judicial foreclosure. Prior to the deed of trust,mortgages were the instruments used to secure a lender's interest in aproperty. They generally required judicial foreclosure and in some if notall states involved rights of redemption. Lenders found this 'cumbersome',so they lobbied for the deed of trust and non-judicial foreclosure.Can a trustee act as an agent for the beneficiary? No, he can't. He's atrustee, not an agent.An agent is one who owes a ficuciary to at least one party. If the word ormeaning of 'agent' had been intended, it would have been used. It's beenaround a long time. There must be a trustee for a trust, (not an agent).If there were NO trustee, there would be NO deed of 'trust'.To understand a deed of trust, it might be helpful to think of a line afoot long. The trustor (borrower) is at one end and the beneficiary/lenderis at the other. The trustee is in the middle. Where he ISN'T is at oneend or the other with either of the other two parties.In addition to defining a deed of trust, the fact that 'trustee' was usedgives creedence to the dual fiduciary of the deed of trust trustee.According to case law, what makes a trustee also an agent is the amountof control the beneficiary has over the trustee. Perhaps any control makesthe trustee an agent. But, importantly, this case law has only addressed'regular' trustees and has not encompassed a deed of trust trustee, to myknowledge. A deed of trust is a special animal, and its trustee is also aspecial trustee.In fact, if a deed of trust trustee does not perform his obligations tothe trust, he is acting as an agent and not a trustee and vitiates thetrust. Agents may not foreclose; only duly appointed trustees may.To whom does the trustee owe a fiduciary?The choice of words, i.e., 'trustee' over 'agent' in the deed of trustwould make it clear it is dual, that is, a deed of trust trustee owes afiduciary to both the lender and the borrower.Case law is scant on the fiduciary of the trustee. One court, in Lewisv Jordan Investment, Inc., 725 A.2d 4955 (1999), recognized thelong-standing tenet that a trustee has a dual fiduciary:"A trustee of deeds has the fiduciary obligation to comply with the powersand duties of the trust instrument, as well as the applicable statuteunder the District of Columbia Code. Perry v. Virginia Mortgage & Inv.Co., 412 A.2d 1194, 1197 (D.C. 1980) (citations omitted). THIS COURTHAS LONG RECOGNIZED THAT TRUSTEES OWE FIDUCIARY DUTIES TO BOTH THENOTEHOLDER AND THE BORROWER. S & G Inv., Inc. v. Home Fed. Sav. & LoanAss'n, 164 U.S. App. D.C. 263, 270-71 n. 21, 505 F.2d 370, 377-78 n. 21(1974)"Another circuit's case says the trustee's fiduciary is limited to thebeneficiary, a proposition I find absurd for the reasons I have cited.The deed of trust replaced a a mortgage, which had significant protections

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