Trustees, Fidiciary and Breach of

Fiduciary
by john gault | 2011/03/08 |

This material deals with the duties and fiduciary of the deed of trust trustee, breach of that
fiduciary and third party breach of fiduciary.

john gault's Blog ::

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 who may hold 1) legal (or 'bare naked'), title or 2)
equitable title to the property which is the subject of the deed of trust. Some states are 'title
theory' states and hold that the trustee holds legal title to the property for the benefit of the
beneficiary with the borrower retaining equitable title.

Other states, known as 'lien theory' states, hold that the borrower retains legal title with the
trustee holding an interest for 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 of trust. There are no other
rights conferred on the trustee. There is no provision in 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. .

The beneficiary holds nothing in regard to title. So exactly to WHAT it is that MERS alleges it
holds title? (Those are the words MERS uses) The rights of the beneficiary created by the deed
of trust? No, that can't be it. MERS has no rights in regard to the debt. No (independant) right is
or ever can be created without interest in the note. For instance, an assignment of the deed of
trust without a transfer of the note is a legal nullity. MERS attempts to create a form 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 the legislative intent in the
formulation of the deed of trust as a collateral instrument, although I believe it would be. In any
event, confusion as to the identity of the beneficiary in a deed of trust has been held to invalidate
the instrument.

I don't believe this issue regarding 'nominee' has been fully decided, or at least there is no
national consensus. However, at least two cases have addressed the matter of nominee (though
not as to 'confusion'): The Kessler court, and Rutland Superior Court in Vermont, 420-6-09,
MERS v Johnston, etal. Regardless, there is never any evidence submitted that 'MERS'
(otherwise known as members' certifying officers) has any nexus whatsoever with the note
owners, mainly because there isn't any.

It is the trustee and the trustee only who is statutorily empowered to garner the collateral in the
event of default for the owner of the note. If a deed of trust (or a statute) alleges a beneficiary
may foreclose per se, there is no such thing as a deed of trust. What there is is a mortgage, sans
the judicial f/c mandates, with some bare contingencies, conditions precedent, of notice of default
to the borrower. This is entirely inconsistant with the legislative intent in allowing a deed of trust
as a collateral instrument. To find otherwise is to say that the legislators, when allowing the
document to be used 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 a necessary 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' (the doc prior to the
implementation of the deed of trust and still used in some states), and with the deed of trust and
hence the 'trustee', we saw 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 a property. They generally
required judicial foreclosure and in some if not all states involved rights of redemption.
Lenders found this 'cumbersome', so they lobbied for the deed of trust.

Can a trustee act as an agent for the beneficiary? No, he can't. He's a trustee, not an agent.

An agent is one who owes a ficuciary to at least one party. If the word or meaning of 'agent' had
been intended, it would have been used. It's been around 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 a foot long. The trustor (borrower) is at one
end and the beneficiary/lender is at the other. The trustee is in the middle. Where he ISN'T is at
one end or the other with either of the other two parties.

In addition to defining a deed of trust, the fact that 'trustee' was used gives creedence to the dual
fiduciary of the deed of trust trustee. According to case law, what makes a trustee also an agent
is the amount of control the beneficiary has over the trustee. Perhaps any control makes the
trustee an agent. But, importantly, this case law has only addressed 'regular' trustees and has not
encompassed a deed of trust trustee, to my knowledge. A deed of trust is a special animal, and
its trustee is also a special trustee.

In fact, if a deed of trust trustee does not perform his obligations to the trust, he is acting as an
agent and not a trustee. Agents may not foreclose, only duly appointed trustees may. At this
point, I feel compelled to advise you not to confuse the agent issue here with MERS' newly
alleged 'agent' status!

That's another matter, and is not relevant here, in a discussion regarding the deed of trust
trustee.

To whom does the trustee owe a fiduciary?

The choice of words, i.e., 'trustee' over 'agent' in the deed of trust would make it clear it is dual,
that is, a deed of trust trustee owes a fiduciary to both the lender and the borrower.

Case law is scant on the fiduciary of the trustee. One court, in Lewis v Jordan Investment, Inc.,
725 A.2d 4955 (1999), recognized the long-standing tenet that a trustee has a dual fiduciary:

"A trustee of deeds has the fiduciary obligation to comply with the powers and duties of the trust
instrument, as well as the applicable statute under the District of Columbia Code. Perry v. Virginia
Mortgage & Inv. Co., 412 A.2d 1194, 1197 (D.C. 1980) (citations omitted). THIS COURT HAS
LONG RECOGNIZED THAT TRUSTEES OWE FIDUCIARY DUTIES TO BOTH THE
NOTEHOLDER AND THE BORROWER. S&G Inv., Inc. v. Home Fed. Sav. & Loan Ass'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 the beneficiary, a proposition I find
absurd for the reasons I have cited. The deed of trust replaced a a mortgage, which had
significant protections in it for the borrower and required judicial foreclosure. While the legislators
allowed the deed of trust, to accomodate the lenders' complaints regarding the time and cost of
judicial foreclosure, it is unimaginable that they intended the borrower to have no safeguards, no
due process whatsoever.
And in that regard, today's trustees are in fact acting as the 'agent' of the alleged beneficiary and
not as true trustees. When, in short, a trustee acts at the instance of an alleged beneficiary with
no real evidence that the alleged beneficiary has the right to command default / foreclosure, not
only is that trustee breaching his fiduciary to the borrower, he is breaching his fiduciary to the true
beneficiary by not ascertaining that he is acting at the behest of the proper party. A trustee cannot
be said to be acting within or meeting his fiduciary when he is not demanding and being provided
evidence of the instigator's authority to foreclose.

He is also violating the tenets of good faith and fair dealing, which are covenants arising in
contract, i.e., the deed of trust. And even if a trustee's fiduciary is limited to the lender, (again I
say this is absurd) the borrower is an INTENDED beneficiary of the terms of the trust.
Any party who wrongfully induces a trustee to violate his trust position is guilty of third party
breach of fiduciary. And, again, it cannot be said that a trustee is performing his fiduciary - to
anyone - when he institutes foreclose proceedings with no evidence of the instigator's authority.
And therein lies another story - what documentation provides evidence of that authority to the
trustee and what is / has been actually given to the trustee? I suggest the equivalent of zero.

If courts persist in denying homeowner's relief from wrongful foreclosure on the arguments
currently being made, some savvy attorney is going to file suit based on breach of fiduciary and
or third party breach of fiduciary, and that suit is going to be successful.