Oregon Does it to MERS Again
By Daniel Edstrom
DTC Systems, Inc.
Once again MERS is hammered, this time in Federal District Court by the Honorable Owen M. Panner. This judge understands clearly what is going on and has some serious questions. Read this case to understand securitization and foreclosures. Here are some highlights (there are many others):
Should the beneficiary choose to initiate non-judicial foreclosure proceedings, the Act’s recording requirements mandate the recording of any assignments of the beneficial interest in the trust deed.
Nobody held a gun to the head of the servicers and required them to use non-judicial foreclosure. They have the right to choose which action they wish to use – non-judicial or judicial. The problem in this case (and almost all other cases), is that the servicers are making the wrong choices. Why? Money, what else?. It is not their concern that they don’t qualify to use non-judicial foreclosures. It is not their concern that they have to strictly comply with statutes. In 90% or more of all cases the homeowners are walking away so nobody will know anyway right? Oops, now the titles have to be cleaned up because of the mess left behind by the servicers, which have all but destroyed the title records for foreclosed properties. This means that in the future, somebody else will have to file a judicial lawsuit to clean up the title for a property because the servicer made the wrong choice and failed to strictly comply with non-judicial statutes. By the way this problem is understated and far worse than anyone actually imagines or understands at this point.
While I recognize that plaintiffs have failed to make any payments on the note since September 2009, that failure does not permit defendants to violate Oregon law regulating non-judicial foreclosure. The Oregon Trust Deed Act “represents a well coordinated statutory scheme to protect grantors from the unauthorized foreclosure and wrongful sale of property, while at the same time providing creditors with a quick and efficient remedy against a defaulting grantor.”
It still never ceases to amaze me that homeowners don’t understand that they are not in default. Securitization transactions are complex Wall Street financial engineering transactions that are setup to appear as risk adverse as well as being excessively “guaranteed” by various forms of credit enhancements. The payment stream to the certificateholders (investors who purchased securities from the trust) was setup so that they would receive their payments regardless of whether or not the homeowners made the payments. There is much more to this argument, but for this document it will suffice.
In part due to the legislature’s desire “to protect the grantor against the unauthorized loss of its property,” a party conducting a non-judicial foreclosure must demonstrate strict compliance with the Act.
This is the single largest reason why servicers should not be allowed to conduct non-judicial foreclosures. No default and they simply cannot strictly comply with non-judicial statutes.
The “out-of-order” recordings demonstrate problems, not atypical in my view, often caused by foreclosing parties rushing to expedite non judicial foreclosures.
As explained above, MERS never had any benecial interest in the trust deed.
Since the Deed of Trust states “MERS is the beneficiary under this security instrument”, but MERS is not a beneficiary under this security instrument, isn’t that a false statement? Is this False and Deceptive Acts and Practices?
Foreclosure by advertisement and sale, which is designed to take place outside of any judicial review, necessarily relies on the foreclosing party to accurately review and assess its own authority to foreclose. Considering that the non-judicial foreclosure of one’s home is a particularly harsh event, and given the numerous problems I see in nearly every non-judicial foreclosure case I preside over, a procedure relying on a bank or trustee to self-assess its own authority to foreclose is deeply troubling to me.
This is the entire point summed up in one paragraph. What the judge may not know is that most of the servicers have been issued Cease and Desist Consent Orders regarding these very issues. It was a standard and practice for the servicers to act in this manner and they have not only been ordered to cease and desist from this behaviour, they have been ordered to fix the issues that they have caused and to reimburse homeowners for the damages caused by the servicers.
But the judge keeps going and it gets better:
I recognize that MERS, and its registered bank users, created much of the confusion involved in the foreclosure process. By listing a nominal beneficiary that is clearly described in the trust deed as anything but the actual beneficiary, the MERS system creates confusion as to who has the authority to do what with the trust deed. The MERS system raises serious concerns regarding the appropriateness and validity of foreclosure by advertisement and sale outside of any judicial proceeding.
Additionally, the MERS system allowed the rise of the secondary market and securitization of home loans. A lender intending to immediately sell a loan on the secondary market is not concerned with the risk involved in the loan, but with the fees generated. If a lender aims to quickly pass a loan off onto an investor, a stated-income loan appears not as an unacceptable risk, but as an income stream. MERS makes it much more difficult for all parties to discover who “owns” the loan. When a borrower on the verge of default cannot find out who has the authority to modify the loan, a modification or a short sale, even if beneficial to both the borrower and the beneficiary, cannot occur.
Here we go again: “By listing a nominal beneficiary that is clearly described in the trust deed as anything but the actual beneficiary, the MERS system creates confusion as to who has the authority to do what with the trust deed.” As I said previously, isn’t this an unfair and deceptive act and practice? So “lenders” are not concerned with the risk of the loans because they will be securitized and the only issue the lender is actually concerned with is the “fees generated.” Stated income loans do not appear as an unacceptable risk, but as an income stream.
Now look at what the judge says:
A lender that knows it will immediately sell a loan on the secondary market has no incentive to ensure the appraisal of the security is accurate. Similarly, the lender need not concern itself with the veracity of any representations made to the borrower. In short, the MERS system allows the lender to shirk its traditional due diligence duties.
Here is the conclusion and order from this case:
Defendants’ request for judicial notice (#6) is GRANTED. Defendants’ motion to dismiss (#8) is DENIED. Plaintiffs are entitled to declaratory judgment stating defendants violated ORS 86.735(1). This non-judicial foreclosure proceeding is dismissed. Judgement and costs for plaintiffs.
IT IS SO ORDERED.
Download the order: http://dtc-systems.net/wp-content/uploads/2011/05/Hooker-v-BofA_and_MERS.pdf