Ambrose Law Group, LLC
Here is the latest, which while limited to Oregon, certainly can be applicable to any other states permitting nonjudicial foreclosure actions but requiring the recording of assignments of the mortgage or trust deed.
You may recall the postings about the decision of Judge Alley in U.S Bankruptcy Court in Oregon (McCoy v BNC Mortgage), finding that in to proceed with nonjudicial foreclosures in Oregon, the applicable statute requires that there be a chain of recorded assignments (which, by the way, in Oregon you cannot record a document unless it is notarized), from the original beneficiary to the current beneficiary, and that MERS is not the beneficiary.
Well, at least one major national title insurance company operating in Oregon is now adding an exception to any trustee’s sale guarantee report, in connection with nonjudicial foreclosures, providing as follows:
“Any matters, including the lack of insurable title after the foreclosure sale, based on the failure to have recorded the Assignments, including missing assignments, if any, of the subject Trust Deed from the original to the current beneficiary.”
And the title company specifically refers to the McCoy decision as the basis for the exception. What purchaser would want to buy at a foreclosure sale or from the lender after a foreclosure sale with this exception to title?
So, now let’s add to the mix the following: a significant number of nonjudicial foreclosure proceedings in Oregon are being rescinded. We have it on good authority that one trustee handling nonjudicial foreclosures for one of the top three lenders/servicers is rescinding all nonjudicial foreclosures in Oregon for the time being. In Deschutes County, Oregon, one of the hardest hit counties in Oregon, there were almost 290 rescissions recorded in February, 2011, and more than 130 rescissions recorded in the past week or so.
Ok, so now the lenders decide to start the process over and do it right. Remember who the original beneficiary is in the McCoy case? BNC Mortgage. And what happened to BNC Mortgage? It was a wholly owned subsidiary of Lehman Brothers, which was shut down by Lehman Brothers in 2007. And we all know what happened to Lehman Brothers. So, pray tell, who is going to sign that required assignment, on behalf of BNC Mortgage, in front of a notary public, under penalty of perjury?
Ah, but the lenders can still proceed with judicial foreclosures. Let’s analyze that scenario from a practical perspective, and just use the number of the rescissions recorded over the past month plus just in Deschutes County, Oregon. That’s 420 foreclosures. In order to file judicial foreclosures for all of those loans, law firms will be required to be retained to represent the lenders. In Oregon, due to financial constraints, new filing fees have been enacted which are based upon the amount at issue plus the number of parties. In order to eliminate any junior interests, all such junior interests have to be brought in as defendants. It is a guess, but the likely average filing fee for these judicial foreclosures will be around $2,000 or so (based on single plaintiff, four defendants, amount claimed between $150,000 and $500,000). That’s $840,000 in filing fees alone for those 420 foreclosures. Not to mention the service fees for service of the summons and complaint on each defendant.
Then the lender, when it gets a judgment of foreclosure, has to go through having the sheriff conduct the foreclosure sale, and after the sheriff’s sale is conducted, there is a six month redemption period, where the borrower and junior interests have a right to redeem the property, which essentially leaves it unmarketable for that six month period. I would conservatively estimate that each judicial foreclosure, start to finish, will cost the lender, in third party costs, attorney fees, service fees filing fees, sheriff’s fees, etc. to be around $10,000.00 minimum. So to pursue those 420 foreclosures judicially, the lenders/servicers are looking at having to shell out about $4.2 million. Practical solution? Oh, and add to the mix that if the borrower, or the borrower’s spouse, or minor children, occupy the property throughout the process, so that the trust deed is treated as a residential trust deed, there is no right to a deficiency claim by the lender. It gets the property, or the proceeds from the sale of the property – that’s it. Just like a nonjudicial foreclosure.
Additional comments by Dan Edstrom:
Thank you for the update David! Here is my take on this. So the original loan was paid in full years ago and NEVER conveyed or perfected to any other party. Now the party that was paid in full has no mechanism to transfer the loan because they are gone – or in some cases they went into bankruptcy where they failed to list these loans as an asset of their bankruptcy estate (and by the way now have tried to transfer the asset outside of their bankruptcy). Also the above costs assume the homeowners do not fight the foreclosure. And of course this is assuming the “lender” can argue equitably that although they failed to perfect title they still are entitled to the house equitably, which of course assumes that the houses themselves are actually encumbered – which is an entirely different issue.