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Top court ruling leaves Oregon’s residential real estate market in limbo

September 7, 2012

By Thomas Hillier
Real property development reveiew
Davis Dwight & Tremaine LLP
Oregon business law firm

In a ruling the Oregon Supreme Court will soon review, the Oregon Court of Appeals on July 18 issued a major decision.The case, Niday v. Mortgage Electronic Registration Systems Inc., et al, held that MERS, when acting as a nominee for a named lender, is not a beneficiary under Oregon law. The practical effect of the holding is that any trust deed naming MERS the beneficiary may not be foreclosed in the name of MERS by the more expedient nonjudicial method.

A little context is in order.

In 1959, to remain competitive for loan dollars, Oregon adopted the Oregon Trust Deed Act to establish trust deeds as a real estate security instrument. For lenders needing to foreclose, the act created a summary, nonjudicial procedure that bypassed the courts and allowed no redemption rights for borrowers. Foreclosure previously was a judicial process taking two years or more to complete; now it could be done in six months with the summary procedure.

Lenders were happy because the time to liquidate a non-performing loan was substantially reduced. Borrowers benefited because there was no right to a deficiency if the debt exceeded the value of the property and borrowers could cure defaults during the foreclosure process by paying only the amount in arrears rather than the full loan balance.

Trust deeds quickly became the favored real estate security instrument.

In 1993, in part to respond to a growing practice wherein lenders were bundling loans secured by trust deeds and selling them in secondary markets, a group of mortgage industry participants formed MERS and the MERS system.

Anytime a loan is sold from one member of the MERS system to another, the sale is tracked using the MERS system. MERS, the named beneficiary as nominee for the original lender and its assigns, remains the beneficiary as the loan is sold and becomes an agent of the new note owner. With no change to the named beneficiary, there is nothing to publicly record, an administrative convenience accomplishing a central purpose of MERS.

As MERS grew in acceptance, so did its popularity. Nationwide, there are more than 3,000 lender members of MERS that account for approximately 60 percent of all real estate secured loans nationwide.

The onslaught of the Great Recession resulted in a tremendous spike in foreclosure activity. To defend foreclosure proceedings, borrowers challenged the authority of MERS, in its own name, to foreclose non-judicially.

Because the trust deed is a creature of statute, the statutory elements allowing a nonjudicial foreclosure must be followed strictly. One such element is the requirement that the name of the beneficiary and any assignee be in the public record. Niday argued that the lender, not MERS, was the beneficiary. MERS countered that it was the named beneficiary in the trust deed and had the contractual right to foreclose as nominee of the lender and its assigns.

The court sided with Niday, holding that MERS is not a “beneficiary” as defined by the act. The court wrote that the beneficiary is “the person to whom the underlying, secured obligation is owed.” It reasoned that because the lender is owed the money, that party is the beneficiary. Only the person to whom the obligation is owed and whose interest is of record may legally prosecute a nonjudicial foreclosure.

What does all of this mean? Maybe nothing if the Supreme Court finds that the Court of Appeals defined “beneficiary” too narrowly.

Short of that, many issues arise. What is the effect on completed nonjudicial foreclosures of MERS trust deeds? Such sales may be void, in which case the ownership and right to possession of thousands of foreclosed properties fall into legal limbo. Perhaps the sales are only voidable, requiring a lawsuit by the borrower within a limited time to challenge the foreclosure sale.

Titles may now be in doubt for people who bought properties either at a foreclosure sale or further along the line. Also, no market may exist for these properties if title insurers choose not to insure titles until there is some clarity.

Going forward, will MERS lenders do business in Oregon? And if so, at what cost? Loans may be more expensive to administer because they either require that all assignments be documented and recorded or foreclosure via the more expensive judicial method. As such, loans in Oregon could demand higher interest rates.

Courts will see a sharp increase in the number of judicial foreclosure filings; it’s happening in Multnomah County already. An already overcrowded judicial system will gain additional burdens.

The Legislature could step in to fix the issue by clarifying the definition of “beneficiary” to include a nominee of the lender, such as MERS. But is there political will to legislate a solution that, on the surface, seems to benefit lenders?

A practice that for many years roamed freely under the radar has suddenly exploded to the surface, leaving the mortgage industry in limbo. Quick answers to the numerous issues now pending are imperative to restore certainty to real estate markets.

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Discuss this article

Charles Reed September 7, 2012

The main reason these loan MERS is trying to foreclose need to not be allowed to administratively foreclose is you will find that with VA loans that were placed into Ginnie Mae pools in the Mortgage Backed Securities program, and are now currently being service by Wells Fargo Bank are being done illegally because the Note was long ago separated from the Note as it was signed endorse in blank and relinquish to Ginnie Mae.

The truth is that once the loan where place into the pools there could not be a lien situation at all against the properties. MERS is not the Beneficial in Washington Mutual VA & FHA because the bank did relinquish the loans and now the bank is dead as in failed bank and is no longer a member of MERS as it cannot perform bank activity and Ginnie Mae who is suppose to be the owner of the Notes is not a member of MERS as a Lender so MRES does not have un-broken chain of ownership!

Charles Reed September 8, 2012

Just remember this and that is most all FHA & VA loan a put into a Ginnie Mae mortgage backed securities pool, however they are dealing with non enforceable contracts. The illegal foreclosures of government loan have contracts that are not recorded because party that cannot legally claim the function the contract demand it function like be a leader.

This entire scam by Ginnie Mae is base on a Blank Note that they are not inserted into, because the US law says Ginnie Mae is not a lender. So as MERS claims they are acting for the current lender yet Ginnie Mae is suppose to be in physical possession of all the Blank Notes, how then does MERS claim a beneficial right for lender or assign when you and every should know the Note being blank is void of any legal name of an owner of the document because it is blank.

So if we the military in the case of VA loan are being abused by the Federal Government explain why President Obama cannot get the housing crisis under control because Ginnie Mae who is wholly owned by we the people in that it is 100% the Federal Government’s property. If you can get your own company to follow the law and have looked the other way, is the reason why whoever is the party claim to be the “holder in due course” need to bring the Note to court and show where that Note has been endorsed to the party making the claim plus some type of bill of sale.

You can only have a lien if your owned a debt and at not time in the history of Ginnie Mae has a home owner every owned Ginnie Mae a dime because by law Ginnie Mae cannot originate or buy or sell a home mortgage loan.

Charles Reed September 8, 2012

I can see the judge asking Mr. MERS who is Mr. Blank on these Notes and how do you represent BLANK, if it endorsement which is referred to as a BLANK NOTE because it does not list who the owner is.

So how does a entity that cannot purchase a home mortgage loan as order by the US Congress out in Oregon claim its owed a financial debt from anybody went it never borrowed anyone money or purchase the debt from anybody?

The answer is it cannot happen!

Charles Reed September 8, 2012

Every citizen in Oregon that had or had a Washington Mutual Bank or that the bank purchase your loan from another bank or mortgage company and it was foreclosed or is going through foreclosure and you had or have a VA or FHA loan simply ask for the courts to look at the Notes because they are all Blank and MERS nor anyone else could foreclose on your home. Crime does not pay as long as the court systems work!

Start getting ready to move your families back home. To my fellow military families Hua!

Dave September 10, 2012

My god, Charles, you really need to learn to write clearly.

Anita September 13, 2012

What about the people that have morage’s with Wells Fargo or American Serviceing com. Does this not apply?

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