From Bloomberg Businessweek By Jonathan J. Cooper June 6, 2013
In two closely watched cases, the high court ruled that creditors using an electronic mortgage registry don’t have to publicly record the ownership history of a trust deed in order to take advantage of the nonjudicial foreclosure process the Legislature created in 1959.
The justices also ruled that Mortgage Electronic Registration Systems Inc. has the authority to participate in a nonjudicial foreclosure if it has appropriate agreements with lenders.
Nonjudicial foreclosures have all but stopped over the past year amid uncertainty created by an appeals court ruling over MERS’ role in the financial system. The case stemmed from a court action filed by a Clackamas County homeowner facing foreclosure.
Separately, the U.S. District Court in Oregon asked the state Supreme Court to clarify Oregon law after federal judges reached opposing conclusions in foreclosure cases involving MERS.
Lawyers for creditors and foreclosed homeowners said they were still studying the ruling and its implications, but they agreed that it seems to clear barriers for nonjudicial foreclosures to resume.
“We think it makes substantial progress in returning us to the place we were before these recent cases caused a question about how lenders could foreclose a loan that was in default,” said Paul Cosgrove, a lawyer and lobbyist for banks and financial services companies doing business in Oregon.
The lending industry created MERS in the 1990s so home loans could be sold to other lenders and packaged into investments without each transfer being documented at county recorder’s offices.
On thousands of loan contracts in Oregon, MERS is listed in place of the lender as the “beneficiary” of a trust deed, and it tracks the ownership of individual loans in an internal computer system. Trust deeds are legal instruments that are used to secure a lender’s interests in most Oregon home loans.
Homeowners facing foreclosure challenged the authority of lenders using MERS to foreclose outside the court system.
They argued that Oregon’s nonjudicial foreclosure law requires public recording every time an interest in a property loan is transferred. They also said MERS could not be the beneficiary of a trust deed because MERS doesn’t hold the financial interest in the loan being repaid.
The justices rejected the recording argument. They agreed on the second point, ruling that the original lender or its successor is actually the trust deed’s beneficiary, even though MERS is listed as such on the loan paperwork. But the justices said MERS can still initiate foreclosure proceedings if it can prove that it’s acting as an agent for the lender with an interest in the loan.
“We are confident that we have and can prove such authority,” MERS said in a statement.
The decision does open the door for homeowners to force a foreclosing lender to prove it has an interest in the loan, said Kelly Harpster, an attorney who represents homeowners facing foreclosure.
But, Harpster added, “the whole decision probably favors the banks.”
While this ruling does appear to hint at the potential for nonjudicial foreclosure proceedings to pick up, the State of Oregon recently passed Senate Bill 558, which goes into effect in August 2013. SB 558 requires banks to engage the borrower in mediation before they can initiate a judicial or nonjudicial foreclosure. You can read more about the revamped Foreclosure Mediation Program here: Banks must meet with delinquent borrowers before foreclosing