Tuesday, March 6, 2012

Federal Judge: Mtg. Assignments Must Be Recorded Upon Each Transfer; MERS F'closure Losses Continue In Oregon; Issue Begs State High Court Ruling

In Portland, Oregon, The Oregonian reports:

  • A federal judge has yet again issued a ruling that effectively questions the validity of scores of foreclosures in Oregon, a crisis the Legislature could resolve in the mortgage industry's favor this week if bank lobbyists and House Republican leaders have their way.

  • In an opinion issued Wednesday, U.S. District Court Judge Michael Simon rejected a magistrate judge's finding and rulings by two of his colleagues that big banks could avoid recording notices in local land records each time a loan is sold to other lenders or investors.

  • Simon sided with two other federal judges in Oregon in ruling that lenders have violated state recording law. They've done this, they say, by logging sales within its nationwide Mortgage Electronic Registration Systems Inc. and declaring MERS a “beneficiary” of the loan.


  • Simon ruled that under state law, lenders must file a notice in county records each time they sell or transfer a note, or a promise from a borrower to pay. MERS, he ruled, can file those notices on the lenders' behalf, if a lender has authorized it to do so. MERS cannot, however, simply log those notices within its own database without also recording it publicly, he found. In millions of loans nationwide, it has.

  • In acting as he did, Simon overruled lower Magistrate Janice Stewart's previous findings and recommendations in the case. His ruling also conflicts with opinions in other cases issued by his equals in Oregon -- Judge Michael Mosman and Judge Marco A. Hernandez.

  • But it aligns with rulings in other cases by Judge Owen Panner and U.S. Bankruptcy Judge Frank Alley. Panner's ruling, which also came last year as lawmakers debated the MERS issue, is on appeal to the U.S. Ninth District Court of Appeals.


  • The differences of opinion in these courts underscore how crucial an Oregon Supreme Court ruling will be, unless the legislature changes state law entirely this week.(1) A ruling by the state's highest court is still likely months away.


  • Simon said Oregon courts “reaching back more than a century” have found that the note and its security instrument may not be passed on to separate parties. In these cases, the security instrument is the trust deed.

  • Simon wrote that Bank of America and MERS wanted him to interpret Oregon law in a way that makes Oregon deed of trust law “virtually meaningless.” If he did, lenders could designate anyone to act in their interests, “no matter how remote, disinterested or obscure,” he wrote. “The Oregon Supreme Court would be unlikely to endorse such a broad interpretation.” Such an interpretation, he said, could open borrowers to unauthorized foreclosure and wrongful sale of their property.


  • Kelly Harpster, a Lake Oswego attorney who represents homeowners, called Simon's ruling "the most thorough and thoughtful analysis of the MERS issue that has yet been published ... However, the opinion is not binding on any judge in state or federal court. They are free to adopt Judge Simon's reasoning or reject it."

  • If the stalemate in Salem holds, Oregon's High Court will have to resolve this disagreement. In the meantime, foreclosures in the state will likely take longer, slowing any recovery in the housing market.

For more, see Federal court ruling against MERS foreclosure in Oregon comes (again) as Republican lawmakers try to validate it.

For the ruling, see James v. Recontrust Company, Case 3:11-cv-00324-ST (D. Ore. February 29, 2012).

(1) Even if the state law is changed, an Orgeon Supreme Court ruling is still crucial in order to straighten out the mess already created by MERS for those foreclosures that have taken place prior to the effective date of any possible change in the law that might be passed by the state Republican lawmakers (and their filthy henchman-lobbyists).

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