Monday, July 23, 2012

MERS Takes Big Hit In Oregon; State Appeals Court Says Outfit's Method Of Handling Non-Judicial F'closures Is Bogus; Expect State Supreme Court Review

In Salem, Oregon, The Oregonian reports:

  • The Oregon Court of Appeals struck a blow to the mortgage industry in Oregon Wednesday, ruling that its controversial document-registry system could not be used to skirt state recording law in out-of-court foreclosures.

    In a decision with implications beyond the Mortgage Electronic Registration Systems Inc., the state's second-highest court also held Wednesday that a lender must ensure a complete ownership history of the mortgage is filed in county records before it can foreclose outside a courtroom.

    MERS was created by the mortgage industry to bundle and sell loans to investors without having to record every assignment with county clerks. It is involved in most mortgages across the country.

    But the court found that the Oregon Trust Deed Act requires the party that receives loan payments to publicly record all changes in mortgage ownership before starting a so-called nonjudicial foreclosure.

    MERS does not take loan payments and does not qualify as a “beneficiary” of a trust deed, so the digital registry cannot be used to avoid the recording requirement, the court ruled.

    A beneficiary that uses MERS to avoid publicly recording assignments of a trust deed cannot avail itself of a nonjudicial foreclosure process that requires that very thing--publicly recorded assignments," the court ruled. Judge Lynn Nakamoto wrote the decision.

    The ruling won't be the final say on the matter. In a statement, MERS said it disagreed with the ruling and would appeal it to the Oregon Supreme Court. "
    MERS validity as beneficiary has been affirmed in 48 prior Oregon rulings, including 30 since this case was filed," MERS spokeswoman Janis Smith said in the statement.

    But other judges have ruled against MERS. The state Supreme Court was asked earlier this year by Chief U.S. District Court Judge Ann Aiken in Portland to resolve the differing opinions. Stephen Armitage, a spokesman for the court, said he did not know when the justices would address the matter. A third Oregon case is on appeal before the 9th U.S. Circuit Court of Appeals.
  • For the time being, lower state courts will likely have to follow Wednesday's ruling, said Kelly Harpster, a Lake Oswego attorney who represents homeowners. "Right now, it is the first and last word in Oregon," said Phil Querin, a real estate attorney in Portland. "The [state] Supreme Court will have to make the final decision."

    Smith of MERS noted that the ruling does not affect judicial foreclosures filed in court and does not overturn any completed foreclosures. But attorneys representing homeowners speculated that it might compel some homeowners to try to overturn previous foreclosures where assignments aren't completely recorded.
For the court ruling, see Niday v. GMAC Mortgage, LLC, A147430 (Ore. App. July 18, 2012).

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