Breaking Foreclosure News

Oregon Supreme Court Paves Way for MERS to Foreclose Nonjudicially

The Oregon Supreme Court, in 2 cases (Brandrup v Recontrust, 353 Or___, and Niday v GMAC Mortgage, LLC, 353 Or ___[June 6, 2013]) has ruled that MERS (Mortgage Electronic Registration Systems) is not a Beneficiary of Trust Deeds and therefore cannot, in its own name, foreclose trust deeds by advertisement and Sale. However, the Court has also created a pathway for MERS to proceed with foreclosures by advertisement and sale in the future.

The Court ruled that assignments of the beneficial interest in the trust deed do not have to be recorded, to foreclose by advertisement and sale, if the assignment is by assignment of the Promissory Note that is secured by the trust deed. In addition, though MERS cannot act as a nominee for the lender once the lender has assigned the Note, it may have authority to act for the Lender and its successors, depending on the authority given to MERS in the first instance. Thus, if the documents between MERS, the lender and the lender’s successors give MERS the authority to act as the agent for the lender and its successors, even if that is not recorded in the real estate records, then MERS may proceed to foreclose by advertisement and sale. Depending on the nature of the documentation on the lender’s side of its relationship with MERS, MERS may be able to go back and proceed with foreclosure by advertisement and sale in the many cases which have been in a holding pattern since the Court of Appeals rulings in the cited cases. If the language is not adequate to provide the needed authority to act as an agent, it should be a relatively easy fix for MERS to create an appropriate authorization.

Mandatory Foreclosure Mediation in Oregon

The Oregon Legislature’s hurried enactment of Senate Bill 1552 results in the creation of a mandatory foreclosure mediation system in certain situations. For lenders who have, in the prior year, commenced more than 250 non-judicial foreclosures of residences (i.e., foreclosures by trustee’s advertisement and sale rather than through court proceedings), participation in the mediation process is mandatory, unless the borrower declines or otherwise fails to participate in the process.

Lenders who have not commenced more than 250 non-judicial foreclosures of residential trust deeds in the prior year do not have to participate in the mediation program, provided that they timely file an appropriate affidavit with the Attorney General’s office. Details of the program are being fleshed out and the state is seeking to educate mediators quickly. There are also provisions under which borrowers are required to consult with housing counselors approved by the United State Department of Housing and Urban Development prior to the mediation. There are costs of the mediation which are borne by the borrower and lender. It is not currently clear what the cost for a mediation will be or just how the costs are split.

The required mediation does not apply if the lender elects to proceed with a judicial foreclosure.

It appears that the required mediation will apply even if the borrower and lender have previously entered into a modification agreement, without the assistance of the legislatively mandated mediator, but the agreement is subsequently breached. Thus, if there has been a move by larger lenders, prior to this legislation, to pursue alternatives to completion of foreclosures, this legislation may actually discourage those lenders from continuing such efforts by forcing them into the legislatively mandated process. Of course, to the extent that lenders have refused to submit to mediation processes of any kind, this legislation will impose an obligation to mediate. Since a mediator cannot compel either side to do anything, the only absolute that can be anticipated is that it will cost more for lenders to go through the non-judicial foreclosure process.

The legislation requires that the lender’s representative at the mediation either have full settlement authority or be able to get that during the mediation session, bring the complete payment history for the loan, bring evidence to establish that the beneficiary owns the beneficial interest (this is a response to the MERS situation), and bring other documents. The Attorney General may identify other documents to be brought, as well. In addition, the Attorney General will create and distribute mediation guidelines.

Any lender who is required to mediate under the statute will also have to pay an additional $100 fee for the filing of the notice of default. Those $100 fees will end up with the Attorney General in a fund called the Foreclosure Avoidance Mediation Fund, which is used for paying the expenses of coordinating the mediation program and related expenses.

The legislation includes potential liability for the lender for failure to comply, in the amount of actual damages plus $500 for each failure to comply. The legislation is not simple. The regulations to come from the Attorney General should shed light on a number of issues but may add still more steps to the process.

If you are a lender planning to foreclose a residential loan non-judicially, you must become familiar with this legislation.