As noted in one of my recent posts, foreclosure trustees such as ReconTrust, the wholly owned subsidiary of Bank of America, quietly suspended their foreclosures en masse several months ago. There was no public explanation, but privately it appeared that the reason was two-fold: (1) Court holdings such as Oregon’s now famous McCoy case, put a shudder through the lending and title industries, since Judge Alley’s ruling that the failure to comply with an essential recording statute (which lenders and servicers have uniformly ignored for years) resulted in the foreclosure being “void”; and (2) The banks needed a “time out,” ostensibly to review their foreclosure procedures and to come into compliance.
It now appears that the banks and servicers are quietly getting back in the foreclosure business. That is, they are re-filing the old foreclosures they had previously rescinded. However, does that mean they are getting their house in order and conducting nonjudicial foreclosures according to Oregon law? In a word, “No.”
Here’s what Oregon law provides:
- ORS 86.735(3) says the “…trustee may foreclose…by advertisement and sale by filing a Notice of Default (“NOD”) containing the information required by ORS 86.745 and containing the trustee’s or beneficiary’s election to sell the property to satisfy the obligation….”
- ORS 86.745 says that the NOD must identify the property, the borrower, the lender, the trustee and contain other essential information including “the default for which the foreclosure is made.” [Italics mine. PCQ]
- But ORS 86.735(1) also requires that in order to foreclose, not only must the original trust deed be recorded, but all successive assignments of that trust deed, must be recorded as well. Why? Because without a “chain of title,” there is no way to know if the entity conducting the foreclosure has any right to do so. Foreclosing lenders and servicers have routinely ignored this requirement for years. No one looked behind the recorded NOD to see how the foreclosing lender acquired the right to do so. Yet, without knowing the “genealogy” of the entire loan (i.e. who had owned it), from start to finish, it is impossible to know who has the legal right of foreclosure today. This statute is the sine qua non of all trust deed foreclosures, since it establishes the banks’ legal “standing”. Unfortunately, since Oregon is a non-judicial foreclosure state, the banks and servicers have ignored the successive recording requirement. Why? Because they could. While the lending and title industries knew full well it was happening, no one said a word publicly. It was the elephant in the room they pretended not to see.
So, how did the lenders halt their foreclosures in Oregon? Legally, there are only two ways; postponement and discontinuance. [Interestingly, there is no Oregon statute that expressly gives a foreclosure trustee the right to actually “rescind” a scheduled sale – although this is not to say they may not use that word in describing what they are trying to accomplish. – PCQ]
1. ORS 86.755(2 ) provides that a foreclosure trustee may “postpone” the scheduled sale date for one or more periods, totaling not more than 180 days from the original sale date. This type of postponement may occur for any reason, simply by “public proclamation” on the scheduled sale date.
2. ORS 86.753 permits foreclosure sales to be “discontinued.” However, this statute only authorizes a discontinuance where the default described in the Notice of Default is “cured” by the borrower’s payment of the arrearages.
However, It appears that in Deschutes County at least, ReconTrust has elected a slightly different approach in attempting to terminate its pending foreclosure sales. Based upon my review, it appears that Recon has used a document entitled “Rescission of Notice of Default.” But in doing so, it has followed ORS 86.753 – the statute that applies when the borrower cures the default. Thus, in the body of their rescission document, Recon recites that the default has been “cured,” and elsewhere it states that “…the default described in [the NOD] has been removed, paid, and overcome so that said Trust Deed should be reinstated.” [Italics mine. – PCQ]
But now that Recon has resumed its trust deed foreclosures, some interesting facts emerge:
- It still does not appear they have ever recorded any of the intervening assignments as required by ORS 90.735(1);
- The only new document that has been recorded since the “rescission”, is a new Notice of Default, which sets a new foreclosure sale date;
- But the second Notice of Default contains exactly the same allegations of financial default as the first NOD that was “rescinded” – ostensibly because the borrower brought the loan current. In other words, nothing changed between the filing of the first and second NODs, except another robo-signer and robo-notary put new signatures to the second NOD before filing again.
It would seem that to remain consistent with the information Recon placed on the public record when rescinding its first Notice of Default (i.e. the arrears were paid), it should at least have recalculated the default numbers so that the sum required to cure would not also include the amount that was ostensibly paid according to the recorded rescission document.
So, what are we learning about ReconTrust and the other foreclosure trustees that are owned or employed by the lending and servicer industries? Unfortunately, nothing we didn’t already know:
- They have little or no regard for the sanctity of our recording laws. If they did, they would be intellectually honest about what they’re up to. For example, what’s wrong with rescinding the NODs because they are “re-examining” their foreclosure practices? What’s wrong with rescinding and giving no reason at all? What’s wrong with simply “postponing” the sale date for say, 170 days hence, as permitted by ORS 86.755(2)?
- While the banks may want people to believe they have suspended their foreclosures to “re-examine” them, the sad truth is that the suspensions are smoke and mirrors. So while the banks, their lobbyists, and those carrying their water, can fearfully and tearfully tell politicians that “commerce” will grind to a halt unless they’re allowed to ignore the successive recording requirement of ORS 86.735(1), the truth is that they halted their foreclosures as a threat of things to come. It appears there was never any intent to clean up their act, comply with Oregon’s recording statutes, or “reexamine” anything. It was the veritable “shot over the bow.”
- In fact, the sheer boldness of the feint, stopping, handwringing, and then restarting, but not correcting a single thing, is testimony to lender mind-think. Truth is not an option – if subterfuge works, use it.
- Both the Rescission of Notice and Default and the second Notice of Default cannot both be correct – that is, if the first NOD was “cured” (per the rescission notice) then the second NOD should show revised default figures occurring only after those identified in the first NOD were ostensibly “cured.”
Conclusion. If I hear anyone make a “no harm, no foul” rejoinder, I will quote Abraham Lincoln:
“… I do mean to say that although bad laws, if they exist, should be repealed as soon as possible, still, while they continue in force, for the sake of example they should be religiously observed.”
Or, in my less eloquent explanation: We are a nation of laws. If we don’t like a particular law, or think it’s too confining, unfair, or downright stupid, we should seek to change that law. But to ignore it, flaunt it, and even lie on the public record, as it appears is being done with the current spate of foreclosure rescissions, is wrong. It should not be condoned.Posted in Foreclosure, Legislation - Oregon, Market Conditions, Miscellany, Real Estate/Distressed, Servicers, Trust Deeds | Tagged Banks, Distressed Transactions, Foreclosure, Legislation - Oregon, Market Conditions, Real Estate, Trust Deeds