As a follow-up to my recent post regarding the problem title carriers are facing when the Big Banks try to resell their REOs, it appears the lenders are starting to wake up to the fact that their Oregon foreclosures are patently illegal. The banks know it, and their foreclosure arms (aka “Successor Trustees”) know it as well. As repeatedly noted here, here, and here, the Oregon courts – both federal and bankruptcy – are giving short shrift to the argument that MERS has the ability as a “nominee” to actually conduct the pre-foreclosure activity it has been engaging in openly for years. Most recently, in the now-famous Oregon case of McCoy v. BNC Mortgage, Judge Frank R. Alley III, concluded in a succinct and persuasive opinion, that if the banks fail to follow ORS 86.735(1) which requires that all intra-bank assignments of the trust deed be recorded, their foreclosure are void. This case, coupled with several others summarized here, have apparently not gone unnoticed by the Big Banks and their foreclosure trustees.
According to the Oregonian, Bank of America and it’s wholly owned subsidiary, ReconTrust, acting as foreclosure trustee, have quietly rescinded hundreds of pending foreclosures in Oregon. Since no official statement has been forthcoming from the lending industry at the time of this post, we are left to speculate. However, if we put the problem in the form of a logical syllogism, certain conclusions emerge:
- Banks that foreclose property must (according to McCoy) comply with ORS 86.735(1) in order to be legal in Oregon;
- The Big Banks have not complied with ORS 86.735(1) in their Oregon foreclosures;
- Ergo, these foreclosures are illegal.
How can the banks fix this problem? Here are a couple of alternatives:
- Halt all foreclosures, go back and track down all off-record intra-bank assignments and record them – then restart the foreclosures;
- Submit a bill in the 2011 Oregon Legislature saying there is no need to record intra-bank assignments – and just to make sure there is no fallout from past illegal foreclosures, make the law retroactive;
I’m betting that the foreclosure halt will last until the Oregon legislature passes a law permitting Big Banks, prospectively and retroactively, to continue ignoring the law. Those interested in following all of this, should be aware of SB 484, which is “McCoy on Steroids.” We can only hope the law passes – SB 484 cannot exist side by side with a foreclosure law permitting banks to ignore the recording requirements of ORS 86.735(1).
The banks, in their fever to securitize mortgagees into commodities, thought they could create MERS which would permit them to avoid complying with the laws of most states that require public recording of transfers of an interest in real property. It appears they made two bonehead errors: (a) They forgot to check state foreclosure laws – such as Oregon’s – which have the final say on how foreclosures are to be conducted. While federal law may preempt state law in many instances, MERS has never become a state or federal law. It is the offspring of pure hubris. The banks who fathered this monster are now paying the price. (b) The second mistake is equally inexcusable; the lending industry didn’t have a Plan B. That is to say, they failed to create any sort of back-up plan in case the courts rejected this form-over-substance idea that MERS was a suitable substitute for hundreds of years of state recording laws.
This problem will not go away. Legislators who side with the banks will have no excuse to their constituents. The mantra that this is the only way to free up commerce, is a cop out. The correct and right answer to the problem is for the banks to ramp up their short sale consents and make principal reductions in their loan modifications. This is a win-win solution for everyone. It will permit homeowners to effectively contend with their distressed housing issues. In this scenario, either the homeowner keeps their home, with affordable payments, or the home is short sold into the marketplace. In both cases, the banks will not have to contend with the foreclosure process, which does nothing but shine a bright light on their willful disregard of ORS 86.735(1). More later.Posted in Foreclosure, Market Conditions, Miscellany, Real Estate/Distressed, Trust Deeds | Tagged Banks, Distressed Transactions, Foreclosure