“It’s one thing to be stubborn when relying on well-reasoned principle; it’s quite another to be stubborn relying on no principle.” Anonymous [Sort of.] 

 

An interesting, though not surprising, article recently appeared in The Oregonian, titled: “Lenders not engaging in Oregon foreclosure mediation program.”  Before discussing what’s behind the banks’ decision, it is necessary to understand that SB 1552, Oregon’s mandatory mediation law, is essentially focused on the following two groups:

  1. Folks whose trust deed is being foreclosed non-judicially.  That is, a Notice of Default has been recorded in the public records. This event triggers the mandatory mediation law, and requires lenders[1] to offer the borrower an opportunity to meet and mediate, to see if an agreement can be reached on a specific “foreclosure avoidance measure” [e.g. modification, deed-in-lieu, short sale, or any other such mechanism that avoids the foreclosure]. If the borrower timely responds, complies with other criteria, and pays a $200 filing fee, the foreclosing lender must participate.  If the lender does not participate, or fails to do so in good faith,[2] it cannot receive the coveted “Certificate of Compliance” from the mediator.  This Certificate must be recorded on the public record before the sale can occur.  No Certificate, no foreclosure.[3]
  2.  Folks who are not in a formal non-judicial foreclosure, but due to their economic circumstances, are “at risk” of default under their note and trust deed.  The law does not define at “at risk” borrower.  Thus, it could be someone who is still current, but is on the cusp of defaulting due to the high cost of their mortgage payments; or it could be someone who hasn’t paid for a year, but the bank has not yet commenced any foreclosure.  Thus, even if a bank routinely forecloses judicially, such as Wells Fargo, before the foreclosure is filed in court, an “at risk” borrower could request that Wells enter into mediation to see if the parties could agree on a foreclosure avoidance solution.  But the sticking point in “at risk” mediations is that SB 1552 contains no sanction for lender non-compliance.[4]

The recent Oregonian article focused largely on folks in category No. 2, since clearly, banks that commence non-judicial foreclosures in Oregon must comply.  So, with that preface, herewith are some snippets from the Oregonian article:

  •  “The state’s contractor charged with running the mediation program told an advisory committee in Salem on Wednesday that 132 eligible homeowners applied for the program on the grounds that they are at risk of foreclosure. The law allows at-risk borrowers to request a meeting with their lender even before they’ve missed a payment. *** But none of the mortgage servicers responded to the requests within 15 days as required under the law that created the program.”
  • “When asked by The Oregonian for the reason, the answer was simple: ‘They just don’t want to play,” said Jonathan Conant, who is managing the state mediation program on behalf of the Florida-based Collins Center for Public Policy. He added that the five largest lenders operating in the state have indicated they won’t participate in the mediation process under any circumstances.’”
  • “Meanwhile, lenders have also stopped filing out-of-court foreclosures. More are proceeding with court-supervised foreclosures, avoiding the mediation program altogether through the traditionally slower and costlier judicial foreclosure process.”
  • According to the article, here’s what the Lender’s Lobby and Lackeys say:
    • “There is just so much coming at these folks in terms of new requirements,” Markee[5] said. ‘Many of them are talking to their legal counsel and other learned people trying to make rational decisions about how to proceed with this issue.’” [Hmm. “Legal counsel and other learned people….” Now there’s a phrase that begs to be parsed. Hopefully, at least one such “learned” person will include someone schooled at the College of Common Sense.  Just a small dose would hopefully convince the Big Banks that totally ignoring Oregonians’ pleas for help will backfire.  More about this later. – PCQ] 
    • Markee and Kenneth Sherman Jr., general counsel for the Oregon Bankers Association, both told the advisory committee they couldn’t explain why mortgage servicers hadn’t responded to the requests for mediation. [Sorry guys – But as a fellow lawyer, I don’t believe that for a minute. First, you wouldn’t even talk to The Oregonian without your clients’ OK.  Secondly, you wouldn’t be quoted saying  anything without first having it vetted by your clients in advance. Third, to say you “don’t know,” really means that your Big Bank clients told you to say you “don’t know.”  Fourth, you do know.  The real reasons are pretty clear.  But if struggling Oregon homeowners were told the real truth, they’d quickly decide that your industry should never be permitted to conduct business in this state again. More about this later. – PCQ]

Before moving on, let’s look at the actual text of the law.  What follows is taken from Section 2(7)(a) of SB 1552, the “at risk” provisions.  The references to “grantor” refer to the borrower; the “beneficiary” is the lender or servicer that is foreclosing; the “trustee” is the foreclosure trustee who actually conducts the non-judicial foreclosure process; and the “mediation service provider” is The Collins Center for Public Policy, which has been designated by the Oregon Attorney General to coordinate all mediations arising under SB 1552.

  • “A grantor that is at risk of default before the beneficiary or the trustee has filed a notice of default for recording under ORS 86.735 may notify the beneficiary or trustee in the trust deed or the beneficiary’s or trustee’s agent that the grantor wants to enter into mediation. Within 15 days after receiving the request, the beneficiary or trustee or the beneficiary’s or trustee’s agent shall respond to the grantor’s request and shall notify the Attorney General and the mediation service provider identified in subsection (2)(b) of this section. The response to the grantor must include contact information for the Attorney General and the mediation service provider.”  [Emphasis mine.]
  • “A grantor that requests mediation *** may also notify the Attorney General and the mediation service provider of the request. The Attorney General shall post on the Department of Justice website contact information for the mediation service provider and an address or method by which the grantor may notify the Attorney General.”
  • “Within 10 days after receiving notice of the request *** the mediation service provider shall send a notice to the grantor and the beneficiary that, except with respect to the date by which the mediation service provider must send the notice, is otherwise in accordance with the provisions of subsection (3) of this section.”
  • “A beneficiary or beneficiary’s agent that receives a request under paragraph (a) of this subsection is subject to the same duties as are described in [the remaining applicable provisions of SB 1553].”

So when the 2012 Oregon Legislature said that when an “at risk” borrower requests mediation, “…the beneficiary or trustee or the beneficiary’s or trustee’s agent shall respond to the grantor’s request and shall notify the Attorney General and the mediation service provider….” [Emphasis mine.]  – what did it mean?

As lawyers, we were taught that when certain legislative action is called for, it can be divided into those that are required versus those that are only permissive [or in legal parlance, those that are “precatory”].  For example, words like “shall” and “must” are mandatory.  Compliance is compulsory.  Words such as “may,”  “should,” “can,” etc. are permissive.  An example of a permissive statement in a will, might be: “I hope that my son and daughter will keep the house in the family.” It is purely a wish or desire; it is not a requirement.  The will does not say that the son and daughter cannot sell the family home; to the contrary – they can do so without violating the terms of their inheritance.

However, as any sixth grader knows when his parents tell him that he “must do his homework before being allowed to play outside with his friends,” there is little room left for negotiation.  So it is with the use of mandatory words such as “shall” in the “at risk” provisions of SB 1552.  Had the Oregon Legislature intended for banks to have a  choice in deciding whether or not to respond to an “at risk” borrower’s request to mediate, it could have easily said so by using permissive rather than mandatory words.  By changing a single word, the mandate for how Big Banks are to deal with mediation requests from “at risk” Oregon homeowners would be entirely different.  For instance, it could have said:

“Within 15 days after receiving the request, the beneficiary or trustee or the beneficiary’s or trustee’s agent may respond to the grantor’s request by notifying the Attorney General and the mediation service provider identified in subsection (2)(b) of this section.”

Clearly, such a simple change was within the power of the drafters of SB 1552.  To put a finer point on all this, let’s look at other portions of the “at risk” provisions quoted above:

  • “A grantor that is at risk of default before the beneficiary or the trustee has filed a notice of default for recording under ORS 86.735 may notify the beneficiary or trustee in the trust deed or the beneficiary’s or trustee’s agent that the grantor wants to enter into mediation. [Emphasis mine.]
  • “A grantor that requests mediation *** may also notify the Attorney General and the mediation service provider of the request.” [Emphasis mine.] 

Clearly, the use of the word “may” in these two instances, is because not all “at risk” borrowers” may want to mediate.  And if they choose to mediate, they may not elect to notify the Attorney General. Those that do, can, and those that don’t, need not.  These are voluntary choices; not mandatory imperatives.

Voilà! Now we know that the drafters of this legislation understood the difference between “shall” and “may”!  They were used differently for a reason.  Now was this all that difficult?

Remember, that both the lender and consumer lobbies were at the table when SB 1552 was negotiated.  The Big Banks and their high paid lawyers could have pushed back on the choice of “shall” or “may” – but they didn’t.  And so, when I hear lawyers, lobbyists and lender lackeys say that the Big Banks need to consult with “legal counsel and other learned people *** to make rational decisions about how to proceed…” I want to gag.  Why the handwringing? “Shall” means “shall.”  “May” means “may.”  It’s not like we’re trying to interpret the First Amendment to the Constitution.

So when the mandatory mediation law says that banks “shall” respond, there is no room to rationally argue that they have a choice of not responding. Ignoring “at risk” Oregon homeowners who want to mediate a foreclosure avoidance solution clearly violates the spirit and intent of the law.  And like so many other legal positions taken by Big Banks over the last five years, this too will come back to haunt them. [Continued in Part Two]


[1] This law does not apply to individuals, financial institutions, mortgage bankers, and consumer finance lenders     that commenced 250 or fewer foreclosures in the preceding calendar year.

[2] In Big Bank lexicon, the term “good faith” is noticeably absent, so we can expect an argument from the lenders’ lobby and lackeys, as to exactly what that term requires of them.

[3] Note that 1552 only applies to non-judicial foreclosures.  Thus, a lender could decide to avoid the mandatory mediation process altogether, and simply file the foreclosure in court, and proceed judicially.

[4] Lest someone say that this was a bonehead mistake, I think not.  Legislative negotiations on such a volatile issue can result in an impasse, where the consumer lobby must say to itself, better to have the provision included, even without a built-in enforcement mechanism, than to have nothing at all.  I agree.  The fact that mandatory mediation is in the law at all, is a minor miracle.  I’m comfortable with leaving it up to a judge to determine if it’s OK for the Big Banks to thumb their noses at Oregon’s distressed homeowners. So far, the courts have been lining up pretty consistently behind the Little Guy – Niday being the most recent example.

[5] Jim Markee, a lobbyist representing the Oregon Mortgage Lenders Association.

There are two types of short sales: (1) The relatively[1] easy ones that, while perhaps prolonged, ultimately will close; and, (2) The hard ones.  How can you recognize, in advance, what category yours will fall into?  What follows is a short discussion on what to look for.

The first category of short sales consists of two broad categories:  (a) Those where there is only a single lender; and, (b) Those where there are two loans, both with the same lender. Continue reading “Recognizing Problem Short Sales Early”

Federal Reserve: “Bank Secrecy Act and Money Laundering – Money Laundering involves transactions intended to disguise the true source of funds; disguise the ultimate disposition of the funds; eliminate any audit trail and make it appear as though the funds came through legitimate sources; and evade income taxes. Money laundering erodes the integrity of a nation’s financial system by reducing tax revenues through underground economies, restricting fair competition with legitimate businesses, and disrupting economic development.  Ultimately, laundered money flows into global financial systems where it could undermine national economies and currencies.  Thus, money laundering is not only a law enforcement problem, but poses a serious national and international security threat as well.”

Financial Crimes Enforcement Network, Treasury Department: “The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and other purposes, some of which include:

  • To strengthen U.S. measures to prevent, detect and prosecute international money laundering and financing of terrorism;
  • To subject to special scrutiny foreign jurisdictions, foreign financial institutions, and classes of international transactions or types of accounts that are susceptible to criminal abuse;
  • To require all appropriate elements of the financial services industry to report potential money laundering;
  • To strengthen measures to prevent use of the U.S. financial system for personal gain by corrupt foreign officials and facilitate repatriation of stolen assets to the citizens of countries to whom such assets belong.”

__________________________________________________________

In a highly competitive race to the bottom of the Big Banking Cesspool, British banking behemoth, Standard Chartered, has managed to push HSBC off of the “Money Laundering” section of the major financial papers. Continue reading “Big Bank Money Clients: Drug Dealers and Terrorists?”

Compliments of several dedicated consumer attorneys, including Kelly Harpster, consumer attorney par excellence, and Sybil Hebb,lead attorney for the Oregon Law Center, a non-profit law firm for low income Oregonians, I am posting a Frequently Asked Questions publication discussing the recent Niday court ruling [which I have discussed here and here] as well as general issues regarding the infamous MERS company and important Oregon foreclosure information.  Although it is not “legal advice,” this post contains information “You can take to the bank.”  And after you take it to the bank, you can tell them what to do with it…. PCQ

1)  What is MERS?

MERS stands for Mortgage Electronic Registry Systems, Inc. It is a private company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States. MERS is owned by holding company MERSCORP, Inc. When MERS is named as a beneficiary in a trust deed, a related entity named MERSCORP records transfers

of the loan in a private database. Continue reading “FAQ on Niday Ruling & MERS/Non-Judicial Foreclosures in Oregon”

An interesting article appeared in the July 23, 2012 online American Banker, entitled “Banks Employ Artificial Intelligence to Deepen Understanding of Customers.”  The gist of this well-written and comprehensive article was that the Big Banks are now using sophisticated data mining of social media and other high-tech tools to gauge consumer sentiment.

My reaction?  On a going forward basis, e.g. to evaluate various business decisions – perhaps whether to institute a $5 debit card fee [did this analysis occur to B of A last year? ~ PCQ] – it may make some sense.  But the real problem isn’t gauging consumer sentiment as much as it is fixing consumer sentiment.

As I have said before, the reputations of Big Banks is at “Manson-level lows.”   Big Banks, not regional or community banks or credit unions, have developed for themselves reputations that can evoke a visceral response.  The feelings are deep and long lasting.  For every one person affected by Bad Big Bank Conduct, another dozen folks have heard it and experienced it vicariously.  Artificial intelligence, [is that really the best choice of words?] may be helpful on peripheral issues or forecasting public reaction to future business decisions, but it is woefully inadequate in dealing with the systemic reputational fallout plaguing Big Banks today – i.e. the perception that they have no soul; no principles; no moral compass.  They are institutional zombies.

In the Japanese culture, executive leadership would publicly apologize for the havoc wreaked on the public for the financial crisis. Then they would step down.  In the U.S., the Big Banks just pay bundles of money to clueless and intimidated regulatory agencies [whose employees hope to work at a Big Bank someday], admit no wrongdoing, and go on doing essentially the same as before, only slightly older and wiser.  The American Public views Big Banks as above the law – and why not?  That appears to be the case.  A good example is the recent capitulation by the Justice Department in cutting Goldman Sachs loose on all sorts of federal criminal charges in the Abacus scandal.[1]

The answer to the problem of public perception isn’t data mining and nuanced social media searches.  Nor it is making huge charitable donations done solely for the PR benefit.  Rather, the industry needs to put a human face on their banks; the CEOs need to publicly admit the failures of the past; apologize [generically, of course, to avoid the class action attorneys] and commit to doing the right thing – then do so!

[1] Abacus was the name of the junk investment Goldman sold its customers, while at the same time, disparaging it internally and betting against its success.  Guess who made out like a bandit on that one?  Goldman, don’tcha know?  They were compensated when their investors bought it, and they were compensated again when the investments failed.  Goldman neglected to disclose to their Abacus investors that the hand-picked junk was selected by another client, John Paulson, who was making a $1B bet against that investment.  It was a sort of “reverse cherry-picking” selection process. Abacus was doomed to fail and Goldman, who created it, got paid on both sides of the transaction. Senator Carl Levin, Chairman of the Senate Committee investigating the financial crisis [perhaps the best resourced and comprehensive governmental report to date – PCQ], called Goldman’s actions “deceptive and immoral.”

Economist [e·con·o·mist; noun] – An expert in the production, distribution and consumption of goods and services, but is a complete idiot when it comes to making good business decisions for homeowners awash in negative equity. Q-Law.com Unabridged Dictionary

The following July 26, 2012 article appearing on a default servicing website, dsnews.com[1] caught my attention the other day: “Economists in Survey Oppose Strategic Default, Principal Forgiveness.”  Herewith, are some of the gems: Continue reading “More Nuts and Dolts”

[Door Slamming]

Her:  “Honey, is that you?  It’s awfully early for you to come home.  Are you ill?”

Him: “Yeh, I know it’s early.  I’m OK. I just didn’t feel like working anymore.”

Her: “What’s wrong?  Don’t you enjoy your work kicking people out of their homes anymore?   I thought you loved having Big Bank clients who specialized in that sort of thing.”

Him: “That was then, this is now. After a couple of years of writs of executions and evictions, the thrill is gone.  I’m tired of watching U-Haul trailers getting packed up and children on the sidewalks crying.  I never thought I’d say it, but maybe I’m starting to grow a conscience – hard as that sounds.  Whatever it is, I’m beginning to wonder if I’m playing for the wrong team.  I’m noticing how people kinda shy away from me at the cocktail parties now.  Like I’m some kind of monster.  I remember early on when we had our soirees, I was the life of the party, regaling everyone with stories of my latest foreclosure, and how I kept postponing the auction sales letting the beleaguered borrower think they were actually going to get a loan mod, and then at the last minute, when they were on the 99-yard line, I’d drop the hammer and foreclose ‘em.  I had people rolling on the floor laughing.  Now no one wants to hear about this anymore.  I feel like the lonely Maytag Repairman.” Continue reading “A Curious Day At The Foreclosure Mill….”

For anyone who has sought a loan modification or some other pre-foreclosure solution to their distressed housing situation, they must surely recall the treatment – or lack of treatment – they received from their lender or servicer.  In some instances, one knows in a heartbeat that the processing job has been outsourced to some third world country, where the communications break down before they start. In other instances, the processor has the monotone of one that has just taken a Valium before getting on the line. They have the same people skills as zombies reading teleprompters. Perhaps the most ridiculous ruse is the official title these folks are given, considering their low-level status on the corporate ladder:  “Office of the CEO and President.” Given the number of employees carrying that title, this “Office” must be the size of a football stadium.

The question that has plagued me for the last several years has been, “Why don’t the Big Banks improve their customer relations?”  For every distressed borrower they offend, they’ve not only lost a future customer, but possibly a half dozen more family and friends the borrower tells.

Well help may be on the way!  Of course, not from the Big Banks and servicers. No, they’re far too busy and important to develop an outreach program that actually injects a sense of humanity into the process of helping others. In a sense, when it comes to aiding distressed homeowners, the job of Big Bank public relations has also been outsourced  – this time to Fannie Mae.

As reported in DS News.com, Fannie Mae has announced a customer care training program:

“What we’ve learned through the housing crisis is that if everybody takes the responsibility to work together and act early, then we can prevent foreclosures and keep families in their homes in many cases,” said Leslie Peeler, SVP of Fannie Mae’s National Servicing Organization. “We want our servicers to be trusted counselors to their customers, from attentively collecting documents to advising them of their options and guiding them through the process.” [Underscore mine. – PCQ]

Well, Riddle Me This Batman: Where were you guys in 2008, 2009, 2010, 2011?  Why is this just now occurring to you?   Have you had an epiphany?  Are you only now realizing that it helps to treat borrowers like human beings?

Here are some P.R. tips for Fannie’s servicer trainees:

  • Don’t lose the borrower’s paperwork;
  • Don’t insult them with requests to update information that cannot and does not change [such as a lifetime disability];
  • Don’t work with a borrower while at the same time initiating a foreclosure against them – that isn’t a trust-builder;
  • Don’t play the “trial modification” game, where you take their money, never credit it to their account, and then after 8-10 months, unceremoniously deny them for permanent mod for unspecific reasons;
  • Don’t state in your recorded voice-messages that you return all calls in 24 hours, if you have no intention of doing so;
  • Don’t give your supervisor’s name and number on your telephone greeting, and conveniently fail to include their extension;
  • Don’t….well, you get the point.

According to the DS News article:

“One key component of the program is to create a single point of contact in the call center for each customer to ensure that a relationship can be built between the homeowner and their servicer representative.  A single point of contact can also help ensure that foreclosure prevention options are properly presented.”  [Underscore mine. – PCQ]

Hmmm.  But what good is a single point of contact, if they can’t seem to keep their job?  I have one client seeking a modification and we’ve had five different “single points of contact” in less than a year. Where is the “relationship building” there?

Memo to Fannie Mae: Have as required reading for your trainees, Dale Carnegie’s “How to Win Friends And Influence People” and – as difficult as it may sound – Have them memorize the entire Golden Rule. Yes, all eleven words!

This is the second post of two, analyzing the recent Oregon Court of Appeals ruling on MERS.  The first post can be found here.  The Court’s written decision can be found here.

Issue Two

Can MERS act as a “Nominal Beneficiary” in the trust deed for purposes of avoiding the requirement under  ORS 86.735(1) that to conduct a non-judicial foreclosure in Oregon, any successive assignments of the trust deed must be recorded?

Besides the epic battle between Good and Evil, Right and Wrong, Light and Darkness, reduced to its simplest form, the disagreement between Big Banks and Bantam Borrowers is this:

  • Borrowers maintain that ORS 86.735(1) means what it says, i.e. that before a non-judicial foreclosure may be lawfully commenced, any time the trust deed has been assigned, the event must be recorded in the county records.  
  • Banks argue that since MERS is the “beneficiary” under the trust deed, the only assignment that is necessary to record is the one from MERS to the foreclosing bank.  They say that all of the intermediary assignment that may or may not[1] have been electronically “registered” should not have to be recorded, since MERS is the nominal beneficiary for everyone, now and in the future. [This results in what I have referred to as the “Hail Mary Pass” in prior posts on the subject, here and here: When a borrower goes into default, MERS, as the “nominal beneficiary” for the original lender [and all successive transferees of the lender’s promissory note], makes a “single assignment” pass over the heads of the intermediate transferees, and the trust deed lands neatly in the waiting arms of another Big Bank to commence the foreclosure in its own name.] Continue reading “MERS Smackdown! Niday Analyzed – Part Two”

In the first Oregon appellate court ruling on the issue, the Court of Appeals, addressed, head on, whether MERS may be appointed as the “beneficiary” in an Oregon trust deed, for purposes of avoiding the law. The full opinion may be accessed here.

The decision, written by Justice Lynn R. Nakamoto’s was a “textbook” opinion; clear, concise and methodical, demonstrating a good grasp of the legal issues at play.

The Parties.  The persons and entities discussed in the case included two banks. One was GreenPoint Mortgage Funding, Inc. (“GreenPoint”) the lender that originated, i.e. funded, the loan at the time of closing.  The other bank was GMAC Mortgage, LLC (“GMAC”), the company that was servicing the loan.  GMAC, the servicer, was named as a defendant.   In a bit of cosmic comeuppance, in May 2012, GMAC filed for Chapter 11 bankruptcy protection.  [Apparently, defaulting is OK if you’re a Big Bank, but not if you’re a Bantam Borrower. – PCQ]   The plaintiff in the case was the borrower, Rebecca Niday.  Mortgage Electronic Registration Systems, Inc. (“MERS”) was also named as a defendant, along with Executive Trustee Services.

The Attorneys. The lawyers on the side of the angels were W. Jeffrey Barnes, who argued the case for Rebecca Niday.  With him on the briefs were Elizabeth Lemoine and the Luby Law Firm.  David L. Koen and Legal Aid Services of Oregon filed the brief amicus curiae [“friend of the court”] for the Oregon Trial Lawyers Association.  Congratulations all!

Factual Background.  In August 2006, Ms. Niday obtained a home loan from GreenPoint.  She signed a promissory note that obligated her to repay the $236,000 debt.  She also signed a trust deed, which, as security for the note to GreenPoint, was recorded in Clackamas County, where her home was located. Continue reading “MERS Smackdown! Niday Analyzed – Part One”