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.
2) What is the Oregon Trust Deed Act?
The Oregon Trust Deed Act (OTDA) is the statute that authorizes non-judicial foreclosures in
certain circumstances. Prior to passage of the OTDA, the only way to foreclose on property was in court, under the oversight of a judge who could examine the evidence submitted by both parties and ensure fairness. In 1959, in response to industry requests for an expedited process, the Oregon Trust Deed Act was passed. The OTDA allowed an expedited foreclosure and sale without a judge’s oversight, but only if certain procedural requirements were met. If a lender chooses not to use the non-judicial process, it has the option of using the judicial process.
3) The Oregon Court of Appeals just issued a ruling on a MERS/non-judicial (OTDA)
foreclosure case. What was the case about and what does the ruling say?
In this case, Rebecca Niday bought her home by getting a loan from GreenPoint Mortgage
Funding, Inc., a MERS member. The trust deed was recorded in Clackamas County listing MERS as a beneficiary of the loan, and indicating that MERS was acting solely as a nominee (or agent) for GreenPoint. At some point, GreenPoint assigned its interest in the loan. Three years later,
the company that claimed to own the loan commenced a non-judicial foreclosure of the trust deed.
Ms. Niday challenged the foreclosure on the grounds that only the true beneficiary of a loan can foreclose. Niday argued that MERS was not the true beneficiary of the loan and the assignment of the trust deed by GreenPoint had not been recorded in the public records. The lower court rejected Niday’s argument, but the Court of Appeals reversed the trial court’s decision. The Court of Appeals ruling has two parts:
a) MERS is not the “beneficiary” of a MERS trust deed because MERS is not the person for whose benefit the trust deed is given (i.e., MERS is not the person to whom the debt is owed); and
b) A trust deed may be foreclosed non-judicially under the OTDA only if all assignments of the trust deed, including assignments that occur by operation of law when the promissory note is sold or assigned, are recorded in the local county public land records.
4) Was the homeowner in default? If so, why did she win this case? What was the Court’s
The Niday decision was a procedural decision. Whether or not the homeowner was in default
was not at issue in the case. The questions for the Court were related to whether the requirements for Oregon’s non-judicial foreclosure were met. It found that the requirements were not met. The Court reasoned that when the Oregon legislature established the statutory
process for non-judicial foreclosure (the Oregon Trust Deed Act), it imposed strict safeguards to ensure the accuracy of property records. The requirement that assignments be recorded is designed to protect the interests of homeowners, prospective purchasers, and actual purchasers of real property. The foreclosing beneficiary cannot ignore this requirement if the beneficiary wants to use the expedited non-judicial foreclosure process. The beneficiary can always elect to foreclose judicially, if it is unable to satisfy the procedural requirements necessary to foreclose non-judicially.
5) What does this ruling mean along with the other MERS related rulings? Will the Oregon
Supreme Court rule on this issue?
The Niday decision is currently the highest state ruling on these matters. Unless and until the
Oregon Supreme Court holds differently, Oregon Circuit Courts must follow the rules announced in Niday. Federal courts are not required to follow Niday, but are likely to do so.
A day after the Niday decision, the Oregon Supreme Court announced that it had officially accepted a federal judge’s request in a different case that it answer questions related to MERS and non-judicial foreclosures. Also, MERS has indicated it will ask the state Supreme Court to review the Niday decision. It is unknown whether the Supreme Court will accept review of the Niday case, or when an answer will be given to the federal judge’s questions.
6) What does the Niday ruling mean for homeowners who have a pending non-judicial foreclosure sale?
If the recording requirements of the OTDA have not been met, homeowners with pending non-
judicial foreclosures may have legal grounds to ask a court to stop the non-judicial foreclosure. The foreclosure could be filed judicially instead. If the beneficiary has satisfied the recording and all other requirements of the OTDA, the non-judicial foreclosure can continue.
7) What does the Niday ruling mean for homeowners who have already had their homes foreclosed?
It is not yet clear what impact, if any, the Niday decision will have on a foreclosure that is
already completed. If you have questions about this, you should seek legal advice immediately.
8) What does the Niday ruling mean for homeowners who are not in foreclosure but have a trust deed with MERS listed as the beneficiary?
The decision does not affect homeowners who are not in foreclosure. This ruling does not
invalidate trust deeds with MERS listed as the beneficiary.
9) We have heard that lenders will start filing more judicial foreclosures in Oregon because of MERS cases and/or new mediation laws. Is there any evidence of this trend and is there any reason to be concerned about a shift to judicial foreclosures?
While some counties have seen increases in judicial foreclosure filings over the last year, it is
too soon to tell whether lenders will begin filing judicial foreclosures to avoid the recording requirements of the Oregon Trust Deed Act or the new requirement to mediate.
A shift to judicial foreclosure will not have a negative impact on homeowners. When a foreclosure is filed judicially, the usual procedural guarantees of fairness apply and the process is overseen by a judge. Courts also may choose to require mediation and settlement conferences in judicial foreclosures similar to the new foreclosure mediation process for non-judicial foreclosures.
10) What are the major differences between the non-judicial and judicial foreclosure process?
- Recording requirements and the right to foreclose: A lender filing a judicial foreclosure is not required to record all trust deed assignments prior to beginning the judicial foreclosure process. Instead, the lender must submit sufficient evidence to prove that it has the right to foreclose. The non-judicial foreclosure process allows foreclosure without judicial oversight if all trust deed assignments are recorded prior to foreclosure.
- Right to mediation: As of July 11, 2012, SB 1552 requires certain lenders to offer borrowers the option of face to face mediation in front of a neutral third party prior to a non-judicial foreclosure. In a judicial foreclosure proceeding, a borrower may request mediation, and a court may encourage mediation, but it is not required.
- Deficiency judgments: As of July 11, 2012, a borrower is protected from a deficiency judgment after a foreclosure if, at the time of the default on which the foreclosure is based, the borrower was living in the home being foreclosed. This applies to judicial and non-judicial foreclosures. If the borrower was not living in the home at the time of the default, the lender can seek a deficiency judgment in a judicial foreclosure.
- Right of redemption: After a judicial foreclosure, a homeowner has 180 days after the property is sold in a foreclosure sale to redeem the property from the purchaser at the sale. To redeem the property, the homeowner must pay the purchaser the amount paid by the purchaser at the sale plus interest, and, in some cases, other amounts. There is no right of redemption after a non-judicial foreclosure.
11) How will a homeowner know if the lender has begun the judicial foreclosure process?
The judicial foreclosure process begins when the lender sues the homeowner by filing a
foreclosure complaint in court. A homeowner must be served with a copy of the complaint and a summons. The homeowner must file a written response to the complaint in court within 30 days of the date it is served on her.
12) If a homeowner is served with a judicial foreclosure complaint, what should she do?
The homeowner should immediately contact an attorney licensed in Oregon. A housing counselor can help refer a homeowner to an attorney, but housing counselors are not licensed to advise or represent homeowners concerning judicial foreclosure.
13) Where can a homeowner go for more information?
If you are in foreclosure or at risk of foreclosure, you should seek qualified assistance immediately. Foreclosure is a complicated area of the law and there are many issues to consider. You should consult an attorney or a housing counselor as soon as possible for assistance.
www.oregonlawhelp.org – Free legal assistance for low-income homeowners
http://www.osbar.org/public/211 – Lawyer Referral Service and Modest Means Program
Other Foreclosure Assistance: http://www.ohcs.oregon.gov/ohcs/hd/sff/brochures/foreclosure_counseling_locations.pdf – Statewide list of free foreclosure counselors http://www.doj.state.or.us/consumer/foreclosure_mediation.shtml – non-judicial foreclosure mediation information
http://www.doj.state.or.us/consumer/foreclosure_settlement.shtml – homeowner assistance programs created by multistate foreclosure litigation settlement http://www.ohcs.oregon.gov/ohcs/Pages/SFF_Foreclosure_Prevention_Resources.aspx – foreclosure prevention resources
* The information in these FAQs may not apply in every situation and is not a substitute for legal advice. To obtain legal advice, a homeowner should contact an attorney licensed in Oregon.