Judicial or Non-Judicial? Belial Bank Debates How to Foreclose Oregon Homeowners – Part Two

Posted on by Phil Querin

When we last left this telephone conference in Part One, Damien Faust, chief legal counsel for Belial Bank, was regaling everyone with his brilliance in creating the following legal provision that the Big Banks had quietly inserted into every lender’s trust deed forms:

“Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to releasing and cancelling this Security Instrument.”

Les Guile:  “That seems kinda sneaky to me.  These are standard forms.  The banking industry prints them out for consumers to use so they don’t have to go to an attorney every time they get a loan.  Of course the consumers don’t read it – they wouldn’t understand it if they did.  But, if I were to paraphrase what this clause really says, it would be something like this:

Borrower understands and agrees that in order to make MERS legal under state law, it has the right to do anything the lender can do if necessary to comply with the laws and customs of that state.’

Under that rationale, if the lender also sold jelly beans, MERS could do so as well, if it was necessary to make MERS legal in that state.  But this isn’t sophistry – you tried that and failed.  It’s downright silly. It’s like the old Roadrunner cartoons where he escapes through a tunnel painted on the side of a mountain.  The banking industry stuck a portable hole in its trust deeds that only MERS can escape through.”

Damien Faust: “Well, Guile don’t be too dismissive of the ploy.  It actually worked.  Both Judges in the Beyer and James cases bought it.  The Judge in Beyer even went so far as to rely upon the provision by saying that ‘…the trust deed repeatedly calls MERS the beneficiary, a statement which would not comply with law or custom unless MERS’s powers were expanded to include the right to receive payment of the obligation.’  I admit that the reasoning sounds err, a bit circular, but we’ll take our points any way we can, even if the ref made the wrong call.”

Les Guile: “Here’s where the logic fails:  The Judge erroneously believed he was “expanding” MERS’s powers, but he was actually contorting Oregon’s 50 year old definition of a “Beneficiary” to accommodate MERS.  So, if MERS is the Mad Hatter, and the trust deed recites that ‘the Mad Hatter is the Beneficiary’ three times in the trust deed – since this does not comply with Oregon’s law or custom – MERS’ powers should be “expanded” to have tea parties.  Does that really make sense?  Of course not.  What’s actually occurring under this devious “custom and usage” provision, is that Oregon’s long standing definition of a “Beneficiary” — one that even a 5th grader could understand — is allowed to be bastardized without ever changing the statute.  It’s no wonder MERS never bothered to vet its business model by checking the applicable law in all 50 states.  With this “custom and usage” clause, it didn’t need to.  Have I captured this contorted logic correctly?”

B.L. Zebub:  “Son, I like your style!  If you don’t agree with a particular result, you find the most ridiculous set of metaphors dripping in sarcasm, to belittle it.  And I do believe your analogy has captured the skewed logic correctly. You’ll make a great lawyer someday – although you may not have many dinner invitations from the judiciary.  Liz, these latest decisions should help your industry out, even if the logic is somewhat flawed.  Are you feeling a little less heat these days?”

Liz Pendens: “Not a bit, B.L.  Even though the lending and servicing industries are pounding their chests, telling anyone who’ll listen that the judicial “trend” in Oregon is to find that MERS is a legal “Beneficiary” under Oregon law, I don’t really believe that others outside the industry agree.  You see, shortly after the McCoy decision, we began writing a “McCoy exception” into our preliminary title reports when bank REOs are being sold.  The exception alerted buyers that we may limit our coverage if the bank’s non-judicial foreclosure didn’t follow the recording of assignments requirement under ORS 86.735(1).  Well, if Beyer and James were as legally sound as some in the lending and servicing industries portray, why are the title lawyers still insisting that the McCoy exception continue to be written into the preliminary reports?  If Beyer and James represent the rock-solid legal precedent your industry says, you’d think they’d convince the title companies to remove the McCoy exception.  Moreover, why are some of the Big Banks, like Wells Fargo and Chase, now filing judicial foreclosures to get around the McCoy problem? Didn’t they get the memo from the bankers’ lobby that the coast was clear?  No need to put crime tape around every foreclosed home in Oregon any more.  Do you think Wells and Chase are voluntarily choosing a more time consuming, laborious, and expensive way to foreclosure Oregonians, because they like to air their dirty linen in open court?  All it’s going to take is one borrower, with or without an attorney, to force the bank to prove their case in open court, and we’ll get a peek at the same fiasco that’s tied up the Florida courts for the last several years.  They were Ground Zero for the judicial foreclosure mess. That’s where the robo-signing first came to light.  But to hear some foreclosure mill lawyers tell it, the issue is now “settled” and MERS can legally act as a “Beneficiary” under Oregon law.   I don’t think the book is really closed on this issue.  It looks to me as if a lot of you folks are just ‘whistling past the graveyard.’”

Dee Faulting:  “Liz, I don’t think you’d recognize a victory if it bit you on your ample backside.  Don’t you get it?  We’ve had two decisions in favor of MERS.  We don’t care if  some judges reach their conclusions with the same contortions of a pretzel maker – we finally put some points on the board.  This MERS mess will be forgotten in a year. Stop your incessant hand-wringing!  We’re seeing light at the end of the tunnel.”

Liz Pendens: “That ‘light’ is an oncoming train, Dee. People and regulators are still mad as hell at MERS.  You know, Dee, that’s the problem with you and your entire industry; you download your business ethics and morality onto a zip drive and carry it around on a keychain with a rabbit’s foot. There is no individual or collective introspection at any level.   I don’t think I’ve heard any responsible person in the lending or servicing industry ever utter a word of regret for what they’ve caused.  It’s always the borrowers’ fault, or the investors’ fault, or the regulators’ fault.  You’ve set the real estate industry back almost a decade.  You’ve cause incalculable harm to Oregon homeowners. And even worse, despite all the reputational damage your industry has inflicted on itself, you continue with your foreclosure shenanigans as if you’ve learned nothing.  If you think your industry is out of the woods, think again.  I’m reading that Nevada is now filing criminal charges against managers who supervised robo-signers. Several states and counties are ramping up attacks on MERS. The state attorneys general can’t get their act together, so New York and California have withdrawn from the effort, in order to go after lenders and servicers with a vengeance – they think the proposed settlement terms were too soft on your industries. The Delaware and New York AGs have been allowed to intervene in the June, 2011 BofA settlement with Bank of New York Mellon, because they say the $8.5 billion dollars in damages aren’t high enough. Need I go on?  Take off your party hat Liz and put on some Kevlar™, Dee.  A couple of favorable rulings will not stop the flood of litigation and bad press.”

B.L Zebub: “Ok, enough mud wrestling girls.  Let’s wrap this up.  The reason I wanted to have this conference call, was to decide how we should proceed in light of these four cases; two — McCoy and Hooker, against MERS acting as a beneficiary, and the other two — Beyer and James, in favor of it doing so.  So, what’s the verdict?  Do we avoid the risks of McCoy and Hooker by foreclosing Oregon homeowners judicially?  That will mean hiring attorneys rather than foreclosure trustees.  It will mean filing in court – which is expensive – rather that advertising foreclosures in the newspapers. It will subject us to court scrutiny by judges not entirely happy that they have to saddle their dockets with hundreds of foreclosure filings.  Under ORS 18.964, we will have to start giving borrowers a six month right of redemption after the court sale.  How ironic!  A right to redeem a home worth less than the debt on it!  Now who would ever want to take that deal?   So, I’m not seeing much upside here.  C’mon group!  Let’s figure this out so we can start foreclosing Oregon homeowners again.  I miss the smell of napalm in the morning!”

Les Guile: “B.L., when you sent out the agenda for this conference call, I did a little analysis of my own, and think it may help move discussion along.  Will that be OK?”

B.L. Zebub: “Go right ahead.  It seems the rest of this brain trust has either fallen asleep or doesn’t have an answer.”

Les Guile: “Thank you, sir.  Here’s my analysis: Resuming non-judicial foreclosures is faster and cheaper.  The entire industry is familiar with the process, and many of the recent Oregon statutes – such as those giving rights to renters of homes in foreclosure – were only enacted for non-judicial foreclosures.  Sure, the Big Banks and servicers were threatening the 2010 and 2011 Legislatures with judicial foreclosures if they didn’t get the right to do legally what they’d been doing illegally all these years, but that was mostly for show.  No one really thought they would do it.  It reminded me of the scene in Blazing Saddles where the sheriff points the gun at his own head and says, “Stop or I’ll shoot!”  Filing judicially hurts the banks more than the homeowners, since it does nothing to improve their position after the foreclosure – and it costs them more time and money to do so!

So, my take is that the Big Banks really don’t want to foreclose in court – it was just part of their sales pitch to get Oregon’s trust deed law changed. In fact, now that they have two wins under their belt, the banks are even telling the Oregon Legislature they don’t think they need a change to the trust deed statutes after all.  Why was it so important at the start of 2011 that they get the statutes changed, but not at the end of 2011?  It’s starting to look as if they were ‘crying wolf’ in the first place.

So the question is, in light of McCoy and Hooker, do the Big Banks really need to go to court?  What is the risk of a non-judicially foreclosed homeowner claiming that they still own the home?  Admittedly, there is a slight risk – but it isn’t much.  And the risk can easily be contained by asking two simple questions: (1) ‘Is the borrower still occupying the home after the foreclosure sale?’ and, (2) ‘Did the foreclosed borrower have significant negative equity in the home?’ If the owner has vacated the home, and they were underwater, say $50,000 or $100,000, what is the likelihood he or she will come back to reclaim the home and a debt that exceeds that home’s value? The chances of that happening are about as slim as Angelo Mozilo making a public apology for selling billions of dollars of securitized subprime junk to investors while he was quietly cashing out his stake in Countrywide in 2007 before the company tanked.  So from where I sit, I say Belial Bank should continue doing non-judicial foreclosures.  There is minimal risk, and it can be contained by a little due diligence by the title companies on each REO sale before issuing a title policy.  I think Belial Bank would be wasting millions of dollars to needlessly judicially foreclose Oregonians.  It’s bad enough to be non-judicially foreclosed, but being sued in court, and told there’s going to be a default judgment taken for thousands of dollars unless you legally respond to the complaint in 30 days, has got to be frightening for most homeowners.”

K.Y. Slick: “Serves ‘em right.  If the borrowers don’t pay their loan, they should feel the full force of Belial Bank’s legal power. I say it’s high time for a little ‘Shock and Awe.’  Once we get a few deficiency judgments on some of these deadbeats, word will get around that we’re not to be trifled with.”

Les Guile: I hate to disappoint you Mr. Slick, but you can’t get a deficiency judgment against Oregon homeowners simply by judicially filing a lawsuit in court instead of a non-judicial Notice of Default under the Trust Deed Act.  If the trust deed is a “Residential Trust Deed” as defined in ORS 86.705(3), there is no risk of a deficiency regardless of whether the foreclosure is filed in court or not.  So I’m afraid you’ll have to go back to your Bag o’ Tricks and figure out another way to threaten, intimidate, and sow fear in the hearts of Oregon homeowners.  Perhaps you can come up with something particularly demonic over the Christmas Holidays.”

B.L. Zebub: “Well, let me interrupt, before K.Y. jumps through the phone line and throttles Les.  I can certainly tell that our young novitiate has sharpened his rhetorical skills since our last phone conference.  OK everyone, unless I hear some ‘Nays,’ I’m inclined to follow Les’ suggestion. We’ll continue to foreclose homeowners non-judicially, and not worry about who wins in court.  If the banking industry finally wins the MERS battle, we claim victory and continue moving forward saying — once again — that ‘Might Makes Right’.  If the industry loses the battle, so what? We have little or no risk of someone coming back after having left their underwater home months or years earlier. And if they do…well it’s the title company’s problem!  Ha! Just kidding Liz!  Ahem! Liz, you can always trust us MERS owners to stick together.  So either way, we will continue doing our foreclosures non-judicially.  OK, this concludes the conference call.  Lucy, please type up a transcript for each of us, scrubbing the text where you think appropriate. Everyone, if we don’t talk until after the holidays, enjoy the time off.  As you know, Belial Bank does not send out sappy greeting cards with that Christian or Jewish drivel, since — as you know —   I’m Captain of the “Other Team.” Instead, we’re giving everyone a gift card for a free bottle of Devil’s Springs Vodka, which, at 160 proof, should erase any lingering sense of guilt for another wildly successful year foreclosing Oregon homeowners.

Posted in B. L. Zebub, Belial Bank, Financial Crisis, Foreclosure, Foreclosure Mills, Legislation - Oregon, Lenders, Market Conditions, Miscellany, Real Estate/Distressed, Servicers, Trust Deeds | Tagged , , , , , , , , , ,
  • Categories

  • Archives