Judicial or Non-Judicial? Belial Bank Debates How To Foreclose Oregon Homeowners – Part One

Posted on by Phil Querin

Once again, the best and brightest minds in the banking, servicing, and title industries are on yet another conference call discussing the latest events in the ever-changing legal landscape of Oregon foreclosures.  Although Belial Bank’s President and CEO, B.L.Zebub, believes that the sun, moon, and stars are lining up in their favor, he still has nagging doubts about the best way to foreclose Oregon homeowners.  These doubts spring not from the conscience, but the pocketbook.  Accordingly, he has convened his trusted cronies to decide whether to foreclose Oregon homeowners judicially or non-judicially. In attendance are B.L., his honest but naïve legal intern, Les Guile; title industry hand-wringer Liz Pendens; and her nemesis, Dee “Take No Prisoners” Faulting, of the default servicing industry; Damian Faust, Belial’s lead counsel and hatchet man; and lastly, the Bank’s chief schemer and PR man, Kenneth Y. Slick III (aka “KY”).  B.L.’s loyal secretary, Lucy Furr, has dutifully transcribed this conversation. As in the past, I am prohibited from revealing the source of this purloined post. – PCQ

B.L. Zebub:  “Hello all!  The last time we held a conference call, it was triage time at the bank.  We had been staggered by a couple of Oregon court rulings, McCoy and Hooker, that made us think we’d have to re-foreclose Oregon homeowners all over again – not that they don’t deserve to be foreclosed twice as a good lesson for not making their payments! Ha! But lately, we’ve seen our fortunes change.  Damien, why don’t you fill us in on some of the details?  Are we finally at the bottom of the 9th inning yet?”

Damien Faust:  “Well, maybe.  It’s true, we scored a couple of runs for the home team.  These were the Beyer decision and the James decision.  The Beyer opinion is a good example of what can happen when borrowers represent themselves; the judge drinks the banks’ Kool Aid that is served up in the form of legal arguments that remain largely unopposed.  But who’s complaining?!  In this case, the judge actually concluded that MERS was a “beneficiary” under Oregon law because it was entitled to “benefits” – i.e. the right to receive the loan payments under the promissory note.  Specifically, he said that “One right of the lender is to receive payment of the obligation, so this clause must grant that right to MERS as well.” The amazing thing is that MERS itself has never argued that.  If someone sent MERS a mortgage payment, they would toss it back to them like a hand grenade without the pin.”

Les Guile: “Excuse me, Mr. Faust. I’m not sure I understand.  How does the court read into the trust deed a right to receive payments under the promissory note, if MERS itself says it doesn’t accept borrower payments?”

Damian Faust: “That’s the hilarious part!  Guile, you were little more than a gleam in your father’s eye when we came up with this ruse – and I’m proud to admit that I had a hand in it.  All of us, myself and the other Big Bank attorneys were having drinks one night, and trying to figure out how portray MERS as a “beneficiary.”  You see, in Oregon, the 1959 trust deed law created a bit of a legal fiction.  They started first by re-naming the major participants to a note and mortgage:  They called the borrower a “Grantor;” the lender became the “Beneficiary.”  Then they introduced a new party, the “Trustee.” So under Oregon’s trust deed law, the Trustee in theory, holds title to the property “in trust” while the Grantor makes his payments to the Beneficiary.  If all of the payments are made, the Beneficiary requests that the Trustee “re-convey” title to the Grantor, aka, the homeowner-borrower.  If the payments are not made and the Beneficiary declares a default, it instructs the Trustee – or more frequently a “Successor Trustee” appointed by the bank – to foreclose the hapless homeowner.  I refer to this as a “legal fiction,” because in reality, the homeowner always has legal title and the bank effectively has a lien on the home secured by the trust deed. So effectively….”

B.L. Zebub:  “Damien, thanks for the soliloquy, but can we cut to the chase?  I sure hope you’re more interesting at cocktail parties.  For a minute there, I thought I sitting in Real Property 101 at law school – this stuff put me to sleep back then, too.  Time is money Damien, and at your rates, Belial Bank just paid for your next family vacation.  We want to hear about the current state of Oregon law in view of the Beyer and James cases.  Will they hold up under scrutiny?”

Damien:  “Sorry B.L.  And yes, I’m far more interesting at cocktail parties.  You remember the trouble I got in at last year’s office party for some of my stories! I’m a lot better in mixed groups when the alcohol is flowing and the young ladies become enraptured hearing the tales of my courtroom magic.  Ahhh, but I digress.  Where were we?  Oh, yes, the Beyer and James cases.  Well, confidentially, the logic in Beyer was – well, interesting to say the least.  As I was telling Guile, I was a part of the original crew of lawyers that schemed…err, devised, a way to put a square peg in a round hole, so to speak.  We knew that ORS 86.705(1) defined a Beneficiary under a Deed of Trust as “…the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or the person’s successor in interest….” We thought and thought of arguments supporting our position that MERS could act as the nominal beneficiary even though it wasn’t actually “benefitted” by the trust deed.  Mind you, we had lawyers at this meeting that graduated summa cum-laude in sophistry.  But try as we might, we couldn’t come up with a straight-faced legal argument that MERS – who we all know is nothing more than a strawman – somehow reaps a “benefit” when it acts as a “Beneficiary” under Oregon’s Trust Deed Act. I mean, how many definitions are there for the word “benefit”?  Obviously, it’s the bank that “benefits” from the trust deed, just the same as the bank benefits from the mortgage, if one were used.  MERS didn’t exist in 1959, so clearly, the legislative intent back then never contemplated a fictional strawman born and bred by the lending and title industries.”

Liz Pendens: “Now wait a minute, Damien.  I think the title industry has paid its penance for participating in setting up MERS back in the 90s. Remember, we’re the ones that have had to insure title out to the banks’ REO buyers. It’s our collective _ _ _ _ _ [text redacted by Lucy Furr as not suitable language for Les Guile’s virgin ears] that are on the line today.  If we refused to insure marketable title, no one would buy the homes you folks foreclosed without following Oregon’s recording law.  I think it’s high time your industry accepted paternity for spawning that demon seed you’ve named ‘MERS.’”

Dee Faulting:  “Liz, why don’t you permanently set your speaker phone on ‘Mute’”?

B.L. Zebub:  “OK, ladies, lighten up.  Damien, can you put this dissertation on fast-forward, please? What’s the bottom line?”

Damien Faust:  “Sure thing, B.L.  The bottom line is that we concluded we couldn’t spin the word “beneficiary” and “benefit” to mean anything other than what a 5th grader understood it to mean.  So we came up with the next best solution, and it paid off in spades as shown in the Beyer decision.  We began inserting into all of the lending industry’s trust deeds a provision that reads as follows:

‘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.’

K. Y. Slick: “Brilliant!  So rather than try to re-define “benefit” and “Beneficiary” into something the courts wouldn’t buy, you just snuck a provision into all the trust deed forms as a sort of “patch” like those used by computer programmers to fix code that doesn’t work. And reciting that the “Borrower understands and agrees…” you pin the responsibility for knowing this on the borrowers themselves!  They can’t say they didn’t know, since they signed the trust deed.  And since the banks pick the forms, they get to stack the deck by using their own documents.  I wonder if borrowers ever read these forms?  I suspect not.  In fact, I’ll bet even the banks’ own people couldn’t explain what that means.”  [To be continued….]

Posted in B. L. Zebub, Belial Bank, Financial Crisis, Foreclosure, Legislation - Oregon, Market Conditions, MERS, Miscellany, Real Estate/Distressed, Servicers | Tagged , , , , , , , ,
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