“Oh what a tangled web we weave,
When first we practice to deceive!”
Sir Walter Scott, Marmion, Canto vi. Stanza 17.
Scottish author & novelist (1771 – 1832)
There are two new interesting developments on the foreclosure front in Oregon. But first, here’s a recap of where we’ve been and where we are now:
- The Big Banks tried and failed to conduct illegal non-judicial foreclosures in Oregon. As pointed out in several earlier posts, here, here, and here, they have been routinely ignoring the mandatory recording requirement of ORS 86.735(1).
- They got their wrists slapped by Federal Judges, Panner, Alley, and others.
- They realized that even when they completed an illegal foreclosure, they likely couldn’t get title and couldn’t evict the homeowner.
- As discussed here and here, their lobbyists went to the Oregon legislature, and tried to convince the politicians that real estate commerce would come to a halt, if they weren’t permitted to continue violating the law. [Note to Big Banks: Commerce did come to a halt, but it was back in 2007+ after you’d gone on your securitization binge, lent money to borrowers you knew couldn’t qualify [or didn’t care if they couldn’t], immediately got paid by selling liar loans as securities to pension funds and others who relied upon the agencies you paid for bogus investment grade ratings, and then went through four years of “extend and pretend” modifications that accomplished absolutely nothing to resolve the foreclosure crisis. – PCQ]
- The Big Banks next threatened that if they weren’t permitted to violate Oregon’s non-judicial foreclosure law any more, then By Golly, they would just start suing their delinquent borrowers in court, since the mandatory recording requirement only applied to non-judicial foreclosures.
First Recent Development – Judicial Foreclosures. Today, there are anecdotal reports of the Big Banks cancelling their non-judicial foreclosure sales and going judicial. We know this because they are quietly changing their pre-foreclosure title insurance orders from “Trustee Sale Guarantees” to “Litigation Reports.” What does this mean? Well, if they were going to non-judicially foreclose one of their borrowers, they would order a Trustee Sale Guarantee, since the Successor Trustee in charge of the foreclosure would be conducting it by public record recordings and newspaper advertisements, rather than through the court system. This type of report tells the Successor Trustee who to name and send all mailings to in order to foreclose out their interest in the subject property.
But if the Big Banks order a “Litigation Report”, it means they’re teeing up a foreclosure lawsuit in court, and need a slightly different form of title insurance coverage. This report tells the bank’s FMA [“Foreclosure Mill Attorneys”] who has to be named in the lawsuit’s complaint, so that the foreclosure removes all other interests subordinate to the plaintiff bank. That way, the bank has clear title to the property to transfer out of their REO department once they complete the judicial foreclosure.
Why do the banks want to go to court, and publicly drag themselves, and their borrowers, into the public arena, which will not only air everyone’s dirty linen, but also subject themselves to court scrutiny? The first explanation is simple: The mandatory recording requirement of ORS 86.735(1) only applies in non-judicial foreclosures. In other words, the Big Banks don’t have to record the [oftentimes missing] Trust Deed Assignments if they go to court, since the law does not require that they so. [However, they still have to establish that they have “standing” as the “real party in interest” which essentially raises the same issue as in a non-judicial foreclosure – does the bank actually hold the note and mortgage it’s foreclosing on? – PCQ] My suspicion is that the Big Banks really don’t want to go this route. All it will take is one borrower to call their bluff, and demand that they establish their legal standing to sue, i.e. produce the note, fully endorsed [“indorsed” in UCC-speak] by all successive owners.
But being institutionally incapable of thinking outside the safety box, Big Banks figure this is their only alternative. Options such as deeds-in-lieu of foreclosure, cash for keys, expedited short sale consents, are far too innovative – and would require a dose of human compassion, which is verboten on most banker menus.
The remaining issue in this new development is how the Big Banks will decide which homeowners they’ll sue, versus which one they will foreclose non-judicially. Right now, there appears to be no common theme. Clearly, if a borrower has the temerity to sue them to enjoin a non-judicial sale, they will likely stop that sale and sue the borrower in court. Who else they sic their FMAs on remains to be seen.
Second Recent Development – Limited Powers of Attorney. Recently, we are also seeing Big Banks quietly record Limited Powers of Attorney before commencing their foreclosures. A “Limited Power of Attorney” (“LPOA”) is a document used to delegate certain prescribed powers from one party to another. A LPOA differs from the General Power of Attorney in that the latter is broad and all-encompassing, with few, if any limitations placed on the Attorney-in-Fact [the party receiving the delegated power. – PCQ]. What follows is a summary of one such LPOA recently recorded on the county records in anticipation of a foreclosure:
- It runs from the Big Bank, not in its “individual capacity” but solely as “Trustee”. Although it is clear that the Trustee is serving in that capacity for a REMIC, the REMIC isn’t identified by name. In this case, the Trustee is acting as the principal and is delegating certain powers to a third party.
- The third party is another Big Bank identified as a “Servicer.” Certain delegated powers are granted to any officer appointed by the Servicer’s Board of Directors. They are empowered to execute and acknowledge in writing or by facsimile stamp “…all documents customarily and reasonably necessary and appropriate” for certain enumerated foreclosure tasks. It is not clear if the Servicer is the same Servicer already identified in the REMIC’s Pooling and Servicing Agreement [“PSA”], but it would seem doubtful, since that would be unnecessary. The Servicer identified in the PSA would already have those powers.
- The LPOA provides that the documents may only be executed and delivered by the Attorneys-in-Fact [i.e. the officers of the Servicer], if such documents are required or permitted under the terms of the related servicing agreements.
- More specifically, the LPOA is issued in connection with the Servicer’s responsibilities regarding the mortgage loans held by the REMIC Trustee.
- The listed tasks that the Servicer is authorized to perform run the gamut of enforcing mortgages and trust deeds, to foreclosing them, and virtually everything in between. The Servicer is authorized to sue in its own name, and defend the Trustee in all related litigation.
- It is worth noting that the LPOAs appear to be signed by legitimate bank officers.
So what’s up? Well….given the banks’ radio silence, we can only speculate. Here’s my take: As we have known for a year or more, the Big Banks have been engaging in a “single assignment” ruse, transferring the Trust Deeds being foreclosed from the original lenders who made the loan [or MERS] to the Trustee of the REMIC where the loan ostensibly resides. This is nonsensical, since if the loan was actually securitized into a REMIC upon origination years earlier, it would have immediately gone through multiple assignments before being deposited with the REMIC’s Trustee or Custodian. Thus, making a single assignment now, right before foreclosure, was a fairly transparent sham. Banks do not transfer nonperforming loans to each other without a reason. In those cases in which the original lender no longer existed, but the Trust Deed Assignment was executed anyway, this sham may have bordered on outright fraud.
Thus, in anticipation of further problems with borrowers contesting this single assignment ruse, I suspect the FMAs [Foreclosure Mill Attorneys] came up with the scheme of “assuming” that the notes and trust deeds had already been safely deposited inside the REMICs. Based upon this fabricated assumption, they would have the REMIC Trustee execute a Limited Power of Attorney to a Big Bank Servicer to conduct the foreclosure. The approach would avoid [or obscure] the issue of if, how, when, or whether the paperwork had ever been delivered into the REMIC. If some borrower wanted to attack the Servicer’s power under the LPOA, the FMAs would likely argue that the borrower was on a “fishing expedition” [quoting Prosecutor Hamilton Berger in so many old Perry Mason TV episodes]. This argument could resonate with a trial judge, concerned more about judicial economy than borrowers’ procedural rights – “after all, the borrower is in default….”
At this early point in time, it is difficult to tell whether the Servicer, acting as the Attorney-in-Fact for the REMIC Trustee, is the same Servicer identified in the REMIC’s PSA. One of the reasons for this difficulty is that at least in some cases, the LPOAs do not specifically identify the REMIC by name. Without the name, it is almost impossible to identify the PSA, which names the Servicer and describes their powers. It also makes it difficult to know whether such a delegation of power from the Trustee to a non-REMIC servicer [if that was the case] is a violation of the terms of the PSA.
Here are my issues/questions/observations so far:
- If the Note and Trust Deed were originally placed inside the REMIC years ago, as they should have been, the PSA already gave the Master Servicer or sub-servicer, the power to foreclose. If so, the LPOA would be completely unnecessary, since they already had these powers.
- How can a LPOA be used to empower unidentified and unnamed persons in a company to act? Traditionally, powers of attorney are used to delegate authority to a specified individual. To have a power of attorney from one corporation [with an unlimited existence] to another corporation [with an unlimited existence] delegates power perpetually. This has never been the traditional purpose or use of a Power of Attorney – and it fact, subverts a corporation’s authority. This sham is reminiscent of the old MERS “Assistant Secretary” scam, where the Board of Directors gave blanket officer designations to it members for use in their foreclosures.
- If the LPOA delegates foreclosure authority to persons outside the REMIC structure, doesn’t that circumvent the purpose and intent of the PSA that identifies who has the power to foreclose?
- If the loan documents never made it into the REMIC before its Closing Date – i.e. the date all notes, trust deeds, and mortgages were to be delivered – how can the REMIC’s Trustee later delegate power to a servicer to foreclose a property that was never inside the REMIC?
- What happens after the foreclosure by the Servicer, acting as Attorney-in-Fact on behalf of the REMIC Trustee? If the right of foreclosure never resided with the REMIC Trustee because the loan paperwork was never deposited there, then the foreclosure proceeds or the recovered property don’t belong there either.
- What scrutiny are the title companies giving to this ruse? Traditionally, title companies are very skittish about powers of attorney appearing in the chain of title, since it is a risk they insure against. That being the case, they place stringent requirements on the terms and authority in the document. When title companies issue a Trustee Sale Guarantee [for a non-judicial foreclosure] or a Litigation Report [for a judicial foreclosure] to a Big Bank doing the foreclosure, are they excluding or limiting coverage for “excess of authority” problems that might arise if the foreclosing Servicer didn’t actually acquire any authority because the REMIC Trustee had none to delegate? My suspicion, unfortunately, is that this problem has already been addressed and resolved. I suspect the Big Banks have said [expressly or impliedly]: “If you want our continued business, you’ll cover our backs on this. If you won’t cooperate, we’ll find a company that will.”
I also suspect that with the passage of time, more issues will arise. But as it stands today, it appears that the Big Banks are still looking for a work-around in order to deal with the documentation mess they created several years ago. Stay tuned!