“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:
- 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 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, 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.
- 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.
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 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]
 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.
 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.
 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.
 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.
 Jim Markee, a lobbyist representing the Oregon Mortgage Lenders Association.