Belial Bank Bemoans The James Decision (Part II) and Oregon's SB 1552 (2012)

In a hastily convened telephone conference, B.L. Zebub, Belial Bank’s devilish, but distraught, leader, queries the attendees on the remarkable [some might say “miraculous”] turning of the tide [which some might liken to the parting of the Red Sea] for Bantam Borrowers over the past couple of weeks in Oregon. Since such analogies smack of divine intervention, B.L. Zebub, who is captain of the “Other Team,” regards them as blasphemous, and grounds for expulsion from his little coterie of today’s callers. Of particular concern to our heretofore confident commander, is the recent ruling by Federal Judge Simon in the James case and the 11^th hour passage of Oregon’s SB 1552.

In attendance are some of the best and brightest minds in the banking, servicing, and title industries: B.L.’s honest but naïve legal intern, Les Guile [who has begun to lose patience with the “See No Evil” attitude of some of the telephone attendees]; title industry hand-wringer Liz Pendens [who has decided that she is through carrying the water for the more powerful Big Banks]; Liz’s polar opposite, Dee “The Destroyer” Faulting, of the default servicing industry [who was once spotted over the Christmas Holidays trying to remove a ten dollar bill stuck in a Salvation Army Red Kettle]; Damian Faust, Belial’s lead counsel [whose Curriculum Vitae touts that fact that he received a perfect score on the MMPI for anti-social behavior]; and lastly, the Bank’s chief schemer and PR man, Kenneth Y. Slick III (aka “KY”), who is reveling in his recent success in expunging from the public record an old teenage criminal conviction for cruelty to small animals that his third ex-wife had threatened to take public. B.L.’s loyal secretary, Lucy Furr, has dutifully transcribed this conversation. As before, I promised my contacts at Wikileaks that I would not reveal the true source of this purloined post. – PCQ

B.L. Zebub: “Well, let’s get started. No need for introductions; time’s running out – and so is our luck. I want to hear from you Damien; what the hell is happening?! One day we’re riding high, confident in the fact that we’re getting the best of those pesky little borrowers, and now we’re on the ropes. I thought the Beyer result and the first James ruling signaled the end of the issue; MERS was held to be a legal beneficiary in those cases, so I thought we could move on. Hell, our lobbyists down at the Oregon Legislature were telling the politicians during the 2012 Session that they were so confident in the future, we didn’t even need to sneak in a last minute gut-and-stuff bill this time. Continue reading “Belial Bank Bemoans The James Decision (Part II) and Oregon’s SB 1552 (2012)”

[This post is the second in a two-part discussion of the recent case of James vs. MERS, et. al. The full text of Judge Simon’s decision can be found here. The link to Part One of my analysis can be found here. Besides the sheer joy of (metaphorically) poking my finger in the eyes of the Big Banks, this case is a breath of fresh air for several important reasons: First, it is clearly the first in-depth analysis of the MERS issues unfolding in Oregon’s state and federal courts. This is not to say prior judicial opinions were inadequate in any way – rather, the James’ excellent legal briefing placed before the Court, well-reasoned and cogent arguments showing that the MERS model is a clear violation of Oregon trust deed foreclosure law on several levels. Second, to use a cliche’ – Judge Simon clearly “gets it.” Again, this is not to say others before him did not. In fact, perhaps that is what is remarkable in this decision over the earlier McCoy and Hooker cases – Judges Alley and Panner articulated their discomfort with the how poorly the MERS model served consumers. Judge Simon’s opinion did not reveal anything about his personal comfort or discomfort with the MERS model. Rather, it was a dispassionate, objective, and welcome, dismantling of a house of cards that has survived longer than one might imagine, given the fact that it was never adopted or approved by any local or state governments. The banks did it simply because “they could.” Of course, the reason for the MERS failure is that it was premised upon several reckless assumptions that: (a) It could woo 100% of the lending industry into it’s way of thinking; (b) That no one would notice it was depriving counties of millions of dollars of recording fees; (c) That bank securitizations would go on forever; (d) There could be no such things as a mortgage crisis, a credit crisis, or foreclosure crisis; and (e) That it could out-think, out-talk, and out-maneuver, anyone that got in its way.

So, now that I got that off my chest, let’s review the rest of Judge Simon’s opinion:

Finding: The “Law or Custom Clause” May Not Expand MERS’ Role to That of a Lender.

In the pro-MERS trust deed forms used by the lending industry, they inserted a sort of safety net provision; i.e. one essentially saying that if MERS’ model as a “nominee” or “agent” of the lender somehow fails to comply with local law, that:

“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 Agreement” [Underscore mine. PCQ]

Judge Mosman in the Beyer decision relied upon this “law or custom” clause to bootstrap MERS into the role of the “lender,” thus giving it a “benefit” i.e. the receipt of borrower payments. Once it could be said that MERS receives a “benefit”, it was easy to conclude that MERS was a “beneficiary” under ORS 86.705(2). And once MERS was deemed to be a “beneficiary,” it then had the power reserved to beneficiaries under the OTDA to assign the trust deed to a lender in order to initiate the foreclosure. Surprisingly, Magistrate Stewart, in the James decision, came to the same conclusion. Continue reading “Another MERS Slapdown! The Recent James Case Analyzed (Part Two)”

“In Roman mythology, the god Janus, for whom each year’s first month is named, was the deity of beginnings and endings. According to legend, the titan Saturn gave the two-faced god the power to see both the future and the past. Romans carved both of Janus’ two faces on gates and doorways to solemnize momentous transitions. Most notably, in the Roman Forum, the Senate erected the ritual gates called the Janus Geminus, which the Romans opened in times of conflict. At war’s outset, priests made sacrifices here to curry favor from the gods and forecast the prospects of success. No deity better symbolizes what financiers hoped to create when they founded the Mortgage Electronic Registration System (MERS). MERS sits as a dichotomous, enigmatic gatekeeper on the vestibule of our nation’s complex and turbulent mortgage finance industry. Financiers invoked MERS’s name at the beginning of millions of subprime and exotic mortgage loan transactions and again invoke its name as they attempt to terminate so many of these loans through foreclosure. Like Janus, MERS is two-faced: impenetrably claiming to both own mortgages and act as an agent for others who also claim ownership.” Professor Christopher Peterson, “Two Faces: Demystifying The Mortgage Electronic Registration System’s Land Title Theory”

In a stunning rejection of the earlier Beyer and James cases [severely criticized by yours truly here, here, here, here, here and [satirically] here – PCQ] holding that MERS and Big Banks may ignore the plain language of the mandatory recording law found at ORS 86.735(1), recently appointed U.S. Federal District Judge Michael H. Simon, issued a 41-page Opinion and Order [here] that should be required reading for all lawyers and laypersons interested in the current MERS issues bouncing around in Oregon’s state and federal courts. Quoting Lake Oswego attorney Kelly Harpster’s statement to the Oregonian, Judge Simon’s ruling is “the most thorough and thoughtful analysis of the MERS issue that has yet been published ….” Continue reading “Another MERS Slapdown! The Recent James Case Analyzed (Part One)”

[Caveats: 1. The following information is solely based upon Oregon law. Residents from other states should not assume their laws will result in the same outcome. 2. This post is for informational purposes only and should not be relied upon as “legal advice” for your particular situation. In all cases, you should consult with your own attorney. There are many facts and circumstances that can change results. You need to speak with an expert who is familiar with the terms of your specific loan. – PCQ] As we enter 2012, four to five years following the real estate and credit debacles – depending on your location – we’re still in the doldrums. Drifting, and not moving in any specific direction. So, are there any words of wisdom, any encouragement, any sense that this static economic situation will improve? To those looking for predictions, this post is not for you. I have insights, but suspect they are no better than the next person’s. However, having said that, for those readers interested in a discussion about some of the Portland housing statistics, go to this link. Beyond that, for the present, I will refrain from the temptation to say what I think the future holds for Oregon’s housing inventory or its Realtor® industry. I’m saving that for another time. Rather, the purpose of this post is to provide some degree of encouragement. This is not to suggest that things will necessarily turn around this year – or at least not materially so – but that things could always be worse; that life, by definition, is a series of highs and lows, and events are rarely as good, or as bad, as they may first appear. So what do we make of this housing recession, foreclosure mess, and tight credit, all coupled with lagging employment numbers? What about those – now estimated to be nearly 30% of American homeowners – who are struggling with negative equity, meaning that their total mortgage indebtedness exceeds their home’s value? Continue reading “Distressed Housing: This Too Shall Pass”

Word has it that Oregon has agreed to sign on to the 50-state attorneys general settlement with five of the country’s largest banks: Bank of America, J.P. Morgan Chase, Wells Fargo, Ally Financial, and Citi Group. As in all settlements, neither side will be completely satisfied, and this time is no different. But it is high time for something to happen since this effort has languished for months.

Here’s a partial summary of the general parameters of the settlement: Continue reading “Oregon to Sign on to 50-State AG Settlement”

Hypocrisy: [c.1200, ipocrisie, from O.Fr. ypocrisie, from L.L. hypocrisis, from Gk. hypokrisis “acting on the stage, pretense,” from hypokrinesthai “play a part, pretend….” Online Etymology Dictionary]

Example: When banks lend money today, they demand absolute transparency of their borrowers. Every “T” must be crossed and “I” dotted. Signatures, income, credit, employment, all must be verified and re-verified to the nth degree. But when banks foreclose their borrowers today, they throw transparency to the wind. Everything becomes opaque. The banks move into the shadows, transferring obligations behind the scenes, employing lackeys to sign their most important foreclosure documents, and using servicers to do their dirty work, all the while whispering “We Care” to beleaguered homeowners, when that is the farthest thing from their mind. – PCQ

Background. On July 23, 2004, Mr. and Mrs. Sharpe borrowed $194,750.00 from their lender, Washington Mutual Bank (“WaMu”). They signed a Promissory Note and Trust Deed. Here’s what these documents said:

The Note informed them that their lender could transfer it to a third party, which would entitle the new entity to receive the Sharpes’ payments;
The Trust Deed stated that the Note could be sold without prior notice to them;
The Trust Deed stated that the “Loan Servicer” [i.e. the entity to whom they were to make all Note payments – PCQ] could change;
The Servicing Disclosure Statement [a separate lender-created document – PCQ] informed them that WaMu was to initially act as servicer of their loan – but that could change in the future;

On September 16, 2004, WaMu sold the loan to Fannie Mae, although it [WaMu] retained all servicing rights. This means that while Fannie Mae owned the Trust Deed and was the holder of the Note, WaMu acted as the collection agent and was thus earning servicing fees on the Sharpes’ loan even after they had sold it to Fannie Mae. Continue reading “Sharpe vs. Wells Fargo Home Mortgage – A Critical Analysis”

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.” Continue reading “Judicial or Non-Judicial? Belial Bank Debates How to Foreclose Oregon Homeowners – Part Two”

Senior Supervisor, Bank Hardship Letter Department

Have you ever been curious about what “test” the Big Banks apply when deciding to allow short sales? I have. What follows is my analysis only. Readers are free to disagree; but remember, a couple of anecdotal stories overheard at a cocktail party, do not a trend make. There are rules and there are exceptions to those rules. I’m interested in the rules. – PCQ

First, we know that the Big Banks all base their borrower assistance programs on the concept of “deservedness.” Now, with the help of a sleeper agent working “deep cover” at the highest levels of a Big Bank, we have discovered the following purloined paperwork (including this candid staff photo taken at work), describing, in depth, the inner workings at one lender’s Hardship Letter Department:

“You get our help only if you deserve it. To be deserving, you must have a “hardship.” We get to define the meaning of “hardship.” It must relate to something unplanned or beyond your control[1]: Such as illness, death, divorce, job loss, financial inability to pay, mandatory relocation, etc. Pregnancy cannot be “unplanned” or “beyond your control” according to the Planned Parenthood folks, so it won’t get you into our “deservedness” line.

When you seek our help, we expect you to prepare and sign, under oath and penalty of perjury, a “Hardship Letter,” describing in detail, your tale of woe, beginning from early childhood and continuing through adulthood. We ask that it be hand written on cheap bond notebook paper (blue lines only – and no fancy yellow legal pad paper!), with a No. 2 pencil and shaky hand.

Before writing your Hardship Letter, we recommend watching one or more of the following sad movies to serve as your cinematic Muse and help conjure up the appropriate melancholy [in no specific order]: Titanic, Schindler’s List, Steel Magnolias, and Ordinary People. For the distressed older Baby Boomers, we suggest Love Story and Old Yeller. Continue reading “Do You Know Who Just Read Your Hardship Letter?”

The Conundrum. In Oregon we have a foreclosure conundrum: ORS 86.735(1) requires lenders to record all successive trust deed assignments when non-judicially foreclosing a trust deed. However, lenders have routinely either lost, never created, or destroyed, their trust deed assignment documents during the securitization frenzy of 2005 – 2007. This means that starting with the subprime loans, and working their way up the food chain, lenders have been non-judicially foreclosing trust deeds without recording the necessary assignment documents. This has resulted in two significant court rulings [McCoy in Oregon’s federal bankruptcy court, and Hooker, in Oregon’s federal district court – PCQ] holding that these defective non-judicial foreclosures are invalid.The upshot has been that title companies have become skittish about insuring marketable title when banks attempt to sell their REO properties following a non-judicial foreclosure. In order to avoid the problem, many banks have decided to take a “poison pill” – that is, even though it benefits no one, they are beginning to judicially file foreclosure lawsuits in court, in order to avoid the McCoy and Hooker problem that was limited to non-judicial foreclosures.

However, the judicial foreclosure alternative carries with it a host of unpleasant side effects for everyone.

It entails costly court filing fees;
It taxes already limited judicial resources;
It requires that borrowers be given a six-month right of redemption following the foreclosure sale, which hampers the lender’s ability to quickly re-sell the property;
It creates a potential public record and credit stigma on borrowers, who now have a court judgment taken against them;
It continues the oppressive psychological impact on borrowers who are served, sued, and then must retain an attorney to figure out their legal options;
It continues the reputational damage of Big Banks, by drawing further attention to the never-ending foreclosure crisis.

The Solution. Is there a better alternative? Yes, and it is in plain sight. I have discussed it in a prior post, here. The answer is to secure a pre-foreclosure result. This is not rocket science. “Is anyone home, McFly?” Here’s a pre-foreclosure solution that banks should embrace, rather than continuing to pile on beleaguered homeowners, just because lenders and servicers can’t seem to comply with Oregon’s non-judicial foreclosure law:

Prior to commencing any foreclosure, judicial or non-judicial, lenders should contact the borrower to see if they would execute a Deed-in-Lieu-of-Foreclosure (“DIL”). It would be “without merger”, which would permit the lender to foreclose a subordinate lienholder, if necessary;
The DIL would contain certain borrower title warranties to the effect that they have not placed or permitted undisclosed liens on the property [this would be confirmed with a lender’s title policy, of course. – PCQ];
The lender and borrower would execute a global settlement of all claims – including any borrower rights of redemption and any lender rights to a deficiency judgment;
The borrower would agree to turn over the subject property to the lender in broom clean condition;
If a foreclosure lawsuit was already filed, the lender would execute a Judgment of Dismissal against the borrower, “with prejudice and without costs or fees”.

Win-Win. It would seem that this DIL solution would result in a win-win for all parties and the Oregon judicial system. Assuming that there are no lienholders on the property that may have priority claims, that puts an end to all the unpleasantness; the borrower gets on with their life.

If a foreclosure suit was already filed, the other co-defendants (e.g. junior lienholders) would likely permit default judgments to be taken without costs and fees. If a priority battle was necessary, and no judicial foreclosure had been filed, the lender could pursue them non-judicially, without having to name the borrower, who has already deeded his/her property back to the lender.

Going forward, title would be marketable to any REO buyer. The McCoy and Hooker problems are entirely avoided. The banks get back the property without the cost and delay of a lawsuit, and everyone’s happy….sort of.

How Do We Make This Work? My suggestion is to encourage those in the judicial system to embrace this approach. Require that at the time of filing a judicial foreclosure, bank attorneys sign an affidavit under oath, swearing to the fact that they [not their lender-clients who gave us the robo-signers, DocX, and other shenanigans – PCQ] had formally offered the above protocol and the borrower either rejected it or could not be reached.

If anyone can tell me what’s wrong with this approach, I’m willing to listen. But until I’m convinced otherwise, this proposal would seem to give the lender what they want – marketable title, and the borrower what they need – finality.

“The great thing about working at ________________ Bank is that no one has to take personal responsibility for the institutionalized immorality of our industry. We get up in the morning, go to work, and check our soul at the door. When we come home at night to our families, we can become human again, without feeling any regret for the havoc our foreclosures have wreaked on so many lives. We’re the zombies in zombie banks. It’s no wonder our industry has no code of ethics….” [Overheard at a local Portland watering hole from an obviously intoxicated bank employee in the foreclosure department, responding to the frequently asked question: “How do you live with yourself?”][1]

In my recent post here, I was critical of what appeared to be intentional document destruction by Freddie Mac. This information was based upon an April 11, 2011 announcement that it sent to its sellers and servicers. However, at the time, I was unclear of the reason for – and timing of – the document destruction. Was there some explanation that would dispel the appearance of chicanery? As Paul Harvey used to say, “Here’s the rest of the story.” Continue reading “Freddie’s Destruction Instruction Rule – The Epilogue”