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Oregon Supreme Court Rules MERS Transfer System Is Valid, But It Cannot Foreclose - Niday v. GMAC and Brandrup v. ReconTrust

June 14, 2013

Vincent Howard and our Moreno Valley foreclosure defense attorneys were interested to see that the Oregon Supreme Court has made two rulings with vitally important implications for foreclosures in its state. In Niday v. GMAC and Brandrup v. ReconTrust, the high court was asked to determine whether Oregon law permits MERS to be a beneficiary of a deed of trust. MERS is a private company formed by major lenders to allow them to swap mortgages as commodities among themselves; they do this by naming MERS as the beneficiary of a trust deed. Thus, this case challenged a cornerstone of the way MERS does business. It also challenged the custom of not recording transfers in ownership with county land offices, the purpose of MERS. The high court's ruling ultimately handed most of the victory to MERS, allowing it to perform non-judicial foreclosures on a showing of authority from the lender, and allowing some ownership transfers to take place within MERS.

The Brandrup case involved four consolidated appeals that came from federal district court. In all four cases, the homeowners challenged their non-judicial foreclosures, saying transfers in the ownership of their notes were not recorded with the county as required by Oregon law. The federal district judge in these cases certified four questions to the Oregon Supreme Court, asking whether MERS may be a beneficiary under Oregon law, or may be designated as a beneficiary without a property interest; whether the note is automatically assigned and must be recorded when the lender transfers it to a successor in interest; and whether MERS may legally retain and transfer title to a deed of trust after a note is transferred.

In the other case, Rebecca Niday sued to stop a foreclosure, alleging that MERS and other involved financial companies didn't have any legal interest in the deed that would allow a non-judicial foreclosure. The trial court granted summary judgment to defendants, but the Oregon Court of Appeals made headlines by reversing, finding that Oregon law requires all changes in ownership to be recorded before a non-judicial foreclosure can start. Because MERS is not a beneficiary or the owner of the interest in the note, the appeals court reversed dismissal of the case. The decision converted all new non-judicial foreclosures in Oregon to judicial ones, which are longer and more expensive for the lender. It also set off speculation that foreclosure defense lawyers like us might try to invalidate completed foreclosures.

The Oregon Supreme Court put the issue largely to rest by ruling that MERS may not start a non-judicial foreclosure on its own behalf--though it may foreclose as an agent for the beneficiary of the deed of trust. It reasoned that under Oregon's non-judicial foreclosure law, the beneficiary permitted to foreclose is the original lender or that lender's successor in interest. Nor is MERS eligible to serve as beneficiary of the deed of trust, the court said, because Oregon law says this is the person to whom the obligation (payment) securing the trust deed is owed. The beneficiary is the lender, and the typical MERS contract language provides that MERS has only legal title to the property. However, the court found that Oregon law does not require recording of trust deed assignments resulting from transfers of ownership of the note--which means all transfers within MERS are valid. It further ruled that MERS can serve as agent for the lender and its successors, as long as it can show that all parties agreed to this.

Applying this reasoning to Niday, the high court reversed the court of appeals ruling finding that assignments must be recorded with the county whenever ownership transfers. Only a transfer involving a written assignment triggers the recording requirement, the court said. However, because MERS may not be the beneficiary under Oregon law, the Supreme Court found a genuine issue of material fact as to whether the entity that started the foreclosure had the right to do so, given its appointment by non-beneficiary MERS. Thus, it sent the case back to trial court.

Vincent Howard and our Westminster foreclosure defense lawyers believe this is a partial victory for Oregon homeowners as well as for MERS. Though it continues the potentially anti-consumer practice of transferring mortgages between lenders without permission, accountability or otherwise required taxes, it also makes it clear that MERS may not start Oregon non-judicial foreclosures on its own behalf. This could theoretically invalidate some past foreclosures. It also focuses some welcome scrutiny on chains of assignments, which got broken or twisted during the foreclosure bubble and are sometimes the basis for specious foreclosures. Vincent Howard and our Ontario foreclosure defense attorneys welcome this kind of scrutiny to the chain of assignments here in California as well.

If you believe your loan servicer broke the law during a loan modification or foreclosure process, don't hesitate to call Howard Law, P.C. You can reach us through our website or call toll-free at 1-800-872-5925.

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Sixth Circuit Rules Any Robo Signing Does Not Prejudice Homeowner in Foreclosure - Conlin v. MERS et al.

First Circuit Rules MERS Procedure Follows Massachusetts Law, Permitting Foreclosure - Culhane v. Aurora Loan Services