In July the Oregon Court of Appeals handed down a decision that could make foreclosures much more difficult, expensive and time consuming for banks and the Mortgage Electronic Registration System (MERS).
The case, Niday v. Mortgage Electronic Registration Systems Inc., et al held that MERS, when acting as a nominee for a lender is not a beneficiary. The court went on to define beneficiary as it pertains to the Oregon Trust Deed Act as: “…the person designated in that trust deed as the person to whom the underlying loan repayment obligation is owed.” Under Oregon law, only the person to whom the obligation is owed and whose interest is of record may legally presecute a nonjudicial foreclosure. This is important because MERS does not receive payments from borrowers and has been filing nonjudicial foreclosure notices on behalf of its member lenders in Oregon for years. In the majority of those foreclosure cases a bank or mortgage lender has been designated as the party to whom the secured obligation is owed.
This ruling all but assures that MERS will not be able to continue filing nonjudicial foreclosures in Oregon. At least until the Oregon Supreme Court has a chance to rule on the matter. In a statement, MERS disagreed with the ruling saying, “We will appeal this decision to the Oregon Supreme Court. We continue to believe the Circuit Court’s November 2010 ruling in Niday was correct and is consistent with the majority of the Oregon federal and state court decisions that uphold MERS’ role as beneficiary.”
If the Appeals Court ruling is upheld there are many questions that will need to be answered. Tom Hillier posed some of those questions in an article he wrote for the Daily Journal of Commerce about this case.
“….many issues arise. What is the effect on completed nonjudicial foreclosures of MERS trust deeds? Such sales may be void, in which case the ownership and right to possession of thousands of foreclosed properties fall into legal limbo. Perhaps the sales are only voidable, requiring a lawsuit by the borrower within a limited time to challenge the foreclosure sale.
Titles may now be in doubt for people who bought properties either at a foreclosure sale or further along the line. Also, no market may exist for these properties if title insurers choose not to insure titles until there is some clarity.
Going forward, will MERS lenders do business in Oregon? And if so, at what cost? Loans may be more expensive to administer because they either require that all assignments be documented and recorded or foreclosure via the more expensive judicial method. As such, loans in Oregon could demand higher interest rates.
Courts will see a sharp increase in the number of judicial foreclosure filings; it’s happening in Multnomah County already. An already overcrowded judicial system will gain additional burdens.
The Legislature could step in to fix the issue by clarifying the definition of “beneficiary” to include a nominee of the lender, such as MERS. But is there political will to legislate a solution that, on the surface, seems to benefit lenders?”
When things were good and the real estate market was flying high no one seemed to notice MERS. However, this case shows that MERS is now squarely in the crosshairs and if the Oregon Supreme Court upholds this ruling we could see this foreclosure mess become even more complicated and drawn out than anyone had imagined.
