Federal Judge Dismisses Ore. Foreclosure In Another Challenge to MERS

In yet another borrower dispute of the use of the Mortgage Electronic Registration Systems, a U.S. District court vacated the nonjudicial foreclosure of an Oregon borrower.

Similar to a Michigan Appeals Court ruling in late April that found foreclosing in the name of MERS prohibits note holders from using the state’s nonjudicial foreclosure process, U.S. District Judge Owen Panner ruled that Bank of America, MERS Inc. and Northwest Trustee Services violated the Oregon Trust Deed Act by failing to record all assignments of mortgage when the note changed hands.

“That MERS was the agent or nominee of the beneficiary does not mean the non-judicial foreclosure proceedings necessarily violated Oregon law,” Panner’s May 25 decision read.

In the Michigan case, MERS Inc. was the named party initiating the nonjudicial foreclosures. The ruling has led the Department of Housing and Urban Development to re-foreclose on all its REO properties in Michigan where the original nonjudicial foreclosure was conducted in the name of MERS.

But in the Oregon case, Bank of America filed an assignment of the mortgage out of the name of MERS before initiating the foreclosure.

Panner ruled that assignments should have also been filed the three times that the note changed hands in order for Bank of America and Northwest Trustee to use the state’s nonjudicial foreclosure process.

In his 16-page decision, the judge also denied the defendants’ motion to dismiss the case.

In a statement to MERS members, MERS’ parent company, MERSCorp Inc., called the ruling inconsistent with several Oregon state and federal court decisions, adding the defendants intend to appeal the ruling.

In rendering his decision, Panner ordered the defendants to submit a document, the “MIN Summary and Milestones,” which details the changes in note ownership that were tracked on the MERS System with the loan’s MIN, or mortgage identification number.

In his review of the defendants’ chain of title data, Panner noted a gap from when the loan was originated by a correspondent lender and registered on the MERS System.

GN Mortgage is the lender named on both the note and the mortgage. After origination, the mortgage, with MERS as nominee, was filed in the Jackson County land records. But the note wasn’t registered on the MERS System for another four business days, after it was purchased by Guaranty Bank.

“The MIN Summary, however, makes no mention of GN. In fact, MIN Summary is silent as to how or when Guaranty Bank became an ‘Investor’ holding the beneficial interest in the trust deed,” Panner wrote. “What occurred before registration, and how or when Guaranty Bank obtained any interest the loan (from GN or another) is not revealed.”

During the course of the case, Northwest Trustee Services admitted that the assignment to Bank of America, Northwest’s appointment as trustee and the notice of default and election to sell were recorded out-of-order.

Panner called the defendants’ document review rushed, adding, “The ‘out-of-order’ recordings demonstrate problems, not atypical in my view, often caused by foreclosing parties rushing to expedite nonjudicial foreclosures.”

“Foreclosure by advertisement and sale, which is designed to take place outside of any judicial review, necessarily relies on the foreclosing party to accurately review and assess its own authority to foreclose,” Panner also wrote. “Considering that non-judicial foreclosure of one's home is a particularly harsh event, and given the numerous problems I see in nearly every non-judicial foreclosure case I preside over, a procedure relying on a bank or trustee to self-assess its own authority to foreclose is deeply troubling to me.”

“The MERS system raises serious concerns regarding the appropriateness and validity of foreclosure by advertisement and sale outside of any judicial proceeding.”

According to local news reports in the Portland-based newspaper The Oregonian, a series of rulings against MERS has halted hundreds of foreclosure sales. Meanwhile, a banking industry-backed measure under review in the Oregon legislature that would have eliminated the requirement to file all assignments prior to foreclosure failed after the amendment was left out of the version of a housing bill sent from committee to a full vote.