I previously wrote about a ruling by the Oregon Court of Appeals that the MERS system of tracking trust deeds and mortgages did not comply with Oregon’s law allowing trust deeds to be foreclosed by simple notice and sale. In two cases decided on June 6, 2013, the Oregon Supreme Court has basically allowed foreclosures out of court by ruling that some of the requirements don’t apply in some circumstances.
Oregon law allows trust deeds to be foreclosed without going to court if a series of requirements are met. One of these is that assignments be recorded in the county records, which is basically intended to give borrowers notice of whom they need to work with to prevent foreclosure. The mortgage industry, however, prefers to log its resales in a commercial database owned by MERS. Most trust deeds in the MERS database state that MERS, not the lender, is the beneficiary, that MERS is beneficiary at the designation of the lender, under the term “nominee,” and that MERS’s interest is effectively as an agent for the purpose of foreclosing “if necessary.”
A series of borrowers challenged this setup. In a pair of technical opinions, the Oregon Supreme Court ruled that although the MERS company itself isn’t a lender and doesn’t qualify as a beneficiary, and therefore can’t enforce trust deeds on its own, there are two ways the mortgage industry can get around that ruling – if they get the paperwork right.
First, when borrowers sign trust deeds, they also usually sign a promissory note. If the lender signs the note over to someone else, its rights under the trust deed follow the note. The court ruled that concept still applies, and the new holder of the note doesn’t have to record the signing over of the note. Instead, the court indicted that it expected the holder of the note to be able to prove that it did hold the note.
Second, the court did say that MERS could act as an agent of the real beneficiary, but a determination of whether it was an agent will be a question to be decided separately in each case. Simply pointing to the trust deed won’t be enough; MERS will need to demonstrate that the actual beneficiary has authorized it as an agent, and probably would need to show all of the transfers from the original lender with proper recording.
It’s unlikely that the MERS system will be changed to record transfers. The industry set up MERS so it wouldn’t have to pay the fees with every transfer. It is possible, however, that transfers of notes may become part of the system. If so, homeowners and other borrowers may find themselves encountering unexpected new note holders in the foreclosure process, and Oregon may see “show me the note” disputes.