“I can assure you that this type of criminal fraud is rampant across the nation.” John O’Brien, Essex S. Dist. Registrar.

Chicago Title’s attorney said if MERS is involved, lenders must ensure mortgage’s chain of ownership is properly recorded before a non-judicial foreclosure. (by Joe Vera)

July 1, 2011

http://www.oregonlive.com/finance/index.ssf/2011/07/what_oregons_foreclosure_mess_means_and_when_itll.html

“I can assure you that this type of criminal fraud is rampant across the nation.” John O’Brien, Essex S. Dist. Registrar.
Martha Flynn, the Vernonia woman who persuaded a judge to block her eviction and void a bank’s foreclosure sale, looms a hero in many distressed homeowners’ minds today.

This even as she’s not sure where she’ll be living next month.

The same uncertainty also applies to Oregon’s housing market. With the status of potentially thousands of foreclosures and past sales up in the air, it’s unclear how long the housing crisis will drag on the broader market.

And there’s not much immediately we can do about it.

“It’s hard to predict where things are going to go,” said Cleve Abbe, state underwriting counsel for Fidelity National Title Group in Portland.

Since 2007, lenders have launched about 100,000 foreclosure actions in Oregon, according to RealtyTrac, one foreclosure data service. That’s resulted in just fewer than 35,000 sales. But sales have slowed this year. Through May, they’re on pace to total just more than 9,000 in 2011, down from 15,500 foreclosure sales last year, RealtyTrac data show.

Signs of life in the broader housing market are sporadic. Portland-area prices were down 9 percent over the past year through May, hovering at levels last seen in the winter of 2004, according to last week’s S&P/Case-Shiller Home Price Index report.

Yet backlogs are dropping. Lane County’s 12-month inventory in January has fallen to a 5.2-month inventory in June, said Cory T. Neu, a broker with Neu Real Estate in Marcola.

Realtors in Portland report hot micromarkets, with homes going in one day in inner Southeast Portland neighborhoods.

But sales activity around the larger metropolitan Portland has fallen in the first five months of the year, compared with the same period a year ago. New listings, in fact, have fallen 26 percent.

“I always caution people when they ask about ‘What’s the market doing?’” Neu said “Well, which market are we talking about?”

The foreclosure problem in Oregon

For now, we’re focusing on the foreclosure market — and the heart of its legal turmoil in Oregon.
Brian Feulner/ The OregonianA Columbia County judge blocked U.S. Bank from evicting Martha Flynn from her Vernonia home after it was bought by the bank in foreclosure.
For years, lenders have sold and resold mortgages to investors to broaden the market for home loans and make a boatload of money upfront on fees.

Along the way, they tried to avoid the traditional process of recording those transactions in local county recorders offices. But as the housing market collapsed and servicers had to foreclose on delinquent borrowers, the mortgage industry discovered a certain inconvenient truth.

The Mortgage Electronic Registration System — set up to avoid the cost and logistics of recording all of these sales — didn’t jibe with Oregon law.

For a foreclosure to proceed quickly and outside the auspices of a judge, the state requires that the loan’s ownership be properly and clearly documented. But the electronic recording system set up by banks, servicers and title companies took enough shortcuts to compel a number of federal judges to halt foreclosures. Oregon law, they ruled, demanded that all loan sales be recorded to ensure the appropriate party was actually foreclosing.

It’s gotten to the point, in Flynn’s case, that a judge has blocked an eviction and nullified a sale after the fact.

It’s not hard to imagine other homeowners trying the same tack. It’s also not hard to imagine ousted homeowners, unhappy with how their servicer handled their modification request, asking a court to rescind the foreclosure sale of a home where a new family already is living.

You can see where this is going, and it’s not good. Title insurance companies are warning lenders they might not be able to guarantee clean title to a property if a sale is nullified because of missing recordings. Chicago Title Insurance Co. attorney Greg Nelson said it’s telling lenders that if MERS is involved in a mortgage, the lender must ensure the mortgage’s chain of ownership is properly recorded before it can launch a foreclosure outside a courtroom.

“Hopefully the lenders will be as motivated to do things right as we are,” Nelson said.

In court

The one clear route around this mess is one nobody wants to take: judicial foreclosure.

Lenders have the option of getting a judge’s ruling on a foreclosure.

Few do so because it normally takes much longer and costs more, too. Loan servicers or trustees undoubtedly will have to defend the ownership history. It’s not always clear they can.

Even after a judgment and sheriff’s sale, state law gives borrowers six months to come up with enough cash to reclaim the property. This is called the borrower’s right of redemption. So, in reality, lenders are looking at a year or more before a foreclosure process actually finishes cleanly.

Borrowers, on the other hand, can be pursued by lenders for deficiency if they leave the house before the foreclosure sale is completed, Abbe notes. The deficiency is the difference between the amount owed on a mortgage and the amount it was sold for in foreclosure. In nonjudicial foreclosure, the lender eats that difference.

“It’s potentially immobilizing for borrowers who may want to move out and move to some other state and try to find a job somewhere else,” Abbe said.

What else could happen next to resolve all this?

High court ruling: A couple judges have gone against the majority of opinions on the legal standing of MERS. Attorneys and judges alike are trying to agree on a case that can be sent to the Oregon Supreme Court so the matter can be resolved once and for all. Best-case scenario, we’re probably talking a decision that’s six months away. More likely it’ll take at least a year.

New law: An end-run effort by the mortgage industry to get the Legislature to change the law fell flat amid public outcry against the broad-scale move. Now it’ll probably be February before a fix can be obtained this way.

Rerecording: Lenders could go back and try to rerecord mortgage documents. But many lenders have gone out of business, so it’s unlikely trustees could get the appropriate signatures in all cases.

Good faith negotiations: An even cleaner way out would be for banks to negotiate settlements with homeowners. The banks could pay them to give them clean title to the home. They could reduce principal, something servicers and investors have so far been reluctant to do.

“There are common-sense ways of resolving this, and the banks are deer in the headlights right now,” said Phil Querin, a real estate attorney in Portland.

Lawyers will tell you the Columbia County judge’s decision sets no legal precedent. It’s just one judge sitting in St. Helens and her interpretation of events.

But to homeowners asked time and again to resubmit their paperwork for modifications they never receive, or those being foreclosed upon while they await modification, it’s sweet justice.

“Most of these homeowners aren’t looking for a free handout,” said Nancie Koerber, co-founder of Good Grief America, a nonprofit near Central Point that helps homeowners fight foreclosure. “They’re just looking for someone to work with them. Most of the banks are not, unless you hold their feet to the fire.”

For the rest of us, it’s affirmation that Oregon’s housing market is nowhere near recovery.

Might as well find a good seat around the house and get used to it.