“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.

Oregon Judge Voids Foreclosure Sale, casting Doubt on Others

Judge Jenefer Grant, “I am concluding the recording never occurred, MERS does not become the beneficiary, irrespective of what is stated in the deed of trust.”

Oregon judge voids foreclosure sale, casting doubt on others
Published: Wednesday, June 29, 2011, 7:48 PM Updated: Thursday, June 30, 2011, 11:39 AM
By Brent Hunsberger, The Oregonian

Brian Feulner/The OregonianU.S. Bank says it will cease eviction action against Martha Flynn while it determines its next step. That could include demanding the loan’s previous servicer, a unit of Wells Fargo, take the mortgage back, legal experts say.
A Columbia County judge has blocked U.S. Bank from evicting a Vernonia woman whose home it purchased in foreclosure, concluding in a case with far-reaching implications that her lenders had not properly recorded mortgage documents.

Last week’s action appears to be the first in which an Oregon judge has halted an eviction and declared a foreclosure sale void after the fact. The ruling, if it stands, raises questions about the validity of other recent foreclosures in the state and could create serious problems for lenders and title companies, as well as for buyers of such properties.

“It’s a victory for a lot of people,” said Martha Flynn, 62, who challenged the eviction and whose ability to stay in her home remains in doubt. “I was fighting for the principle of the thing.”

A U.S. Bank spokeswoman said the bank would cease further eviction action and assess its “appropriate next steps.”

Nearly all foreclosures in the state occur without a judge’s involvement under so-called nonjudicial proceedings. But this ruling, legal observers say, could potentially divert more foreclosure actions into courtrooms, a more time-consuming and costly proposition that could exacerbate the state’s housing slump.

“This will certainly be problematic for lenders,” said David Ambrose, a Portland real-estate attorney.

It also casts doubt on the validity of already completed foreclosure sales in which lenders resold mortgages without recording the sales in county recorder offices. Many of those questionable transactions, including Flynn’s, involve the Mortgage Electronic Recording System.

MERS was created by the mortgage industry to rapidly securitize loans without recording them. Federal judges in Oregon have ruled that MERS-involved foreclosure actions violated state recording law. MERS also has been tied to so-called robo-signing scandals that prompted a 50-state investigation of the nation’s largest loan servicers and banks.

“Our hope is the banks will take a much more sincere effort at resolving matters directly with homeowners,” said Thomas H. Cutler, an attorney with Harris Berne Chirstensen in Lake Oswego, who represented Flynn.

A Wells Fargo & Co. unit foreclosed on Flynn after she fell behind in her payments. Wells Fargo sold the mortgage to U.S. Bank, the second lienholder, in December 2010, Cutler said.

Columbia County records show U.S. Bank paid $54,000 for the home, which had been valued at $134,000. Flynn hired Cutler a few months later to try to stop the foreclosure.

U.S. Bank tried to evict Flynn from her Vernonia home during a May 24 court hearing. But on June 23, Columbia County Circuit Judge Jenefer Grant ruled against the bank and awarded legal costs to Flynn.

Grant found that the original lender, Eagle Home Mortgage, held beneficial interest in the property. But while Eagle Home eventually sold the mortgage to other parties, the exchanges were never recorded, or assigned, in the county’s recorder office.

“I am concluding the recording never occurred,” she wrote in a two-page ruling. “MERS does not become the beneficiary, irrespective of what is stated in the deed of trust.”

Flynn discovered on Freddie Mac’s website that the quasi-government loan insurer owned her loan on the date of the foreclosure sale, Cutler said. But Freddie Mac’s ownership had not been recorded in county records, as required by state recording law, Grant ruled. Cutler obtained the services of an expert witness to track the ownership trail of her mortgage.

“We were able to show that Wells Fargo didn’t have the right to bring foreclosure because there were unrecorded assignments of the deed of trust,” said Tim Stephenson of MSA Associates, which audits mortgage loan histories for homeowners and attorneys.

A spokesman for Wells Fargo Home Loans said it was reviewing the judge’s decision to better understand it.

“We work hard to keep our customers in their homes when they encounter difficulties and view foreclosure as a measure of last resort,” spokesman Jim Hines said.

In an interview, Flynn said she’s owned her three-bedroom house for 20 years and had built up significant equity. She fell behind making payments after quitting her job answering customer service calls for credit card companies at her home.

Since then, she’s lived off unemployment, social security and a small business incubating and selling quail eggs. She sought a modification but could not get Wells Fargo to agree, despite repeatedly submitting documents.

“Even though I couldn’t afford an attorney, I thought, ‘What’s the harm?’” Flynn said. “Most people just give up.”

It’s unclear what this all means for Flynn. She says she’s prepared to move out despite the victory, given the uncertainty of who actually owns title to her home and what must be done to foreclose legally.

“Even though this is a great legal win for her, it still leaves her in limbo,” Cutler said. “There’s no clear choice for her. And there’s no big money at the end of this rainbow, either.”

Meanwhile U.S. Bank, which spokesperson Teri Charest noted “played no role in the title documentation process” is currently trying to ascertain its next steps.

That could include demanding her previous loan servicer, a Wells Fargo Bank unit, take the mortgage back, legal experts say.

The path will remain muddled for the mortgage industry until a definitive case reaches the Oregon Supreme Court or lenders decide to take a different strategy and negotiate settlements with distressed homeowners, real estate attorneys say.

“This is significant,” Ambrose said.