In November 2005, Ivan and Kathryn Hooker obtained a loan from GN Mortgage, which was secured by a trust deed. The note and the trust deed indicated that GN Mortgage was the lender. The trust deed listed MERS (solely as nominee for Lender and Lender's successors and assigns) as the beneficiary and Regional Trustee Services Corp. as the trustee.
In September 2009, the Hookers defaulted.
In May 2010, MERS assigned the trust deed to Bank of America and appointed Northwest successor trustee. The same day, Northwest executed a notice of default and election to sell. A few days later, these documents were recorded.
In September 2010, the Hookers filed suit in state court to stop the sale. About a week later, Wells Fargo, as attorney-in-fact for Bank of America, appointed Northwest successor trustee (apparently in recognition of the fact that documents were recorded out of order). Northwest rescinded the notice of default it previously recorded, and executed a new notice of default and election to sell.
In October 2010, the defendant, Northwest, removed the case to the federal court. The court ordered Northwest to submit "a complete chain of title for the note and deed of trust." Northwest's submission to the court included a copy of a "MIN Summary and Milestones" report.
The MIN summary is how MERS tracks transfers of servicing and ownership rights of loans within its system. It showed the following:
December 9, 2005: Guaranty Bank transferred the beneficial interest in the trust deed to Wells Fargo. Although Guaranty Bank appears to have been the original servicer, there is nothing in the record indicating how or when it obtained the beneficial interest in the trust deed.
December 14, 2005: Guaranty Bank transferred the servicing rights to Wells Fargo.
July 15, 2006: Wells Fargo transferred the beneficial interest in the trust deed to Bank of America.
There was never anything recorded transferring the beneficial interest in the trust deed from Guaranty Bank to Wells Fargo, or from Wells Fargo to Bank of America. This is typical of the MERS system, and as one might expect, the only assignment of the trust deed was from MERS to Bank of America, just prior to beginning the process for a non-judicial foreclosure.
In Oregon, a trustee may conduct a non-judicial foreclosure only if "the trust deed, any assignments of the trust by the trustee or the beneficiary and any appointment of a successor trustee are recorded in the mortgage records in the counties in which the property described in the deed is situated..." O.R.S. 86.735(1).
The Court found that, under the terms of the trust deed, "MERS was not a beneficiary, but rather the nominee or agent of the lender. Because the trust deed clearly demonstrates GN, and not MERS, is the person for whose benefit the trust deed was given, GN (or its successor in interest) is the beneficiary of the trust deed."
In this case, and as is typical with MERS, the interim assignments were never recorded in the county records. This is a violation of Oregon laws on non-judicial foreclosures.
But it was clear that the Hookers were in default, and the court wrote:
While I recognize that plaintiffs have failed to make any payments on the note since September 2009, that failure does not permit defendants to violate Oregon law regulating non-judicial foreclosure. The Oregon Trust Deed Act represents a well-coordinated statutory scheme to protect grantors from the unauthorized foreclosure and wrongful sale of property, while at the same time providing creditors with a quick and efficient remedy against a defaulting creditor. In part due to the legislature's desire to protect the grantor against the unauthorized loss of its property, a party conducting a non-judicial foreclosure must demonstrate strict compliance with the Act. As demonstrated above, the MIN Summary demonstrates defendants failed to comply with the Oregon Trust Deed Act."
The court also acknowledged that MERS created these problems.
I recognize that MERS, and its registered bank users, created much of the confusion involved in the foreclosure process. By listing a nominal beneficiary that is clearly described in the trust deed as anything but the actual beneficiary, the MERS system creates confusion as to who has the authority to do what with the trust deed. The MERS system raises serious concerns regarding the appropriateness and validity of foreclosure by advertisement and sale outside of any judicial proceeding.
It also pointed out some of the problems with MERS and securitization that went unnoticed for way too long, but are now apparent to nearly everyone.
Additionally, the MERS system allowed the rise of the secondary market and securitization of home loans. A lender intending to immediately sell a loan on the secondary market is not concerned with the risk involved in the loan, but with the fees generated. If a lender aims to quickly pass a loan off onto an investor, a stated-income loan appears not as an unacceptable risk, but as an income stream. MERS makes it much more difficult for all parties to discover who "owns" the loan. When a borrower on the verge of default cannot find out who has the authority to modify the loan, a modification or a short sale, even it beneficial to both the borrower and the beneficiary, cannot occur.
. . .
The MERS system greatly increased the number of investors stuck holding worthless notes. A lender that knows it will immediately sell a loan on the secondary market has no incentive to ensure the appraisal of the security is accurate. Similarly, the lender need not concern itself with the veracity of any representations made to the borrower. In short, the MERS system allows the lender to shirk its traditional due diligence duties.
Perhaps this is too harsh on MERS - it assumes that the secondary market would not exist, or at least not nearly as widely as it does, if we didn't have MERS. I'm not sure that is entirely accurate, but MERS did facilitate the secondary market to a large degree.
Whatever else this judge may think about MERS, it is clear that his isn't willing to allow MERS to skirt the non-judicial foreclosure requirements with its avoidance of filing proper assignments. To conduct a non-judicial sale in Oregon, it looks like MERS will have to go to all of the lenders in the chain of its internally tracked assignments and obtain recordable assignments.
Sounds like a job tailor-made for "robo-signers." It's too bad they already got caught trying that scheme.