August 1, 2013
by Janaya L. Carter
RCO Legal, P.C.
USFN Member (Arkansas, Oregon, Washington)
Beginning in early 2011, Oregon’s foreclosure processes were called into question by federal court judges in various cases. ORS 86.735 was reinterpreted, and thousands of nonjudicial foreclosures were at issue. Under ORS 86.735, the trustee in Oregon is permitted to foreclose a trust deed by advertisement and sale if the trust deed — and any assignments of the trust deed by the trustee or beneficiary — is recorded in the real property records.
The accepted interpretation of that statute had been that it was sufficient to record an assignment from the originating beneficiary, or any subsequent beneficiary of record, to the beneficiary initiating the foreclosure. In 2011, different judges in the state and federal system concluded the statute required that a recorded assignment accompany each and every transfer of the note if the beneficiary wants to utilize the nonjudicial statute. As case law began to develop, nonjudicial foreclosures began to stall as trustees started to look for the full chain of assignments.
Reforms — In April 2012, the Oregon legislature passed sweeping reform of nonjudicial foreclosure law in the form of SB 1552. This reform became effective in large part on July 11, 2012, and introduced new requirements and obstacles to nonjudicial foreclosure. Although the changes provided by SB 1552 did contain an exemption from the requirements to mediate, it was limited to financial institutions that had initiated less than 250 foreclosure actions in the preceding year. The new law compelled a mandatory mediation before a nonjudicial foreclosure could take place. It required the servicer to disclose certain documentation during the mediation, including a “full chain of title” for the property indicating all recorded assignments evidencing any transfer of the beneficial interest and a copy of any agreement that the beneficiary entered into with another person, or by which the beneficiary pledged as collateral the security, or sold all or a portion of the interest in the note or obligation.
As if new statutory interpretations and legislation were not enough, the Oregon Court of Appeals further complicated the matter with its ruling in Niday v. GMAC. In Niday, the court found that Mortgage Electronic Registration Systems, Inc. could not act as a beneficiary within the definition provided by ORS 86.705. The Niday case was then certified by the Oregon Supreme Court.
Beginning in the summer of 2012, for all of the reasons described above, most servicers elected to convert to a judicial foreclosure process, creating an instant backlog of many, many thousands of judicial foreclosures. Then, on June 4, 2013, the Oregon legislature again amended the foreclosure laws with the passage of SB 588, extending the mediation program to the judicial process, operative on August 4, 2013.
Under SB 558, before filing a complaint for judicial foreclosure, the servicer must engage in mediation and obtain a certificate of compliance. The law also modifies some of the document requirements during the mediation process. The mediation document requirements no longer compel a full chain of assignments and only require that the servicer turn over any portion of the pooling and servicing agreement that potentially impacts the party’s ability to modify the loan. The law, however, does mandate that the beneficiary provide certain documents or assurances during the mediation process, which will require process changes on the part of servicers. One such requirement is a provision that the mediating party must provide a certified copy of the promissory note. Servicers must also show evidence of the steps taken prior to the resolution conference to obtain consent from the investor to provide a mediation resolution beyond what is provided for in the investor guidelines.
Any failure to follow mediation guidelines will result in a certificate of noncompliance from the mediation service provider at the conclusion of the resolution conference. In order to initiate new judicial foreclosures after the effective date of the action, a law firm will be expected to attach a certificate of compliance as an exhibit to the judicial complaint at filing or an explanation as to why the certificate is not attached. Within the law is a provision that allows a judge to either stay or dismiss judicial proceedings due to a failure to obtain the certificate, the result of which may be an award of prevailing party fees to the borrower. Further provisions of the law treat the violation of certain sections of the statute by a beneficiary as an unlawful trade practice under ORS 646.607.
SB 558 did not resolve the chain of assignments issue highlighted by the court of appeals in Niday. However, on June 6, 2013, the Supreme Court of Oregon published rulings in Brandrup v. ReconTrust Company and Niday v. GMAC. The decisions addressed issues that had arisen in Oregon over the past two years as to interpretation of the Oregon Trust Deed Act (OTDA). Particularly at issue in those cases was the ability of MERS to act as a beneficiary in the state of Oregon and whether any transfer of the note must be accompanied by a recorded assignment prior to the initiation of the nonjudicial foreclosure.
The court has ruled that transfers of the promissory note, because they are not in writing or executed and acknowledged with the same formality as deeds, are not the type of transfers that are required under ORS 86.735(1). Therefore, a recorded assignment would not be required to accompany this type of transfer to initiate nonjudicial foreclosure. The court also ruled that although MERS could not act as a beneficiary under the OTDA unless it had succeeded to the lender’s right to repayment, MERS could hold and transfer legal title to the trust deed if it could be shown that the original lenders and their successors conferred sufficient authority on MERS to act on their behalf.
An obvious question with the passage of SB 558 and the rulings of the Supreme Court is whether this new legislation helps mitigate concerns over the nonjudicial foreclosure process and whether beneficiaries may now feel comfortable returning to that process. The answer to this question remains unclear at this time. One of the lingering questions for the servicers, where MERS is involved in the chain of title, is how they will establish a clear authority to act such that MERS can transfer interests in the trust deed. The court left open the question of whether MERS can transfer interests in the trust deed through a clean showing of an agency agreement that would be sufficient to show that MERS acted through the direction and approval of the originating beneficiary and each successor in interest.
However, it is clear that no matter which process a servicer elects in order to foreclose, it will be required to comply with the mediation program requirements first.
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