Posted on 26 May 2011.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
IVAN HOOKER, KATHERINE HOOKER
NORTHWEST TRUSTEE SERVICES, INC.; BANK OF AMERICA, N.A.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
Considering what is commonly known about the MERS system and the secondary market in mortgage loans, plaintiffs allege sufficient facts to make clear that defendants violated the Oregon Trust Deed Act by failing to record all assignments of the trust deed. 3 Therefore, defendants’ motion to dismiss is DENIED.
Although not affecting my conclusion here, the MIN Summary raises an additional concern relevant to numerous cases pending fore me. As noted above, GN is listed as Lender on both the trust deed and the note. The MIN Summary, however, makes no mention of GN. In fact, MIN Summary is silent as to how or when Guaranty Bank became an “Investor” holding the beneficial interest in the trust deed. (Jan. 31, 2011 McCarthy Decl., Ex. 1, 2.) The MIN Summary indicates only that on December 1, 2005, Guaranty Bank registered the in the MERS system. What occurred before registration, and how or when Guaranty Bank obtained any interest the loan (from GN or another) is not revealed.
The apparent gap in chain of title is not the only issue that causes me concern….
Foreclosure by advertisement and sale, which is designed to take place outside of any judicial review, necessarily relies on the foreclosing party to accurately review and assess its own authority to foreclose. Considering that non-judicial foreclosure of one’s home is a particularly harsh event, and given the numerous problems I see in nearly every non-judicial foreclosure case I preside over, a procedure relying on a bank or trustee to self-assess its own authority to foreclose is deeply troubling to me.
I recognize that MERS, and its registered bank users, created much of the confusion involved in the foreclosure process…. [T]he 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.
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 if beneficial to both the borrower and the beneficiary, cannot occur.
When no borrowers default, the problems inherent in the MERS system may go unnoticed. Unfortunately for banks, borrowers, investors, and courts throughout the country, many borrowers are now defaulting. Countless grantors of trust deeds now face the harsh prospect of losing a home outside of any judicial proceeding. At the same time, 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. The requirement under Oregon law that all assignments be recorded prior to a non-judicial foreclosure is sound public policy.
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