THIS IS PART TWO OF A TWO-PART SERIES ON THE RECENT OREGON SUPREME COURT DECISIONS INBRANDRUP V. RECONTRUST AND NIDAY V. GMAC. BOTH CASES INVOLVE LEGAL ISSUES ARISING OUT OF THE NONJUDICIAL FORECLOSURE OF MERS TRUST DEEDS. READ PART ONE: BREAKING DOWN BRANDRUP. Hurricane Niday touched ground nearly one year ago when the Oregon Court of Appeals held that lenders could not use MERS to avoid recording trust deed assignments while relying on a nonjudicial foreclosure process that required that very thing. What a difference a year makes. In Brandrup v. ReconTrust, the Oregon Supreme Court answered four questions of law certified to it by a district court. In brief, the court held that MERS is not the beneficiary of a MERS trust deed in Oregon, but assignments of the trust deed that occur by operation of law need not be publicly recorded. (For a complete summary of the Brandrup decision, read Part One: Breaking Down Brandrup.) While Brandrup contains a detailed analysis of legal issues raised by naming MERS in a trust deed, Nidaydemonstrates how that analysis should be applied in individual cases. Brandrup is the idea. Niday is the idea in action. What Makes Niday Unusual In the early years and all across the nation, MERS regularly foreclosed in its own name without legal challenge. When the foreclosure crisis began, consumer attorneys took a closer look and lawsuits challenging MERS’s authority to foreclose sprang up all across the United States. State supreme courts soon split over the legality of MERS’s foreclosures and the issue suddenly catapulted MERS into the national spotlight. To put an end to the litigation frenzy, in early 2011 MERS amended its rules to forbid members from foreclosing in MERS’s name. Niday predates that amendment. In 2009, a nonjudicial foreclosure of the trust deed on Plaintiff Rebecca Niday’s home was commenced in MERS’s name. The Notice of Default and the Notice of Sale identified MERS alone as the beneficiary. Not a single trust deed assignment was recorded in the public land records. Niday filed suit in Clackamas County Circuit Court to stop the foreclosure. Her attorney argued that MERS was not the beneficiary of the trust deed and that neither MERS, nor the trustee, nor the loan servicer had a demonstrated legal interest in the mortgage loan. Defendants fired back with a motion for summary judgment, arguing that it was “indisputable” that Niday was in default and that the trustee and servicer were entitled to foreclose.  (For the uninitiated, it is plainly unlawful to nonjudicially foreclose a trust deed in the absence of a default, but lenders frequently argue that a homeowner in default has no right to contest a wrongful foreclosure.) Defendants asserted in an affidavit that Aurora Bank was the assignee of the original lender and the current owner of the note and that GMAC was the loan servicer. No evidence was offered to show how Aurora or GMAC acquired an interest in the note and trust deed. (For reasons we won’t discuss here, it is unlikely Aurora Bank was in fact the owner of the note at the time of the attempted foreclosure. If Defendants misrepresented the identity of the note owner, Niday could get even more interesting on remand.) At oral argument, Niday’s attorney contended that MERS was not the trust deed beneficiary and that transfers of the note had resulted in unrecorded trust deed assignments. Niday’s arguments fell on deaf ears, and the judge granted summary judgment in Defendants’ favor. In mid-2012, the Court of Appeals reversed the trial court, and Defendants appealed to the Oregon Supreme Court. In early June 2013, the Supreme Court issued its decision together with its decision in Brandrup. Applying Brandrup to the Beneficiary Issue In Brandrup, the Supreme Court held that MERS is not the beneficiary of a MERS trust deed. As defined by the Oregon Trust Deed Act (OTDA), the beneficiary is the person entitled to enforce the note—at origination, the lender. Although MERS was named as beneficiary, the statute trumps any contrary provision in the trust deed. In fact, the statutory definition “is incorporated into, and cannot be altered by, the party’s agreement.” The record in Niday showed that Greenpoint was the original lender and therefore beneficiary of the trust deed. MERS was, at most, an agent of the beneficiary. On these grounds, the court agreed with the Court of Appeals that MERS is not the beneficiary of Niday’s trust deed. Applying Brandrup to the Assignment Issue Since evidence showed that the note was transferred one or more times after origination, there is no question that there exist unrecorded assignments of the trust deed that occurred by operation of law. Applying the reasoning in Brandrup, however, so long as those assignments were never reduced to a writing in recordable form, there is no legal requirement that those assignments be publicly recorded. (“[T]he very concept of recordation—assumes the existence of an assignment in recordable form.”) In other words, transfers of the trust deed by Greenpoint and its successors that occurred by operation of law were not “assignments” within the meaning of the OTDA and need not be recorded prior to foreclosing nonjudicially. Since Niday’s attorney did not introduce evidence of any unrecorded formal assignments, there was no issue of material fact about violations of the recording requirement. Niday Gets Interesting Up to this point, the opinion is little more than a recap of Brandrup. The court makes simple work of showing that MERS is not the beneficiary but that there is no evidence that Defendants violated the OTDA’s recording requirement. But then things get interesting. If you read Part One: Breaking Down Brandrup, you may recall the court’s warning to lenders that, if they choose not to record a complete chain of assignments, the resulting information gaps will leave lenders “vulnerable to challenges that may force them to judicially establish their interests and authority to act”. Nidayexemplifies how courts must proceed when a grantor challenges a nonjudicial foreclosure in Oregon. That process bears little resemblance to how some courts have disposed of contested foreclosures…until now. The trial court erred in Niday not because there were unrecorded assignments, but because there was another issue of material fact that remained in dispute, making summary judgment inappropriate. The contested fact? Whether any defendant “possessed a qualifying legal interest in the trust deed or note that would allow them to initiate foreclosure under the OTDA.” Why does that issue arise at all? Because Niday alleged that she received a Notice of Sale that identified MERS as beneficiary, MERS was not the beneficiary, and she had “no knowledge or information as to whether or how any of defendants had acquired any legal rights in the note and trust deed.” Since there were no publicly recorded assignments to provide clarity, it was impossible for Niday to identify the true beneficiary of her trust deed. Recall that in Brandrup, the court expressly held that “a notice of sale must include the name of the ‘beneficiary’.” The court also found that “the OTDA is laced with provisions that indicate that the grantor is entitled to know the identity of the beneficiary,” and together “those provisions all assume that the true beneficiary must be identifiable.” In Niday, the notice of sale did not include the name of the true beneficiary and nothing in the record established that person’s identity—i.e., the identity of the successor-in-interest to Greenpoint who held the right to enforce the note and trust deed. Even though a beneficiary is not legally required to record assignments that occur by operation of law, the resulting information gaps in the land records render the foreclosure “vulnerable to challenges.” Consistent with Brandrup, Niday could therefore require Defendants to “judicially establish their interests and authority” to foreclose through “definitive documentation.” What Constitutes “Definitive Documentation”? It is notable in Niday what evidence is not sufficient to establish authority to foreclose. Defendants submitted copies of the note and trust deed, an affidavit of the loan servicer describing “the relevant transactions,” a MERS Milestone Report, and a copy of MERS’s appointment of the successor trustee. But all of that evidence wasinsufficient to justify summary judgment in Defendants’ favor. Defendants also produced the original note at the hearing. Merely producing the note, however, is also insufficient to establish the right to foreclose. The original note by itself does not establish who qualifies as its holder (i.e., the person in possession with the right to enforce the note). The note by itself does not establish who is its owner (i.e., the person ultimately entitled to the economic benefit of the note). Although GMAC claimed to “hold” the note as servicer, GMAC did not claim to be the owner or to be acting on its own behalf in the foreclosure proceeding. Of equal importance, there was “no evidence in the record as to whether or how the note had been transferred” to GMAC. To establish that the foreclosing party is the person entitled to enforce the note and trust deed requires something more than merely producing the note or a MERS Milestone Report. According to the court, the foreclosing party needs to come forward with admissible evidence demonstrating who presently possesses the note, who owns the note, and how those interests were acquired from the original lender. Defendants’ evidence fell far short. Establishing Agency It gets worse for lenders. In a case like Niday, in which the true beneficiary is acting through an agent, even judicially establishing interests in the note and trust deed is not sufficient. In Niday MERS purported to act as the agent of Greenpoint and its successors-in-interest. Therefore, the court held that, in addition to establishing the identity and authority of the beneficiary, Defendants also needed to establish the existence and scope of MERS’s authority to act on behalf of the beneficiary. More specifically, the court held that MERS must “demonstrate that it has an agency relationship with the beneficiary and that the agency agreement is sufficiently expansive.” To establish that agency relationship, MERS must introduce admissible evidence showing “who succeeded to the lender’s [Greenpoint’s] rights, whether those persons manifested consent that MERS act on their behalf and subject to their control, and whether MERS has so agreed to act.” As you may have gathered, the required inquiry is fact-intensive, which translates into litigator lingo as “expensive and uncertain.” If lenders think recording paper assignments is a hassle, imagine what they think about the court’s alternative. Ultimately, Niday affirms the Court of Appeal’s reversal of summary judgment, but on different grounds. The trial court erred by granting judgment because there remained disputed issues of fact relating not to assignments but to the identity of the beneficiary and the scope of MERS’s authority as an agent. For Rebecca Niday, the fight goes on. What Do Brandrup and Niday Mean Going Forward? But what do Brandrup and Niday mean for homeowners facing nonjudicial foreclosure in the future? In plain language, the court effectively said, “Lenders, you can transfer your interests without obtaining recordable assignments and the law will not prevent you from foreclosing nonjudicially in Oregon, but neither will the law prevent the grantor from challenging the foreclosure and forcing you to establish your right to foreclose in court.” More tersely, you can do it the easy way (record a complete chain of assignments) or you can do it the hard way (provide definitive documentation of how and to whom the interests were transferred and, if relying on an agent, proof of the existence and scope of the agent’s authority to act). Lenders were hoping to do neither. The failure to record assignments by operation of law is no longer a legal bar to nonjudicial foreclosure in Oregon. Significantly, lenders won that battle. And lenders only have to do things “the hard way” if a homeowner challenges the foreclosure in court, an expensive and uncertain process that few struggling homeowners can afford. If lenders have their paperwork in order, then they should be able to make the required showing, allowing even contested foreclosures to move forward with minimal delay. Lenders no doubt despise the uncertainty, but it could have come out worse for them. Much worse. In short, due process is alive and well in Oregon, even for homeowners in default; but for those asking tough questions, getting answers may come at a steep price. Parting Thoughts Although Brandrup does all the heavy intellectual lifting, Niday is key to understanding how contested foreclosures should be decided going forward: What showing is required to establish the right to foreclose? What evidence is sufficient to meet that burden? Is merely showing up in court with the original note endorsed in blank sufficient to meet the foreclosing party’s burden? After Niday, it seems clear that more is required. Furthermore, the reasoning of Brandrup and Niday should apply with equal force in contested nonjudicial andjudicial foreclosure proceedings. There is nothing conceptually different about the two when the contested issue is who has the right to foreclose. In reality, of course, it is up to judges to embrace the logic of the decisions and apply it to individual cases. Many questions remain, some of them fine legal questions that matter little to struggling homeowners who want nothing more than a fair and honest opportunity to modify a loan or negotiate a short sale. For them, the relaunch of the foreclosure mediation program this August likely holds more promise than the next round of foreclosure litigation. For the rest of us, the foreclosure battles rage on. The above was provided to us by Oregon counsel as quoted in Housekeepingreport.com

July 3, 2013We are constantly bombarded with e-mails from homeowners trying to figure out why servicers are so reluctant to offer loan mods and why most loan mod applications are denied for one reason or the other. After all, a loan which is modified with payments being made is better than a non-performing loan, right?Apparently not. Pursuant to agreements negotiated between the servicers and GSEs (Government Sponsored Enterprises, such as Freddie Mac and Fannie Mae), once a servicer forecloses and sells a property, that servicer gets a 27% bonus payment right off the top from the gross proceeds of the sale. This, of course, is in addition to the monies the servicer receives pre-foreclosure, from monthly payments, “trial mod” programs, “temporary forbearance” agreements, and the like. Once the property is sold, the balance of the proceeds are sent to the “investor”, and the servicer (e.g. JPMorgan Chase Bank, N.A.) makes a claim to either Fannie or Freddie (whichever one guaranteed the loan) for the difference. Thus, Chase, for example, gets not only (a) the monies pre-foreclosure, but also (b) a 27 point “kicker” for foreclosing, and (c) all of its “deficiency” on the loan (which it never owned, in the case of WaMu originated loans) paid for by the government (which means the taxpayers).Is this legal? On an adequate disclosure/equity/unjust enrichment basis, most likely not. In fact, it may even amount to a type of fraudulent conduct (e.g. fraud by omission/nondisclosure). We are looking into this more closely with our experts. Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

June 13, 2013A Pinellas County (St. Petersburg) Florida Circuit Judge has overruled the majority of a Motion for Protective Order filed by JPMorgan Chase Bank, N.A. against the homeowner’s written discovery. The homeowner is represented by Jeff Barnes, Esq., who argued the matter in court and prepared the legal memoranda requested by the court following the hearing.After months of consideration following full briefing, the Court compelled JPM to produce the following documents, among others: all documents relating to the securitization including all PSAs, Master Purchasing agreements, Custodial agreements, Guarantee agreements, and Release of Document agreements; all policies of insurance including but not limited to private insurance, LPMI and NIM policies, mezzanine policies, ISDA policies and credit default swaps; all documents demonstrating any payments against the loan by any source whatsoever; documents as to suspense or unapplied transactions accounts (where banks park payments in order to reflect no payment on the loan, thereby creating a “default” situation on paper); all documents setting forth any assignment of the loan to any SIV, SPV, CDO, CMO, or credit default swap; all documents demonstrating any grant of authority of any kind to MERS; all documents evidencing any grant of authority from the FDIC to JPM relating to the loan and documents setting forth the transfer of the loan from a WaMu securitization to JPM; and any documents evidencing the application of TARP monies including request for such funds based in part on a claimed default of the loan.We have been arguing the relevance of the documents across the US for years in terms of both the standing-related issues and issues related to setoffs against the claimed amount of default and how the default was created. This ruling is the second breakthrough ruling recently obtained (the other was that obtained in a case in Tennessee where Mr. Barnes represents the homeowner which was the subject of a recent post).Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

June 10, 2013A Crawfordville (Wakulla County) Florida Circuit Court Judge today denied a Motion for Summary Judgment filed by Deutsche Bank as trustee for a Morgan Stanley securitization.

Jeff Barnes, Esq. wrote the legal memorandum to oppose the Motion and personally argued the case in court this morning. The case involves a “blank endorsement” by the original lender which was had been out of business two years before the Complaint was filed, with no evidence as to when the endorsement was placed on the Note or with what authority. The Plaintiff’s Affidavit did not have the information required by recent Florida case law including the McLean v. JPMorgan Chase Bank line of cases as to the issues surrounding alleged blank endorsement which are undated.

The Plaintiff also failed to demonstrate that it has complied with the Court’s prior Order compelling the homeowner’s discovery and filing of a log as to any documents claimed by DB to be “privileged.”

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

June 7, 2013We have been advised that in an effort by the banks to dampen what is the incredible effect of the Niday decision (our article below) which places numerous burdens on foreclosing parties and MERS in non-judicial foreclosures, that a bank lobbyist has caused an article to be published in the Oregonian (newspaper) that the decision is one ultimately in favor of the banks. Anyone reading the actual court opinion will quickly realize that the claim in this article is patently incorrect.Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

June 7, 2013In a 23-page opinion issued yesterday, the Supreme Court of Oregon has affirmed the decision of the Oregon Court of Appeals in Niday v. GMAC, which held that MERS is not the “beneficiary” for purposes of the Oregon Trust Deed Act (OTDA, which governs non-judicial foreclosures), and that there are numerous genuine issues of material fact which are present when MERS purports to execute documents such as an appointment of a successor trustee in its alleged (but incorrect) capacity of claimed “beneficiary”.Jeff Barnes, Esq. argued the case before both the Court of Appeals and the Supreme Court and wrote all of the briefs for the homeowner, who prevailed at both the Court of Appeals levels and in the Supreme Court. MERS had appealed the COA decision.

The Supreme Court also decided four certified questions as to MERS in the case of Brandrup v. ReconTrust, which was argued the same day as the Niday case before the Supreme Court.Significantly, the Supreme Court rejected all of MERS’ arguments as to its alleged status as “beneficiary”, even through MERS so claimed in the Deed of Trust. The Supreme Court specifically held that the Oregon statute provides that the beneficiary is the person named or otherwise designated in the trust deed for whose benefit the trust deed is given, noting that MERS attempted to split the statutory language by focusing on the “named or otherwise designated” portion while ignoring the “for whose benefit the trust deed is given” portion. The Supreme Court specifically held that the “person for whose benefit the trust deed is given” is the Lender, not MERS, as that person is the person who is entitled to payment on the promissory note, which is not MERS.

The opinion states that “the fact that MERS was identified in the trust deed as the ‘beneficiary’ does not make it so” for purposes of the OTDA. We have been arguing this across the United States for years: that just because MERS says it is the beneficiary does not render that statement true. However, as our readers are aware, too many courts have blindly accepted that language without delving into the true meaning of “beneficiary”. The Supreme Court of Oregon has finally done what needed to be done.

As such, the Court called into question (and found issues of material fact) as to the initiation and furtherance of a foreclosure when it involves actions of MERS, and set forth specific evidentiary and authority requirements which must be satisfied proven in a foreclosure involving MERS’ actions.

The Supreme Courts of Washington and Oregon are now in accord, even through they have different foreclosure statutes, that MERS is not the beneficiary. The full opinion is available upon request by going to our “Contact Us” link.

Jeff Barnes, Esq., ForeclosureDefenseNationwide.com

May 15, 2013: The post today was drafted with paragraphs and spacing, but has not published accordingly. Our website IT group has been contacted requesting to remediate this software issue.Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

May 15, 2013A Wilson County, Tennessee Circuit Judge has ordered that a threatened non-judicial Trustee’s Sale instituted by Bank of America is to be stopped. The homeowner is represented by Jeff Barnes, Esq. and local TN counsel John Higgins, Esq. Mr. Barnes prepared the Complaint, Affidavit, Motion, and proposed Findings of Fact and Conclusions of Law required by Tennessee law. Mr. Higgins argued the matter before the Court. Mr. Barnes will now seek admission to the case pro hac vice through Mr. Higgins.The Note and Deed of Trust was originated by a local Tennessee bank. The servicing (only) was later transferred to an “investor’s group” entity which demanded payments, which were made by the homeowner. Countrywide (CTW) thereafter sent a letter to the homeowner alleging that the loan itself was transferred from the “investor’s group” to CTW, although there was never any evidence that the loan itself had been transferred from the originating lender to the “investor’s group” to begin with.The homeowner was notified 3 years later that the owner of the loan was Fannie Mae, although no documents evidencing this purported transfer to Fannie were provided to the homeowner.

A few months later, BOA scheduled a Substitute Trustee’s Sale by notice in which it claimed that BOA was the “holder” of the Note, although BOA failed to provide any documentation to the homeowner evidencing a transfer from Fannie to BOA or evidence of authority from Fannie to BOA to do anything. This, of course, is on top of the lack of documentation showing that the loan was ever transferred to the “investor’s group” which then allegedly transferred it to CTW, and there is no evidence of any transfer of anything from CTW to anyone. To make matters more complicated, BOA claimed that the homeowner was in default in an amount which failed to account for the homeowner’s prior payments to the “investor’s group”, and BOA has failed to provide an accounting of such payments. Thus, the Complaint also makes a demand for this accounting.This case illustrates a general pattern we are seeing in current foreclosure cases: multiple alleged transfers of mortgage loans and/or servicing rights with no or conflicting information; allegations in documents which are unsupported; and attempts by downline purported successors to enforce Notes which they have not proven they have any rights to. Thankfully, more and more courts are starting to recognize this problem, and certain states have enacted procedural rules which require sworn affidavits from a foreclosing party as to proof of ownership or the right to enforce the Note before a foreclosure has been filed. We have been made aware that more such changes are coming in other states and courts as well.About time.Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

May 3, 2013

A proposed series of amendments to Florida Statute sec. 702.10 (CS/CS/HB 87) would radically alter and eliminate many rights for Florida property owners. The proposed amendments are in direct contravention to existing case law and provisions of the Florida Rules of Civil Procedure regarding summary judgment, and convert judicial foreclosure actions as to non-owner occupied properties to require a bond as a prerequisite to being able to defend the action. If the bond is not paid, the sheriff can oust any tenants, and judgment can be entered as well.

The proposed amendments first create a “probable cause” hearing at which time the court determines whether any timely filed defenses “create a genuine issue of material fact” or constitute “a legal defense to foreclosure”. As such, the court, without a formal summary judgment hearing and the protections set forth in Florida case law and Rules of Civil Procedure, can determine summary judgment issues WITHOUT A MOTION FOR SUMMARY JUDGMENT EVEN BEING FILED BY THE PLAINTIFF, and at that show cause hearing, the court can enter final judgment as well.

This smacks of unconstitutionality on several levels, and is an attempt by the Florida legislature to eviscerate decades of Florida case law and the Rules of Civil Procedure so that the banksters can foreclose at one hearing, and with the burden being on the homeowner to prove its defenses at a show cause hearing, totally reversing Florida law that the Plaintiff bears the burden of proving its case at trial or summary judgment.

It gets much worse. The proposed amendments also require that during the foreclosure of non-owner occupied property, and without the Plaintiff proving anything at all (including standing), the homeowner would have to make payments to the plaintiff or take out a bond FOR AN AMOUNT EQUAL TO THE UNPAID BALANCE OF THE LIEN BEING FORECLOSED INCLUDING ALL PRINCIPAL AND INTEREST. If the bond is not paid, the Sheriff can forcibly oust anyone in the property (e.g. the homeowner’s children who may be living there, aged parents who may be living there, etc.) As such, the amendments require a homeowner to pay money to the Plaintiff, who has proven nothing, for the privilege of being able to defend a foreclosure action on anything other than a primary residence.

This “bond requirement” is a creature of non-judicial foreclosures. Florida is a judicial state. This amendment would run counter to longstanding Florida law, would permit the courts to engage in disparate treatment of homeowners, make them a suspect class, and deny them the rights of any other civil itigant.

These proposed amendments are appalling. Florida homeowners should be shocked by what their elected representatives who are behind this bill are doing. We urge all Florida homeowners to immediately contact their representatives and tell them that if they approve this bill, they will not be re-elected.

Do it fast: the legislature is submitting this to the floor this weekend and is apparently going to try to railroad it through.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

April 30, 2013

A Sevier County, Tennnessee Special Master has today overruled a Motion to Dismiss a homeowner’s Complaint for Decalratory Relief. The Motion was filed by the Bank of New York Mellon as the claimed trustee of a 2005 securitization trust, which had originally moved to stay discovery and to dismiss and later filed a Motion for Protective Order claiming that no further discovery should be had until the Motion to Dismiss was decided. The matter was argued in two special court sessions lasting several hours over the course of several months, with the final session being argued and the ruling being issued today. The ruling will proceed to the presiding Judge.

Jeff Barnes, Esq. represents the homeowner together with local TN counsel Andrew Farmer, Esq. Mr. Barnes, who has been admitted pro hac vice in the case, prepared the briefs and argued both motions.

The case involves two conflicting assignments: one mentioned in an undated Notice of Substitute Trustee’s sale which claims that the loan was assigned to BNYM at some unidentified time by BAC GP LLC as attorney in fact for BAC Home Loans Servicing f/k/a Countrywide Home Loans Servicing (with no power of attorney attached), and a May 7, 2010 MERS assignment which attempts to assign the loan to a trust which closed in 2005. The Amended Complaint also requests a judicial declaration as to any paydowns or payoffs of the loan through securitization-related payments, including credit default swaps, insurances, and reverse pools. With the Motion to Dismiss being denied, the Motion for Protective Order was denied in part and withdrawn as to the balance.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com