January 9, 2012

The Circuit  Court for Jackson County, Oregon has issued 6 page ruling finding that the non-judicial foreclosure remedy was not available to Fannie Mae because of a defect in the chain of title caused by the MERS system, which precluded Fannie Mae from bringing an eviction action (termed a “forcible entry and detainer” in Oregon) due to the wrongful foreclosure.

The opinion analyzed Oregon cases which both support and attack MERS, and concluded that the anti-MERS decisions were on point: that the MERS system “is an evasion of the intentions of the Oregon Trust Deed Act” (which is the statutory vehicle in Oregon for a non-judicial foreclosure), and that the MERS system confuses the beneficiary, especially in cases involving securitization, multiple investors, and the involvement of mortgage insurers.

In highlighting the infirmities with the pro-MERS decisions, the court noted that “The decisions finding MERS a valid beneficiary simplistically take the language of the deed of trust at face value heedless that the underlying reality is more complex than that envisioned by the law.” We have been making this argument for years across the country: that when the non-judicial foreclosure laws were enacted, they never envisioned a creature like MERS or the complications of securitization, and instead of making MERS and securitized “trustee” banks comply with the law, the pro-MERS decisions have simply permitted MERS and the banks to ignore the strict requirements of the law and run roughshod over it.

The Oregon decision pointed out the probable reason for this and its consequences: “Decisions finding that the recording law has been followed [by MERS] engage in an incomprehensible and illogical attempt to explain how the deed of trust follows the note…The problem with the MERS system is that it bypasses this safety check in the law. Under MERS, no one can be sure who holds the rights, and the courts and public are expected to simply trust that arrangements made in secret are fair.”

The court also stated that “Many borrowers before Oregon courts complain that they were encouraged to default by servicers or lenders as a condition of considering a loan modification and, instead of receiving help, face eviction from their homes.” Mr. Barnes just recently filed a case against a lender based on this same fraud in the inducement fact pattern: the homeowner was told that they had to be in default to be considered for a loan modification. The homeowner relied on the “bank”‘s affirmative representation and stopped payments, but the loan modification was ultimately being denied on a basis known to the “bank” to be false. When the homeowner attempted to resume regular payments, the “bank” refused the payments and accelerated the entire loan balance in connection with its threat of foreclosure.  

In noting other problems with the MERS system, the Oregon court stated: “The judges upholding the MERS process are no doubt bothered by the prospect of defaulting home owners living rent free for months or years. However, the problem has been created by the lending industry with an unaccountable system that is unable or unwilling to work out an equitable resolution to the fall in home values. Instead the industry now seeks to make mostly low net worth individuals bear the bulk of the cost of their economic escapades.” (emphasis added)

The court found that “The MERS system amounts to private lawmaking which bypasses the protections of state law and creates a new scheme of governance solely for the benefit of investors.”

We could not have said it better. We just hope that more courts also see what is really going on.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com