Portland Bankruptcy Law Group

In our last blog we talked about MERS—the Mortgage Electronic Registration Systems, Inc.—and the problems it has caused for lenders and their foreclosures during the past several months.  We ended that blog by telling you that we would update you in our next blog about the recent cancellations of many foreclosures in Oregon.

We’ll give you a few very recent facts about Oregon foreclosures.  And then tell you what we think those facts mean.

Fact:  In the last few months, a number of different federal judges in Oregon have stopped foreclosures involving MERS, with three of those decisions coming rapid-fire within a short period in February.

Fact:  By mid-March, many hundreds of non-judicial foreclosures (those not involving a lawsuit) all over Oregon had been cancelled by lenders.  By way of just one example, ReconTrust, which administers foreclosures for Bank of America and its various subsidiaries, went from processing hundreds of foreclosures at a time to no more than twelve, throughout the entire state of Oregon!  Populous counties like Multnomah and Clackamas went from many dozens of foreclosures pending to only two apiece!

Fact:  But within a matter of just two more weeks, from mid- to late-March, the processing of foreclosures resumed in a flurry.  Using ReconTrust again as just one example, during just the last few days of March, it started MORE THAN 800 home foreclosures!  As of the time we write this, Multnomah County went from two pending foreclosures to 142 of them.

Fact:  Still using ReconTrust as an example, 140 of those Multnomah County foreclosures are all scheduled to go to foreclosure sale on one of only four days.  That’s at least 30 foreclosures at a time happening supposedly all at 10:00 A.M. at the Multnomah County Courthouse entrance on each one of those four days.

So what does all this mean?  What it clearly does NOT mean is what a Bank of America spokesperson said at the time of the mass cancelations:  that they were being nice and wanting to “ensure that homeowners nearing a foreclosure sale have exhausted other opportunities, including loan modifications and short sales,” as an Oregonian article a month ago put it.  Those “other opportunities” take months to work through.  Instead, the wholesale cancellation of virtually all of ReconTrust’s foreclosures—a tremendously expensive decision—was a clear acknowledgement by the lenders that these very recent court decisions against MERS called into question all their ongoing foreclosures.

In the last few weeks and months the mortgage lenders have undoubtedly invested a huge amount of money on large law firms to figure out how to best get out of the corner they have painted themselves into.  Because the judicial decisions against them in Oregon focus primarily on non-judicial foreclosures, there was a question whether lenders would switch to judicial foreclosures, but that does not seem to be happening.  Instead part of their tactic now, we believe, is to flood the system with non-judicial foreclosures, getting as many of them over with as quickly as possible.  Only a very limited number of homeowners have the willingness and capacity to oppose them, even just to take the first step of talking with an attorney about their legal options.  Even though the law has been turning against the banks, they are trying to skip past the law by assuming, probably accurately, that most homeowners will not challenge them.  The big open question is how they will act towards those homeowners that do.  Will they be more AGGRESSIVE in order to discourage fair settlements?  Or instead will they be more FLEXIBLE on mortgage modifications, short sales, bankruptcies and such because they are legally on the defensive and need to process their troubled mortgages more efficiently?  We shall see.

MERS?  What’s MERS?  It’s what’s behind the headline that made the very top of the front page of the Oregonian a couple of Sundays ago:  “Hundreds of foreclosed sales halted.”

MERS is a company set up about 15 years ago by a bunch of the biggest players in the mortgage finance business to reduce their expenses and increase their profits.  MERS did so by making it cheaper and easier to sell the rights to mortgages from one lender to another.  It allowed the mortgage lenders to get very fancy, packaging and “slicing and dicing” pools of mortgages into “mortgage-backed securities,” “collateralized debt obligations,” and other exotic financial instruments that could be very profitably sold to investors.  When billions and billions of dollars worth of these instruments turned nearly worthless virtually overnight, they became the infamous “toxic assets” that threw the economy into its tailspin of the last few years.

So how does MERS fit in here?  And how could this all help today’s distressed homeowner?

It’s an abbreviation for Mortgage Electronic Registration Systems, Inc.  It operates a computer database designed to track mortgage loans in the United States.  MERS lowered the costs of processing loans for mortgage lenders, in part by reducing what the lenders pay for recording fees, by avoiding recording fees for the assignments of trust deeds.  When one lender sells a loan and its trust deed to another lender—often in big batches of loans—it assigns the trust deed, and the rights contained in it, including the right to foreclose, to that new lender.

MERS saved these mortgage lenders these recording fees through some fancy footwork which is now the source of the lenders multi-billion dollar—maybe multi-trillion dollar—problem: the homeowner’s original lender prepares the loan documents with itself as the lender to be paid on the loan, as expected, but instead of putting its name on the trust deed (giving itself the right to foreclose if the homeowner doesn’t make the payments), it writes in MERS as the original trust deed holder.  MERS then records the documents at the county recorder’s office, but then all subsequent assignments are kept track of through MERS but are NOT recorded in the official county records.  According to MERS these assignments don’t need to be recorded. This more “efficient” system became essential starting in the early 2000s when mortgage lenders figured out that they could make much greater profits by repackaging loans in a particularly creative way called securitization and selling shares of these packages to investors.

But MERS created a whole bunch of problems.  One is that many state’s laws—including Oregon’s—plainly require a lender to have received its assignment of the trust deed through an officially recorded assignment.  Unbelievably, for years this requirement was overlooked mostly because homeowners very seldom challenge foreclosures. But just last month an Oregon bankruptcy judge ruled that a mortgage lender could not foreclose on a home because that lender had received its right to foreclose from the homeowner’s original lender through an “assignment” that had NOT been recorded in the county real estate records. Other judges have made similar rulings.  As a result, one of the nation’s largest title insurers has announced that it would not insure real estate titles in these circumstances. In the last few weeks, hundreds of foreclosures have been cancelled all over Oregon.  Where this is all leading is very unclear because we’re in uncharted territory.  We’ll update you in our next blog.

During the last few months, the local and national news has been full of stories about mistakes made by mortgage lenders that have helped millions of homeowners at least buy some time to live in their homes threatened by foreclosure. Some of these homeowners have done better than buy time: they’ve leveraged these creditor mistakes into better terms on their mortgages.

What is all this excitement about? What kinds of mistakes did these mortgage lenders make, and how can you gain from them?

Let’s start with robo-signers. Who are THEY?! A few months ago, some homeowners in different parts of the country tried to stop their foreclosures in court. As part of this process, their attorneys deposed some of the mortgage lenders’ employees (that is, asked them questions under oath). These employees, who had signed some of the foreclosure documents filed at court by the mortgage lenders, admitted that much of what these documents said was false.  They had signed thousands of affidavits (statements under oath) saying that they had personally reviewed the mortgage documents and the accounting on the loan, to show that a foreclosure was legally justified. But they had actually done none of this. The lenders hired these inexperienced people essentially to do little more than sign these affidavits hour after hour, hence the name: robo-signers.  Since the entire foreclosure system is based on the truthfulness of such affidavits, this revelation caught the attention of judges across the country. They did not take kindly to the lenders systematically lying to them in court documents. Once judges started ruling against the creditors, many of the major lenders voluntarily stopped processing millions of foreclosures temporarily, to try to fix these problems.

This attention has opened the door to uncovering a bunch of other problems–not only with foreclosure processing procedures but also with issues that challenge the validity of the mortgages themselves.   These deeper problems include things like the mortgage lender not being able to find the original promissory note or trust deed to show they had a right to foreclose or even that they are owed any money! Some judges have started ruling in favor of homeowners in some of these areas as well, but there is a great deal of uncertainty about what will or will not eventually be successful.

All these irregularities and the confusion they’re causing should be no big surprise: the same mortgage lenders and servicers who were so sloppy and greedy with approving and “re-packaging” mortgages in the first place, were also sloppy and greedy in transferring these mortgages from one lender to another, and then in trying to foreclose on them.

Portland Bankruptcy Law Group has the experience and knowledge to handle your case. Our bankruptcy lawyers are extremely familiar with and are well versed in all aspects of bankruptcy law. Contact us today!