Oregon Supreme Court hears key foreclosure case
SALEM, Ore. (AP) — The Oregon Supreme Court will decide the future role of an electronic mortgage registry that's become central to the banking industry's lending and foreclosure practices.
Justices heard oral arguments Tuesday in a key legal challenge that has significantly slowed foreclosures in Oregon. Their decision, expected later this year, could resolve years of uncertainty around the role of Mortgage Electronic Registration Systems Inc., which lenders use to keep track of the ownership history of mortgages and trust deeds.
A state appeals court ruled in July that lenders using MERS must go through the courts to begin foreclosure proceedings. Since then, so-called nonjudicial foreclosures, which used to comprise nearly all foreclosures in Oregon, have all but stopped as lenders have turned to the court system or waited out a definitive ruling on the status of MERS.
If the Supreme Court upholds the appeals court's ruling and the Legislature doesn't change the law, "it means we'll continue to see judicial foreclosures in Oregon," said Kelly Harpster, a lawyer who represents homeowners on foreclosure matters but isn't involved in the case. It's unclear what would happen to foreclosures already completed, although the court has been asked to rule on that question, Harpster said.
The nonjudicial process is faster and cheaper for lenders. The Oregon Legislature authorized the process in 1959, allowing lenders, under certain conditions, to sell a property when the loan is in default. One condition was a requirement that changes in the "beneficiary" of the trust deed be publicly recorded with the county.
The mortgage industry created MERS in the 1990s to make it easier to bundle and sell home loans on the secondary market. MERS is listed in the deed as the beneficiary, and the service tracks the actual owner of the loan through an internal database.
The Supreme Court heard a case brought by a Clackamas County homeowner, Rebecca Niday, who challenged a trustee sale of her home scheduled in 2010. She argued that MERS never received any loan payments so it could not act as beneficiary of the trust deed. She also argues that a nonjudicial foreclosure would be illegal because the transfer of her loan to a secondary lender was not recorded with the county.
A lawyer for Niday, Jeff Barnes, argued that the nonjudicial foreclosure process is an "extraordinary remedy requiring strict compliance," because it's allowing a lender to take a homeowner's property without a judge's involvement.
State and federal trial court judges around the state have come to different conclusions on similar cases, and MERS has pointed to dozens of lower court decisions upholding its role in the lending process.
Because of the differing conclusions, the federal district court in Oregon has asked the state high court to resolve questions about MERS separately from the Niday case.
Lenders said they'll ask the Legislature this year to make it clear that MERS is operating legally regardless of the Supreme Court's decision.
"MERS is certainly working and functioning fine in most other states in the country, so we think that those are debates that could be had by the Legislature," said Linda Navarro, president of the Oregon Bankers Association.
They'll face an uphill climb in the Legislature, however, after Democrats took control of the state House. Incoming House Speaker Tina Kotek has been a vocal critic of lenders' foreclosure practices.
"Rep. Kotek is not interested in any efforts to validate MERS," said Jared Mason-Gere, a spokesman for the Kotek.