Tuesday, May 31, 2011

Oregon Foreclosure Process Debatable: MERS vs. Non-judicial statutes

In the wake of the mortgage meltdown and heightened foreclosures an Oregon Judge is questioning not only the validity of MERS but seemingly Oregon's non-judicial foreclosure process according to the AP in this article found in The Statesman Journal. Personally I've questioned this common practice known in the mortgage industry as MERS or Mortgage Electronic Registration System since I began originating mortgage loans in 2005. The system bypasses county recording processes and allows the trust deed to simply transfer with each sale of the note. Not only are counties cheated from revenue due of recordings but the title history is not being updated with each change of investor.  However there are more facets to be considered involving the outcome of the MERS mess and the manner in which the mortgage, title, and judicial interests can move forward. 

If MERS is upheld to be the straw-man it's been dubbed then massive pandemonium will certainly unfold. Think about it... Court systems will become overrun by borrowers who now feel they own their house outright because the proper chain of title never occurred. They may already feel shafted by robo-signers and sloppy work headed into the foreclosure. Some of those being homeowners who were told their loans were being modified but then served eviction papers by the sheriff. One might not even be delinquent to challenge this giving a new meaning to the term strategic default at the taxpayer's expense. A few title companies have stopped issuing title insurance to date on foreclosed properties because of the liability in the clouded title... Will the rest follow?  Let's not forget the overall, long-lasting, and crippling toll that all of this will take on Oregon's housing market should this unwind past foreclosures as well.

Enter Oregon SB 519 an emergency bill in Senate headed to public hearing and work session scheduled for today is currently passing 28 - 1. The bill addresses the bidding and redemption rights of home-owners but it broadens the definition of entitled parties to include the likes of MERS but keeps Oregon's non-judicial foreclosure process intact. I feel strongly this bill is needed in order for Oregon's housing market to move forward. Although many feel they have been wronged by creditors BUT simply put you are in default of your promissory note. New Jersey and Vermont have passed similar bills and MERS has amended it's policy regarding the naming of MERS as the foreclosing party. Be it not enacted the possibilities outlined would have unarguably devastating effects. I will be watching this bill steamroll through passage in Oregon and keeping watch for other states to follow suit.