There has been a lot of big stories in the news lately – Greece, our debt limits, revolutions in the middle east. Did you know that we had some big news right here in Oregon? The Oregonian published an article on the 30th of June regarding a Columbia county Judge voiding a foreclosure. For those who have been following the foreclosure market woes, and especially the MERS situation, this is huge. If you are in the market for a foreclosure, you must read this:
June 30–A Columbia County judge has blocked U.S. Bank from evicting a Vernonia woman whose home it purchased in foreclosure, concluding in a case with far-reaching implications that her lenders had not properly recorded mortgage documents.
Last week’s action appears to be the first in which an Oregon judge has halted an eviction and declared a foreclosure sale void after the fact. The ruling, if it stands, raises questions about the validity of other recent foreclosures in the state and could create serious problems for lenders and title companies, as well as for buyers of such properties.
“It’s a victory for a lot of people,” said Martha Flynn, 62, who challenged the eviction and whose ability to stay in her home remains in doubt. “I was fighting for the principle of the thing.”
A U.S. Bank spokeswoman said the bank would cease further eviction action and assess its “appropriate next steps.”
Nearly all foreclosures in the state occur without a judge’s involvement under so-called nonjudicial proceedings. But this ruling, legal observers say, could potentially divert more foreclosure actions into courtrooms, a more time-consuming and costly proposition that could exacerbate the state’s housing slump.
“This will certainly be problematic for lenders,” said David Ambrose, a Portland real-estate attorney.
It also casts doubt on the validity of already completed foreclosure sales in which lenders resold mortgages without recording the sales in county recorder offices. Many of those questionable transactions, including Flynn’s, involve the Mortgage Electronic Recording System.
MERS was created by the mortgage industry to rapidly securitize loans without recording them. Federal judges in Oregon have ruled that MERS-involved foreclosure actions violated state recording law. MERS also has been tied to so-called robo-signing scandals that prompted a 50-state investigation of the nation’s largest loan servicers and banks.
“Our hope is the banks will take a much more sincere effort at resolving matters directly with homeowners,” said Thomas H. Cutler, an attorney with Harris Berne Chirstensen in Lake Oswego, who represented Flynn.
A Wells Fargo & Co. (WFC) unit foreclosed on Flynn after she fell behind in her payments. Wells Fargo sold the mortgage to U.S. Bank, the second lienholder, in December 2010, Cutler said.
Columbia County records show U.S. Bank paid $54,000 for the home, which had been valued at $134,000. Flynn hired Cutler a few months later to try to stop the foreclosure.
U.S. Bank tried to evict Flynn from her Vernonia home during a May 24 court hearing. But on June 23, Columbia County Circuit Judge Jenefer Grant ruled against the bank and awarded legal costs to Flynn.
Grant found that the original lender, Eagle Home Mortgage, held beneficial interest in the property. But while Eagle Home eventually sold the mortgage to other parties, the exchanges were never recorded, or assigned, in the county’s recorder office.
“I am concluding the recording never occurred,” she wrote in a two-page ruling. “MERS does not become the beneficiary, irrespective of what is stated in the deed of trust.”
Flynn discovered on Freddie Mac’s website that the quasi-government loan insurer owned her loan on the date of the foreclosure sale, Cutler said. But Freddie Mac’s ownership had not been recorded in county records, as required by state recording law, Grant ruled. Cutler obtained the services of an expert witness to track the ownership trail of her mortgage.
“We were able to show that Wells Fargo didn’t have the right to bring foreclosure because there were unrecorded deed of trust,” said Tim Stephenson of MSA Associates, which audits mortgage loan histories for homeowners and attorneys.
A spokesman for Wells Fargo Home Loans said it was reviewing the judge’s decision to better understand it.
“We work hard to keep our customers in their homes when they encounter difficulties and view foreclosure as a measure of last resort,” spokesman Jim Hines said.
In an interview, Flynn said she’s owned her three-bedroom house for 20 years and had built up significant equity. She fell behind making payments after quitting her job answering customer service calls for credit card companies at her home.
Since then, she’s lived off unemployment, social security and a small business incubating and selling quail eggs. She sought a modification but could not get Wells Fargo to agree, despite repeatedly submitting documents.
“Even though I couldn’t afford an attorney, I thought, ‘What’s the harm?'” Flynn said. “Most people just give up.”
It’s unclear what this all means for Flynn. She says she’s prepared to move out despite the victory, given the uncertainty of who actually owns title to her home and what must be done to foreclose legally.
“Even though this is a great legal win for her, it still leaves her in limbo,” Cutler said. “There’s no clear choice for her. And there’s no big money at the end of this rainbow, either.”
Meanwhile U.S. Bank, which spokesperson Teri Charest noted “played no role in the title documentation process” is currently trying to ascertain its next steps.
That could include demanding her previous loan servicer, a Wells Fargo Bank unit, take the mortgage back, legal experts say.
The path will remain muddled for the mortgage industry until a definitive case reaches the Oregon Supreme Court or lenders decide to take a different strategy and negotiate settlements with distressed homeowners, real estate attorneys say.
“This is significant,” Ambrose said.