Securitization
Pushing for judicial foreclosure
State Rep. Andy Schor introduces legislation that would put some foreclosures in court when banks have behaved badly
by Sam Inglot
Thursday, June 6 — State Rep. Andy Schor, D-Lansing, introduced legislation today that would allow people who are facing mortgage foreclosure to take their case before a judge if their lender has been shady with its practices.
“This is exactly the direction we need to go in,” said Ingham County Register of Deeds Curtis Hertel Jr., who has been actively fighting mortgage foreclosure fraud over the past two years. “Holding the banks responsible for their illegal actions is a good thing and due process for citizens facing foreclosure is a good thing. I look forward to working with him to get bills passed.”
Michigan is a foreclosure by advertisement state, which means banks and lenders don’t need to take homeowners to court to evict them if they are behind on their mortgage payments; the bank/lender simply has to post a notice on the homeowner’s door. Because of this, Hertel said there is no due process for people facing foreclosure,unless they decide to sue.
House Bill 4800 would amend the Revised Judicature Act to allow for judicial foreclosure hearings before a judge if the lender purposely fails to record mortgages or assignments on mortgages, advises borrowers to not make payments on mortgages or places false signatures on mortgage foreclosure documents.
“If a lender is engaging in these practices, a person can take a judicial action and get the court to intervene in, delay or stop the foreclosure,” Schor said. “And we’ve seen plenty of cases like these before.”
There are situations where lenders will advise borrowers to go into default so they can qualify for a mortgage modification, Hertel said. But when the borrower goes into default, the lender could then refuse to negotiate, putting the borrower in a precarious position.
There is legislation awaiting a vote in the Senate that would shorten the foreclosure redemption period — when people can challenge the legality of a foreclosure, negotiate with their bank, or sell their home in a short sale — from six months to 60 days. The legislation comes as federal regulations starting next year will extend the negotiation period between banks and property owners before foreclosure from 90 to 120 days.
Banks support the legislation, saying that the longer redemption period leads to abandoned properties, which contribute to blight, and that new federal regulations would help people avoid foreclosure. But Hertel, who has proved foreclosure fraud in court, says the shortened redemption period gives citizens less of a chance to keep their home. Schor said he introduced the legislation because of other foreclosure bills floating around the Capitol.
“For me, as we’re talking about foreclosure and how long the process should be, I wanted to get this into the conversation,” Schor said. “This will take care of bad actors without affecting the good ones.”
Oregon Supreme Court rules on MERS, will affect foreclosure process
Written by Peter Wong Statesman Journal
The Oregon Supreme Court ruled today in a pair of cases that will affect out-of-court foreclosures.
The court decided that a mortgage-industry database cannot stand in for the actual lenders on real estate deeds under Oregon law.
Justice David Brewer, writing for the court, said that Mortgage Electronic Registration Systems Inc. cannot be considered a “beneficiary” under a 1959 law governing real estate deeds in Oregon.
The national database was launched in 1997 to track home mortgage loans – about two-thirds of the nation’s loans are covered by it – but it does not lend or collect money itself. The system was created to track loans when it became common to bundle and sell such loans as big packages to investors, a practice known as “securitizing” mortgages.
“A ‘beneficiary’ for the purposes of the Oregon Trust Deeds Act is the person to whom the obligation that the trust deed secures is owed. At the time of origination, that person is the lender,” Brewer wrote.
Despite deed language that appears to give MERS authority to act, he wrote, “the inclusion of that provision does not alter the trust deed’s designation of the lender as the ‘beneficiary’ or make MERS eligible to serve in that capacity.”
Justice Rives Kistler, joined by Chief Justice Thomas Balmer, wrote a separate opinion that agreed in part but also disagreed on a key point.
“In my view, nothing in state law precludes the parties to a trust deed from designating MERS as a beneficiary as long as MERS is serving as the agent for the lender and its successors,” Kistler wrote.
The court opinions were issued in a pair of cases.
One case actually consolidates four cases pending in U.S. District Court in Oregon by foreclosed homeowners against Recontrust Co., Bank of America, the Bank of New York Mellon, Deutsche Bank National Trust Co., and MERS. The federal court asked the Oregon Supreme Court to provide its interpretation of the 1959 state law.
The other case involved a suit by Rebecca Niday against GMAC Mortgage and MERS. The justices upheld the Oregon Court of Appeals, which ruled last year that individual lenders – not the national system – must file deed assignations with counties before they can begin out-of-court foreclosures. The decision compels lenders to file each change of ownership of a loan.
Coupled with state legislation in 2012, it put a halt to most out-of-court foreclosures, compelling the use of more expensive court proceedings.
The Court of Appeals decision reversed a judgment against Niday in Clacakmas County Circuit Court, where the case will return for further proceedings after today’s Supreme Court ruling.
pwong@StatesmanJournal.com or (503) 399-6745 or twitter.com/capitolwong