7
Street roots
April 27, 2012
B Y JA K E TH O M A S
S T A F F W R IT E R
I
van Hooker built his own home in
Jacksonville, a town outside Medford in
Southern Oregon, 20 years ago with his
own hands. He raised four kids there and
built a business selling commercial trucks.
When the housing market crashed in
2008, business dried up, and he fell behind
on his mortgage payments. Hooker says his
bank ignored his efforts to work something
out. When his bank finally got in contact with
him, he said they presented three options:
He could sell the house, but still not make
enough to pay off the loan. He could pay the
loan in full. Or allow the bank to foreclose.
Hooker, instead, suggested a fourth
option: To fight his bank in court.
This may sound like an all-too-familiar
story, but the case Hooker brought against
his bank challenges an obscure mechanism
used to facilitate the housing boom, and the
outcome could have far-reaching
repercussions for homeowners in similar
predicaments. As foreclosures have swept
the state, other homeowners have made
similar challenges, which have had mixed
results. The Oregon Supreme Court is
poised to weigh in, and how it rules could
have consequences for how foreclosures such
as Hooker’s are conducted.
During the housing boom of 1990s, banks
founded the Mortgage Electronic
Registration System, Inc., or MERS, as a
shell company to help process the large
amounts of mortgages they were bundling
into securities and selling off to investors.
“What’s a MERS, anyways?” said Hooker,
when he first heard about the Mortgage
Electronic Registration System, Inc.
For centuries, real estate transactions
have been recorded by counties for a modest
fee, establishing a reliable and transparent
record of land ownership. Operating under
the mantra of “process loans, not
paperwork,” MERS offered a way for banks
to quickly sell mortgages to investors without
having to go through the cumbersome
process of recording each re-assignment with
the county and also avoiding the fees.
Instead of having to record the transfer of
the mortgage each time it was sold, banks
began entering MERS as the agent for the
lender, making MERS the mortgagee of
record with the county. The mortgage is
then sliced and diced and sold to investors.
But all of this becomes absent from county
records as soon as MERS is designated as
holder of the mortgage.
At the county recorder’s office, mortgages
are recorded in the name of MERS, instead
of the bank or other entity that has an
economic interest in the loan. Although it is
designated as the beneficiary, MERS doesn t
collect any money from the loans and doesn t
service any mortgages.
No state legislature authorized MERS the
long-established precedent of recording
property transactions with the county.
Meanwhile, cash-starved counties have
missed out on recording fees. According to a
report from Economic Fairness Oregon,
Multnomah County alone lost nearly $11
million in recording fees as a result of
MERS. This includes fees collected that are
dedicated to affordable housing preservation
throughout the state.
MERS did not respond to Street Roots
questions by press time, but Project
REconomy, a Southern Oregon-based
organization that works with homeowners
facing foreclosure, estimates that of the
22,492 foreclosures in Oregon last year, 65
percent involve MERS.
Few people had any idea what MERS was,
Oregon State Supreme Court
Caveat Emptor
The Oregon Supreme Court considers the
practices o f the Mortgage Electronic Registration
System, or MERS, and how it may or may not
lay claim to its foreclosed homes
Delaware’s land records, and lead to unlawful
until the housing market collapsed in 2008.
foreclosure practices,” reads the complaint of
Once foreclosures began sweeping the
the Delaware attorney general against
country, homeowners began challenging
MERS.
MERS in court. The cases varied by each
N ew York A tto rn ey G en eral E ric
state, each having different property laws,
Schneiderman has also taken legal action
and the outcomes have varied.
against MERS and several large banks,
The supreme courts of Arkansas, Maine,
including Bank of America, J.P. Morgan
Kansas and New York have ruled that MERS
Chase and Wells Fargo.
does not have legal standing to foreclose on
According to the complaint filed by
properties. Supreme courts in Michigan,
Schneiderman, MERS
Minnesota and Idaho
has been involved in
came to different
unscrupulous activities
conclusions. In 2011,
such as foreclosing on
MERS ended it’s
a property on behalf of
During the last legislative
practice of
an entity that had
foreclosuring on
session, a handful of
been dissolved and
properties.
lawmakers attempted to
using false and
According to
deceptive documents
Christopher Peterson, settle any legal ambiguity of
in court. The
MERS through a b ill that
a University of Utah
also states
law professor who
would retroactively validate complaint
that inaccurate and
has studied MERS
it.
The
legislation
was
bad recording keeping
and written critically
is “endemic” to
proposed by Rep. Gene
about it, the legal
MERS.
structure of MERS is Whisnant, a central Oregon
Oregon Attorney
highly unorthodox.
Republican affiliated with
General John Kroger
He explained that
the American Legislative
has filed an amicus
MERS purports to
brief in support of
Exchange Council. The b ill
act as the agent of
Hooker. Across the
banks and investors,
failed, and judges have
state there have been
but also as the
continued
to
disagree
on
court cases
beneficiary of the
challenging different
MESS' legality.
mortgage, an
legal aspects of
arrangement he
MERS. In these cases,
describes as not only
judges have produced
confusing but
conflicting rulings,
potentially fraudulent.
which has drawn the attention of state
“There really hasn’t been anything like
lawmakers.
this in property law,” said Peterson.
During the last legislative session, a
According to Peterson, about 60 percent
handful of lawmakers attempted to settle any
of mortgages are registered under MERS.
legal ambiguity of MERS through a bill that
He said that when state supreme courts rule
would retroactively validate it. The legislation
against MERS, it has been a serious
was proposed by Rep. Gene Whisnant, a
handicap for the banks and has caused
central Oregon Republican affiliated with the
forecloses to slow. In such states, he said,
American Legislative Exchange Council, a
banks need to go to court to foreclose on a
controversial organization that has been in
property, which gives homeowners more
the news for pushing pro-corporate
leverage.
legislation at the state level. The bill failed,
In other states, officials have taken an
and judges have continued to disagree on
aggressive approach to MERS. Delaware
MERS’ legality.
Attorney General Beau Biden has filed a
Two of the central issues in these cases is
lawsuit against MERS.
whether or not banks violated Oregon law by
“MERS engaged and continues to engage
not filing proper notices with counties, and if
in a range of deceptive trade practices that
MERS can be designated as the beneficiary
sow confusion among consumers, investors,
of a mortgage loan.
and other stakeholders in the mortgage
Some judges have found no legal problems
finance system, damage the integrity of
with MERS’s structure and have ruled that
banks don’t need to update county records
each time a loan is sold using MERS. Others
have disagreed.
Hooker’s case made its way all the U.S.
District Court Judge Owen Panner, who ruled
in his favor.
“In short, the MERS system allows the
lender to shirk its traditional due diligence
duties,” reads Panner’s ruling, which sharply
criticized MERS for keeping bad records and
cast doubt on foreclosures it’s been involved
in.
The ruling echoed a frequent criticism of
the system: that the chain of title is muddled
so badly as the loan is passed around
through MERS that it becomes difficult for
homeowners to determine who they owe
money to and who they need to negotiate
with.
In some rare cases, judges have found the
chain of title so damaged that they have
given the house to the homeowner free and
clear.
But Michelle Glass, spokesperson for
Project REconomy, says that most distressed
homeowners aren’t looking to squirm out of
their mortgages and want to come to a
responsible arrangement with their lender.
But doing that is more difficult with MERS,
she said.
“It’s a really big, complicated mess and it’s
c re a te d a n u m b e r of p ro b lem s for
homeowners,” Glass said.
Because their loan has been passed
around so many times, Glass said that
homeowners seeking to negotiate have
difficulty determining the entity that actually
owns their loan. In many cases, said Glass,
homeowners are passed around and then just
end up in foreclosure anyway. In Oregon, she
added, only 1 percent of distressed
homeowners get a permanent modified loan.
Oregon allows for lenders to foreclose on
homes without judicial review, a practice that
could become less common depending on
how the state Supreme Court rules on
MERS.
According to Kelly Harpester, an attorney
who has represented homeowners, if the
Oregon Supreme Court doesn’t rule
favorably to MERS, she expects there to be
far fewer foreclosures. More banks will go
the judicial route to foreclose, she said,
which requires banks to produce
documentation that they in fact own the loan
and will be likely to settle with homeowners.
Glass said that under a non-judicial
foreclosure, the burden falls on the
homeowner to ensure that everything has
been done properly, which often requires
getting a lawyer. But under a judicial
foreclosure, there is more oversight and
consumer protection.
“The MERS system raises serious
concerns regarding the appropriateness and
validity of foreclosure by advertisement and
sale outside of any judicial proceeding,”
wrote Panner, who noted that nearly every
non-judicial foreclosure he has presided over
had been “deeply troubling” to him.
It’s been nearly a year since Panner ruled
in favor of Hooker, who says he has gotten
phone calls from people across the country
in similar predicaments. Hooker says that
the ruling caused Bank of America (his
lender) to retreat on foreclosing on his home
But his case is being appealed and he
expects his bank to be back.
“What the working fellow is up against is a
monstrous system,” said Hooker, of the
experience. “Basically we’re in a state of
limbo. Believe me, that’s a very frustrating
place to be.”