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Oregon judge voids foreclosure sale, casting doubt on others

Published: Wednesday, June 29, 2011, 7:48 PM Updated: Thursday, June 30, 2011, 6:16 AM

By Brent Hunsberger, The Oregonian

Brian Feulner/The OregonianU.S. Bank

says it will cease eviction action against Martha Flynn while it determines its next step. That could

include demanding the loan's previous servicer, a unit of Wells Fargo, take the mortgage back, legal

experts say.

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.

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"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. 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

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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.

-- Brent Hunsberger; Follow It's Only Money on Twitter or Facebook.© 2011 OregonLive.com. All rights reserved.

~~~~~~~~~~~~~

naked capitalism

THURSDAY, JUNE 30, 2011

US Bank Halts Evictions in Oregon After Judge Reverses Foreclosure

Oregon judges have delivered a series of setbacks to servicers and securitization trusts. A recent

decision, Hooker v. Northwest Trustee Services, ruled that assignments of the beneficial interest (as in,

transfers of the note) needed to be recorded. That makes any foreclosure in the name of the mortgage

registry MERS a non-starter, since MERS was never and could never be the holder of the beneficial

interest. This will have little impact going forward, since MERS has instructed servicers to stop

foreclosing in its name, but there are plenty of foreclosures in the pipeline that were initiated in the

name of MERS.

The latest move is that Judge Grand reversed a foreclosure sale due to the failure of the parties

representing the lender to satisfy the requirements of Oregon’s recording statute. To put it mildly,

foreclosure actions are seldom reversed. The decision is terse but it has wideranging ramifications. The

Oregonian provided a good write-up of the case. Key extracts:

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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…

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….

The path will remain muddled for the mortgage industry until a definitive case reaches the OregonSupreme Court or lenders decide to take a different strategy and negotiate settlements with distressed

homeowners, real estate attorneys say.

The article has the background of the case and makes clear that this is a qualified win for the borrower,

since it is unclear who has title to her condo. She bought it 20 years ago (and therefore has equity in the

property) but fell behind on payments after she quit her job and her new business proceeds plus other

sources of income weren’t enough for her to stay current.

--------------------------------------------------------------------------------------------------------------------

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Ted E. Grove, Circuit Court JudgeSteven B. Reed, Circuit Court JudgeJenefer S. Grant, Circuit Court Judg

OF OREGON

OF COLUMBIA

June 23, 2011

Jovita T. Wang

Miller Nash LLP

3400 U.S. Bancorp Tower

111 S.W. Fifth Avenue

Portland, Oregon 97204-3699

Thomas H. CutlerHarris Berne Christensen LLP

5000 S.W. Meadows Road, Suite 400

Lake Oswego, Oregon 97035

Re: U.S. Bank National Association, N.A., v. Martha Flynn

Columbia County Circuit Court Case No. 11-8011

Dear Counsel,

This letter will serve as my opinion in the above-referenced residential eviction

case argued May 24,2011. Based on very recent case law, I am finding in favor of the

defendant.

Hooker v. Northwest Trustee Services, with which I am sure both of you are by

now familiar, came out the day after this case was argued. It addressed the question of

whether Oregon's recording statute applies in situations where MERS is "acting solely

as a nominee for Lender . . . " as was provided in the December 12, 2005, Deed of

Trust submitted by plaintiff in this case as Exhibit 8. The language in the trust deed

quoted in Hooker was essentially identical to the language in Exhibit 8 naming MERSas the "Grantee of this Security Instrument," Eagle Home Mortgage as "Lender," and

Martha Flynn as the "Borrower." Exhibit 8 further provides, at Page 3 of 16, "This

Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals,

ovton(: ! inr , , : ! and modifications the Note; and (ii) the performance of Borrower's

Instrument and the Note,

MERS,

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Page 2 - June 23, 2011

Hooker goes on to say that the any assignments of the beneficial interest must

be recorded in order for a non-judicial foreclosure to comply with the Oregon Trust

Deed Act. The defendant presented evidence in Exhibit 104 that by December 4, 2009,

and apparently through December 11, 2010, Freddie Mac was the owner of the

mortgage and therefore the holder of the beneficial interest in the property. No

evidence that this transfer of the beneficial interest was ever recorded was presented

by the plaintiff, so I am concluding that the recording never occurred.

In In re McCoy, 446 B.R. 453 (D. Oregon, Feb. 2011), the Bankruptcy Court also

found that non-judicial foreclosure may only be authorized where MERS is the

beneficiary, and there have not been any unrecorded assignments of its interest. The

McCoy court explains that a beneficiary must be the person ''for whose benefit a trustdeed is given, or the person's successor in interest." When the Borrower still owes the

note to the Lender, rather than to MERS, as in the case at bar, MERS does not become

the beneficiary, irrespective of what is stated in the deed of trust.

Plaintiff argues that even given the foregoing, because of DRS §86.780 it is free

to rely in good faith on the recitals in a recorded trust deed. However, plaintiff does not

offer any authority to support its proposal that the specific recording provisions from

DRS §86.735(1) are thereby negated.

For all of the foregoing reasons, I am finding in favor of defendant on the eviction

complaint, and ordering costs and disbursements to her. A copy of the general

judgment is enclosed.

Enclosure.

Respectfully,

Jenefer Stenzel Grant

Circuit Judge

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IN THE CIRCUIT COURT OF THE STATE OF OREGON

FOR THE COUNTY OF COLUMBIA

U·S . 0f1M.,l Na"f'( A - s ~ .( iJA )Plaintiff(s)'Landlord).

vs. )

~ M 4 ¥ ~ ~ ~ ~ ~ F l ~ y ~ ~ ~ n ~ __ ~ _ ~ (Tenant). Defendant(s»

GENERAL JUDGMENT(Residential Evictlorl) ,

On 11..L¥ J.'f • 20JL a hearing was held in an action to recover possession of the premisesdescribed as:

'..2.1 t t ~ · t L t . . Dv've.- I v ' ~ I vel... 91-0"-4

The following parties appeared: 0 Plaintiff(s) 0 Defendant(s) 0 Neither

Judgment of dismissal.

Default judgment in favor of plaintiff for possession of the premises described above plus costs anddisbursements.

Default judgment in favor of defendant dismissing the plaintiff's complaint and awarding costs and

disbursements.Judgment against defendant after trial. Plaintiff is awarded restitution of the premises describedabove plus costs and disbursements.

o Effective Immediately 0 Effective________Judgment against plaintiff after trial. Defendant is awarded costs and disbursements.

Stipulatedjudgment________________________

Other:_____________________________

It is further ordered:--------------------------MONEY AWARD

JudgmentCreditor(s):__________________________Address:_________________ ----'Attorney:________Attorney Address: AttorneyPhone:______

JudgmentDebtor(s):__ ~ - - - - - - - - - - - _ - - - - - - - - - - - -DOB: SSN:------- --------Driver's Licence # and State:______ Attorney:____________

Costs and Disbursements: T______ Attorney Fees: $__________

Prevailing Party Fee: $________ Interest Rate: ___________

Total Money Award: $________

rJ,Dated this J.3 of

Revised 412006