SALEM — On Tuesday, the Oregon Supreme Court joined judges across the nation in scrutinizing a system that is responsible for tracking millions of mortgages.
The state’s top justices heard from lawyers on two different cases, but at the heart of both is the same question: What role should the Mortgage Electronic Registration Systems, or MERS, play in the state’s nonjudicial foreclosure process?
The system was created by the mortgage industry, in part, to allow larger banking institutions to quickly transfer mortgages from one entity to another and track the assignments through the private database instead of publicly recording each transfer in local county clerks’ offices.
In July, the Oregon Court of Appeals ruled that MERS must show recordings of each assignment of a trust deed in the county in which the property is located before foreclosing in the nonjudicial process.
Also at issue is whether MERS can act as a “beneficiary” of the loan, which would give it the right to initiate foreclosures and avoid recording each change of assignment, or ownership.
The appeals court ruled the beneficiary is the party to whom the money is owed, and MERS was only acting as the lender’s agent.
Lawyers representing MERS argued that the company, which has more than 27 million mortgages in its database, should be the beneficiary and therefore be given the right to initiate foreclosures.
One of those lawyers, Gregory Chaimov, said MERS can act as an “agent of the lender.” That gives MERS the right to start the foreclosure process and doesn’t entail recording of each assignment. The lender, he argued, designates MERS as the person for whom the trust deed is given.
“The beneficiary is the person the parties designate as the person for whom the trust deed is given,” said Chaimov, who argued the issue on behalf of MERS in both cases, Brandrup v. ReconTrust Co., N.A. and Niday v. GMAC Mortgage LLC.
Lenders, he argued, might not want to undertake the obligation of foreclosure.
“They hire an agent,” he said, such as MERS.
Making MERS the beneficiary, Chaimov told the justices, gives everyone involved in the transaction the ability to know where to go when they need information, arguing that they simply go to the database.
But Jeffrey Myers, who argued on behalf of the homeowners, or borrowers, said MERS acts on behalf of a third party. MERS, he said, has no financial stake in the foreclosure.
If the courts agree with Myers, the assignments of loans would have to be recorded in county offices before the properties could be foreclosed upon nonjudicially.
That would mean lenders would have to go back and record transfers of loans for the hundreds of thousands of Oregon mortgages MERS is involved in. Or they could choose to foreclose in the courts, a move many lenders have already taken.
Myers argued that the nonjudicial foreclosure process was created to foster a streamlined system. It’s often faster than the judicial process. But, he noted, it comes without the traditional oversight of a judge.
That’s why there are more procedural safeguards, he said, “among them, creating a public record of assignments.”
In 2009, Rebecca Niday, a resident of the small community of Rhododendron, near Mount Hood, received a foreclosure notice. The sale was made on behalf of MERS, making MERS the beneficiary. Niday sued, saying that MERS could not be the beneficiary because it did not have a financial stake in her property.
The lower court ruled in favor of MERS, but the Oregon Court of Appeals reversed the decision.
The appellate court reasoned that MERS could not foreclose unless each transfer of a mortgage had been recorded in the county where the property is located, which the state law requires.
It could be months before the Supreme Court justices render a decision. Meanwhile, the Legislature will convene in February, and lenders hope lawmakers will approve legislation that would allow MERS to act as a beneficiary.
“It will be interesting to see if the justices sense the urgency,” said Kelly Harpster, an attorney who represents homeowners.