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William G. Fig

OP-ED: Oregon foreclosure litigation — round two

November 2015

William G. Fig

Published in the Daily Journal of Commerce

In June 2013, the Oregon Supreme Court, in Brandrup v. ReconTrust Company, addressed whether Mortgage Electronic Registration Systems Inc. (MERS), as nominee for the original lender and the lender's successors and assigns, could be identified as the beneficiary of record of a deed of trust.

In this case, the court made several rulings that ended up affecting other parties in the foreclosure industry. First, the court defined a deed of trust beneficiary as "the person to whom the obligation that the trust deed secures is owed." The court also held that, when a note is transferred from party A to party B, regardless of who is the named beneficiary in the deed of trust, the beneficial interest in the deed of trust securing the note is, as a matter of law, assigned to party B. The court found that assignments that occurred as a matter of law did not need to be recorded with the county recorder's office.

After the Brandrup decision, most MERS deeds of trust are judicially foreclosed and, as a result, MERS-related litigation in Oregon now seems to have largely run its course. However, the court's decision, particularly the ruling regarding assignment as a matter of law ruling, has generated a new round of litigation, this time against lenders and loan servicers.

This new litigation focuses on whether a loan servicer may act as the beneficiary of a deed of trust and whether, upon the transfer of a note, the servicer for the new note owner may be assigned a deed of trust. The answer lies in the interplay between, and harmonization of, the definition of a beneficiary, the Oregon Trust Deed Act's criteria, and Oregon's "servicer statute," which allows a servicer to take certain actions on behalf of a lender.

The OTDA provides that a nonjudicial foreclosure may not be initiated unless "the trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in the mortgage records in the counties in which the property described in the deed is situated." Oregon's statutes generally allow a servicer, in its own name or in the name of the lender/owner of the note, to bring and maintain "a suit or action to collect amounts owed on a mortgage banking loan or mortgage loan, including but not limited to exercising contractual, statutory or common law remedies such as injunction, specific performance, judicial or nonjudicial foreclosure or receivership."

The Oregon courts have routinely held that a servicer may file a judicial foreclosure action in its own name, so long as the party for whom it is servicing owns or holds the promissory note at the time the suit is filed. Proving that the owner or holder of the note authorized the servicer to bring the lawsuit may be required to establish the servicer's standing to act as the plaintiff of the foreclosure suit.

There is no state court appellate decision regarding the proper role of a servicer in a nonjudicial foreclosure. However, the Oregon federal district court has held that the servicer, with the note owner's permission, may act as the beneficiary of a deed of trust. The Oregon federal district court further held that when a note is transferred to a new owner, the recording of an assignment of the deed of trust to the new note owner's servicer satisfies the OTDA's recording prerequisite to initiate a nonjudicial foreclosure. In other words, in such an instance, there is no need to record an assignment of the deed of trust to the note owner.

The federal court's rulings harmonize the OTDA's foreclosure requirements with the servicer's right, under Oregon law, to initiate a nonjudicial foreclosure in its own name. Moreover, because a servicer collects payments and enforces the terms of a note and the deed of trust, it meets the Brandrup court's description of a beneficiary. These issues, which have important implications regarding a servicer's handling of a loan owned by the Federal National Mortgage Association, are currently pending before the Ninth Circuit Court of Appeals, with oral argument presented to the court on Nov. 6, 2015.

William Fig is a partner in Sussman Shank LLP's litigation and construction practice groups. Contact him at 503-227-1111 or wfig@sussmanshank.com.

Read more: http://djcoregon.com/news/2015/11/20/op-ed-oregon-foreclosure-litigation-round-two/#ixzz3sXTmQQe7

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