Oregon Legislative Week in Review
June 7, 2011
June 7, 2011
Last Wednesday, June 1, was the last day to hold work sessions for second chamber measures. The deadline does not apply to Ways & Means, Revenue, Rules, and committees dealing with redistricting. Most Ways & Means subcommittees were set to complete their work on Thursday evening. Legislative leadership has stated that the legislature is on track to end the session on time at the end of June and many legislators are anticipating an earlier end date.
SB 519 & Mortgage Issues
You might have heard about the lending community’s efforts to pass an amendment to Senate Bill 519, a bill that would protect the investment of affordable housing covenant holders (usually public agencies) when property subject to affordable housing covenants is sold at foreclosure. Unfortunately, reporting on the proposed amendment to the underlying bill has been over-simplified and inaccurate. The proposed amendment addressed technical issues raised in recent court decisions that have nothing to do with whether a loan has been properly serviced, whether a modification should have been granted, or whether the lender is entitled to foreclose.
The amendment proposed would have addressed two issues:
- Clarifying that assignments of a trust deed need only be recorded if necessary to establish the identity of the beneficiary or the trustee; and
- Clarifying that if a beneficiary has designated an agent or nominee to act on behalf of the beneficiary in the trust deed, the agent or nominee has the authority to act on behalf of the beneficiary.
The amendment was intended to avoid instability and depressed prices in the real estate market that could be caused by spurious claims over title issues in current and past foreclosures. Most importantly, the proposed amendments would have preserved the ability of any borrower to challenge the foreclosure of their loan.
The Association supported this section of the amendment because it would have: (a) resolved these issues without affecting the right of any borrower to challenge a foreclosure; (b) reduced instability and uncertainty in the real estate market, which is beneficial for all Oregonians; and (c) reduced the likelihood that lenders would need to foreclose judicially (by filing lawsuits) in some situations, which is more time-consuming, more expensive, and congests the court system.
Background: Why Assignments of Trust Deeds Are Sometimes Unrecorded
The recent court decisions addressing this issue have created uncertainty about a common, but unrelated situation. When a lender sells a loan to FNMA but retains servicing of the loan, FNMA requires the lender to execute an assignment of the trust deed. This is not because the assignment is legally required to transfer the loan to FNMA, but because if the original lender is liquidated or merged with another institution and FNMA takes over servicing, FNMA can easily establish its position as successor to the beneficiary under the trust deed. As long as the original lender is servicing the loan, the assignment is not recorded, because the servicer is the party that should receive tax notices, notices of foreclosure by other lien holders, and other information or notices that are required or permitted to be delivered to the trust deed beneficiary.
The language of recent court decisions indicates that the existence of the unrecorded assignment to FNMA calls into question the validity of the foreclosure sale. In other words, the recent court decisions may require that in order to conduct a foreclosure, the servicer must record the “safety assignment” to FNMA. This process would not be necessary to establish the servicer’s status in the title record (the servicer is already shown as the beneficiary), but would only be needed to avoid the “taint” of having an unrecorded assignment.
This issue could affect any credit union that sells loans in the secondary market, even if the credit union does not sell to FNMA or FHLMC.
The other issue addressed by the amendment was the naming of an agent or nominee in a trust deed to act on behalf of the lender. In many FNMA and FHLMC transactions, the trust deed named a company called Mortgage Electronic Registration Systems (“MERS”) as the beneficiary, designating MERS as the “nominee” for the lender. The purpose of MERS was to facilitate secondary market loan sales and securitizations by allowing MERS to serve as a nominee for multiple lenders or servicers. In some cases, courts questioned foreclosures that were initiated by MERS, based on the premise that as a nominee, MERS does not have any authority to act on its own behalf to initiate foreclosures.
The proposed amendment would have made it clear that a trust deed is not invalid simply because it names someone as a “nominee” for the lender, and that a “nominee” does in fact have authority to act on behalf of a lender to foreclose or take other actions on the trust deed. Some observers and borrowers have claimed that MERS was created to enable lenders to avoid the requirement to record assignments of trust deeds and to hide the true identity of the lender for a particular loan. (The Association did not take a position about whether MERS was a good or bad idea, or whether MERS acted appropriately.)
The Association supported this section of the amendment because: (a) the law has never required lenders to record assignments of trust deeds when selling mortgage loans (as outlined above, this often occurred as a precautionary measure, but has never been required); (b) federal law requires lenders to notify borrowers whenever servicing of their loan is transferred (the servicer is the party that generally has duty to answer questions, correct errors, or approve modifications so that borrowers don’t need to check real property records to know who their servicer is); and (c) If any borrower has a claim that might prevent the foreclosure of their mortgage loan, the proposed amendment would not have prevented that borrower from bringing the claim. The amendment only addressed claims that were based solely on the idea that if a trust deed named a nominee, then the nominee couldn’t initiate the foreclosure.
In summary, while the amendments to SB 519 represented an important technical fix supported by the Association, they were too complex and came too late in the session for successful incorporation and passage during the 2011 legislative session.
House Democrats have proposed two kicker tax measures, HJR 47 and HJR 48. House Joint Resolution 47 establishes the Oregon Fund in which all corporate kickers will flow. This bill limits kicker totals to $500 per taxpayer. If this fund reaches 14 percent of the general fund, the excess will flow to a school capital matching fund. House Joint Resolution 48 establishes the Oregon Rainy Day Fund in which all corporate kickers will flow. The kicker limit is $250 per taxpayer, and there is no fund cap amount or mention of a school capital matching fund. Hearings have yet to be scheduled on these bills.
As mentioned last week, both the House and Senate passed HB 3543, a bill that would change the kicker tax rebates to Oregonians. Once the bill is signed by Governor Kitzhaber, future tax rebates will be in the form of a credit against the following year’s taxes instead of coming in the form of a check.
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