In two closely watched cases, the Oregon Supreme Court has ruled that creditors using an electronic mortgage registry don't have to publicly record the ownership history of a trust deed to take advantage of the nonjudicial foreclosure process the state's legislature created in 1959.
The ruling appears to pave the way for mortgage lenders to resume foreclosures outside the court system.
Nonjudicial foreclosures have mostly stopped over the past year with uncertainty created by an appeals court ruling over Mortgage Electronic Registration Systems Inc.'s role in the financial system. The case stemmed from a court action filed by a Clackamas (Ore.) County homeowner facing foreclosure.
The justices also ruled that MERS has the authority to participate in a nonjudicial foreclosure if it has appropriate agreements with lenders. The lending industry created MERS in the 1990s so home loans could be sold to other lenders and packaged into investments without each transfer being documented at county recorder's offices.
Separately, the U.S. District Court in Oregon asked the state Supreme Court to clarify Oregon law after federal judges reached opposing conclusions in foreclosure cases involving MERS.
Lawyers for creditors and foreclosed homeowners said they were still studying the ruling and its implications, but they agreed that it seems to clear barriers for nonjudicial foreclosures to resume.
On thousands of loan contracts in Oregon, MERS is listed in place of the lender as the "beneficiary" of a trust deed, and it tracks the ownership of individual loans in an internal computer system. Trust deeds are legal instruments that are used to secure a lender's interests in most Oregon home loans.
Homeowners facing foreclosure challenged the authority of lenders using MERS to foreclose outside the court system. They argued that Oregon's nonjudicial foreclosure law requires public recording every time an interest in a property loan is transferred. They also said MERS could not be the beneficiary of a trust deed because MERS doesn't hold the financial interest in the loan being repaid.
The justices rejected the recording argument. They agreed on the second point, ruling that the original lender or its successor is actually the trust deed's beneficiary, even though MERS is listed as such on the loan paperwork.
But the justices said MERS can still initiate foreclosure proceedings if it can prove that it's acting as an agent for the lender with an interest in the loan.
"We are confident that we have and can prove such authority," MERS said in a statement.