Why Record Trust Deeds?

There has been a certain amount of press about the Mortgage Electronic Registration System (MERS) lately.  Much like the robo-signing issue which received a lot of press last fall, several states are finding that systems created by banks to stream line the mortgage process, from loan creation to securitization to foreclosure do not comply with the requirements of state laws governing the foreclosure process.

Oregon is no different.  MERS is a corporation which is essentially a database of mortgage information.  MERS assigns each mortgage in its system a mortgage identification number which follows the loan through its whole life.  This indexing system is hugely important for the logistics of the mortgage securities industry, for which it is necessary to rapidly bundle and unbundle groups of loans.

It is also a cost saving measure.  MERS is often the named beneficiary of a trust deed.  A trust deed is the recorded document which gives information about a mortgage.  Counties generally charge between $35-$70 to record a trust deed.  With MERS as the named beneficiary in a trust deed, the mortgage can be bought and sold an infinite number of times without re-recording a trust deed, thus saving millions, if not billions, in fees.

However, this does not comply with Oregon laws.  Oregon laws require that any change in the beneficiary of trust deed must be recorded prior to a foreclosure.  MERS is not a beneficiary of a trust deed under Oregon law.  This issue is a potential game changer in the Oregon housing market as many, if not the majority, of trust deeds in this state are recorded with MERS as the beneficiary.

The California Appeals Court just found that recording a mortgage for the benefit of MERS does not prevent a foreclosure from happening under California law.  This is a similar, but not identical, issue to the one presented in Oregon.  Thus far there is very little case law interpreting the Oregon statutes as they relate to this issue.

Some argue that foreclosures need to happen, and this type of technical impediment to a foreclosure has no economic benefit.  However, with banks not playing fair with loans mods, the programs created by the federal government to encourage banks to modify loans are failing.