Has MERS ripped you off?by Gina Pogol
There has been a lot of publicity surrounding the Mortgage Electronic Registration System (MERS) and the lawsuits filed against the company that owns it. MERS serves as the mortgagee of record for the actual mortgage lenders, investors and their loan servicers on the records filed with counties across the U.S. Lenders use MERS because it eliminates the need of filing with the county every time a mortgage changes hands on the secondary market.
For those who are unfamiliar with MERS, here’s some background info from the New York Times:
For centuries, when a property changed hands, the transaction was submitted to county clerks who recorded it and filed it away. These records ensured that the history of a property’s ownership was complete and that the priority of multiple liens placed on the property — a mortgage and a home equity loan, for example — was accurate.
During the mortgage lending spree, however, home loans changed hands constantly. Those that ended up packaged inside of mortgage pools, for instance, were often involved in a dizzying series of transactions.
To avoid the costs and complexity of tracking all these exchanges, Fannie Mae, Freddie Mac and the mortgage industry set up MERS to record loan assignments electronically. This company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder.
Borrower Lawsuits: There Is No Free House
Many lawsuits have been filed by borrowers in default, individually and in class actions, on the principle that because MERS doesn’t actually own mortgages, the borrowers have no obligation to the firm and it has no right to foreclose.
These claims have been met with mixed results in various jurisdictions. For example, the Minnesota Supreme Court held in 2009 that MERS could not only foreclose on homeowners, it was not even required to disclose the names of the lenders that had bought, sold and owned the mortgages.
MERS has lost such lawsuits when judges disagree that it has an agency relationship, or when it couldn’t produce original documentation for the loan, such as a note signed by the borrower agreeing to the terms of the mortgage (when a loan changes hands frequently it’s not unusual for documents to be lost). Cases in Nevada and Kansas went against MERS in both district courts and bankruptcy courts.
Note, however, that even when MERS loses, no one has been awarded a house for free.
A Bigger Lawsuit: Is MERS Going Down and Why Should You Care?
MERS has always pushed its services as a way for lenders to avoid filing with counties when a loan’s ownership changes, and thus mortgage lenders, servicers and investors can avoid paying county filing fees. On its website, the company claims to have kept $2.4 billion in recording fees out of county coffers and in the hands of mortgage lenders. Well, local governments are starved for cash and a scheme to avoid paying fees does not exactly sit well with them. Christopher Peterson, a law professor at the University of Utah Law School and an expert in MERS activities, says that means fewer police officers, libraries, firefighters and teachers in many counties. “What (MERS) has done in avoiding these legally-required payments looks an awful lot like fraud,” he claims. “It probably is fraud.”
If you live in any county where MERS operates, you have been allegedly ripped off and you should care.
Suits in Nevada and California have been filed against MERS under the False Claims Act, which allows citizens to file complaints on behalf of governments concerning fraud and waste. In Nevada, the False Claims Act allows for triple damages and penalties of $5,000 to $10,000 per individual offense. The local governments (a.k.a. you, the taxpayer) would collect most of the damages.
In Nevada, MERS has been listed as owner on about 890,000 mortgages. Attorneys estimate that MERS and its members (47 mortgage lender members have also been named as defendants) face a potential judgment of $6 billion to $12 billion in Nevada alone. Rest assured that if this litigation is successful, other governments will be quick to “follow suit.”
(This blog post was written by HSH staff writer Gina Pogol. To read more of Gina’s contributions to our website, visit HSH.com.)