The MERS debacle will go on for years, and be full of legal wranglings along the way.
The biggest issue? The notes and trust deed have been physically separated by MERS, and according to the U.S. Supreme Court ruling in 1872, a mortgage has no separate existence from the note. It sounds like the money owed would then convert to being unsecured…or will it extinguish?
It’ll be a long road, so let’s just digest in smaller pieces – excerpts from this Bloomberg article sent in by SM that also cites several court cases, mostly favoring MERS:
1. About 60 percent of newly originated loans are on the MERS system, Lejarde said. Since its inception in 1995, it has carried 66 million loans and currently has between 23 million and 25 million active loans, she said.
2. A big selling point for the company is its cost savings. It charges $6.95 for every loan registered, Lejarde said. With an average cost of about $40 for filing a mortgage assignment with local counties, MERS has saved the industry about $2.4 billion, Merscorp Chief Executive Officer R.K. Arnold said in a September 2009 deposition in an Alabama suit.
3. The company is accused in two whistleblower suits filed this year of cheating California and Nevada counties out of millions of dollars in recording fees. In 2006, New York State’s highest court told one county it had to record MERS mortgages against its wishes. The county said MERS cost it $1 million a year.
4. Eventually high courts in states with judicial oversight of foreclosures will have to review MERS’s role, Patrick A. Randolph, a professor at the University of Missouri-Kansas City specializing in real-estate law, said in an interview. “It’s a question of state law,” Randolph said. “The problem is simply confusion about a word the courts are not used to seeing in this context — the word ‘nominee.’”
5. MERS says it has the right to foreclose because the borrower grants the company legal title to the mortgage and it forecloses as agent for the promissory-note holder. “Courts around the country have repeatedly upheld and recognized this right,” MERS said in an Oct. 4 e-mailed statement.
Since March 2009, supreme courts in Arkansas, Kansas and Maine have found that MERS had no standing in foreclosure proceedings under their states’ laws. The company lends no money and suffers no injury, the panels said.
MERS’s relationship to the bank that owned a loan in question was “more akin to that of a straw man than to a party possessing all the rights given a buyer,” the Kansas Supreme Court wrote. “What stake in the outcome of an independent action for foreclosure could MERS have?”
if the originator sold the mortgage but didnt transfer the paperwork then only the group that bought the mortgage can foreclose but they dont have the paperwork legally(never processed). this MERS stuff is not the problem…..
also…if any of these banks recieved payments from credit default swaps for the bad loan, can they foreclose on a property that they have been compensated for…? thats ‘unjust enrichment’…isnt it…?
Jim, my biggest problem with MERS (of many) is that it subverts centuries of established Real Estate Law. Instead of a public and transparent system where anyone can check to see who owns a property and what liens and encumbrances it may have, all of the information is private. I have friends and neighbors who rent and they have been getting notices from Chase addressed to their Landlord who hasn’t lived there in more than a decade (a clue). I checked county records,and ZIP.I put in an hour and asked a clerk for assistance,ZIP. MERS? looks like it.
I’m not into anyone getting free houses, but how is MERS not a blatant circumvention of property law? Can I start a new gig registering businesses at the national level and save startups zillions in dollars of DBA/Partnership/Incorporation fees? What other city/state/county registration services can we bypass for profit???
I keep hearing this argument about how MERS is ripping off local counties by not paying registration fees, but I guess I don’t quite get that argument.
The idea behind the recording system with respect to mortgages, is that by recording your interest, you perfect it against third parties and intervening lienholders who may also have claims against the property. It is up to the party who wants to perfect their interest to record their interest if they so choose. You can get a grant deed from a seller to transfer you property, and you still own the property even if you decide not to record it. You run a stupid risk though by not recording it.
If the assignee of an interest in the mortgage decides not to record their assignment, then they are taking a risk that the assignor may assign it to someone else who upon recordation, takes a priority over the person who did not record the earlier assignment. Moreover, In the case of MERS, a judgment creditor against MERS who perfects their lien could make the argument that they take priority over an unrecorded assignment by MERS to another benficiary. Thats where this whole “nominee” claim gets hard to interpet since MERS apparantly claims that as nominee, they have no interest and there is nothing a judgment creditor against them could attach with respect to the ownership of the mortgage. Now that would be an interesting decision for a court to sort out.
The MERS deeds of trust in California I have reviewed name MERS as the beneficiary in a nominee capacity. If I got an assignment of that note and deed of trust, it would be up to me to ensure that an assignment from MERS to me is recorded and that a title insurance binder was in place.
The County Recorder could care less if I record the assignment or not.
From the nytimes:
First to go was the use of actual people to determine who should be liable to a foreclosure action. They were replaced by computers that identified delinquent borrowers and automatically sent them letters saying they were in default. Inexperienced clerical workers often entered incorrect mortgage information into the computer programs, the former executive said, and borrowers rarely caught the errors.
Other record-keeping problems that are likely to become fodder for court battles involve endorsements, a process that occurs when notes are transferred and validated with a stamp to identify the institution that bought it. Eager to cut costs, most institutions left the notes blank, with no endorsements at all.
For example, Frederick B. Tygart, a circuit court judge overseeing a foreclosure case in Duval County, Fla., recently ruled that agents representing Deutsche Bank relied on documents that “must have been counterfeited.” He stopped the foreclosure. Deutsche Bank had no comment on Wednesday.
Tom, go to the MERS website, go to the MERS ServicerID tab, click sign on and search by borrower, address, etc. You should be able to see who the servicer and the note holder are if it is a MERS mortgage.
So if the first was MERS (and ‘unrecorded’ at the county, but the second took the trouble to record their lein, is the second now the first in the eyes of the law?
(btw, thanks Kingside for you expertise)
RE #8 thats the way the law works. A more simple case say Sam Spade owns some land and sells it to you and John Doe at the same time. If John Doe gets to the courthouse first he gets his lien recorded and is likley to prevail as owner in the court case that will follow. Now of course you can sue Sam for fraud in this case if there is any blood to be had. If Sam is smart he may be in Brazil by the time the court gets its act together. Now if John records the deed but you occupy the land, and pay the taxes and you never try to kick John out after 5 years the whole situation gets more interesting as adverse possession becomes and issue.
Kingside,
Thanks. Do you know that this is in fact “optional” in all counties nationwide?
As far as I know, most local recording systems are pretty much the same. They derive from the common law principal of “first in time, first in right”.
Under RESPA, when mortgages get sold, there are certain requirements to notify the borrower of the change. But this has nothing to do with the recording system.
If your note is listed in MERS you have every reason to suspect wrong doing. MERS are crooks.They double dip on the mortgages.Meaning you know you took out a $200,000 loan but unknown to you the lender wrote a second loan for $200,000 to themself.While you think your making timely payments that second secret loan falls into default.Where is our govt. to protect us? Handing out billions of our dollars right back to these crooks.