In my last post, I wrote about how some big banks are failing to live up to their commitment to help homeowners stay in their homes by not honoring temporary loan modification agreements that can lead to a permanent loan modification. In this post, I would like to comment on something that may have caused homeowners to get into foreclosure in the first place.
MERS stands for Mortgage Electronic Registration Systems, Inc. It was created in 1995 by the mortgage banking industry to track and service mortgages. Historically, mortgages and notes have needed to be filed and recorded with the local county clerk where the property is located, and the banking industry created MERS in 1995 in order to have an electronic way to register every mortgage in the United States on the MERS system.
In principal, it sounds like a good idea, that cuts down on paperwork and provides an easier way to assign mortgages. In practice, however, during the borrowing frenzy leading up to the economic decline of 2008, and leading to so many foreclosures, MERS allowed banks to sell and resell homes faster and faster, and also allowed banks to bundle mortgages into the now infamous “mortgage backed securities” that crashed so hard beginning in 2008. MERS was created more so for the banking industry than for homeowners, to facilitate the trading and assignment of mortgages on the secondary market. For homeowners, MERS has caused a host of problems.
For example, MERS often wears more than one hat. In a recent case in New York, a judge found that a “robo-signer” (someone who signs thousands of foreclosure papers without reviewing each one for its accuracy) who claimed in foreclosure papers to have been employed by MERS was not actually an employee of MERS. In that case, the homeowner borrowed from a bank with MERS acting as its “nominee” – that is, MERS was designated to act in the place of the lending bank, but in a limited way. The “robo-signer” signed the document, acting for MERS, that transferred the loan to another bank, and then signed another document that transferred the loan to yet another bank. When the bank that ended up with the mortgage sued to foreclose, the New York judge questioned how the person who signed all of the assignments transferring the mortgage – claiming that she was a MERS employee when she was not – could also be the person who signed the affidavit swearing that the loan was in foreclosure. This issue will need to be resolved before this particular foreclosure can proceed.
There is also some question about MERS status as holder of mortgages. When loans are originated, MERS is often designated as a beneficiary of the mortgage, that is MERS is designated having a beneficial interest in real estate that secures the loan. However, MERS does not own the loan itself, which creates the potential that a company that only has an interest in the mortgage, but does not have an interest in the loan that the mortgage secures, can nonetheless foreclose on the property. A mortgage should not have a separate existence from the loan that it secures, but the MERS system has apparently led to this happening.
MERS has also led to homeowners being confused as to who actually owns the mortgage on their home. Part of the reason MERS began was to circumvent the cumbersome process of recording loans and mortgages in county records around the country, in a way that the mortgage industry could electronically track mortgages. In one case in Missouri, a person bought a home at a tax sale, and notified the previous homeowners’ lender that he had redeemed the property at the tax sale. Unknown to him, however, MERS had been listed as the nominee, or agent, for the bank, and the gentleman who purchased the home did not notify MERS. He lost the home because a federal judge found that he had, albeit unknowingly, failed to notify every party that had a claim to the property.
There appears to be a lot of uncertainty in MERS role with the foreclosure crisis. If you or someone you know has experienced foreclosure problems with MERS, please contact us to discuss your legal rights.