The U.S. bankruptcy court in Central Islip, New York, has issued a new blow to the current foreclosure system. Judge Robert Grossman ruled against Merscorp Inc., a private company that tracks approximately half of all U.S. home loans and has been instrumental in filing foreclosures on behalf of lenders.
Robo-signing activity has fraudulently caused thousands of owners to lose their homes due to foreclosure. Merscorp Inc.'s Mortgage Electronic Registration Systems (MERS) has assisted lenders in the task. The New York ruling dictates that MERS has no legal right to transfer mortgages, nor can the company represent the banks that own the mortgages in question. Judge Grossman is now requiring the company to show concrete evidence proving that its principal provided MERS with explicit written instructions.
About Mortgage Electronic Registration Systems (MERS)
When the Mortgage Electronic Registration Systems was first created it was done to expedite the legal record keeping of mortgages and the sales of mortgage loans through securitization (the bundling and reselling of home mortgage loans to investors). MERS is a private mortgage company owned by large banks, mortgage processors and originally constructed by Fannie Mae and Freddie Mac more than a decade ago. Since that time, more than 60 million homeloans have become part of the MERS network.
The laws regarding the stages of foreclosure vary from state to state. However, typically the rule only allows for the legal mortgage holder, not its' agents, to file mortgage legal actions. MERS has been used to file thousands of mortgage actions. In reaction to the recent court ruling MERS had warned its' members "not to foreclose in MERS name," instead the agency has suggested the foreclosure actions can be filed "only in the name of the holder of the note, in the name of the trustee or the servicer of record acting on behalf of the trustee," (HousingWire.com).
MERS Rulings Vary By State
Although New York's legal system has ruled against MERS, the sentiment varies state-by-state. A Kansas U.S. Bankruptcy Court judge ruled in favor of MERS and is allowing the system to submit foreclosure actions for Bank of America owned Countrywide Financial Corp. MERS has boasted victories in similar claims made in California, Arizona and Missouri.Minnesota has also ruled in favor of MERS. Last year the Minnesota Supreme Court ruled that MERS does not have to record "...the sale of a promissory note, as opposed to a mortgage, at the county office before a foreclosure can begin," (Bloomberg.com).
However, the fate of MERS will continue to play out on a state by state basis. Florida U.S. Representative Alan Grayson, has stated that MERS did not own the note necessary for foreclosure proceedings. He estimates "...that in 45 out of the 50 states they [MERS] lack the legal right to foreclose."
MERS Role In Mortgage Industry
Estimates suggest that nearly 60 percent of all newly originated home loans are included in the MERS system. MERS spokesperson Karmela Lejarde has stated that through its' history, 66 million loans have been carried by MERS and there are presently between 23 million and 25 million active loans in the system. This process is thought to have saved participating MERS members over $2.4 billion. Counties typically charge $40 per mortgage assignment filing, while the fee is reduced to $6.95 by using MERS.Bloomberg.com has reported that in the MERS system, a mortgage borrower automatically signs off on letting the company act as the lender’s nominee or agent in relation to the mortgage (AKA deed of trust) that secures the property. That makes MERS the official lien holder and that will continue as long as the note acknowledging a borrower’s repayment is owned by a MERS member. Once that note is sold to an organization without membership, the transfer is then documented with the appropriate county.
While MERS values its contributions to the mortgage industry, critics say the company was auxiliary in the roots of the mortgage meltdown. According to Grayson, the system allowed for bundling of mortgages into securities. Those securities were hot commodities on Wall Street and were a key point in the retractions felt in the financial sector circa 2008. Grayson also believes that MERS has allowed banks with real estate owned properties to quickly and easily sell the homes in question.
