Mortgage Electronic Registration Systems - MERS - Foreclosure Fraud
Posted in the Beaufort Forum
#1 Sep 14, 2012
The highest court in the state of Washington recently ruled that a company that has foreclosed on millions of mortgages nationwide can be sued for fraud, a decision that could cause a new round of trouble for the nation's banks.
The ruling is one of the first to allow consumers to seek damages from Mortgage Electronic Registration Systems, a company set up by the nation's major banks, if they can prove they were harmed.
The Washington Supreme Court could become a precedent for courts in other states. The case also endorsed the view of other state courts that MERS does not have the legal authority to foreclose on a home.
"This is a body blow," said consumer law attorney Ira Rheingold. "Ultimately the MERS business model cannot work and should not work and needs to be changed."
Banks set up MERS in the 1990s to help speed the process of packaging loans into mortgage-backed bonds by easing the process of transferring mortgages from one party to another. But ever since the housing crash, MERS has been besieged by litigation from state attorneys general, local government officials and homeowners who have challenged the company's authority to pursue foreclosure actions.
A spokeswoman for MERS said the company is confident its role in the financial system will withstand legal challenges.
The Washington Supreme Court held that MERS' business practices had the "capacity to deceive" a substantial portion of the public because MERS claimed it was the beneficiary of the mortgage when it was not.
This finding means that in actions where a bank used MERS to foreclose, the consumer can sue it for fraud. If the foreclosure can be challenged, MERS' involvement would make repossession more complicated.
On top of that, virtually any foreclosed homeowner in the state in the past 15 years who feels they have been harmed in some way could file a consumer fraud suit.
"This may be the beginning of a trend," says Elizabeth Renuart, a professor at Albany Law School focusing on consumer credit law.
The company's history dates back to the 1990s, when banks began aggressively bundling home loans into mortgage-backed securities. The banks formed MERS to speed up the handling of all the paperwork associated with recording the filing of a deed and the subsequent inclusion of a mortgage in an entity that issues a mortgage-backed security.
MERS allowed the banks to save time and money because it permitted lenders to bypass the process of filing paperwork with the local recorder of deeds every time a mortgage was sold.
Instead, banks put MERS' name on the deed. And when they bought and sold mortgages, they just recorded the transfer of ownership of the note in the MERS system.
The MERS' database was supposed to keep track of where those loans went. The company's motto: "Process loans, not paperwork."
But the foreclosure crisis revealed major flaws with the MERS database.
The plaintiffs in the Washington case, homeowners Kristin Bain and Kevin Selkowitz, argued that the problems with the MERS database made it difficult, if not impossible, to determine who really owned their loan. It's an argument that has been raised in numerous other lawsuits challenging the ability of MERS to foreclose on a home.
"It's going to be very easy for consumers to say they were harmed because it's inherently misleading," says Geoff Walsh, an attorney with the National Consumer Law Center. If consumers can't identify who owns their loan, then they don't know whom to negotiate with, and can't even be certain of the legitimacy of the foreclosure.
The case is Bain (Kristin), et al. v. Mortg. Elec. Registration Sys., et al., Washington Supreme Court, No. 86206-1.
#2 Sep 17, 2012
Court opinions could change residential lending,
Mortgage Electronic Registration Systems Inc.
The landscape for residential lenders in Oregon and Washington is changing quickly. Three recent appellate court opinions have the potential to significantly impact how residential lenders do business in the Pacific Northwest.
Two of the opinions involve whether Mortgage Electronic Registration Systems Inc. may be a beneficiary of a deed of trust – and if not, what effect, if any, MERS’ involvement has on the non-judicial foreclosure of a deed of trust where it is named the beneficiary. The third opinion involves condominium homeowners association liens.
The Washington Supreme Court and the Oregon Court of Appeals both ruled recently that MERS did not meet the statutory definition of a “beneficiary,” as set forth in each state’s respective trust deed acts. Thus, under the current state of law in Oregon and Washington, MERS can no longer non-judicially foreclose a deed of trust as the beneficiary of the deed of trust.
The Oregon court went a step further by stating that each transfer or sale of the promissory note secured by the deed of trust resulted in an assignment of the deed of trust. The court’s opinion appears to say that, prior to non-judicially foreclosing a deed of trust, each transfer or sale of the note must be recorded in the real property records of the county in which the subject property is located.
This raises the question whether it is possible (or practical) in Oregon to non-judicially foreclose a deed of trust that has been securitized or where MERS is in the chain of title. The Court of Appeals’ decision has been appealed to the Oregon Supreme Court.
The Washington Supreme Court did not rule on the question regarding the legal effect of MERS being named as the beneficiary of a deed of trust; however, it did comment that “having MERS convey its interest” to the current lender prior to a non-judicial foreclosure would not establish that the lender owns the loan – a requirement for foreclosure. The court’s less-than-clear opinion will surely generate more litigation in this area.
#3 Aug 2, 2015
Beaufort County, SC filing suit against MERS mortgage database
Colleton County is joining the other counties in the 14th Circuit in a legal challenge to how many mortgages are handled in the United States.
The lawsuit to be filed against Mortgage Electronic Registration Systems seeks to have the database owned by nearly two dozen lenders follow the letter of South Carolina law in recording property records.
Each county’s register of deeds is required to keep records on the liens, like a mortgage, against properties in the county.
MERS, established in 2002, allegedly skirts that requirement. Every time a financial institution sells or buys a loan, a county’s register of deeds is to be notified and the new holder of the mortgage recorded.
The financial institutions that own MERS avoid the cost of making those changes by stating that MERS owns the mortgage, the mortgage holder and the county doesn’t know which financial institution holds the note.
The county’s case against Mortgage Electronic Registration Systems is being handled by Jim Scheider of the Bluffton law firm of Vaux & Marscher.
The suit being prepared for Colleton County alleges “The MERS System has created massive confusion as to the true owners of beneficial interest in mortgage loans and mortgages throughout the United States, including South Carolina, and has harmed U.S. counties, including plaintiff Colleton County. In short, the MERS System has eroded the transparency and corrupts the chain of title of the public recording system in the United States and the state of South Carolina.”
An attempt to obtain a comment from MERS officials on the suit was unsuccessful.
Scheider worked with Beaufort County officials to file the first local lawsuit against MERS, which holds 50,000 mortgages in Beaufort County.
After that suit was filed in Beaufort County Common Pleas Court, the defendant’s attorneys filed a motion seeking to have the case moved to federal court, where MERS has had success in defending legal challenges to its operation.
The judge who heard that motion, ruled the case would remain in the state’s court system.
Armed with that ruling, Scheider contacted officials in the other four counties that make up the 14th Circuit and sought their permission to file suits against MERS on their behalf. Vaux & Marscher will only get paid if the suits are successful.
Scheider said that he expects to see the suits removed from the Common Pleas Courts in each county and assigned to South Carolina’s Business Court.
It is a move that he will not oppose, Scheider suggested.“This is complex litigation involving business law,” he explained.
In 2007 the Supreme Court of South Carolina issued an administrative order establishing the business court.
The business court, with venues in Charleston, Richland and Greenville counties, was established to handle complex business, corporate and commercial matters
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