Mortgage Electronic Registry Systems, Inc. (MERS), a private company that electronically tracks the ownership of home loans within its own database records, is fighting with various counties nationwide to evade a hefty lawsuit.
The company, formed by some of the biggest mortgage lenders in the U.S., tracks each time a bank sells and assigns a mortgage, and does so without formally recording the ownership change with a county land recording office. Thus, the banks using the MERS database skirt the fee charged by county land recording offices for recording changes in mortgage ownership, and ownership changes are not publicly reflected on the record titles to homes as the recording statutes intend.
Recorders have been blowing whistles on MERS for quite some time now. Up until the recent foreclosure-fraud investigation launched by all 50 state attorneys general, nobody paid much attention to the accusations that the secretive private registry system dodged property law and paperwork requirements for the assignment and public note of these mortgage transfers. Now that the integrity of the lenders that launched MERS is being called into question, the public is zooming in on the issue.
County recording offices charge a modest fee — about $30 — to record the change in ownership of a mortgage. Multiply that by the 65 million loans MERS has registered off record and out of public sight (three of every five on the market), and the problem becomes glaring. Counties are claiming they have been cheated out of billions of dollars.
Legal experts feel the counties’ lawsuits will be successful since the previous foreclosure allegations laid a groundwork of facts pointing to the lenders’ indiscretion. The California lawsuits alone have the potential to cost MERS $60 billion to $120 billion since state law imposes a penalty of $5,000 to $10,000 each time a recording fee goes unpaid. Penalties can be tripled since the lawsuits are filed as false claims.
first tuesday take: MERS is a secret underground network of mortgage lenders who keep the owner of a home (along with the title companies and courts) from knowing who actually holds the home’s mortgage and dictates the action. All the homeowner can determine is the servicer to whom they are sending monthly payments – who does not likely own the loan. [For more information regarding the recent foreclosure crisis, see the October 2010 first tuesday article, The foreclosure machine grinds again.]
The public record is a vital aspect of lender accountability. If no one, including the media, can figure out the extent of a lender’s involvement in a region’s mortgages, the quantity of notices of default (NODs) they have filed, and how many trustee’s sales they have conducted, they must be able to locate that information in the public records.
MERS is the perfect launderer of publicly recorded information on a homeowner’s loan with any lender because everything is simply off record. Lenders are intentionally misleading the public by masking the true ownership record of a mortgage loan. Once the truth is exposed, lenders risk being held accountable for the crass management of their loan portfolios.
Consumers have a serious advantage that lenders dare not provoke — the power to protest. Homeowners can organize since they will be able to discover who among them share the same lenders. With their identification made public, lenders risk a collective retribution that could result in the one thing they fear the most — boycotts and lost profits. [For more information regarding lender accountability, see the November 2010 first tuesday article, Lenders delay submission of binding GFE by delaying mortgage preapproval.]
Re: “Bypassing county fees may cost banks” from the Associated Press