The National Association of Independent Land Title Agents (NAILTA) has announced that it is opposed to a provision in legislation offered by Senator Bob Corker (R-TN) that would create "MERS 2", a federal mortgage registry modeled after and designed to replace the existing bank-owned MERS mortgage registry.

In its position paper on the Corker bill, Senate Bill 1834, NAILTA says that it "is opposed to any reconstituted MERS system because the MERS model is a deeply flawed system that continues to harm consumers, small business owners, and county governments across the United States."

According to NAILTA, "[A]ny consideration of creating a new MERS without having successfully resolved the well-known flaws and inadequacies of the previous MERS system is a foolhardy exercise. S.B. 1834 proposes no solution to the prevalent flaws with the current MERS system. Instead, it merely seeks to establish MERS 2.0 based upon the MERS in use on the date of enactment."  One of those purported flaws in MERS is that it "fails to reconcile 50 states worth
of mortgage recording and foreclosure law."

NAILTA claims that MERS, a system "built by the mortgage industry, for the mortgage industry" according to its founders, has harmed the land title industry in particular by shifting the business of title insurance away from title professionals and toward banks. NAILTA says that MERS has also damaged land title records and deprived local governments of fees used for general purposes such as public safety.

NAILTA characterizes MERS 2 as a Federal Torrens title system-- subject to the considerable expense and difficulty of reconciling states' differing recording and foreclosure laws into one system.  MERS failed because of the same pitfall, and consumers, county governments, and title agents have borne this expense while only the owners of MERS have benefited, according to NAILTA.

NAILTA has contacted Senator Corker's office and requested a meeting with the Senator, to express its "deep reservations and opposition concerning MERS and the specific problem we have with [the MERS 2] provision."

To put this in context, we are tracking the following foreclosure and mortgage-related cases: (1) borrower class actions – 67 pending class-action suits in 23 states challenging foreclosures based upon robo-signing, defective assignments, reliance upon the Mortgage Electronic Registration Systems (MERS), or the misapplication of payments; (2) class action cases related to the Home Affordable Modification Program (HAMP) – 57 class actions in 25 states alleging impropriety in processing loan modifications regarding HAMP, as well as another 24 class actions in 18 states alleging misconduct under non-HAMP modification programs; (3) investor actions – 21 investor suits in 12 states alleging foreclosure and securitization misconduct that seek to “put back” defaulted loans to the loan originator and damages based upon failure to properly form the securitization trusts, misrepresentation regarding underwriting and other misrepresentations, robo-signing, or the use of MERS; and (4) Attorney General initiated suits – three suits brought by the Attorney General of Ohio against GMAC, and the Attorneys General of Nevada and Arizona against Countrywide and Bank of America. Additional investigations have just recently been undertaken. Absent a settlement with the state Attorneys General, more suits by state Attorneys General are likely to be filed.

Although no major judgments have been rendered to date, most of these cases are in the initial phase of litigation. If judgments are rendered for plaintiffs in these cases they could materially forestall the foreclosure process and create considerable uncertainty. Absent resolution to the mortgage servicing practices, claims and investigations regarding past practices will continue to proliferate, likely deferring the recovery of housing and mortgage markets.

It is no wonder the market is sluggish. This is taken from recent testimony by FDICs Mark Pearce. If lenders are dealing with these issues, they are going to be reluctant to approve new loans.

The ubiquitous Mortgage Electronic Registration Systems, nominal holder of millions of mortgages, does not have the right to foreclose on a mortgage in default or assign that right to anyone else if it does not hold the underlying promissory note, the Appellate Division, Second Department, ruled Friday. “This Court is mindful of the impact that this decision may have on the mortgage industry in New York, and perhaps the nation,” Justice John M. Leventhal wrote for a unanimous panel in Bank of New York v. Silverberg, 17464/08. “Nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property.” The opinion noted that MERS is involved in about 60 percent of the mortgages originated in the United States.

Fallout from the Michigan Court of Appeals decision tossing out two foreclosures by MERS is sweeping the state of Michigan.  Had a call yesterday from someone whose closing was canceled at the last minute, because, MERS had done the foreclosure and quit claimed the property to the bank, which had agreed to sell the home to the caller.  My realtor wife advised me title companies across Michigan are backing out of deals and canceling closings.
Because, if a MERS foreclosure is in the chain of title, it is, as they say in the title business, "clouded."In my caller's case, MERS foreclosed, the homeowners left and bought a new house, the redemption period expired, the
bank sold the house. But, under the Michigan Court of Appeals decision, the former homeowner could sue to get the foreclosure sale set aside, putting the home back into his name.  And he would win. So, title companies, who issue insurance guaranteeing to the buyer, and the buyer's mortgage company, that the seller does indeed have good title to the property.  No title policy, no mortgage; no mortgage, no sale.
No telling how far back this can go, what if MERS foreclosed 3, 5, even ten years ago?
Not sure off the top of my head how long they have been around. I have been blogging about MERS for years.
As filing fees for real estate documents increased, the mortgage companies decided to skip paying those annoying fees every time they bought a mortgage.
They had to pay to have it recorded with the county register of deeds, to put the world on notice that there was a lien on the property.
So, the initial mortgage was recorded in the name of MERS, as "nominee".
Then, every time the mortgage was sold or assigned, nothing else was recorded with the county, just on MERS records.
So, MERS had no actual interest in the mortgages, could not collect any money due on them, and, that is why the court threw out the foreclosures last week.

Evidence shows that as far back as 2006, Mortgage Electronic Registration System (“MERS”) knew the legality regarding foreclosures was at best tenuous. As you can see, the First American Agent Bulletin memo informed agents and lawyers that MERS.

I posted the full memo in the Think Tank, but the short version is:

•  MERs admits it is not the Owner & Holder of the Note

• The Note must be in members’ possession to foreclose in MERs name

• Members could not conduct foreclosures in the name of MERS in Florida.

I find it intriguing that for at least 5 years, and probably a whole lot longer, MERS was aware that their legal fiction was starting to unravel . . .

O’BRIEN CALLS ON MERS TO COME CLEAN AND PAY UP: SAYS ESSEX COUNTY OWED $22 MILLION DOLLARS

Essex South Register of Deeds John O’Brien announced today that he will be seeking over $22 million dollars from the Mortgage Electronic Registration System, “MERS” which represents several major banking conglomerates.  O’Brien bases the $22M number on the fact that the Salem registry has recorded over 148,663 MERS mortgages since 1998.  After a careful review of a number of these mortgages O’Brien said it became very clear to him that MERS had assigned mortgages to other entities at least twice without paying a recording fee.  Based on this information the taxpayers have been defrauded out of $22,299,450 in Southern Essex County alone.  It is quite possible that in some cases they may have assigned the notes more than twice resulting in even greater loss of revenue. O’Brien called MERS “one of the greediest schemes ever perpetrated on the American people.  They have compromised the integrity of the public land recordation system and in doing so, have wreaked havoc on our economy”.

Last week MERS announced a major policy change conceding that assignments should be recorded in the various Registries across the country and “assignments out of MERS’s name should be recorded in the county land records, even if the state law does not require such a recording.” In addition MERS instructed its members to “not foreclose in MERS name”. O’Brien further states “MERS has now finally acknowledged that their business model was flawed, and they didn’t adhere to the legal requirement that all assignments of a mortgage must be recorded at the local Registry of Deeds.”  “If they had followed the law the public would know who was buying and selling their mortgage, and it would have been an open, honest and transparent process.  The fact that they deliberately chose to create a for-profit private cyber Registry of Deeds whose only purpose was to avoid paying the same fees as everyone else and keeping the public in the dark as to who was the rightful owner of the mortgage clearly demonstrates to me that this was a scheme of epic proportions.”  “When Wall Street and these major lenders joined together in creating MERS, they plunged us into a housing nightmare with little or no regard for their actions.  It’s obvious that their only motivation was to manufacture huge profits off the backs of homeowners and taxpayers. They should all be ashamed of themselves and step up to the plate and do the honorable thing and make the taxpayers’ whole,” O’Brien said.

The Essex South Registry of Deeds is one of 21 Registries in Massachusetts which have recorded MERS mortgages .O’Brien estimates that based on his conservative estimate of two assignments per mortgage the Commonwealth may be owed statewide upwards of $200 million dollars in lost recording fees.  Nationwide, the amount of revenue lost could be in the billions. O’Brien is calling on MERS to come clean and inform the registers of deeds across the country as to the number of times they assigned mortgages to other entities.   Only then will we get a true picture of the economic impact that this fraud has had on our country.

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said.

U.S. Bankruptcy Judge Robert E. Grossman in Central Islip, New York, in a decision he said he knew would have a “significant impact,” wrote that the membership rules of the company’s Mortgage Electronic Registration Systems, or MERS, don’t make it an agent of the banks that own the mortgages.

“MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law,” Grossman wrote in a Feb. 10 opinion. “MERS did not have authority, as ‘nominee’ or agent, to assign the mortgage absent a showing that it was given specific written directions by its principal.”

Merscorp was created in 1995 to improve servicing after county offices couldn’t deal with the flood of mortgage transfers, Karmela Lejarde, a spokeswoman for MERS, said in an interview last year. The company tracks servicing rights and ownership interests in mortgage loans on its electronic registry, allowing banks to buy and sell the loans without having to record the transfer with the county. It played a major role in Wall Street’s ability to quickly bundle mortgages together in securitized trusts.

MERS was still reviewing Grossman’s decision and didn’t have an immediate comment, Lejarde said in an e-mail Feb. 11. Lejarde didn’t immediately respond to an e-mail seeking comment today.

Proper Status

“‘Don’t come around here no more,’ is basically the message to MERS,” said April Charney, a senior attorney with Jacksonville Area Legal Aid in Jacksonville, Florida. “The judge basically deconstructed MERS and said there’s no possible way in any case you can come in and show you have this appropriate proper status to transfer the note.”

“MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage-recording process,” Grossman wrote. “The court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”

Automatic Shield

In the case Grossman ruled on, Credit Suisse Group AG’s Select Portfolio Servicing, a mortgage servicer, sought to bypass the automatic shield against legal claims triggered by Ferrel L. Agard’s filing for personal bankruptcy in September.

Select Portfolio wanted permission to foreclose on Agard’s home in Westbury, New York, on behalf of U.S. Bancorp’s U.S. Bank unit, the trustee for the mortgage-backed trust the home loan was in. The house is worth about $350,000 and the mortgage amount was $536,921, according to the decision.

Grossman ruled in favor of Select Portfolio because he couldn’t overrule a November 2008 foreclosure judgment the servicer won in state court, he said. Without that state-court ruling, Select Portfolio wouldn’t have had the right to bring its motion, Grossman said.

He then addressed whether a mortgage transfer by MERS is valid, because “MERS’s role in the ownership and transfer of real-property notes and mortgages is at issue in dozens of cases before this court,” including those where “there have been no prior dispositive state-court decisions,” he wrote.

Original Lender

Select Portfolio argued in part that MERS’s February 2008 assignment of the mortgage to U.S. Bank was valid because Agard agreed that MERS would hold title to it for the original lender, Bank of America Corp.’s First Franklin, and for whichever banks it was further assigned to. First Franklin transferred the promissory note the mortgage secured to Lehman Brothers Holdings Inc.’s Aurora Bank and Aurora to U.S. Bank, according to the decision.

“An adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” Grossman wrote. “It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices.”

MERS intervened in the case and argued that Agard’s mortgage, the terms of its membership agreement and New York state law gave it the authority to assign the mortgage. MERS says it holds title to mortgages for its members as both “nominee” and “mortgagee of record.”

Select Portfolio

Grossman said Select Portfolio had to show that U.S. Bank owned both the note and the mortgage, and there was no evidence that it held the note. The judge disagreed with Select Portfolio’s argument that U.S. Bank held the note because the note “follows” the mortgage, which it said U.S. Bank owned.

“By MERS’s own account, the note in this case was transferred among its members, while the mortgage remained in MERS’s name,” Grossman wrote. “MERS admits that the very foundation of its business model as described herein requires that the note and mortgage travel on divergent paths.”

The judge said that the membership agreement wasn’t enough to assign the mortgage and that to do so the lender would have to give power of attorney or similar authority to MERS.

MERS’s membership rules don’t create “an agency or nominee relationship” and don’t clearly grant MERS authority to take any action with respect to mortgages, including transferring them, Grossman wrote. Because the interests at issue concern “real property” -- land and buildings -- under state law, any transfer has to be in writing, which isn’t done under the MERS system, he said.

‘Nominee’ Status

“Without more, this court finds that MERS’s ‘nominee’ status and the rights bestowed upon MERS within the mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage,” the judge wrote. “MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.”

Grossman said parties coming to him to seek to lift the automatic ban on legal claims in cases involving MERS will have to show they own both the mortgage and the note.

There are legitimate, substantial concerns about the legal foundation of MERS-- I think most folks who have followed the foreclosure mess can agree on that.  But there is also a lot of blatant misinformation out there coming from MERS critics, and some of it is coming from folks who are presenting themselves as experts on the issue.

For example, University of Missouri Kansas City professor of economics and frequent mortgage crisis blogger/pundit L. Randall Wray, a frequent and vocal critic of the banks and of MERS, just flat out makes stuff up regarding the recent Ibanez decision in Massachusetts in his article, Requiem for MERS (and the Banks That Created the Frankenstein Monster), which appeared yesterday on the Huffington Post. Wray claims that the Massachusetts Supreme Court decision in U.S. Bank v. Ibanez is one of several "recent developments that put the final nails in MERS's coffin," but from his writeup of the case, it is hard to fathom that he even read the case or has any familiarity with it whatsoever.

Slade Smith's Blog ::

Professor Wray wrote:

Ibanez decision in Massachusetts.  Courts continue to chip away at the arguments made by banks and their Frankenstein creation, MERS, to justify foreclosure without proper documentation. MERS was manufactured by the industry to evade proper recording of property sales in county recorder's offices. This not only cheated the recorders out of fees and Uncle Sam out of federal taxes, but it also broke the chain of title. The fiction perpetrated by MERS is that it is simultaneously a nominee of the true owner of the mortgage debt and at the same time it is the beneficiary of the security instrument. (You cannot simultaneously be the party of interest and the nominee, of course.) It also disclaims any financial interest in the mortgage and has no claim on the mortgage payments. But it claims that it can operate as the agent of unnamed owners of the mortgage instrument, unknown owners who--since they are unknown -- have never designated MERS as agent. The Massachusetts Supreme Court ruled decisively against MERS's claims, and a growing number of other state supreme courts (Nevada, New York, Kansas, Idaho) have agreed that MERS is only a nominee or "straw man" (as Kansas put it) with no standing to foreclose.

Here's the facts: MERS had no "claim" in the Ibanez case-- Ibanez's mortgage was not even a MERS mortgage!

Furthermore, according to the land court case which the Massachusetts Supreme Court upheld, U.S. Bank might have been better off it his mortgage had been a MERS mortgage!  The reason that the land court judge threw out the Ibanez foreclosure was because U.S. Bank had not been properly assigned the mortgage at the time of the foreclosure sale, according to the financial entities' own rules.  One of the possible ways that they could have been properly assigned the mortgage, according to the securitization agreements that the judge relied on in his decision, would have been if they had received an assignment of the mortgage in recordable form from the entity they claimed transferred the mortgage to them.  But for MERS mortgages, these agreements waived the requirement of an assignment in recordable form. 

As far as the Massachusetts Supreme Court decision?  Well, MERS is not even mentioned in that-- not once.  Why would it?  Again, the mortgages at issue were not MERS mortgages!

So when Wray says that "[t]he Massachusetts Supreme Court ruled decisively against MERS's claims" in the Ibanez case, he is just making stuff up out of thin air. The Ibanez decision had next to nothing to do with MERS at all.

Furthermore, Ibanez was not about "proper recording of property sales in county recorder's offices" either, despite Wray's claims.   The Massachusetts Supreme Judicial Court decision states just the opposite in clear black and white letters:

We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder.

What is laughable in his piece is that Wray whines in his piece about his critics.  "Whenever those who are critical of MERS and the banksters post blogs about the multiple frauds, we are attacked by commentators -- presumably industry hacks -- who try to obfuscate the issues," he says.  As someone who battled it out on the political blogs for years, I couldn't help but notice that the bloggers who played fast and loose with the truth were often the same ones who thought that anyone who criticized them was an industry shill or had some other ulterior motive.  I guess the same holds true for professors!  If this Huffington Post piece is any indication of the quality of the professor's work, Wray deserves critics and probably ought to have a few more of them. 

I understand that there are many thoughtful and knowledgeable people who have legitimate and substantial criticisms of MERS, and I agree with many of those criticisms. Many of these folks want to see and end to MERS in one fashion or another, for good and well considered reasons.  It may be tempting for otherwise thoughtful people to find common cause with folks like Wray who are outspoken opponents of MERS and the banks and want to see them destroyed. 

But I think it's important to recognize that some folks are just interested grinding axes.  I think some of MERS's critics are more interested in cultivating the choir they are preaching to than solving the many serious problems that we face-- and that in their eagerness to pump themselves up in the eyes of their readers by piling on the deservedly unpopular banks, they actually end up standing in the way of progress by failing to talk about solutions in a meaningful way. Wray doesn't seem really interested in solutions to the problems that MERS has posed, or integrity in land recording systems, or clean land titles out of foreclosure.  For example, check out how he casually tosses aside the entirety of the traditional land title system in one sentence when discussing Marcy Kaptur's recent MERS bill:

In response to this mess, Representative Marcy Kaptur (Ohio) is going to introduce legislation to prohibit Fannie and Freddie from buying new mortgages that are registered in MERS. Since there is virtually no activity in mortgage markets save what Fannie and Freddie are doing, this would effectively take away all new business from MERS.

Further, her legislation would direct HUD to study the creation of a federal land title system to replace MERS while protecting rights of state and local governments. This is a sensible solution that would modernize the recording and tracking of property ownership. At the same time it would put out of business the hopelessly incompetent MERS, which has partnered with the banksters to perpetrate foreclosure fraud. Bye bye fraudsters.

I'm a big proponent of reform of land title recordation systems, but pseudo-reformers like Wray who throw out "solutions" like this just to pretend that they have the answers are the unwitting allies of those who would like to keep MERS as-is, such as ALTA, which failed to mention to its members in an alert that the only binding part of the Kaptur bill is not about creating a federal land title system, but rather about prohibiting federal insurance and guarantees on MERS mortgages.  ALTA apparently would like its membership to advocate for MERS without knowing that they are doing so. With statements like this, Wray and his ilk may help ALTA play up the minimal threat of a federal land title system.