A widely used third-party registry of mortgage assignments has found itself in the center of “foreclosure-gate,” amid allegations that its service is part of the greater issue of faulty or even illegal foreclosure practices plaguing the lending industry.
An Oct. 8 story in The Washington Post detailed the legal challenges against the Mortgage Electronic Registration System (MERS) — a technology platform that tracks more than 64 million mortgages and is owned by some of the mortgage industry’s biggest players, including Fannie Mae, Freddie Mac, the Mortgage Bankers Association and a number of large lenders.
Legal challenges to MERS include questions over whether the company can serve as nominee for lien holders in the processing of foreclosures, as well as claims that it does not properly file proper mortgage and note assignments when the documents change hands. MERS came out on the defensive last Friday, issuing a press statement in response to the story.
MERS president and CEO R.K. Arnold said the “foreclosure process itself was not designed to withstand the extraordinary volume of foreclosures that the mortgage industry and local governments must now handle,” adding that the MERS technology positively impacts families and communities, even if they don’t see it firsthand.
“MERS helps the mortgage finance process work better,” Arnold’s statement said. “The MERS process of tracking mortgages and holding title provides clarity, transparency and efficiency to the housing finance system.”
MERS cites court cases in which it received favorable rulings against challenges that the system is fraudulent and the company does not have the right to act on behalf of lenders.
The Washington Post quoted lawyers who claim that MERS illegally circumvents the municipal court assignment process and that because MERS does not own the mortgage, it has no legal standing in a foreclosure proceeding.
But the company contests those claims. When a MERS member originates a mortgage, the loan documents borrowers sign specify that MERS will serve as mortgagee on the assignment filed with the local court. A MERS spokesperson told ASR sister publication Mortgage Technology that because of the nature of the agreement among MERS members, once an initial mortgage assignment is filed, an assignment transfer is not necessary until the loan is sold to a nonmember. In the case of a MERS mortgage being sold to a nonmember, the lien assignment is filed in the county court, just as these transactions were filed before the MERS tracking platform was in place.
When transferred among MERS members “there are no statues in the United States that say you must record servicing assignments in the county court,” said Karmela Lejarde, the company’s communications manager.
As mortgagee, MERS has the power to sign lien release and file foreclosures — which means being listed as plaintiff in the nation’s 23 so-called judicial states, where foreclosures are filed as lawsuits. But the agreement between MERS and its members also creates a provision that grants employees of its member servicers the power to serve as “certifying officers,” and sign documents on behalf of MERS.
So when Bank of America — a MERS shareholder and the member with the highest volume of loans in the system — forecloses on a borrower, the process is done in the name of MERS, BofA initiates the action, with a BofA certifying officer signing the foreclosure documents for itself and MERS and a B of A attorney appearing on behalf of MERS and the bank.
Mike Wileman, president and CEO of Southlake, Texas-based Orion Financial Group, said claims against MERS’ legal standing in foreclosures are not new, but are gaining more attention in the wake of the allegations that banks are using so-called robo-signers to process foreclosures faster, but without filing the paperwork properly. Orion Financial performs assignment and lien release services for lenders. It also does document retrieval when a lien holder needs to foreclose, but the chain of custody on a mortgage is lost. Wileman said the claims against MERS are generally a tactic used by borrowers trying to delay a foreclosure.
“Most courts recognize MERS as the mortgagee on the property. As far as what they do and the MERS concept, I think most people have bought into it,” Wileman said. “There are still some jurisdictions that have said because they don’t own anything—that they’re just a tracking mechanism—so they can’t do certain actions in the name of the entity.”
In those cases, Wileman said firms like his will work with lenders to file assignment documents with municipalities to take the loan out of MERS and remove the registry as the mortgagee of record.
“Even though they’re a MERS member, they’re taking it out of the MERS name and proceed in their own name, with MERS not even in the picture,” Wileman said. “They’re trying to get ahead of the curve and eliminate the objection before it comes up.”
Indeed, Fannie Mae policy requires the practice for all of its loans, Lejarde said, adding that MERS policy requires members to take the extra step for every foreclosure that happens in the state of Florida. There, lien holders have faced a rash of lost notes. So in order to foreclose, the lien holder transfers the mortgage out of MERS and into its own name and then files a lost note affidavit in lieu of the signed promissory note.
MERS contends that its platform eliminates the paper- and time-intensive process of recording mortgage assignments and that is mortgage identification number system provides a more accurate way to track loans through multiple sales. In addition, through a Web-based public search engine at www.mers-servicerid.org, anyone can find the current servicer or owner of a mortgage that’s held by a member organization — a service the company says isn’t available anywhere else. But the effectiveness of all these tools is predicated on members updating loan information in a timely and accurate fashion.
With all the power MERS and its members grant each other, one task that remains solely in the hands of lien holders and servicers is the task of updating loan information.
“People think that we maintain the information, but it’s the members that are required to file the information themselves,” Lejarde said.
And she admits some members are better than others at providing prompt updates. To help ensure accurate data, MERS strictly enforces its standards and even has a quality assurance department that grades members on the accuracy and timeliness of their information. Lejarde said even when a loan is transferred in and out of the system, the MIN helps maintain an accurate record of the loan, just like on a vehicle identification number.
“That MIN is like a car’s VIN, it’s supposed to permanently affixed on the dashboard of that loan,” Lejarde said. “It makes it easier to track what happens to that loan when it moves in and out of MERS.”