Thursday, October 14, 2010

MERS and the foreclosure freeze

The New York Times reports today that JP Morgan Chase, perhaps the largest bank in the country, acknowledged publicly that it had stopped using Mortgage Electronic Registration Systems (MERS) in its home mortgage practice. The article, written in the context of the greater scrutiny being paid on foreclosure practices by attorneys general around the country, raises doubts about MERS but is fuzzy about the rationale of these doubts.

MERS came into existence about ten years ago. Its purpose was to serve as a central holding agent for mortgages so that lenders could sell and trade the underlying promissory notes at will without having to record corresponding assignment of mortgage documents with registries of deeds as would be required in traditional mortgage practice. MERS would be the record holder of the mortgage and would also serve as the long-term point of contact for anything related to that mortgage regardless of the whereabouts of the underlying note. Through the refinancing and home sales boom of mid-decade, MERS did a tremendous volume of business. As is always the case when things go bad, everyone's practices are under scrutiny. The only questions I know that have arisen about MERS come from a couple of court decisions from other parts of the country questioning the whole "mortgage holding agent" concept that MERS is built upon. But this Times article implies other issues without specifying their nature. We'll stay tuned for follow-ups to this story.


Leonard Lu said...


Here's a post from the naked capitalism blog that explains many of the possible problem with MERS:

To quote: "the language used by MERS in its registry at local courthouses is contradictory (it claims to be both the owner of the mortgage and as well as a nominee; legally, a single party can’t play two roles simultaneously), rendering it unenforcable; MERS has employees of servicers and law firms become “MERS vice presidents” or secretaries when fit none of the criteria that fit those roles, and also have clear conflicts of interest given that they are also full time employees of other organizations; MERS record keeping has the hallmarks of being poorly controlled (there have been cases of mortgages basically being stolen from other MERS members; some contacts have suggested that a single MERS member can assign a mortgage, meaning checks are weak; MERS members are not required to update records). And most important, every state supreme court that has looked at the role of MERS has ruled against it."

And here's a link to a draft of an academic paper entitled "Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory":

The abstract: "Hundreds of thousands of home foreclosure lawsuits have focused judicial scrutiny on the Mortgage Electronic Registration System (“MERS”). This Article updates and expands upon an earlier piece by exploring the implications of state Supreme Court decisions holding that MERS is not a mortgagee in security agreements that list it as such. In particular this Article looks at: (1) the consequences on land title records of recording mortgages in the name of a purported mortgagee that is not actually mortgagee as a matter of law; (2) whether a security agreement that fails to name an actual mortgagee can successfully convey a property interest; and (3) whether county governments may be entitled to reimbursement of recording fees avoided through the use of false statements associated with the MERS system. This Article concludes with a discussion of steps needed to rebuild trustworthy real property ownership records."

Leonard Lu said...


Many reports state that it is a legal requirement for physical paperwork and physical signatures to accompany transfers of mortgages, but users of MERS are apparently destroying the original notes after recording them electronically. Is this not a problem in Massachusetts?

And is failing "to record corresponding assignment of mortgage documents with registries of deeds as would be required in traditional mortgage practice" legal in Massachusetts? Isn't it the job of the Registry of Deeds to maintain these records? How can the notes be traded without assigning the mortgage documents?

I own a condo in Tewksbury and after the stories the past few days of multiple banks demanding payment for the same mortgage, of owners without mortgages being foreclosed on etc., I'm starting to seriously consider hiring an attorney to find out who exactly owns my mortgage and whether or not I'll be able to establish a clear title when I need to sell the property.

Foreclosure Freezze said...

A lot of illegalities involved in several documentations, making people suffer and then they try foreclosure freeze to get rid of the problems.