Today's Globe business section has a major story on Essex South Register of Deeds John O'Brien and his efforts against MERS and "robo-signers." Because of articles such as this, there is increasing interest in this topic, so it seemed appropriate to address it here.
As I understand it, there are two separate issues. The first is Register O'Brien's assertion that MERS - Mortgage Electronic Registration System Inc - owes the Commonwealth millions of dollars in recording fees for mortgage assignments that were never recorded. With the second issue - robo-signers - O'Brien contends that employees of a number of major national entities or their related mortgage servicers signed the names of other employees to documents that were (and still are) presented for recording. O'Brien maintains that these signatures are fraudulent which would make the documents legally void and for that reason, he is refusing to record them. In the interest of space, today I'll address the MERS issue. Tomorrow we'll deal with robo-signers.
MERS first came to my attention in 1999. During the real estate crash of the early 1990s, many banks failed and it became difficult if not impossible for homeowners to obtain the legal documents necessary to establish that mortgages had been assigned or discharged. The purpose of MERS was to have a single entity that would hold the mortgage, almost as a trustee for the financial entity that held the underlying promissory note. With MERS, consumers would have a single point of contact for legal documents related to their mortgages. Now this arrangement does run counter to a fundamental principle of Massachusetts real estate law - that being that the mortgage always follows the note - but from 1999 until the commencement of this most recent housing collapse, everyone seemed to think MERS was a pretty good idea and no one complained about it.
At some point after the current real estate collapse, Register O'Brien (probably among others) contended that whenever a promissory note was transferred from one party to another, MERS should have recorded a corresponding assignment of that mortgage and paid the $75 recording fee. His estimate of the amount of fees owed, I believe, is based on the number of MERS mortgages recorded but not assigned.
Because, as I mentioned earlier, the MERS arrangement does ignore the Massachusetts "the mortgage follows the note" rule, it would be very useful to have a court decide whether O'Brien's interpretation of this arrangement is correct. The reason I say a court decision would be useful is that the pro-MERS side does have some arguments that the MERS system was valid legally. For example, there is no legal requirement that any document be recorded at the registry of deeds. When you buy a house, you do not have to record the deed you receive. It would be stupid not to, since by recording it you receive all the protection of the recording statute, but the law doesn't require that you record to convey title. The same is true for an assignment of mortgage. The Supreme Judicial Court of Massachusetts implied as much in the Ibanez case not too long ago. That case involved "missing" assignments. The court held in that case that a lender could prove the fact of an assignment through a variety of means in addition to the traditional way of recording a document.
This is not to say that MERS did not have to record the assignments. Perhaps it did; but with the arguments against it, I think it inevitable that the question would have to be resolved by the SJC or the Legislature. By bringing this issue into the public eye, Register O'Brien is speeding the resolution of this very important issue.