Consumer Law

A New Piece in the "MERS" Puzzle

By Christopher Peterson

I?ve spent more time than I care to admit lately puzzling out what I believe is the most peculiar company in American consumer finance. Mortgage Electronic Registration Systems, Inc.?more commonly known as ?MERS?? maintains a national database tracking ownership and servicing rights of residential mortgages.  While that innovation strikes me as a useful and important step beyond the old county recording office paper land title systems, MERS has attempted to take on a different, more aggressive, legal role. When closing on home mortgages, mortgage lenders now typically list MERS as the ?mortgagee of record? on the paper mortgage?rather than the lender that is the actual mortgagee. The mortgage is then recorded with the county property recorder?s office under MERS, Inc.?s name, rather than the lender?s name?even though MERS does not solicit, fund, service, or ever actually own any mortgage loans. MERS then purports to remain the mortgagee for the life of the loan even after the original lender or a subsequent assignee securitizes the loan. This strategy allows the servicers and investors to avoid paying the taxes (usually about $50 or so per loan) to county governments for recording assignments. Although MERS is a young company, over 60 million mortgage loans are registered on its system. Indeed, today MERS is legally involved in the origination of approximately 60% of all mortgage loans in the United States. In past generations, employees of county recording offices kept records of each individual company that recorded mortgage loans and mortgage loan assignments. But today, increasingly recording officials carry on something of a bizarre puppet show, dutifully filing away records of the name of one company repeated over, and over again: MERS. And that is not the strangest part. In most states MERS also pursues foreclosures against homeowners even though it has no financial interest in the proceeds of the foreclosure sale and is not considered a servicer of mortgages registered on its system. MERS executives have explained that they hope to ?capture? every home mortgage in the country, making the business a national foreclosure plaintiff.

I recently posted some thoughts on these developments in a draft article now available on SSRN. In short, it is not clear to me that MERS should have standing to bring foreclosure actions, MERS probably should be considered a debt collector under the federal Fair Debt Collection Practices Act, and I have serious concerns about whether mortgages recorded under MERS name should be considered sufficient to protect investors in a variety of collateral competitions, including as against bankruptcy trustees. It also seems to me that the MERS model may be one additional contributing factor that facilitated the pump-and-dump mortgage origination practices of the past ten years. By creating an ubiquitous proxy in public mortgage records, does MERS represent an effort to privatize mortgage recording and consolidate mortgage foreclosure without Congressional or legislative authorization?

Full post as published by CL&P Blog on September 15, 2009 (boomark / email).