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MERS: Symptom or Cause

By Katie Porter

MERS, which stands for Mortgage Electronic Registration System, is under fire. Courts in a few states have held that MERS does not have standing to pursue a foreclosure in its own name, and there is a pending multi-district litigation claim against MERS. The most recent MERS news is the press release by the Attorney General for the District of Columbia. The District of Columbia has a non-judicial foreclosure process that begins with a Notice of Foreclosure form. The AG has announced that people facing foreclosure can assume that the completion of such a Notice, with its identification of the "Holder of the Note" and the "Security Instrument recorded" in the DC land records means that every intermediate transfer of the security interest is documented in the public records. Under the AG's interpretation, MERS does not meet this requirement. MERS, when it works properly, is privately tracking the transfer of mortgages without notation in the public records.

I tend to think MERS is a symptom of a larger phenomenon about how the mortgage industry operated. Just as with robo-signing or with efforts to treat the ownership of a note as a "technicality," the industry designed and built systems for lending and servicing loans that failed to take into account traditional legal doctrines. Why did they redesign these traditional systems? To make securitized lending cheaper and faster. MERS undoubtedly achieved these goals, but at what cost. By moving the recordation of transfers of land from a public function to the private realm, industry got to write, and then ignore at its will, the state laws requiring the recordation of land transfers. Now, when the legality of MERS is called into question, one defense seems to be to argue that MERS is too big to fail. So many loans used it, how can it possibly not be legal? If Fannie/Freddie used  it, doesn't that make it all right? Interesting logic.

As a final note, for those wanting more information on MERS, I recommend Chris Peterson's article: Two Face: Demystifying MERS's Land Title Theory, available here.

 

Full post as published by Credit Slips on November 06, 2010 (boomark / email).