Delaware AG Sues MERS for Deceptive Practices

Delaware Attorney General Beau Biden hasrnsued the Mortgage Electronic Registration system (MERS) the controversial entityrnthat has been at the heart of the robo-signing flap and perhaps the center ofrnthe housing crisis.  The suit, filedrnyesterday in the Delaware Chancery Court, charges that the parent corporationrnMERSCORP and MERS have repeatedly violated the state’s Deceptive TradernPractices Act.  </p

MERS was established by Fannie Mae,rnFreddie Mac and several large mortgage lenders such as Wells Fargo and Bank ofrnAmerica in 1995 with the goal of reducing recording costs and the  inefficiencies of transferring ownership ofrnresidential mortgages among mortgage brokers, lenders, Fannie Mae and FreddiernMac, the secondary market system and investors. rnThe concept was to record the initial loan documents in the name of MERSrnand retain that record even as paper documents were passed along fromrnoriginator to subsequent holders of the debt. rn</p

Over the years there was an increasingrntendency for loan documents to become separated from the loans themselves andrnas more banks consolidated, big mortgage companies began to fail, andrnforeclosures ramped up, more and more loan transfers were not properly recordedrnon the MERS system and documents were actually lost.  This has led, not only to improperrnforeclosure procedures but even instances where properties were foreclosedrnwhere there was no outstanding mortgage. rnMERS is currently the repository for about 65 million mortgages.</p

Biden’s suit charges that MERSCORP/MERSrn”engaged and continues to engage in deceptive trade practices that sowrnconfusion among homeowners, investors, and other stakeholders in the mortgagernfinance system, seriously damaging the integrity of the land records that arerncentral to Delaware’s real property system and leading to improper foreclosurernpractices.”</p

Court papers outline three broadrncategories of deception:</p<ul class="unIndentedList"<liMERS,rnthrough its private mortgage registry knowingly obscures important informationrnor provides inaccurate information to borrowers. The opacity of the registration database makesrnit difficult for consumers to know of or challenge inaccuracies in the MERSrnSystem which harms borrowers when MERS forecloses on borrowers in its own name,rnthus impairing a borrower's ability to raise defenses and hampering the abilityrnto seek out the owner of the loan to pursue relief.</li</ul<ul class="unIndentedList"<liMERSrnoften acts as an agent without authority from its proper principal and is oftenrnunaware of the proper identity of that principal. Where the name of the owner of the mortgagernloan recorded in the MERS system is not accurate, MERS often takes action onrnbehalf of the purported owner without authority.</li</ul<ul class="unIndentedList"<liMERSrnis effectively a "front" organization that has created a systemically importantrnmortgage registry which does not properly oversee or enforce its own rules onrnparticipating members. Rather thanrnmaintaining an adequate staff, it works through a network of over 20,000rndeputized non-employee corporate officers who act without meaningfulrnoversight. It is this network that wasrnbehind the robo-signing of foreclosure documents.</li</ul

Appearing on MSNBC last night, Bidenrnsaid that American has historically had a robust recordation system wherernpeople could walk into the proper registry and “see, read, and touch” documentsrnrevealing who had a security interest in property.  MERS, he said, in order to save millions inrnrecording fees and facilitate the “slicing and dicing of mortgages” for thernsecondary market, has taken that public and private recording system and “screwedrnit up.”</p

Asked by Rachel Maddow if this suit hitsrnat the heart of the mortgage issue or if regulators are still working their wayrnin from the edges, Biden said this suit is central, but there is still much tornbe done.  Attorneys General Millerrn(Iowa), Schneiderman (New York) and Coakley (Massachusetts) are activelyrninvestigating as are people on the federal level.  These cases, he said, are hard to pursue on arncriminal basis because anytime lawyers and accountants have signed off on arnprocess it is hard to go after the people who have employed that process, “butrnanytime you have all 50 states attorneys general agreeing on something, yournknow the banks have been up to no good.” </p

–Press Release Announcing the Lawsuit
–Download a MERS Fact Sheet<br /-Read the Complaint

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