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MERS, Banks Sued by New York State; MERSCORP Responds

by devteam February 4th, 2012 | Share

Three major banks and Virginia-basedrnMERSCORP, Inc. and its subsidiary Mortgage Electronic Registrations Systemsrn(MERS) were sued Friday by the state of New York.  The suit, filed by the state’s AttorneyrnGeneral Eric T. Schneiderman, charges that the creation and use of a privatelyrnnational electronic registration system, MERS, “has resulted in a wide range of deceptive and fraudulent foreclosurernfilings in New York state and federal courts, harming homeowners andrnundermining the integrity of the judicial foreclosure process.”  Further, the lawsuit charges that thernemployees and agents of the three banks, Bank of America, J.P. Morgan Chase,rnand Wells Fargo, acting as “MERS certifying officers,” havernrepeatedly submitted court documents containing false and misleading informationrnthat made it appear that the foreclosing party had the authority to bring arncase when in fact it may not have.  Thernsuit also names additional defendants for some of the charges including loanrnservicing subsidiaries of the three banks.</p

Thernlawsuit, filed in the Supreme Court of the State of New York, Kings County leviesrnthe following charges:   </p<ul class="unIndentedList"<liMERS was created to allow financialrninstitutions to evade country recording fees, avoid the need to publicly recordrnmortgage transfers and facilitate the rapid sale and securitization ofrnmortgages. MERS members log all of theirrntransfers in a private electronic registry rather than in the local countyrnclerk's office.
 </li<liMERS is a shell company with norneconomic interest in any mortgage loan.rnIt is the nominal "mortgagee" of the loan in the public records andrnremains as such regardless of how often the loan is sold or transferred amongrnits members.
 </li<liMERS has few or no employees butrnserves as the mortgagee for tens of millions of mortgages. It has indiscriminately designated overrn20,000 MERS member employees as MERS "certifying officers" expresslyrnauthorizing them to assign MERS mortgages and execute paperwork to foreclose onrnproperties and submit claims in bankruptcy proceedings while failing tornadequately screen, train, or monitor their activities. Assignments were often automaticallyrngenerated and "robo-signed" by individuals who did not review thernunderlying property ownership records, confirm the documents' accuracy, or evenrnread the documents. MERS certifyingrnofficers have regularly executed and submitted in court mortgage assignmentsrnand other legal documents on behalf of MERS without disclosing that they arernnot MERS employees, but instead are employed by other entities, such as thernmortgage servicer filing the case or its counsel.
 </li<liUse of the private database tornrecord property transfers has eliminated homeowners' and the public's abilityrnto track them through the traditional public records system. This data base is plagued with inaccuraciesrnand errors which make it difficult to verify the chain of title or the currentrnnote-holder. In addition, as a result of theserninaccuracies, MERS has filed mortgage satisfactions against the wrong property.
 </li<liThis "bizarre and complex end-aroundrnof the traditional recording system" has saved banks more than $2 billion inrnrecording fees and allowed the banks to securitize and sell millions of loans, "oftenrnmisrepresenting the quality and nature of the mortgages being transferred."
 </li<liThe creation and use of the MERSrnSystem by the Defendant Servicers and other financial institutions has resultedrnin a wide range of deceptive and illegal practices, particularly with respectrnto the filing of New York foreclosure proceedings in state courts and federalrnbankruptcy proceedings. </li</ul

The lawsuit estimates that MERSrnmembers have brought over 13,000 foreclosures against New York homeownersrnnaming MERS as the foreclosing property when in many cases MERS lacks thernstanding to foreclosure.  Even whenrnforeclosures were not initiated in MERS name, proceedings related to theirrnregistered loans often included deceptive information.</p

The lawsuit seeks a declaration thatrnthe alleged practices violate the law, as well as injunctive relief, damagesrnfor harmed homeowners, and civil penalties. The lawsuit also seeks a courtrnorder requiring defendants to take all actions necessary to cure any titlerndefects and clear any improper liens resulting from their fraudulent andrndeceptive acts and practices. </p

On January 24 the U.S. Court ofrnAppeals for the 11th Judicial Court upheld an appeal from MERS thatrncontended a lower court had erred in finding that a homeowner had beenrnimproperly foreclosed on by MERS on the grounds that: </p

1).   The assignment of the security deed wasrninvalid because MERS, as nominee of a defunct lender could not assign therndocuments of its own volition.</p

2.rn    The “splitting” of the mortgage andrnthe note rendered the mortgage null and void and therefore notices ofrnforeclosure were invalid as not coming from a secured creditor.</p

The New York suit differs slightly fromrnthe facts in Smith V. Saxon Mortgage,rnbut if Schneiderman wins his case, it could be that the legitimacy of MERS willrnultimately have to be decided by the U.S. Supreme Court.</p<prn
MERSCORP Responds:</span
<br /Mortgage Electronic Registration Systems, Inc. (MERS) takes its role as a mortgagee very seriously. The MERS® System is an important part of the mortgage industry and the MERS business model has been consistently validated in all 50 states. All of the activities of MERSCORP and MERS are in compliance with state and federal laws. We are confident that as people understand more about MERS and the role we play, they will see that MERS adds great value to our nation’s system of housing finance in ways that benefit not just financial institutions, the broader economy and the government, but—most of all—homeowners.rn
<br /AG Schneiderman Claim #1: <br /Defendants have improperly brought New York foreclosure proceedings in MERS’ Name<br /<br /FACT: The right to bring a foreclosure action is determined by the plaintiff’s relationship to the mortgage loan, which is whether the entity bringing the action is the holder of the note or authorized by the holder of the note to bring a foreclosure action. MERS was authorized by the note holder to bring foreclosure actions in its name, and the borrower agreed that MERS may be the entity who may foreclose on the property in the event of a default. That being said, since July 2011 MERS no longer acts as foreclosing entity. In addition, MERSCORP never received a fee or made any money on foreclosures initiated in MERS’ name.rn
<br /AG Schneiderman Claim #2: <br /MERS Certifying Officers, including defendant servicers’ employees and agents, have submitted false, deceptive and often legally invalid documents in New York foreclosure proceedings<br /<br /FACT: When MERS is the mortgagee and is not the entity foreclosing, MERS executes an assignment of a mortgage that transfers all of the interests in the mortgage to the entity that is foreclosing prior to the commencement of the foreclosure. The courts have held that MERS may assign its interests, as a mortgagee, and that such assignments are valid.rn
<br /AG Schneiderman Claim #3: <br /The use of MERS certifying officers by defendants has confused and deceived homeowners and the courts.<br /<br /FACT: It is perfectly proper for MERS, as the mortgagee, in order to fulfill certain acts required of the mortgagee, to appoint signing officers (or agents) to act on MERS’ behalf. To act as a principal for its signing officers is not a deceptive trade practice. There is no requirement under New York law that a principal must disclose whether its agents are employed by another entity. These agents authorized to act on behalf of MERS are not employees of MERS, but employees of the loan servicers or sub-servicing companies. Signing officers are duly authorized to perform their responsibilities on behalf of MERS who is the mortgagee – in compliance with applicable laws – and to sign their own names and to use the titles “vice president” and “assistant secretary” of MERS.rn
<br /AG Schneiderman Claim #4: <br /MERS and defendant servicers through their use of MERS have concealed important information from homeowners about their property and the role that MERS plays with respect to their mortgage.<br /<br /FACT: MERS does not hide ownership or undermine the integrity of land records. Any mortgage holder registered in the MERS® System can easily access information related to their mortgage on our website or through a toll-free number. Federal law provides that consumers are notified for changes in investors or servicing status. In addition, county land records were not intended to identify the servicer of a mortgage or the current note holder; they are intended to provide notice to purchasers of property that there is a lien on the property and when that lien was perfected.rn</p<prnrnrnrnrnrnrnrnrnrnrnrn

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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