Was Mortgage Registration System Built on ‘Foundation of Sand’?
A University of Utah law professor is raising questions about a company created to help smooth the process of securitizing mortgages that, if accepted by the courts, could invalidate mortgages throughout the United States.
A New York Times column outlines the arguments that call into question mortgages registered by the Mortgage Electronic Registration System, known as MERS. “Was the great securitization machine that made hundreds of billions of dollars in mortgage loans based on a legal foundation of sand?” columnist Floyd Norris asks.
MERS was created to eliminate the need to record mortgage assignments with counties, but its database does not provide an authoritative source of lien information, according to University of Utah law professor Christopher Peterson. In a paper available on SSRN, Peterson says current cases challenging MERS’ ability to foreclose “foreshadow tempestuous title disputes.”
Peterson sees another problem. MERS is like the two-faced Roman god Janus, he writes, “impenetrably claiming to both own mortgages and act as an agent for others that also claim ownership.” Peterson argues MERS can’t be both owner and agent.
If Peterson is correct, the best outcome for lenders would be delayed foreclosures and additional paralysis in the real estate market, the Times says. The worst outcome for lenders would be the invalidation of mortgages. In this scenario, the lenders’ only recourse would be to sue borrowers who sell their homes without paying off their loans, the Times says.
About 60 percent of new mortgages are on the MERS system, Bloomberg reports. MERS charges $6.95 for every loan registered, compared to about $40 to file a mortgage assignment with a local county.
Since 2009, Bloomberg says, supreme courts in Arkansas, Kansas and Maine have found that MERS had no standing in foreclosure proceedings. The “raging debate” over MERS’ role in home foreclosures “will determine whether MERS’s involvement produced a defective process and clouded millions of property titles,” Bloomberg says.
Prior coverage:
ABAJournal.com: “Ohio Official Asks Federal Prosecutor to Review Chase Mortgage Foreclosures”
ABAJournal.com: “RICO Suit Seeks Billions from David Stern and His Foreclosure-Mill Law Firm”
ABAJournal.com: “Foreclosure Challenge Loses”
