The growing furor in the United States over improper foreclosure documents is focusing intense attention on MERS, a mortgage-record service company that tracks more than 60 million mortgages.
Mortgage Electronic Registration Systems has filed thousands of foreclosure actions around the country on behalf of lenders. Its right to do that is under challenge. Several courts around the country recently have ruled that MERS lacks the right to file such cases. Federal regulators say they are investigating its role. On Tuesday JPMorgan disclosed that it had stopped using MERS.
WHAT IS MERS?
MERS, based in Reston, Virginia, is a private company owned by leading banks and mortgage processors. They founded it in 1995 to speed up legal record-keeping of mortgages and sales of mortgage loans through securitizations. Its main purpose was to be an electronic registry that would keep track of repeated sales of mortgage loans as the number of new mortgages and refinancings boomed.
WHY IS MERS FACING LEGAL CHALLENGES AND GOVERNMENT INQUIRIES?
MERS, on behalf of the banks and myriad trusts that own the mortgage loans, has initiated thousands of foreclosure actions around the country, as the "mortgagee of record" listed on homeowners' mortgages. Homeowners' lawyers and advocacy groups contend that MERS has no right to initiate the actions because it doesn't own the mortgage loans. Lending laws specify that only the actual owner of the loan can file a foreclosure action. Lawyers also have alleged that MERS bypassed laws requiring mortgages and refinancings to be recorded in county recorders offices. Issues have been raised in several court cases about whether MERS misled courts about ownership of the loans. MERS Chief Executive R.K. Arnold has strongly denied any misrepresentations or legal violations, and contends that its services have benefited homeowners as well as lenders.
COURT CHALLENGES TO MERS
Class action lawsuits against MERS currently are pending in at least three states: California, Nevada and Arizona. State supreme courts in Maine, Arkansas and Kansas have ruled against MERS' right to file foreclosure actions. In an individual borrower's case in Oregon, a federal judge in September issued an injunction, at least temporarily halting a MERS-filed foreclosure, because of evidence that MERS doesn't own the mortgage loan in question.
MERS earlier, however, won court rulings in several states, upholding its right to foreclose. In most of those cases the issue raised wasn't whether MERS owned the mortgage loans, but whether it could proceed even though it wasn't able to locate and produce documents such as loan assignments.
If court rulings against MERS' authority to foreclose proliferate, many foreclosure cases may be halted indefinitely, and some homeowners in default may end with up with clear title to their homes. Halts to MERS foreclosures would have a big impact on lenders and loan processors who rely on MERS to file foreclosure actions.
(Reporting by Scot Paltrow; Editing by Leslie Adler)