Will Pennsylvania Slap Down MERS?

Posted by kevin on September 22, 2014 under Foreclosure Blog | Comments are off for this article

MERSCORP is the creation of the Mortgage Bankers Association of America (MBAA). In 1993, at the MBAA convention, a paper was presented which suggested that an electronic method of tracking mortgages (similar to tracking stocks) would be more efficient than the current method of filing with a county register or clerk. The MBAA funded a study which concluded that the industry could save significant money in filing fees if it could establish and sell to the industry an electronic system.

In 1995, MERSCORP was incorporated in Delaware by the MBAA. Initial members included FANNIE MAE, FREDDIE MAC, GE Mortgage, GMAC Residential Funding Corp., 1st Nationwide Mortgage, Chase Manhattan Mortgage and others.

MERS stands for Mortgage Electronic Registration Systems, Inc. Mortgage Electronic Registration Systems, Inc. MERS is a wholly owned subsidiary of MERSCORP. MERS operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.

You have to be a member of MERSCORP to utilize the service. MERS continued to grow in 1990’s. Then, in 1999, rating agencies, Moody’s and S&P, issued releases that they had no problem with the MERS concept and implementation. This allowed MERS’s membership to explode because it became the vehicle of choice for securitized trusts. By 2007, 60% of all mortgages in the US were utilizing the MERS system according to MERS. Now, about 5500 members.

Every State in America has a recording act and has set up an apparatus for recording Deeds, Mortgages and Assignments. The recording acts require local recording of documents with payment of the requisite fees. MBAA and MERS just took it upon themselves to set up the MERS system and bypass the various recording acts with impunity. MBAA and MERS never went to any State legislature to change the recording laws. As a result, States and counties have been deprived of billions of dollars in recording fees. Moreover, a person cannot get access to information concerning who owns his or her mortgage.

How does the MERS system work. Say you borrow money from Wells Fargo. The Note would be payable to Wells Fargo, but the Mortgage would say that MERS is the mortgagee as nominee for the lender, Wells Fargo. It is recorded like any other mortgage usually at the county level. The Note is then sold three or 4 times. You would expect that the Mortgage would be assigned for each sale and recorded. The county (and ultimately the State) would receive, presumably, three or 4 recording fees. However, under MERS, if the purchaser of the Note is a MERS member, no assignments of mortgage are recorded. The transaction is memorialized on the computers at MERS, and the public does not have access to that information. Since the lender usually deals only with the servicer of his or her loan (the company that collects the money), he or she has no idea that the loan has been sold, and no where to find out whether the loan has been sold. And, as stated above, the county and State are out the fees.

Lately, however, there has been push-back against MERS. In PA, the recorder of deeds of Montgomery County brought a suit against MERS and MERSCORP in the federal district court of Pennsylvania. The lawsuit alleges that MERS shortchanged Pennsylvania out of million of dollars in recording fees by not complying with the Pennsylvania law which requires the recording each mortgage and assignment of that mortgage. MERSCORP moved to dismiss the case, but the Judge denied the motion and the case is going to trial. The Montgomery County Department of Records estimates that from 2000 to 2015, more than $15 million in recording fees have been lost. A victory at trial will, undoubtedly, lead to actions by other counties in PA.

Couldn’t happen to nicer guys

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