New York State’s attorney general, Eric Schneiderman, filed a lawsuit against JPMorgan Chase, Wells Fargo, Bank of America®, and the Mortgage Electronic Registration Systems (MERS), alleging that the banks, by using MERS, behaved fraudulently in foreclosure proceedings in the state.
MERS was created in 1995 to provide a cheaper way for mortgage lenders to transfer ownership of mortgage debts. In the past, banks had to deal with state and local laws relating to deed transfers, and pay to record the transfer with counties. MERS centralized this data privately and electronically. This made business cheaper for mortgage lenders. It also enabled more speedy securitization of mortgage debts — a process that helped mask the risks inherent to subprime lending, and which most blame for the financial crisis of 2008.
“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages,” said Schneiderman in prepared remarks, adding, “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions.”
The lenders named in the suit, as well as others, used MERS as the mortgagee of record while they chopped up and sold mortgage debts on secondary markets, thereby avoiding paying fees to properly update local records. According to the Attorney General’s press release, MERS has only about 70 employees but is the mortgagee of record for an estimated 62 million loans. Should a loan go into default, MERS nominates a “certifying officer” from one of its client banks, allowing the bank that originated or serviced the mortgage to foreclose, though local records indicate that MERS is the beneficiary of the mortgage contract.
Attorney General Schneiderman’s suit argues that by using MERS, banks have “undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests, and potentially clouded titles on properties throughout the State of New York.”
MERS was the subject of a long investigative piece in Harper’s recently, which documented the various lawsuits filed against the organization alleging that MERS has no right to file for foreclosure. These lawsuits have had varying levels of success, most going in MERS’ favor. Notably, a Salt Lake City area man was given clear title of his home, on which he owed more than $100,000, having successfully argued in court that MERS cannot foreclose because they do not own the property or the promissory note.
Schneiderman’s suit comes as an alternative to the larger effort by 50 state attorneys general to sue the five big mortgage lenders for the ‘robosigning’ scandal. New York and California are among these states pushing for something with more teeth than the settlement now under negotiation.