NY Times Exposes MERS

April 24, 2009

Tracking Loans Through a Firm That Holds Millions

Judge Walt Logan had seen enough. As a county judge in Florida, he had 28 cases pending in which an entity called MERS wanted to foreclose on homeowners even though it had never lent them any money.

MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.

“You don’t think that’s reasonable?” the judge asked.

“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”

Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.

Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.

If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.

In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a reportby NeighborWorks America, a community development group.

To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.

“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”

A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.

In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie Mae, Freddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.

At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.

“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”

Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.

Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.

“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.

MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.

When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.

The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.

Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”

In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.

“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”

The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.

In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.

Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.

“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn.”

15 Responses

  1. […] Continue reading here: NY Times Exposes MERS « Livinglies's Weblog […]

  2. Fair Game
    If Lenders Say ‘The Dog Ate Your Mortgage’

    “One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.”

  3. I have seen lots of articles concerning foreclosure cases over all the united states, but I have not seen any foreclosure cases that are taking place in Quincy, Florida and Tallahassee, Florida. Are there any lawyers out there handling foreclosure cases in Quincy and Tallahassee Florida?

  4. “If the ‘holder of the note’ isn’t fit, you MUST aquit!

    Then you must hit, and get the lender to quit!

    Then tell the lender, servicer, and their flunky law firm, too bad so sad, buh bye that’s it.

  5. The itemization of amount financed in most loans we have reviewed so far do not correspond to the HUD1. In fact we have observed a continued practice by most lenders even today of adjusting the itemization of amount financed with bogus charges and fees in order to make the loan look or feel compliant. In one case we were able to observe a $3,800.00 closing cost fee, that was not present on the HUD1 but it was shown on the itemization of amount financed.

    Just be very careful out there when you check your numbers and loan papers, you never know where these people hide their wrong doing.

    As far as MERS is concerned, Home owners need to pressure their state and county officials to force MERS to pay all the taxes they have evaded so far, this is the billions. I believe our schools and police officers need the money more that these clowns.

  6. I would appreciate exchanging comments or notes! I’m happy to share the documents I’ve filed thus far and a new ammended motion to dismiss with quoted Florida case law that I’m working on currently.

    Lisa 508 at bellsouth dot net (no spaces and symbols instead of “at” and “dot”) hoping to avoid more spamming!

    Forgive a slowed response time as my child is ill in the hospital where there is limited online access.


  7. Michael and Lisa E.,

    I would love to exchange notes. Michael, you are absolutely correct – KNOWLEDGE IS POWER!!!


  8. Lisa,

    From what I have seen, this is the standard operating procedure for the FLORIDA DEFAULT LAW GROUP. Going through the county records, I have found numerous assignments with the same “vice presidents” acting as nominees for multiple lenders.

    It looks like Alina answered your question. Let me know if you want to trade notes. Knowledge is power…


  9. Lisa E.

    My case is also the same. MERS assigned to U.S. Bank. You can search your county clerk’s website. Additionally, some counties like Orange (where my property is) has a comptroller website where you can search recorded documents.

    If you let me know which county you are in, I can send you the link to their online records. Some counties, however, do charge a fee for viewing the documents. Most of those counties are in South Florida.


  10. I just found your blog, and I think it is very helpful. I have added your feed to my reader, and I plan to keep up with it.

    That said, I’m quite certain that you are violating the NY Times’ linking policy by quoting their articles in their entirety. Generally, you should quote small sections and link to the article.

    See http://www.nytimes.com/membercenter/faq/rightspermissions.html

    May I post New York Times articles in a blog/newsgroup environment?
    It is permissible to feature an excerpt of up to 25 words of directly quoted text from any one article in a blog or newsgroup environment for discussion purposes, linking back to the full article text at nytimes.com. It is never acceptable to selectively quote from articles in a manner that changes their meaning, to use text out of context, or to combine quotes to create a sentence.

  11. Hello “Fraud in FL”.

    My story is so similar to yours. MERS as “original lender” as nominee for DHI Mortgage who “assigned” the mortgage to Chase. Now, in foreclosure with attorneys FL Default Group representing US Bank as trustee for JP Morgan.

    How did you look up the court records on the mortgage?

    Any assistance is much appreciated!

    Lisa E.

  12. I have some interesting info to share. I have been working with my servicer WAMU to prevent foreclosure but now they have turned it over to the FLORIDA DEFAULT LAW GROUP and had MERS assign my mortgage over to JP MORGAN CHASE to begin the foreclosure process. The problem I have is the “Officers” of MERS that did the assignment are actually employees of JP MORGAN CHASE.

    Up until 04/19/09, the county clerk of courts showed my original mortgage document with AMNET MORTGAGE as the lender. On 04/20/09, an Assignment of Mortgage was recorded by the clerk of court naming JP MORGAN CHASE as the assignee / mortgage holder. Here is where it gets interesting. The assignment states that MERS officers acting as nominee for AMNET MORTGAGE (assignor) assigned, transferred and conveyed the mortgage to JP MORGAN CHASE. According to my research, AMNET MORTGAGE is no longer in business so how could it have officers, plus I am not even sure they are legally the current holder of the mortgage since MERS is involved. Better yet, the signing officers for MERS as nominee for AMNET MORTGAGE are Section Managers for JP MORGAN CHASE. I discovered this by googling their names. After doing further research I found these same officers of MERS were acting as nominee’s of MERS for multiple other lenders assigning mortgages over to JP MORGAN CHASE.

    Is it legal for JP MORGAN CHASE to use its own employees as a MERS nominee to assign a mortgage from another lender (AMNET or any other for that matter) to itself?

    In my opinion there is some major fraud going on here.

  13. For any of the truth in lending experts out there

    we need some guidance on a particular item, We have run into a batch of loans from a major wall street lender that overstated finance and APR carges on the TILDS, however when we have checked the HUD 1 AND THE ITEMIZATION SCHEDULES PROVIDED AT SETTLEMENT, NONE OF THE NUMBERS MATCH. IT SEEMS THE LENDER MANIPULATED THE FIGURES AT SETTLEMENT TO MAKE THEM APPEAR OVERSTATED.

  14. we are getting victories in Virginia
    in Maryland the lenders lobbied for a change in the foreclosure laws last year and they are using affidavit of note ownership in which some one who has never seen, or even been previously employed by the investors are attesting to having ownership of the notes. Fraud on the courts, some judges are so lazy it hurts.

    Yesterday I spent two hours in the court house in Fairfax County, VA. I got so sick to my stomach watching all the foreclosure mill attorneys stealing the American hopes and dreams of so many families and the judges were clueless and the victims ignorant of their rights and defenses.

    I want to thank Christopher Brown, Esq. in Virginia for fighting the good fight. More lawyer coming in line. We need to spread the news and the information with a great sense of emergency.

    MERS as shown in this article is a cover. It is sad the reporter did not dig deeper, got close but just a fly over.

    Mortgage Analysis and Consulting

    Rescuing the truth in lending

    Forensic Mortgage Audits



  15. This is a great article , many Judges are now really questioning the right of MERS to be in court let alone foreclose . Everyone take note and really hammer home this point in court ! I did and it works.

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