Some in the lending industry seem to think that MERS can fix just about anything. Like a college student with a roll of duct-tape, they’ll slap it on anything before shelling out a dime on a real solution. MERS, or Mortgage Electronic Registration Systems, is a book entry system designed to help Wallstreet trade mortgage securities quickly and easily. Rather than requiring the owner of a mortgage to record each transfer in the county deed records where a property is located, MERS’ name is entered directly into the county deed records, and then MERS keeps track of who owns the mortgage electronically (like the New York Stock Exchange keeps track of who owns stock without the necessity of signing over stock certificates).
But just like other areas of residential lending, folks are morphing and using MERS as a cloak to hide from accountability, and as a shiny object to distract reporters and the inquiring public from their bad behavior. Take one recent example in which Christopher Oswald, a lobbyist with the Mortgage Bankers Association, stated that MERS would be the solution to urban blight, caused when foreclosed properties sit empty for months on end without any maintenance. In this quote, he is responding to the charge that servicers should be heavily fined when they consistently ignore local housing code violations and bring down entire communities in the process. He states: 
Communities may once have needed to levy punitive fines to get the attention of servicers, but that problem has been addressed by the mortgage database, known as MERS, he said… Enter an address, and up pops the name and contact information for a servicer or property management firm.”
Article here.
So, now local officials know who it is that’s ignoring them. I wouldn’t exactly call that progress.
But using MERS as a distraction is not nearly as bad as using MERS to conceal the true owner of a loan from a borrower. For some time, borrower advocates have seen foreclosure suits brought in the name of MERS, and have subsequently asked themselves how to file a counter-claim against a book-entry system, how to verify a debt with a book entry system, or how to negotiate with a book entry system. It’d be a little like taking out a loan from your local credit union, and then getting sued by a table in the county records office for the debt.
Since lenders have had so much success shielding the owners of loans in the foreclosure process (article), MERS is also being used to shield the actual owner of properties after a foreclosure sale occurs. We are learning of eviction lawsuits taking place in the name of MERS. But even Texas courts have heartburn with a “book entry system” claiming to own property when everyone in the room knows they don’t:
According to the property records of Wise County, WFHM-Prudential holds title to the property. MERS does not. MERS did not assert in the county court that WFHM-Prudential owned the property under a deed from HUD or that it acted on behalf of WFHM-Prudential. It asserted instead that MERS itself owned the property under the substitute trustee’s deed naming it as grantee “as nominee for Lender and Lender[']s Successors and Assigns.” It stated that it was a nominee for “Lender” but did not specify who “Lender” was or show (or even assert) that it had any authority to bring a forcible detainer action on behalf of WFHM-Prudential, the owner of record of the property. … Thus, the fact that MERS may be a “book entry system” does not establish that it has a landlord-tenant relationship with Young with respect to the property.
Mortgage Elec. Registration Sys. (MERS) v. Young, 2009 Tex. App. LEXIS 3937, 2009 WL 1564994 (Tex. App. Fort Worth June 4, 2009).
Recently, the Kansas Supreme Court also found MERS to be a straw man with no enforeceable rights (article here with additional references to New York and Massachusetts cases).
Some go so far as to allege that the entire financial crisis would not have been possible without MERS. While that may simply treat MERS as a scapegoat, it is certainly clear that MERS has been integral in changing the way that mortgage-lending, securitization, and servicing has developed (or devolved) over the last few decades. Some would argue MERS is just about efficiency; however, one man’s efficiency is another man’s smoke and mirrors.
Filed under: National Foreclosure News, Texas
