Real Estate & Property Law

WaPo Explains the ABCs of MERS, Which Struggling Homeowners Are Leveraging in Loan Negotiations

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When financial industry representatives initially talked about creating a national electronic system for registering who owned mortgages 16 years ago, the plan was to have a central depository of paper documents.

But the Mortgage Electronic Registrations Systems that was adopted left lenders responsible for safeguarding original deeds and notes. Similarly, the transparency that was central to the traditional system of recording mortgages at bricks-and-mortar county offices throughout the country was also eliminated, as MERS allowed lenders to save money—and avoid recording fees—by simply registering the transaction electronically when a mortgage was transferred to a new owner, the Washington Post explains in a lengthy article today. Although lenders have access to this system, homeowners commonly don’t.

Now, less than two decades after the new electronic system was created, MERS is commonly listed at county land record offices as “nominee” for the mortgage holder. Then, if a loan is sold or the company that services the mortgage for the lender is changed, the transaction is simply registered with MERS.

A tidal wave of foreclosure litigation, however, has made clear that the new system has flaws. Because MERS, whose parent company has just 45 employees in its Reston, Va., headquarters, lacks the manpower to participate in such cases, it allowed tens of thousands of lenders to sign off on documents as officers of Merscorp Inc., the owner of the registration system.

Meanwhile, as sloppy filings by overwhelmed lenders and law firms have reportedly become commonplace, federal and state officials and lawmakers are questioning the MERS system and judges are increasingly willing to listen to homeowners who say they are the victims of bad record-keeping, reports USA Today.

Now, ironically, the electronic system that was supposed to make it easier for lenders to keep track of documents is being used as a tool by some struggling homeowners to force lenders to consider loan modifications. Because, if lenders they don’t do so, they may be required to produce a note they can’t find or never had, in order to proceed with a foreclosure, the newspaper explains.

Although, in the long run, those who haven’t paid their mortgages are likely to be forced out of their homes, the increased difficulty of foreclosing gives lenders an incentive to negotiate to resolve the situation rather than slog on through a time-consuming litigation process. Recently, judges in Florida, New Jersey and Ohio have made rulings in favor of homeowners who raised challenges to MERS.

Related coverage: “Was Mortgage Registration System Built on ‘Foundation of Sand’?”

Atlanta Progressive News: “Fulton Class Action Challenges Foreclosures involving MERS”

Housing Wire: “Bill aims to end GSE affiliation with MERS”

St. Petersburg Times (opinion): “What’s wrong with MERS — Mortgage Electronic Registration System?”

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