assignment out of mers

• Bankruptcy Basics
• Chapter 11 Bankruptcy
• Chapter 13 Bankruptcy
• Chapter 7 Bankruptcy
• Debt Collectors and Consumer Rights
• Divorce and Bankruptcy
• Going to Court
• Property & Exemptions
• Student Loans
• Taxes and Bankruptcy
• Wage Garnishment

Understanding the Assignment of Mortgages: What You Need To Know

3 minute read • Upsolve is a nonprofit that helps you get out of debt with education and free debt relief tools, like our bankruptcy filing tool.  Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card.  Explore our free tool

A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

Upsolve Member Experiences

Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

Continue reading and learning!

It's easy to get debt help

Choose one of the options below to get assistance with your debt:

Considering Bankruptcy?

Our free tool has helped 13,590+ families file bankruptcy on their own. We're funded by Harvard University and will never ask you for a credit card or payment.

Private Attorney

Get a free evaluation from an independent law firm.

Learning Center

Research and understand your options with our articles and guides.

Already an Upsolve user?

Bankruptcy Basics ➜

• What Is Bankruptcy?
• Every Type of Bankruptcy Explained
• How To File Bankruptcy for Free: A 10-Step Guide
• Can I File for Bankruptcy Online?

Chapter 7 Bankruptcy ➜

• What Are the Pros and Cons of Filing Chapter 7 Bankruptcy?
• What Is Chapter 7 Bankruptcy & When Should I File?
• Chapter 7 Means Test Calculator

Wage Garnishment ➜

• How To Stop Wage Garnishment Immediately

Property & Exemptions ➜

• What Are Bankruptcy Exemptions?
• Chapter 7 Bankruptcy: What Can You Keep?
• Yes! You Can Get a Mortgage After Bankruptcy
• How Long After Filing Bankruptcy Can I Buy a House?
• Can I Keep My Car If I File Chapter 7 Bankruptcy?
• Can I Buy a Car After Bankruptcy?
• Should I File for Bankruptcy for Credit Card Debt?
• How Much Debt Do I Need To File for Chapter 7 Bankruptcy?
• Can I Get Rid of my Medical Bills in Bankruptcy?

Student Loans ➜

• Can You File Bankruptcy on Student Loans?
• Can I Discharge Private Student Loans in Bankruptcy?
• Navigating Financial Aid During and After Bankruptcy: A Step-by-Step Guide
• Filing Bankruptcy to Deal With Your Student Loan Debt? Here Are 3 Things You Should Know!

Debt Collectors and Consumer Rights ➜

• 3 Steps To Take if a Debt Collector Sues You
• How To Deal With Debt Collectors (When You Can’t Pay)

Taxes and Bankruptcy ➜

• What Happens to My IRS Tax Debt if I File Bankruptcy?
• What Happens to Your Tax Refund in Bankruptcy

Chapter 13 Bankruptcy ➜

• Chapter 7 vs. Chapter 13 Bankruptcy: What’s the Difference?
• Why is Chapter 13 Probably A Bad Idea?
• How To File Chapter 13 Bankruptcy: A Step-by-Step Guide
• What Happens When a Chapter 13 Case Is Dismissed?

Going to Court ➜

• Do You Have to Go To Court to File Bankruptcy?
• Telephonic Hearings in Bankruptcy Court

Divorce and Bankruptcy ➜

• How to File Bankruptcy After a Divorce
• Chapter 13 and Divorce

Chapter 11 Bankruptcy ➜

• Chapter 7 vs. Chapter 11 Bankruptcy
• Reorganizing Your Debt? Chapter 11 or Chapter 13 Bankruptcy Can Help!

State Guides ➜

• Connecticut
• District Of Columbia
• Massachusetts
• Mississippi
• New Hampshire
• North Carolina
• North Dakota
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• West Virginia

Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families resolve their debt and fix their credit using free software tools. Our team includes debt experts and engineers who care deeply about making the financial system accessible to everyone. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations.

To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal.

• Find a Lawyer
• Ask a Lawyer
• Research the Law
• Law Schools
• Laws & Regs
• Newsletters
• Justia Connect
• Pro Membership
• Basic Membership
• Justia Lawyer Directory
• Platinum Placements
• Gold Placements
• Justia Elevate
• Justia Amplify
• PPC Management
• Google Business Profile
• Social Media
• Justia Onward Blog
• The Legally Invalid Assignment Defense to Foreclosure

People who are facing the possibility of a foreclosure on their home may want to investigate the history of their mortgage. If the assignment to the foreclosing party is not valid, this may be a viable defense to a foreclosure. In some states, you can demand that the foreclosing party produce a written assignment of the mortgage. If it does not have an assignment or failed to record it as required by state law, this may result in the dismissal of the foreclosure action. Recording rules may require that the foreclosing party record the assignment before starting the foreclosure.

Courts in other states are more lenient in their review of assignments. Since the mortgage is closely associated with the promissory note, the foreclosing party may be allowed to enforce the promissory note even if it cannot produce a valid assignment of the mortgage. You should seek legal guidance in your state to determine whether this defense may be viable.

Homeowners who believe that they may have a defense based on an invalid assignment may wish to consult with a knowledgeable foreclosure lawyer, since this defense can become complicated. Justia offers a lawyer directory to simplify researching, comparing, and contacting attorneys who fit your legal needs.

The Relationship Between Mortgages and Promissory Notes

The mortgage and the promissory note are the two key documents attached to a loan for buying a home. Some purchases involve a deed of trust rather than a mortgage, but they are functionally equivalent in this context. While the promissory note is your guarantee to repay the loan, the mortgage gives the lender the right to foreclose if you do not repay the loan as arranged. The mortgage also identifies the property that will serve as security for the loan. Thus, the two documents work together in establishing the lender’s rights.

The Role of Mortgage Assignments in Loan Transfers

A bank or other lender often will sell a mortgage to another party, which will collect payments and pursue the homeowner if they fail to keep up with the mortgage. To transfer the loan, the original lender will endorse the promissory note to the new owner of the mortgage. This is because collection efforts hinge on owning the promissory note. If the foreclosing party cannot produce the promissory note, the homeowner will have a defense to the foreclosure.

Meanwhile, the new owner will record the assignment of the mortgage. This includes transferring the right to foreclose, as provided by the mortgage, to the new owner. The assignment will provide the amount of the mortgage and the names of the homeowner, the original lender, and the new owner of the mortgage. It also will contain a description of the property attached to the mortgage and the date when the mortgage took effect.

An invalid assignment defense may only be a temporary solution until the new owner records an assignment in their name.

The mortgage industry uses a tool known as the Mortgage Electronic Registration System (MERS) to keep track of assignments. MERS may be a nominee for the lender, or it may receive the mortgage as an assignment. If MERS is the current assignee, it cannot pursue a foreclosure because it does not have an interest in the promissory note. MERS simply serves as an agent for the current owner of the mortgage and assists in creating a record for transfers of the mortgage. This allows banks to more easily transfer loans among them without creating a new assignment each time. You may have a defense against a foreclosure action if MERS is listed as the owner of the mortgage. However, this likely will be only a temporary solution until the new owner records an assignment in their name.

Last reviewed October 2023

Foreclosure Law Center Contents   

• Foreclosure Law Center
• Errors and Abuses by Mortgage Servicers & Your Legal Rights
• Foreclosure Trustees & Their Legal Obligations
• Strict Foreclosure Laws
• Expedited Foreclosure Laws & Procedures
• Tax Debt Leading to Foreclosure & Legal Concerns
• Homeowners' Association Liens Leading to Foreclosure & Other Legal Concerns
• Timeshare Foreclosures & the Legal Process
• Investment Property Foreclosures & Your Legal Options
• Manufactured Home Foreclosures & Relevant Legal Concerns
• The Right of Redemption Before and After a Foreclosure Sale Under the Law
• Reinstatement and Payoff to Prevent Foreclosure & Your Legal Rights
• Fannie Mae and Freddie Mac Foreclosure Prevention Strategies
• Divorce and Foreclosure Prevention — Legal & Practical Considerations
• Natural Disasters and Legal Options for Foreclosure Prevention
• Federal Mortgage Servicing Laws Protecting Homeowners
• Fighting a Foreclosure — Legal Options and Issues
• Homeowners' Legal Rights Before, During, and After Foreclosure
• How Liens and Second Mortgages May Legally Affect Foreclosure
• Foreclosure Scams — Legal Concerns & Consumer Protections
• Judicial vs. Non-Judicial Foreclosure Under the Law
• Fighting a Foreclosure in Court & Legal Strategies
• Delaying a Foreclosure
• The Statute of Limitations Defense Under Foreclosure Law
• Using the Legally Defective Affidavit or Declaration Defense to Foreclosure
• Setting Aside a Foreclosure Sale
• Challenging Fees in Foreclosure
• Mortgage Servicing Rules, the FDCPA, and Your Legal Rights
• Working With a Foreclosure Lawyer
• Alternatives to Foreclosure — Legal & Financial Considerations
• Foreclosure Laws and Procedures: 50-State Survey
• Foreclosure Law FAQs for Consumers
• Find a Foreclosure Defense Lawyer

Related Areas   

• Home Ownership Legal Center
• Bankruptcy Law Center
• Debt Relief & Management Legal Center
• Consumer Protection Law Center
• Landlord - Tenant Law Center
• Related Areas
• Bankruptcy Lawyers
• Business Lawyers
• Criminal Lawyers
• Employment Lawyers
• Estate Planning Lawyers
• Family Lawyers
• Personal Injury Lawyers
• Estate Planning
• Personal Injury
• Business Formation
• Business Operations
• Intellectual Property
• International Trade
• Real Estate
• Financial Aid
• Course Outlines
• Law Journals
• US Constitution
• Regulations
• Supreme Court
• Circuit Courts
• District Courts
• Dockets & Filings
• State Constitutions
• State Codes
• State Case Law
• Legal Blogs
• Business Forms
• Product Recalls
• Justia Connect Membership
• Justia Premium Placements
• Justia Elevate (SEO, Websites)
• Justia Amplify (PPC, GBP)
• Testimonials

(logo) Attorneys' Title Guaranty Fund Inc.

• Directories
• Offices/Hours
• ATG / Advocus Wisconsin
• Merger Info
• Advocus FAQs
• Become a Member
• Become an ATG Agent
• Become a Registered Site User
• ORDER TITLE NOW
• Complete Title Examination
• Prepare Settlement Statement
• Schedule Closing
• Wire Transfer Instructions
• Request Closing Protection Letter
• TRID Calculator
• City Stamps
• Receiving or Sending Encrypted ATG Emails
• ALTA Best Practices
• Contact Your Representative
• Password Request
• Agent Newsletters
• Closing/Bottomline Information
• Commercial Title Services
• Construction Escrow Services
• Consumer Brochures
• Contact Your Closer
• Escrow Services
• Foreclosure Information
• Real Estate Calculators
• Real Estate Transfer Tax Ordinances
• Legal Education

Search form

• Closing Information
• -- Discount Chicago Parking
• Bottomline Figures
• CPL Request
• Transfer Tax Ordinance
• Advocus Info/Promo Flyers
• WI Bar Real Estate Forms
• WI Register of Deeds Flat Fee
• -- Wire Transfer Instructions
• -- Imagine the Potential...
• -- Information Packet
• Advocus Construction Escrow Services
• Search Services
• The Trusted Adviser
• Legislative Updates
• Affordability Calculator
• Amortization Calculator
• Monthly Payment Calculator
• Mortgage Calculator
• Mortgage Refinance Calculator
• Glossary of Real Estate Terms
• What Is ATG REsource?
• System Requirements
• What Is the ASP Environment?
• Cyber Crime Wire Fraud

Transaction Tools

• Order Title Now
• Water and Zoning

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS (MERS) by Christopher J. Beck, ATG Senior Law Clerk

Introduction

Mortgage Electronic Registration Systems, Inc. (MERS) provides a centralized registry for tracking ownership interests and servicing rights of mortgages. As the number of mortgages registered with MERS grows, MERS increasingly will appear in the chain of title. This article will address the following questions when dealing with transactions in which MERS is in the chain of title:

• How should an assignment to MERS appear in the chain of title?
• May a mortgage and an assignment to MERS be combined into a single document?
• How does one obtain a payoff letter and release for a mortgage assignment to MERS, and how does this appear in the chain of title?

MERS - owned by several companies involved in the mortgage finance industry - began in 1995 as a member-owned, non-stock corporation. It was created to address the problems associated with tracking the beneficial interests and servicing rights of mortgages due to the increased number of transactions in secondary markets. The goal was to make the tracking of the secondary mortgage assignments more similar to the stock market. Thus, an electronic registry was created to track such assignments of rights.

For MERS to be effective, mortgages must be properly registered with the MERS system. Each mortgage is assigned an individual Mortgage Identification Number (MIN) that tracks the mortgage for its life. The MERS system depends on MERS being named as the mortgagee of record in the county public records. This may be done in one of two ways. First, MERS can be identified as the nominee for the lender on the mortgage itself (referred to as "MERS as Original Mortgagee" or MOM). If the mortgage does not name MERS as the original mortgagee, then the mortgage can be assigned to MERS. The mortgage would begin as a typical mortgage, and as such it must be recorded in the county recorder's office. The mortgage would then be assigned to MERS, with the assignment being recorded in the public records. At this point, under either method MERS will be the assignee or mortgagee of record for the life of the mortgage. Assignments are not made outside of the MERS system. At this point, the chain of title will stop with MERS. MERS will internally track all subsequent assignments of interests and rights as long as the mortgage interests remain with a MERS member.

Benefit of MERS

The benefit of MERS is to create efficiency in secondary mortgage markets, thereby reducing costs. MERS relies on the current mortgage recording laws and procedures so that it may perform its goals, and is not meant to in any way replace governmental recording functions. MERS members are expected to update the transfers within the system. MERS has acknowledged that it is critical to its success that they accurately keep track of assignments. Interested parties are putting a considerable amount of trust in the accuracy of the MERS system and in its members diligently updating records.

How Should an Assignment to MERS Appear on the Chain of Title?

Signed mortgage documents are recorded in the county land records to make a public record of the security interest (in the form of a mortgage or a deed of trust). If MERS is not identified as the original mortgagee, an assignment must be recorded naming MERS as the mortgagee when the loan is registered on the MERS system. An assignment to MERS should appear like any other assignment. An assignment naming MERS as the assignee of record is prepared and recorded with the county recorder's office. MERS will be the assignee of record for the life of the loan and the chain of title should end with MERS unless the rights are assigned to a non-MERS member, a foreclosure, etc.

May a Mortgage and an Assignment to MERS Be Combined into a Single Document?

Beginning in 1997, it has been possible to name MERS as the original nominal mortgagee (MOM), eliminating the need for a subsequent assignment to MERS. If MERS is named as the nominee for the lender, there is no need for an assignment to MERS and no further recorded or unrecorded assignments are necessary as long as the loan remains on MERS. After the initial step naming MERS as mortgagee of record, the subsequent treatment of the mortgage is the same whether it was initially created through an assignment or through MOM. MERS prefers to be named as the original mortgagee because it eliminates the need for a subsequent assignment.

How Does One Obtain a Payoff Letter and Release for a Mortgage Assignment to MERS, and How Does This Appear in the Chain of Title?

Obtaining a payoff or release should be a simplified process for mortgages registered with MERS. It is the obligation of the MERS member currently servicing a loan to de-activate the loan on the MERS system and to prepare and send a lien release to the county recorder's office. To find out the name of the servicer, non-MERS members will have to call the MERS Voice Response Unit (VRU) and obtain the servicer's name, address, contact person, and phone number. It will be necessary to contact the servicer because the MERS system will not give out payoff information. It is the responsibility of the servicer to give out all payoff information.

The loan servicer will send a lien release to the county recorder's office. The release should contain the MIN and the telephone number to access the MERS VRU, which is the number the general public may call to obtain information about the MERS servicer. The number for the VRU is 1-888-679-MERS (679-6377). To access this service, callers will have to know either the MIN or the social security number of the borrower. If an inquirer lacks this information, he or she will still be able to access this information by calling the MERS Help Desk at 1-888-680-MERS (6377), provided one can provide the mortgagor's name or the property address. If a non-MERS member does not have any of the above information, the MIN should be available at the county clerk's office once the lien release has been recorded. "MERS has made a commitment to provide access to its system to county recorders and to the public generally," and the county recorder should be able to get people the information they need. 1997 Ill. Atty.Op.Gen No. 97-008.

As MERS becomes more prominent in the mortgage industry, title agents and companies may have to adapt some of their methodology and procedures to conform to the MERS system. While this initially may prove to be an inconvenience, the title industry should ultimately benefit from increased mortgage tracking efficiency that MERS will provide.

© ATG atgc1099vol23

Print this page

Subscribe to our Publications

© 1998-2024 ATG ®

General Inquiries

IL: 800.252.0402

WI: 800.788.8989

ATG Software Support

800.252.0402

Customer Service

Contact Megan Scharlau

312.752.1123

Please turn on JavaScript in your browser It appears your web browser is not using JavaScript. Without it, some pages won't work properly. Please adjust the settings in your browser to make sure JavaScript is turned on.

Mortgage electronic registration system (mers), explained.

Do you know who owns your mortgage? While this information isn’t essential for homeowners when they send monthly mortgage payments, it might come in handy one day — for example, if you decide to refinance your loan . This is when the Mortgage Electronic Registration System (MERS) comes into play. Let’s learn what exactly is MERS, its role in mortgages and how to look up your mortgage in MERS.

What is Mortgage Electronic Registration System (MERS)?

MERS is an American private electronic database created to track new mortgage loans, servicing rights and ownership of the loans. It provides free public access to information about home mortgages and is used by homeowners, local governments, servicers, lenders, municipalities and insurers, among others.

Every loan in MERS is assigned a mortgage identification number (MIN). This number stays the same throughout the loan's life, making it easier to track in the system, even if the loan is sold to another financial institution.

MERS and its role in mortgage transactions

Mortgages are bought and sold all the time. However, before MERS was created, the lender would have to prepare and file an assignment — a document that states a mortgage transfer — in county land records. Thanks to MERS, lenders can potentially save time and costs on filing assignments every time the mortgage gets transferred to another holder.

When you look into who owns your mortgage, you may also discover MERS itself documented as the loan owner. This is known as a MOM (MERS as Original Mortgagee) loan. However, even if MERS is mentioned as a mortgagee, it does not collect monthly payments and doesn't own the debt or service any loans. In actuality, MERS is generally only listed as a mortgagee for convenience. This way, every time a loan is transferred, MERS can act on behalf of the loan holder and eliminate the need for separate assignments.

Additionally, you should know that MERS cannot be a party to start foreclosure , even if it's mentioned as a mortgagee. If the MOM loan goes into foreclosure, MERS would usually assign the loan back to the current owner.

How to look up a mortgage in MERS

If you're a homeowner, MERS would have little impact on you or your mortgage. However, it may come in handy to learn who the holder of your loan is. This information is necessary for those who want to refinance their house, ask to modify the loan or update information about homeowners insurance , among others. You can search the registry online or by phone.

Homeowners can access MERS by providing:

• Property address
• Borrower's name and social security number (SSN)
• Mortgage Identification Number (MIN), which you can find on the deed of trust, loan statements or signed mortgage

If you cannot locate your MIN, the other details listed above are usually still sufficient to verify the current servicer. Additionally, you might have to confirm some identifying information to see the results.

Pros and cons of Mortgage Electronic Registration System (MERS)

As you learned earlier, MERS has little effect on regular homeowners. However, it does bring certain benefits and disadvantages to the whole mortgage management process.

Pros of MERS:

• Serves as a singular destination for loan information: MERS is a good place to start for any homeowner who needs to find out who holds their mortgage. It is also used nationwide by many players in the real estate industry for various reasons, such as finding undisclosed liens or establishing those responsible for maintaining vacant properties.
• May save money and time for lenders: MERS helps facilitate the process of transferring the loan and reduces the costs of consecutive assignment filings.

Cons of MERS:

• May be confusing for homeowners: If MERS is indicated as a beneficiary of the mortgage in its database, it may be misleading to borrowers who might think that MERS has more impact on their loan than it actually does.
• Makes it challenging to establish a loan owner in some cases: When it comes to MOM loans, it could be potentially more difficult to track a current loan owner since MERS is technically listed as one.

MERS is a private database created to facilitate tracking mortgages and any ownership changes. As a homeowner, you can use it to see who your loan holder is in case you want to refinance or modify your mortgage. For lenders, MERS provides the convenience of a singular place.

Mortgage Electronic Registration System FAQs

1. is mers the only way to see who owns a mortgage.

You can look up your mortgagee in a few different ways. For example, you can call or send a written request to your mortgage servicer or check the Fannie Mae and Freddie Mac websites. However, MERS was created as a unified database, so it could potentially be a good place to start your search.

2. Is there a MERS registration fee?

Yes, MERS may charge a small registration fee when the loan is recorded in its system. You should also know that as a homeowner, you can access the registry to find information about your mortgage service provider for free.

3. What is an MOM loan?

MOM stands for "MERS as original mortgagee." This is done to save time and recording costs: since MERS is listed on paper as the loan owner, the information about the mortgagee does not have to change.

Take the first step and get preapproved.

Have questions connect with a home lending expert today.

• home ownership
• refinancing

What to read next

Owning a home water features 101: a homeowner’s guide.

A water feature can add life to your patio or garden. Learn what outdoor water features are, the different types of features and if they add value to your home.

owning a home Encumbrance in real estate, explained

Learn what encumbrances are in real estate, their types, and why encumbrances may not necessarily be a bad thing for buyers, sellers or owners.

owning a home HVAC maintenance: A guide for homeowners

HVAC maintenance is essential to a well-functioning home. Learn how an HVAC system works, common HVAC problems, and how to prevent them from occurring.

owning a home Rate and term refinance, explained

A rate and term refinance allows homeowners to replace their mortgage term with a new loan and rate. Learn how a rate and term refinance works and its benefits.

• 941-444-7142

Promissory Notes, Mortgage Assignments, and MERS’ Role in Real Estate

After the fall out of the subprime mortgage crisis that triggered the Great Recession, the effects still linger when looking at homeownership statistics in the United States. Nearly 10 million homeowners lost their homes to foreclosure between 2006 and 2014. Damaged credit and traumatized psyches paired with stricter lending standards and soaring median home prices mean that some former homeowners will never own another home.

Today, the United States is seeing the highest rates of unemployment since the Great Depression at nearly 15%  due to the COVID-19 pandemic, and of those who still own a home, nearly 4.1 million borrowers are struggling to make their monthly payments. Many are turning to forbearance for momentary relief from their mortgages.

For many homeowners, the question of what happens to their mortgage after closing day might not ever come up. Until the threat of foreclosure or the need for forbearance arises, most borrowers simply send in their monthly payments with no questions asked.

Now is a good time to consider the process after closing, and how it affects their property rights. Here are some of the questions to ask.

What happens after a real estate closing?

• At closing, the borrower signs the mortgage, the deed, and the promissory note
• The mortgage and the deed are recorded in the public record
• The promissory note is held by the lender while the loan is outstanding
• Payments are sent to the mortgage servicing company
• The mortgage may be securitized and sold to investors
• The mortgage may be transferred to another bank
• The mortgage servicing rights may change to another company
• When the mortgage is paid in full, a mortgage lien release or satisfaction with a number referencing the original mortgage loan is recorded in the public record to show the debt is no longer outstanding
• The promissory note is marked as paid in full and returned to the borrower

Banks often sell and buy mortgages from each other as a way to liquidate assets and improve their credit ratings. When the original lender sells the debt to another bank or an investor, a mortgage assignment is created and recorded in the public record and the promissory note is endorsed.

What are Loan Transfer Documents?

Assignments and endorsements prove who owns the debt and subsequently who has the authority to bring foreclosure action.

Mortgage Assignments

A Mortgage Assignment is a document showing a mortgage loan has been transferred from the originator to a third party.

Note Endorsements

In addition to the assignment, the originator of the loan or the most recent holder of the loan must endorse (or sign over) the promissory note whenever the loan changes hands. Sometimes, the note is endorsed “in blank,” which means that any party that possesses the note has the legal authority to enforce it.

While these documents are supposed to be recorded in the public land records systems, sometimes there’s a “break” in the chain. A missing mortgage satisfaction or assignment can cause a huge headache for homeowners when they go to sell. Without knowing who the official mortgage lienholder of the property is, the home can’t be sold. The title agent in charge of the closing is tasked with fixing the issue so that clear ownership rights can be established and the final mortgage payoff can be sent to the right lender if needed.

What is Mortgage Securitization?

In the last 30 years or so, the buying and selling of mortgage loans between lenders, banks, and investors has grown more complicated. When a mortgage is turned into a security, it’s pooled with similar types of loans and sold on the secondary mortgage market. The purchasers or investors in these securities receive interest in principal payments.

Securitization is good for lenders because it allows them to sell mortgage loans from their books and use that money to make more loans.

Where securitization goes wrong, as we saw during the housing crisis, is when bad or “toxic” assets are pooled together and sold on the secondary market to unsuspecting investors. Subprime mortgage-backed securities had received high ratings from credit agencies and offered a higher interest rate, but they also were the first to hemorrhage losses when borrowers began defaulting on homes with underwater mortgages.

Securitization isn’t an inherently good or bad process, it’s simply a mechanism by which banks liquidize assets, increase their credit and ratings, and clear their balance sheets.

For homeowners, securitization means that the mortgage isn’t owned by a single lender and is instead part of a pool of mortgages owned by investors. A mortgage service company is responsible for collecting the mortgage payments and sending it to the proper investors. Securitization also means that tracking the note and who has the authority to enforce it can get messy.

What is the Mortgage Electronic Registration System, Inc. or MERS?

The MERS system is a private, third-party database system used to track servicing rights and ownership of mortgages in the United States. This system of registering the promissory note and mortgage was created to make transferring these documents easier on the secondary mortgage market.

How does MERS work?

For some real estate transactions, the mortgage originator will designate MERS as the mortgagee at closing. These loans are called MERS as Original Mortgagee (MOM) loans. When buying a home, a borrower should see clear language on the mortgage or deed of trust document granting and conveying legal title of the mortgage to MERS as mortgagee. This gives the company the right to act on behalf of the current and subsequent owners of the loan.

In other transactions, the loan may be assigned to MERS in the public record at a later date after closing.

After MERS is designated as a nominee to act on behalf of the lender, it tracks the transfers of the loans between parties and acts as a nominee for each holder. This eliminates the need to file separate assignments in the public record each time the loan is transferred. If a lender sells the loan, MERS will update this information in their system.

Even though MERS is designated as the mortgagee, it doesn’t own the debt or hold the promissory note. MERS doesn’t service mortgages or collect payments on mortgages.

Benefits of MERS

Some of the benefits of the MERS system include:

• No document drafting fees
• Eliminates the need for multiple assignments each time the loan changes hands
• Reduces recording costs
• Saves time and administrative costs for lenders and servicers
• Provides the identification of servicers and investors for free for homeowners and lenders
• Used by Lenders to find undisclosed liens
• Used by municipalities to find companies responsible for maintaining vacant and abandoned properties
• Mortgage Identification Numbers (MIN) are assigned to each loan for easy tracking
• Selling of loans and servicing transfers are more efficient in the secondary market
• Obtaining lien releases when a lender goes out of business is simplified
• Cost savings by the mortgage industry is theoretically passed on to homeowners

Does MERS really save consumers money?

The MERS system is not meant to act as a replacement for public land records. However, some states, including Kentucky, New York, Texas, Alabama, and Delaware have sued the company that controls MERS for lost revenue from missing record filing fees. In the case of Kentucky , the state alleged that MERS did not record mortgage assignments with Kentucky County Clerks as they were transferred between banks. At $12 a recording, all those transfers without corresponding mortgage assignments add up to big bucks.

Despite numerous lawsuits challenging MERS over its mortgage assignment authority, the company that controls MERS usually receives favorable judgments . In 2016, courts in Texas ruled that MERS’ mortgage assignments were valid and dismissed two cases. County recorders in Pennsylvania also brought cases claiming that MERS and MERS System members failed to record mortgage assignments when transferring promissory notes, a violation of Pennsylvania recording laws. MERS emerged as the winner of these lawsuits as well.

Kentucky and other states argue that skipping out on these fees hurt the consumers and taxpayers in their states.

What is MERS role in foreclosures?

Depending on the state, a foreclosure process might be either judicial (reviewed by a judge in court) or nonjudicial. In the past, MERS, acting on behalf of lenders, has been named as the plaintiff in foreclosure proceedings. Sometimes MERS was even listed as the beneficiary in nonjudicial notices.

Whether or not MERS has the authority to file foreclosure as either the plaintiff or beneficiary is hotly contested. Some states have ruled that MERS doesn’t have standing to foreclose since it doesn’t have any financial interest in either the property of the promissory note.

MERS Splits the note and the mortgage

A court case from 1872, Carpenter v. Longan , established that where the promissory note goes, a deed of trust or mortgage must follow and, according to the United State’s Uniform Commercial Code (UCC) , the promissory note must also have a clear chain of title.

Foreclosure proceedings during the Great Recession proved to be complicated by the MERS system. Within the MERS system, a note and mortgage may be transferred multiple times, so to avoid an endorsement each time, the note is “endorsed in blank.” In one foreclosure after the other, borrowers were able to demonstrate that the subsequent assignments of the promissory note had gone unendorsed.

Although the MERS systems has helped the mortgage industry, title agents, and even borrowers better manage and understand who has the servicing rights and holds the authority to foreclose, several borrowers facing foreclosure have argued that the system impermissibly “splits” the note and the mortgage between the note holder and MERS as the beneficiary of the deed of trust or mortgage.

This process of bifurcation, it’s claimed, causes the relationship between the mortgage and note to become defective and subsequently unenforceable.

Homeowners facing foreclosure, especially in the aftermath of the housing bubble burst of 2008, were successful in delaying or avoiding foreclosure by arguing that the authority to foreclose was not satisfactorily established due to breaks in the chain of assignments and endorsements.

However, Article 3 of the UCC establishes anyone who possesses the note has the legal authority to enforce it. So foreclosing parties have countered that possession of the note should be enough.

As a result, some states, like Michigan, have ruled in favor of these borrower’s arguments by requiring reunification through valid assignment before foreclosures may proceed. Others have ruled that reunification is not necessary since MERS would be authorized to foreclose for the note holder on their behalf. In 2015, The Nevada Supreme Court actually clarified previous rulings by stating that the involvement of MERS actually cures the defect. This is because the note holder could potentially or theoretically direct or compel MERS to assign the deed of trust, resulting in reunifying the instruments.

Homebuyers should always ask questions

With the advent of eClosing solutions, eNotes, eVaults, and the MERS eRegistry , the real estate, title, and mortgage industry continues to build systems that improve the homebuying experience.

Despite all the advancements, homebuying can be a confusing and overwhelming process. It’s important to ask questions of the right real estate professionals. Hiring your own attorney to represent your interests in the real estate transaction is always a good idea.

While the pros and cons of MERS is debated, homeowners today will want to keep up with recommendations from the CFPB should they fall behind on their mortgage payments and reach out to their mortgage servicer as soon as possible.

Keep Reading

Is release tracking part of your post-closing process?

What the Experts are Saying About This Year’s State of the Industry for 2024

Reflecting on 2023’s Biggest Moments

What The Experts Are Saying About This Year’s State of Title – Technology and AI

2023 State of the Title Industry Survey Webinar Recap

What Kind of Land Survey Do I Need?

10 Common Misconceptions About Land Surveys

6 Practices for Title Professionals to Safeguard Against Email Phishing Attacks

Amanda Farrell is a digital media strategist at PropLogix. She enjoys being a part of a team that gives peace of mind for consumers while making one of the biggest purchases of their lives. She lives in Sarasota with her bunny, Buster, and enjoys painting, playing guitar and mandolin, and yoga.

• Search Search Please fill out this field.
• Personal Finance

What Is the Mortgage Electronic Registration System (MERS)?

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

What Is a Mortgage Electronic Registration System—MERS?

The Mortgage Electronic Registration System (MERS) is a database created by the mortgage banking industry. A confidential electronic registry of mortgages originated in the United States, it keeps track of transfers of and modifications to servicing rights and ownership of the loans. It is used by the real estate finance industry for residential and commercial mortgage loan recording trading.

MERS, which also refers to the privately held company that manages the database, is approved by such government-sponsored enterprises as the Federal National Mortgage Association ( Fannie Mae) , the Federal Home Loan Mortgage Corporation ( Freddie Mac) , and the Government National Mortgage Association ( Ginnie Mae) , along wth such government agencies as the Federal Housing Administration (FHA) and the Department of Veterans Administration (VA) that are involved in housing loans. The California and Utah Housing Finance Agencies and all major Wall Street rating agencies make use of it as well.

Key Takeaways

• Mortgage Electronic Registration System (MERS) is a privately owned database that the mortgage banking industry created to simply the registration and transfer of mortgages.
• By tracking mortgage transfers electronically, MERS eliminates the need of a lender to register the transfer with the county recorder every time the loan is sold from one bank to another.
• Sometimes MERS itself is designee as the mortgage lender (mortgagee).
• While MERS can save time and recording costs, it has drawn criticism for making it difficult to see who actually is the current owner of a mortgage.

Understanding the Mortgage Electronic Registration System—MERS

Each time a mortgage is sold from one bank to another, an assignment—a document showing that the mortgage has been transferred—is, theoretically, prepared and recorded in the county land records. The assignment transfers all of the interest the original lender had under the mortgage to the new bank.

By tracking loan transfers electronically, MERS eliminates the long-standing practice that the lender must record an assignment with the county recorder every time the loan is sold from one bank to another.

The MERS system is used by mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders, and consumers. County and regulatory officials and homeowners can access MERS free of charge. Homeowners can look up information on their own mortgages that are registered with the system.

In order to use the electronic tracking, the servicer of the mortgage assigns it with a mortgage identification number (MIN) and then registers the loan with the MERS database. Sometimes, MERS itself is designated as the mortgagee, as the original lender is officially called in the mortgage documents; such a loan is known as an original mortgagee (MOM) loan. From there, the seller can originate the mortgage with MERS as a nominee of the lender (also referred to as the beneficiary), and then assign or record the assignment of the loan to MERS in the county land record. This would make MERS the mortgagee of record.

While MERS can act as mortgagee in county land records, it doesn't actually own the mortgage loan.

If the lender sells the loan, MERS will update its information regarding the mortgage. The servicer of a mortgage can have it removed from the MERS database by sending a request to have it deactivated. MERS will, in turn, notify Fannie Mae. If the servicer of a mortgage wants to end their membership with MERS entirely, it must also notify Fannie Mae as soon as possible.

Pros and Cons of the Mortgage Electronic Registration System—MERS

As an electronic, one-stop site for mortgage documents—deeds of trust and promissory notes—MERS greatly simplifies the mortgage process. MERS can act as a cost-saving measure to some degree because, by acting as a mortgagee, it cuts the expense of recording the transfer of a mortgage from one lender to another. Having the loan in MERS’ name (as nominee) in the land records saves time and recording costs because multiple assignments aren't necessary each time the loan changes hands.

The database has drawn some criticism, though. During the 2008 housing crisis , the system made it difficult at times to sort out who actually owned mortgages. That created a challenge for homeowners facing foreclosure or relief from their loans, as they needed to know who held their mortgages in order to work out some form of remedy.

MERS. " About Us Frequently Asked Questions ."

MERS. " Quick Facts ," Page 1.

MERS. " Homeowners ServicerID ."

MERS. " MERS System Frequently Asked Questions ."

Govinfo.gov. " Problems in Mortgage Servicing from Modification to Foreclosure ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

Trending News

Related Practices & Jurisdictions

• Real Estate
• Financial Institutions & Banking

Introduction

One need not be an expert in banking or real estate to have become acutely aware of the 2008 financial crisis and the housing bubble that largely precipitated it. High unemployment, low economic growth, and record government deficits are daily reminders of the lingering effects of this cataclysmic series of economic events. Perhaps in no area more than real estate is the fallout still clearly visible. Home ownership rates are down, delinquency rates are up, and a mass of foreclosures weighs like an albatross on both the financial industry and the United States economy. One entity, the Mortgage Electronic Registration System (MERS) is emblematic of this problem. MERS was forged out of the environment which ultimately led to the housing bubble, helped sustain and strengthen this bubble, is a lead contributor to the ongoing foreclosure crisis, and is a primary impediment to its swift resolution. MERS, and more precisely judicial treatment of MERS, will have a profound impact on not just resolving the broken foreclosure process, but also upon the real estate market going forward, and in turn, economic recovery.

I. DEVELOPMENTS LEADING TO THE CREATION OF MERS

A. background on real estate transactions.

Before understanding MERS, it is necessary to grasp the fundamentals of a basic residential real estate transaction. “In its traditional and mostbasic form, a home mortgage loan consists of a mortgagor, a note and mortgage, and a mortgagee, with the mortgagee originating the mortgage and also performing both the loan servicing and investor roles.” [i] Generally, a mortgage secures underlying debt, which, in the case of a residential real estate transaction, is real property. [ii] “This secured debt is commonly evidenced by a promissory note payable to the order of the lender.” [iii]   Basically, “the note is the IOU that contains the borrower’s promise to repay the money loaned,” whereas “the mortgage is the document that connects the IOU with the house. The mortgage gives the lender a contingent right to the house; it provides that if the borrower does not pay according to the terms of the note, then the lender can foreclose and have the property sold.” [iv]

The traditional process for change in ownership of the loan is as follows:

If the mortgagee sold the loan, the mortgage (including the servicing) typically was assigned via an assignment of the mortgage to a new mortgagee. This assignment of the mortgage was typically recorded. In this basic model, the same mortgagee is always the holder of the note, the owner and servicer of the loan, and the mortgagee of record. [v]

Later, if this property is being foreclosed on, “the amount owed on the debt attaches as a lien against the mortgaged property in favor of the debt’s owner, and the court may order a judicial sale to satisfy the lien.” [vi]

This basic mortgage process has become much more complicated over time as widespread changes in the banking industry have propagated. [vii]

B. Consolidation of Banks, Concentration of Banking Assets, and Deregulation

In the last 30 years, the U.S. banking system has changed dramatically, with the total number of banks and other financial institutions steeply declining, while financial assets have become increasingly concentrated in a handful of large banks. [viii] Innovation and deregulation have largely been contributing factors.  In the latter half of the twentieth century, new technologies and the widespread adoption of existing technologies, including the fax machine, personal computers, and the internet, made communication and the transfer of information increasingly faster and less cumbersome. [ix] This “freed the financial services industry from the constraints of time and place...” allowing firms “to transfer huge amounts of capital around the globe with the click of a mouse.” [x]

Just as it was becoming cheaper and more feasible for banks to consolidate their operations and quickly move capital, a climate of deregulation cleared the way for them to do so. [xi] “In the early 1980s, policymakers began a decades-long process of deregulating the banking and thrift industries so that they could be more responsive to marketplace realities.” [xii] “In the 1970s, commercial banks faced restrictions on interest rates,” and were operationally limited to “deposit taking and lending – to the exclusion, for example, of underwriting many corporate securities and insurance products.” [xiii] Furthermore, “no state permitted banks headquartered in other states either to open branches or to buy their banks”. [xiv]

Today, after 30 years of deregulation, most geographical and interest rates restrictions have been removed or severely relaxed, as have the restrictions on underwriting corporate securities and insurance. [xv]   

  C. Real Estate Boom

While the banking industry was experiencing widespread consolidation and asset concentration from the 1980’s through the 2000’s, real estate assets in the United States began appreciating in value at an historically high rate, starting in the 1990’s. [xvi] “Government data shows that inflation-adjusted house prices nationwide were on average essentially unchanged from 1953 to 1995… [but] [b]y 2002, house prices had risen by nearly 30 percent after adjusting for inflation.” [xvii]

This infusion of capital into the housing sector created “a substantial run-up—indeed, a large bubble—in house prices: Increases in … house prices in the United States averaged 12 1⁄2 percent (on a year-over-year basis) during the 2003–05 period.” [xviii]

Banks and other financial institutions invested heavily in the residential real estate market, hoping to capitalize on rising prices, [xix] which caused prices to rise even further, attracting even more homeowners, investors, and capital, even further increasing prices, even further inflating the bubble. [xx]

  D. Mortgage Securitization

The development of a practice known as “mortgage securitization” allowed banks and other financial institutions to offer more loans, including residential home loans, and to quickly profit from rising housing prices. “Securitization [is the] process of pooling many mortgages into a trust and selling income from the trust to investors on Wall Street.” [xxi] Traditionally, when a bank loaned money to a person or family seeking to buy a home, the bank would require 20% of the purchase price of the property as down payment. [xxii] The bank would usually retain ownership of the note and mortgage, and service the loan. [xxiii]

As banks consolidated and became more sophisticated, instead of retaining ownership of these notes and mortgages, they began to sell them as securities to investors, thereby “securitizing” the loan. [xxiv] This helped banks in two ways: banks received money quickly which they could immediately plow back into the white-hot real estate market, and banks’ self-interests and the self-interests of borrowers became decoupled. [xxv] In the old system, banks had a strong incentive to investigate borrower’s finances, and only loan to those who possessed a strong ability to pay the loan back, because if the borrower defaulted, the bank would be negatively affected financially. [xxvi] However, under the new system, once a bank had sold the note and mortgage, it mattered little financially if the consumer defaulted, because the bank had already recouped the money it loaned, and the risk of default was borne by the entity that purchased the security. [xxvii] This provided a perverse economic incentive for banks to recklessly make as many loans as possible as quickly as possible; an environment with no moral hazard. [xxviii]   Complicating matters, this process of securitization usually required “several successive mortgage assignments to different companies,” [xxix] which proved cumbersome under the American land title recording system. [xxx]

E. The American Land Title Recording System

“Since the founding of the American republic, each county in the United States has maintained records of who owns the land within that county,” [xxxi] resulting in there currently being “over 3,000 local recording systems where holders of an interest in real estate can register that interest into books.” [xxxii] The system is basically a county-by-county hodgepodge of different systems and techniques, with no two alike, although there are some commonalities. [xxxiii]

This created a bottleneck of sorts for the banking industry, [xxxiv] which was seeking to issue as many home loans as possible, as quickly as possible. Every assignment of a mortgage had to be physically recorded with the Register of Deeds or Clerk of Court for the county in which the property was located, with the recorder having to pay recording costs of approximately “$15 to 30 for the first page and…$2 to $3 for each additional page.” [xxxv] The costs and the hassle of complying with these motley recording statutes, multiplied by the sheer volume of mortgage transactions, presented a barrier for banks and other financial institutions from fully engaging in the residential real estate market. [xxxvi] Out of this conflict, MERS was spawned.

II. DEVELOPMENT OF MERS

“As the market for mortgage-backed securities grew, mortgage lenders and investment banks sought to make the transfer of residential mortgages cheaper and easier, and so MERS was born.” [xxxvii] In October 1983, representatives from the Mortgage Bankers Association (MBA), Fannie Mae, Freddie Mac, and Ginnie Mae came together to form the Mortgage Bankers Association (MBA) InterAgency Technology Task Force (IAT) [xxxviii]

This task force ultimately concluded that the financial industry could substantially reduce its costs by not paying the fees typically assessed by local governments for the recordation of mortgage assignments, [xxxix] saving an average of $45.50 each time a loan was transferred. [xl]

As Professor Chris Peterson of the Utah School of Law succinctly described:

To avoid the hassle and expense of paying county recording fees, these mortgage bankers formed a plan to create one shell company that would pretend to own all the mortgages in the country. With this plan, the mortgage bankers would never have to record assignments because the same company would always own all the mortgages. [xli]

 By the late nineties, after an estimated establishment cost of $11-12 million,MERS became fully operational. [xlii] Many have called the creation of MERS, “the most significant event for the mortgage industry since the formation of Fannie Mae and Freddie Mac.” [xliii]

III. MERS’S CURRENT OPERATIONS

Today, MERS is a privately held corporation registered in Delaware and headquartered in Northern Virginia, which “operates a computer database designed to track servicing and ownership rights anywhere in the United States.” [xliv] MERS is largely owned by its members which consist of three classes: the “Agency Class,” comprised of Fannie Mae and Freddie Mac; the “Lender Class,” comprised of entities who originate and service mortgage loans; and the “Related-Industry Class,” which includes entities indirectly involved in the mortgage business, including mortgage insurance companies and title companies. [xlv]

“MERS does not originate, lend, service, or invest in home mortgage loans. Instead, MERS acts as the nominal mortgagee for the loans owned by its members.” [xlvi] The forty-three page “Merscorp, Inc. Rules of Membership” clearly delineates the relationship between MERS and its over 4,593 members who each pay between $264 and $7,500 annually in membership fees. [xlvii]

“A loan held by a member is registered in the MERS database. Once registered, MERS serves as the mortgagee of record for all loans in its system.  More specifically, MERS is the nominal mortgagee for the lender and any successors and assigns. When the security instrument is recorded, the local land records list MERS as the mortgagee.” [xlviii] The exact process is as follows:

To execute a MERS mortgage, the borrower conveys the mortgage to MERS, who is acting as a contractual nominee. MERS becomes the recorded grantee, however, the lender retains the note and servicing right. The lender can then sell that note and servicing rights on the market and MERS records each transaction electronically on its files. When the mortgage loan is repaid, MERS, as agent grantor, conveys the property to the borrower.” [xlix]

MERS members may transfer the beneficial ownership interest and/or servicing rights among themselves multiple times throughout the mortgage’s lifetime, but assignments are not publically recorded, instead being tracked privately by MERS. [l] While the mortgagor receives notice of servicing rights transfers as required by the Truth in Lending Act, they seldom receive notice of transfers in ownership of their mortgage. [li] Legally, MERS remains the nominal mortgagee, regardless of how many times ownership of the mortgage is transferred amongst MERS members. [lii]

The new MERS method of originating and transferring mortgages has quickly displaced centuries of traditional practices. Although merely a decade old, by 2007 MERS had a role in the origination of roughly 60% of all United States mortgage loans, with over 60 million mortgage loans registered in the MERS system. [liii]   By 2009, MERS was the nominal mortgagee on two-thirds of “newly originated” residential loans in the United States. [liv] Although similar figures are not available for the present day, there is little to suggest that MERS’s role in mortgage origination has diminished. Whereas MERS’s rapid growth might be good for MERS Corp.’s private owners, recent developments suggest that this might not benefit United States’ homeowners.

IV. THE FORECLOSURE CRISIS

During MERS’s infancy and adolescence, economic growth and rising real estate prices glossed over some of its inherent flaws, and its cracks did not begin to show until the Great Recession of 2008. This economic calamity resulted in 40 % of global wealth evaporating in a little over one year. [lv] As of early 2009, real estate prices had plummeted over 32% from their peak, [lvi] and by December 2010, the U.S. economy had jettisoned over seven million jobs. [lvii] These ill economic conditions have lingered and festered. Despite two years of ostensible economic “recovery,” as of October, 2011, fourteen million people are still unemployed in the United States, resulting in an unemployment rate of 9.1%. [lviii]

Two years of chronic unemployment and suppressed real estate values have greatly exacerbated the already precarious financial situations of millions of Americans, leading to increases in home mortgage delinquency rates and foreclosures. The ratio of outstanding consumer debt to disposable income in the United States rose from an average of 65 % in the mid 1980’s to 137 % in 2007, meaning that Americans were twice as in debt in 2007 as they were 20 years before. [lix] According to the San Francisco Federal Reserve Board, “[m]uch of the run-up in debt was mortgage-related.” [lx] This increased mortgage borrowing was the necessary complement to the increased lending discussed previously, brought on by “a combination of factors including low interest rates, weak lending standards, the spread of exotic mortgages, and the growth of a global market for securitized loans promoted increased borrowing.” [lxi] Yet as consumer debt rose, its negative effects were not really felt because personal wealth was also rising due to rising housing prices. This allowed consumers to “extract hundreds of billions of dollars per year in spendable cash” from home equity lines of credit. [lxii]

When the economy crashed, the music stopped, and real estate prices fell, people could no longer use their home equity to pad their finances. Nearly everyone had to face elevated debt levels with less income and often with the value of the collateral securing the debt, frequently a home, having depreciated. [lxiii] This unsustainable debt led to a rash of mortgage delinquencies and foreclosures, which have bothe only increased over time. [lxiv] Currently, there are five million people who are more than two months late on their mortgage payments. [lxv] “Since mid-2007, around eight million homes entered foreclosure, and over three million borrowers lost their homes in foreclosure.” [lxvi] 2011 is expected to set a new record with over 1.2 million houses repossessed by lenders. [lxvii]

V. MERS’S ROLE IN THE FORECLOSURE PROCESS:

A.  overview.

With millions of foreclosures happening annually, and with MERS holding legal title to over 60 million mortgages, MERS has been very involved in the foreclosure process.

 In fact, “MERSis currently a plaintiff in as many as 40 percent of pending foreclosure actions in some locales.” [lxviii] This poses several daunting legal issues, which differ somewhat depending upon which method of foreclosure is proscribed by state law. “[S]tates can be divided into two groups: those where foreclosure actions are conducted through the courts (“judicial foreclosure”) and those where foreclosure actions are conducted by private sales (“nonjudicial foreclosure”)” [lxix] To foreclose in judicial foreclosure states, “a[n] attorney files a lis pendens (lawsuit pending) with the court. The lis pendens gives notice to the public that a pending action has been filed against the mortgagor. The purpose of the action is to provide evidence of a default and get the court’s approval to initiate foreclosure.” [lxx]

“It is axiomatic that in order to bring a suit, like a foreclosure action, the plaintiff must have legal standing, meaning it must have a direct interest in the outcome of the litigation. In the case of a mortgage foreclosure, only the mortgagee has such an interest and thus standing.” [lxxi] Since MERS is technically the mortgagee of record for the loans of its members, steps must be taken before standing can be established and foreclosure can begin.  

According to the MERSCORP, Inc. Rules of Membership, Rule 8, a MERS member who seeks to foreclose on a mortgage contained in the MERS system has three basic options to ensure that there will be requisite standing to foreclose: bring the foreclosure proceeding “in the name of Mortgage Electronic Registration Systems, Inc., [in]the name of the servicer, or [in] the name of a different party to be designated by the beneficial owner.” [lxxii] All three of these options have posed problems for the legal system. As Adam J. Levitin testified before the Subcommittee on Housing and Community Opportunity of the House Financial Services Committee, “[m]any of the issues relating to foreclosure fraud by mortgage servicers, ranging from more minor procedural defects up to outright counterfeiting relate to the need to show standing.” [lxxiii]

B. Transferring the Mortgage from MERS

If the holder of the note either forecloses in its own name, “the servicer designated on the MERS System shall cause to be made an assignment from Mortgage Electronic Registration Systems, Inc. to the person designated by the beneficial owner.” [lxxiv] This process appears backwards, because in effect it is requiring a party seeking to foreclose to create an assignment from MERS to itself or another party it chooses, when ordinarily the person or entity assigning something is the one who creates an assignment. Furthermore, MERS has fewer than 50 full time employees, yet holds legal title to over 60 million mortgages. [lxxv] With millions of foreclosures in the last several years, it strains credulity that all of the requisite mortgage assignments from MERS for foreclosing were properly filled out, signed by one of those 50 MERS employees, and notarized. Not surprisingly, this was not the case:

Instead, MERS invites financial companies to enter names of their own employees into a MERS webpage, which then automatically regurgitates boilerplate “corporate resolutions” that purport to name the employees of other companies as “certifying officers of MERS.” These certifying officers also take job titles from MERS stylizing themselves as either assistant secretaries or vice presidents of the MERS, rather than the company that actually employs them. [lxxvi]

The legality of these resolutions is suspect, because they purport to allow individuals to sign assignments and other documents on MERS’s behalf, even though MERS has never paid them any compensation. [lxxvii] Often times, these “certifying officers of MERS” actually work for the company who is being assigned the mortgage.  There are currently “thousands” of “assistant secretaries” and “vice-presidents” of MERS. [lxxviii]

Many of these “certifying officers” have engaged in the practice of “robo-signing,”   “the rapid-fire approval of thousands of foreclosure documents at a time without the signers verifying their contents.” [lxxix] One of the most famous “robo-signers” is Jeffrey Stephan, a team leader in the foreclosure department at GMAC Mortgage. [lxxx] Although he had never received any training or compensation from MERS and had never been to MERS headquarters, Mr. Stephan signed over ten thousand assignments per month as an officer of MERS, without verifying the information to which he was attesting, [lxxxi] and not in the presence of a notary. [lxxxii] Mr. Stephan signed as both an assistant secretary and a vice-president of MERS, or as he explained, “[t]he majority of the time I sign as a vice president.  Most times we do not need an assistant secretary, unless they are asking for a second signature on any type of an affidavit or assignment.” [lxxxiii] As Mr. Stephan so aptly said, “I do not work for MERS.” [lxxxiv] Mr. Stephan was not alone. 

The most famous “robo-signer” of all is Linda Green, who purportedly was president of up to twenty banks at once. [lxxxv] A former shipping clerk for an auto parts store, Ms. Green worked for a company in Alpharetta, Ga, by the name of Docx, which was a sweatshop of sorts for forged mortgage documents. [lxxxvi] Ms. Green was hired because her name was short and easy to repeatedly write, and her duties included “recreating missing mortgage assignments for the banks and providing the legally required signatures of bank vice presidents and notaries.” [lxxxvii] Eventually there were simply too many documents for Linda Green to sign, so the company began paying other people $10.00 an hour to sign Linda Green’s name to legal documents. [lxxxviii] These employees, many of them still in high school, were required to sign at least 350 documents an hour, or up to 4,000 a day. [lxxxix]

While Linda Green, Jeffrey Stephan, and other robo-signers sometimes signed assignments and other documents on behalf of many different financial institutions, it is hard to imagine the phenomenon of robo-signing occurring if not for the rapid electronic transfer of mortgages with no paper trail that MERS allowed. This eventually led to lost documents, uncertain chains of title, and confusion. When the owner of a note sought to foreclose, because the accompanying mortgage had been transferred so many times through MERS, the note holder often could not locate the original mortgage, or establish a clear chain of title establishing that he or she owned it. Robo-signers and forgers filled in the gaps and the missing links, often fraudulently, thus allowing the note holder to foreclose. Whether assigning mortgages from MERS to a foreclosing institution, or “fixing” documentation problems that MERS helped create, it is clear that robo-signers, and the fraud they helped perpetuate on our legal system, were in large part a product of the MERS system.

C. Foreclosing in the Name of MERS

One easy way for a prospective foreclosing entity to address the standing problem of not legally holding title to the mortgage, and thus avoid the steps which must be taken in order to obtain ownership of the mortgageis to simply bring a foreclosure in the name of MERS. This raises the issue of whether or not MERS has standing as a real party in interest to bring a foreclosure action, an issue that courts across the country are still grappling with.

While a majority of courts throughout the country initially ruled that MERS had standing to foreclose, courts are beginning to increasingly questioning the MERS concept, and its judicial standing in particular. [xc]

i. Pro-MERS Rulings

In 2006, the Court of Appeals of Minnesota held that MERS had standing to foreclose when it held legal title to a mortgage and was acting as nominee for the holder of the note. [xci] The court ultimately ruled that, “[b]ecause MERS is the record assignee of the mortgage, we conclude that MERS had standing to foreclose the property by advertisement.” [xcii] In a similar vein, in 2007, the District Court of Appeals in Florida, Third District, held that MERS had standing to foreclose. [xciii] The court explained that,“the problem arises from the difficulty of attempting to shoehorn a modern innovative instrument of commerce into nomenclature and legal categories which stem essentially from the medieval English land law....” [xciv] The court concluded that because, “there is no reason why mere form should overcome the salutary substance of permitting the use of this commercially effective means of business,” MERS can foreclose. [xcv] Similarly, the Superior Court of Massachusetts, Suffolk County, held that MERS had standing to foreclose upon a mortgage because, “[t]he mortgage ... expressly grants MERS the authority to foreclose on the Property and to sell the Property,” and MERS was the mortgagee, of record, it had legal right to foreclose. [xcvi]

ii. Anti-MERS Rulings

Several courts across the country have recently held that MERS lacked standing to foreclose. In 2010, the Maine Supreme Court held that “[w]ithout possession of or any interest in the note, MERS lacked standing to institute foreclosure proceedings and could not invoke the jurisdiction of our trial courts.” [xcvii] Similarly, in 2011, the Michigan Court of Appeals held that because, “[t]he parties agree that MERS is neither the owner of the indebtedness, nor the servicing agent of the mortgage...MERS lacked the authority to foreclose....” [xcviii] Furthermore, in 2009 the Supreme Courts of both Arkansas and Kansas held that MERS was not a real party in interest and therefore need not be named or served in a foreclosure action by a second mortgage holder. [xcix]

Courts throughout the country have yet to reach a consensus on a judicial prism through which to view MERS, and on such fundamental issues as whether MERS has standing to foreclose. Comparing the various MERS cases is essentially no different than comparing apples to oranges, in that these cases, “depend on such fact-specific circumstances as the wording of the particular mortgage, the wording of the state's foreclosure statutes, and more generally, the willingness of judges in interpreting those laws to facilitate modern innovation over archaic conventions of real property law.” [c]

iii. State and County Legal Action

Recently, states and counties have taken legal action against MERS. [ci]   On October 27, 2011, Delaware Attorney General Beau Biden filed a lawsuit against MERS for, “engaging in a range of deceptive trade practices that sow confusion among consumers, investors and other stakeholders in the mortgage finance system, damage[ing] the integrity of Delaware’s land records, and lead[ing] to unlawful foreclosure practices.” [cii]

Similarly, New York Attorney General Eric Schneiderman issued a subpoena to MERS for information concerning the interaction between itself and mortgage servicers including JP Morgan Chase & Co., Bank of America Corp., and Wells Fargo & Co., and how these servicers typically operate within the MERS system. [ciii] Finally, Dallas County, District Attorney Craig Watkins, has sued MERS for the recordation fees the county has not received for mortgages traded on the MERS system, seeking up to $100 million. [civ] As MERS and its practices become well known, it stands to reason that more state and local governments will follow the examples of Delaware, New York, and Dallas.

VI. CONCLUSION

In the last decade, MERS has swiftly come to dominate the residential mortgage industry, supplanting centuries of legal tradition. MERS is not inherently malevolent, and it is certainly true that the law must evolve and adapt to technological and social changes. However, MERS has created unintended consequences, many of which are confounding the legal system and impeding the swift resolution of the foreclosure crisis plaguing the nation. Only after a comprehensive legal solution to MERS is achieved will the real estate market and the overall economy properly heal.          

  [i] Beau Phillips, MERS, the Mortgage Electronic Registration System , Consumer Fin. L. Q. Rep. 262 (Fall-Winter 2009).

[ii] Kevin M. Hudspeth, Clarifying Murky MERS: Does Mortgage Electronic Registration Systems, Inc., Have Authority to Assign the Mortgage Note in a Standard Illinois Foreclosure Action? 31 N. Ill. U. L. Rev. 1, 4, (2010).

[iv] Robo-Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing: Hearing Before the Subcomm. on Hous. and Cmty. Opportunity of the H. Fin. Serv. Comm., 111th Cong., Nov. 18, 2010 (Statement of Associate Professor Adam J. Levitin, Geo. U. L. Center).

[v] Phillips, supra note i, at 262.

[vii] See. Phillips, supra note i, at 262-63.

[viii] See Kenneth D. Jones & Tim Critchfield, Consolidation in the U.S. Banking Industry: Is the “Long, Strange Trip” About to End ?17 FDIC Banking Rev. 31, 32 (2006).

[ix] See id.

[x] Jones , supra note vii, at 35.

[xi] See id.

[xiii] Philip E. Strahan, The Real Effects Of U.S. Banking Deregulation , in The Working Paper Series, Boston College, Carroll School of Management & Wharton Financial Institutions Center, 02-39 (September 2002).

[xv] Id.; see also Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDA) (DIDMCA) Pub.L. 96–221 , Mar. 31, 1980, 94 Stat. 132; Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Pub.L. 103–328 , Sept. 29, 1994, 108 Stat. 2338; Financial Services Modernization Act of 1999, Pub.L. 106-102 , 113  Stat.   1338 .

[xvi] See. Jane Dokko, et. al., Monetary Policy and the Housing Bubble , in  Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C.(December 22, 2009).

[xvii] Dean Baker, The Housing Bubble and the Financial Crisis , 42 Real-world Econ. Rev. , 73-81 (2008), http://www.paecon.net/PAEReview/issue46/Baker46.pdf .

[xviii] Dokko, supra note xvi, at 1

[xx] See generally id .

[xxi] Christopher L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory , SS049-ALI-ABA 259, (March 10-12, 2011).

[xxii] See generally , Andrea J. Boyack, Laudable Goals and Unintended Consequences: The Role and Control of Fannie Mae and Freddie Mac, 60 Am. U. L. Rev. 1489, 1495-1501 (2011).

[xxiv] See generally Peterson, supra note xxi.

[xxv] See generally Boyack, supra note xxii, at 1518-1520

[xxvi] See generally id.  

[xxvii] See id.

[xxviii] See id.

[xxix] Peterson, supra note xxi.

[xxx] See generally Tanya Marsh, Foreclosures and the Failure of the American Land Title Recording System , 111 Colum. L. Rev. Sidebar 19 (March 19, 2011).

[xxxi] Peterson, supra note xxi.

[xxxii] Marsh, supra note xxx, at 20-21.

[xxxiii] See id.

[xxxiv] See id. at 22.

[xxxv] Phillips, supra note i at 263.

[xxxvi] Residential Funding Co, LLC v. Saurman , Nos. 290248, 291443 (Mich. Ct. App.) WL 1516819 (April 21, 2011)

[xxxvii] Nolan Robinson, The Case Against Allowing Mortgage Electronic Registration Systems, Inc. (MERS) To Initiate Foreclosure Proceedings, 32 Cordozo L. Rev.  1621 (March 2009)

[xxxviii] Phillips , supra note i, at 263.

[xxxix] Id. at 1368-69.

[xl] Phyllis K. Slesinger & Daniel Mclaughlin, Mortgage Electronic Registration System, 31 Idaho L. Rev. 805, 812-13 (1995).

[xli] Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 8 U. Cin. L. Rev. 1359, 1369 (Summer 2010).

[xlii] Id; Slesinger, supra note iv at 516.

[xliii] R.K. Arnold, Yes There is Life on MERS , 11-AUG Prob. & Prop.32, 34 (1997).

[xliv] Peterson, supra note xi.

[xlv] Id. at 33.

[xlvi] Jackson v. Mortgage Electronic Registration Systems, Inc. ,770 N.W.2d 487, 490 (Minn. 2009).

[xlvii] Robinson, supra note xxxvii, at 1625.

[xlviii] Id.

[xlix] Mortgage Electronic Registration Systems, Inc. v. Nebraska Dept. of Banking and Finance , 270 Neb. 529 704 N.W.2d 784, (2005).

[l] MERSCORP, Inc. v. Romaine , 8 N.Y.3d 908, 28 N.Y.S.2d 266 (Ct. App. 2006).

[liii] Peterson, supra note xli, at 1362 (citing Kate Berry, Foreclosures Turn Up Heat on MERS , Am. Banker, July 10, 2007).

[liv] Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487, 490 (Minn. 2009).

[lv] Jason Kelly and Rob Williams, Schwarzman Says Wealth Destruction Is ‘Unprecedented’ , Bloomberg, March 10, 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abwwCOlum9a4&r efer=home

[lvi] S&P/Case-Shiller Home Price Indices 2009, S&P Induces, a year in review, Standard and Poor’s, (January 2001).

[lvii] See Louis Uchitelle, Jobs Report Is Strongest Since the Start of the Recession, N. Y. Times, Dec. 14, 2009, http://www.nytimes.com/2009/12/05/business/economy/05jobs.html

[lviii] Bureau of Labor Statistics, United States Department of Labor, Employment Situation Summary, (2011).

[lix] Reuven Glick & Kevin J. Lansing, U.S. Household Deleveraging and Future Consumption Growth , FRBSF Economic Letter, May 15, 2009, at 1.

[lxii] Id. at 2.

[lxiii] See id . at 1-3.

[lxiv] Id. at 1-3.

[lxv] Janna Herron, Highest Number of Foreclosures in Forecast , The News Tribune, Jan. 14, 2011, http://www.thenewstribune.com/2011/01/14/1501753/highest-number-of-foreclosures.html

[lxvi] Levitin, supra note iv.

[lxvii] Herron, supra note lxxv.

[lxviii] Robinson, supra note xxxvii, at 1625

[lxix] Levitin, supra note iv. For the purposes of brevity, this paper will focus on judicial foreclosure states, such as South Carolina.

[lxx] Foreclosure Laws and Procedures By State , RealtyTrac, http://www.realtytrac.com/foreclosure-laws/foreclosure-laws-comparison.asp, (last visited October 23, 2011).

[lxxi] Levitin, supra note iv.

[lxxii] Phillips, supra note i, at 265-66.

[lxxiii] Levitin, supra note iv.

[lxxiv] Phillips, supra note i, at 266.

[lxxv] Peterson, supra note iv, at 1362

[lxxvi] Christopher L. Peterson, Two Faces : Demystifying the Mortgage Electronic Registration System's Land Title Theory, Real Prop. Tr. & Est. J.(forthcoming), 5, (available at http://ssrn. com/abstract=1684729)

[lxxvii] Id. at 7.

[lxxviii] Id.

[lxxix] Allison Torres Burtka, Foreclosure Fallout, 47 Trial16 (April 2011).

[lxxx] GMAC Mortgage, LLC, vs. Ann M. Neu, et. al., (Fla. Cir. Ct.) (2009) (Stephan dep. at 5:10, 6:5).

[lxxxi] Id. (Stephan dep. at 7:1-21).

[lxxxii] Id. (Stephan dep. at 13:7-16).

[lxxxiii] Id. (2009) (Stephan dep. at 16: 3).

[lxxxiv] Id. (Stephan dep. at 41:22).

[lxxxv] Sixty Minutes: Mortgage paperwork mess: Next housing shock (CBS television broadcast Aug. 7, 2011)).

[lxxxvi] Id.

[lxxxvii] Id.

[lxxxviii] Id.

[lxxxix] Id.

[xc] Michael T. Madison, Jeffry R. Dwyer, and Steven W. Bender, Rights and duties of parties at foreclosure—Judicial foreclosure—Standing of MERS and who owns the note? 2 Law of Real Estate Financing § 12:35 (2011).

[xci] In re Sina, No. A06-200, 2006 WL 2729544, (Minn. Ct. App. Sept. 26, 2006).

[xciii] Mortgage Electronic Registration Systems, Inc. v. Revoredo , 955 So.2d 33 (Fla. Dist. Ct. App. 2007).

[xciv] Id. at 34 (citing Romaine, 8 N.Y.3d 90, 101, 828 N.Y.S.2d 266, 271, 861 N.E.2d 81 (2006) (Kaye, C.J., dissenting in part)

[xcv] Id. at 34.

[xcvii] Id.

[xcviii] Id.

[xcix] Mortgage Elec. Registration System, Inc. v. Southwest Homes of Arkansas ,2009 Ark. 152, 301 S.W.3d 1 (2009); Landmark Nat. Bank v. Kesler , 289 Kan. 528, 545, 216 P.3d 158, 169. 216 P.3d 158 (2009).

[c] Madison, supra note 108.

[ci] David McLaughlin, Margaret Cronin Fisk & Phil Milford, Mortgage Registry MERS Sued by Delaware Attorney General , Bloomberg Bus. Wk., Oct. 27, 2011.

[civ] McLaughlin, supra note ci.

Current Legal Analysis

More from university of south carolina school of law, upcoming legal education events.

Sign Up for e-NewsBulletins

• Find a Lawyer
• Ask a Lawyer
• Research the Law
• Law Schools
• Laws & Regs
• Newsletters
• Justia Connect
• Pro Membership
• Basic Membership
• Justia Lawyer Directory
• Platinum Placements
• Gold Placements
• Justia Elevate
• Justia Amplify
• PPC Management
• Google Business Profile
• Social Media
• Justia Onward Blog

Perez v. Mortgage Electronic Registration Systems, Inc., No. 18-16584 (9th Cir. 2020)

Plaintiffs filed two pre-foreclosure actions against MERS and the banks holding their mortages, challenging their authority to foreclose on plaintiffs' properties. The Ninth Circuit affirmed the district courts' dismissal of the complaints for failure to state plausible claims for relief under California law. The panel followed the decisions of the California appellate courts in holding that California law does not permit preemptive actions to challenge a party's authority to pursue foreclosure before a foreclosure has taken place. The panel held that plaintiffs' pre-foreclosure judicial actions preemptively challenging the banks' authority to foreclose on the their properties in the future are not viable under California law. The panel also held that the district court did not abuse its discretion by denying plaintiffs leave to amend where the proposed amendments would not have changed the determination.

Court Description: California Law / Foreclosure. The panel affirmed the district court’s dismissals for failure to state claims of two actions brought by plaintiff homeowners against the Mortgage Electronic Registration Systems, Inc. and banks, challenging the banks’ authority to foreclose on their properties. * The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). ** The Honorable Gary Feinerman, United States District Judge for the Northern District of Illinois, sitting by designation. PEREZ V. MERS 3 Plaintiffs owned properties in Sacramento and San Pablo, and neither of the properties were ultimately foreclosed. Plaintiffs sought declaratory relief and cancellation of instruments as to the banks and MERS, and quiet title as to only the banks. The panel held that California law does not permit borrowers to bring judicial actions to challenge a foreclosing party’s authority to foreclose on the borrower’s property before a foreclosure has taken place. Because the California Supreme Court had not yet addressed the question of whether preemptive, pre-foreclosure actions were viable under California law, the panel looked to the relevant decisions of the California intermediate appellate courts. The panel held that plaintiffs did not state any valid claims under California law, and affirmed the district court’s dismissal of plaintiffs’ complaints. The panel held that the district court did not abuse its discretion by denying plaintiffs leave to amend because the proposed amendments would not have changed the determination that the action was impermissible under California law.

Plaintiffs' pre-foreclosure judicial actions preemptively challenging the banks' authority to foreclose on the their properties in the future are not viable under California law.

Disclaimer: Justia Annotations is a forum for attorneys to summarize, comment on, and analyze case law published on our site. Justia makes no guarantees or warranties that the annotations are accurate or reflect the current state of law, and no annotation is intended to be, nor should it be construed as, legal advice. Contacting Justia or any attorney through this site, via web form, email, or otherwise, does not create an attorney-client relationship.

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

Get free summaries of new Ninth Circuit US Court of Appeals opinions delivered to your inbox!

• Bankruptcy Lawyers
• Business Lawyers
• Criminal Lawyers
• Employment Lawyers
• Estate Planning Lawyers
• Family Lawyers
• Personal Injury Lawyers
• Estate Planning
• Personal Injury
• Business Formation
• Business Operations
• Intellectual Property
• International Trade
• Real Estate
• Financial Aid
• Course Outlines
• Law Journals
• US Constitution
• Regulations
• Supreme Court
• Circuit Courts
• District Courts
• Dockets & Filings
• State Constitutions
• State Codes
• State Case Law
• Legal Blogs
• Business Forms
• Product Recalls
• Justia Connect Membership
• Justia Premium Placements
• Justia Elevate (SEO, Websites)
• Justia Amplify (PPC, GBP)
• Testimonials

• Commercial Mortgage
• Housing Markets
• Latest News
• Mortgage Servicing
• Origination
• Regulatory Compliance
• Residential Mortgage
• Secondary Marketing
• Industry Insight
• Required Reading

A Guide For Navigating the Evolving Mortgage Landscape in 2024

U.S. Home Prices Continued to Rise in February and are at…

Building Success in a Tough Market: Key Strategies for MLOs

MBA: Mortgage Lenders Lost an Average $1,056 Per Loan Originated in…

Loan Performance Remained Stable in March, ICE’s First Look Report Shows

Housing Starts Slowed in March as Market Starved for Inventory 

Jason Perkins: Why Now is the Time to Spring Into Digital…

Homeowners Have Zero Incentive to Upsize in This Current Housing Market…

• From The Orb
• Industry Updates

The Five Major Assignment Errors And How To Avoid Them

In theory, an assignment seems like a benign and foolproof item. In reality, however, an assignment can be the launching point for a surplus of problems. Indeed, assignments that are handled in the Keynesian notion of being merely ‘roughly right’ can bring endless anxiety into a servicer's life.

For servicers that prefer existing in a stress-free working environment, there are five key assignment-related errors that need to be avoided at all costs.

Identity crises

On the surface, the basic principle of an assignment does not seem very confusing.

‘An assignment is simply a document that evidences the transfer of a loan from one party to another,’ says Alice P. Sorensen, chief operating officer at Orange, Calif.-based LRES Corp. ‘Think of it as a birth certificate that travels with the loan for the rest of its life.’

However, Sorensen notes that the first major mistake can occur at the very beginning of the process if the assignment has erroneous data.

‘Clerically incorrect information will create grand grief for some future servicers,’ she says.

Equally problematic is the absence of crucial data.

‘There is a problem if the servicer leaves blank the name of assignees,’ says Myron Finley, chief legal officer and general counsel of Nationwide Title Clearing, based in Safety Harbor, Fla. ‘There are problems filling in blanks after the document is already signed and notarized. That opens doors to allegations of mortgage fraud.’

Finley adds that it is vital to know the lender of record associated with the assignment. ‘If you don't know who the lender of record is, it undercuts everything you do at the assignment,’ he says.

Cindy Gainsforth, executive vice president at Pasadena, Calif.-based Rekon Technologies, states that a missing chain of assignment is also a major error.

‘This happens because either the servicer did not record the assignment, or it was left in a file with the belief that whoever buys it would assign it,’ she says.

On the cheap

Over the past few years, the costs of mortgage servicing have climbed dramatically. Not surprisingly, many servicing operations are eager to keep their expenses low. And this is where the second key problem in assignments occurs.

‘The biggest mistake, in my opinion, is not recording the assignment when a trade takes place as a means of reducing your transfer costs,’ says Sorensen. ‘It is foolish to think that you do not need to record an assignment until you do your next trade. In fact, the failure to record will expose you to tremendous title issues.’

Mike Wileman, president and CEO of Orion Financial Group, based in Southlake, Texas, believes that some servicers mistakenly assume they will save money by not outsourcing this process.

‘Too many people try to do assignments in-house,’ he observes. ‘But if they are not prepared to do them properly, it costs two to three times the work. People try to save a few pennies, but it creates more problems down the road.’

Local tastes

Even if the in-house assignment process is free of mistakes, there are still plenty of problems when it comes to dealing with the county registrars.

‘Many of the counties are antiquated in the technology they use,’ says Sorensen. ‘They cannot keep up with the volume of trades that take place.’

Gainsforth warns that servicers need to realize that there is no uniform standard in assignment registrations.

‘Some servicers think they can just create a template,’ she says. ‘But there are more than 3,600 recording districts in the U.S., and they have different recording requirements. Some districts are very particular at how assignments are created.’

Scott Goldstein, president and CEO of Farmington Hills, Mich.-based National Default Exchange LP, concurs.

‘Some counties want their own font size and margin size,’ he says. ‘Some want to have a name printed under the signature, and some don't want a name printed under the signature.’

There are also distinctive assignment requirements at a state level.

‘In Mississippi, there is a new requirement that a borrower's name and phone number appear on every document,’ says Finley. ‘Some people feel that goes too far and can lead to invasion of privacy concerns. So, in Mississippi, you can leave the phone number off for an extra $10 fee. But various counties in the state interpret that requirement differently.’

Finley adds that South Carolina has its own unique requirements regarding who witnesses the assignment.

‘In South Carolina, a notary has to have his or her signature witnessed as well,’ he says. ‘If you are not aware of that, your assignment gets rejected.’

Le mystere du MERS

Another key assignment problem involves the Mortgage Electronic Registration Systems (MERS).

‘One of the biggest issues today in assignments is the large quantity of assignments servicers have to prepare in the event of default,’ says Gainsforth. ‘Due to MERS' ruling that legal action cannot be filed in MERS' name, plus the increased rate of default in the past few years, servicers experienced a spike in volume that they did not anticipate and did not have the experienced staff to manage.

‘As a result,’ she continues, ‘backlogs in assignments were created, delaying the foreclosure process. This resulted in monetary loss in the form of fines from MERS and/or investors. MERS imposes a $10,000 fine for each legal action filed in MERS' name, while investors impose daily curtailments when foreclosures are delayed.’

‘MERS is still not well understood, even in the industry,’ says Finley. ‘There is also the question of the MERS identification number – sometimes it is not on the assignment when it gets recorded, or the wrong number is attached to a loan. Borrowers might not find their loan in MERS, which leads to a lot of upset borrowers. Or an assignment out of MERS sometimes happens without being deactivated within MERS. The homeowners see a release filed in the public record, but they see it is still in MERS and wonder whether or not it is still in MERS.’

Customer disservice

Needless to say, aggravating the borrower is also a major no-no – especially in today's servicing environment.

‘If the borrower pays off a loan but the servicer is not be able to release a lien in a timely manner, that is poor customer service,’ says Wileman. ‘Not to mention, that it could lead to litigation.’

Sorensen urges servicers to be aware of potential fraud schemes that could snag borrowers.

‘There is a scam in which an unscrupulous person sends out a notice to the borrower that the loan was sold when, in fact, it hasn't been traded,’ she says. ‘The borrower makes payments to a new place, but the loan will go into default with the real lender. Meanwhile, the scammers take one or two payments from unsuspecting borrowers. It is critical for servicers to stay on top of collections so problems like this do not turn into other issues.’

RELATED ARTICLES MORE FROM AUTHOR

Radian Asset Assurance Acquired By Assured Guaranty Corp. For $810M

Ocwen settles with nydfs for $150 million; erbey steps down, monitor finds more problems at mortgage servicer ocwen.

• Privacy Policy

Real Estate Law Blog

The MERS Problem and Why Lenders Need Possession of the Note

There has been lot of recent case law over the “MERS” problem, which is when the loan instruments get split up – ie, the promissory note is endorsed in blank, and the deed of trust is recorded with MERS, which then does not record the assignment in the local county recorder’s office.

A majority of the MERS litigation is arising in the bankruptcy courts – with the most recent one being the In Re: Box decision – [ http://www.mow.uscourts.gov/bankruptcy/opinions/federman/box_order.pdf ] – on June 3, 2010, from Missouri.

The Court denied BAC (formerly known as Countrywide)’s motion for relief because they failed to establish that they were the “holder” of the Note.

In re: Box follows on the heels of In re: Hwang (movant must be the real-party-in-interest) and In re: Jacobson (Wells Fargo’s servicing agent denied), all bankruptcy decisions denying lender motions for relief from the automatic stay.

The Mechanics :

Once in bankruptcy, the debtor has effectively stayed the lender’s trustee’s sale. The lender must file a motion for relief from the automatic stay as to that lender. That motion requires an evidentiary showing that the lender has the right to foreclose on the deed of trust.

Essentially, the key facts a lender must establish in order to seek relief:

• the lender is owed a debt by the borrower(s)/debtor(s)
• the debt is secured by a deed of trust against the borrower’s/debtor’s property
• the borrower/debtor is not paying, or the lender is not otherwise adequately protected

The debtor can then object to the motion for relief by raising the “Produce the Note” defense or a variation thereof. This is in effect challenging that the party filing the motion is owed a debt by the borrowers.

In California, the original promissory note is not required by the Trustee in order to conduct the trustee’s sale. However, in every jurisdiction, the moving party (aggrieved party) must be the real-party-in-interest and have standing to bring a claim.

The problem with MERS is that MERS is not the lender, the borrower, the servicer or even an agent. Instead, MERS is the “nominee” which has no real legal definition.

Example of a lender with standing to bring a motion for relief to foreclose:

Joe and Jane Smith own a house in Mountain View. The Smiths first took out a loan with Countrywide (now BofA) and then the loan was re-sold to Wachovia. Wachovia hires AMS Loan Servicing to service the loan.

The Smiths default, Wachovia commences foreclosure, the Smiths files for bankruptcy in the Northern District of California (San Jose). Wachovia’s loan servicer (AMS) files a motion for relief to conduct Wachovia’s foreclosure sale.

AMS’s motion attaches a declaration from an employee of Wachovia bank, a copy of the promissory note between the Smiths and BofA, the note is endorsed to Wachovia, and a copy of the assignment of the deed of trust showing Wachovia as the assignee, and a substitution of trustee subbing in AMS.

Wachovia also states in the employee declaration that it has possession (not just that it is the “holder”) of the note and that the servicing agent AMS has authority to file the motion for relief on behalf of Wachovia.

This lender has standing – has established that it is owed the debt (is the real-party-in-interest), is in possession of the debt instrument (promissory note) and that the loan servicer is the lender’s authorized agent, has been substituted in under the deed of trust, and has the power of sale.

The lender did not produce the note.

Lender = win.

Example of a lender without standing to bring a motion for relief to foreclose :

Same facts as above, except the promissory note is endorsed “in blank” and Wachovia fails to state that it has actual possession of the Note. Deed of Trust is not assigned properly with a recorded assignment in the county recorder’s office where the borrower’s property is located, shows MERS instead, declaration from MERS employee.

Lender = fail.

The original note is not required but in this circumstance when the endorsement is “in blank” – then only the party with actual possession of the note can be paid on it.

Essentially, “in blank” is like turning the note into cash and so only the person with the cash in hand can spend it. [See California Commercial Code Section 3205]

PRACTICE POINTER – the Court (Judges) need to know that the borrower only has to pay the debt once. Lenders need to supply enough evidence to show that it is unlikely that any other lender is going to come out of the woodwork and produce the original note and demand to be paid.

The more facts presented to show that even without the original note, such as the copy of the note shows an endorsement to the moving party and that the loan instruments all have the same beneficiary (assignee), the stronger the case the lender has in establishing it is the real-party-in-interest, holder in due course and has standing to conduct the foreclosure sale.

Latest Posts

Out of Contract? Not So Fast…

In the highly-competitive real estate market in California, agents are being more aggressive in enforcing contract terms. So before you tell your client that you are “out of contract”, you might want to be sure the contract is actually cancelled! [Read More]

What a Three-Day Notice to Pay Rent or Quit Really Means

It is after Labor Day weekend and that means school supplies, summer vacation credit card bills, and preparing for the holidays. With all these added costs, the tenant may not have enough money to pay rent and the landlord serves [Read More]

Can A Buyer Back Out of a Non-Contingent Offer?

In my last article, we discussed liquidated damages in the context of a residential real estate purchase contract.  This article will examine whether a buyer may have a right to back out of a contract and receive their full deposit [Read More]

Peter N. Brewer, Esq.

Subscribe to our newsletter.

Keep up with the pulse of real estate law by subscribing to our monthly e-mail newsletter.

• Stay Connected