What is MERS and what is its role in foreclosures?
Glenn Russell Jr. is Fall River attorney who specializes in foreclosure defense Community Voices is a weekly column featuring community-based experts or specialists.
I'm probably the only attorney in Massachusetts that has specifically limited my practice to the defense of mortgage foreclosure over the past 7 years, I frequently encounter this very familiar question, "So what is this MERS who owned my mortgage, and now sold my mortgage to some bank or trust that is now seeking to foreclose on me?" A very tricky, and complicated, question indeed.
Once upon a time, all "lenders" (usually banks) granted loans (mortgages) to their customers, based (and limited to) a percentage on monies that this particular bank had on deposit. The "bank" also had a personal stake in the credit quality of the borrower as the bank's money was at risk.
A key concept to remember is the fact that a "mortgage" actually consists of two completely separate instruments: 1.) the promissory note in which the borrower receives and signs a "note" (as the "maker") in which he, she, it, promises to repay the amount of money loaned to the "payee"; and 2.) the Security Instrument (or mortgage) that states if the borrower fails to repay the note as promised (or breaches any other condition in the mortgage contract) paragraph 22 of the mortgage allows the "lender" to exercise the power of sale in the mortgage to sell the property to satisfy the outstanding indebtedness on the note. As mortgage foreclosure in Massachusetts is "non-judicial," foreclosure operates completely extra-judicially, as a "creature of contract."
Due to the laws being changed during the latter part of the 1990s, which promoted home ownership, and also due to the financial industry's desire to capitalize on the vast amount of American's seeking to achieve the American ideal of becoming a homeowner, the Mortgage Banker Association put together a task force to develop the entity known as Mortgage Electronic Registrations Systems, Inc.
In a May 2000 article written by Carson Mullen, then the executive vice president of MERS, published in Mortgage Banking Magazine, produced by the Mortgage Bankers Association, he stated that MERS based its business model on what had been done with securities traded in the stock market, under what is known as "keeping title in street name", by theorizing that, "The Depository Trust Corporation (DTC), New York, provided a good model, as it had long ago enabled the national securities markets to eliminate the need for paper stock certificates to record the purchase and sale of stocks, bonds and other securities, and that it is a participant-owned corporation that records securities transactions electronically, eliminating the need to pass paper stock certificates or other security certificates back and forth".
The flaw in this analogy is the fact that a mortgage in Massachusetts is an interest in land, which is quite a different kettle of fish from a "security," as transfers of an interest in land in Massachusetts need to be evidenced by a signed writing from a grantor to a named grantee. Mr. Mullen also admits that the benefit of MERS is that it saved many hundreds of thousands of dollars in recording fees for its members
Thus, the concept behind MERS envisioned that MERS was to be only a "placeholder" as a "nominee" for the borrower's various note holders, while it only electronically "tracked" off record sales of the beneficial interests in the borrowers' notes. A nominee is defined as one who acts for another, usually in a very limited way. Indeed in MERS internal documents it clearly states that "MERS does not make assignments."
Therefore, "assignments" on the Registry of Deeds that stating that "MERS assigned" a mortgage is not accurate, as MERS is only a Registry in which it purportedly "tracked" a sale of the borrowers promissory note from one party to another. MERS also does not maintain any oversight of the information it "tracks," or whether the information on its Registry System is even accurate, that is "entered" on the MERS Registry System by its mortgage servicer members.
MERS helped facilitate mortgage "securitization" to blossom into a multi-trillion dollar industry, as it provided a gateway for "lenders" to no longer be shackled as to the amount of loans they originated by the amount of money they had on deposit.
Unfortunately, securitization also removed any personal stake the "lender" had in the credit quality of the borrower, as the bank was paid off (and at a premium) almost immediately. MERS also created a way for the financial industry to elude the requirement of paying recording fees to the county Registry of Deeds, and, in fact, Bristol County has filed a lawsuit against MERS regarding this practice.
MERS a very tricky, and complicated enigma indeed, and it will be very interesting to see what the ultimate result of the litigation involving MERS produces as far as its validity in this commonwealth, and whether the legal claims raised by county Registries of Deeds will be ultimately successful.
Glenn Russell Jr. is Fall River attorney who specializes in foreclosure defense. Community Voices is a weekly column featuring community-based experts or specialists.