Delaware AG files suit against MERS
Delaware Attorney General Joseph R. “Beau” Biden, III has filed suit against the Mortgage Electronic Registration System (MERS) alleging that the company has repeatedly violated the state of Delaware’s Deceptive Trade Practices Act and knowingly obscured information from borrowers as well as provided inaccurate information.
Biden said in a statement, “Since at least the 1600s, real property rights have been a cornerstone of our society. MERS has raised serious questions about who owns what in America. A man or woman’s home is not just his or her largest investment, it’s their castle. Rules matter. A homeowner has the obligation to pay the mortgage on time, and lenders must follow the rules if they are seeking to take away someone’s house through foreclosure. The honor system won’t work.”
The lawsuit claims that MERS continues to intentionally confuse homeowners, investors and various players in the mortgage finance system and has deeply damaged the integrity of land records, causing foreclosure abuses. According to the Delaware Attorney General, the abuses are separated into three categories:
- MERS, through its private mortgage registry, knowingly obscures important information from borrowers and the information that MERS does provide to borrowers is frequently inaccurate. The opacity of MERS’ mortgage registration database makes it difficult for consumers to know of or challenge inaccuracies in the MERS System.
- MERS often acts as an agent without authority from its proper principal. Because the MERS System was both unreliable and frequently inaccurate, MERS often does not know the identity of its proper principal. Where the name of the owner of the mortgage loan recorded in the MERS System does not reflect the true owner, any action MERS takes on behalf of the purported owner is without authority.
- MERS is effectively a “front” organization that has created a systemically important mortgage registry, but fails to properly oversee that registry or enforce its own rules on its members that participate in the registry. Rather than maintaining an adequate staff to provide MERS’ services, MERS operates through a network of over 20,000 deputized non-employee corporate officers who cause MERS to act without any meaningful oversight from anyone who works at MERS.
How MERS came to be
MERS was established by Fannie Mae and Freddie Mac just over 15 years ago in conjunction with several major banks as a means to expedite the loan recording process as it used to be done through individual county clerk offices which was slow. “The founders went ahead even though no state laws authorized them to bypass the required filing with clerks,” according to Reuters.
Testimony was uncovered from 2009 where MERS employees noted they “did little but maintain the computer database” and that “For a $25 fee, employees of any of the 3,000 loan servicers that belonged to MERS could get themselves designated as a MERS “vice president” or “assistant secretary,” authorized to sign official documents on behalf of MERS.”
The Delaware complaint uses a recent local foreclosure as an example in which MERS foreclosed on a loan in which it had no interest and without naming the real party in the interest, and the entity upon whose behalf MERS was seeking foreclosure had dissolved many months prior. MERS’ own records did show numerous transfers in and out of MERS but those transfers were not reflected in the county records despite MERS’ own rules to report. This single record revealed “inaccurate records associated with this mortgage are not an isolated instance of bad record keeping by MERS,” says Biden’s office in a statement.
The Delaware AG specifies that MERS violated Delaware’s Deceptive Trade Practices Act in the following ways:
- Hiding the true mortgage owner and removing that information from the public land records.
- Creating a systemically important, yet inherently unreliable, mortgage database that created confusion and inappropriate assignments and foreclosures of mortgages.
- Operating MERS through its members’ employees, who MERS confusingly appoints as its corporate officers so that such employees may act on MERS’ behalf.
- Failing to ensure the proper transfer of mortgage loan documentation to the securitization trusts, which may have resulted in the failure of securitizations to own the loans upon which they claimed to foreclose.
- Assigning and foreclosing upon mortgages for which MERS did not possess authority to act because the mortgage loan was never properly transferred.
- Initiating foreclosures in the name of MERS without authority to do so or without appropriate controls to ensure the actions were being carried out by the actual owner of the mortgage.
- Allowing the entry and management of data by those MERS members who are identified as owners or servicers in the MERS System, instead of controlling entry and management itself.
- Initiating foreclosure actions in which the real party in interest was hidden, thus preventing homeowners from ascertaining who owned their mortgage in order to challenge whether or not they had a right to foreclose and limiting their legal defenses.
- Purporting to act as an agent without knowing the identity of its principal and therefore if it acted within the scope of its agency or not.
- Encouraging reliance on the MERS System when MERS knew the system was unreliable and by allowing its members to cause MERS to act beyond the scope of its authority in reliance on such unreliable data.
- Taking instructions from entities who, despite being listed as note holders in the MERS system, were not the proper principals to cause MERS to act under MERS’ rules.
- Assigning mortgages without authority to do so where MERS purports to act for the wrong entity or where the requisite signature of a MERS signing officer is not actually executed by that officer.
We anticipate that Texas, Ohio and Delaware are just the first three in a long line of entities that will line up to sue MERS, despite its being associated with government-run agencies, Fannie Mae and Freddie Mac. A recent study claims MERS has destroyed the chain of title, made ownership of over half of all mortgages unclear, and ultimately hurt homeownership and housing, so it is highly likely that more Attorneys General are preparing their own cases against MERS.