A Massachusetts Superior Court judge has handed the Mortgage Electronic Registration System (MERS) a clear victory, dismissing a court case brought by three Massachusetts counties which alleged the use of MERS allowed banks to unlawfully end-run around recording fees.
MERS, a Virginia-based entity holding legal title over the majority of the nation’s mortgages, was created by a consortium of national banks in the early 1990s to make it easier to securitize residential mortgage loans. Such loans are often bought and sold several times by different banks before they are finally packaged into residential mortgage backed securities.
Rather than having to register each new change in ownership and wait for it to be recorded, participants in MERS would simply assign the mortgage attached to the loan under MERS’ name. So long as the bank that purchased the loan was also a MERS member, the loan could be transferred between banks without having to record a change in ownership at the registry of deeds. If the property became delinquent and went into foreclosure, MERS would bring the foreclosure action on behalf of its member.
During the recent foreclosure crisis, sloppy record keeping by banks often caused ambiguities about whether loans had been properly transferred between banks. Critics of MERS charged that the use of the system created the possibility that homes were being foreclosed on by an entity which had no real ownership rights in the property. A wave of lawsuits were launched against the company, including several by registers of deeds across the country alleging that MERS was simply being used by banks to illegally avoid foreclosure fees. In response MERS changed its internal policies in 2011, requiring mortgages be re-registered in the name of the lender before a foreclosure action could be brought.
The wave of lawsuits against the company are now winding to a conclusion, and so far judges across the country have confirmed that recording a mortgage in MERS’ name is permissible.
"Massachusetts law does not require the recordation of mortgage assignments … if recordation is not required by law, then there is no legal basis to complain about defendants’ failure to pay any recording fees," wrote Judge Janet L. Saunders of the Massachusetts Superior Court in her decision in Bristol County v. Merscorp, Inc. Saunders cited two landmark cases which discussed the role of MERS in both federal court (Culhane v. Aurora) and the state’s Supreme Judicial Court (Eaton v. Federal National Mortgage Assoc.), pointing out that both higher courts had an opportunity to raise questions about the legality of MERS in those decision and declined to do so. Along with Bristol County’s case, the decision also resolved similar cases brought by Plymouth and Norfolk counties.
"Obviously, we’re disappointed," Jaye Cioper, spokeswoman for the Bristol Country Board of Commissioners, told Banker & Tradesman. The board had voted to bring the suit in 2012. Cioper said the decision was not unexpected, given MERS’ success in other states. It’s unlikely the commissioners will choose to appeal, she said, but the board plans to meet with its attorneys next week in order to come to a final decision.
"These cases are another example of county recorders seeking inappropriately to recover fees for recording services that were not required by state law or performed by the counties," Janis Smith, a spokeswoman for MERSCORP Holdings, said in a statement.
