Delaware Attorney General Beau Biden has
sued the Mortgage Electronic Registration system (MERS) the controversial entity
that has been at the heart of the robo-signing flap and perhaps the center of
the housing crisis. The suit, filed
yesterday in the Delaware Chancery Court, charges that the parent corporation
MERSCORP and MERS have repeatedly violated the state's Deceptive Trade
MERS was established by Fannie Mae,
Freddie Mac and several large mortgage lenders such as Wells Fargo and Bank of
America in 1995 with the goal of reducing recording costs and the inefficiencies of transferring ownership of
residential mortgages among mortgage brokers, lenders, Fannie Mae and Freddie
Mac, the secondary market system and investors.
The concept was to record the initial loan documents in the name of MERS
and retain that record even as paper documents were passed along from
originator to subsequent holders of the debt.
Over the years there was an increasing
tendency for loan documents to become separated from the loans themselves and
as more banks consolidated, big mortgage companies began to fail, and
foreclosures ramped up, more and more loan transfers were not properly recorded
on the MERS system and documents were actually lost. This has led, not only to improper
foreclosure procedures but even instances where properties were foreclosed
where there was no outstanding mortgage.
MERS is currently the repository for about 65 million mortgages.
Biden's suit charges that MERSCORP/MERS
"engaged and continues to engage in deceptive trade practices that sow
confusion among homeowners, investors, and other stakeholders in the mortgage
finance system, seriously damaging the integrity of the land records that are
central to Delaware's real property system and leading to improper foreclosure
Court papers outline three broad
categories of deception:
through its private mortgage registry knowingly obscures important information
or provides inaccurate information to borrowers. The opacity of the registration database makes
it difficult for consumers to know of or challenge inaccuracies in the MERS
System which harms borrowers when MERS forecloses on borrowers in its own name,
thus impairing a borrower's ability to raise defenses and hampering the ability
to seek out the owner of the loan to pursue relief.
often acts as an agent without authority from its proper principal and is often
unaware of the proper identity of that principal. Where the name of the owner of the mortgage
loan recorded in the MERS system is not accurate, MERS often takes action on
behalf of the purported owner without authority.
is effectively a "front" organization that has created a systemically important
mortgage registry which does not properly oversee or enforce its own rules on
participating members. Rather than
maintaining an adequate staff, it works through a network of over 20,000
deputized non-employee corporate officers who act without meaningful
oversight. It is this network that was
behind the robo-signing of foreclosure documents.
Appearing on MSNBC last night, Biden
said that American has historically had a robust recordation system where
people could walk into the proper registry and "see, read, and touch" documents
revealing who had a security interest in property. MERS, he said, in order to save millions in
recording fees and facilitate the "slicing and dicing of mortgages" for the
secondary market, has taken that public and private recording system and "screwed
Asked by Rachel Maddow if this suit hits
at the heart of the mortgage issue or if regulators are still working their way
in from the edges, Biden said this suit is central, but there is still much to
be done. Attorneys General Miller
(Iowa), Schneiderman (New York) and Coakley (Massachusetts) are actively
investigating as are people on the federal level. These cases, he said, are hard to pursue on a
criminal basis because anytime lawyers and accountants have signed off on a
process it is hard to go after the people who have employed that process, "but
anytime you have all 50 states attorneys general agreeing on something, you
know the banks have been up to no good."
-Press Release Announcing the Lawsuit
-Download a MERS Fact Sheet
-Read the Complaint