Biden: Private National Mortgage Registry Violates Delaware Law
Attorney General files suit against MERS under the state’s Deceptive Trade Practices Act; Inaccurate and unreliable records harmed homeowners
Wilmington, DE – Delaware Attorney General Beau Biden filed suit today against the shadow mortgage registry known as MERS that is at the center of the housing crisis. The complaint, filed in the Delaware Chancery Court, charges that MERSCORP and its subsidiary Mortgage Electronic Registration Systems, Inc. have repeatedly violated the state’s Deceptive Trade Practices Act.
“Since at least the 1600s, real property rights have been a cornerstone of our society,” said Attorney General Biden. “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.”
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 practices. These deceptive trade practices fall into three broad 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. This harms borrowers when MERS
forecloses on borrowers in its own name, thus impairing a borrower’s ability to raise defenses.
This also hampers the ability of borrowers to seek out the owner of their loan to pursue loan
modifications or other loss mitigation relief.
• 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. This has resulted in MERS recording so-called “robosigned” documents with country
recorders of deeds and failing to follow its own rules regarding proper institution of foreclosure
MERS, which is incorporated in Delaware and based in Northern Virginia, was formed in 1995 to facilitate the growing mortgage finance market. Large banks, such as Bank of America and Wells Fargo, the quasi-governmental institutions Fannie Mae and Freddie Mac, and other participants in the mortgage-lending industry created MERS to bypass the county Recorders of Deeds offices throughout America. Unfortunately, there was little to no outside oversight of MERS’ murky registry or transparency for homeowners. MERS did not meaningfully audit its records and failed to even enforce its own rules governing members’ conduct.
The complaint cites an example of a recent foreclosure in New Castle County in which MERS foreclosed on a loan in which it had no interest and without naming the real party in interest. In fact, the entity upon whose behalf MERS sought to foreclose had actually been dissolved months prior.
MERS’ own records indicated numerous transfers in and out of MERS that were not reflected in the county records, as required by MERS’ own rules. The confusing path and inaccurate records associated with this mortgage are not an isolated instance of bad record keeping by MERS. Rather, this type of confusion is endemic to the entire MERS System.
Specifically, the suit alleges that MERS violated Delaware’s Deceptive Trade Practices Act by:
• 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
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DELAWARE V. MERS FACT SHEET
What is MERS: In 1995, banks and others in the mortgage lending industry created the Mortgage Electronic Registration System (“MERS”) – a national registry to track ownership and servicing rights for residential mortgages. This system is designed to facilitate mortgage securitizations and circumvent the traditional county Recorders of Deeds offices. The rapid rise in popularity of mortgage backed securities and their subsequent decline in value is a major cause of the housing crisis that sent America’s economy into the largest collapse since the Great Depression.
Foreclosure crisis in Delaware: Delaware is experiencing a record rate of foreclosures. The foreclosure rate tripled from 2008 to 2009, rising from 2,000 homes annually to 6,000. A record 6,457 homes were foreclosed on in 2010.
Who owns/uses MERS: There are more than 5,500 members representing the most significant players in the mortgage industry, including: mortgage lenders and servicers (Bank of America, CitiMortgage, Inc., GMAC Residential Funding Corporation, and Wells Fargo Bank, N.A.); government-sponsored entities (e.g., Fannie Mae and Freddie Mac); insurance and title companies and the Mortgage Bankers Association.
MERS in Delaware: MERS purports to hold more than 30% of Delaware mortgages. Since January 1, 2008, MERS has filed more than 1,600 foreclosure actions in its own name against Delaware homeowners. Additionally, thousands of other homeowners whose mortgages have been tracked in the MERS system were foreclosed on by entities whose right to the property was unclear because of the unreliability of MERS’ records. Thousands more Delaware homeowners currently hold mortgages with MERS listed as the owner, but with no way to actually determine the true owner.
What is Attorney General Biden alleging: MERS violated Delaware’s Deceptive Trade Practices Act by creating an unregulated shadowy registry that is unreliable and inaccurate and blocks homeowners from learning which entity truly owns their mortgage. The complaint highlights three major deficiencies:
• MERS obscures important information from borrowers and what is available to
borrowers is frequently inaccurate.
• MERS acts without authority
• MERS is a “front” organization that does not enforce its own rules
How the mortgage industry works: A mortgage loan taken out by a homeowner is really two documents – the first is a promissory note requiring the borrower to repay the holder of the note.
The second document (the mortgage instrument) allows the holder to foreclose on the property if the loan is not repaid. The person or entity holding the note receives the money from the borrower’s monthly mortgage payments.
How securitization works: Banks that make the mortgage loans to homeowners sell the mortgage notes to other financial institutions. Several times over, the loans are bundled into investments known as mortgage-backed securities and the notes are sold to large investment groups, such as pension funds.
Where MERS comes in: As the notes are sold in the securitization process, someone has to service the loans and hold legal title to the mortgage instrument. Servicers do all the work involved with a mortgage loan on the lender side – physically collecting and distributing payments, answering borrowers’ questions, etc. MERS acts as passive place-holder on the County Recorder of Deeds public registry. Additionally, MERS can also file foreclosure actions on behalf of the note-holders in foreclosure proceedings. MERS allows its members to sell mortgages many times over without recording the transactions at the local Recorders of Deeds offices, thereby avoiding fees, eliminating any official paper trail and creating significant confusion that has led to improper foreclosures.
What the lawsuit seeks: The suit asks the Court of Chancery to impose various sanctions on MERS, including requiring it to audit its records to ensure accuracy, stop foreclosing on homes without divulging the true owner of the mortgage, and correct records filed with county Recorder of Deeds that do not list the entity that owns the mortgage. The suit seeks a civil penalty against MERS of up to $10,000 for each willful violation of the Deceptive Trade Practices Act, as well as restitution to borrowers who were harmed by these violations. The exact amount will be determined during trial.
PDF copy of press release and the DELAWARE V. MERS FACT SHEET can be downloaded here...