Chances are pretty good that no matter what entity you got your home loan from, it’s officially registered through the Mortgage Electronic Registration System.
Never heard of it? You’re not alone even though it holds 60 million loans, according to a must-read column by Gretchen Morgenson in the Sunday New York Times. http://www.nytimes.com/2009/09/27/business/27gret.html
The Mortgage Electronic Registration System is a privately owned registry created in 1997 that eliminated the need to actually record changes in property ownership in local land records. This supplanted the need for county clerks to actually record changes in property ownership, including liens placed on property. Because home loans changed hands contantly in the mortgage lending spree, Fannie Mae, Freddie Mac and other powers in the mortgage industry set up the dubiously acronymed MERS to record the loan assignments electronically, allowing the liens and loans to be spliced and diced online and obscuring the actual ownership obligations of those who issued the mortgages. While MERS didn’t actually own the mortgages it registered, it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder.
As Morgenson writes, the system worked well as long as real estate prices rose. MERS claims to have saved the mortgage industry $1 billion during the run-up, however, when prices started to plummet trouble ensued. As home owners fell into delinquency, it was actually MERS that filed sued against many of them. This confused lots of borrowers, who never remembered taking out a mortgage with MERS.
It didn’t take too long for lawyers representing homeowners to start asking “how an electronic registry with no ownership claims had the right to evict people.”
While homeowners lost many of the initial bouts, the tide seems to be turning, most importantly with the unanimous decision in Landmark National Bank v. Kesler. http://www.kscourts.org/Cases-and-Opinions/opinions/supct/2009/20090828/98489.htm Written by (J Eric Rosen http://www.kscourts.org/kansas-courts/supreme-court/justice-bios/rosen.asp).
The case is a complex foreclosure proceeding that resulted after a homeowner, Boyd Kesler, filed bankruptcy. Kesler had taken out two mortgages on property in Ford County, the first with Landmark National Bank and the second with Millenia Mortgage Company, which used MERS to administer the loan. At some point, Millenia’s ownership transferred to Sovereign Bank. However, only Millenia was listed in the property records.
When Kesler filed bankruptcy, the first lienholder, Landmark, foreclosed on the property, which was sold at auction for more than Kesler owed Landmark. Kesler and Landmark wanted to settle with the balance. However, Sovereign and MERS tried to block the foreclosure because they weren’t notified of the sale.
The Court pointed out that Kesler’s mortgage documents referred to MERS as a ‘nominee’, which, as the court found, seemed much like the “way that the blind men of Indian legend described an elephant – their description depended on which part they were touching at any given time.” Because MERS neither lent the money nor held the mortgage instrument, it had no enforceable rights in the litigation, the court found.
Not only does the MERS system create a ‘notice’ nightmare for the homeowner – who can be confused by notices from an entity he doesn’t recognize – the system also obscures the obligation of holders of the mortgage, making it impossible to determine the magnitude of obligations any individual financial institution has accumulated.
The Kansas Supreme Court Blog also has a helpful account. http://kscblog.wordpress.com/2009/09/03/decision-landmark-national-bank-v-kesler/
Looks for lots more litigation to come.
Representing MERS and Sovereign Bank were Tyson Langhofer http://www.stinson.com/ourattorneys/attypage.asp?key=2546 and Court Kennedy http://www.stinson.com/ourattorneys/attypage.asp?key=2832 of Stinson Morrison in Wichita, while David Schatz http://www.huschblackwell.com/bio.aspx?id=305a2511-38a5-450a-990b-30ff9ce889ea&type=firm&stype=a of Kansas City’s Husch Blackwell represented American Land Title Association as amicus. Ted Knopp, a sole practitioner in Wichita, http://tedknopplaw.lawoffice.com/ won the case for Kesler.