Who is MERS and Why Are They Suing Me?

April 17, 2009

The Mystery Company that Forecloses on Homes

By Terry Smiljanich:

A homeowner takes out a mortgage with Wells Fargo.  Two years later, she gets behind in payments due to unforeseen circumstances.  That’s when a foreclosure suit lands on her doorstep, but instead of Wells Fargo, someone named “MERS” is trying to take her home. Just who in the heck is this “MERS,” and who asked it to get involved?

More and more homeowners are asking this question and, in the process, successfully challenging these foreclosure suits.

What is MERS?

MERS stands for “Mortgage Electronic Registration Systems.” Created a decade ago, it is owned by several of the largest mortgage companies in America, including Fannie Mae, Freddie Mac, Wells Fargo, Citimortgage, Chase, HSBC and Countrywide.

In the heyday of mortgage securitization, when individual mortgages were repeatedly “sliced and diced” to be sold as securities (the same securities that are bringing down our economy as we speak), the mortgage industry created MERS “to streamline the mortgage process . . . by acting as the mortgagee of record for the holders and servicers of mortgages.”

In other words, MERS made it cheaper and faster for these mortgage companies to buy and sell loans without all the extra paperwork and fees they would have incurred had they done it the old fashioned way.  The idea was that while your mortgage was being chopped up, sold and resold, the ownership interests would supposedly be electronically tracked by MERS, hopefully avoiding those pesky recording fees in the county records.

MERS claims that its success has saved the mortgage industry more than one billion dollars, which unfortunately for us didn’t prevent the industry from still asking for and receiving billions in taxpayer bailout money.

Creating a Mortgage Monster

By 2007, more than 50 million mortgages were registered with MERS. Since at least 2003, every HUD, Fannie and Freddie backed mortgage has language nominating MERS as the mortgagee of record.

With record numbers of mortgages going into foreclosure today, business for MERS is good. No matter how many times your mortgage might have been traded, MERS simplifies things for the mortgage industry by suing in the MERS name as a “nominee” of the actual mortgage company, whoever that may be. But here’s the catch – MERS still has to prove it actually owns your loan.

Who Owns My Debt?

The ability of MERS to foreclose in the name of the actual mortgage lender has often been challenged in in courts throughout the nation. Oftentimes, sloppy work by its attorneys causes MERS to get kicked out of court. In California, for example, a court recently threw out foreclosure suits brought by MERS for failure to follow the rules. A court in Nevada did likewise.  Rhode Island Attorney George Babcock has been very successful challenging the chain of title created by MERS.  Maybe you can do the same.

This could provide hope for homeowners facing foreclosure, much like homeowners who are challenging foreclosures by using the “produce the note” strategy. With “produce the note,” borrowers demand the party foreclosing produce the original promissory note, and if they can’t find it or prove why it was lost or destroyed, a judge can prevent the foreclosure.  In much the same way, homeowners can fight for their legal rights when it comes to MERS.

Since MERS is merely an electronic database, it often has trouble proving it is the holder of the original promissory note. Just because MERS is suing you as the “nominee” for the lender doesn’t excuse it from having to “produce the note” when demanded. If the original promissory note was not endorsed to MERS or endorsed in blank (somewhat like a blank check), MERS cannot foreclose.  Some suits have failed because “lost note” affidavits (i.e., “gee, we can’t seem to find the darned thing”) have been rejected as insufficient.

Challenging a MERS Foreclosure

If your home is being foreclosed, and MERS appears as one of the parties involved in the lawsuit, you or your attorney should ask the following questions:

  • Does MERS have the original mortgage note in its possession?
  • Is MERS entitled to enforce the note as “nominee” of the actual mortgage company?

A “no” answer to either of these questions might mean that someone is improperly trying to take your property.

In Florida, MERS has already stopped the practice of trying to foreclose on homeowners in its own name.  Why? Seems there’s just too much opposition to MERS in Florida, and it doesn’t like the legal climate here.

Grassroots efforts such as the Consumer Warning Network’s “produce the note” campaign might not be to MERS’ liking, but we at CWN think the Florida climate is just fine.  Maybe challenges in your state can force the original lenders to show their faces in court instead of their cryptic “nominee.”