MERS Lacks Legal Authority and Public Accountability

Harvard Amicus Brief on MERS

Some of the best quotes,

• Mortgage servicing companies, banks, courts and government agencies have all expressed astonishment at the extent to which MERS database is inaccurate. (p. 24)
• “Simply put, ‘MERS is the Wikipedia of land registration systems.’ Culhane v. Aurora Loan Services, 826 F. Supp. 2d 352 (D. Mass. 2011) aff’d, 708 F.3d 282 (1st Cir. 2013).” (p. 12)
• Janis Smith, a spokeswoman for Fannie Mae, admitted Fannie Mae kept its own records and that “We would never rely on it [MERS] to find ownership.” Powell and Morgenson,
  supra p. 32. (p. 25)
• Judge Jennifer Bailey, a circuit court judge in Miami stated of 60,000 foreclosures filed in 2009 in her court, “[A]lmost every single one of them… represents a situation where the bank’s position is constantly shifting and changing because they don’t know what the Sam Hill is going on in their files.” Transcript of Hearing on Order to Show Cause at 5, HSBC Bank USA v. Eslava, No. 1-2008-CA-055313 (Fla. Cir. Ct. May 6, 2010).
• “…MERS never requests or possesses proof that one of its members in fact holds the mortgage note or is the agent of the note holder when that member seeks to foreclose.”
• Because MERS records are shrouded in secrecy, it is also impossible to know just how incomplete or inaccurate MERS records are. However, surveys and
  reporting by public media have suggested that the MERS database is alarmingly inaccurate. (p. 23)
• When one compares these costs to the costs of record-keeping that the industry targeted for elimination, $10 per recordation, amounting to around $30 per loan, seems a small amount to pay to protect a family’s interest in the ability to discover who owns their loan, who would execute a foreclosure proceeding against them, and to challenge a party attempting to do so on the basis of mistake or fraud
•  “The creators of MERS did not lobby Congress for a uniform, electronic mortgage system that could have retained the public recording system’s transparency and reduced costs. Rather, without judicially or statutorily recognized legal authority, they independently launched MERS as a private system, and created legal theories to legitimate the system post facto.” (p. 13)
• In Professor Joseph Singer’s words, MERS allowed banks “to be prolific about securitizing those mortgages but complacent about formalizing mortgage assignments. The resultwas that the banks made many, many mistakes in keeping track of these transactions. Formal records of mortgage transfers are often incomplete or incorrect; the chain of title for many properties appears to be irretrievably broken.” Joseph Singer, Foreclosure and the Failures of Formality, 46 Conn. L. Rev. 497, 503-04 (2013).” (pp. 13-14)
• While MERS’ creators knew that differences in state real property law would pose problems but chose not to investigate the possible impact, Nevertheless, MERS conducted no fifty-state analysis of the potential impact of its operations. Memorandum from Covington & Burling to R.K. Arnold, President and CEO, MERSCORP, Inc. (Sept. 1, 1997) (on file with the Duke LawJournal). (p. 22)
• MERS’s attempt to establish “facts on the ground supporting its existence therefore does not deserve deference, and in practice has not worked. State laws have unsurprisingly taken disparate positions with respect to numerous aspects of MERS, and borrowers are now impacted in vastly different ways based on their jurisdiction. Laura A. Steven, MERS and the Mortgage Crisis: Obfuscating Loan Ownership and the Need for Clarity,” 7 Brook. J. Corp. Fin. & Com. L. 251, 256-57 (2012). (p. 23)
• MERS inserts a placeholder in the public record. It thereby grafts itself onto systems for recording interests in land, while rendering that recording meaningless.
• MERS has therefore privatized the majority of mortgage records in the country while undermining the value of county public records. Peterson, Two Faces, supra p. 9, at 132 (2011).
• MERS, in effect, creates a lacuna in the record, and makes meaningless the record onto which it is grafted. As Professor Christopher Peterson writes, “Recording mortgages in MERS’s name and subsequent refusal to record assignments is not a technological innovation. On the contrary, it is an example of atrophy of the mortgage market’s information infrastructure and the rule of law.” Peterson, Foreclosure, supra p. 4, at 1404. (p. 26)
• Additionally, the Interagency Report found that servicers had failed in conducting appropriate due diligence assessments of and quality control processes pertaining to MERS, by failing to monitor, evaluate, and appropriately manage the MERS contractual relationship, assess internal control processes at MERS, ensure the accuracy of servicing transfers, and ensure that servicers’ records matched MERS records. Id.Federal Reserve, Office of the Comptroller of the Currency, and Office of Thrift Supervision, Interagency Review of Foreclosure Policies and Practices 10-11 (2011).

The brief also recognizes MERS shape-shifting tendency to take contradictory positions given the jurisdiction:

• For example, when MERS has brought foreclosure actions, it has argued that it was an actual mortgagee or assignee. See, e.g., Landmark National Bank v. Kesler, 40 Kan. App. 2d 325, 327(2008) (“MERS claims that it holds the title to the second mortgage… MERS objects to its characterization as an agent.”).

• However, when faced with suits alleging fraud, deceptive practices, or when it wished to avoid license and registration requirements, it argued that it was merely an agent without exposure toliability, and did not have the same power as a mortgage owner. See, e.g., Escher v. Decision One Mortgage Co., 369 B.R. 862 n.8 (Bankr. E.D. Pa. 2007) (“MERS’s role as nominee leads the Court to conclude that it cannot be liable on any of the Plaintiff’s [Truth in Lending or Pennsylvania consumer protection] claims. A nominee is understood to be an agent for another.”).

• See also Peterson, Foreclosure, supra p. 4, at 1376. MERS’s adoption of inconsistent positions across jurisdictions to obtain favorable outcomes in litigation underscores its fundamentallack of legal authority. See also Landmark Nat’l Bank v. Kesler, 289 Kan. 528, 216 P.3d 158, 165–66 (2009) (stating that MERS defines its role “in much the same way that the blind men of Indian legend described an elephant—their description depended on which part they were touching at any given time”).