Real Estate Mortgage Law

A Interesting Case Involving MERS.

Mortgage Electronic Registration Systems, Inc. (“MERS”) is often named as the mortgagee on residential mortgages, including initial home purchases, refinances and equity lines. If you obtained a mortgage in recent years, chances are MERS is named as your mortgagee. According to U.S. District Court Judge Young, who writes in his decision for the case of Culhane v. Aurora Loan Services of Nebraska, U.S. District Court for the District of Massachusetts, Civil Action No. 11-11098 WGY, November 28, 2011, MERS is:

“MERS is the Wikipedia of land registration systems. A Delaware corporation headquartered in Virginia, it was created in 1993 along with its parent corporation MERSCORP, Inc. ("MERSCORP") by major players in the residential mortgage market to track ownership interests in mortgage loans. In re Marron, 455 B.R. at 3; MERSCORP, Inc. v. Romaine , 8 N.Y.3d 90, 96 & nn. 2-3 (2006). MERS maintains an electronic registry that stores information as to who originates, services, and owns mortgage loans. In re Marron , 455 B.R. at 4. By maintaining this registry, MERS, despite its small size of sixty-five employees and self-described "back office" operation, has a hand in sixty percent of the nation's residential mortgages. Austin Kilgore, The New Man at MERS, Mortg.Tech., Sept. 2011, at 13-14, available at www national mortgage news .com /pdfs/MTSeptember 2011.pdf. In the future, "MERS hopes to register every residential and commercial home loan nationwide on its electronic system." Romaine , 8 N.Y.3d at 101 (Kaye, C.J. dissenting).

Companies, banks, and insurance agencies become "members" of MERS by paying annual fees and consenting to the MERS Rules and Terms and Conditions. In re Marron , 455 B.R. at 3-4; Jackson v. Mortgage Elec. Registration Sys., Inc. , 770 N.W.2d 487, 490 (Minn. 2009); Romaine , 8 N.Y.3d at 96 (majority opinion). Membership permits access to the MERS registry. Rosa, 2011 WL 5223349, at *3. In fact, it is the responsibility of MERS's members to update the registry to reflect the transfer of the beneficial interests in and servicing rights to mortgage loans. MERS Rule 2, § 3. MERS does not input any of the information in its registry and makes no representations or warranties regarding its accuracy or reliability. MERS ServicerID User Guide 1 (Dec. 18, 2006), available at www. mersinc..org /files/filedownload.aspx id=249&table=ProductFile.

MERS members agree to name MERS as "mortgagee of record" in the appropriate public registry of deeds with respect to any mortgage that they register on the MERS database. MERS Rule 2, § 5(a); Terms & Conditions ¶ 2. "MERS is named as mortgagee of record in the mortgage so that beneficial ownership and servicing rights of the note may be transferred among MERS members without the need to publicly record such assignments; instead assignments of the note are tracked by MERS' electronic system." Rosa, 2011 WL 5223349, at *3; Jackson , 770 N.W.2d a 490. So long as the note is held by a MERS member or the loan is serviced by a MERS member, no matter how many times it is transferred between members, MERS remains the mortgagee of record.[10] Kiah , 2011 WL 841282, at *1 n.1; In re Agard , 444 B.R. 231, 248-49 (Bankr. E.D.N.Y. 2011). In practice, this means that "[m]embers contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system." Romaine , 8 N.Y.3d at 96.”

Courts and scholars alike have expressed reservation, even bewilderment, as to MERS's claim to be both mortgagee and nominee or, as it has been generalized, both principal and agent. See, e.g., In re Agard , 444 B.R. at 254 ("MERS's position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best."); Bailey , 460 Mass. at 328 n.3 ("In this case, we are not faced with the issue whether MERS may properly be both the mortgagee and an agent of the mortgagee, and we do not decide in which capacity MERS acted here."); Landmark Nat'l Bank v. Kesler, 216 P.3d 158, 165-66 (Kan. 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")”

The titles and powers assigned to the individuals who become MERS's certifying officers are confounding given that these individuals are not actually connected to MERS in any way. That MERS can consider an individual who is not an employee of the company, has never been to the company's location, does not know where the company is located, has never met the company's president, does not know who the president is, and has never communicated personally with the company in any way to be a vice president of that company is inconsistent with even the most expansive definition of the term vice president. It does not follow that because a belief is convenient it is also true. Peterson, supra, at 146 (emphasis added) (citing testimony given in a foreclosure case by an employee of a Florida debt collection law firm, who, as a MERS certifying officer, would sign twenty to forty mortgage assignments per day on MERS's behalf). Perhaps the designation of servicer and law firm employees as assistant secretaries of MERS is less absurd, but it is still misleading. While many of these servicer and law firm employees are secretarial workers in the businesses that they actually work for, they are not assistant secretaries of MERS in any meaningful economic sense. They have no more contact with MERS than vice presidents do. Indeed, the fact that MERS's boilerplate resolutions allow the employees to just pick which title they want to use is compelling evidence that the whole concept is twaddle. Id.

This Court is deeply troubled that, with little to no oversight, individuals without any tie to or knowledge of the company on whose behalf they are acting may assign mortgages - that is, they may transfer legal title to someone else's home. Cf. Jenifer B. McKim, Building an Empire, One Home at a Time, Bos. Globe, Aug. 7, 2011. Equally troubling is the conflict of interest posed by these certifying officers wearing "two hats" simultaneously: that of assignor (as agent for MERS) and assignee (as employee of the note holder or its servicing agent). See James v. Recontrust Co., No. CV-11-CV-324-ST, 2011 WL 3841558, at *12 (D. Or. Aug. 26, 2011). Indeed, a MERS certifying officer is more akin to an Admiral in the Georgia navy or a Kentucky Colonel with benefits than he is to any genuine financial officer. In its rush to cash in on the sale of mortgagebacked securities, the MERS system supplies the thinnest possible veneer of formality and legality to the wholesale marketing of home mortgages to large institutional investors.[14]”