It seems to have a business purpose-- to eliminate the need for paper mortgage assignments.  This not only saves mortgage investors a lot of money in recording fees; it is a virtual necessity if mortgages are to be securitized.  How can something be both an integral part of a "system" with "advantages," and a sham? 

The title industry, in the form of ALTA, not only signed off on the concept of MERS, it funded its development.  I'm sure that some of your past dues have gone into this project.  So to me, this goes beyond just the fact that the MERS system holds too many mortgages;  it's the fact that it has been supported by virtually all the relevant players-- the banks, the title industry, the GSE's, and up until very recently, the courts it seems.

I see parallels with the immigration problem.  When you have a few dozen or a few thousand people sneaking into your country, when you find them you can deport them.  When you have ten or twenty million people in the country illegally, and millions have been living and working here for decades and have raised families here, you need some sort of solution involving amnesty.  Even there, these illegal aliens knew they were doing something illegal.  I think that MERS's clients were led to believe that it was a perfectly legal setup.

It's really too late for law professors to be analyzing the legal structure of MERS 15 years after the fact and finding it to be legally lacking in the details.  MERS was publicized when it was created-- were these guys analyzing this arrangement back then?

5 stars, though, even though I don't share your shock at the way MERS is set up.  The banks and the title industry and Fannie and Freddie were trying to set this up as part of a legal and legitimate system.  If people or business are making good faith attempts to abide by the spirit of the law and come up short, I reserve some sympathy for them when they encounter problems like this, and I hope that the legal issues can be resolved without stripping lenders of their rights to collateral on affected loans.

  I've heard people in the foreclosure and title business in California talking about MERS as a leaning ("liening"?  lol) tower about to collapse. 

  I don't think that the excuse of "I killed someone last year and they didn't arrest me so I'll do it again", flies well in the judicial system.  In the same sense, setting it up 15 years ago and nobody pointing a finger until now does not legitimize wrongdoing. 

  The big corporations all agree that you have no right to your property so they begin taking property of others 3 decades ago, and when they get to your property, your rights are waived because you didn't speak up beforehand?  Sounds like a brown shirt bunch to me. 

  This and the other coming scandals in the note assignment industry will keep us all debating for years to come as the foreclosures continue.  New boogeyman on the block, different day.  Maybe it's the cynic in me, but as Robosigners pass out of sight in the public eye, MERS will be the "big bad" on the block for a time, before another spirit comes a'knockin'.

It seems to have a business purpose-- to eliminate the need for paper mortgage assignments.

The business prupose here seems to be a problem - those paper mortgage assignments are required by law to preserve the security interest that they claim to hold.  At least that is one interpretation (finally, I'm not the only who believes this).  And - it really isn't just the elimination of "paper" it is the complete elimination of the "assignments"  (which gives them a right to foreclose).

This not only saves mortgage investors a lot of money in recording fees; it is a virtual necessity if mortgages are to be securitized.

I disagree.  Cumulatively, it might be a lot of money but when you consider the value of the underlying mortgages, it is really just a drop in the bucket.  In Ohio, a mortgage assignment costs $32 to record.  And - it isn't anywhere near a necessity, it is a convenience.  These banks could have chosen to record the assignments, but they didn't want to be bothered.

How can something be both an integral part of a "system" with "advantages," and a sham?

The only advantages are for the banks - less transparency and oversight.  Who can argue in foreclosure that they don't have a right to foreclose when they have complete discretion to create any assignment they want... or need... and THEN use the recording system (that they chose not to use) to record it to show that they hold the mortgage?  In essense, they are relying on a recording system that they didn't think was necessary to creat the interest they need to foreclose.   A little ironic, don't you think?

Perhaps if they ran it like a proper business, with employees who actually checked well-kept records before signing documents, it wouldn't appear as such a sham.  But really... how can you argue that it is not a sham - it is a name only that lenders, servicers, and foreclosure mills use to create any document they need to be able to foreclose.  If you or I tried that, we would most likely go to jail!

So to me, this goes beyond just the fact that the MERS system holds too many mortgages;  it's the fact that it has been supported by virtually all the relevant players-- the banks, the title industry, the GSE's, and up until very recently, the courts it seems. 

Why does it matter who supported it?  If it is insufficient to maintain a security interest, those mortgages are not valid.  It escaped scrutiny for so many years because foreclosures weren't a big problem.  Everyone probably assumed that MERS was actually keeping track of these and that they were issuing reliable documents (though decoupling the mortgage from the note would still be a problem). 

Instead, it was discovered that MERS has no employees, no training for their signing officers, provides no access to its records to those who are signing the documents, and will let any lender, servicer, or foreclosure mill appoint their own employees to sign as vice president of MERS!  Talk about a conflict of interest.

It's really too late for law professors to be analyzing the legal structure of MERS 15 years after the fact and finding it to be legally lacking in the details.  MERS was publicized when it was created-- were these guys analyzing this arrangement back then?

Too late?  I don't understand why it would be too late.  If they are legally insufficient - they are legally insufficient.  I'm sure you and have discussed this before - if you transfer the security interest without the debt, there is not security interest.  That is pretty easy to understand and it is something that MERS (and all interested parties) should have thought about before setting up this system.

 If people or business are making good faith attempts to abide by the spirit of the law and come up short, I reserve some sympathy for them when they encounter problems like this, and I hope that the legal issues can be resolved without stripping lenders of their rights to collateral on affected loans.

I guess this is where we disagree - I don't think it was a good faith attempt.  If it were, it would have had some transparency built in and they would have run MERS like a real business.  How can you claim to hold 60 percent of all of the mortgages in the country and not have any employees, or allow just anyone to sign as your vice president?  To me it only shows that they have no respect for the very documents they claim to hold.  It they don't respect them, why should the courts?

Isn't it just as possible that they set this system up with a mixed motive - saving recording fees and making it harder for borrowers to challenge their foreclsoures?

then the government better be hard at work figuring out a way to prop it up.  Because if the banks lose the right to foreclose on 60% of mortgages and that all becomes unsecured debt, that's instant insolvency for many if not most of the banks.  Nobody wins in that scenario.

All this stuff about "you have no right to your property," "your rights are waived," "brown shirt bunch" and all of that is hyperbole.  If you have a mortgage, have you checked whether it is in the MERS system or not?  Yeah, me neither.  If having a mortgage in MERS really meant that "you have no right to your property," we'd all be checking that out of concern for our own rights.   

The reality is that it does not matter in substance to a homeowners' rights.  Pay your mortgage on time, and your rights are the same with or without MERS.  Don't pay, and you will get a default notice with or without MERS.  Try and get a loan mod, and you jump through the same hoops with or without MERS.  Don't pay for long enough and don't have your loan mod approved, and you will get foreclosed on with or without MERS. 

We simply cannot let a legal technicality bring real harm to our economy when we already are on such weak footing.  If the MERS system is technically illegal in some or all states under current laws, let's find a technical way to patch it not only for the future but for existing MERS mortgages.

it really isn't just the elimination of "paper" it is the complete elimination of the "assignments"  (which gives them a right to foreclose).

The courts seem to overwhelmingly accept this practice of creating and filing assignments as needed, after the fact.  Other kinds of filings are filed long after the actual transaction and are valid... why not these?  Can you cite a law that makes filing assignments as needed rather than at the time of the transaction in and of itself illegal?

Cumulatively, [saving the filing fee on mortgage assignments] might be a lot of money but when you consider the value of the underlying mortgages, it is really just a drop in the bucket.

When you multiply the number of mortgages by the average number of assignments per mortgage by $32, you get a large number-- several billion dollars.  This is a drop in the bucket only when compared to the loan amounts.  When compared to the profits (or losses) of the low margin servicers, it is a very significant amount of money.  And as we have seen recently, the mortgages themselves can see their value go to zero in a downturn.  I'd suggest we stop considering billions of dollars of someone else's money "a drop in the bucket."  I doubt that they consider it to be a drop in the bucket.

Who can argue in foreclosure that they don't have a right to foreclose when they have complete discretion to create any assignment they want... or need... and THEN use the recording system (that they chose not to use) to record it to show that they hold the mortgage?

In our land records offices, where documents are not checked on validity of content before they are recorded, a foreclosing entity could already create and record any assignment they want, with or without MERS.

In essense, they are relying on a recording system that they didn't think was necessary to creat the interest they need to foreclose.   A little ironic, don't you think?

Nothing ironic about it at all.  They merely a jumping through a hoop as required by the law, so that they can foreclose.  Not every consequence of the law makes a lot of sense. 

Perhaps if they ran it like a proper business, with employees who actually checked well-kept records before signing documents, it wouldn't appear as such a sham.  But really... how can you argue that it is not a sham - it is a name only that lenders, servicers, and foreclosure mills use to create any document they need to be able to foreclose.  If you or I tried that, we would most likely go to jail!

The MERS name is not used on a standalone basis to my knowledge, but as nominee of another named entity.  If the MERS name were used to disguise the identity of the de facto foreclosing entity, I would probably agree with you.  But that's not the case-- the foreclosing entity is named on the documents.

It is only to the extent that individuals create documents that substantially and purposefully misrepresent the nature of past transactions that anyone shoule be in fear of going to jail.  Granted, that has likely occurred in some cases. 

How can you claim to hold 60 percent of all of the mortgages in the country and not have any employees, or allow just anyone to sign as your vice president?  To me it only shows that they have no respect for the very documents they claim to hold.  It they don't respect them, why should the courts?

There is some conflation going on here.  MERS is in fact a real business, with real employees-- about 30 of them IIRC-- a real office, and it runs a very real database and has real revenue from both transaction fees and database search fees.  I have not seen any credible allegation that MERS as I have described here has not taken care of their data.  That they act as nominee on these mortgages under a separate legal name that they administer, and that nobody actually works for that legal entity, does not make it a fully accurate statement that MERS has no employees.

This stuff is more indepth than anything else I read, watch, or listen to.  It's wonky but good!  Ultimately, I think my whole perception of the MERS phenom will have been shaped, in large part, by this discussion.

MERS has always been a sort of mysterious entity to me.  I never fully understood what they were trying to accomplish, other than an alternate system of record keeping - which, it now appears, was only partially accurate, in a small way.  Now it makes more sense, although not in a way that impresses me with the way it was done.  It looks like the cost to the quality of the public records has been enormous.

Anyway, the point-by-point rebuttals are riviting here.  What makes it more fun is knowing that you guys are probably sitting in adjacent offices, quietly ripping apart each others' arguments.  Or, maybe it's loud.  Anyway, back to the show.  I'm parked here for the duration.

...but we actually did have a discussion over text chat about this that lasted over an hour and got a bit heated-- I think we both resorted to CAPITAL LETTERS, so you're not far off, Pat :-)

Feel free to step in pick apart my arguments-- this doesn't have to be a bi-lateral discussion.  I don't expect that I will get much agreement from seasoned title folks on stuff like this, but I am happy to argue my side.  I'm coming from the perspective of a tech guy, not a title guy, and the way I see it, a MERS-like national electronic registry of mortgages would be a superior system for tracking mortgage assignments than the traditional way of (often paper) filings at the county courthouse, if all the kinks were ironed out.  I will gladly have that argument with anybody, all day long, no matter how many decades of title experience they have.  Perhaps legislators and land records offices should have cooperated on and created themselves some kind of system like MERS, but they failed to do so.  And so risk-taking entrepreneurs thought they saw an opportunity to fill the void and save billions in the process and they may have overlooked a legal stumbling block here or there.  All I'm saying is this:  when assigning blame here, don't just  blame the creators of MERS, who got off their butts, cooperated, and tried to create somthing new and better for themselves.  Take a look at the land records offices and their technologically backward systems too, and ask yourselves if what you see and the fee structure there does not invite private workarounds such as MERS.  As I see it, land records offices are busy upgrading from the 19th century to the 20th century in terms of technology, and they probably think they have upgraded to a modern system when in reality they are stlll a century behind where they really should be.

  The premise of banks failing serving nobody is a bit false.  It's like saying that a war of revolution serves nobody, but in reality, despite death and chaos, a strong American Repubic was forged.  An interesting historical study years ago showed that the same rich British families prior to the Revolutionary War were wealthy under the coagulating American system after the war.  The rich know how to stay rich.

  In a similar sense, bank failure is something which has occurred previously (remember the S&L's?  Go back further in history to Lincoln and study the evolution of the industry in the US) and an economy will adjust and adapt to the new financial realities.  In the short term, there is the pain of a free market finding it's way.  In the long run, stronger institutions, greater stability, safer havens for investment and greater prosperity can blossom.

  I certainly WANT the banks to fail.  I want massive collapse and restructuring to favor local and regional economies that are less subject to foreign influence, without disincentives for workers to excel and without unfair trade advantages flowing only to global conglomerates.

  So what?  Your banks fail.  Get over it and get on with rebuilding a stronger, better nation just like we've done before;  as Americans.

It isn't the timing of the assignments that I have a problem with, per se.  It is when they are assigned in relation to the interest they hold (or claim to hold) at that time.

Can you cite a law that makes filing assignments as needed rather than at the time of the transaction in and of itself illegal?

To some degree "as needed" does pose a problem - according the the Supreme Court, “the assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”  However, that isn't my biggest problem here.

The main issue I have is that there is NO assigment of the mortgage when the notes are transferred until the last noteholder in a long line needs to foreclose.  MERS takes an interest in the original mortgage as "nominee" for the original lender.  When the original lender transfers the note to Lender #2 (for example) there is nothing in the public record to indicate the MERS is now, somehow, the nominee for Lender #2.  The same thing happens (or doesn't happen) each time the note is transferred to a new holder.

I believe this creates a problem.  How can MERS as nominee for the original lender assign the mortgage to Lender #3 unless it holds the mortgage as nominee for Lender #2?  It seems obvious to me that the mortgage is not being assigned on each subsequent assignment of the note.  Thus, when MERS assigns the mortgage as nominee for the original lender but Lender #2 holds the note, it is an assignment of the mortgage alone and, as such, void.

I don't really have a problem with them holding the mortgage as a nominee.  But, I don't think they can act as a nominee for all of these different lenders when that relationship isn't documented in the public record when it changes.

Robert:  that's how i read and understood it too.

Similar to the idea of selling a house then reselling it to someone else.  Maybe the analogy of being King and giving the throne to your brother one day and then surrendering it to your son a week later is more apt.

The video-taped depositions of employees of Nationwide Title Clearing (NTC) in Palm Harbor, Florida, were made available on the website Stop Foreclosure Fraud according to a November post last week on that so-called "fraud" website.

Last Summer, we discussed the services that NTC was offering at that time in the context of "missing assignments". That general subject is really the major issue in the MERS discussion. For something "new" on that major issue, see the reversal of judge Samuel Bufford (for abuse of discretion) in the Hwang case in bankruptcy court last Summer. Lawyers and judges around the country - including Christopher Petersen - won't be able to cite that one anymore.

Slade cannot be blamed for his lack of appreciation for our recording system, and the serious damage that we have allowed the lenders to inflict on it by permitting - and even encouraging - the preemptive use of electronic registration to replace recording. On this point, I would agree with Christopher Peterson.  If Slade likes MERS, he will love MISMO. You guys are no doubt all aware that the mortgage industry proceeds with their "paperless" plans despite the serious difficulty that MERS has presented for all of its members.

The lawyers in judicial foreclosure states have gradually learned to treat their role more seriously since getting body slammed in Ohio three years ago. But they are learning slowly. Meanwhile, the MERS cases continue to flop around, but the MERS opponents do not seem to have scored. What is amusing, as I pointed out last Summer, is that many lenders are dropping MERS out of the foreclosure process. Since then, even more foreclosing lenders are dropping MERS and getting a little more uptight on documentation. Now that's really interesting.

It is too bad that our elected representatives have tried so hard to look so good by suggesting a host of impractical solutions to non-existent foreclosure problems, when all they had to do was to pass laws requiring that mortgage assignments be recorded prior to commencement of foreclosure. That would have done something good. Now is the time to propose such laws, while FNMA and FHLMC are really broke and unable to peel off a lot of adverse lobbying cash.

Great site. Great discussions. Keep the faith.

Lacombe

I just understand why it exists.  It exists because the county recorder charges an arm and a leg for a recording service that should  take about a minute and cost a few bucks at the most (and then the recorder's office provides lousy access to the data, but then that's another subject).   I just don't see it as good government when an antiquated system just exists as-is forever because the government can extort exorbitant fees under the guise of providing a service (maintaining a public record) and there's no legal way to avoid using the service.  Where government fails, all kinds of distortions and problems arise. 

$30 is a very reasonable fee to protect the security interest.  If lenders feel they can skirt the public records in this manner, and they find out that they lost their security interest because they didn't want to pay $30... then, I they get what they deserve.

If the ordinary person decided to set up a new "private recording system" so they didn't have to pay the recorder to file deeds, do you think the law would respect that?  Of course not.  You just can't remove yourself from the recording system and still expect your rights to be protected.

Best,
Robert A. Franco
SOURCE OF TITLE

1.  I've seen fees increase in recent years, but prior to 2005 or so I was oblivious so I don't have the history to see the big picture.... However it seems like a chicken/egg dilema in one respect.  Is it MERS getting around High fees, or because of the advent of MERS have Fees had to increase?

2.  Those accrued fees that amount to Billions.... those fees or revenue need to be made up somehow, by higher filing fees across the board, or incresed taxes.... Just to save the banks some money??? I'm not sympathetic to banks and lenders.  We've been sprinting down the penny wise, pound foolish path for years now, and it's starting to create severe problems.

3.  Even if recategorized as unsecured, the debts still exist... they'll just have to be taken care of in the proper forum... It might be time to bone up on my Bankruptcy law. (Then the explosion of cases there will cause those filing fees to increase... vicious circle)  Also if this was the end outcome, the lenders may end up worse than if they'd supported Cramdowns or actually worked harder to refinance people into workable mortgatges... oh the irony!

Scott Hill

Property viewed as a tangible relationship between the land and the people who own an interest in it is what we refer to as "title". (Quoting my father - the late Peter Lacombe). The works of W.W. Robinson, Donald Pisani, Paul Wallace Gates, Roy M. Robbins and a few others demonstrate that orderly records are vital to property rights and to the potency of capital in a free economy. Franco hit the bullseye with his point regarding records.

It's possible that the MERS records could find new usefulness in the public domain, but that's not the big brother that any of us can tolerate. We can understand it, we can deal with it, but we cannot tolerate it.

Our system of property tax records, Official Records at the County, District and Parish level, and our land surveys from state to state (including BLM's PLSS) combine to distinguish our real property system as something very special that developing countries are struggling to replicate. I hope they are not studying MERS as some kind of model for record keeping. That is not the way to good title, and it is not the way to stronger capital.

We can blog about "prescription" and so forth, but such exceptions to strict rules of proof and recording do not prove that property rights, as the strongest element of capital, can survive long without such a system. We do not love each and every County Recorder, and every so often we get stuck trying to figure out a title we wish we could pass along to some other guy. None of the suits and ties have a clue about what we do (to them we are all part of the "paperwork"). They will learn. If they do not, then the country is in for harder times than we thought.

Keep the Faith.

Lacombe

Before MERS, Lenders didn't just reconvey the property out of a mortgage obligation upon satisfaction of the debt, , they cancelled the note as well. With Trust Deeds, the Trustee, which in many cases was simply a document holding company, wouldn't reconvey without the note either. Assignments, though of record, still required someone to cough up the note physically to make the transaction valid. You couldn't foreclose without physical possession of the note either. And the necessity for having the note when initiating a foreclosure is the exact same scenario.

The Reality being whether MERS is "good" or is "bad" is irrelevent.

The notes are the actual contract obligation between the parties, and the recorded mortgage or trust deed only perfects the security of the note by encumbering the property. ANYTHING you might do with respect to the obligation under the note itself, is controlled by the note. It is the primary contract.

In that recorded assignments, wherevere they may be recorded, only impart a form of constructive notice as to who to look for as to possession of the note, how they chain of record with respect to a foreclosure or even as to satisfaction is a matter of "business" only to those people searching for that note, i.e. the present note holder or their assignees who perhaps never got delivery.

In that lenders (including S&L's) used to hold the notes themselves and simply assign the interest of the note on record, it really wasn't much of a problem so long as you could figure out where "the buck stopped" in the chain. 

My suggestion would be that the LENDERS actually maintain some sort of private industry wide document repository for their own notes, so that the terms of those notes and the private information contained in them remains solely in the lenders possession. The lenders could set up a parrallel system with only their own notes (and assignments) on them, and that way they could tell where the note was at a glance, without the necessity to chase the notes in the County Records. It would also eliminate the necessity to record the assignments, in that THAT wouild be accomplished in the privately owned system.

It would seem to me that so long as you didn't have to Judicially foreclose on something, you would'nt have a necessity to chain the assignments anyway. if the Foreclosing party had retained the notes, they would have sufficient evidence to any challenges AND they would also have sufficient eveidence for any Judicial closure as to the "where is the note" question.

Additionally, any questions with respect to the vailidity of those assignments would reest solely with those charged with handling them, as opposed to having to chain the beneficial interest on a single mortgage in an effort to find the note to foreclose on it, or even to reconvey it once it is paid off.