New York Attorney General Sues Banks Over Their Use of Mortgage Electronic Registration System

by Mike Mintz on February 10, 2012 · 1 comment

in,Real Estate

New York Attorney General Eric T. Schneiderman recently filed a complaint against several major banks, including JPMorgan Chase, Wells Fargo and Bank of America, alleging that they used the Mortgage Electronic Registration System (“MERS”) to, among other things, harm the interests of homeowners and undermine the integrity of the judicial foreclosure process.  MERS is a digital mortgage tracking service which Schneiderman alleged acted as a hidden mortgagee for the banks.  MERS was created in 1995 to, according to Schneiderman, allow banks to evade recording fees, avoid the paperwork of publicly recording mortgage transfers, and to facilitate the rapid sale and securitization of mortgages. Most large companies that participate in the mortgage industry , including JPMorgan Chase, Bank of America, Wells Fargo, Fannie Mae, and Freddie Mac are members of MERS. Over 70 million loans nationally have been registered in MERS System, including about 30 million currently active loans.

The Attorney General said in a statement that the banks created MERS to enable quick securitizations and mortgage sales, and then, “once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law.”

MERS allegedly filed false documents to give the appearance that the foreclosing party was authorized to start the foreclosure action when in fact it may not have. MERS filed more than 13,000 foreclosure actions against New York homeowners, and allegedly lacked legal authority to carry out the foreclosures.

Several New York judges have called into doubt the standing of the foreclosing party in cases involving MERS loans and the validity of mortgage assignments executed by MERS certifying officers.

The lawsuit was brought in Brooklyn where one of the defendants has an office.

According to the lawsuit, MERS became the owner of the security interest and the mortgagee of the mortgages. Furthermore, the purchase and sale documents were filed in a private database as opposed to a public one. That database is, according to the Attorney General, replete with mistakes. Moreover, because the database was private, borrowers could not track of the history of their mortgages. Also, MERS and its financial institution members exercised sole control over the private database.  Consequently, MERS, as the nominee for most major banks, remained the mortgagee no matter how many times the loan in question was sold or transferred.

The suit seeks an injunction against the defendants, preventing them from filing foreclosure actions through MERS. It also seeks to force the banks to cure any resulting title defects. The complaint also contains a request for an order requiring that the defendants disgorge all profits obtained through the alleged fraud.


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