Mortgage Electronic Registration Systems (MERS)….who are they?

When I came into the lending industry, which was in the late 80’s, MERS was non-existent.  Our judicial system was intact with reference to buying and selling mortgage loans in a compliant manner.  Lenders were acting in compliance with state and federal laws to the extent that they played in the “safe zone.” It is bewildering to me to understand how Wall Street, Bankers, Investors and Lenders all the big business giants and gurus could have been so remissed in thinking that they could pull off a sham, such as the MERS scam without understanding the legal ramifications of their actions.   
Who is MERS?

In short, Mortgage Electronic Registration Systems (MERS) was created to electronically track the sale of mortgage loans between lenders and place the loans under their name (MERS) to eliminate the filing of paperwork with the county recorder’s office.

Eliminating County Fees

It also eliminated lenders having to pay county recorder fees for such transactions, because MERS would be listed as the so-called “nominee” for the lender, better known to the public as the “owner of record” of the loan.   This tactic allowed the lenders to trade the loan back and forth as a mortgage-backed security (MBS).

It soon became common practice in the mortgage industry to using this centralized database that facilitated the trading of a MBS to reduce the costs of county fees and increase their profits by expediting the process.  This practice became widely accepted by Moody’s, Lehnman Brothers and Wall Street.  In 1999, Lehman Brothers issued the first AAA-rated MBS created by MERS.

The MERS Collapse

Investors, lenders, brokers, bankers and all that were involved in securitizing loans were mesmerized by the increased profits to be made.  MERS was registering and claiming to be the owner of record for approximately 20,000 loans per day.  By the end of 2002, MERS so-called “owned” two thirds of all mortgages in the United States.

However, this all collapsed in 2007 when the real estate boom came to an end and MERS began to foreclose on homeowners without legal standing.  MERS found itself under attack in more than a dozen jurisdictions when judges in appellate and federal bankruptcy courts determined that MERS did not have the right to foreclose on the mortgages it held.

The Mortgage Contract  and the Note

Why did the courts not uphold MERS?  Because a mortgage contract contains two legally written documents the mortgage (a.k.a deed of trust) and the promissory note.  The mortgage is the document that secures the real property as collateral on a loan and the promissory note is the legally binding document signed by the homeowner(s) as their “promise to pay.”  Without the existence of the two legally binding written documents being sealed together, then a mortgage will become unenforceable if the promissory note has been separated.

MERS Could Not “Produce the Note”

MERS professed to be an independent entity that held the deed of trust.  They never claimed to be a bank, make any loans, had money to lend, never collected any loan payments, nor were given the authority to assign the note.  Their only claim was that it held the mortgage/deed of trust.

In the process of assigning the notes to various lenders, the note was “lost,” therefore, how could they possibly foreclose on anyone without “producing a note” to show evidence of an obligation or “promise to pay” the party that had made the loan.

Kansas supreme court was one of the first states to rule against MERS.  The Landmark National Bank vs. Boyd A. Kesler, case concluded that MERS failed to follow Kansas statutes.  “the company had not publicly recorded the chain of title with the relevant registers of deeds in counties across the state.”  California district court found no evidence of record that could establish that MERS either was given authority to assign the note or even held the promissory note.  Due to these rulings, similar cases that were tried in courts such as Nevada, New York, Idaho, Massachusetts, Missouri, Utah and other states have found the MERS mortgage to be “defective” and therefore unenforceable.

Conclusion

In light of the appellate and federal courts rulings, their still exists a huge disparity in leveling the injustices that has harmed millions of homeowner.

 

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