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MERS

If you look closely at your closing statement, you will most likely see a MERS charge.  It is usually under $10. MERS stands for the “Mortgage Electronic Registration System” and was designed to improve efficiency in lenders by, among other things, eliminating the need to record changes in property ownership (assignments) in local land records by doing it electronically. During the real estate boom years, it helped keep property changing hands quickly.  The mortgage industry estimates that it saves an estimated $1 billion per year and approximately 60 million loans have registered in the name of MERS.

But as things started to go sour in the real estate market, the "cracks" in MERS started to appear.  One recent court case highlights possible problems with this electronic system. In the event of a foreclosure, is MERS a creditor who is able to file an action? In other words, can an electronic registry with no ownership claims have the right to evict borrowers? A recent ruling in the Kansas Supreme Court may have some implications for loans involving MERS.

The case involves a borrower with a 1st and a 2nd where the owner of the 1st foreclosed. The 2nd was done with Millennia Mortgage, registered in MERS's name, and then transferred to Sovereign Bank - but the county records show no such assignment. Upon foreclosure the 1st was paid off and the borrower received the small remainder. Sovereign received nothing, but arguing that it hadn't been alerted to the deal because its nominee, MERS, wasn't named in the proceedings. Kansas ruled that Sovereign's failure to register its interest with the county barred it from asserting rights to the mortgage after the judgment had been entered. The court also said that even though MERS was named as mortgagee on the second loan, it didn't have an interest in the underlying property. What about the millions of loans that are recorded in MERS's name? MERS believes that "...the Kansas Supreme Court used an erroneous standard of review..." and will be continuing the judicial process. Stay tuned!