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Craig Watkins Makes Good on Threat to Sue Mortgage Processor Over "Tens of Millions"

Craig Watkins Makes Good on Threat to Sue Mortgage Processor Over "Tens of Millions"

Back in August, Dallas County District Attorney Craig Watkins said he was taking a long, hard look at Mortgage Electronic Registration System, which, as we noted at the time, was created in 1995 by Fannie Mae, Freddie Mac and other financial institutions to speed up the recording and transfer of mortgages previously processed by county clerks' offices across the country. But in actuality, according to myriad media accounts, MERS has around 50 employees who do little more than document the transfers at around $25 a keystroke without paying the counties in which the transactions take place  -- which is why Watkins claimed that MERS was holding on to "tens of millions in uncollected filing fees that are potentially owed to Dallas County," money he threatened to go after in court if need be.

Moments ago, he made good on his threat: On the other side is the complaint filed against MERS, Stewart Title Company and Bank of America in Dallas County District Court, which reads less like a lawsuit -- at least, initially -- and more like a treatise on the events leading up to the financial collapse of 2008, the history of the mortgage system in the U.S. and why "public recordation of mortgage interests in the U.S dates back to at least the middle of the 17th Century," augmented with charts, graphs and quotes from Frederic Mishkin and Paul Krugman. Which I know you're dying to read at the end of a long workday. We don't get to Dallas County and its deed records till page 35 of the 48-page complaint. So, then, to the press release we go.

Today, District Attorney Craig Watkins on behalf of Dallas County, Texas, commenced an action against MERSCORP, Mortgage Electronic Registration System ("MERS"), Bank of America, and others seeking a judicial determination of whether the MERS System established by the mortgage banking industry to electronically track home mortgages violates Texas law related to the public recording of interests in home loans and the mortgages securing them.

"This is the first step to recoup the tens of millions in uncollected filing fees owed to the citizens of Dallas County," said Dallas County District Attorney Craig Watkins.

Like I said before, Watkins didn't think of this all by himself: Massachusetts Attorney General Martha Coakley is going after MERS on charges of foreclosure fraud, and there are many other pending suits making the same or related allegations, all smoldering remnants of the foreclosure disaster of '08. All the relevant Dallas County docs follow.

Dallas County DA Craig Watkins Sues MERS

District Attorney Craig Watkins Brings Lawsuit against MERS on Behalf of Dallas County

(DALLAS, TX - September 20, 2011) - Today, District Attorney Craig Watkins on behalf of Dallas County, Texas, commenced an action against MERSCORP, Mortgage Electronic Registration System ("MERS"), Bank of America, and others seeking a judicial determination of whether the MERS System established by the mortgage banking industry to electronically track home mortgages violates Texas law related to the public recording of interests in home loans and the mortgages securing them.

"This is the first step to recoup the tens of millions in uncollected filing fees owed to the citizens of Dallas County," said Dallas County District Attorney Craig Watkins.

MERS is a subsidiary of MERSCORP, Inc. ("MERSCORP"). MERSCORP was established and is owned by banks and members of the mortgage finance industry such as Bank of America, CitiMortgage, Inc., HSBC Finance Corporation, and Wells Fargo Bank, N.A. MERS operates a national electronic registry that tracks beneficial ownership interests and servicing rights associated with residential mortgage loans and any transfer of or changes in those interests or rights.

MERS was established to act as a shadow recording system for the millions of mortgages in the United States, save its members money by avoiding filing fees in counties like Dallas County, and facilitate the buying and selling of mortgage rights as commodities.

There are approximately 5,000 participating members of MERS, of which 3,000 are residential mortgage servicers. Members register loans and may report transfers, foreclosures, and other changes to the status of residential mortgage loans on the MERS System.

There are currently approximately 31 million active residential mortgage loans registered on the MERS System. Since its inception, MERS has attempted to track more than 60 million mortgages nationwide, and tens of thousands in Dallas County alone. But because transfers of notes are not always reported to MERS, the MERS' electronic record of mortgages may or may not accurately reflect the transfers of any given mortgage or servicing rights that have occurred over the past several years.

Lenders ordinarily file a record of their rights in the deed records of the county where the property is located. The county clerk maintains those records as notice to the public of the identity of persons who loaned money for the purchase of the property and who have rights to foreclose upon the property if the loan is not repaid.

For a fee, MERS allows lenders to show MERS as the "mortgagee" or "beneficiary" of the lender's rights to the property if the loan is not repaid, even though MERS is not actually the beneficiary. MERS acts as a placeholder for the lender as to the lender's mortgage rights, but not the lender's rights to receive the loan payments. In that way, the lender is able to sell its rights to receive the loan payments and MERS agrees to protect the purchaser of the loan by remaining on the deed records as the "beneficiary" of the mortgage. So long as MERS remains on the deed records as the beneficiary, MERS asserts that subsequent purchasers can avoid having to file their acquisition of the rights to the loan payments and pay the associated filing fees.

Dallas County, Texas, believes that the MERS System may violate a number of laws applicable to the recordation of mortgages in Texas and has asked the court to order MERS and the other defendants to pay statutory penalties to Dallas County for having filed mortgage records which improperly claim that MERS is a beneficiary of tens of thousands of mortgages filed in the Dallas County deed records and for the filing fees that Dallas County would have been paid had all transfers of the subject mortgages been properly recorded in the deed records.


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