A Reuters story from last month tells you everything you need to know about Mortgage Electronic Registration Systems, heretofore "a little-known institution in Reston, Virginia." Says the story, it's a 16-year-old entity created in 1995 by Fannie Mae, Freddie Mac and other Big Banks intended to "speed up the recording and transfer of mortgages," which, till then, were handled solely by county clerks' offices nationwide at a "glacial" pace. And for years, nobody seemed to mind. Until, that is, it was revealed in court docs in '09 that MERS's 50 employees didn't do much except maintain the company's computer databases, and that for fees of around $25 a pop and up, "the real work was done by loan servicers -- banks and other companies that do routine work for trusts that own the mortgages, including collecting and tracking payments from homeowners and filing to foreclose when a borrower defaults."
Which is why, late last month, Massachusetts Attorney General Martha Coakley said she was going after MERS for foreclosure fraud. According to a Boston Globe story, "She is concerned that MERS failed to pay government fees as well as 'impaired the integrity' of the state recording system by failing to document loan transfers." Seems Coakley is a trend-setter: This morning, Dallas County District Attorney Craig Watkins will ask the commissioners court for permission to investigate whether MERS is responsible for "the possible loss of millions in revenues to Dallas County," per a release just sent out by his office. MERS veep Janis Smith tell The Dallas Morning News in a pay-walled piece that the company's done nothing wrong: ""This is a nonissue -- counties aren't entitled to fees for work they didn't do or that the law didn't even require them to do." But Watkins is pressing ahead.
"While the DA's office is traditionally only thought of as the prosecuting authority for crimes against individuals, in addition to handling those types of cases, we are also responsible for providing legal representation in civil matters such as this issue with MERS where Dallas County is the victim," Watkins says in a statement issued this morning. "When I learned about this issue, my first reaction was we needed to explore possible remedies for getting MERS to reimburse the estimated tens of millions in uncollected filing fees that are potentially owed to Dallas County. These possible remedies are in the process of being explored. This is yet another issue that has gone unaddressed for years that we have discovered, are taking action to correct and put measures in place to prevent it from happening in the future."
The DA makes his case on the other side.
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Dallas County District Attorney Craig Watkins to Explore Possible Claims against Mortgage Electronic Registration Systems, Inc., to Potentially Recoup Millions for Dallas County
(DALLAS, TX - August 9, 2011) - Today Dallas County District Attorney (DA) Craig Watkins announced that the DA's office is considering asserting claims against Mortgage Electronic Registration Systems, Inc. (MERS) for the possible loss of millions in revenues to Dallas County. MERS, a subsidiary of MERSCORP, Inc., was established and is owned by banks and members of the mortgage finance industry. MERS was established to act as a shadow recording system for the millions of mortgages in the United States and facilitate the buying and selling of mortgage rights as commodities. 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 more than 250,000 in Dallas County alone. However, due to the fact that reporting is not always required, the MERS electronic records of mortgages may or may not accurately reflect the millions of transfers of mortgage rights that have occurred over the past several years.
"While the DA's office is traditionally only thought of as the prosecuting authority for crimes against individuals, in addition to handling those types of cases, we are also responsible for providing legal representation in civil matters such as this issue with MERS where Dallas County is the victim," said District Attorney Craig Watkins. "When I learned about this issue, my first reaction was we needed to explore possible remedies for getting MERS to reimburse the estimated tens of millions in uncollected filing fees that are potentially owed to Dallas County. These possible remedies are in the process of being explored. This is yet another issue that has gone unaddressed for years that we have discovered, are taking action to correct and put measures in place to prevent it from happening in the future."
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 "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, subsequent purchasers can avoid having to file their acquisition of the rights to the loan payments and pay the associated filing fees.
After extensive research on the issue of whether MERS and others acting with it improperly recorded hundreds of thousands of real estate records in Dallas County, and were thereby able to avoid paying filing fees on subsequent transfers of the properties that were involved, it was concluded that MERS and those acting with it have engaged in conduct which wrongfully deprived the citizens of millions of dollars in filing fees on property located in Dallas County. 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. 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. However, there is no requirement that all changes or transfers be reported to MERS.