In two recent pieces I harped on the problems at MERS, the Mortgage Electronic Registration System. (“Support Representative Kaptur’s Bill: Time To Shut Down Mers And To Restore The Rule Of Law” and “Shut Down MERS“). Briefly, MERS purportedly offers an alternative to paperwork, maintaining an electronic record of mortgages that are usually packaged into mortgage backed securities (MBSs). When mortgages go delinquent, MERS helps mortgage servicers foreclose on homes.

I argued that MERS was created to run multiple frauds, a topic I will discuss in more detail in part two of this series. However, one of the big puzzles of the ongoing foreclosure crisis concerns the whereabouts of the “wet ink notes” — the IOUs signed by borrowers. In foreclosure cases across the nation, the banks have been filing “lost note affidavits”, certifying that they cannot find the notes that are required to prove that they have the right to take away someone’s home. In some cases, the notes miraculously appear, seemingly out of nowhere, and in others “Burger King kids” have been manufacturing them for robo-signers. By law, the notes are supposed to be at REMIC trustees, held against the MBSs sold on to investors — and must be presented to foreclose.

The real mystery is why these trustees cannot produce the notes. I think we have finally found the smoking gun. An interested reader alerted me to MERS’s instruction manual, “MERS Recommended Foreclosure Procedures — State by State”, originally written in 1999, updated in 2002 and available on MERS’s website (accessed by clicking on: Recommended Foreclosure Procedures).