MERS Undermines the Integrity of Public Land Records

MERS’ express purpose is to “eliminate[] the need to prepare and record assignments when trading mortgage loans.” 

Evade county recording fees, avoid publicly recording mortgage transfers, facilitate the rapid sale and securitization of mortgages en masse and shorten foreclosure times 

Effectively supplanted the public recording system, undermining the integrity of centuries old system of land record-keeping 

WHAT DO WE NOW KNOW ABOUT MERS?

• A shell company with no economic interest in any mortgage loan
• 23 shareholders: originating and servicing (Bank of America, CitiMortgage, Inc.); GSEs (Fannie Mae and Freddie Mac); mortgage and title insurance companies (First Title Insurance Company); and the Mortgage Bankers Association
• Responsible for tracking approximately 70 million loans
• Estimated $2 billion in avoided recording fees
• Average mortgage transferred 2 to 3 times
• 70 full time employees
• 20,000 “certifying officers”—execute paperwork to initiate foreclosures with little to no supervision

A Mortgage in Kentucky

Home mortgage consists of two documents: 
 -Promissory note 
 -Mortgage 

KRS 382.360(3): After the initial recording of a mortgage, all assignments of a mortgage must be recorded in a county clerk’s office.    

“The assignment of the note…necessarily carries with it the assignment of the indemnifying mortgage…” 

Napier v. Duff, 136 S.W.2d. 1083, 1085 (Ky. 1939). 

MERS as Mortgagee

A “mortgagee” is “[o]ne to whom property is mortgaged; the mortgage creditor; or a lender.” 
 BLACK’S LAW DICTIONARY 1104 (9TH ED. 2009). 

“In a twist of logic from what you might first think, the borrower offers the lender a mortgage on the property as a guarantee to repay the loan agreed upon by the two parties.  So the mortgagee is usually the party that stands to lose if the loan is not repaid. That said, MERS is listed as mortgagee on mortgages to be registered in the MERS system by its members. This is a listing in name only. Or to put it another way, MERS is a nominee.” 

MERS own definition of “mortgagee of record” in MERS Training at p. 149 

MERS AS FORECLOSING PARTY

In Kentucky, MERS represented that 8,500 foreclosures brought by MERS members naming MERS as the plaintiff 

Prior to July 2011, MERS’ own rules allowed for foreclosures to be brought in its name 

MERS never the real party in interest; never holds the note   

“One of the key things has been eliminating foreclosures in MERS’ name. That’s been a lightning rod for a lot of people because it created consumer confusion. The consumer doesn’t understand who MERS is, even though it’s buried in their contract.” 

MERS CEO BILL BECKMANN IN 2011 

MERS as Record Keeper

MERS purports to stand in shoes of traditional public records system for 70 million mortgages 

Systemic and total failure to ensure integrity, reliability and accuracy of data 
 -49 MERS foreclosures reviewed in one KY county 
 -MERS provided data on only 43 
 -19 of 43: info on MERS inconsistent with actual  judicial record 
 -11 of 43: MERS has no record of a foreclosure occurring 
 -8 of 43: foreclosing party does not match up with Court record  

“We did not have a robust process to make sure all the data on our system was accurate, timely and reliable. Our view was that is the servicer’s data and they’re relying on it for their own transactions, they’re using their own systems, so we don’t have to double check.” 

MERS CEO Bill Beckmann, 2011 

Kentucky’s Claims  

Count I: Violation of Mandatory Recording Statute 

“Well, they can do [what] other states have done, and they can work with the  legislature to impose certain requirements. For example, they could change the  recording laws and require that the financial instruments at issue be recorded.” 
 Statement of MERS Attorney in response to Delaware judge’s questioning at oral  argument on Delaware’s motion to dismiss.   

Counts II through VII: Kentucky Consumer Protection Act (KRS 367.170(1)) 
Unfair, false, misleading or deceptive acts or practices in the conduct of trade or commerce 

 -Failing to record mortgage assignments and creating a registry for the purpose of  avoiding mortgage assignments 
 -Foreclosing on Kentucky homeowners 
 -Assigning mortgages after the commencement of foreclosure proceedings 
 -Hiding the true mortgage owner from homeowners, stakeholders and the public 
 -Operating MERS through its members’ employees 
 -Failing to ensure integrity of MERS 

Counts VIII and IX: Unjust Enrichment and Fraud (Common Law)

MERS’ DEFENSES

• Not an assignment that needs to be recorded under Kentucky law
• MERS is not an assignee
• Statute doesn’t require promissory note to be recorded
• AG has no standing
• Separation of Powers
• Noerr-Pennington doctrine
• Judicial statements privilege
• Res Judicata
• Failure to state a cause of action under KCPA
• No trade or commerce
• No unfair, false, misleading or deceptive conduct

WITH FRIENDS LIKE THESE….

• 11^th Hour Move to Intervene by Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac
• FHFA is an independent federal agency created pursuant to the Housing and Economic Recover Act of 2008 “(HERA”)
• Public history of being at odds with federal housing authorities
• Reason for Intervention:
• Fannie and Freddie use the MERS System thus their “interests” would be affected by relief sought
• No different than any other shareholder or member
• Pleaded no unique legal arguments
• Commonwealth opposes intervention

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