By Jeffrey Martin, Charlotte School of Law
Tens of millions of home mortgage loans, with a face value running into the trillions of dollars, may not be collectable. Furthermore, the owners of those homes may not be able to get clear title in the event that they pay off the mortgage.
The Mortgage Electronic Recordation System is a foundational piece of the modern American mortgage system, and is thus at the base of the financial system as a whole. This system has come under substantial legal challenges in recent years. In some forums MERS has prevailed; in others it has not. The uncertainty surrounding transfers of interests in land made via the MERS system threatens the financial system as a whole, by casting doubt as to the value of the ubiquitous Residential Mortgage Backed Security (RMBS), and by causing homeowners to doubt whether they can pay their mortgage with confidence (whether they are paying the correct entity) and whether their purported mortgage holder can ever give them clear title. Up to 33 million mortgage loans could be affected by the legal challenges to MERS. Even if MERS is technically operating within the boundaries of the law, the existence of a private system to manage transfers of interests in land is contrary to the fundamental public policy purpose of public records. The issue of compliance with existing State law is doubtful at best in some states, as this paper will show. The solution to these problems is for the several states, preferably acting on the advice of the National Conference of Commissioners on Uniform State Laws, to enact statutes banning private book transfers and providing mechanisms to clean up the existing confused situation. This will benefit both individual citizens and financial institutions, by ensuring that existing securitized mortgage debt is collectable and by giving ordinary borrowers the ability to pay with confidence. Without correcting the problem the ultimate collectability of a large number of mortgages will be called into doubt, thus undermining the financial system. Also, without clarification of title with regard to mortgages transferred through the MERS system, ordinary debtors will have reason to doubt their lender’s ability to give good title when they pay off the mortgage.
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