MERS Endgame Nearing? One County Seeks Over $22 Million for Unpaid Recording Fees

Plank after plank of the mortgage recording company MERS’ business model has come under attack. To date, the results do not look good for the embattled company.

MERS has repeatedly insisted that its operations are legal. It would be more accurate to say that insufficient attention was paid to legal issues when the firm was created and the permissibility of its operations were under the radar and hence in a legal grey area for many years. Now that they have been challenged in court, MERS has had to retreat from many positions it took in public. Despite its protestations that everything it did was kosher, the database firm has now retreated from one of its widespread practices, of allowing foreclosures to be made in the name of MERS, after a number of state supreme courts and Federal bankruptcy courts issued rulings to the contrary.

Not surprisingly, MERS has the look of a company in trouble. Not only did its president R.K. Arnold resign in early January, but its corporate secretary, Bill Hultman, who among other things supervised its legal department, was demoted a few days ago. Having read a few of Arnold’s and Hultman’s evasive and damaging depositions, I have to wonder where the board has been all these years. This move is long overdue.

The week before, MERS suffered a major blow in a bankruptcy (Federal) court ruling in New York state, (in Re Ferrel R. Agard). The judge effectively found the MERS system to be evidence of…..precisely nothing. We’ve noted before the numerous flaws, troubling signs of a lack of standard database/data entry/data integrity protocols. Updating the records is strictly voluntary, and accuracy of changes to the database is the members’ responsibility. Given that the people who have access to the system are low level staff who are trained minimally if at all and subject to high levels of turnover, this “system” is a prescription for a record keeping mess.

And as the judge noted, there is no reason to believe anything, from either a practical or legal standpoint, that anything contained in MERS’ records corresponds to reality:

By MERS’s own account, it took no part in the assignment of the Note in this case, but merely provided a database which allowed its members to electronically self-report transfers of the Note. MERS does not confirm that the Note was properly transferred or in fact whether anyone including agents of MERS had or have physical possession of the Note. What remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note….

However, there is nothing in the record to prove that the Note in this case was transferred according to the processes described above other than MERS’s representation that its computer database reflects that the Note was transferred to U.S. Bank. The Court has no evidentiary basis to find that the Note was endorsed to U.S. Bank or that U.S. Bank has physical possession of the Note.

And the judge made clear he would have no truck with MERS’s “too big to fail” posture (emphasis ours):

The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.

The latest bad news for MERS is a planned suit by a Massachusetts county, South Essex to be precise, which has Salem as its largest town. Its town clerk charges that MERS amounts to a scheme to avoid local recording fees (duh!) and it estimates that the county has lost at least $22 million in fees over the years. The text of its press release:


Essex South Register of Deeds John O’Brien announced today that he will be seeking over $22 million dollars from the Mortgage Electronic Registration System, “MERS” which represents several major banking conglomerates. O’Brien bases the $22M number on the fact that the Salem registry has recorded over 148,663 MERS mortgages since 1998. After a careful review of a number of these mortgages O’Brien said it became very clear to him that MERS had assigned mortgages to other entities at least twice without paying a recording fee. Based on this information the taxpayers have been defrauded out of $22,299,450 in Southern Essex County alone. It is quite possible that in some cases they may have assigned the notes more than twice resulting in even greater loss of revenue. O’Brien called MERS “one of the greediest schemes ever perpetrated on the American people. They have compromised the integrity of the public land recordation system and in doing so, have wreaked havoc on our economy”.

Last week MERS announced a major policy change conceding that assignments should be recorded in the various Registries across the country and “assignments out of MERS’s name should be recorded in the county land records, even if the state law does not require such a recording.” In addition MERS instructed its members to “not foreclose in MERS name”. O’Brien further states “MERS has now finally acknowledged that their business model was flawed, and they didn’t adhere to the legal requirement that all assignments of a mortgage must be recorded at the local Registry of Deeds.” “If they had followed the law the public would know who was buying and selling their mortgage, and it would have been an open, honest and transparent process. The fact that they deliberately chose to create a for-profit private cyber Registry of Deeds whose only purpose was to avoid paying the same fees as everyone else and keeping the public in the dark as to who was the rightful owner of the mortgage clearly demonstrates to me that this was a scheme of epic proportions.” “When Wall Street and these major lenders joined together in creating MERS, they plunged us into a housing nightmare with little or no regard for their actions. It’s obvious that their only motivation was to manufacture huge profits off the backs of homeowners and taxpayers. They should all be ashamed of themselves and step up to the plate and do the honorable thing and make the taxpayers’ whole,” O’Brien said.

The Essex South Registry of Deeds is one of 21 Registries in Massachusetts which have recorded MERS mortgages .O’Brien estimates that based on his conservative estimate of two assignments per mortgage the Commonwealth may be owed statewide upwards of $200 million dollars in lost recording fees. Nationwide, the amount of revenue lost could be in the billions. O’Brien is calling on MERS to come clean and inform the registers of deeds across the country as to the number of times they assigned mortgages to other entities. Only then will we get a true picture of the economic impact that this fraud has had on our country.

O’Brien, who in November, 2010, notified Massachusetts Attorney General Martha Coakley about MERS, will now be forwarding to her this additional information. “We need to act quickly to recover these funds,” O’Brien said.

Procedurally, I’m a bit surprised that the county hasn’t sued MERS on its own. Presumably, it hopes the state will act on behalf of it and other counties.

And MERS is the sort of place where a plaintiff ought to have a field day. Its past depositions have so compromised it that there is already plenty of damaging information in the public domain. It’s actually a teeny company with fewer that 50 employees. The real work is done by EDS and its 20,000 “MERS certifying officers”, who are really employees of servicers or foreclosure mills who weirdly get authorization to pretend to be MERS employees for a few nanoseconds. The fact that it is so small means it does not have the bucks to spend on serious law firms (and even if it did get some dough from its shareholder sugar daddies, it’s not the sort of regular client that would get the attention of the second team, much the less the first team. Who you are able to get to work on your case is very much a function of the size of your legal bills over time).

But the flip side is there is in theory not much blood to get from the MERS turnip. A 50 person company does not have much in the way of a balance sheet. But the MERS database is nevertheless a valuable asset because in addition to whatever value there is to its mortgage database (readers are encouraged to argue that point) it also has a database of servicing rights which is very important to the entire industry.

MERS looks to be going down for the count. A suit against the company that seeks damages for unpaid recording fees looks to be inevitable. A rash of cases from jurisdictions all over the US would kill the company based merely on litigation costs, irrespective of the outcome. So a bankruptcy and sale of the database looks inevitable. But watch the three card monte to make sure MERS’ assets aren’t transferred on the cheap as a way to shortchange creditors, particularly in the light of the tremendous damage done.

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  1. Knighttwice

    The denial of recording fees to fiscally-challenged municipalities is one of the most overlooked aspects of the mortgage mess. Sadly, I suspect the counties will get no traction on this issue.

    1. Olddeadmeat

      As Yves said, hard to get blood from this turnip. What’s possibly worse is how vulnerable these records are. 50 employees, that’s a few servers and some office space.

      Bankruptcy (or key people hightailing it to avoid prosecution) could lead to thousands or millions of documents abandoned or destroyed. Who is going to pay to keep them? Who knows how they were backed up? Who has passwords and access?

      Lots of little details, any one of which could leave lots of stakeholders looking at black box trying to figure out how much of it they hold, and how much of their money they can get back.

      Remember, a lot of pension funds invested in this AAA-rated crap, and they are basing their ability to pay benefits on 2 assumptions – 1st, that these assets still are worth what they paid for them, and 2nd, that these assets will appreciate 8% annually.

      Actually, thinking about that, I can almost understand why Geithner and Bernanke are covering for the banks. Once the little boy says the emperor has no clothes, there will be a bank run like the world has never seen – everyone will be frantic to convert their paper into canned goods and shotguns.

      1. steelhead23

        Hold on there. Why couldn’t a county place a tax lien on each and every property where mortgage transfers have taken place without proper recordation at the clerk’s office? Then, the mortgagees (the guys paying a mortgage) become obligated to pay these assessments, they could sue the servicers (maybe). It is my guess that counties knew all about MERS but, because county governments are notoriously pro-development and cash strapped – they simply “went along” and chose not to mess with a system that from all outward appearances, was working. But now, with tax delinquency, foreclosure messes, and the like, they recognize their foolishness. Take it from a champion procrastinator – once a problem is identified, the best course of action is to remedy that problem promptly. So, even if it stings, get those records straight. It would be nice to stick it to the miscreants who created this mess, but that should be of secondary importance to getting the records straight.

        1. geneH3

          Good point. Getting the records straight really is of paramount importance. The rest is just money. But when a homeowner doesn’t know whether his title is challengeable, it becomes real personal. Joe six-pack has enough problems already with that on his back, too.

        2. Olddeadmeat

          Might help the county, but the problem lies with the holders of all the paper.

          Those mortgaged properties had the loans (theoretically with the liens attached) lumped in large groups, ground up like sausage, rolled in a tube, and then sold by the slice to various investors.

          Every investor has a slice, every slice has a tiny bit of each loan. How do you turn the sausage back into a a hog?

          And a lot of the meat is rotten (bad loans on bogus valuations), so it is virtually certain that everyone is going to take a hit.

          But bank balance sheets, state property tax revenue assumptions, pension fund capital requirements are all predicated on the belief that there is no rotten meat and that they can get the money out.

          Tain’t gonna happen. Whose gonna pay $1.2 for a 2 bedroom shack in California? In the bubble days, anyone with a pulse could, but now you need a lottery winner with no brain who wants to live like a hermit and will pay cash up front.

          First to the courthouse might get 30-40 cents on the dollar outta somebody – maybe this county Yves referred to, but that leaves bupkis for everything else.

          There are a whole lotta hits coming, which is perhaps why so many small business types and other folks who are used to balancing the checkbook and reading an income statement are sweating government budgets. We know hits are coming, we don’t know how bad and how big, and it’s time to brace for impact.

          And after the bubble bursts, we might see a lotta bankers in prison. By then it will probably be safer to be in the clink than on Wall Street for them.

          1. Yves Smith Post author

            The mortgages notes and liens were not divided. They went into a trust. The cashflows that go into that trust are then allotted to different classes of investors under pre-set rules.

        3. Bill

          I would happily pay those past due rcording fees provided the county could show me who owned my loan, when, and for how long. Then I would know which bank “lost” my note and I could possibly sue them .

  2. dejavuagain

    “Last week MERS announced a major policy change conceding that assignments should be recorded in the various Registries across the country and “assignments out of MERS’s name should be recorded in the county land records, even if the state law does not require such a recording.”

    Is this to be done retroactively prior to initiating foreclosure? If so, the county will receive its recording fees! Also, note the conservative legal approach when operating in 50 states – just record whether or not one can gin up an argument why a jurisdiction does not require assignment!!!

    Caveat – jurisdictions with excessive mortgage fees will end up not attracting securitization or borrowers (i.e., the local taxpayers) will pay more for mortgages – placing pressure on the local recording entities to get their act together. Pressure will also come from the local real estate industrial complex.

    1. Yves Smith Post author

      I read this as applying only to foreclosures. And I hate to tell you, this does not look to be as big a deal as most are saying it is.

      First, quite a few servicers would assign the mortgage and record it to the foreclosing party as in the trustee. Most of the standing cases I’ve seen have involved mortgages assigned to the trustee or the trust, not foreclosures in the name of MERS. Dunno how longstanding that has been (Chase stopped doing FCs in the name of MERS quite a while ago, and the others may have cut back after some state and Federal bankruptcy courts started taking a dim view of it).

      And when the mortgage was assigned, it seems to have been recorded too. But the intermediary recordings were all skipped. So the basis for the sort of suit described in this post would still be valid.

      1. dejavuagain

        Aha – I would have assumed the new MERS policy would apply to intermediary assignments as well.

        If not, then MERS in executing an assignment skipping the intermediaries could still be considered to be engaging in fraud.

        In the meantime, I sure would like to see the law changed to require recording of assignments of residential mortgage notes – then borrowers would know for sure who holds their notes and whom to pay. This is the big gaping hole in checks and balances against fraud. MERS was supposed to be able to tell borrowers who was the holder and servicer of the notes – guess that did not work out too well.

        1. Yves Smith Post author

          They’ve been doing this since 1998 and no one has contended that it’s a fraud, but it has messed up title in REO sales, that’s why title insurers have been refusing to give title insurance on REO sales unless indemnified by the bank.

          I think the local government has the best claim here, and Im at a loss to understand why no one went after MERS a long time ago.

          1. Justicia

            Two reasons (among several)

            The velocity of information. Although we’re awash in information, most of it is drivel that only slows down the uptake of meaningful stuff. I’ve been following the mortgage debacle for several years and the MERS mess only came to my attention in a law review article about a year ago. Since this fall, coverage of MERS has skyrocketed — even country clerks are on to it.

            A Discredited Industry. Until Foreclosuregate exposed the abuses and fraudulent practices of the industry (including the law firms and lawyers representing servicers and banks), most judges would not have been receptive to lawsuits challenging the validity of the company that handled 50% of U.S. residential mortgages, no matter how well pleaded. The facts would have seemed implausible and difficult to prove, and the presumptive validity of industry practice would be difficult to overcome. That has changed with all of the mortgage related cases. As you point out, plaintiffs and the courts now have evidence from depositions of MERS officers proving how legally deficient the MERS operation was.



        The would have to record, in the public records, a real assignment to show a chain of assignments of mortgage. Which means they have to come up with the real NOTE, not a robo signed forgery. Without the chain of assignments, there will never be clear title to any of the properties in question. After recoding an assignment to the Trust or to a servicer just prior to foreclosure to have “standing” anyone, X, Y or Z could come along and record an assignment after a foreclosure and say “oh, well our assignment was left out and we need to be paid too”. Title to these properties will NEVER be clear, and buyer beware.


    Similar state/county suits are in progress or are about
    to be filed, but are under seal according to some little
    birdies. RE: Agard, a federal court in the Western District of Texas came to a conclusion similar to the prospective MERS guidance in Agard, but apparently the bank caved before the ruling could become fixed in the case law. That is, the magistrate’s report and recommendation followed the
    Agard reasoning path, and the case “settled” before
    the district court adopted the magistrate report into
    a final ruling. That’s not unexpected behavior–better
    to cave with small dollars than to lose plus have adverse law become embedded in the case law for an entire federal district. That makes it appear to non-specialists that the jurisprudence in favor of lenders/MERS is static.

  4. GeneH3

    MERS “and it’s shareholders” are a conspiracy to defraud the counties, to avoid paying fees. The corporate shield won’t work here. This is a RICO case. The counties could get treble damages from the banks, the mortgage mills (including the law firms and every general partner), all of the robo-signers, etc., etc., jointly and severally. The AG’s need to get creative and go after the money and mercilessly seek not only restitution but retribution.

  5. za

    Are there any reasonable estimates of how much money US municipalities have lost over the lifespan of MERS?

    1. The Bulb

      Rough math. Essex County is 736,000 people. Assuming Southern Essex is half the county that’s 368,000 folks. US population is 309 million. Assuming home ownership rate/mortgage similarities, we are talking about an $18 billion figure using the Southern Essex math. That math may be conservative though…I think Yves and others have suggested that most mortgages pass through 4-5 hands in order to achieve bankruptcy remoteness in securitization. Then again, not every mortgage is put into an MBS pool. Figure the lost recording fees are in the $18-30B range. Think fiscally-challenged local governments will be happy about being denied this revenue for all these years? Real money.

      1. za

        That was exactly where I was going.

        It sounds like a very convenient ass from which to take a well-deserved chunk.

        Also, once it’s proven that the note was improperly conveyed to the REMIC on a widespread basis, the REMIC will lose its tax-advantaged status, so there will be arrears on that as well.

    2. Tangurena

      MERS claimed that they “saved” their customers $30 Billion – so that gives a ballpark amount of money they cheated counties out of. There are about 3500 counties in the US, and while some probably have no transactions appearing in MERS, very populous counties have probably lost 5-10+ recording fees per property as the mortgages got shuffled around.

  6. Executive Hadley

    “A 50 person company” is this true? Every major bank had a psuedo-employee, usually their title was “MERS executive”.
    This entire scam was pulled off by proprietary (hidden, unknown) software, and the idea is that their is some database with revealing “evidence”? I love this aspect – why? It threatens politics, it threatens the stupid histronics and “I betcha this is what happened” speculation, because, like an engineer who determines why a structural member failed, the discovery of this source code will show that a war was waged, mostly won, against huge numbers of people and the whole thing was gamed, and planned with criminal intent.

    1. India

      MERS is essentially a software company. 50 employees is a high estimate. According to a deposition of a MERS corporate officer, I think it was R.K. Arnold, there were, at the time of the depo, more than 20 thousand MERS Vice Presidents, AKA Certifying Officers. Also, it was reported that a stamp evidencing MERS authority can/could be purchased for $25.00.

      Here’s an excerpt from Naked Capitalism’s artlcle on Nov. 2010:

      Per Senate testimony by MERSCORP president R.K. Arnold last week, MERS has over 20,000 signing officers. There is ample evidence its controls over them lie somewhere between deficient and non-existent.

      1. Yves Smith Post author

        This is not an estimate. Per a deposition, it’s 47 employees. I’d need to check whether I read it in a 2009 or 2010 deposition.

  7. YankeeFrank

    I would think that counties also have other causes of action not just loss of recording fees. For instance, the result of MERS and banks’ behavior have potentially confused/destroyed recordation of property owernship and lien records in every county they have been employed. What’s the value of a corrupted land title system versus a sound system? Priceless no?

    And in response to the suggestion AGs use RICO against MERS and its client/shareholder banks, its a fantastic idea — wonder why the Fed/State AGs haven’t thought of it!? ;-)

    There are many ways in which the banks committed RICO prosecutable frauds on the public — in fact the whole housing bubble was one big potential RICO action. I’m just not holding my breath that our mighty defenders of law and order have the integrity to uphold the law of the land against our plutocratic douchebag masters.

    1. The Bulb

      Agree about not holding your breath. As Yves mentioned, it does not bode well that this guy put the action in AG Coakley’s hands. She will call Obama and he will tell her to forget it…since he is the biggest proponent of letting the banksters off scott-free…..ironic.

    2. geneH3

      RICO can be brought by a private party in a civil action. Treble damages are awardable. It seems to be an ideal opportunity for budget-challenged municipalities.

  8. KnotRP

    MERS is the detachable tail that flops and wiggles to occupy the pursuer while the lizard escapes.

    We are too stupid to ignore the tail,
    and capture the lizards.

  9. lambert strether

    It would sure be nice if there was some kind of class action suit that counties could just join. My county’s not going to hire its own lawyer on this.

    And surely there are deeper pockets behind MERS? Since everybody really is in on it?

    1. India

      What’s preventing a Mass Joinder including any counties that wish to be included? Are they prohibited from this?

  10. Transor Z


    Procedural point about Massachusetts county government. Unlike many other states, county government in Massachusetts is largely vestigial. The trend has been for the Commonwealth to absorb historic county functions, like sheriffs, into the state budget and oversight. We presently have an odd situation in which about half of the county sheriffs are under direct state control and the other half are independently elected.

    The various county clerks who oversee the registries of deeds are independently elected. I’m not sure who they are directly accountable to, but the terms of their enfeoffments are probably spelled out in a 12th-century Latin document in a European archive somewhere.

  11. MinnItMan

    MERS is toast in many states because it’s essentially using an embedded quasi power of attorney rationale that courts are now pointing out often mixes up principal and agent designations. That said, I don’t think this particular potential case is a winner. Yves asks why the county isn’t pursuing this itself. The are a few possible answers to this, but one is that the county/district attorney is fully aware that the distinction between fees and taxes is a constitutional issue, and the Registrar may be opening the county up to an overcharge counterclaim. Fees, as a general rule, may not be used for general revenue, and if they are, may be an illegally collected taxes that must be refunded.

    Under Ibanez, although the foreclosing party must be an actual assignee, it does not have to be a record assignee. In other words, recording does not establish rights, but rather notice of rights, and a valid assignment does not have to be a recordable assignment.

    “We [the Mass Supreme Court] do not suggest that the assignment be in recordable form” to be valid. See Ibanez, sorry no pinpoint cite, but a little more than halfway through the opinion.

    As for the fee vs. tax issue, the Appeals Court of Massachusetts has said recently:

    “In determining whether the charges constitute a permissible fee, we consider the three-factor test set forth in Emerson College v. Boston,391 Mass. 415, 424-425 (1984) (Emerson College ). “Fees imposed by a governmental entity … share common traits that distinguish them from taxes: [1] they are charged in exchange for a particular governmental service which benefits the party paying the fee in a manner `not shared by other members of society’; [2] they are paid by choice, in that the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge, … and [3] the charges are collected not to raise revenues but to compensate the governmental entity providing the services for its expenses.” Ibid., quoting from National Cable Television Assn. v. United States,415 U.S. 336, 341 (1974).”

    See DENVER STREET LLC vs.TOWN OF SAUGUS (and three companion cases). No. 09-P-2031. September 15, 2010. (This is not a controversial analysis, but I am looking for cases specifically relating to recording fees).

    For the Registrar to claim that it lost money for services it did not perform, suggests that it may view recording as a profit center, as thus may be overcharging. If the county is overcharging, it not only will lose this case, but may potentially owe on a counter-claim for those overcharges. Again, I suspect the county/district attorney knows this, as this is a common area of contention.

    Frequently, counties have claimed that they perform recording services at a loss, that is, they are subsidized by general revenue. If this is the case here, then the Registrar’s claim of a $22M loss also will not work.

    Some documents that are recorded also require payment of a transfer tax in addition to a recording fee. This is common in many states for deeds and the mortgages themselves, and is usually based on the face value amount of the transaction, that is, it is wholly unconnected from the administrative cost of recording the document itself. I have requested cites to statutes levying a tax or authorizing a tax on assignments of security interests from lawyers accross the country, and so far, have not gotten any. I’m not saying there are none, but I haven’t seen one yet. There are good policy reasons why such a tax would be a terrible idea, however. Most notably, if an assignor or assignee failed to pay the tax, do homeowners get stuck with it? As a practical matter, they often would, just as they frequently got stuck with paying for completing the chain of title of unrecorded assignments and satisfactions in the pre-MERS days, only it would be much worse because transfer taxes are typically much more expensive than recording fees.

    Although many states have so-called “remedial” statutes for security interest holders who fail to record assignments and, more importantly, satisfactions/releases of liens, these statutes are cumbersome and not much help against defunct entities, and are usually limited to a few hundred dollars.

    I am not a MERS apologist, but in a previous life, I did think that the MERS system was far preferable to the post S&L/post-round I of securitized lending unwind of incomplete conveyances from the 80s and early 90s. I have been surprised by how much it and its members winged it in so many states, not having statutes in place to specifically authorize what it was doing. As I said above, I now think it has a huge problem in many states on what “nominee” means and it’s going to lose in enough of them (even one loss is going to be catastrophic, particularly if it’s a high population state like NY) to make it an unviable national model.

    I don’t claim this is a lengthy analysis, even if appears so. But, I still say this case is a likely loser if it ever gets off the ground.

    1. Slade Smith

      Good analysis. If a case like this was a winner, you’d probably have more than one county seeking to get these back fees. I think what Yves heard that she thought was a shoe dropping was instead the shoes of this county recorder as he stepped up on the grandstand ;-)

      I’d also add that I’m not aware of any legal requirement anywhere that land title transactions are required to be recorded within any particular timeframe from the transaction. So even if MERS were required to record assignments, how could the county claim that MERS owes them the recording fees by any particular day? Does Jimbob Jr., who took ownership of farmland 20 years ago when his dad Jimbob Sr. died and his sister Bobbi Sue sold her half interest to him, nothing ever recorded, owe the county too?

      Interestingly, a bill was introduced in the Utah legislature that would require recordings within 10 days of land transactions, including assignments. The idea for the bill came from a county recorder looking to get a windfall from the MERS fees. [See ] But I don’t think that’s an approach that many states will take, because they won’t want to potentially strip individuals like Jimbob Jr. of otherwise legitimate property interests because they didn’t know that they were required to timely file a conveyance or whatever. As it stands now, a lot of land recordings get filed as needed, not when the underlying transactions take place, and that is by no means a MERS-only phenomenon.

  12. Sndlyn

    Why should anyone assume that since MERS is teeny, it doesn’t have deep pockets? As I recall, I had to pay (involuntarily) a MERS registration fee of $4.95 at closing. While that’s a pittance singly, probably by design, it is quite substantial when an estimated 60 million loans have run through the MERS system. And of course, membership fees and incidental fees from each member would apply for each loan. And don’t forget those $25 stamps for the 20,000 so-called officers.

    With so few paid employees, where did this money go?

    1. Yves Smith Post author

      60 million is over 10 years.

      And the issue is the size of the balance sheet. There is no reason, given the small number of employees and the lack of real infrastructure needs to retain much (any) cash in the company. I’m certain it’s dividended to the shareholders annually.

      You can’t grab funds that have already left the company/

  13. Matt

    As Transor Z says, a technical point on MA government is that Essex County no longer exists. John O’Brien is elected by the voters of the “Southern Essex” district, but he is a state employee, and his “boss”, if you will, is the Secretary of the Commonwealth, William Galvin.

  14. Eric Jackson

    If MERS goes down, does this call into question the entire MBS market? If they can’t properly foreclose on houses, does this mean that MBSs could take a huge hit?

    1. geneH3

      The entire MBS market is already in question. A huge number of MBS are defective and the MBS could be nothing more than a promissory note from the last endorser, whoever that is. That’s why investors in MBS, such as AllState, are suing. Developing a plaintiff’s case in this type of suit is not easy and it is expensive. AllState has set aside $1.5 million for legal fees. If the case is properly developed, $1.5 million will not be enough. AllState will need to settle. The amount will depend on how good a case they have. As the riders on the bandwagon grow, it will get really ugly and the Banks will be screaming for a government solution to bail them out.

      I have not been able to see how the Congress could pass a law retroactively validating all of these transactions. Even if they did (and that ignores the county recording fees and transfer taxes), the paperwork would still be screwed up and would take years to unravel. (Printed) money could satisfy whole bunches of people but it still would not fix the title problems unless the Feds undertook to be the title insurer of last resort. All of this will either break the banks or become a political battle royal.

      Got gold?

  15. Judgment Day

    “I think the local government has the best claim here, and Im at a loss to understand why no one went after MERS a long time ago.”

    Actually was around at a number of Recorder meetings (here in IL) back in the day when MERS was just setting up. Everybody knew even at that time that this had the potential to be a real mess, and some of the old line title searchers and local title companies were talking about what a screwed up mess that this could become. And loss of fee income was a hot topic.

    The problem we ended up having was that our then State Attorney General (a Democrat at the time, but his Republican successor was no better on the issue) basically did us in on the entire MERS issue. Nobody wanted to litigate this issue on behalf of government, because all the money players wanted to do this.

    The problem in today’s local government world is that trying to retroactively charge those fees would end up being a case of a local government “making a profit”, which has been pretty completely prohibited through different “Open Government”/”Freedom of Information” Act requirements which have evolved over time.

    Honestly, there’s not a local government out there (at least here in IL) that wants to retroactively create the fee studies necessary to justify previously charged recording fees, because it will just open a giant mess which could actually lead to accusations of local governments overcharging in prior years for recording purposes – and then you’re really into it.

    There’s also another issue out there. What happens if we get a giant game of “chicken” going on with 50% of eveybody’s chains of title on their real estate?

    Example would be MERS filing for Chapter 7 to liquidate and as part of that filing, agreeing to send copies of all their paperwork and digital files (in whatever shape they may be) to each jurisdiction throughout the US saying in effect “Here you are – all the paperwork – have at it guys. Oh, btw, if you want money for processing all of this, file with the Bankruptcy Court. Good Luck!”.

    I’m not advocating for MERS at all – quite the contrary (IMO, long term incarceration in a prison located in Pakistan’s FATA region for all of them would be the best solution). But I’m also looking at how bad things could get if we get a bunch of lawyers playing “chicken” with the real estate market. Think: Freezing up the entire real estate market.

    1. attempter

      If that’s true about local governments, then how are they able to charge for e.g. old unpaid parking tickets? That’s the same thing in principle.

  16. gallam

    Does anyone know exactly who it was that was responsible for the idea of MERS? There must be an individual that thought of this in the first place.

  17. geneH3

    There is nothing inherently evil in mortgage backed securities per se. And there is nothing inherently evil in credit default swaps per se. But the process of creating and marketing them must conform to the law and fundamental notions of honesty and fair dealing. (please, no snickering.) That was not done from almost the beginning to the end. here is what was done instead
    — Some borrowers were financially imprudent and/or dishonest
    — Lenders approved liar loans and unqualified borrowers
    — Unscrupulous mortgage brokers/lenders misled borrowers
    — Negligent securitization lawyers did not dot their i’s and cross their t’s, did not follow through to assure that assignments were effectively made, trusts were properly established, tax deadlines were met and mortgages were properly recorded, and did not build a proper closing book to document the transactions
    — Parties throughout the chain failed to properly record assignments
    — Banks created a parallel mortgage registry in an ill-fated attempt to avoid paying transfer taxes and recording fees — without legal precedent and without prior sanction from any state or federal legislature.
    — Lawyers and accountants, if any, who were consulted as to the legality of the parallel recording system made the mistake of attempting to meet their clients’ goals rather than provide a candid and professional opinion that 50 states legislatures needed to approve it.
    — Rating agencies were dishonest and/or failed to do their jobs
    — A huge number of fraudulent documents have been created
    — Lenders, Investors and buyers of mortgages and their derivatives failed to exercise due diligence
    — there was no requirement that CDS counter-parties have adequate reserves or capital to cover insured risks
    — Numerous violations of the securities laws
    — False valuations of assets with complicity of major and minor accounting firms
    — A veritable explosion of moral hazards, too numerous to recount here, at taxpayer expense
    — etc., etc. ad nauseaum

    All of this has been quite public for three years. Yet, no one is going to jail. To call this crony capitalism is a contradiction in terms. This is quite simply officially sanction criminality. Fraud and a rape of the taxpayers. It drives me nuts!

  18. Conscience of a conservative

    This is where the story should have begun and not wound up. MERS cheats local gov’t of statutory Mortgage Recording Taxes. Now we’ve arrived at the true dollars and cents issue.

  19. MinnItMan

    “MERS cheats local gov’t of statutory Mortgage Recording Taxes.”

    What is your source? Are state park fees taxes that you owe when you go to WallyWorld TM instead?

  20. Conscience of a conservative

    If the assignment doesn’t get recorded at the local level, no monies are due. This is the reason for MERS.

    And a semi-related practical example. Person wants to refi. Lender does an assignment first and then modifies the mortgage and avoids creating a new mortgage. Borrower is happy, new lender is happy, old lender is out a few bucks from lost interest and the state is out their due taxes.

    1. Yves Smith Post author

      How can MERS be a legitimate assignee when it is not a noteholder? First, there are Supreme Court decisions that say the note and the mortgage (lien) cannot be separated, if so, the lien has no effect. Second, per Agarde, there is not documentary evidence supporting the records in the MERS database. Hence whatever it shows there is not enforceable.

      So if you want to foreclose or transfer title, you’d need to have done it in the courthouse in the name of a noteholder, which is not MERS. You can get from that to argue that MERS is a ruse to avoid recording fees (which MERS has pretty much said repeatedly over the years, ex the word “ruse”)

      Now that chain of reasoning may mean that the proper targets of litigation are not MERS but the RMBS originators and structurers.

  21. wild bill

    MERS will sell its servicing database before the lawsuits start which will be soon.

    They will toss the MERS database to a shareholder for cheap before any back payment of recording fees is mandated by a court of law.

    That is how it works on Wall Street.

    Follow the Queen. Three Card Monty. Shell Game.

  22. CaitlinO

    Calculated Risk is reporting that someone’s floating around the figure of $20B to settle mortgage fraud at the state and national level.

    Why do I suspect that that wouldn’t even cover the losses to the counties in recording fees over the last decade, much less compensate all the people who have lost their homes to fraudulent actions and counterfeited documents from servicers?

  23. Dick Kohn

    Are there more $$ available if MERS and Merscorp, Inc., its parent, are collapsed into one entity — i.e., the “corporate vail” is pierced? How come nobody has made that argument — and sued both MERS and Merscorp, Inc.? I have to laugh every time I see a robo-signed MERS mortgage assignment with a 1995 or 1997 impression seal — when the current MERS wasn’t incorporated until 01-99.

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