The Market Ticker – MERS Catfight in DC: Parse This One Carefully
A noteholder’s security interest in a DC home should normally be reflected in the public land records maintained by the District’s Recorder of Deeds. Under District law, in contrast to the laws of many states, each deed or other document transferring a mortgage interest must be recorded with the Recorder of Deeds within 30 days of execution. This requirement is not satisfied by private tracking of mortgage interests through the Mortgage Electronic Registration Systems (MERS).
The District has a non-judicial foreclosure process that begins with a Notice of Foreclosure on a form prescribed by the Recorder of Deeds. The form requires identification of a “Holder of the Note” and a “Security Instrument recorded in the land records of the District of Columbia.” According to today’s enforcement statement: “The homeowner who receives such a notice is entitled to presume that the recordation of the security interest complies with District law, and that each intermediate transfer of the security interest between the original maker of the note and the current holder of the note is documented in the public record.”
Mortgage Electronic Registration Systems, Inc. (MERS) holds the security interest in the deed of trust when MERS is identified as the beneficiary of record, as nominee for the lender and the lender’s successors and assigns. At closing, the lender and borrower name MERS as the beneficiary. The deed of trust is recorded with the Recorder of Deeds in compliance with the District of Columbia’s laws. MERS executes an assignment if the security interest is transferred from MERS to another entity and the assignment is recorded. For example, if the mortgage loan goes into default, and MERS is not the foreclosing entity, then MERS will execute an assignment showing the transfer of the security interest from MERS to the note-holder who will be foreclosing. The assignment is recorded as required under DC’s laws.
NO IT’S NOT.
MERS private recording system IS NOT A PUBLIC RECORD.
Read The District’s position again:
Under District law, in contrast to the laws of many states, each deed or other document transferring a mortgage interest must be recorded with the Recorder of Deeds within 30 days of execution. This requirement is not satisfied by private tracking of mortgage interests through the Mortgage Electronic Registration Systems (MERS).
Under District of Columbia Law each transfer must be separately recorded with the District at the time it occurs.
It cannot be done later, and it cannot be done in a private database. It has to be done at the District Offices, with fees paid.
For a securitized mortgage the transfer chain typically goes from the originator (which may be a bank or “Joe’s Bait and Mortgage”) through a sponsor (the “Securitizer), a depositor (a SPV to get “bankruptcy remote” treatment and qualify as a “true sale”) and then through to the trust, often passing through another entity (who is also often the servicer later on) in the process.
MERS claims that this is all kosher if they record who the note-holder is in fact now. The District says otherwise – that each transfer has to be recorded within 30 days of it happening. That is, you can’t record late, you can’t record retroactively, and a private database doesn’t count – only the District’s official records, for which one pays a fee to record and gets a nice stamp from the recorder’s office, do.
Good luck MERS; this one looks pretty black-letter.
Incidentally, if you’re interested in some of the UCC issues and how this winds up being a serious cluster-**** now, when everyone tries to avoid paying these fees and/or transferring the paper at all, start reading here, and then for the “how it all fits together” go look here.
It has been my position since 2007 that the reason these notes and documents were not transferred was not simple laziness or even “economic efficiency” (that is, simply keeping the money that was supposed to be paid to recorder’s offices) – rather, the purpose for this was obfuscation of the original paperwork because such prevents audits that would have disclosed very early on that the Representations and Warranties made to investors were being wantonly violated. You can’t audit what you don’t have!
Of course the problem with this obfuscation is that when the Pooling and Servicing agreements also represents that the paperwork was transferred you wind up with a separate and distinct fraud problem – intentionally not complying with that PSA while selling securities to investors is a rather big problem all on its own – and one that, now several years down the road, cannot be retroactively cured.
Good luck MERS.