MERS | All in One Basket – The Bankruptcy Risk of a National Agent-Based Mortgage Recording System

All in One Basket: The Bankruptcy Risk of a National Agent-Based Mortgage Recording System

John P. Hunt

University of California – Davis School of Law (King Hall); Berkeley Center for Law, Business and the Economy

Richard Stanton

University of California, Berkeley – Finance Group

Nancy Wallace

University of California, Berkeley – Real Estate Group

February 3, 2012

UC Davis Legal Studies Research Paper No. 269


Mortgage Electronic Registration Systems, Inc. (“MERS, Inc.”) owns legal title to some 30 million mortgages in the United States. The company, which was a key part of the mortgage securitization apparatus in the late 1990s and 2000s, is now under intense pressure from public and private lawsuits and investigations and faces a very real threat of insolvency. Policymakers are looking ahead to potential replacements for MERS, Inc., as a recent Fed staff proposal for a substitute system indicates. This Article examines what might happen to the mortgages that MERS, Inc. at least nominally owns in the event that the company enters bankruptcy, a question that apparently has never been explored in a publicly available analysis.

Although the legal analysis underlying the design of MERS, Inc. does not appear to be publicly available, a key assumption seems to have been that if the company ever entered bankruptcy, the mortgages in its hands would not enter the company’s bankruptcy estate and would not be available to creditors. This Article challenges that assumption, pointing to the broad authority the Bankruptcy Code confers on the bankruptcy trustee with respect to interests in real property, such as mortgages. Most courts that have considered the issue have found that the bankruptcy trustee can bring into the estate any real property interest that the debtor could have conveyed to a good-faith purchaser. There is a significant risk that MERS, Inc. can convey MERS mortgages to a purchaser acting in good faith.

Although part of that risk arises from the company’s conduct in making and acquiescing in claims in court that the company can sell the mortgages, has constitutionally protected property interests in the mortgages, is a creditor of mortgage borrowers, and owns a beneficial interest in the mortgages, part of the risk is inherent in any mortgage recording system that operates nationally and holds mortgages as an agent. Policymakers should consider that risk as they consider whether MERS should be replaced and what form the replacement should take.

Full paper below…



All in One Basket: The Bankruptcy Risk of a National Agent-Based Mortgage Recording System

17 Responses to “MERS | All in One Basket – The Bankruptcy Risk of a National Agent-Based Mortgage Recording System”
  1. Katyhleen Burt says:

    Per “HomePreservationNetwork ,”( online newsltter,) an Iowa registrar of deeds also filed against MERS for lost fees.

  2. Ali says:

    How can MERS be stripped of legal stanging when it never had it? DeMarco needs to resign, thats a big confict of interest. See they think thet we are stupid. But soon they are going to push us too far and then all hell will break loose! I know I have just about had enough. I was finally seeing some light at the end of the tunnel until I found out the buffoon who sold us the house took out a 24k mtg. on it and I cannot find a satisfaction or release anywhere. Maybe I’ll just have to ask him to his face with my fist in his property flipping mouth!!!!

  3. readdocs says:

    Here’s what is currently on MERS home page:
    “MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”

    It doesn’t say anything about loaning, recieving, holding of any monies. It is as Ivent posted, ‘a database’,
    with no human employees. It is not registered to act as a mortgage company, bank or any other financial
    entity. There fore any thing stored digitally/electronically on its servers is the only thing it can bring forward
    in a bankruptcy suit. The court cases it has won so far should all be repealed as a database cannot be
    the beneficiary to anything or anyone.

    • talktotennessee says:

      I imagine MERS has more structure than we imagine. They have lawyers, of course, unless their legal representation is totally driven by banks that — USE MERS as their cover. They have people who manage the database entry. They have people who act as trustees, etc. So to say this is one large index bureau computer database void of people and decisions isn’t exactly the truth. I am thinking we need to recruit a few MERS whistleblowers or former employees, maybe? One may need to get “inside” to find the holes.

      • Attorney Wendy Alison Nora says:

        MERS does not pay for the lawyers. The foreclosure claimant does. MERS does not have trustees. The foreclosure claimant acts through the trustee, not MERS. We are through the looking glass. A computer program (MERS) is masquerading as the record title holder on millions of mortgages throughout the nation. The claims to ownership of the mortgage notes are computer images being generated as authentic documents are forgeries. That foreclosures continue is a testament to the power of a great delusion.

  4. Eugene Villarreal says:

    A purchaser acting in good faith can not receive good title from a fraudulent mortgage held by MERS that has separated the mortgage and note that was recorded in its state.

  5. lvent says:

    First and foremost the PSA which is the trust controlling document that governs the sale of securities requires that all SALES and TRANSFERS of SECURITIES are to be conducted between registered financial institutions…. MERS IS NOT A REGISTERED FINANCIAL INSTITUTION…Any claims that MERS is the holder or the owner of a MBS would be in in direct violation of the PSA that requires that neither the Trustee nor the Servicer do anything to jeopardize the tax-exempt status of the the Trust.. MERS is merely an electronic data base that tracks servicing of securities … Therefore, MERS cannot be a TRUSTEE…FOR A TRUST…or the owner of a MBS or the holder of the indebtedness or have any legal interest in a MBS…The claims that MERS is an agent would be in direct violation of IRS CODE IRC 8606… Claims by the Originator and subsequent agents that MERS is the owner or holder of any MBS’s would mean that they would have committed criminal SEC violations such as SECURITIES FRAUD, FRAUD IN THE SALE OF SECURITES…as well as racketeering and numerous other frauds…AKA…Extrinisic Fraud..The only forgone conclusion could be this has all been being done to gain an illegal foreclosure… because the ORIGINATOR DOES NOT HAVE THE LEGAL ASSIGNMENT……AKA..THE ASSIGNMENT OF BENEFICIAL INTEREST or THE COLLATERAL ASSIGNMENT OF BENEFICIAL INTEREST…THE DELIVERY AND CONFIRMATION RECEIPTS….THE VALID AND LEGAL FILING AND TRANSFER FEES, THE LEGAL RECORDINGS AND NOTARIZATION…ETC..AKA THE CHAIN OF TITLE..

    • talktotennessee says:

      MERS has legal representation for MERSCORP. To date, they appear to have gained legal standing in some courts because laws have no precedent for a database. I am not a lawyer and even those who are have so little knowledge of how to defeat MERS because their authority, rights and description are not defined in law. But I am thinking even in my simple layman’s way that this Database has no right to act as nominee trustee or beneficiary with legal standing to act in courts to foreclose my property except for the fact that most of us signed a document, GIVING them the legal right on a contract. The only way to break their contracts is to attack their authority to assume legal rights and to use it to circumvent property laws, avoid transfer fees. MERS legal standing, by existing law, MUST be attacked in a way that renders their actions, even those executed by contract, as violating law. I vow never to sign another contract without reading it even at a real estate closing. The sad truth is that virtually all of us did this without realizing what MERS to accomplish until after they had effectively captured our homes, exactly as they were designed to do regardless of ownership of note, etc. In judicial and non-judicial states the end result is the same as long as courts recognize MERS right to confiscate property, allow them to act as Trustees and beneficiaries with power to confiscate and sell something MERS never purchased, contracted to service nor own and has no authority to sell, modify or negotiate.
      Does anyone know who is responsible for creating MERS?
      There must be a way to bring them down! Frankly, does it matter if it creates chaos? Little these same people care about the chaos and destruction THEY created.

      • lvent says:

        I agree talktotennessee, the people need to make a stand. What is needed to accomplish that is unity among the people who want to be free and independent. Individuals actions by millions of people can have a powerful impact.

    • Bobbi Swann says:

      Glad to see you are still with us Ivent! Point made and very, very clear! Finally some of these recorder’s offices are waking up to the same conclusion. Next we have to get the Judges (ha-ha) to enforce the laws of the constitution and force remedies on the part of the plaintiffs. Otherwise, we are a nation without rule; a nation without freedom and a nation robbed of our sovereign rights. I read today that certain title insurance companies are not insuring over and above titles that are deed-in-lieu…beware….the sky is beginning to fall!!!

  6. talktotennessee says:

    This is an interesting essay that everyone should read and study. It opens the mind into MERS legal standing as an independent entity to reach the banks hiding beneath, above the Courts, yet dealing within them as third parties protecting all the players who designed and implemented MERS… Think of MERS as a puppet shell or mask in which banks financially and legally support illegal activities. Could banks collapse MERS since it represents merely a ‘glove’ in which the banks are the hands enacting movement? It would appear banks legally masterminded MERS and their legal Construct superseded its own magnificence. Now MERS stands alone defending what it was designed to do, remove banks from responsibility to comply with law in title transfer, ownership, trusteeship, as they passed mythical title around their game table.
    MERS is nothing more than a conspiracy to defraud the legal system, courts, property laws, remove the rights of individuals and hide bank responsibility in the process. Who owns legal title?
    How many of you know who actually owns your note or mortgage?
    The reason you don’t is because it does not exist in the same form. It is sliced and diced like ground beef in a meat loaf. You can sue or dare them to identify your piece of meat or bread crumb but it is lost in the mix and they can’t do it. I warrant the Bankruptcy Courts will be unable to do it either as the essay suggests.

    Banks are stuck with the MERS recipe they created even if it is beginning to smell a little of ‘pink slime.’ They won’t allow MERS to bankrupt, opening themselves to scrutiny. Dissecting its contents may be recipe for how to force MERS exposure. Pit pseudo MERS management against its creators. Can MERS be stripped of legal standing? Could our government be forced to bail us out like they did GM, as too big? Don’t think it is not a possibility!! Sometimes you tear down a ‘house’ and rebuild better.
    MERS needs to go DOWN to force opportunity to reclaim homes fairly

    • lvent says:

      People are brainwashed. I suppose if they start telling kids that dogs are really monkeys from schoolage on up then as adults they would believe that too. ..That is what is scary. I read somewhere that it only takes 5 years to brainwash a person.

  7. Ali says:

    Mers Lends no money.
    Mers Collects no money.
    Mers is noboy
    Was created by TBTF’s to bypass local recording sysyems to obfuscate the real real owner of real property and avoid paying recording fee’s that helped desimate neighborhoods.
    There has been no legislation to date that allows MERS to do exactly as it (TBTF”S) pleases.
    Too late, can’t create laws after the fact to protect fraudulent entity’s!
    Don’t make us bring out the “pich forks”!
    First big bailout to banks under Bush=750 Billion
    Second bailout to banks under Obama=800 billion.
    Why are there two to three foreclosures on every block in my neighborhood w/ facia hanging off, numerous paper slapped all over the front. I thought they were charging fee’s for inspections and repairs, not happening at all. Taking many pictures. This neightborhood is called the “Cathedral Area” in Joliet. Is it a coinsidence that it is predominately Catholic? It is a small Historical area and most of the residents do not have a clue as to what is really going on. I intend to change that till my dying breath! So TBTF’s, I say BRING IT!

  8. Athpough I applaud the effort of the author here, the anaysis is incorrect, as MERS does not own anythin, not does it make assignments.

    MERS own internal documents admit that they do not make electronic “assignments.

    The MERS Registry merely purports to “track” off record sales of the borrowers promissory note and the attendant servicing rights.

    Thus there is no ownership of any asset that could be brought into the bakruptcy estate of MERSCORP relating to any mortgage on its Registry.

    MERS does not own legal title to mortgages, it is a mere nominee

    The only reason a physical assignment is created out of MERS is to evidence that a purported sale of the mortgagors promissory note was made to a non MERS member


    • Bobbi Swann says:

      @ Glenn – Your post “The only reason a physical assignment is created out of MERS is to evidence that a purported sale of the mortgagors promissory note was made to a non MERS member”

      Even that is fraud and illegal. You cannot make a “purported” sale via an assignment. An assignment must contain ‘ownership’ that is being transferred from one holder to another. A superb explanation of that is above in the Ivent comment at 3:50pm.

  9. Ron Moss says:

    MERS and others, like Deutsche bank, Gmac, HSBC, OneWest, George Soros etc, bears the responsibility of my foreclosure wrongly employed and damages to my family.

  10. David Robert says:

    the first sentence is bull shit, MERS doesn’t own a damm thing, it was created as a smoke screen to get out of paying property tax and to cloud and cover up the Banks fraud.

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