A small real estate data-management company is the focus of a widening legal controversy that could affect millions of U.S. foreclosures, including thousands filed against distressed homeowners in Utah.
The nation’s largest lenders created Mortgage Electronic Registration Systems (MERS), of Reston, Va., in 1994 as a loan registry designed to save millions of dollars on paperwork and recording fees. By registering mortgages with the private computer-tracking system and, in effect, putting loans under MERS’ name, lenders could avoid having to file public documents each time a mortgage was bought and sold.
The arrangement served its purpose well as markets went up. By MERS’s own estimates, it saved mortgage lenders more than $1 billion during a decade, and the efficiencies it brought to mortgage trading played a key role in the growth of mortgage-backed securities and the housing boom.
But with the economic downturn and crush of foreclosures, MERS is now showing up on tens of thousands of foreclosure notices sent to delinquent homeowners, including nearly 3,000 sent in Utah since July 2008, most of them in Salt Lake County.
Here and nationally, the company’s legal status as a party in these actions is increasingly being challenged.
“This is one of the buried, yet-to-emerge bombs in the whole mortgage crisis,” said Christopher Peterson, a University of Utah law professor and author of the first scholarly analysis of MERS and its legal underpinnings, to be published this spring in the University of Cincinnati Law Review . “This has the potential to fundamentally affect the trajectory of our recovery.”
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‘A tax evasion broker’ » MERS officials vigorously disagree, but Peterson contends the MERS system has violated a deep-seated principle of American law — transparency in land-ownership transactions — by effectively removing much of that information from the public record. In so doing, Peterson says, MERS also has served as “a tax evasion broker,” denying counties millions of dollars in recording fees — revenue that might otherwise have funded essential public services.
And now, by allowing actual lenders to pursue foreclosures under MERS’ name instead of their own, Peterson says the company is acting as a “foreclosure doppelganger.”
“Throughout history, executioners have always worn masks,” the U. professor writes in his article, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System .
“In the American mortgage lending industry, MERS has become the veiled man wielding the home foreclosure ax.”
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‘Lucky ones …are …with MERS’ » A MERS official played down the controversy, saying that without MERS, the current real estate meltdown would be much worse. Its process makes mortgage data more accurate and reliable, while reducing errors and keeping costs low, spokeswoman Karmela Lejarde said.
Lenders initiate foreclosures under the name of MERS, which functions as an industry utility, she said. Parties to a MERS action have full access to the ownership trail through the MERS registry, Lejarde said.
“We’re all for systematic tracking and transparency,” she said. “It’s the lucky ones whose loans are registered with MERS and are able to track down what happened.”
As more and more homeowners and their lawyers fight foreclosure, courts are having to weigh in, and in some cases, their interpretations conflict. Given the numbers at stake — the MERS registry holds an estimated 60 million U.S. mortgages — many in the industry have a sense of foreboding.
“This could be the scam from hell,” Salt Lake County Recorder Gary Ott said.
Legal issues aside, MERS has complicated and even thwarted efforts by some homeowners in foreclosure as they seek to contact and negotiate with whomever legitimately holds their loan.
“They don’t know who their investor is and the lender won’t always tell them,” said Kristin Johnson, chairwoman of the Housing Education Coalition of Utah and a foreclosure-prevention counselor. “If you don’t know who their investor is, how do you get resolution for the homeowner?”
Peterson and others warn the system may also be derailing efforts to track down and prosecute shady lending practices.
Representatives of the Utah lending community say use of the loan registry has been standard operating procedure, endorsed of government backed agencies such as Fannie Mae and Freddie Mac, which were instrumental in MERS’ creation.
And all of the participants in the mortgage boom — home buyers, lenders, loan servicers and real-estate companies — benefited from savings that MERS generated, according to Julia Borst, president of the Utah Mortgage Lenders Association, a trade group for lenders.
In terms of using technology to modernize the processing of mortgages, “it all makes sense for this to have been set up,” said Cleon Butterfield, chief financial officer for the Utah Housing Corporation, a state-backed lending agency.
Yet, virtually everyone agrees the company’s role has been radically transformed by the mortgage collapse.
“MERS was intended to be a repository of all these records, but it turned into something else,” said Rick Sharga, senior vice president for RealtyTrac, which tracks foreclosures nationwide. “They became the foreclosing party of record and it’s hard to argue logically that a registry should be a foreclosing party of record.”
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‘Patch-up job’ » Amid the current explosion in foreclosure actions across the country, courts in Nevada, Florida, Minnesota and elsewhere have upheld MERS standing as a foreclosing party. MERS also points to a 2009 federal case in Utah that affirmed its authority to exercise certain legal powers accorded to the lender, including the right to foreclose.
But several MERS foreclosures have bogged down when parties could not produce the original loan or “blue-ink” documents on judicial demand. In September, the Kansas Supreme Court ruling took a dim view of the idea of a “nominee” of the lender filing foreclosures — a position that some observers see as hostile to the MERS approach.
The New York Times quoted University of Missouri law professor Patrick Randolph as saying, “The entire structure of MERS as recorded nominee could collapse in Kansas, and that could lead to a patch-up job where they would have to run around and re-record the mortgages.”
Homeowners in Delaware, meanwhile, have filed a class-action lawsuit against MERS, over what they claim are fraudulent fees charged by lenders seeking to foreclose under the MERS name.
Lejarde, the MERS spokeswoman, said the company’s practices have not been significantly affected by the cases.
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It’s a bloody mess » In Utah, where foreclosure rates are dramatically outpacing the national average, cases already are bubbling up in state and federal courts that raise issues regarding MERS’ role.
“There is a flaw in the system that was set up by the stakeholders,” said Salt Lake City attorney Walter Keane, who is pushing several such cases. “Anyone could use these arguments.”
Some predict severe economic consequences if MERS’ role in foreclosures is undercut. Lenders will have no choice but to tighten credit if their ability to foreclose on delinquent loans is hampered, said Borst, of the Utah Mortgage Lenders Association.
With bank bailouts, federal regulators are hammering on foreclosing banks to be consistent from state to state, she said. Combine that with a coming foreclosure surge and state courts taking divergent positions on who has the right to foreclose, Borst said, “and it’s a bloody mess. There’s no other way to put it.”
Are some Banks collecting 3 times on the same property? First Tarp money, then sold the Bank to anotjher bank, then that bank sold the paper to a group from New York, then the same Bank ( thats already sold the loan) forecloses and sues for financial cost damages and sells the house again to another party. The buggers collected three or four times and they havn’t been the rightfull owner since the first sale.
to disabled vet sorry about your eviction.
pat the rat
Bill william black , if u the owner of bank of new york and , the mers inc , u no more , than , the eyes see , to this fraud , you posted a message saying fdic shut down the banks ,and the fbi , surley u powerful a nuff to show us what relly going on here , the world is hat hand , god is getting mad . At all this fraud , now the white house no about this fraud they isent doing nothing nether , is fraud that big u can’t tell the truth we need the truth today . No more waiting .
I was a real estate title closer for many years and realize that there is a reason for recording mortages, liens ect in the public records, it gives persons notice. It I want to foreclose a lien I can go to the public records and it will show that there is a first mortgage lien on the property. How do I know who owns the mortgage with MERS. MERS was a registration system, MERS does not own or hold the mortage. MERS does not registrer the note. So if you have mortage in the name of MERS and a note in the name of ABC -in most cases what you have is an unsecured Note. The Judges deciding these cases do not know or understand real estate law and its going to take years to straighten this mess out. If it was the intent of these mortgage holders not to pay recording fees then why are we letting them get away with it. Its wrong.
[…] C. Liquenda Allotey […]
I live in California and have had MERS show up under several so called lenders as trustee of my property whiich is suppose to be protected by my Revocalble Living Trust, Certified in California whch makes it against the law to replace my appointed Living Trust trustee with this “GHOST COMPANY”. I have had to pay more than once to refile the Deed of Trust back into my Living Trust Name to protect my property for my children. Work hard all your life, live by the law and get “scr*&*&*&d by the banks in this time of crises we are facing in America.
Lynn,
One question here , robo-signers, well documented, seem to work in various state’s simultaneously, would they be required to file income statements in the various juristictions/states that they were employed in at the time they signed documents?
Letter to the journalist who wrote that article in the Salt Lake Tribune by Lynn Szymoniak, Esq.
Dear Tony:
Thank you very much for your excellent article on MERS.
One of the significant problems with MERS (and there are many problems as you pointed out) is that MERS has no controls regarding who may sign a document as a MERS officer.
The documents signed by MERS officers are critically important to prove home ownership – and judges assume (wrongly) that a vice president of MERS would have the same training, experience and knowledge as the officer of a major corporation, but nothing could be further from the truth. The individuals signing as MERS officers most often work for document mills. Their sole responsibility is to sign thousands of documents a day. They do not have time to read these documents or even have access to the files to determine whether the information is correct. They are clerical office workers pumping out documents to replace the essential documents that have been lost (or never obtained) by the mortgage companies and securities companies in the rush to make mortgage-backed securitized trusts to sell to investors.
Take, for example, Mortgage Assignments signed by Liquenda Allotey. In the course of less than three years, Mr. Allotey signed over 100,000 Mortgage Assignments using the following titles:
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for American Home Mortgage Acceptance, Inc.
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for CTX Mortgage Company, LLC
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for Decision One Mortgage Company
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for EMC Mortgage Corp.
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for Entrust Mortgage, Inc.
Vice President, Mortgage Electronic Registration Systems, Inc, as nominee for First National Bank of Arizona
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for Freemont Investment & Loan
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for Greenpoint Mortgage Funding, Inc.
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for Market Street Mortgage Corporation
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for Southstar Funding, LLC
Vice President, Mortgage Electronic Registration Systems, Inc. as nominee for Taylor, Bean & Whitaker Mortgage Corp.
Attorney In Fact for Novastar Mortgage
Attorney in Fact, JP Morgan Chase Bank, National Association, as Successor-in-Interest to Washington Mutual Bank,
as Successor-in-Interest to Long Beach Mortgage Company.
All of these documents were notarized in Dakota County, Minnesota. A telephone call to the Dakota County, Minnesota offices of Lender Processing Services, Inc. will confirm that Allotey is employed there.
Lender Processing Services, Inc. is a Fortune 500 company with headquarters in Jacksonville, Florida that provides “mortgage default management services” to over 50 major banks. These banks act as Trustees for the mortgage-backed trusts that bought the residential mortgages that were turned into securities, especially in the last five years. Among its other services, LPS promises banks and mortgage companies that it will “draft missing documents.”
If a forecloser needs an Assignment to prove ownership of a mortgage, LPS will provide such a document, signed by Liquenda Allotey and notarized by yet another LPS employee. The document will more often than not have false information regarding the date the trust acquired the property, the previous owner, and other essential information. Moreover, LPS when providing such documents is working for the banks (the GRANTEES) but signing on behalf of the original lenders, through the fiction of MERS. No disclosure is made to the Courts of any of these arrangements.
On thousands of documents, MERS Vice-President Allotey has also signed on behalf of mortgage companies that were long ago dissolved in bankruptcy.
Allotey has even been mentioned in a legal opinion involving conflicting information in mortgage assignments: In re Sima Schwartz, U.S. Bankruptcy Court, District of Massachusetts, Case No. 06-42476- JBR, Memorandum of Decision on Motion for Relief, Document 84, Entered 4-19-2007. (“There are two documents captioned “Assignment of Mortgage” among the papers provided to the Court.5 The earlier of the two is an assignment dated May 23, 2006 pursuant to which MERS as nominee for First NLC assigned its or First NLC’s
interest in the mortgage to Deutsche. The document is “signed”6 by a vice president of MERS. Interestingly this document was attached to the Debtor’s submissions. A duplicate copy is not to be found in among Deutsche’s papers. Instead Deutsche submitted an assignment of mortgage that was dated June 14, 2006 and signed by John A. Dunnery whom the assignment identifies as a vice president of MERS.”
(In a footnote, Judge Rosenthal states: The signature appears to be little more than a very large check mark attached to a downward line. A stamp of the individual’s name and title identifies the signor as Liquenda Allotey, a vice president of MERS.) (opinion attached).
In my opinion, the conduct of these foreclosure mills is garden-variety fraud. Courts and prosecutors need to wake-up.
Best regards,
Lynn E. Szymoniak, Editor, Fraud Digest (www.frauddigest.com)
I must comment that Lynn E Szymoniak has done some pretty thorough investigative work.
At her website, http://www.frauddigest.com, is a very good post about Christopher Peterson entitled “in roads on foreclosure fraud by mortgage servicers.”