Point of View: Assignments Becoming A Thing of the Past
Mr. McLaughlin is executive vice president of MERS, the industry-owned utility for tracking ownership interests in mortgage loans and servicing rights.
An article in the April 2007 issue of Mortgage Servicing News entitled "The Snoozeth-Looseth Doctrine" discussed problems caused by a failure to promptly record an assignment of a mortgage. With the use of Mortgage Electronic Registration Systems Inc., the need for assignments is a thing of the past.
Today, the assignment-related scenario painted in the April issue has been eliminated for the 3,000-plus members of MERS that trade mortgages with other members. As of this writing, MERS members have avoided the woes described in the article on nearly 50 million loans.
The MERS concept works whether a loan is sold once, several times, or not at all. It also works if the loan is a subordinate lien. It works while the loan is performing and if it goes to foreclosure. Here's how: a mortgage company originates a loan naming MERS as the mortgagee of record on the security instrument using the Fannie Mae and Freddie Mac-approved language. When this document is sent for recording, MERS becomes the mortgagee of record. The lender registers the loan on the MERS system and identifies the current servicer at the time of registration. When the loan is sold, the registration record is updated by the relevant trading partners to reflect the new servicer and/or investor on the loan. No assignments are needed because MERS remains as the mortgagee of record for the life of the loan.
Current servicer information on the MERS system is accessible to the public via a toll-free number (888 679-6377) or by accessing Servicer ID, our Web-based solution at www.mers-servicerid.org. This information can be accessed by anyone, anywhere, anytime for loans registered on the MERS system.
Turning to the case described in the April article regarding negligence in recording assignments, let's see how MERS could have helped.
The case involved the holder of a second mortgage not being notified of a foreclosure action initiated by the first mortgage lien holder. The second mortgage had been sold several times, but no assignments had been recorded. This resulted in the original lender being named as a defendant and served with the lawsuit. The current servicer did not have any knowledge of the pending lawsuit. Therefore, because the original lender no longer had any interest in the mortgage loan and the current servicer did not even know about the lawsuit, neither responded. This resulted in a default judgment being entered against the original lender, appearing to wipe out the second mortgage lien. By the time the current servicer found out about this, their only option was to file a motion for leave to file an answer. At the end of the day, the court did not find an excusable reason that would allow the current servicer to set aside the default judgment and their motion was denied. The current servicer was left unprotected and not entitled to any of the proceeds of the sale.
Here's what would have happened if MERS was recorded as the mortgagee of record on the second mortgage:
The plaintiff holding the first mortgage would have learned from the county land records that MERS is the mortgagee on the second mortgage and would have named MERS as a defendant and sent MERS the notice of foreclosure. MERS would have cross-referenced the notice of foreclosure with the MERS system and sent the notice to the correct current servicer of the second mortgage. The current servicer then would have been able to take timely action to protect MERS and their interest in the mortgage lien.
The case highlights that the use of MERS inoculates a company from the problems described in the article. What's more, with MERS serving as mortgagee for its members, the need for assignments is eliminated and our members save time, money and a lot of frustration. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com