NY's Schneiderman Joins AGs Suing MERS

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Another state attorney general has filed a lawsuit against Merscorp, this time in New York, where Eric Schneiderman took aim at the thousands of MERS “certifying officers” employed by mortgage servicers whom he alleges filed defective and inaccurate foreclosure documents that deceived and mislead borrowers and courts.

Along with Reston, Va.-based Merscorp and its wholly owned subsidiary Mortgage Electronic Registration Systems Inc., the suit names JPMorgan Chase Bank, Bank of America and Wells Fargo.

The suit also alleges that servicers’ use of the MERS System to privately track changes in servicing rights and promissory note ownership has let the mortgage industry avoid paying recording fees and obscured public land records.

“[A]s a result of the creation of MERS, one can no longer look to the public recording system as a reliable source for tracking the chain of title for a loan or for identifying the current beneficial owner of the mortgage,” the suit claims. “Although financial institution members are supposed to update the MERS System to reflect this information, MERS relied on its members to voluntarily register transactions and did not take sufficient steps to ensure that its members did so or that MERS System data were current and accurate.”

In an email statement to Mortgage Technology on Friday, Janis Smith, Merscorp vice president of corporate communications, said the company complies with state and county laws, recording statutes and mortgage regulations.

“Federal and state courts around the country have repeatedly upheld the MERS business model, and the validity of MERS as legal mortgagee and nominee for lenders. We refute the attorney general’s claims and will defend the case vigorously in court,” the statement reads.

Later, in a press release, Merscorp disputed the notion that land records have been negatively impacted.

“[C]ounty land records were not intended to identify the servicer of a mortgage or the current note holder; they are intended to provide notice to purchasers of property that there is a lien on the property and when that lien was perfected,” the release said, adding that federal law provides that consumers are notified for changes in investors or servicing status.

Bank of America, JPMorgan and Wells Fargo declined to comment.

According to Schneiderman’s complaint, MERS has been the plaintiff or foreclosing party on more than 13,000 foreclosures in the state of New York. While Merscorp has since banned the practice of allowing servicers to file foreclosures in its name, Merscorp is still appealing a federal bankruptcy judge’s ruling that MERS and its members do not have a relationship that meets New York’s agency laws.

To help substantiate his claims, Schneiderman’s lawsuit contains multiple excerpts from an interview with Merscorp President and CEO Bill Beckmann, who spoke exclusively with Mortgage Technology in his first, and so far only, media interview after joining the company in April.

“Indeed, in a recent interview, the current Merscorp CEO openly acknowledged that the company ‘did not have a robust process to make sure that all the data on our system was accurate, timely and reliable. Our view was that is the servicer’s data and they’re relying on it for their own transactions, they’re using their own systems, so we don’t have to double check,’” the suit reads.

“MERS’ actions match its words. Although its rules permit MERS to fine, suspend, or terminate members that fail to timely and accurately report loan transactions, upon information and belief, MERS rarely if ever sanctioned its members for failure to comply with reporting requirements for New York loans.”

In addition to the New York lawsuit filed on Friday, Merscorp faces similar suits from Delaware Attorney General Joseph "Beau" Biden, Massachusetts AG Martha Coakley, as well as county officials in Dallas, Houston and Jacksonville, Fla.

The New York case is unique in that Merscorp has experienced mixed success in numerous legal challenges to its business model. In addition to the previously mentioned bankruptcy case, a Bronx court ruled in favor of MERS last March when a judge ruled that Bank of New York Mellon sufficiently proved its standing as rightful owner of both the mortgage and promissory note, despite the use of the MERS System to track ownership changes of the promissory note. Then in June, a New York state appeals court overturned a lower court’s ruling in favor of MERS, in a separate case involving Bank of New York.

In August, a Suffolk County court ruled that the “role of MERS, as nominee, is not an impediment to plaintiff’s standing to bring a foreclosure action, particularly where the borrower expressly agreed without qualification that MERS had the right to foreclose in the event of a default.”

In 2006, a New York state appeals court ruled that mortgage documents used by lenders and MERS are valid for borrowers to assign MERS as the nominee in a mortgage document.