The head of a county land registry in Massachusetts is requesting his office close its deposit account with Bank of America in protest of the bank’s affiliation with MERSCorp Inc., which runs the Mortgage Electronic Registry System.
John O’Brien Jr., register of deeds for the Southern Essex District Registry of Deeds in northeastern Massachusetts, publicly requested the commonwealth’s treasurer, Steven Grossman, remove his department’s funds out of Bank of America accounts and deposit them in a "local, non-MERS bank that follows the Massachusetts land recordation rules."
The Southern Essex District Registry claims it is owed $22 million in lost revenue from mortgage assignment transfers that were not recorded because MERS was listed as the mortgagee in public land records. By not using B of A for its depository business, the registry hopes to impact the bank’s nonmortgage business to force a change in business practices, Kevin Harvey, the first assistant register for the office, told National Mortgage News.
"We believe and we feel very strongly about this, that in Massachusetts, the law is very specific: If you sell a property, if you sell a mortgage note to another entity, you’re required to file an assignment," Harvey said. "We believe very strongly that MERS has violated that and the banks, the shareholders of MERS, have violated that."
Harvey said the registry’s account typically holds approximately $25 million, but has been as high as $40 million to $45 million.
The MERS System is an electronic platform that tracks changes in promissory note ownership, allowing mortgage investors to bypass the county-level land recordation process. While possession of the note may changes hands, MERS remains the listed as the holder of the mortgage document that serves as proof of the borrower’s home as collateral for the note in the public record.
MERS proponents claim this process saves time and alleviates the workload for county land recording offices burdened by a paper-intensive process. Critics claim the process lets mortgage investors avoid paying fees when promissory notes and mortgages change hands.
"We look forward to discussing the issue with Mr. O’Brien and explaining to him Bank of America’s process for recording mortgages and the use of MERS," a spokesperson for Bank of America said in an e-mail to NMN.
"Mr. O’Brien’s premise is unfounded," said Janis Smith, MERS vice president of corporate communications, in a prepared statement. "As we have said before, all MERS mortgages are recorded in the public land records, and MERS members pay recording fees when the mortgage is recorded.
"The use of MERS is in compliance with the purpose and intent of the state recording acts," Smith added.
"We reached out to Register O’Brien’s office following receipt of the letter to direct them to the form on our website that they can fill out to change banks," a spokesperson for Grossman’s office said in an e-mail.
"It is a fairly routine process, and we will be happy to comply once they return the paperwork."
O’Brien is a public official who heads one of the 13 registries in Massachusetts that are run by the commonwealth (as opposed to its eight county-level registries). He is elected by voters in the 30 surrounding cities and towns for six-year terms and has held his position since 1977.
Harvey said in addition to its request for the Southern Essex District Registry, O’Brien is mounting a campaign for other Massachusetts registries to stop doing business with Bank of America and has contacted the National Association of County Recorders to encourage its member registries to follow suit.
As for his own checking account, Harvey said O’Brien is "in the process of getting rid of a personal account there," at Bank of America.
This isn’t O’Brien’s first public sparring with MERS. In November, O’Brien asked Massachusetts attorney general Martha Coakley to investigate whether MERS and its member servicers had circumvented commonwealth law by not filing changes of mortgage assignment.
"Since November when the robo-signing scandal came out, and we uncovered that MERS was doing these kinds of things, there were some constituents that came and brought this to our attention," Harvey told NMN.
"We have asked the attorney general’s office to go after what we think is a significant amount of lost fee revenue from MERS by the fact that they obviously created what we’re calling this for-profit cyber registry of deeds," he added.
The robo-signing allegations that surfaced in late 2010 relate to the signature and paperwork processes of mortgage servicers and their attorneys in foreclosure lawsuits, not the assignment of mortgages in county recordation offices or the transfer of promissory note ownership. But Harvey contends the two issues are one-in-the-same, and has brought MERS and its business practices at the front of the public debate.
"Up until then, we didn’t know, nor did anyone else know, that they were selling these mortgages as mortgage-backed securities four, five, six, eight times and that what they were doing was in secrecy," Harvey said.
"They may be different, but in the end they’re all wrapped around the same tree," he added.
But MERS disagrees with the assertion that its role in tracking note ownership creates a cloud of secrecy.
"The MERS System provides greater public transparency and complements the county land records by providing information about mortgage loan servicing, and, with the addition of MERS InvestorID, the name of the investor," Smith, the MERS spokesperson, said in a written statement.
Judges in two U.S. courts, ruling on cases in Massachusetts, decided in favor of MERS in challenges contesting its ability to serve as an agent of mortgage servicers and its ability to transfer mortgage assignments in public records from its name to the name of the mortgage investor.
But Harvey believes those rulings do not impact the Southern Essex District’s Registry’s claims.
"Are you familiar with the Ibanez decision? That was a decision that was in our benefit," he said. "There have been several cases, not only in Massachusetts, but around the country, where MERS has won and anti-MERS folks have won."
In Ibanez v. U.S. Bank, the Massachusetts Supreme Judicial Court ruled that securitization documents that include identifying information of the specific loan can be used to show standing in court in a foreclosure. The two mortgages in that case were not MERS loans.
"What MERS has done, I’m almost sure of this, they have absolutely split the note and mortgage, even though it’s supposed to be inseparable," Harvey said. "That is a big problem for MERS."
"They’ve wrapped all of these notes and mortgages into mortgage-backed securities. I don’t think honestly they have the paperwork they need to actually prove they are the owners or to prove the chain of title."
Since 1998, the Southern Essex District Registry has held approximately 148,000 mortgages in its record where MERS is the listed mortgage holder. Harvey says a conservative estimate is that the promissory notes that these mortgages back have been transferred two to three times, but that number could be as high as four or five transfers.
MERS and its proponents argue the high volume of assignments needed without MERS would place an overwhelming burden on recordation offices, a position Harvey rejects, particularly given that the registry was commended for its use of technology with a Computerworld Smithsonian Award in 1999.
"MERS loves to try to create this vision that these registries of deeds are still operating under quill and ink, and it’s not the case here," Harvey said.
In his request to move the registry’s funds out of the Bank of America account, O’Brien did not name a specific depository institution, only requesting a non-MERS member that’s approved to conduct electronic transfers of funds. Harvey said that decision will be made by Grossman.
The difficulty of identifying a depository institution with no affiliation to MERS is unclear. While a smaller depository institution may not be a MERS shareholder, it could still have a connection to the group if it originates mortgages and sells them to MERS member banks as a correspondent.
Loans sold to secondary market investors like Fannie Mae and Freddie Mac also track note ownership on the MERS System, creating a connection between the originating lender and MERS.
