Update on MERS (Mortgage Electronic Registry System)

Wireless Password: 9166703926
MERS Undermines the Integrity of Public Land Records
MERS' express purpose is to “eliminate[] the need to prepare and
record assignments when trading mortgage loans.”
Evade county recording fees, avoid publicly recording mortgage
transfers, facilitate the rapid sale and securitization of mortgages en
masse and shorten foreclosure times
Effectively supplanted the public recording system, undermining the
integrity of centuries old system of land record-keeping
• A shell company with no economic interest in any mortgage loan
• 23 shareholders: originating and servicing (Bank of America,
CitiMortgage, Inc.); GSEs (Fannie Mae and Freddie Mac); mortgage and
title insurance companies (First Title Insurance Company); and the
Mortgage Bankers Association
• Responsible for tracking approximately 70 million loans
• Estimated $2 billion in avoided recording fees
– Average mortgage transferred 2 to 3 times
• 70 full time employees
• 20,000 “certifying officers”—execute paperwork to initiate foreclosures
with little to no supervision
A Mortgage in Kentucky
Home mortgage consists of two documents:
-Promissory note
KRS 382.360(3): After the initial recording of a mortgage, all
assignments of a mortgage must be recorded in a county clerk’s
“The assignment of the note...necessarily carries with it the
assignment of the indemnifying mortgage...”
Napier v. Duff, 136 S.W.2d. 1083, 1085 (Ky. 1939).
MERS as Mortgagee
A “mortgagee” is “[o]ne to whom property is mortgaged; the mortgage
creditor; or a lender.”
“In a twist of logic from what you might first think, the borrower offers
the lender a mortgage on the property as a guarantee to repay the loan
agreed upon by the two parties. So the mortgagee is usually the party
that stands to lose if the loan is not repaid. That said, MERS is listed as
mortgagee on mortgages to be registered in the MERS system by its
members. This is a listing in name only. Or to put it another way, MERS
is a nominee.”
MERS own definition of “mortgagee of record” in MERS
Training at p. 149
In Kentucky, MERS represented that 8,500 foreclosures brought by
MERS members naming MERS as the plaintiff
Prior to July 2011, MERS’ own rules allowed for foreclosures to be
brought in its name
MERS never the real party in interest; never holds the note
“One of the key things has been eliminating foreclosures in MERS’
name. That's been a lightning rod for a lot of people because it
created consumer confusion. The consumer doesn't understand who
MERS is, even though it's buried in their contract.”
MERS as Record Keeper
MERS purports to stand in shoes of traditional public records system for 70
million mortgages
Systemic and total failure to ensure integrity, reliability and accuracy of data
-49 MERS foreclosures reviewed in one KY county
-MERS provided data on only 43
-19 of 43: info on MERS inconsistent with actual judicial record
-11 of 43: MERS has no record of a foreclosure occurring
-8 of 43: foreclosing party does not match up with Court record
“We did not have a robust process to make sure 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.”
MERS CEO Bill Beckmann, 2011
Kentucky’s Claims
Count I: Violation of Mandatory Recording Statute
“Well, they can do [what] other states have done, and they can work with the
legislature to impose certain requirements. For example, they could change the
recording laws and require that the financial instruments at issue be recorded.”
Statement of MERS Attorney in response to Delaware judge’s questioning at oral
argument on Delaware’s motion to dismiss.
Counts II through VII: Kentucky Consumer Protection Act (KRS 367.170(1))
Unfair, false, misleading or deceptive acts or practices in the conduct of trade or commerce
-Failing to record mortgage assignments and creating a registry for the purpose of
avoiding mortgage assignments
-Foreclosing on Kentucky homeowners
-Assigning mortgages after the commencement of foreclosure proceedings
-Hiding the true mortgage owner from homeowners, stakeholders and the public
-Operating MERS through its members’ employees
-Failing to ensure integrity of MERS
Counts VIII and IX: Unjust Enrichment and Fraud (Common Law)
• Not an assignment that needs to be recorded under Kentucky law
– MERS is not an assignee
– Statute doesn’t require promissory note to be recorded
– AG has no standing
• Separation of Powers
• Noerr-Pennington doctrine
• Judicial statements privilege
• Res Judicata
• Failure to state a cause of action under KCPA
– No trade or commerce
– No unfair, false, misleading or deceptive conduct
• 11th Hour Move to Intervene by Federal Housing Finance
Agency (FHFA), Fannie Mae and Freddie Mac
• FHFA is an independent federal agency created pursuant to the
Housing and Economic Recover Act of 2008 “(HERA”)
• Public history of being at odds with federal housing authorities
• Reason for Intervention:
– Fannie and Freddie use the MERS System thus their
“interests” would be affected by relief sought
– No different than any other shareholder or member
– Pleaded no unique legal arguments
• Commonwealth opposes intervention
Wireless Password: 9166703926
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