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New York AG Sues Three Largest Lenders Over MERS

New York Attorney General Eric Schneiderman ""filed a lawsuit"":http://www.ag.ny.gov/media_center/2012/feb/FINAL-SUMMONS-AND-COMPLAINT.pdf Friday against the nation's top three mortgage lenders charging that their use of the electronic registry system MERS has resulted in deceptive and fraudulent foreclosure filings throughout New York's state and federal courts.

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The lawsuit alleges that employees of ""Bank of America"":http://www.bankofamerica.com, ""JPMorgan Chase"":http://www.jpmorganchase.com, and ""Wells Fargo"":http://www.wellsfargo.com, acting as ""MERS certifying officers,"" submitted court documents containing false and misleading information that made it appear they had the authority to foreclose when they ""may not have.""

The suit also names Mortgage Electronic Registration Systems, Inc. (MERS) and its parent company Merscorp, Inc. as defendants.

Schneiderman’s complaint alleges MERS has eliminated homeowners' and the public's ability to track property transfers through the traditional public records system. He says instead, this information is now stored only in a private database â€" which Schneiderman argues is plagued with inaccuracies and errors, and is controlled solely by MERS and its members.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages,” Schneiderman said in a press statement. “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions.”

MERS operates as a membership organization, and most large companies that participate in the mortgage industry by originating loans, buying or investing in loans, or servicing loans are members, including Bank of America, JPMorgan Chase, Wells Fargo, Fannie Mae, and Freddie Mac. Over 70 million loans nationally have been registered in MERS, including about 30 million currently active loans.

As the system is set up, MERS members can designate MERS Inc. as the mortgagee of the loan. Schneiderman explains that because MERS Inc. serves as a nominee or agent for most major lenders, it remains the mortgagee in public records regardless of how often the loan is sold or transferred. He notes that although Merscorp has only about 70 employees, MERS Inc. serves as the mortgagee of record for tens of millions of loans registered through the system.

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According to Schneiderman, MERS has granted over 20,000 “certifying officers” the authority to act on its behalf, including the authority to assign mortgages, to execute paperwork for foreclosure, and to submit filings in bankruptcy proceedings. These certifying officers are not MERS employees, but instead are employed by mortgage servicers or sub-servicing companies that are MERS members.

Schneiderman said, “MERS' conduct, as well as the servicers’ use of the MERS System, has resulted in the filing of improper New York foreclosure proceedings, undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests, and potentially clouded titles on properties throughout the State of New York.”

Schneiderman says MERS has filed over 13,000 foreclosure actions in New York listing itself as the plaintiff when in many cases it lacked the legal authority to foreclose.

Merscorp issued a rebuttal to the attorney general’s charges. The company pointed out that MERS was authorized by the note holder to bring foreclosure actions in its name, and that each borrower agreed that MERS could foreclose on the property in the event of a default. The company noted, however, that as of July 2011, MERS no longer acts as the foreclosing entity.

Regarding Schneiderman’s claim that the use of MERS certifying officers by the defendants has confused and deceived homeowners and the courts, Merscorp says “it is perfectly proper for MERS, as the mortgagee, to appoint signing officers (or agents) to act on MERS’ behalf. To act as a principal for its signing officers is not a deceptive trade practice.”

The company says there is no requirement under New York law that a principal must disclose whether its agents are employed by another entity. As such, signing officers are authorized to perform certain responsibilities on behalf of MERS and to sign their own names using the titles vice president and assistant secretary of MERS.

Merscorp stressed that MERS does not hide ownership or undermine the integrity of land records. Any mortgage holder registered in the MERS System can access information related to their mortgage on the company website or through a toll-free number, and under federal law, consumers are notified of changes in investor or servicing status, Merscorp explained.

County land records themselves were not intended to identify the servicer of a mortgage or the current note holder, Merscorp says, but instead provide notice to purchasers of property if there is a lien on the property.

Shneiderman is seeking a declaration from the court that the practices alleged in his complaint violate the law, as well as injunctive relief, damages for harmed homeowners, and civil penalties. The lawsuit also seeks a court order requiring the defendants to cure any title defects and clear any improper liens that may have resulted.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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