Judge Rules MERS Cannot Act on Behalf of Banks

A New York judge has ruled that ""Mortgage Electronic Registration Systems, Inc."":http://www.mersinc.org/ (MERS) does not have the right to transfer mortgages on behalf of its members, meaning it does not have the right to file foreclosures on behalf of lenders.

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The company has ""recently"":http://dsnews.comarticles/preview/8fa5b34ce4195b0c5b3a5cc32736ab73 been under fire for the practice, but the company defended its actions saying that borrowers are required to sign documents stating that MERS can assume rights and responsibilities on behalf of creditors.

The company's Web site says, ""MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.""

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In recent years, though, that role has evolved substantially, with MERS taking foreclosure actions on behalf of lenders and servicers all over the country, even becoming embroiled in the robo-signing scandal.

At present, the company has about half of all the mortgages in the United States in its electronic database.

But last week, Judge Robert Grossman ""ruled"":http://www.ritholtz.com/blog/2011/02/mers-decision-in-re-ferrel-l-agard-case-no-810-77338-reg/ MERS does not have the authority to act on behalf of its members, and the actions of the company are actually illegal, no matter what papers MERS requires members sign.

""The court recognizes that an adverse ruling regarding MERS's authority to assign mortgages or act on behalf of its members/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,"" said his statement.

He continued, ""However, the court must resolve the instant matter by applying the laws as they exist today. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.""