by Brian Mahany
Earlier this year the state attorney general of Washington filed a brief with the Washington State Supreme Court taking on MERS. We are happy to see elected officials finally realizing the mortgage mess is not going to fix itself. In the case of Kristin Bain versus Metropolitan Mortgage Group, the A.G. weighed in on several MERS failures. This post deals with the practice of separating the note from the original mortgage.
Anyone involved in mortgage foreclosures knows it has become common practice to strip the note from the mortgage. When you finance the purchase of a home, the lender has you sign a promissory note. This is the document that tells you how much you owe and the terms of repayment.
A note by itself isn’t worth to much for investors. Lenders want security for their loan – generally that security is in the form of a mortgage on the house and property being purchased. The mortgage says that if you don’t pay according to the terms of the note, the borrower can foreclose and take the house.
For over a hundred years that process worked well. And then came MERS…
For those not familiar with that term, MERS is short for the Mortgage Electronic Registration Systems, Inc. The company was founded in 1995 with the idea of facilitating mortgage trading. By 2007, 2/3rds of the residential mortgages in the U.S. were registered through MERS. The concept may have been great but the execution was flawed.
MERS doesn’t hold the promissory notes and claims that it simply holds the security interests (mortgages) for the benefit of the lenders. In other words, the note and the mortgage are “stripped” apart and separated. Chopping up the mortgage papers made it easy for banks to buy and sell mortgages and package them into securities. Now, however, the problems in this process are coming home to roost.
Stripping the note and mortgage allows unscrupulous lenders to double sell the loan. That happens when the lender sells the same loan twice. A variation of that scam involves a lender selling the loan but not telling the borrower. The borrower keeps sending money to the original lender not knowing the loan has been sold. Ultimately, the investor (new owner) starts the foreclosure process thinking that the borrower has not paid. There are no winners in these situations and ultimately an innocent party (the investor or home owner) loses everything.
Although the situation doesn’t happen all that often, it does happen creating tremendous uncertainty in the market. The situation is exacerbated by the poor record keeping procedures of MERS and lenders. Frequently the note can’t be located! Because the notes are routinely stripped from the underlying mortgage, often neither MERS nor county recorders have copies of the original note.
In the words of Washington’s Attorney General, “Stated succinctly, the use of MERS as a placeholder beneficiary while the loan flies from owner to owner has brought chaos to the mortgage marketplace and stopped the efficient processing of foreclosures.” The AG urged the state Supreme Court to require that the notes are enforced by “their holder, not the assignee of a nonholder [MERS].”
If this sounds complicated, it is. Unfortunately, many borrowers simply cave during the foreclosure process and never find out if the person seeking to take away their property even has the legal right to do so.” Because they are in foreclosure, most borrowers don’t have the money to retain counsel. A good foreclosure defense lawyer, however, might be able to keep you in your home for much longer and even force the lender to prove that it has the right to foreclose.
The law firm of Mahany & Ertl sues banks and lenders for predatory foreclosure practices, improper denials of HAMP loan modifications and for frauds committed against the government (whistleblower cases). Unless in the county where one of our offices are located, we cannot represent homeowners in mortgage foreclosure cases. If you believe, however, that you were unfairly treated by your lender or believe you are the victim of fraud, give us a call.
We are currently investigating cases against Bank of America, Wells Fargo, Bank of New York (BONY), Chase and Countrywide. All cases, however, will be considered. For more information contact attorney Anthony Dietz at email@example.com. You may also contact the author at firstname.lastname@example.org or by calling him directly at (414) 704-6731. All inquiries are kept in strict confidence.
Mahany & Ertl – Giving Homeowners a Voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many states.