New York’s attorney general has filed a lawsuit against the three biggest lenders and the Mortgage Electronic Registration System Inc. alleging that the registry is a sham designed to deceive borrowers and the public and avoid recording fees. The state wants the system declared illegal and all resulting title defects cured.
The complaint was filed Friday in the Supreme Court of the State of New York by New York Attorney General Eric T. Schneiderman.
The state alleges that the defendants have been using MERS “in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process.”
The nation’s three biggest mortgage lenders — JPMorgan Chase Bank, N.A.; Bank of America, N.A.; and Wells Fargo Bank, N.A. — as well as some of their subsidiaries are named as defendants. MERS is also listed as a defendant.
The state claims that MERS was created in 1995 to enable mortgage lenders to bypass local county recording fees and avoid publicly recording mortgages transfers. The “shell company” also uses the system to facilitate the rapid sale and securitization of mortgages.
More than 70 million mortgages have been registered through MERS, and 30 million of those loans are active, according to the state. The registrations are done through 70 MERS staff employees and 20,000 certifying officers who are employed by its members.
In just New York, many of the 13,000 foreclosure actions filed by MERS were done even though MERS allegedly lacked the legal authority to foreclose and did not own or hold the promissory note.
The certifying officers, according to Schneiderman, have repeatedly executed and submitted in court legal documents purporting to assign mortgages and notes to the foreclosing party.
“These documents contain numerous defects, including affirmative misrepresentations of fact, which render them false, deceptive, and/or invalid,” New York claims. “These assignments were often automatically generated and ‘robo-signed’ by individuals who did not review the underlying property ownership records, confirm the documents’ accuracy or even read the documents.
“These false and defective assignments often masked gaps in the chain of title and the foreclosing party’s inability to establish its authority to foreclose, and as a result have misled homeowners and the courts.”
Schneiderman claims that the defendants, acting as “MERS certifying officers,” repeatedly submitted court documents containing false and misleading information that made it appear that they had the authority to bring a case even though they might not have.
The MERS system has effectively eliminated the ability of borrowers and the public to track property transfers through the traditional public records system, according to the attorney general. The private database, which is solely controlled by MERS and its members, is plagued with inaccuracies and errors.
“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. “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law.”
The state alleges that the MERS system has led to improperly filed foreclosure proceedings and undermined the integrity of the judicial process. In addition, has created confusion and uncertainty concerning property ownership interests and potentially clouded titles on properties throughout the State of New York.
“In fact, several New York judges have questioned the standing of the foreclosing party in cases involving MERS loans and the validity of mortgage assignments executed by MERS certifying officers,” Schneiderman said.
Schneiderman wants the court to declare that the alleged practices violate the law. He also seeks injunctive relief, damages for harmed homeowners and civil penalties.
In addition, Schneiderman wants a court order requiring the defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from the fraudulent and deceptive acts and practices.
MERS didn’t immediately respond to a request for a statement.
(after this story was published, MERS issued this statement)