Did MERS Mess Up Everything?

MERS stands for Mortgage Electronic Registration System and, as a company, represents some of the most difficult issues Nevada must deal with as part of the mortgage crisis.  Normally, when a person gets a loan for a property in Nevada, the loan is secured by a deed of trust (“DOT”). A DOT is a three-party instrument involving a beneficiary, trustor and trustee, which serves the same general purpose as a mortgage.  Regardless of the type of collateral, the DOT is recorded in the county where the property is situated.  Furthermore, anytime a document is recorded with the County Recorder’s Office, money is involved with the national fee average of around $60 per recording.  In regards to the securitization process, whenever the DOT is assigned, those assignments are recorded, as well, to “put the world on notice” about who has a claim to the property.  For instance, if one bank sells a loan to another bank, that loan is then “assigned” to the second bank and is subsequently recorded.  At $60 per assignment, one can start to appreciate the amount of money involved in the securitization process, especially considering how many times many of our mortgage loans were bought and sold after origination.  Thus, recording is integral to property rights in general, as it makes information related to the ownership and status of properties readily available to interested parties.

As a way to cut the cost of recording fees, and deal with the wildly different standards of the various county recording offices, Fannie Mae and Freddie Mac formed a national entity called MERS.  When a DOT is originated between the original lender and borrower, it is still recorded in the county of origin.  However, other important documents (such as assignments and substitutions) are purportedly tracked through MERS to save the individual counties time, money and other resources.  MERS is a private company, which means these transfers are no longer in the public eye and the world is no longer put on notice when changes occur.  The issue for defaulted borrowers arises when the default documents are filed by MERS instead of the appropriate party.  When MERS does not have any interest in the property, it should not have any legal right or “standing” to foreclose on a borrower.  Another issue of debate with MERS is one of agency.  This is so because MERS represents many different lenders and, in many cases, has to transfer loans between those lenders.  The concern then has to focus on which lender MERS truly represents with each loan and the reliability of MERS documentation.

MERS has become such a tricky topic for the legal community that the high courts in New York, California, Maryland, and Maine have handed down conflicting views.  Nevada’s Supreme Court will soon make its own decision and hopefully, serve the nation again as the focal point in this mortgage crisis.

Tisha Black Chernine, Esq.