How The MERS' Mess Is Addressed In 50-State AG Foreclosure Fraud Settlement May Be Troublesome (& Troubling For Homeowners)

A recent New York Times column on the settlement talks involving the 50-state attorney general foreclosure fraud probe highlights an issue that has not been resolved and should, at least in theory, be difficult for the banksters to do so:

• A looming issue relates to the potential liability stemming from the Mortgage Electronic Registry Systems, or MERS.

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• Lawyers challenged MERS’s ability to bring foreclosure proceedings because the system does not technically own the security or note underlying properties, as required. While some courts have not objected to MERS’s foreclosing in place of banks, others have. New York courts, for instance, have been increasingly hostile to MERS.



• In a February 2011 opinion, Robert E. Grossman, a federal judge on in Long Island, wrote: “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.”



• Equally troubling for MERS is the fact that its officials have filed questionable documents with courts attesting to ownership of the notes and other significant matters. These practices have consequences, as described by R. K. Arnold, MERS’s former president, in a 2006 deposition.



• “We are heavily at risk as far as, you know, having to follow the rules of the court and enforcing our rules that our members must go by,” he said. “We also have jeopardy as far as if we were to fail in the foreclosure realm.”



• David Pelligrinelli, president of AFX Title, a title search company, said MERS contributed to the problem of thousands of mortgages lacking a complete ownership chain. “You can’t go back and redocument all these things, because some of the companies aren’t around anymore,” he said. “Even if they are, the charters for these companies don’t allow for backdating of assignments.”



• How MERS and its bank owners will fare with the attorneys general is unclear. The early term sheet for the possible settlement said only this: “Issues relating to the use and performance of MERS are reserved for further discussion.” Those further discussions may be taking place now. It’s a good bet that the banks want a comprehensive release from liability relating to MERS.

For more, see The Banks Still Want a Waiver.

See also, MERS? It May Have Swallowed Your Loan.