Christopher Peterson is a law professor at the University of Utah. In a pair of papers, one published last summer and one not yet published, he makes a compelling case that the Mortgage Electronic Registration System (MERS) ought to be illegal — and arguably is already.
These papers are getting some play right now because they anticipate the foreclosure documentation mess currently in the news. I am not even sure how to summarize them, and I strongly recommend you read one or both for yourself (tap “One-Click Download” for the PDF). Prof. Peterson has a very pleasing style, and the historical background he provides is fascinating, particularly in the earlier paper.
But, briefly… In the 1990s, mortgage lenders and servicers decided to bypass centuries of established precedent for tracking ownership of physical land and the related loans, because they did not want to pay fees to county registries that have tracked that ownership for legal purposes since before the nation was founded.
As a result, 60% of all mortgages in the U.S. today are legally “owned” by MERS, a Delaware corporation with approximately zero employees. Now, in order for the owner of a mortgage to perform certain legal actions — like “conveying an interest” in the land — some states require the signature of a “Vice President”.
Imagine for a moment why a state might impose such a requirement, and then read this quote from Prof. Peterson’s new paper (emphasis mine):
As a practical matter, the incoherence of MERS’ legal position is exacerbated by a corporate structure that is so unorthodox as to arguably be considered fraudulent. Because MERSCORP is a company of relatively modest size, it does not have the personnel to deal with legal problems created by its purported ownership of millions of home mortgages. To accommodate the massive amount of paperwork and litigation involved with its business model, MERSCORP simply farms out the MERS, Inc. identity to employees of mortgage servicers, originators, debt collectors, and foreclosure law firms. Instead, MERS invites financial companies to enter names of their own employees into a MERS webpage which then automatically regurgitates boilerplate “corporate resolutions” that purport to name the employees of other companies as “certifying officers” of MERS. These certifying officers also take job titles from MERS stylizing themselves as either assistant secretaries or vice presidents of the MERS, rather than the company that actually employs them. These employees of the servicers, debt collectors, and law firms sign documents pretending to be vice presidents or assistant secretaries of MERS, Inc. even though neither MERSCORP, Inc. nor MERS, Inc. pays any compensation or provides benefits to them. Astonishingly, MERS “vice presidents” are simply paralegals, customer service representatives, and foreclosure attorneys employed by other companies. MERS even sells its corporate seal to non-employees on its internet web page for $25.00 each. Ironically, MERS, Inc.—a company that pretends to own 60% of the nation’s residential mortgages—does not have any of its own employees but still purports to have “thousands” of assistant secretaries and vice presidents.
This is just my personal favorite of the various legally questionable facets of the MERS scheme. There are several others, and again I strongly recommend reading the papers for the rest. It’s great stuff.
I have a hunch the lawyers are just getting warmed up on this one. Should be fun to watch.
One more quote from the new paper:
If the growing line of cases asserting that MERS is neither a mortgagee nor a deed of trust beneficiary is correct, then courts must soon confront profound questions about the very enforceability of MERS’ security agreements. Not merely an ancillary issue, MERS registered loans have fundamental problems related to the very nature of what a mortgage is. There is a compelling legal argument that loans originated through the MERS system fail to create enforceable liens.