MERS Minus A Few Bricks….


Which one is the critical one that, when removed, causes all of this bogosity to crumble into dust?

A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.


What happened here was that an attorney went in and filed a “quiet title” action – that is, to remove any clouds on the title.  The problem MERS instantly ran into is that it has publicly disavowed being a real party at interest – that is, it’s only a nominee.  Therefore, it doesn’t have to be named.

This is a major problem for them.  See, the point of MERS is to avoid paying recording fees.  But the point of property records is to provide a clear and clean record of who owns a property and who has an interest in it – including who has a lien.  MERS entire purpose is obscuring this and abstracting it to a thing inside their database only, making the disclosure of the underlying facts a function of the investor’s desires, rather than one of public notice and record.

Unfortunately for MERS (and those who bought paper allegedly “secured” in this fashion) state property law says otherwise in a number of jurisdictions.  Specifically, State Property Law in some jurisdictions requires that security interests be held by a named entity, just as a deed must be.  That is, you can’t transfer a deed “in blank” nor can you have a security interest “in blank”; the identity of said person or corporation has to be known and recorded.

What happened here is that an enterprising attorney, recognizing this, sued for quiet title – that is, to remove any clouds on the title.  Since MERS was not entitled to be noticed as they by their own words and actions are not a real party at interest, they didn’t know about it.  The title companies, which were on the original records and the original writer of the mortgage, who were in the records, didn’t bother to respond because the title company doesn’t hold the paper and the original lender was paid in full when he sold off the note – so he has no real interest either.


Mish is going bananas over this, claiming it’s “a travesty of justice.”

No it’s not.

The debt is still collectable.  It’s just unsecured.  Now that makes foreclosure impossible, but not a suit for collection.  Effectively, the mortgage is now like a credit-card loan – it has no security interest associated with it, and that might make it far more difficult to collect.

It also, however, brings into question whether the purchasers of MBS that were assembled by the people who did this have a claim under criminal and civil fraud statutes.  The parties assembling these loans into trusts knew damn well that State Law required recordation of interests and that they were marketing these loans as fully-secured by the underlying real estate.  They decided, on their own initiative, to forego the “hassle” and “expense” of recording the interests, as well as (in the case in Massachusetts) bothering to transfer the notes as required into the trusts at the time, producing a business record that was sufficient to meet the requirements of law and admissible evidence.

Deciding to play “go go” during the bubble years was a decision made by the securitizers and lenders; the borrowers had exactly nothing to do with it.  They were no more able to influence that decision than was Mickey Mouse, and to claim that there’s something “inequitable” that comes about when someone makes an allegedly secured loan but doesn’t bother to do the things necessary under the law to retain the security interest is pure nonsense.

Again, the debt isn’t gone – it’s just lost its characteristic of a secured note.

And that, my friends, is exactly what the rule of law says should happen when you make an intentional decision to cheat the process for your own pecuniary benefit.

You get the consequences.

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