New York Attorney General Eric Schneiderman has received a lot of the headlines for his no-holds-barred investigations against the banks, but he’s had a partner in Delaware’s Beau Biden. Because New York and Delaware were where most of the securitization trusts were originated, having a united front on this issue of fraud is vital, and despite the family ties with the White House, Biden has been uncompromising. His latest salvo is a lawsuit against MERS, the electronic registry owned and funded by the banks, which they used to evade the public land transfer system and save money on county recorder fees:
The Delaware attorney general’s office sued Merscorp Inc., which runs a national mortgage registry used by banks, saying its practices are deceptive and hide information from borrowers.
The MERS database, which tracks ownership interests in mortgages, obscures information from borrowers and impeded their ability to fight foreclosures, Delaware Attorney General Beau Biden said in a complaint filed today.
“MERS engaged and continues to engage in a range of deceptive trade practices that sow confusion among consumers, investors and other stakeholders in the mortgage finance system, damage the integrity of Delaware’s land records, and lead to unlawful foreclosure practices,” Biden said.
MERS is certainly a component of the breakdown in chain of title, and does help to obscure the true owner of loans, which damages borrowers seeking relief from foreclosures. A varying set of lawsuits around the country have either thrown out MERS officials as unable to act as the nominee in foreclosure cases, or blessed the system. So it’s not totally clear what will happen; the law has varied from state to state.
Nevertheless, I believe this is the first Attorney General to actually sue MERS, and Biden is making a particular case. He is saying that MERS information is frequently inaccurate, and that the public cannot fully access the records in the system to determine the owner of their loans. “The unreliability of the MERS System, when compounded with MERS’s reliance on the records in the MERS System, is deceptive and harms consumers by permitting and encouraging foreclosures for which the authority has not been fully determined and may not be legitimate,” the attorney general said in the lawsuit.
Importantly, Biden in the lawsuit sought a preliminary injuction against MERS from foreclosure operations in the company’s name, or from recording mortgage transfers. Delaware’s a small state, but if that injunction is granted, it could open a precedent that other states could use, and if enough did so, it could shut down MERS.
MERS was already part of an ongoing investigation by both Biden and Schneiderman, and this is the first result. Biden’s lawsuit touches on the issue of recording fees, over which several counties, including Dallas County, Texas, have sued MERS in the past. That clawback could result a major source of revenue for local governments, paid for by MERS’ owners, the large financial institutions.
Good for Biden, who must have a tremendous amount of pressure on him given his familial ties.
UPDATE: Parallel to this action, NY AG Schneiderman subpoenaed MERS, seeking additional information on how lending institutions use the registry. Incidentally, the fine that Biden is seeking is $10,000 per violation. MERS has 60 million mortgages on its registry, I don’t know how many in Delaware.
UPDATE II: Yves Smith:
The damages sought are substantial, $10,000 per violation. Since MERS is a tiny company, with under 50 employees and many of its operations outsourced (and no reason for it to maintain a substantial balance sheet), success in court would almost certainly mean bankruptcy for MERS. In theory, a new consortium or private investors could buy the database out of bankruptcy, but how would one structure its operations so as to not run afoul of the law? Yet with so many mortgages recorded in the MERS database (the registry has claimed over 60 million) the banks will need to find a way to keep it going and operate it more in line with the law [...]
Unless MERS gets injunctive relief, these two provisions effectively stop foreclosures in MERS’s name in Delware. MERS has repeatedly said it does not hold any interest in the property or note in depositions. And the mortgage registry system had also quietly put out a notice to members months ago telling members to stop foreclosing in the name of MERS. Not allowing MERS members (servicers, banks, and their foreclosure attorneys) to assign mortgages out of MERS will stop the foreclosure apparatus cold. This is a legitimate legal strategy to get a foreclosure freeze and force the servicing industry to the table to negotiate a much bigger fix.