In the latest of a flurry of under-the-wire lawsuits that seem to conflict with an imminent foreclosure fraud settlement, Eric Schneiderman, the Attorney General of New York and a co-chair of the federal task force looking into the residential mortgage-backed securities market, sued three banks for their use of the MERS electronic registry which resulted in fraudulent foreclosure filings.
Attorney General Eric T. Schneiderman today filed a lawsuit against several of the nation’s largest banks charging that the creation and use of the private national mortgage electronic registry system known as MERS has resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process. The lawsuit asserts that employees and agents of Bank of America, J.P. Morgan Chase, and Wells Fargo, acting as “MERS certifying officers,” have repeatedly submitted court documents containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have. The lawsuit names JPMorgan Chase Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., as well as Virginia-based MERSCORP, Inc. and its subsidiary, Mortgage Electronic Registration Systems, Inc.
The lawsuit further asserts that the MERS System has effectively eliminated homeowners’ and the public’s ability to track property transfers through the traditional public records system. Instead, this information is now stored only in a private database – which is plagued with inaccuracies and errors – over which MERS and its financial institution members exercise sole control. Additional defendants include BAC Home Loans Servicing, LP, Chase Home Finance LLC, EMC Mortgage Corporation, and Wells Fargo Home Mortgage, Inc.
“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law,” said Attorney General Schneiderman. “Our action demonstrates that there is one set of rules for all – no matter how big or powerful the institution may be – and that those rules will be enforced vigorously. Only through real accountability for the illegal and deceptive conduct in the foreclosure crisis will there be justice for New York’s homeowners.”
While the foreclosure fraud settlement is not supposed to release MERS claims, this is a significant lawsuit that I don’t think can square with any agreement on a settlement. Schneiderman, like Beau Biden before him, is suing MERS for deceptive practices. Those practices resulted in the creation of falsified foreclosure documents. And he’s suing the banks over the use of those documents. This is the ENTIRE point of a settlement in the foreclosure fraud case. I don’t see how you could bring this case and also agree to a settlement, though I’ll try to get some guidance on that later today.
Importantly, this is separate and apart from the RMBS working group that Schneiderman co-chairs. That is focused on pre-bubble conduct, the securitization machine and fraud in that area. This lawsuit is about post-bubble conduct, namely the filing of illegal foreclosure documents. This has become less of an issue in New York State, actually, because of state judicial rulings forcing bank lawyers to attest to the veracity of their documents. This has plunged the number of foreclosure filings in the state. But that doesn’t deal with any reckoning over past conduct, which is what Schneiderman gets at here.
This is also a total attack on MERS. The suit alleges (according to this release) that MERS was created specifically to allow banks to skirt county recording fees on their voluminous mortgage transfers. And it explains how MERS operates outside the law by becoming the “nominal” mortgagee of the loans on its database for public records, and how it allows 20,000 “certifying officers” – in a company of 70 employees – to act on its behalf in foreclosure executions and other filings. This has been a sewer from the beginning, and I don’t see how you fix this crisis without completely and totally disbanding MERS.
I like this part from the release:
MERS’ conduct, as well as the servicers’ use of the MERS System, has resulted in the filing of improper New York foreclosure proceedings, undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests, and potentially clouded titles on properties throughout the State of New York. In fact, several New York judges have questioned the standing of the foreclosing party in cases involving MERS loans and the validity of mortgage assignments executed by MERS certifying officers.
The lawsuit cites 13,000 different instances of MERS listing itself as the plaintiff in foreclosure cases when they lacked the legal standing to foreclose. And it cites countless other cases where the MERS “certifying officers” submitted foreclosure documents to state courts with legal defects and misrepresentations. “MERS’ indiscriminate use of non-employee ‘certifying officers’ to execute vital legal documents has confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose,” says the release. This is a big deal.
Schneiderman seeks injunctive relief as well as damages for homeowners harmed by MERS, which reaches into the thousands of New York State. And then there’s this curious line: “The lawsuit also seeks a court order requiring defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from their fraudulent and deceptive acts and practices.” I don’t know how that gets done; perhaps this is the “equitable mortgage” process whereby new title is created through a massive write-down of the unsecured debt.
With this in the mix, Schneiderman joins Biden, Catherine Cortez Masto, Lisa Madigan and Martha Coakley with active lawsuits that touch on the post-bubble conduct that a foreclosure fraud settlement would release liability for, at least with respect to the big banks. I can’t see how one squares with the other.
I haven’t seen the actual lawsuit filing released yet, so I’ll let you know when it is.