While housing analysts revel in numbers about home prices and construction starts, I have been trying to focus on the realities of an unhealthy market, with hedge fund house-flippers and shadow inventory driving the so-called “recovery” more than anything fundamental. Gretchen Morgenson takes up the other aspect of this, the fact that the legal wrangling over faulty foreclosures and broken processes never actually ended:

Take the problem of questionable legal fees levied on troubled borrowers [...] A foreclosure from Ohio highlights this problem. The facts from this matter are central to a prospective class action filed by a borrower, who contends he was charged improper court costs and legal-related fees in his foreclosure.

The case involved legal moves taken against a bank in 2007 that did not even have an interest in either of the two mortgage liens associated with the foreclosed property. Even though the bank should never have been dragged into the matter, it was — generating $775 in court costs and legal fees paid by the borrower, documents show. Only two years later, during the discovery process, did it emerge that the bank had no ownership in the underlying property.

That $775 may not sound like much. But Paul Grobman, a lawyer in New York who represents the borrower, said he believed the collection of what he called improper legal charges is rampant in foreclosures.

These are the kind of stories I like to highlight when asked why we should be moved to care about foreclosure and servicing fraud, since it only impacts so-called “deadbeats” who bought too much home. When someone without a mortgage can get a foreclosure notice, when a bank without an interest in a home can generate fees off a property in foreclosure, when a sampling of 35 Wells Fargo loans finds that the actual monthly payment cannot be substantiated on 34 of them, when a family’s mortgage payment misplaced by their bank leads to a foreclosure two years down the road, you can understand that these problems are in no way limited to those “deadbeats.” In fact, they’re not limited to those in foreclosure. Everyone with a mortgage – everyone with a home – is a potential target for fraud and abuse.

In this case, the culprit from the improper charges is MERS, the shadowy electronic database set up by the banks to record mortgage transfers, and actually, to evade county government transfer fees. This greased the skids for securitization, where mortgages got traded several times before landing in a pooled trust and sold out as bonds.

The bank in the Ohio case, Wells Fargo, could not track their interest in the loan because, MERS doesn’t work in its only job description, to track and record the transfers. In reality, Wells held both the first and second lien on the property, but they thought a different bank, WMC, held the second. They in fact sued WMC over the discrepancy, and WMC alleged that they owned the second lien. Wells blamed the servicer, HomEq (which is no longer in business), and WMC wouldn’t comment.

But it all goes back to MERS. It doesn’t so much track mortgage transfers as much as it pretends to track them. And the interested parties pretend that they have a handle on that transfer. This makes it easier to charge additional fees on a borrower, who has no idea who actually owns his or her loan. The entire thing is DELIBERATELY opaque. The less the borrower knows, the more they can get fleeced.

The second half of this is that using MERS resists accountability. Borrowers don’t know who they need to negotiate with for a modification. If fraud is discovered down the line, banks can finger-point at the other actors in the chain of ownership (trustee, servicer, note holder, etc.). So not only can the banks lard on fees, they can find a convenient excuse to avoid blame if they ever get revealed as frauds.

It’s a nice little system for them. For the American system of land ownership, not so much.