When the curtain was pulled back on the mortgage industry a few years ago, one of the alarming surprises was to find what an out-sized role Mortgage Electronic Registration System, Inc (MERS) played in the home loan industry – not an illegal role, mind you, just an out-sized one.
What is MERS? The American Bankruptcy Law Journal most recent issue contains an article by David Weber that defines it this way: “The concept behind MERS was to create an electronic, efficient, investor-friendly informal recording system…[that] could save hundreds of millions of dollars annually in assignment and recordation fees by naming a proxy mortgagee or beneficiary on the recorded mortgage or ded of trust and allowing informal transfers of the underlying debt thereafter ad infinitum among MERS’s members with essentially no additional per-transaction cost.”
Historically, whenever a note and deed of trust were transferred, this transfer would have to be recorded, for a fee, in the relevant county. When note and deed of trust transfers began to proliferate over the last couple of decades, these recording fees became annoying and the banks needed to develop a quick cheap way of by-passing the old methods. Think of it this way: before, every bank was its own separate building, and whenever a note and deed of trust needed to be transferred from one building to another, there was a cost of going outside and walking down the block to the transferee’s building. With MERS, the banks decided to build a (figurative) giant warehouse. The banks were still independent, but now they simply occupied cubicles within the MERS warehouse and could transfer their notes and deeds of trust however many times they wanted to without once going outside.
So far, so good, unless you’re all those counties that used to get paid for recording transfers. But as far as the borrowers and consumers of the industry went, it didn’t much matter.
Now days, MERS gets blamed for just about everything. Your bank won’t negotiate the terms of your loan? Blame MERS. You can’t pay your mortgage? Blame MERS. The winter is oddly warm? Blame MERS. Your dog won’t come when you call? Blame MERS.
We overstate the point only mildly.
That’s not to say that MERS shouldn’t be blamed for some things. If there is a disagreement about who a borrower owes money to, that matters. But it matters mostly between the banks who are fighting over where a borrower should send their monthly check. If a borrower has a complaint about not knowing who “holds the note,” that complaint should be backed up by some real money in the game. In other words, if you’ve been making your payments faithfully, or have enough money to bring your loan current, and simply need a judge to tell you where to send the check, you have the right idea. But if you haven’t made a mortgage payment in two years and want to use a minor ambiguity about who “owns the note” so that you can have a free house, we think you’re missing the point.
There are some lawyers and commentators out there who think you should have a free house because of MERS. There are also a lot of unintelligent people with questionable standards of fair play. We tend to think these two groups of people share many of the same members.