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On Real Estate: Do You Know Who Owns Your Mortgage?

The legitimacy of the Mortgage Electronic Registration System has come into question in the face of widespread foreclosure filing problems, since it can mask the actual holder of a mortgage.

Do you really know who owns your mortgage? It may not be the servicer you write the check to!

In the late 1990s, the Mortgage Electronic Registration System (MERS) was created to bring efficiency into the tracking of the ownership of mortgage rights. MERS acts as a kind of clearing house to enable Fannie Mae and Freddie Mac and others to reduce the volume of documents being recorded and to close transactions quicker while decreasing costs. Lenders began using the system, naming MERS as the agent for the mortgagee (the lender or servicer). Since MERS would remain the agent forever, there was no need to record where the loans were eventually residing.

Loans could be sold several times to several investors without the knowledge of the borrower while the servicer of that loan could remain unchanged. As a result, when a property is sold, it is sometimes difficult to determine who actually has legal title. An overwhelming number of foreclosures do not undergo any scrutiny to sort through ownership. The party initiating foreclosure may or may not have the legal right and the funds may or may not be sent to the legal entity to satisfy the debt.

The MERS business model has increasingly come under fire since revelations last fall of widespread problems in foreclosure filings around the country with lingering questions about who actually owns the homes being foreclosed.

New York Attorney General Eric Schneiderman is just one attorney that has filed a lawsuit against the Mortgage Electronic Registration Systems and three big banks, alleging errors in the handling of foreclosures.

"MERS' indiscriminate use of nonemployee certifying officers to execute vital legal documents has confused, misled, and deceived home owners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose," the lawsuit alleges.

Borrowers and their attorneys continue to challenge the legitimacy of MERS which doesn’t actually own any of the 65 million loans in its vast registry. Courts have sided both with and against MERS adding uncertainty of the true functionality of the system.

In Washington State, the Attorney General is presently evaluating the MERS system as it relates to the Consumer Protection Act. In the last legislative session, several legislators introduced bills that would have made improvements to the present MERS system.

Kreg Kindell, a Managing Broker with Windermere Bellevue, has worked with foreclosures since 2007. He is increasing frustrated by the lack of valid record keeping that has resulted in unlawful foreclosures or promissory notes that have been lost which have led to transactions failing to close and owners being unjustly impacted.

“Over several years, some of our laws concerning how our deeds of trusts are handled have been weakened and distorted," Kindell said. He believes the following should be enforced for the protection of the consumer.

  • In a transaction that results in a deed of trust as security, the actual money transaction that occurs should be accurately reflected by the deed of trust throughout the life of the loan.
  • The mortgage transaction shall be transparent by public recording throughout the life of the loan for the benefit of not only current parties of interest but future parties of interest in the property as well
  • The trustee for the deed of trust should not only act with strict fiduciary responsibilities to both the Trustor and the Beneficiary, but should also be responsible to uphold the integrity of the title chain for future parties of interest as well
  • Above all, the integrity of the title chain is of highest priority.

The future of the MERS system in Washington will be determined by the courts. One thing is clear however. A mechanism must be put in place to protect the future of homeownership. Escrow must be instructed to verify the debt to offer clear title and, just like the days before electronic transfer, notes must be actually stamped paid and recorded at each change of ownership.

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Joan Probala is the managing broker for Issaquah Windermere and has 30 years of experience in real estate and is president-elect (2013) of the Seattle King County Association of Realtors.

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