Merscorp Electronic Mortgage Registry Is Sued Over Michigan Foreclosures

Mortgage Electronic Registration Systems Inc. “illegally prosecuted” non-judicial foreclosures in Michigan and owes more than $100 million to people who lost their homes, lawyers for three homeowners said in a lawsuit.

The homeowners said Merscorp Inc.’s MERS, which runs an electronic registry of mortgages, used Michigan’s so-called foreclosure by advertisement process illegally and “misappropriated” their homes. Any foreclosures by MERS using this process in Michigan should be voided, they said in their complaint filed in federal court in Detroit.

Michigan is one of 27 states where banks don’t have to get a court’s permission to seize a property, meaning homeowners have to bring their own lawsuit to halt a foreclosure. Michigan law lets mortgage lenders or servicers foreclose after advertising a default in a newspaper for four consecutive weeks.

MERS “lacked the authority to foreclose by advertisement” because it didn’t own or have any interest in the underlying debt and “was not the servicing agent of the mortgage,” Maryla Depauw and Sharon and Terrance Lafrance, the homeowners said, in their complaint filed yesterday. MERS “knowingly, fraudulently and illegally” foreclosed on homes for years using a law it “had no authority or right to utilize,” they claim.

MERS is required to take foreclosures to court, their lawyers said, citing an April 21 decision by Michigan’s Court of Appeals. The decision, which voided two property seizures, said state law requires a foreclosing party to own the legal title to the debt.

Janis Smith, a Merscorp spokeswoman, didn’t immediately return a call seeking comment today.

Servicing, Ownership

Merscorp’s MERS tracks servicing rights and ownership interests in mortgage loans on its electronic registry, allowing banks to buy and sell the loans without having to record the transfer with a county.

Depauw and the Lafrances filed their suit as a class action, seeking to represent all other Michigan property owners “whose property was illegally foreclosed upon by MERS.” They’re asking for more than $100 million in actual damages on multiple counts including fraud and wrongful foreclosure, as well as more than $300 million in punitive damages.

Depauw, who lives in Oakland County, Michigan, and the Defrances, who live in St. Clair County, said their homes were illegally foreclosed on and sold at sheriff’s sales.

The suit is Depauw v. Mortgage Electronic Registration Systems Inc., 2:11-cv-12032, U.S. District Court, Eastern District of Michigan (Detroit).

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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