Houston’s County Will Ask Texas Attorney General to Investigate Suing MERS

The Texas county that includes Houston will ask the state attorney general to investigate suing Mortgage Electronic Registration Systems Inc. over unpaid filing fees on behalf of all the counties in Texas, an official said.

“If this is something that affects county government all over the state, why isn’t the state attorney general pursuing it?” Harris County Judge Ed Emmett said in an interview today. Emmett is a member of the Harris County Commissioners Court and the highest elected official of the county.

Lawyers for the county planned to ask the court today for permission to hire outside attorneys to sue MERS over as much as $100 million in unpaid filing fees. Emmett said that plan was postponed because there are still too many questions, including concerns over contingency fees to outside counsel.

MERS tracks servicing rights and ownership interests in mortgage loans on its electronic registry, allowing banks to buy and sell loans without recording transfers with individual counties. Harris County lawyers said they were considering a lawsuit similar to one filed last month against MERS by Dallas County.

The Dallas suit claimed MERS cheated the county out of tens of millions of dollars in mortgage-filing fees. Dallas County District Attorney Craig Watkins, who also sued Bank of America Corp. (BAC), said his county may be owed as much as $100 million.

Attorney General

Emmett said Harris County is considering options including joining the Dallas suit or waiting until it’s resolved, as well as contacting Texas Attorney General Greg Abbott. County officials are concerned about unnecessarily paying money for outside lawyers, he said.

“We’ve said it could be $10 million to $100 million,” at stake for Harris County, Emmett said. “If so, my concern is we’d be paying outside attorneys $2.5 million to $25 million and that’s money that otherwise would come back to the taxpayers.”

There is “no basis” for such lawsuits in Texas, said Janis Smith, a spokeswoman for Reston, Virginia-based Merscorp Inc., the parent of MERS.

“MERS complies with the recording statutes and mortgage regulations in Texas, as well as in all the other states,” Smith said in an e-mail. “The legality of MERS’ business model has already been affirmed in numerous cases decided by Texas courts and by other state and federal courts.”

Lender’s Nominee

MERS acts as the lender’s nominee and remains the mortgagee of record as long as the note promising repayment is owned by a MERS member. Dallas County claims this allows banks that own stakes in MERS to buy and sell loans without properly recording transfers with counties and paying the fee.

Harris County’s claim against MERS would mirror the Dallas lawsuit, according to County Attorney Vince Ryan.

“We’re looking at that suit as a parallel for ours,” Ryan said in an Oct. 7 interview.

The clerks of Kentucky’s Christian and Washington counties sued MERS, JPMorgan Chase & Co. (JPM)’s Chase Home Mortgage Corp., Citigroup Inc. (C)’s CitiMortgage, Wells Fargo & Co. (WFC), Bank of America and others in federal court in Louisville in April over unpaid mortgage filing fees, seeking to represent all 120 counties in Kentucky. They said the banks used MERS to avoid paying the fees.

Geauga County, Ohio, filed a similar suit Oct. 13 against MERS and banks on behalf of all counties in that state.

‘Circumventing the Payment’

Washington County, Pennsylvania, sued U.S. Bancorp’s U.S. Bank NA over fees last month in state court, contending that MERS was set up “for the express purpose of circumventing the payment of assignment of mortgage fees to county governments.” The suit, brought on behalf of all Pennsylvania counties, doesn’t name MERS as a defendant.

Branch County, Michigan, sued MERS, Chase and others in state court in August, alleging they improperly failed to pay real estate transfer taxes.

Christopher Peterson, an associate dean and professor at the University of Utah’s S.J. Quinney College of Law, said he has had discussions with officials in Utah considering a similar claim. He declined to identify the county.

More counties are looking at filing claims against the banks and MERS, said attorney Stephen Malouf, who represents Dallas. The Dallas County suit has attracted interest from officials in other counties, he said in an interview.

“If this gets the traction it should get, and probably will get, many, many counties in many states will file in the next 90 days,” he said.

MERS says on its website that it aims to place every mortgage in the country on an electronic, rather than a paper, system, allowing members to buy and sell mortgages.

Cases against MERS include Dallas County v. Merscorp Inc., 11-cv-02733, U.S. District Court, Northern District of Texas (Dallas); and Christian County Clerk v. Mortgage Electronic Registration Systems Inc., 5:11-cv-00072, U.S. District Court, Western District of Kentucky (Louisville).

To contact the reporters on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

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

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