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Mortgage Registry MERS Sued by Delaware Attorney General

Merscorp Inc., the operator of a national mortgage registry used by banks, was sued by Delaware’s attorney general for allegedly using deceptive practices that hide information from borrowers.

The MERS database, which tracks ownership interests in mortgages, impeded the ability of homeowners to fight foreclosures and obscures its data, Delaware Attorney General Beau Biden said in a complaint filed today.

“MERS engaged and continues to engage in a range of deceptive trade practices that sow confusion among consumers, investors and other stakeholders in the mortgage finance system, damage the integrity of Delaware’s land records, and lead to unlawful foreclosure practices,” Biden said.

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. MERS acts as the lender’s nominee, remaining the mortgagee of record as long as the note promising repayment is owned by a MERS member.

Banks and investors have the true economic interests in the loans, and Biden described MERS as “a front organization” at a news conference today in Delaware.

‘Harms Consumers’

“The unreliability of the MERS System, when compounded with MERS’s reliance on the records in the MERS System, is deceptive and harms consumers by permitting and encouraging foreclosures for which the authority has not been fully determined and may not be legitimate,” the attorney general said.

Janis Smith, a spokeswoman for Merscorp, said the allegations in the suit have no merit.

“MERS’s business practices are transparent,” she said in a phone interview. “There is no confusion.”

In an e-mailed statement, Smith said the company refutes claims that the MERS system confused borrowers. Homeowners have access to their loan-servicer information on the system at all times, she said.

"Merscorp has cooperated in good faith with the Delaware attorney general’s office and complied with their requests for information under a subpoena issued earlier this year," Smith said. "The lawsuit they filed was unexpected, and we disagree with the allegations made in their complaint."

New York Subpoena

Separately, New York Attorney General Eric Schneiderman subpoenaed Merscorp for information about how mortgage servicers including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. use the system, according to a person familiar with the matter. The subpoena is part of an existing investigation with Delaware about mortgage operations of banks, according to the person, who declined to be identified because the investigation isn’t public.

MERS faces multiple unrelated lawsuits by counties over allegations that the company cheated them out of mortgage filing fees.

Dallas County, Texas, which sued last month, claims the system allows banks that own stakes in MERS to buy and sell loans without properly recording transfers with counties and paying the fee. Dallas County District Attorney Craig Watkins, who also sued Bank of America, said his county may be owed as much as $100 million.

MERS’s shareholders include Bank of America, CitiGroup Inc., Wells Fargo, Fannie Mae and the Mortgage Bankers Association, according to its website.

Inaccessible to Public

In his complaint, Biden said as loans are transferred, the changes are only recorded in MERS’ database, and the records of the transfer aren’t generally accessible to the public. MERS doesn’t have safeguards in place to ensure that transfers on its system accurately reflect actual transfer of ownership of the loan, according to the complaint.

The MERS system is “frequently inaccurate,” Biden said in court papers. When the MERS system doesn’t reflect the true owner of a mortgage loan, any action MERS takes on behalf of the purported owner is without authority, according to the attorney general.

“The MERS system has raised serious questions about who owns what in America,” Biden said at the press conference.

Biden asked the court to bar MERS from initiating any foreclosure actions in the company’s name, from acting as a nominal mortgage lender when it didn’t have a “beneficial interest” in the property and from recording such mortgages in the company’s name.

Biden also asked the court to stop MERS from assigning or taking any other actions on Delaware mortgages until the company’s system has been “audited and corrected,” according to the complaint. The court should order MERS to correct the chain of title on Delaware mortgages that were recorded in county offices, Biden said.

The case is State of Delaware v. MERSCORP Inc., CA6987, Delaware Chancery Court (Wilmington).

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