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MORTGAGE ELECTRONIC REGISTRATION SYSTEMS (MERS) by Christopher J. Beck, ATG Senior Law Clerk

Introduction

Mortgage Electronic Registration Systems, Inc. (MERS) provides a centralized registry for tracking ownership interests and servicing rights of mortgages. As the number of mortgages registered with MERS grows, MERS increasingly will appear in the chain of title. This article will address the following questions when dealing with transactions in which MERS is in the chain of title:

• How should an assignment to MERS appear in the chain of title?
• May a mortgage and an assignment to MERS be combined into a single document?
• How does one obtain a payoff letter and release for a mortgage assignment to MERS, and how does this appear in the chain of title?

MERS - owned by several companies involved in the mortgage finance industry - began in 1995 as a member-owned, non-stock corporation. It was created to address the problems associated with tracking the beneficial interests and servicing rights of mortgages due to the increased number of transactions in secondary markets. The goal was to make the tracking of the secondary mortgage assignments more similar to the stock market. Thus, an electronic registry was created to track such assignments of rights.

For MERS to be effective, mortgages must be properly registered with the MERS system. Each mortgage is assigned an individual Mortgage Identification Number (MIN) that tracks the mortgage for its life. The MERS system depends on MERS being named as the mortgagee of record in the county public records. This may be done in one of two ways. First, MERS can be identified as the nominee for the lender on the mortgage itself (referred to as "MERS as Original Mortgagee" or MOM). If the mortgage does not name MERS as the original mortgagee, then the mortgage can be assigned to MERS. The mortgage would begin as a typical mortgage, and as such it must be recorded in the county recorder's office. The mortgage would then be assigned to MERS, with the assignment being recorded in the public records. At this point, under either method MERS will be the assignee or mortgagee of record for the life of the mortgage. Assignments are not made outside of the MERS system. At this point, the chain of title will stop with MERS. MERS will internally track all subsequent assignments of interests and rights as long as the mortgage interests remain with a MERS member.

Benefit of MERS

The benefit of MERS is to create efficiency in secondary mortgage markets, thereby reducing costs. MERS relies on the current mortgage recording laws and procedures so that it may perform its goals, and is not meant to in any way replace governmental recording functions. MERS members are expected to update the transfers within the system. MERS has acknowledged that it is critical to its success that they accurately keep track of assignments. Interested parties are putting a considerable amount of trust in the accuracy of the MERS system and in its members diligently updating records.

How Should an Assignment to MERS Appear on the Chain of Title?

Signed mortgage documents are recorded in the county land records to make a public record of the security interest (in the form of a mortgage or a deed of trust). If MERS is not identified as the original mortgagee, an assignment must be recorded naming MERS as the mortgagee when the loan is registered on the MERS system. An assignment to MERS should appear like any other assignment. An assignment naming MERS as the assignee of record is prepared and recorded with the county recorder's office. MERS will be the assignee of record for the life of the loan and the chain of title should end with MERS unless the rights are assigned to a non-MERS member, a foreclosure, etc.

May a Mortgage and an Assignment to MERS Be Combined into a Single Document?

Beginning in 1997, it has been possible to name MERS as the original nominal mortgagee (MOM), eliminating the need for a subsequent assignment to MERS. If MERS is named as the nominee for the lender, there is no need for an assignment to MERS and no further recorded or unrecorded assignments are necessary as long as the loan remains on MERS. After the initial step naming MERS as mortgagee of record, the subsequent treatment of the mortgage is the same whether it was initially created through an assignment or through MOM. MERS prefers to be named as the original mortgagee because it eliminates the need for a subsequent assignment.

How Does One Obtain a Payoff Letter and Release for a Mortgage Assignment to MERS, and How Does This Appear in the Chain of Title?

Obtaining a payoff or release should be a simplified process for mortgages registered with MERS. It is the obligation of the MERS member currently servicing a loan to de-activate the loan on the MERS system and to prepare and send a lien release to the county recorder's office. To find out the name of the servicer, non-MERS members will have to call the MERS Voice Response Unit (VRU) and obtain the servicer's name, address, contact person, and phone number. It will be necessary to contact the servicer because the MERS system will not give out payoff information. It is the responsibility of the servicer to give out all payoff information.

The loan servicer will send a lien release to the county recorder's office. The release should contain the MIN and the telephone number to access the MERS VRU, which is the number the general public may call to obtain information about the MERS servicer. The number for the VRU is 1-888-679-MERS (679-6377). To access this service, callers will have to know either the MIN or the social security number of the borrower. If an inquirer lacks this information, he or she will still be able to access this information by calling the MERS Help Desk at 1-888-680-MERS (6377), provided one can provide the mortgagor's name or the property address. If a non-MERS member does not have any of the above information, the MIN should be available at the county clerk's office once the lien release has been recorded. "MERS has made a commitment to provide access to its system to county recorders and to the public generally," and the county recorder should be able to get people the information they need. 1997 Ill. Atty.Op.Gen No. 97-008.

As MERS becomes more prominent in the mortgage industry, title agents and companies may have to adapt some of their methodology and procedures to conform to the MERS system. While this initially may prove to be an inconvenience, the title industry should ultimately benefit from increased mortgage tracking efficiency that MERS will provide.

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Mortgage Assignment Laws and Definition

(This may not be the same place you live)

  What is a Mortgage Assignment?

A mortgage is a legal agreement. Under this agreement, a bank or other lending institution provides a loan to an individual seeking to finance a home purchase. The lender is referred to as a creditor. The person who finances the home owes money to the bank, and is referred to as the debtor.

To make money, the bank charges interest on the loan. To ensure the debtor pays the loan, the bank takes a security interest in what the loan is financing — the home itself. If the buyer fails to pay the loan, the bank can take the property through a foreclosure proceeding.

There are two main documents involved in a mortgage agreement. The document setting the financial terms and conditions of repayment is known as the mortgage note. The bank is the owner of the note. The note is secured by the mortgage. This means if the debtor does not make payment on the note, the bank may foreclose on the home. 

The document describing the mortgaged property is called the mortgage agreement. In the mortgage agreement, the debtor agrees to make payments under the note, and agrees that if payment is not made, the bank may institute foreclosure proceedings and take the home as collateral .

An assignment of a mortgage refers to an assignment of the note and assignment of the mortgage agreement. Both the note and the mortgage can be assigned. To assign the note and mortgage is to transfer ownership of the note and mortgage. Once the note is assigned, the person to whom it is assigned, the assignee, can collect payment under the note. 

Assignment of the mortgage agreement occurs when the mortgagee (the bank or lender) transfers its rights under the agreement to another party. That party is referred to as the assignee, and receives the right to enforce the agreement’s terms against the assignor, or debtor (also called the “mortgagor”). 

What are the Requirements for Executing a Mortgage Assignment?

What are some of the benefits and drawbacks of mortgage assignments, are there any defenses to mortgage assignments, do i need to hire an attorney for help with a mortgage assignment.

For a mortgage to be validly assigned, the assignment document (the document formally assigning ownership from one person to another) must contain:

• The current assignor name.
• The name of the assignee.
• The current borrower or borrowers’ names. 
• A description of the mortgage, including date of execution of the mortgage agreement, the amount of the loan that remains, and a reference to where the mortgage was initially recorded. A mortgage is recorded in the office of a county clerk, in an index, typically bearing a volume or page number. The reference to where the mortgage was recorded should include the date of recording, volume, page number, and county of recording.
• A description of the property. The description must be a legal description that unambiguously and completely describes the boundaries of the property.

There are several types of assignments of mortgage. These include a corrective assignment of mortgage, a corporate assignment of mortgage, and a mers assignment of mortgage. A corrective assignment corrects or amends a defect or mistake in the original assignment. A corporate assignment is an assignment of the mortgage from one corporation to another. 

A mers assignment involves the Mortgage Electronic Registration System (MERS). Mortgages often designate MERS as a nominee (agent for) the lender. When the lender assigns a mortgage to MERS, MERS does not actually receive ownership of the note or mortgage agreement. Instead, MERS tracks the mortgage as the mortgage is assigned from bank to bank. 

An advantage of a mortgage assignment is that the assignment permits buyers interested in purchasing a home, to do so without having to obtain a loan from a financial institution. The buyer, through an assignment from the current homeowner, assumes the rights and responsibilities under the mortgage. 

A disadvantage of a mortgage assignment is the consequences of failing to record it. Under most state laws, an entity seeking to institute foreclosure proceedings must record the assignment before it can do so. If a mortgage is not recorded, the judge will dismiss the foreclosure proceeding. 

Failure to observe mortgage assignment procedure can be used as a defense by a homeowner in a foreclosure proceeding. Before a bank can institute a foreclosure proceeding, the bank must record the assignment of the note. The bank must also be in actual possession of the note. 

If the bank fails to “produce the note,” that is, cannot demonstrate that the note was assigned to it, the bank cannot demonstrate it owns the note. Therefore, it lacks legal standing to commence a foreclosure proceeding.

If you need help with preparing an assignment of mortgage, you should contact a mortgage lawyer . An experienced mortgage lawyer near you can assist you with preparing and recording the document.

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Prior to joining LegalMatch, Daniel worked as a legal editor for a large HR Compliance firm, focusing on employer compliance in numerous areas of the law including workplace safety law, health care law, wage and hour law, and cybersecurity. Prior to that, Daniel served as a litigator for several small law firms, handling a diverse caseload that included cases in Real Estate Law (property ownership rights, residential landlord/tenant disputes, foreclosures), Employment Law (minimum wage and overtime claims, discrimination, workers’ compensation, labor-management relations), Construction Law, and Commercial Law (consumer protection law and contracts). Daniel holds a J.D. from the Emory University School of Law and a B.S. in Biological Sciences from Cornell University. He is admitted to practice law in the State of New York and before the State Bar of Georgia. Daniel is also admitted to practice before the United States Courts of Appeals for both the 2nd and 11th Circuits. You can learn more about Daniel by checking out his Linkedin profile and his personal page. Read More

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• Featured Articles
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• / Chapter B8-7: Mortgage Electronic Registration System (MERS)

B8-7-01, Mortgage Electronic Registration Systems (MERS), Inc. (12/13/2023)

Introduction.

The MERS system is an electronic system that assists in the tracking of loans, servicing rights, and security interests. To initiate the electronic tracking, the seller/servicer assigns a special MERS Mortgage Identification Number (MIN) to the loan and registers it in MERS. This topic contains information about MERS, including:

• Naming MERS as the Nominee for the Beneficiary in the Security Instrument 
• Requirements for the Use of MERS in Specified Geographic Areas 
• MERS Registration 
• Use of the MIN 
• Mortgage Assignment to MERS 
• Termination of MERS 

Naming MERS as the Nominee for the Beneficiary in the Security Instrument

A seller/servicer that wants to register a newly originated loan (but not a co-op share loan) with MERS may prefer to designate MERS as the nominee for the beneficiary in the security instrument. Doing so, eliminates the need for a subsequent assignment of the security instrument should the seller/servicer sell (or transfer servicing of) the loan to another seller/servicer that is a member of MERS. In such cases, the applicable security instrument must be modified to:

show MERS as the nominee for the seller/servicer,

define and name the originating seller/servicer, and

obtain the borrower’s acknowledgment of MERS’ role in the mortgage transaction.

If the seller/servicer encounters a situation where Fannie Mae is the owner of record for a loan because the original assignment of the loan to Fannie Mae was recorded in the public records, the seller/servicer must correct the error before it completes the MERS registration by:

preparing an assignment of the loan from Fannie Mae to MERS,

sending the assignment to Fannie Mae for execution, and

recording the assignment in the public records.

Changes that must be made to create a standard MERS security instrument for each jurisdiction may be found in the Instructions document for each state-specific security instrument (see Fannie Mae's Legal Documents  website), with the exception of loans secured by property located in certain geographic areas, as described below.

The seller/servicer is responsible for the accurate and timely preparation and recordation of the security instrument and any MERS-related documents required to be used in specific geographic areas. Sellers/servicers must also take all reasonable steps to ensure that information pertaining to MERS is updated and accurate at all times.

Even when MERS is named as the nominee for the beneficiary in the security instrument, it has no beneficial interest in the mortgage. All actions that MERS takes with respect to a loan are based on the instructions initiated by the originating seller, Fannie Mae, or the servicer. The originating seller remains responsible for all of its Contractual Obligations and any liability that it or Fannie Mae incurs as a result of the MERS registration, any MERS transaction, or the failure of MERS to perform any obligation with respect to a MERS-registered loan. In addition, the seller/servicer is solely responsible for any failure to comply with the provisions of its MERS Member Agreement, Rules, and Procedures.

Requirements for the Use of MERS in Specified Geographic Areas

In the states listed below, sellers/servicers must use the Mortgage Electronic Registration Systems, Inc. Rider (MERS Rider) ( Form 3158 ) when a newly originated loan will be registered with MERS. Sellers/servicers must also follow the Instructions to the MERS Rider and the applicable security instruments to make changes to the standard security instruments for the following states:

Oregon, and

Washington.

As the MERS Rider must be used in these specified states, post-closing assignments to MERS are prohibited.

MERS Assignment Form - Maine

In the state of Maine, sellers/servicers must use the MERS Mortgage Assignment (Form 3749) to assign loans to MERS at origination or post-closing, as applicable. Loans in which the Maine security instrument has been modified to name MERS as the original mortgagee of record, solely as nominee for the seller/servicer, are ineligible for delivery to Fannie Mae.

MERS Registration

If a seller/servicer registers a loan on the MERS system before delivering it to Fannie Mae, the seller/servicer must ensure that the MIN is registered in MERS and names itself as the investor. Additionally, the seller/servicer must include the MIN in the delivery data. After Fannie Mae purchases or securitizes the mortgage, Fannie Mae notifies MERS to update its records to reflect Fannie Mae’s ownership interest in the loan.

Note : For loans registered in MERS iRegistration where MERS is not named as the nominee for the beneficiary in the security instrument, the MERS MIN should not be reported on the loan schedules, unless the loan is an eMortgage registered on MERS eRegistry.

If a seller/servicer registers a mortgage with MERS after Fannie Mae has purchased or securitized the loan, the seller/servicer must name Fannie Mae as the investor during registration and notify MERS of Fannie Mae’s ownership interest in the loan.

Use of the MIN

For each MERS-registered loan delivered to a document custodian, the seller/servicer must indicate the MIN on the security instrument and related documents. Because the status of a MERS-registered mortgage can change, the seller/servicer is not required to include the MIN on the note. Additionally, the seller/servicer is still responsible for making sure that the document custodian has sufficient information to determine whether a loan that is included in a subsequent transfer of servicing is registered with MERS at the time of the transfer. The seller/servicer must have adequate controls in its processes to enable it to readily identify MERS-registered mortgages.

The seller/servicer can choose from the following options:

place the MIN on the note when the loan is registered with MERS and, if the MERS registration is subsequently terminated for any reason, notify the document custodian to delete the MIN from the note;

wait to advise the custodian of the status of the MERS registration for a loan until a change in status actually occurs; or

notify the custodian about the status of the MERS registration for a loan at the time of a servicing transfer by providing the custodian with a listing of all MERS-registered loans that are included in the transfer and a certification that any and all other loans included in the transfer are not currently registered with MERS. (The listing may be prepared by the seller/servicer or, with the seller/servicer’s authorization, by MERS.) If there are more MERS-registered loans included in the transfer than there are unregistered loans, the listing may instead identify the unregistered loans—and, in that case, the certification should state that any and all other loans included in the transfer are currently registered with MERS.

Mortgage Assignment to MERS

If the originating seller/servicer is the beneficiary for a loan that it registers with MERS, they must prepare an assignment of the mortgage to MERS. Refer to the section above, entitled Requirements for the Use of MERS in Specified Geographic Areas , for additional information about, and restrictions on, assignments of loans to MERS. 

By delivering a MERS-registered loan to Fannie Mae, the seller/servicer:

warrants that MERS is the mortgagee of record (either by being named as an assignee in a recorded assignment of the security instrument or as nominee for the beneficiary in the security instrument); and

warrants that the MIN is valid and properly registered in MERS naming the seller/servicer as the investor.

Sellers/servicers are not required to include a copy of the assignment of the loan to MERS in the delivery package they submit to the applicable document custodian.

Termination of MERS

If the seller/servicer decides to discontinue the use of MERS, they must request from MERS that the loan be “deactivated” in MERS. MERS will notify Fannie Mae about the deactivation of any loan in which it has an interest.

If the seller/servicer’s membership in MERS is terminated, the seller/servicer must promptly notify Fannie Mae’s MERS Program Office (see E-1-02, List of Contacts ).

In the event that either its membership in MERS or the MERS registration for an active loan is terminated for any reason while Fannie Mae has an ownership interest in the loan, the seller/servicer must perform the functions outlined in the following table for each MERS-registered loan that it is servicing for Fannie Mae.

Recent Related Announcements

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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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Assignment of Mortgage

All Sellers must be MERS members, able to register and transfer loans through MERS. All loans must be registered with MERS at time of delivery to Pennymac and a MERS transfer of beneficial rights and transfer of servicing rights must be initiated by the Seller, to  PennyMac Corp. (#1009313), within 24-hours of purchase .

If a Mortgage is registered with MERS and MERS is not the original mortgagee of record, the lender must ensure that:

• An assignment to MERS has been prepared, duly executed and recorded, prior to delivery for purchase.
• The chain of assignments is complete and recorded from the original mortgagee to MERS. Add “Mortgage Electronic Registration Systems, Inc, P.O. Box 2026, Flint, MI 48501-2026” as the assignee.
• The Mortgage Identification Number (MIN) is printed on the bottom center of the Assignment, about one-half inch below the last line of text and one-half inch above the bottom of the page.
• The MERS phone number (888-679-6377) must be printed at the bottom of the page.

If a mortgage is registered with MERS naming MERS as original mortgagee of record (MOM), no assignments are necessary if:

• The mortgage is originated naming MERS as the original mortgagee of record, solely as nominee for the lender named in the Security Instrument and the Note, and the lender's successors and assigns.
• The lender has ensured that the Security Instrument is properly executed, acknowledged, delivered and recorded in all places necessary to perfect a First Lien security interest in the mortgaged premises in favor of MERS, solely as nominee for the lender named in the Security Instrument and the Note, and lender's successors and assigns.
• The MIN must be placed on the Security Instrument to the right of or below the form title, but NOT within the recording margin of the document.
• Additional verbiage approved by the agency must be added to the Mortgage/Security Instrument. MERS Corporate Office can provide the correct state specific verbiage.

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One simple system of record

The MERS ® eRegistry is the mortgage industry’s "system of record" for holders of eNotes. Its role is to indicate who holds the authoritative copy of the eNote, resulting in a seamless process for you, your borrowers, and your trading partners. The MERS ® eRegistry is designed to make your transition from paper promissory notes to eNotes convenient and secure as you move into the eMortgage space.

Save money and eliminate breaks in the chain of title

Reduce the costs associated with transferring mortgage rights by erasing the need for certain paper assignments.

MERS ® System

A national electronic database that tracks changes in mortgage servicing rights and beneficial ownership interests in loans secured by residential real estate.

MERS ® eRegistry

MERS ® eRegistry is the legal system of record for identifying the Controller (holder) and Location (custodian) for the authoritative copy of a registered eNote.

MERS ® eDelivery

Provide a secure method for distributing documents in any electronic format (SMART Doc, PDF, TIFF, etc.) from one MERS ® eRegistry user to another, using the existing MERS ® eRegistry infrastructure and transaction security requirements.

“As early adopters of eNotes and RONs on the MERS ® eRegistry, at Mr. Cooper, we have been able to engage eNote originators as experts in the eMortgage space.” Bryan Budd SVP, Operations & Co-issue Mr. Cooper

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• The Legally Invalid Assignment Defense to Foreclosure

People who are facing the possibility of a foreclosure on their home may want to investigate the history of their mortgage. If the assignment to the foreclosing party is not valid, this may be a viable defense to a foreclosure. In some states, you can demand that the foreclosing party produce a written assignment of the mortgage. If it does not have an assignment or failed to record it as required by state law, this may result in the dismissal of the foreclosure action. Recording rules may require that the foreclosing party record the assignment before starting the foreclosure.

Courts in other states are more lenient in their review of assignments. Since the mortgage is closely associated with the promissory note, the foreclosing party may be allowed to enforce the promissory note even if it cannot produce a valid assignment of the mortgage. You should seek legal guidance in your state to determine whether this defense may be viable.

Homeowners who believe that they may have a defense based on an invalid assignment may wish to consult with a knowledgeable foreclosure lawyer, since this defense can become complicated. Justia offers a lawyer directory to simplify researching, comparing, and contacting attorneys who fit your legal needs.

The Relationship Between Mortgages and Promissory Notes

The mortgage and the promissory note are the two key documents attached to a loan for buying a home. Some purchases involve a deed of trust rather than a mortgage, but they are functionally equivalent in this context. While the promissory note is your guarantee to repay the loan, the mortgage gives the lender the right to foreclose if you do not repay the loan as arranged. The mortgage also identifies the property that will serve as security for the loan. Thus, the two documents work together in establishing the lender’s rights.

The Role of Mortgage Assignments in Loan Transfers

A bank or other lender often will sell a mortgage to another party, which will collect payments and pursue the homeowner if they fail to keep up with the mortgage. To transfer the loan, the original lender will endorse the promissory note to the new owner of the mortgage. This is because collection efforts hinge on owning the promissory note. If the foreclosing party cannot produce the promissory note, the homeowner will have a defense to the foreclosure.

Meanwhile, the new owner will record the assignment of the mortgage. This includes transferring the right to foreclose, as provided by the mortgage, to the new owner. The assignment will provide the amount of the mortgage and the names of the homeowner, the original lender, and the new owner of the mortgage. It also will contain a description of the property attached to the mortgage and the date when the mortgage took effect.

An invalid assignment defense may only be a temporary solution until the new owner records an assignment in their name.

The mortgage industry uses a tool known as the Mortgage Electronic Registration System (MERS) to keep track of assignments. MERS may be a nominee for the lender, or it may receive the mortgage as an assignment. If MERS is the current assignee, it cannot pursue a foreclosure because it does not have an interest in the promissory note. MERS simply serves as an agent for the current owner of the mortgage and assists in creating a record for transfers of the mortgage. This allows banks to more easily transfer loans among them without creating a new assignment each time. You may have a defense against a foreclosure action if MERS is listed as the owner of the mortgage. However, this likely will be only a temporary solution until the new owner records an assignment in their name.

Last reviewed October 2023

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What Is the Mortgage Electronic Registration System (MERS)?

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

What Is a Mortgage Electronic Registration System—MERS?

The Mortgage Electronic Registration System (MERS) is a database created by the mortgage banking industry. A confidential electronic registry of mortgages originated in the United States, it keeps track of transfers of and modifications to servicing rights and ownership of the loans. It is used by the real estate finance industry for residential and commercial mortgage loan recording trading.

MERS, which also refers to the privately held company that manages the database, is approved by such government-sponsored enterprises as the Federal National Mortgage Association ( Fannie Mae) , the Federal Home Loan Mortgage Corporation ( Freddie Mac) , and the Government National Mortgage Association ( Ginnie Mae) , along wth such government agencies as the Federal Housing Administration (FHA) and the Department of Veterans Administration (VA) that are involved in housing loans. The California and Utah Housing Finance Agencies and all major Wall Street rating agencies make use of it as well.

Key Takeaways

• Mortgage Electronic Registration System (MERS) is a privately owned database that the mortgage banking industry created to simply the registration and transfer of mortgages.
• By tracking mortgage transfers electronically, MERS eliminates the need of a lender to register the transfer with the county recorder every time the loan is sold from one bank to another.
• Sometimes MERS itself is designee as the mortgage lender (mortgagee).
• While MERS can save time and recording costs, it has drawn criticism for making it difficult to see who actually is the current owner of a mortgage.

Understanding the Mortgage Electronic Registration System—MERS

Each time a mortgage is sold from one bank to another, an assignment—a document showing that the mortgage has been transferred—is, theoretically, prepared and recorded in the county land records. The assignment transfers all of the interest the original lender had under the mortgage to the new bank.

By tracking loan transfers electronically, MERS eliminates the long-standing practice that the lender must record an assignment with the county recorder every time the loan is sold from one bank to another.

The MERS system is used by mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders, and consumers. County and regulatory officials and homeowners can access MERS free of charge. Homeowners can look up information on their own mortgages that are registered with the system.

In order to use the electronic tracking, the servicer of the mortgage assigns it with a mortgage identification number (MIN) and then registers the loan with the MERS database. Sometimes, MERS itself is designated as the mortgagee, as the original lender is officially called in the mortgage documents; such a loan is known as an original mortgagee (MOM) loan. From there, the seller can originate the mortgage with MERS as a nominee of the lender (also referred to as the beneficiary), and then assign or record the assignment of the loan to MERS in the county land record. This would make MERS the mortgagee of record.

While MERS can act as mortgagee in county land records, it doesn't actually own the mortgage loan.

If the lender sells the loan, MERS will update its information regarding the mortgage. The servicer of a mortgage can have it removed from the MERS database by sending a request to have it deactivated. MERS will, in turn, notify Fannie Mae. If the servicer of a mortgage wants to end their membership with MERS entirely, it must also notify Fannie Mae as soon as possible.

Pros and Cons of the Mortgage Electronic Registration System—MERS

As an electronic, one-stop site for mortgage documents—deeds of trust and promissory notes—MERS greatly simplifies the mortgage process. MERS can act as a cost-saving measure to some degree because, by acting as a mortgagee, it cuts the expense of recording the transfer of a mortgage from one lender to another. Having the loan in MERS’ name (as nominee) in the land records saves time and recording costs because multiple assignments aren't necessary each time the loan changes hands.

The database has drawn some criticism, though. During the 2008 housing crisis , the system made it difficult at times to sort out who actually owned mortgages. That created a challenge for homeowners facing foreclosure or relief from their loans, as they needed to know who held their mortgages in order to work out some form of remedy.

MERS. " About Us Frequently Asked Questions ."

MERS. " Quick Facts ," Page 1.

MERS. " Homeowners ServicerID ."

MERS. " MERS System Frequently Asked Questions ."

Govinfo.gov. " Problems in Mortgage Servicing from Modification to Foreclosure ."

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Promissory Notes, Mortgage Assignments, and MERS’ Role in Real Estate

After the fall out of the subprime mortgage crisis that triggered the Great Recession, the effects still linger when looking at homeownership statistics in the United States. Nearly 10 million homeowners lost their homes to foreclosure between 2006 and 2014. Damaged credit and traumatized psyches paired with stricter lending standards and soaring median home prices mean that some former homeowners will never own another home.

Today, the United States is seeing the highest rates of unemployment since the Great Depression at nearly 15%  due to the COVID-19 pandemic, and of those who still own a home, nearly 4.1 million borrowers are struggling to make their monthly payments. Many are turning to forbearance for momentary relief from their mortgages.

For many homeowners, the question of what happens to their mortgage after closing day might not ever come up. Until the threat of foreclosure or the need for forbearance arises, most borrowers simply send in their monthly payments with no questions asked.

Now is a good time to consider the process after closing, and how it affects their property rights. Here are some of the questions to ask.

What happens after a real estate closing?

• At closing, the borrower signs the mortgage, the deed, and the promissory note
• The mortgage and the deed are recorded in the public record
• The promissory note is held by the lender while the loan is outstanding
• Payments are sent to the mortgage servicing company
• The mortgage may be securitized and sold to investors
• The mortgage may be transferred to another bank
• The mortgage servicing rights may change to another company
• When the mortgage is paid in full, a mortgage lien release or satisfaction with a number referencing the original mortgage loan is recorded in the public record to show the debt is no longer outstanding
• The promissory note is marked as paid in full and returned to the borrower

Banks often sell and buy mortgages from each other as a way to liquidate assets and improve their credit ratings. When the original lender sells the debt to another bank or an investor, a mortgage assignment is created and recorded in the public record and the promissory note is endorsed.

What are Loan Transfer Documents?

Assignments and endorsements prove who owns the debt and subsequently who has the authority to bring foreclosure action.

Mortgage Assignments

A Mortgage Assignment is a document showing a mortgage loan has been transferred from the originator to a third party.

Note Endorsements

In addition to the assignment, the originator of the loan or the most recent holder of the loan must endorse (or sign over) the promissory note whenever the loan changes hands. Sometimes, the note is endorsed “in blank,” which means that any party that possesses the note has the legal authority to enforce it.

While these documents are supposed to be recorded in the public land records systems, sometimes there’s a “break” in the chain. A missing mortgage satisfaction or assignment can cause a huge headache for homeowners when they go to sell. Without knowing who the official mortgage lienholder of the property is, the home can’t be sold. The title agent in charge of the closing is tasked with fixing the issue so that clear ownership rights can be established and the final mortgage payoff can be sent to the right lender if needed.

What is Mortgage Securitization?

In the last 30 years or so, the buying and selling of mortgage loans between lenders, banks, and investors has grown more complicated. When a mortgage is turned into a security, it’s pooled with similar types of loans and sold on the secondary mortgage market. The purchasers or investors in these securities receive interest in principal payments.

Securitization is good for lenders because it allows them to sell mortgage loans from their books and use that money to make more loans.

Where securitization goes wrong, as we saw during the housing crisis, is when bad or “toxic” assets are pooled together and sold on the secondary market to unsuspecting investors. Subprime mortgage-backed securities had received high ratings from credit agencies and offered a higher interest rate, but they also were the first to hemorrhage losses when borrowers began defaulting on homes with underwater mortgages.

Securitization isn’t an inherently good or bad process, it’s simply a mechanism by which banks liquidize assets, increase their credit and ratings, and clear their balance sheets.

For homeowners, securitization means that the mortgage isn’t owned by a single lender and is instead part of a pool of mortgages owned by investors. A mortgage service company is responsible for collecting the mortgage payments and sending it to the proper investors. Securitization also means that tracking the note and who has the authority to enforce it can get messy.

What is the Mortgage Electronic Registration System, Inc. or MERS?

The MERS system is a private, third-party database system used to track servicing rights and ownership of mortgages in the United States. This system of registering the promissory note and mortgage was created to make transferring these documents easier on the secondary mortgage market.

How does MERS work?

For some real estate transactions, the mortgage originator will designate MERS as the mortgagee at closing. These loans are called MERS as Original Mortgagee (MOM) loans. When buying a home, a borrower should see clear language on the mortgage or deed of trust document granting and conveying legal title of the mortgage to MERS as mortgagee. This gives the company the right to act on behalf of the current and subsequent owners of the loan.

In other transactions, the loan may be assigned to MERS in the public record at a later date after closing.

After MERS is designated as a nominee to act on behalf of the lender, it tracks the transfers of the loans between parties and acts as a nominee for each holder. This eliminates the need to file separate assignments in the public record each time the loan is transferred. If a lender sells the loan, MERS will update this information in their system.

Even though MERS is designated as the mortgagee, it doesn’t own the debt or hold the promissory note. MERS doesn’t service mortgages or collect payments on mortgages.

Benefits of MERS

Some of the benefits of the MERS system include:

• No document drafting fees
• Eliminates the need for multiple assignments each time the loan changes hands
• Reduces recording costs
• Saves time and administrative costs for lenders and servicers
• Provides the identification of servicers and investors for free for homeowners and lenders
• Used by Lenders to find undisclosed liens
• Used by municipalities to find companies responsible for maintaining vacant and abandoned properties
• Mortgage Identification Numbers (MIN) are assigned to each loan for easy tracking
• Selling of loans and servicing transfers are more efficient in the secondary market
• Obtaining lien releases when a lender goes out of business is simplified
• Cost savings by the mortgage industry is theoretically passed on to homeowners

Does MERS really save consumers money?

The MERS system is not meant to act as a replacement for public land records. However, some states, including Kentucky, New York, Texas, Alabama, and Delaware have sued the company that controls MERS for lost revenue from missing record filing fees. In the case of Kentucky , the state alleged that MERS did not record mortgage assignments with Kentucky County Clerks as they were transferred between banks. At $12 a recording, all those transfers without corresponding mortgage assignments add up to big bucks.

Despite numerous lawsuits challenging MERS over its mortgage assignment authority, the company that controls MERS usually receives favorable judgments . In 2016, courts in Texas ruled that MERS’ mortgage assignments were valid and dismissed two cases. County recorders in Pennsylvania also brought cases claiming that MERS and MERS System members failed to record mortgage assignments when transferring promissory notes, a violation of Pennsylvania recording laws. MERS emerged as the winner of these lawsuits as well.

Kentucky and other states argue that skipping out on these fees hurt the consumers and taxpayers in their states.

What is MERS role in foreclosures?

Depending on the state, a foreclosure process might be either judicial (reviewed by a judge in court) or nonjudicial. In the past, MERS, acting on behalf of lenders, has been named as the plaintiff in foreclosure proceedings. Sometimes MERS was even listed as the beneficiary in nonjudicial notices.

Whether or not MERS has the authority to file foreclosure as either the plaintiff or beneficiary is hotly contested. Some states have ruled that MERS doesn’t have standing to foreclose since it doesn’t have any financial interest in either the property of the promissory note.

MERS Splits the note and the mortgage

A court case from 1872, Carpenter v. Longan , established that where the promissory note goes, a deed of trust or mortgage must follow and, according to the United State’s Uniform Commercial Code (UCC) , the promissory note must also have a clear chain of title.

Foreclosure proceedings during the Great Recession proved to be complicated by the MERS system. Within the MERS system, a note and mortgage may be transferred multiple times, so to avoid an endorsement each time, the note is “endorsed in blank.” In one foreclosure after the other, borrowers were able to demonstrate that the subsequent assignments of the promissory note had gone unendorsed.

Although the MERS systems has helped the mortgage industry, title agents, and even borrowers better manage and understand who has the servicing rights and holds the authority to foreclose, several borrowers facing foreclosure have argued that the system impermissibly “splits” the note and the mortgage between the note holder and MERS as the beneficiary of the deed of trust or mortgage.

This process of bifurcation, it’s claimed, causes the relationship between the mortgage and note to become defective and subsequently unenforceable.

Homeowners facing foreclosure, especially in the aftermath of the housing bubble burst of 2008, were successful in delaying or avoiding foreclosure by arguing that the authority to foreclose was not satisfactorily established due to breaks in the chain of assignments and endorsements.

However, Article 3 of the UCC establishes anyone who possesses the note has the legal authority to enforce it. So foreclosing parties have countered that possession of the note should be enough.

As a result, some states, like Michigan, have ruled in favor of these borrower’s arguments by requiring reunification through valid assignment before foreclosures may proceed. Others have ruled that reunification is not necessary since MERS would be authorized to foreclose for the note holder on their behalf. In 2015, The Nevada Supreme Court actually clarified previous rulings by stating that the involvement of MERS actually cures the defect. This is because the note holder could potentially or theoretically direct or compel MERS to assign the deed of trust, resulting in reunifying the instruments.

Homebuyers should always ask questions

With the advent of eClosing solutions, eNotes, eVaults, and the MERS eRegistry , the real estate, title, and mortgage industry continues to build systems that improve the homebuying experience.

Despite all the advancements, homebuying can be a confusing and overwhelming process. It’s important to ask questions of the right real estate professionals. Hiring your own attorney to represent your interests in the real estate transaction is always a good idea.

While the pros and cons of MERS is debated, homeowners today will want to keep up with recommendations from the CFPB should they fall behind on their mortgage payments and reach out to their mortgage servicer as soon as possible.

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Amanda Farrell is a digital media strategist at PropLogix. She enjoys being a part of a team that gives peace of mind for consumers while making one of the biggest purchases of their lives. She lives in Sarasota with her bunny, Buster, and enjoys painting, playing guitar and mandolin, and yoga.

MERS & Mortgage Securitization

Mers & The Debt MERS does record the assignment in the actual real property records system. The actual note itself, is the creation of the legal obligation to have the loan/note repaid for the debt. Thus the note is the actual legal document which backs the debt. The debt itself has not been transferred or negotiated by MERS

• MERS does record the assignment in the actual real property records system. The actual note itself, is the creation of the legal obligation to have the loan/note repaid for the debt. Thus the note is the actual legal document which backs the debt. The debt itself has not been transferred or negotiated by MERS

• MERS is not legally entitled to receive monthly payments from the borrower. MERS cannot legally be entitled to benefit from a foreclosure in any sale of the home in a foreclosure sale.

• MERS does not own the mortgage note, thus it cannot attempt to foreclose.

• MERS cannot have any legal claim or interest in the loan interest, the debt, security instrument which MERS serves as a nominee.

MERS and Securitization of Residential Mortgage Loans

Mortgage Electronic Registration System (MERS) has been named the beneficiary for this loan. MERS was created to reduce in need of executing and recording of assignment of mortgages, with the idea that MERS would be the mortgagee of record. This would allow “MERS” to foreclose on the property, and at the same time, it would assist the lenders in avoiding the recording of the Assignments of Beneficiary on loans sold. This helped to save money for the lenders in manpower and helped to reduce the costs of recording these notes. It was also designed to “shield” investors from liability as a result of lender misconduct regarding the process of mortgage lending. MERS is imposed to overcome certain laws and other legal requirements dealing with mortgage loans holding an “artificial” entity. Because of designating certain member employees to be MERS corporate officers, the foreclosing agency and MERS “designated officer” has a conflict of interest. MERS and the servicer both have not a beneficial interest in the note even they don’t receive the income from the payments. And actually the service employee can’t sign the Assignment in the name of MERS because the Assignment execution of MERS employee is illegal. The new party has not executed the Assignment from the actual owner of the note. An assignment will result in a nullity because of a mortgage in the absences of the assignment and physical delivery of the note. It must also bear in mind that the lender or other holder of the note registers the loan on MERS. Thereafter, all sales or assignments of the mortgage loan are accomplished electronically under the MERS system. MERS never acquires actual physical possession of the mortgage note, nor do they acquire any beneficial interest in the Note. From the beginning MERS has indicated numerous violations of Unfair and Deceptive Acts and Practices because of conflicting nature and identity of the servicer and the beneficiary. As these practices were intentionally designed, it misleads the borrower and benefits the lenders. So the main point becomes, is MERS the Servicer or the foreclosing party? As the Servicer is the party who initiate the foreclosure and they take the documents to their own employee who are designated as a “Corporate Officer of MERS”, and who conveniently signs the document for MERS, aren’t they the “foreclosing party”?

Is MERS the Beneficial Owner of the Note? 1. MERS is named after the beneficiary on the Deed of Trust and holding only legal title to the interest granted by Borrower in this Security Instrument…has the right: to exercise any or all of those interest, including, but not limited to, releasing and canceling this security instrument. 2. MERS can claim to hold the Note but it has not any actual possession of the Note 3. MERS don’t get any payments or income from the monthly payments. Ultimate Investor gets this money. The Investor has the beneficial interest in the Note because the Investor receiving the payments. 4. MERS agreement indicates that MERS will comply with the instructions of the holder of mortgage loan promissory notes at all time. It also indicates that “When the beneficial owner will not give contrary instructions , MER may depends on instructions from the servicer shown on the MERS system in accordance with these rules and the procedures with respect to transfers of beneficial ownership. 5. MERS is not the beneficial owner of the note that has been testified in Florida Courts. Assignment of Beneficiary MERS does not keep the record of the assignment of beneficiary though it is required by law, until the foreclosure process starts and the Notice of Default has been filed, and apparently, only when it appears that the borrower will not be able to reinstate the loan and then foreclosure is inevitable. It maintains itself as the beneficiary throughout the entire process up to foreclosure. MERS has represented in Florida Courts that its sole purpose is as a system to track mortgages. It has stated that the lenders and servicers do entry for themselves and it does not do the entries itself, but. When an Assignment of Beneficiary is executed, it is the member servicer or lender that goes to the website, downloads the necessary forms, completes the forms and then takes it to the designated “MERS officer” to sign. MERS agreements state that MERS and the Member agree that: (i) the MERS System is not a vehicle for creating or transferring beneficial interest in mortgage loans, (ii) transfer of servicing interests reflecting on MERS System are subject to the consent of the beneficial owner. Since MERS and the servicer both haven’t a beneficial interest in the note, they don’t receive the income from the payments, and since it is actually an employee of the servicer signing the Assignment in the name of MERS, this begs the question: Is the assignment executed by the MERS employee even legal, since the actual owner of the note has not executed the assignment to the new party? A good indicator might be in Sobel v Mutual Development, Inc, 313 So 2d 77 (1st DCA Fla 1975). An assignment of a mortgage in the absence of the assignment and physical delivery of the note in question is a nullity.

Possession of the Note & Holder in Due Course Coming to the forefront, possession of the Note is a key argument. The foreclosing entity has to prove possession and ownership of the original Note in order to foreclose. A survey reported that upwards of 40% of the Notes are missing and cannot be found that’s why this comes to the forefront. And MERS is once again involved in this. MERS foreclosure lawsuits often include a Lost, Missing, or Destroyed Affidavit In Judicial Foreclosure states. The Note cannot be found, and that the Note prior to being lost was in the possession of MERS which was “testified” by this affidavit. This has become very problematic for MERS,As they have admitted in Courts that they do not own the Note or even hold the Note. If this is so, then MERS is likely filing fraudulent Affidavits. When challenged, one defense that MERS uses to support its “legal standing” is that the servicer has possession of the Note and Deed. MERS, by the act of having its own “Officers” as employees of the servicer, entitles it to foreclose on behalf of the servicer and the beneficiary. When confronted with this defense, the response should be for the servicer to produce the note. It should also be noted that the lender or other holder of the note registers the loan on MERS. Then, under the MERS system all sales or assignments of the mortgage loan are accomplished electronically. MERS never acquires actual physical possession of the mortgage note, and they don’t acquire any beneficial interest in the Note. Securitization Process Securitization is the name for the process by which the final investor for the loan ended up with the loan. It entailed the following: 1. Mortgage broker had client who needed a loan and delivered the loan package to the lender. 2. The lender approved the loan and funded it. This was usually through “warehouse” lines of credit. The lender most of the times used warehouse line instead using their own money and that had been advanced to the lender by major Wall Street firms like J.P. Morgan. 3. The lender “sold” the loan to the Wall Street lender, earning from 2.5 – 8 points per loan. This entity is known also as the mortgage aggregator. 4. The loan, and thousands like it, are sold together to an investment banker. 5. Securities banker buys loans from Investment banker 6. Securities banker sells the loans to the final investors, as a Securitized Instrument, where a Trustee is named for the investors, and the Trustee will administer all bookkeeping and disbursement of funds. 7. The issue with the securitization process is that when the Securitized Instrument was sold, it was split apart and sold in tranches, (in slices like a pie). There were few or no records kept of which notes went into which trancheand there are no records of how many investors bought into each particular tranche. Additionally, there were no

Assignments designed or signed in anticipation of establishing legal standing to foreclose. 8. Rating Agencies rated the tranches at the request of the Investment Bankers who paid the Rating Agencies. 9. When the tranches were created, each “slice” was given a rating, “AAA, AA, A, BBB, BB, etc. which tranche got “paid” first out of the monthly proceeds determined the ratings. If significant numbers of loans missed payments, or went into default, then the AAA tranche would receive all money due, and this went on down the line. The bottom tranches with the most risk would receive the leftover money. These were the first tranches to fail. Even if the defaulting loans were in the AAA tranche, the AAA tranche would still be paid and the lowest tranche would not. Wall Street, after the 2000 Dot.com crash, had large amounts of money sitting on the sidelines, looking for new investment opportunities. Returns on Investments were dismal, and investors were looking for new opportunities. Wall Street recognized that creating Special Investment Vehicles offered a new investment tool that could generate large commissions. Other Pertinent Facts of Securitization 1. In Wall Street pooling agreements they defined in the agreements that the loans that they would accept for each investment vehicle. The lenders were executed agreements by them, with the lenders and then immediately issued warehouse lines of credit to the lenders. 2. Lenders then informed brokers to know the loan parameters to meet the pooling agreement guidelines and the brokers went out and found the borrowers. 3. Wall Street took all the loans, packaged them up and sold them as bonds and other security instruments to other investors, i.e. Joe’s Pension, and paid off original investors or reissued new line of credit, and earned commissions on both ends. 4. The process was repeated time and again. 5. What we do know now is that in most cases, the reality is that the reported lender on the Deed of Trust was NOT the actual lender. The actual lender who lent the money was the Wall Street Investment Bank. They simply rented the license of the lender, so that they would not run afoul of banking regulations and/or avoid liability and tax issues. For all purposes, Wall Street was the true lender and there are arguments that suggest that Disclosures should have been required naming Wall Street as the lender. Now it can be easier to understand how possession of the Note and ownership of the Note play a vital role. In most cases, which tranche will contain any particular note, it is unknown. And will not it be known how many investors, and who bought the individual tranches without significant and time-consuming investigation. Hence, any foreclosure that was securitized may be completely unlawful. Without the “True Owners” of the note stepping forward to demand foreclosure,

Assignee Liability Assignee liability is another issue being contested. Under TILA and RESPA, If on the face of the loan documents gives evident that there are violations of the statutes, then assignees have a significant liability when they assume the loan. Moreover, the question arises as to if assignee liability can be claimed only if there are no violations on the face of the documents. It is believed that MERS became the “beneficiary” for so many notes to address the Assignee Liability problem. Since MERS works as the beneficiary, and it doesn’t keep the record of assignments, it becomes more difficult to determine assignee liability and holder in due course issues. This could offer “cover” for all the parties who are participating in the Securitization process, since no there were recorded of Assignments and “proof of ownership” of the note could not be easily determined. Tracking the monthly payments made to the investors, determining which party received the monthly payment will be the only way to determined ownership of the Notes. This would be time consuming and likely only Discovery would prove the process necessary to get this information. In Cazares v Pacific Shore Funding, CD. Cal. Jan 3, 2006, assignee that actively participated in original lender’s act and dictated loan terms may be liable under UDAP. The question then arises as to assignments further down the “chain of title”. Under these circumstances, to attack the lenders, the UDAP codes can be utilized. The contracts can be “voided or rescinded for showing fraud and other causes of action, ” common law and UDAP codes, especially CA B&P § 17200, and CA Civil Code §1689, which allows for contract rescission.

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Correcting the MERS Errors to Establish a Secure, Profitable National Title System

By Adam Leitman Bailey and Dov Treiman

In Homer’s Odyssey, the protagonist, Odysseus, is called upon to sail his crew through the Straits of Messina, passing between two legendary monsters, Scylla and Charibdis. To avoid one, the only option was to approach the other, risking a horrible death in either instance. Odysseus was at times a wise captain and managed to minimize the number of deaths, if not to avoid it altogether.

Most of the nation is, thanks to the still writhing tendrils of the economic collapse of 2008, part of the larger real estate crisis setting forth the Scylla of further economic collapse by making the foreclosure procedure so difficult for banks that they refuse to issue residential mortgages at all or the Charibdis of wholesale ejectment of homeowners from houses they should not have purchased. Tightening the foreclosure rules threatens economic destruction from the top down; loosening them threatens that destruction from the bottom up.

There can be no doubt that any action taken, including complete inaction, threatens to thrust enormous hardship on thousands, if not millions of people. Exacerbating the problem, there is no one to captain the ship.

Understanding MERS.

Although not the cause of the problem by any means, yet still at the heart of its mechanics, is the national “Mortgage Electronic Registration Systems,” known as MERS. Operating near Washington, D.C., MERS is involved in nearly 60 percent of residential mortgage-like transactions nationally, with a registry entailing some 60 million residential mortgages. The authors and sponsors of this national system intended both to simplify and to centralize the tracking process of rights regarding each mortgage-like instrument.

Since foreclosure proceedings always involve real property, the substantive rights are controlled by the substantive laws of the State or territory where the property is located, but federal procedural rules are uniform under the Federal Rules of Civil Procedure.

It is important to realize that the legal nomenclature of mortgagor-mortgagee runs exactly opposite to the common understanding. In common understanding, one “gets a mortgage.” However, what one is really getting is a “loan secured by a mortgage.” Otherwise put, one is getting money and putting one’s house up as collateral to repay it. The document that makes the house the collateral is the “mortgage” and therefore legally one gets money and gives a mortgage. In a non-MERS deed of trust, there is a borrower-grantor, a lender-beneficiary, and a trustee. The lender keeps the promissory note in its files and it or its title company records a copy of the mortgage or deed of trust in the county registry. In this scenario, the lender owns both the promissory note and the mortgage or deed of trust. The lender may sell both, but should keep them together.

Nothing except paying MERS its fees is mandatory in the MERS world. MERS is available to transfer the mortgage or rights under the deed of trust to the vendee of the note, should it become an issue. If such a transfer does become necessary, MERS sells its subscribers a vice presidency in MERS to effect the transfer. MERS transfers nothing itself. If a subscriber requests it to do so, MERS just makes entries in its database.

Several attorneys general from cash-starved states are suing MERS to recover the lost funds or prevent further losses.

Most of New York State does not have the ACRIS-like internet friendly and fully searchable land records of New York City based ACRIS. For many New York State counties, computer based searches are available, but researchers must make the trip to the county clerk’s office to access the computer system. In some of New York State’s more farming based counties, the records are still nearly entirely exclusively on paper. MERS ensures that borrowers know nothing beyond to whom they should be sending their check. Furthermore, when there are errors in MERS and the same mortgage gets assigned to more than one financial institution, the homeowner has no way of figuring out who actually has the superior right without resorting to the court system, which itself may not be able to untangle the MERS threads.

There are current calls to replace the 3,000 office system with something both national in scope and governmental in administration. While such a system remains beyond the horizon, calls in some states to have single statewide systems are becoming more urgent. But, for now, that part of the crisis remains in stasis.

Attacks on MERS.

86 A.D.3 d 274, 926 N.Y.S.2d 532 , (N.Y.A.D. 2 Dept. 2011). , ruled that since MERS never was either the owner of Mr. Silverberg’s promissory note nor ever had physical possession of it, MERS had no assignable interest in the mortgage in its favor as “nominee” and therefore its assignment to Bank of New York was void. With that assignment void, the court found Bank of New York to lack “standing” to bring a foreclosure action.

In 2006, the Silverbergs had executed a mortgage in favor of MERS with an underlying note in favor of originating bank, Countrywide Home Loans. In 2007, they executed a second, similar set of documents, together with a consolidation agreement to which Countrywide was not a party. When the Silverbergs defaulted on this later agreement, MERS assigned the consolidation agreement to Bank of New York who brought a foreclosure action.

Levy v. Louvre Realty Co. , 222 N.Y. 14, 20; Curtis v. Moore , 152 N.Y. 159, 162, Strause v. Josephthal , 77 N.Y. 622; Fryer v. Rockefeller , 63 N.Y. 268, 276.

8 NY3d 90 (2006). New York’s high court determined that the Suffolk County Clerk did not have the discretion to refuse to record MERS mortgages, but never really addressed the question as to whether a MERS mortgage is indeed a mortgage at all. It merely held that the county clerk was obliged to record everything that looks like a mortgage and left unresolved whether MERS’s mortgage look-alikes really were enforceable mortgages. Although a finding that a MERS mortgage is no mortgage at all does not, in theory, deprive the bank of all remedies, it does mean that the judgment a bank would acquire for nonpayment of the loan would not necessarily have any particular seniority as a lien against the promisor’s real property. It may be so far down in the priorities of pure seniority that it may be completely unenforceable as a practical matter.

Yet another level of complexity is added when one realizes that a vast amount of MERS loans originated during the housing boom, a period in which the banks were extremely sloppy about keeping track of the original promissory notes. This got sloppier still among the banks that failed. For banks seeking to foreclose on these housing bubble mortgages, Silverberg adds additional procedural and evidentiary hurdles to overcome to make sure that they can prove possession or ownership of the note underlying the mortgage prior to the commencement of the foreclosure action. In the case of the failed banks, this might include the daunting task of following the paper trail from one bank to the next to find the current owner of the note. However, fears that Silverberg ended the world are vastly overstated.

National Reaction.

While Silverberg was a case of first impression in New York, other jurisdictions across the country had earlier cases that no doubt influenced the New York decision.

Residential Funding Co. v. Saurman , ––– N.W.2d ––––, 2011 Mich.App. LEXIS 719 (Mich.Ct.App. Apr. 21, 2011). that MERS cannot foreclose by advertisement. In Michigan, the Foreclosure by means of Advertisement statute requires the party foreclosing the mortgage to either own or have an interest in the underlying debt that is secured by the mortgage. In this case, the Court found that MERS did not stand to receive any benefit from the debt being paid and did not have a financial interest in the note. As a result, the Court held that MERS did not meet Michigan’s statutory requirements as a party either owning or having an interest in the debt. Thus, MERS could not foreclose by advertisement. The court did not address the issue of whether MERS would be able to foreclose in a judicial proceeding.

MERS v. Nebraska Department of Banking and Finance, 270 Neb 529; 704 NW2d 784 (2005). , MERS had previously argued that it was not allowed to enforce the mortgage. Therefore, as a simple nominee-mortgagee, MERS was not a necessary party in the Kansas foreclosure proceeding.

MERS v. Saunders , 2 A.3d 289 , 295 (Me. 2010). held that MERS lacks standing to institute a foreclosure through judicial proceedings. In this case, the mortgage defined MERS as a nominee. The Court found that, in its limited role as nominee, MERS did not have possession of the note or any interest in the debt obligation. The Court held that MERS did not qualify as a mortgagee and lacked the standing required to institute a foreclosure proceeding.

Favorable Decisions to MERS.

Minn. Stat. §507.413(a). Clearly, Minnesota has recognized, for the purposes of recording, MERS’s operations as acceptable.

Jackson v. MERS , 770 NW2d 487 , 498 (Minn 2009). where the court had to determine whether a MERS member was required to record the assignment of a promissory note before MERS could commence a foreclosure by advertisement.

Notwithstanding Minnesota’s statutory recognition of MERS’s authority to record, Minnesota’s foreclosure by advertisement statutes require certain assignments to be recorded. The Court had to decide whether the assignment of a promissory note was included in the statutory requirements. The Minnesota Supreme Court found that the assignment of a promissory note was not included and, therefore, held that MERS Members did not have to record a promissory note assignment before MERS could commence a foreclosure by advertisement.

Ferguson v. Avelo Mortgage LLC , 195 Cal.App.4th 1618 , 126 Cal.Rptr.3d 586 (2011) (as modified on June 20, 2011). in which the borrower challenged MERS’s ability, as nominee, to assign the promissory note to the foreclosing party, the California Court of Appeal for the Second District held that, where a deed of trust allows MERS to act on behalf of the lender, MERS has the authority to assign the promissory note. The Court noted that California law regarding nonjudicial foreclosure does not require possession of the note under a deed of trust. This, of course, is the California common law on deeds of trust and is thus clearly distinct from the previously cited national common law on true mortgages.

MERS Reaction.

However, seated in the national capital of the financial industry, New York courts’ influence on the national home financing industry is substantially in excess of New York’s percentage of the national land area, national population, or even national financial transactions.

So, when New York spoke through Silverberg , MERS certainly listened.

On July 22, 2011, MERS officially revoked the authority granted to its Member’s Certifying Officers to initiate foreclosures in MERS’s name. MERS effectively rescinded the authority of the Certifying Officers through an amendment to Rule 8 of its “Rules of Membership.” Rule 8, entitled “Required Assignments for Foreclosure and Bankruptcy,” outlines the new steps a Member must take to initiate a foreclosure proceeding. Mainly, the note owner must cause a Certifying Officer to assign the Security Instrument from MERS to the note owner’s servicer. Further, the servicer must then record the assignment with the governmental recording office before any foreclosure proceeding can take place.

MERSCORP, Inc. “Rules of Membership”. Members have an opportunity to respond to the citation for violation and they receive 30 days to correct the violation. In regard to foreclosures, a MERS Member can avoid sanctions by withdrawing the filing of the proceeding within three weeks of bringing the action.

Close analysis of Silverberg raises questions whether these steps do anything to cure the infirmity in the MERS tainted transactions or whether these steps are more about trying to keep the name of MERS out of the names of cases more than anything else. If, as in Silverberg , it was the MERS involvement in the first place that made the mortgage unforeclosable, the courts may well find the MERS taint to be incurable. The question to be presented is simply this: Once a mortgage is impaired by having its ownership separated from the ownership of the note, can that tear in title be repaired by uniting the ownership of the two documents?

In the months leading up to the amendment, MERS had already begun taking steps to withdraw from the foreclosure process. MERS rapidly began to assign deeds of trust to banks that service loans or trustees that oversee mortgage pools. It is likely that some of this change can be attributed to the fact that Fannie Mae, Freddie Mac, and other large lenders and loan servicers, such as JP Morgan Chase, had already ceased foreclosing in MERS’s name.

The MERS rule changes should successfully remove MERS from the courtroom. However, MERS will not completely disappear from the foreclosure process. MERS will continue to assign the necessary mortgage documents to the various loan servicers and foreclosing parties.

Pending and Proposed Legislation.

While the courts have not had major pronouncements after Silverberg , State legislatures are also examining the issues it raises. As the various statehouses across the nation see domination by the left and by the right, we can expect red state legislatures to step in, like Minnesota to create legal doctrines shoring up MERS mortgages and blue state legislatures like New York to codify the holdings in cases like Silverberg . This is precisely where the problems of Scylla and Charibdis lay.

New York, for example, is considering legislation that would go beyond Silverberg and make a homeowner’s objection to MERS’s involvement in the mortgage transaction an issue that the homeowner can raise far later than the normal deadlines in New York litigation. Some observers regard this legislation with considerable trepidation as it may have the effect of requiring a second suit after the foreclosure action. Moreover, and perhaps an even greater concern, is that the legislation, and its other lender-unfriendly provisions, may scare away lenders from offering mortgage financing on New York properties.

We hear alarm bells on both sides of the aisle: those who fear the economic devastation that could ensue from mass foreclosures and those who fear the economic devastation that could ensue from shutting down the mortgage financing industry. The likely result is that as state legislatures are left free to forge their own solutions, precisely four categories of those solutions emerge: (1) doing nothing and letting the common law sort things out; (2) reinvigorating the procedures in favor of plaintiffs in foreclosure actions; (3) strengthening the defenses to foreclosure actions; (4) trading off new plaintiff strengths for newly strengthened defenses.

The two theories being specifically (1) classic mortgages; and (2) deeds of trust. to such a vast array of different variations on these theories, that practice in one state may ill prepare lawyers for what they can expect to encounter in others. This will lead to multiplied costs to lenders who will need to have individual experts in each jurisdiction where they do business and, even without other factors, will contribute to a greater cost of credit to consumers. Clearly this is a result that benefits no one.

In analyzing any proposed legislation, we must realize that there are two broad categories of financing documents they address: documents issued prior to the passage of the legislation and those entered afterwards. As to the former, there can be constitutional constraints on how far the legislation can go. As to the latter, constraints will come from the marketplace as no State dares to pass legislation that is so lender unfriendly as effectively to require all land purchases in the State to be on a cash only basis.

We note, however, that many recording offices nationwide were under the classical system as much as two years behind in their classical method recording. In order to sustain the kind of vibrant mortgage market there was during the housing boom, classical recording methods would simply have to speed up to carry the load. Even the MERS advantage of making a mortgage a freely transferable security for investors can remain in place, provided only that the mortgage or deed in trust always be physically conveyed along with the underlying note in each such transfer.

Federal Courts.

A bank only has to have one sister bank of diverse citizenship in order to qualify for diversity of citizenship. One bank can handle 49 states and the other bank can handle the single state of which the first bank is a citizen.

An Outdated System.

No one can seriously dispute that the land title recording system designed in the 1600s is now hopelessly behind the needs of the brisk hour-by-hour business of the 21 st century. The system is, by law, paper-based across the nation. Even the electronic records are principally photographs of pieces of paper. While optical character recognition technology—a computer reading a document and recognizing the contents as meaningful text in a specific language—has come an amazingly long way since the last quarter of the 20 th century, handwritten notes on real estate transactions remain completely indecipherable to computers. Therefore, as long as there are any handwritten notations on real estate records (other than the signature of the grantor and notary), the system remains essentially locked into paper and photographs of paper.

And so long as the system is paper-based, electronic indexing would be limited to what the recording clerk sees or believes he or she sees printed on the document. The all-important description, being as it is heavily based on numbers, will continue, at least to some extent, to rely on the accuracy of a clerk transcribing those numbers. Thus, any contemplated upgrade of the system to 21 st century modernity would have to require, at a minimum, that the documents be presented to the recording office both as photographs of paper and as textual electronic files setting forth the contents of the documents as plain text that any computerized word processor could read.

Although not strictly a “photograph” of paper, we include within the scope of that phrase “pdf” files that are image based rather than text based. Although a 22nd century system might be content to manipulate images, modern day computers have simply not come that far yet. We are therefore unprepared to endorse that radical a move in the short term.

Tanya D. Marsh, Foreclosures and the Failure of the American Land Title Recording System , http://ssrn.com/abstract=1737857 .

Title records must once again become transparent. MERS creates an entry in the title records that is essentially a place holder and gives the researcher no clue as to who the real parties in interest are and therefore no one to contact with any problems or concerns.

The public has to be able to research title chains without having to pay some private company for its own proprietary records.

Truly modern systems would assign some kind of numerical identification tag to every square inch of the earth’s surface, including three dimensional cubic inches when necessitated by condominium developments and other vertical conveyancing schemes. However, this article describes only the criteria such systems would need to meet, not how to meet them.

Creating Modern Systems.

While beyond the scope of this article, it is worth observing that the current lax laws regarding notaries are themselves hopeless outdated and open invitations to fraud.

See, Bailey and Halpern Weinstein, The Race to Erase Recording Mistakes , NYLJ 4/13/11.

Private Industry Indexing

It is a political, not a legal decision to decide whether policy should or should not encourage mortgages being freely swapped around like stocks and bonds. However, in doing so, the state would have to consider the simple fact that institutional lenders are not the only ones to give mortgages. Folks selling their homes to those who cannot or will not get institutional financing also often take back mortgages. Any new law would also have to accommodate their needs. Even without new legislation, title companies can inform the purchaser’s attorney that if MERS is involved, the mortgage will be excepted from the title insurance policy. Purchasers’ attorneys would have to make sure that the contract of sale protects the purchaser against the consequences of such a refusal.

At the dawn of the 1980s, computers came in two categories: department store sized behemoths suited only for governmental and large corporate use and toys for hobbyists. Into this world quietly slipped the personal computer with its revolutionary idea of “open architecture,” meaning that not only were the thousands of lines of computer code that operated these machines written in a way that any competent computer programmer could read them, but they were so written than any competent computer programmer could extend them and make the machine do things the original designer had never dreamed of. Most market analysts credit “open architecture” with the explosive growth of PCs, now numbering some one billion in the world at large. By contrast, our current land records are essentially a closed system. Title companies have invested millions of dollars into reading these documents and figuring out what they mean for title in this State. But with the kind of recording system we described above, all of the data would be instantly open architecture. Title companies could make untold billions of dollars by simply designing computer programs that would log on to the publicly published digital land records, read them, and index them in any variety of creative new ways that could, in effect, produce a rudimentary title report in a matter of seconds.

There are strong arguments to make these fraud prevention devices publicly in accessible as public accessibility could have these devices foster fraud instead of preventing it.

Such an enhanced recording system could also handle the recording of promissory notes along with their mortgages, incentivized by a statutory rebuttable presumption that the owner stated on the recording is the current owner unless there is a recorded assignment of the note enjoying the same presumption. Logically, one would prepare any such assignment so as to assign both the note and the mortgage. That kind of recorded note system with ACRIS style indexing and access would make MERS—created chiefly for achieving speed—hopelessly obsolete and provide both lenders and the public with real value for their recording fees pouring once again into government coffers.

Conclusion.

Both mortgage recording and foreclosure systems across America are currently broken. Fixing the latter inevitably requires fixing the former. Clearly no federal fix is in the offing, but inspired leadership in state capitals can go a long way, if not in curing the consequences of not having fixed the systems sooner, at least in erecting a system that will sustain commerce and secure titles in the future.

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Figure invites lenders to use its DART system, a competitor of MERS

umbrella company for Figure Lending LLC , is opening the door for retail and wholesale lenders to begin using its DART system, a lien and eNote registry service, it announced Thursday. 

owned by ICE Mortgage Technology .

DART, or Digital Asset Registration Technologies, can be used to originate, pledge and sell HELOC loans, Figure said. The company promised other lending products will soon be available to partners.

Synergy One Lending is the first retail lender to jump on board and register loans using this technology, Figure said.

"Offering DART to our partners represents a transformative opportunity in the mortgage industry, helping to usher in an era of digitization and expedited transactional processing," said Jackie Frommer, president of Figure Technology Solutions, in a press release Thursday. "We believe that expanding the use of DART technology through our partners will not only increase safeguards and transparency, but also foster a faster and more efficient process that benefits all stakeholders."

used the DART system to register its own loans and then sold them to asset management giant Apollo through the Provenance Blockchain marketplace, a public blockchain that Figure helped create.

"Blockchain can provide enhanced protections and transparency in the ownership process for consumers and real-time settlement for investors, replacing trust with truth to create a faster, more efficient process for everyone," a Figure executive said at the time commenting on the transaction.

pushing to go public .

It has submitted a "draft registration statement on Form S-1 with the U.S. Securities and Exchange Commission (the "SEC"), relating to the proposed initial public offering of its equity securities," the company announced March 27. This form is required for registering companies that want to be listed on a national exchange.

Thus far, no determination has been made regarding the number of shares to be offered and the price range for the IPO. The listing is subject to market conditions as well as the completion of the SEC's review process, the company said.

Figure Technologies announced it was shifting its lending arm under a stand-alone company, which would function independently just one week prior.

Companies tapped to take FTS public include Goldman Sachs Group Inc., JPMorgan Chase & Co. and Jefferies Financial Group Inc, a Bloomberg report pointed out. Valuation of the company will likely range between $2 billion to $3 billion.

Home loan originations were tepid in the first quarter, but higher margins helped large depositories bolster income even when the drop was particularly steep.

Lumber prices climbed higher for the first time since July, but prospects for single-family construction to grow look promising based on early-year data.

A new Federal Reserve analysis finds rising debt-to-income and loan-to-value ratios over the past two years, while credit scores largely remained the same.

A doctrine giving some executives an extra layer of protection from depositions didn't apply amid conflicting testimony about the leader's actions, a magistrate ruled.

His last day at Rocket will be on April 19, and the company said it is "well into its search" for its next technology leader.

These are the best of the best, the nation's 50 most productive mortgage originators by dollar volume.