County could join suit against mortgage registration giant MERS

Some folks discuss the housing industry crash related to today's financial woes in the past tense, but a group of registrars across the state claim ongoing widespread abuse of foreclosures nationwide.

By: Benjamin J. Gohs, Associate Editor
(231) 222-2119

Some folks discuss the housing industry crash related to today’s financial woes in the past tense, but a group of registrars across the state claim ongoing widespread abuse of foreclosures nationwide.

And, according to local officials, Charlevoix County will likely join a multifaceted class action lawsuit against the Mortgage Electronic Registration Systems (MERS) company.

“They ripped off our county,” said Charlevoix County Register of Deeds Charlene Novotny. “It’s the biggest shyster I’ve seen since I’ve worked here and the government of the United States of America went along with it.”

According to Novotny, she has turned over many dozens of files she claims bears the signature of Linda Green over to the Michigan Attorney General’s office and the Charlevoix County Sheriff. Green is the mailroom clerk made famous when it was discovered her name along with the title of “Bank Vice-president” appeared on hundreds of thousands of fraudulent foreclosure documents across the United States over the last few years.

The illegal act of mass signing of foreclosure documents, also known as “robo-signing,” continues to plague register of deeds offices nationwide with the Emmet County registrar’s office recently putting out a warning to be on the lookout for such documents.

“Our office recently uncovered evidence of potential fraud and improperly filed property documents related to the national scandal surrounding so called “robo-signing” by companies such as MERS and DOCx,” stated Emmet County Register of Deeds Michele E. Stine. “The Register of Deeds is limited under the law to being the recorder and holder of these records. Our office has no legal authority to investigate or make judgments on any claims on the legality or authenticity of property documents. Therefore, we have turned these suspicious records over to the Michigan Attorney General, Emmet County Prosecutor and Sheriff, for investigation.”

The Michigan Court of Appeals had ruled earlier this year that MERS could not initiate foreclosure proceedings, but the Michigan Supreme Court ruled on Nov. 16, that MERS indeed has standing to foreclose on homeowners.

In the case of Residential Funding Corp v Saurman/Bank of New York Trust Company v Messner, the court determined, in a 4-3 vote, where MERS is an owner of interest in the debt as a record holder of mortgages allows MERS to foreclose by advertisement.

The lawsuit against MERS and federal mortgagers Fannie Mae and Freddie Mac is spearheaded by the Ingham County Register of Deeds office in Lansing.

“We’re suing them for not paying millions of dollars in transfer taxes in Ingham County – it’s probably in the tens of millions statewide,” said Ingham County Register of Deeds Curtis Hertel Jr.

According to Hertel, when most people buy a house it is immediately sold to a larger bank which then bundles houses and sells them as securities. There were so many houses being bought and sold that MERS was created to track the transactions. “I would call it a shadow organization – it’s not accessible to the government or citizens and it avoids fees,” he said. “And then at some point during the housing crisis they decided they would start they would start acting like a bank and actually foreclosed on citizens.”

But, Hertel added, “The problem is they have 35 million mortgages and 65 employees – how does one person keep track of over 500,000 mortgages? When they started foreclosing they hired 2,000 foreclosure firms around the country and made those people vice-presidents so they had the right to transfer property.”

This, Hertel said, is what the court of appeals ruled was illegal, but has since been reversed by the supreme court.

MERS media spokesman Karmela Lerjarde said the number of loans MERS has registered is closer to 30 million and has regional offices in Alabama, Massachusetts, Virginia, California and Illinois.

Hertel said some of the problems with the court’s decision to allow MERS to foreclose on people is that there is no governing body, no public official not even the local police, who look over foreclosure documents to ensure they are legitimate.

“There is a lot of confusion in the process, and a lot of people who are technically in default but who are working on loan modifications with their bank who have lost their homes because MERS foreclosed on them,” he said. “The other thing is MERS is supposed to keep track of documents but they either have not created them or they were lost or stolen and there are cases where they actually faked signatures on documents to speed up the foreclosure process.”

MERS was incorporated in 1995 and began registering and tracking mortgage loans in 1997. Since then it has registered more than 70 million loans.

MERS becomes a mortgagee in two ways.

During closing the borrower and lender both agree to standard language in the security instrument making MERS the original mortgagee, with the right to act on behalf of the lender or a lender can assign the mortgage to MERS following closing.

Hertel added, “There are thousands of documents in Michigan alone that bear Linda Green’s forged signature.”

“We need the Michigan legislature to look at the system and change the foreclosure process,” Hertel said. “It would be more expensive to do foreclosures by judiciary but in the long run it would save money.”

He added, “For every house that goes into foreclosure on your block, it lowers your home’s value.”

Hertel’s case against Freddie Mac and Fannie Mae is currently in federal court; the state case against MERS was filed in the last couple weeks.

Michigan 37th District Senator Howard Walker said this issue will best be decided by the courts.

“It may be easier to start a foreclosure proceeding through advertisement, but we do have a lot of consumer protections in place,” he said. “I don’t have a position on it.”

District 1 Congressman from Michigan Dan Benishek’s press secretary Kyle Bonini gave the following statement on the matter: “Congressman Benishek understands the concerns of local governments and the anxiety of Michigan families facing foreclosure and dealing with an entity such as MERS in court without having had any prior dealings. Dr. Benishek sees reviving the housing industry as one of his top priorities, as he believes this sector will be key to economic recovery. At the same time, the Congressman believes MERS’ business practice is of national concern and will continue to work with his colleagues in the House Financial Services Committee to ensure a growing and prosperous housing market.”

In a statement from MERSCORP Vice-President of Corporate Communications Janis L. Smith, she states MERS will defend itself against the allegations.

“The case lacks merit. MERS’ business model adheres to laws, county statutes and mortgage regulations, and has been upheld by federal and state courts in Michigan and around the country,” Smith stated. “The MERS System has been a legal and efficient way for the mortgage industry to register and track loan servicing and beneficial ownership interests for over a decade, but no property transfers ever take place on the system.”

“We have over a hundred open cases of foreclosure fraud against banks – some of them people were working on mortgage modification and had the rug pulled out from under them,” Hertel said. “I had someone who made all their payments in the modification and still were foreclosed on. We finally got them to cancel the eviction and get the house back but not before the sheriff sale happened and his credit has been destroyed and he had to explain to his wife and kids they were losing their house.”

He added, “This is the type of thing we’re seeing across the state. That is the extreme, but if it can happen then it means we have a broken system.”

Hertel said the push to foreclose is not incidental.

“You would think giving people modifications seems reasonable but under the current bailout, loans insured by Frannie and Freddie get paid in full for default,” Hertel said. “A level of foreclosure is set for each bank and banks can be punished for moving too slow.”

He added, “They want foreclosures to happen because they make more money – it’s a messy situation.”

Some register of deeds offices are beginning to collect the transfer tax.

Maura Snabes, Underwriting Counsel and Vice president of Corporate Settlement Solutions of Charlevoix (formerly Corporate Title) said the transfer tax issue varies from county to county.

“We’ve been dealing with this issue with Freddie and Fannie – they have been stating they are exempt on conveyances, but something has been handed down that says ‘no’ they are not exempt from taxes in that manner,” she said. “I think it may be declared that MERS also falls under that guideline.”

On Oct. 4, the Michigan Department of Treasury issued an opinion to the Emmet Country Treasurer stating that Freddie and Fannie must pay state and county transfer taxes since they are excise taxes and not taxes on real property.

The tax works out to $110 of county transfer tax and $750 of state transfer tax per $100,000 of property sold.

Snabes said as a precaution her company is checking with individual register of deeds offices to see if they are mandating MERS pay the transfer tax before closing.

While Novotny is still calculating the total transfer taxes allegedly owed to the state and county for 2009 and 2010, she has arrived at figures for some transactions.

2009 state transfer tax would be $18,818.75 and county transfer tax would be $2,719.95 she claims MERS owes.

2010 taxes, if it is determined MERS must pay, would be $29,943.45 for state and $5,561.55 for the county.

If you have been foreclosed upon or foreclosure looms over you, Hertel urges you to check your documents to ensure they are legal.

“I feel sorry for people who lost their homes, and some of them may have a chance to recover something if I could locate them and tell them,” Novotny said.

Novotny added that, while you have between six months and a year before foreclosure is finalized depending on the size of your property, if you move out of your home at any time during the foreclosure process the lender or MERS can file for abandonment of the property and sell the house in 30 days.

If you are unsure about your mortgage or suspect your foreclosure is being handled improperly, officials urge you to seek legal advice. The hotline for Legal Services of Northern Michigan is (888) 645-9993.

The Emmet County website has numerous informational links which may be of help:

MERS Fast Facts

What does “MERS as original mortgagee” mean to borrowers?

MERS’ role and rights are clearly spelled out in the contract between borrower and lender. When borrowers sign the mortgage security instrument at closing, they agree to standard language that grants and conveys legal title of the mortgage to MERS as mortgagee, giving the company the right to act on behalf of the current and subsequent owner of the loan.

Does MERS collect mortgage payments from borrowers?

MERS doesn’t handle mortgage servicing. The mortgage lender, or another mortgage servicing company, collects payments from borrowers and manages their loans. Borrowers who have questions about their loans, or who need help with foreclosure prevention, should contact the company they send their payments to—not MERS. In 2011,
all mortgage loans going to foreclosure are assigned and recorded in the servicer ’s name.

What does MERS do for lenders?

As the mortgagee of record, MERS provides service of process on legal documents and receives legal notices and other mail regarding the mortgaged properties. MERS sorts, scans and transmits documents electronically to the appropriate member for each loan. Because MERS is a common agent for its members, recording an assignment of the mortgage is not necessary when ownership of the promissory note or servicing rights transfer between members, eliminating work and cost. The MERS® System also provides information on undisclosed liens, which reduces fraud.

Does MERS have the documents for loans registered on the system?

MERS is not a document custodian and doesn’t hold promissory notes or mortgage documents on behalf of the lender, servicer or investor. MERS is not responsible for keeping mortgage records—the servicer maintains the legal system of record.

How does MERS benefit borrowers?

MERS as original mortgagee eliminates breaks in the chain of title, resulting in less work and lower fees paid by the lender—fees that would ultimately be passed down to the homeowner. MERS provides access to data on the MERS® System free of charge to homeowners, county officials, and regulatory officials (subject to privacy restrictions).

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