MERS Can’t Sue for Foreclosures

Posted on January 25, 2009. Filed under: Case Law, Foreclosure Defense, Mortgage Law | Tags: , , , , , |

Mortgage Electronic Registration Systems was operating in Florida like a fine-tuned machine until a Jacksonville Area Legal Aid attorney helped throw a wrench in the gears.

MERS serves as a registry for mortgage lenders. By pooling thousands of mortgages together in an electronic library of sorts, MERS makes it easier for lenders to trade mortgage notes on the open market. MERS also was streamlining the foreclosure process in Florida until a Pinellas Circuit Court judge found in September that MERS could not stand as plaintiff in foreclosure cases. That prompted MERS to suspend all foreclosure actions in Florida.

JALA consumer attorney April Charney’s memorandum to Pinellas County Judge Walt Logan helped produce that opinion. Charney, who represented one of 20 Pinellas defendents, argued that MERS couldn’t sue for foreclosures, because the registry didn’t hold the mortgage notes, which were still in the hands of the original lenders. That essentially made MERS a debt collector, she argued.

MERS is appealing some of the cases and substituting the lenders as plaintiff in others. But in the meantime, the registry has suspended its Florida foreclosures. That could have a significant dampening effect on the number of foreclosures in the state. Charney estimated that MERS was the plaintiff in about 20 percent (870 out of 4,047) of all foreclosures statewide.

“In my foreclosure cases, I just started seeing MERS everywhere,” said Charney. “I saw it as a serious threat to erode Florida’s homeownership base, particularly among those people who are on the margins of financial help. I wanted to stop MERS.”

There’s disagreement over whether Florida law requires a foreclosure plaintiff to posess the actual mortgage note. Charney argues yes, while attorneys for MERS contend that the registry can lawfully act as a paid representative of the lender.

In Charney’s memo to Judge Logan, she said that the paid relationship between MERS and the lenders makes the registry a debt collector when it pursues a foreclosure action. If that’s the case, then MERS should be registered as a debt collector, she said.

MERS’s entry into the foreclosure business is troubling, said Charney, because it adds another layer of separation between home buyers and their mortgage lenders. Lenders already securitize their mortgages to servicers so MERS often puts borrowers a third step away from their loan.

Before loans were bundled and sold in shares, lenders took time to work with borrowers who fall behind on payments, said Charney. Now, with shareholders expecting returns on their investments, the financial bottom line has taken priority. Mortgage servicers are less likely to tolerate underperforming loans, she said.

“When I was a kid, I used to ride my bike to the bank around the corner to drop off our mortgage payment,” she said. “We don’t have that connectivity any more.”


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