County Clerks Challenge the MERS System

(Published in the Good Life Realty blog, December 10, 2011. Used with permission.)

Suppose you want to learn who owns a particular piece of real estate, and who else might have a claim on that property. County clerks have long maintained a set of records, including deeds and deeds of trust, showing who owns title to land and who holds liens on that land. Since the 1990’s, a private system known as the Mortgage Electronic Registration System (MERS) has tracked mortgage transfers electronically, taking over some of the roles traditionally performed by county clerks. MERS has come under criticism from local governments and real estate professionals, as recently reported in the Austin American Statesman. Critics contend that it deprives county clerks of filing fee revenue and exposes buyers and borrowers to increased risk of fraud. Supporters tout its efficiency and costs savings, as it streamlines the process of closing a loan by eliminating much of the physical paperwork.

Local governments make their own rules and procedures for recording real estate documents. Any exchange affecting title to real estate should be recorded with the clerk of the county where that property is located, with payment of a filing fee. As banks and lenders developed a national reach, compliance with multiple competing procedures became difficult. MERS developed in part to improve efficiency for mortgage lenders. The system assigns a unique Mortgage Identification Number (MIN) to a mortgage loan to aid in tracking it over its lifetime. It also assigns unique identifiers to lenders and loan servicers, known as a ServicerID, to allow homeowners to locate their loan servicer.

Implementation of MERS had the benefit of reducing costs for both lenders and borrowers, as the amount of paperwork declined significantly. At the same time, the removal of an actual, physical signature on a page may have opened the door to electronic fraud. A recent lawsuit by the Delaware Attorney General against MERS alleges a series of deceptive trade practices that fails to maintain accurate records of mortgage transfers, making it more difficult for homeowners to fight foreclosure. Several state supreme courts have ordered MERS to stop acting as an agent for lenders in foreclosure cases. District attorneys in Texas contend that the system of electronic transfers in MERS lead to an incomplete public record, putting homeowners and buyers at risk.

Local county clerks have stated that the amount mortgage transfer filings received in their office has dropped dramatically in recent years, according to the Statesman. Williamson County Clerk Nancy Rister, for example, estimates that 70,000 properties in the county are in the MERS system, and that filings of mortgage transfer in her office have dropped by more than 71 percent in the past seven years. This has led to a significant loss of revenue for county governments.

It is important to note that MERS does not affect the chain of title to property itself, only the ownership of the mortgages secured by property. The GoodLife Team’s lenders and title officers have not seen any problems caused by MERS in thousands of transactions and closings. The problems seem to arise after closing, when a mortgage begins to change hands among banks and loan servicers. MERS, by offering a database of mortgage transfers that owners can access, can help prevent fraud in some situations. By removing oversight of title records from county clerks, it can also lead to incomplete title records and the risk of incorrect or even wrongful foreclosure. The lawsuits recently filed by state and local governments will be interesting to watch.

© David C. Wells 2014