New York Attorney General Eric Schneiderman filed a lawsuit Friday against three of the nation’s biggest banks and Mortgage Electronic Registration Systems over allegedly fraudulent foreclosure actions.
In the complaint, Schneiderman said the creation of MERS led to a system that resulted in homeowners and public servants being unable to track their own mortgages. MERS, in response, said that is not operating outside the law and that pass judgement will exonerate the validity of the electonic registry’s actions.
The lawsuit alleges the system of recording mortgages electronically resulted “in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process.”
The New York lawsuit comes just days before a Monday deadline for a robo-signing settlement between state AGs and the top-five servicers worth roughly $25 billion. The suit does include MERS.
“MERS’ indiscriminate use of nonemployee certifying officers to execute vital legal documents has confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose,” the New York complaint said. “MERS certifying officers have regularly executed and submitted in court mortgage assignments and other legal documents on behalf of MERS without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel.”
The database, called the Mortgage Electronic Registration System or MERS, was created in the mid-1990s for tracking mortgage ownership. It is a collaboration of top mortgage servicers, mortgage insurers and Fannie Mae and Freddie Mac, the government entities that hold many of the country’s mortgages.
“The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse,” Mr. Schneiderman said.
“By creating this bizarre and complex end-around of the traditional public recording system,” Mr. Schneiderman’s lawsuit asserts, the banks saved $2 billion in recording fees.
More than 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system, rather than in local county clerks’ offices, according to the lawsuit.
The lawsuit asserts the database is inaccurate and seeks to stop the banks from filing foreclosure actions through MERS and executing false or defective mortgage assignments in New York foreclosure proceedings.
Mr. Schneiderman also is seeking all profits obtained through fraudulent and deceptive practices and other damages, including $5,000 for each violation of general business law.