ST. PAUL, Minn. - Minnesota's two largest counties have joined together to file a lawsuit against the Mortgage Electronic Registration Service, Inc. (MERS) on behalf of taxpayers and all other counties in Minnesota, alleging that MERS has likely deprived states and counties of somewhere around $7.2 billion nationally.
Established in 1995 by many of the nation's largest mortgage lending institutions, the plaintiffs say MERS was formed to create a semi-private system for MERS members to quickly and cheaply assign their mortgages to one another.
Unfortunately, says the office of Ramsey County Attorney John Choi, this came at the expense of the integrity of our public land records and of county taxpayers in lost recording fees.
The Complaint filed Friday in Ramsey County Court seeks to require MERS and its members to follow Minnesota law and properly record each mortgage assignment with the county recorder/registrar of titles and to recover the recording fees MERS and its members deliberately avoided paying by refusing to record these assignments.
"We are taking action today to re-claim and maintain the public's right to property records," said Choi in a written statement. "Our counties and taxpayers have suffered significant financial loss due to a back-door scheme to privatize our public recording system, and we intend to recover that loss."
"The public never consented to a system in which some pay recording fees while others do not, and where some property record information is transparently maintained in the County Recorder's office while other data is in a privately run database," said Hennepin County Attorney Mike Freeman.
Plaintiffs in the lawsuit say the scope of MERS' involvement in the U.S. mortgage industry is massive. In the last fifteen years, MERS and its members have registered approximately 60% of all mortgages in the United States. In 2009, MERS President R.K. Arnold testified to the U.S. Senate Committee on Banking, Housing, and Urban Affairs that, assuming each mortgage has been resold and recorded just once, MERS would have saved the industry $2.4 billion in recording expenses.
In practice, however, most MERS mortgages are not assigned just once but up to three times during the securitization process. According to calculations done by Ramsey and Hennepin Counties, MERS hasdeprived states and counties ofan estimated $7.2 billion nationally.
The lawsuit says by failing to record all mortgage assignments, MERS members and other mortgage industry players violated Minnesota recording statutes, deliberately failing to pay county recording fees. Circumvention of the county recording process resulted in
Plaintiffs alsomaintain that MERS and its members have made it difficult if not impossible to identity the lender who has foreclosed on a property and who is legally responsible for its maintenance. Such improper practices have caused a domino effect that has left many homes vacant, unattended and in disrepair, which in turn negatively affects property values of surrounding homes.