November 28, 2011 from WFAE In the mid-'90s, the big banks set up the Mortgage Electronic Registration System, or MERS, to track mortgages as they're traded by investors in mortgage-backed securities. It's a system set up to let banks skip the process of paying recurring filing fees at county courthouses each time a mortgage was bought or sold. Now, many cash-strapped local governments, big and small, are filing lawsuits against MERS. Politicians contend their communities are owed millions of dollars.
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MELISSA BLOCK, HOST:
Mortgage Electronic Registration System, or MERS, may not be a household name, but perhaps it should be. If you've bought a house or refinanced in the last decade, there's a good chance you signed a document at closing that designates MERS as your new lender. Well, it's now the subject of controversy. Many local governments argue in lawsuits that MERS has enabled the mortgage industry to skip out on paying millions of dollars in recording fees.
Greg Collard, of member station WFAE in Charlotte, reports.
GREG COLLARD, BYLINE: In a simpler time, here's what happened after you bought a house with help from a bank. The mortgage, or deed of trust, would be filed at the county courthouse. So would all future transactions on that mortgage; if another bank bought the loan, for example. A fee was paid each time those transactions were documented at the courthouse. And part of the money went to local governments to help them pay for local services.
But that was before the big banks created MERS about 15 years ago, says Craig Watkins, the district attorney of Dallas County, Texas.
CRAIG WATKINS: MERS was created, basically, to avoid having to go through that cumbersome process of making a filing within the local county records, so they can quickly sell these mortgage-backed securities to the different entities.
COLLARD: These days, most of those transactions are tracked in a private MERS database instead of courthouses. Watkins estimates his county has lost up to $100 billion in recording fees. He filed a class-action lawsuit against MERS, and hopes to represent every other Texas county.
Similar lawsuits have also been filed in Florida, Delaware, Kentucky, Pennsylvania, Ohio and Oklahoma.
JANIS SMITH: They're the proverbial thorn in our side, if you will.
COLLARD: Janis Smith is a spokeswoman for MERS. Yes, the system has saved recording fees, she says, but only because MERS has eliminated the need to document every single transaction.
SMITH: So because MERS is the mortgagee, and the lien remains in MERS' name, there's no need for an assignment. So there's nothing to record.
COLLARD: All this might surprise you even if you bought a house or refinanced recently. You probably never heard of MERS. But almost two-thirds of all U.S. mortgages are registered with the private company. Remember that never-ending stack of papers at closing that you sign, date and initial?
SMITH: There's standard, clear language on page one, paragraph one, of the mortgage instrument that names MERS as mortgagee.
COLLARD: And that has led to a mess of the county's land records, says Christopher Peterson. He's a law professor at the University of Utah, and also a consultant in foreclosure cases against MERS.
CHRISTOPHER PETERSON: Now, the public record doesn't reveal who owns loans. Instead, it just says, you know, MERS is the owner. And the county recorders are recording documents that say MERS - over and over and over and over again.
COLLARD: That's certainly the case at the Register of Deeds Office in Cabarrus County. There are lots of big, heavy books that index property transactions dating back to 1792, but one volume easily stands out for its massive size.
LINDA MCABEE: It's just page, you know, after page.
COLLARD: Register of Deeds Linda McAbee flips through the index for every transaction MERS has filed at the courthouse over a five-year period. She has no way of knowing who bought and sold these loans because MERS doesn't update the public record. And McAbee says her county is losing money as a result.
MCABEE: For sure, we did lose some recording fees.
COLLARD: When the economy was strong, McAbee says her office received about $5 million in recording fees each year. Now, that's down to about $2 million. As the housing market continues to sputter, McAbee expects more local governments to take MERS to court to replace some of that lost money.
For NPR News, I'm Greg Collard in Charlotte.
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