O’BRIEN CALLS ON MERS TO COME CLEAN AND PAY UP: SAYS ESSEX COUNTY OWED $22 MILLION DOLLARS
Essex South Register of Deeds John O’Brien announced today that he will be seeking over $22 million dollars from the Mortgage Electronic Registration System, “MERS” which represents several major banking conglomerates. O’Brien bases the $22M number on the fact that the Salem registry has recorded over 148,663 MERS mortgages since 1998. After a careful review of a number of these mortgages O’Brien said it became very clear to him that MERS had assigned mortgages to other entities at least twice without paying a recording fee. Based on this information the taxpayers have been defrauded out of $22,299,450 in Southern Essex County alone. It is quite possible that in some cases they may have assigned the notes more than twice resulting in even greater loss of revenue. O’Brien called MERS “one of the greediest schemes ever perpetrated on the American people. They have compromised the integrity of the public land recordation system and in doing so, have wreaked havoc on our economy”.
Last week MERS announced a major policy change conceding that assignments should be recorded in the various Registries across the country and “assignments out of MERS’s name should be recorded in the county land records, even if the state law does not require such a recording.” In addition MERS instructed its members to “not foreclose in MERS name”. O’Brien further states “MERS has now finally acknowledged that their business model was flawed, and they didn’t adhere to the legal requirement that all assignments of a mortgage must be recorded at the local Registry of Deeds.” “If they had followed the law the public would know who was buying and selling their mortgage, and it would have been an open, honest and transparent process. The fact that they deliberately chose to create a for-profit private cyber Registry of Deeds whose only purpose was to avoid paying the same fees as everyone else and keeping the public in the dark as to who was the rightful owner of the mortgage clearly demonstrates to me that this was a scheme of epic proportions.” “When Wall Street and these major lenders joined together in creating MERS, they plunged us into a housing nightmare with little or no regard for their actions. It’s obvious that their only motivation was to manufacture huge profits off the backs of homeowners and taxpayers. They should all be ashamed of themselves and step up to the plate and do the honorable thing and make the taxpayers’ whole,” O’Brien said.
The Essex South Registry of Deeds is one of 21 Registries in Massachusetts which have recorded MERS mortgages .O’Brien estimates that based on his conservative estimate of two assignments per mortgage the Commonwealth may be owed statewide upwards of $200 million dollars in lost recording fees. Nationwide, the amount of revenue lost could be in the billions. O’Brien is calling on MERS to come clean and inform the registers of deeds across the country as to the number of times they assigned mortgages to other entities. Only then will we get a true picture of the economic impact that this fraud has had on our country.
Posted via email from Title Insurance Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said. U.S. Bankruptcy Judge Robert E. Grossman in Central Islip, New York, in a decision he said he knew would have a “significant impact,” wrote that the membership rules of the company’s Mortgage Electronic Registration Systems, or MERS, don’t make it an agent of the banks that own the mortgages. “MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law,” Grossman wrote in a Feb. 10 opinion. “MERS did not have authority, as ‘nominee’ or agent, to assign the mortgage absent a showing that it was given specific written directions by its principal.” Merscorp was created in 1995 to improve servicing after county offices couldn’t deal with the flood of mortgage transfers, Karmela Lejarde, a spokeswoman for MERS, said in an interview last year. The company tracks servicing rights and ownership interests in mortgage loans on its electronic registry, allowing banks to buy and sell the loans without having to record the transfer with the county. It played a major role in Wall Street’s ability to quickly bundle mortgages together in securitized trusts. MERS was still reviewing Grossman’s decision and didn’t have an immediate comment, Lejarde said in an e-mail Feb. 11. Lejarde didn’t immediately respond to an e-mail seeking comment today. Proper Status “‘Don’t come around here no more,’ is basically the message to MERS,” said April Charney, a senior attorney with Jacksonville Area Legal Aid in Jacksonville, Florida. “The judge basically deconstructed MERS and said there’s no possible way in any case you can come in and show you have this appropriate proper status to transfer the note.” “MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage-recording process,” Grossman wrote. “The court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.” In the case Grossman ruled on, Credit Suisse Group AG’s Select Portfolio Servicing, a mortgage servicer, sought to bypass the automatic shield against legal claims triggered by Ferrel L. Agard’s filing for personal bankruptcy in September. Select Portfolio wanted permission to foreclose on Agard’s home in Westbury, New York, on behalf of U.S. Bancorp’s U.S. Bank unit, the trustee for the mortgage-backed trust the home loan was in. The house is worth about $350,000 and the mortgage amount was $536,921, according to the decision. Grossman ruled in favor of Select Portfolio because he couldn’t overrule a November 2008 foreclosure judgment the servicer won in state court, he said. Without that state-court ruling, Select Portfolio wouldn’t have had the right to bring its motion, Grossman said. He then addressed whether a mortgage transfer by MERS is valid, because “MERS’s role in the ownership and transfer of real-property notes and mortgages is at issue in dozens of cases before this court,” including those where “there have been no prior dispositive state-court decisions,” he wrote. Select Portfolio argued in part that MERS’s February 2008 assignment of the mortgage to U.S. Bank was valid because Agard agreed that MERS would hold title to it for the original lender, Bank of America Corp.’s First Franklin, and for whichever banks it was further assigned to. First Franklin transferred the promissory note the mortgage secured to Lehman Brothers Holdings Inc.’s Aurora Bank and Aurora to U.S. Bank, according to the decision. “An adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” Grossman wrote. “It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices.” MERS intervened in the case and argued that Agard’s mortgage, the terms of its membership agreement and New York state law gave it the authority to assign the mortgage. MERS says it holds title to mortgages for its members as both “nominee” and “mortgagee of record.” Grossman said Select Portfolio had to show that U.S. Bank owned both the note and the mortgage, and there was no evidence that it held the note. The judge disagreed with Select Portfolio’s argument that U.S. Bank held the note because the note “follows” the mortgage, which it said U.S. Bank owned. “By MERS’s own account, the note in this case was transferred among its members, while the mortgage remained in MERS’s name,” Grossman wrote. “MERS admits that the very foundation of its business model as described herein requires that the note and mortgage travel on divergent paths.” The judge said that the membership agreement wasn’t enough to assign the mortgage and that to do so the lender would have to give power of attorney or similar authority to MERS. MERS’s membership rules don’t create “an agency or nominee relationship” and don’t clearly grant MERS authority to take any action with respect to mortgages, including transferring them, Grossman wrote. Because the interests at issue concern “real property” — land and buildings — under state law, any transfer has to be in writing, which isn’t done under the MERS system, he said. “Without more, this court finds that MERS’s ‘nominee’ status and the rights bestowed upon MERS within the mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage,” the judge wrote. “MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.” Grossman said parties coming to him to seek to lift the automatic ban on legal claims in cases involving MERS will have to show they own both the mortgage and the note. Posted via email from Title Insurance Two cases against real estate agents recently caught my attention. The cases, discussed below, stress the importance of disclosing material facts, and agents hoping to avoid litigation here should take a few moments to see what happened to their colleagues in California and Washington. Here’s what happened. Case 1 – The House that Couldn’t Close Agent Sieglinde Summer listed a home for sale in Huntington Beach, California. The asking price ranged from $749,000 to $799,000, and Summer advertised that the seller was very motivated. Phil and Jeanille Holmes saw the listing and became interested. After Summer showed them the house, the Holmeses offered to purchase it for $700,000, free and clear of all monetary liens and encumbrances, other than the loan they intended to obtain. The seller, through Summer, countered at $749,000, which the Holmeses accepted. They then sold their existing home in order to complete the purchase on the seller’s house. Unfortunately, they learned too late that the seller’s home was encumbered by $1,141,000 in loans. The Holmeses claimed these loans made it impossible for the property to close at the agreed upon price, since the lenders would be highly unlikely to accept such a reduced payoff. The Holmeses filed suit against Summer and his firm, claiming that Summer, as listing agent, owed them a duty of disclosure about the existing loans. The trial court disagreed and dismissed the case prior to trial. Recently, the California Court of Appeals reversed that decision. The court said that the law is well established that when agents know of facts that affect the value or desirability of property, and knows that such facts are not known or reasonably discoverable by the buyer, the facts must be disclosed. Summer contended that matters pertaining to financing were separate from matters affecting the value or desirability of the home, but the court rejected this argument. The purpose of the rule, after all, is to permit buyers to make informed decisions about whether to purchase homes. Requiring listing agents to disclose that a sale is at a high risk of failure furthers this purpose. Therefore, Summer and his firm could be liable, and the case will proceed to trial. Case 2 – The Bad Recommendation Mark and Carol DeCoursey wanted to move to Washington state, and with the help of agent Paul Stickney, they bought a home there. They also wanted to make renovations to the home, so they turned to their agent for recommendations. Stickney recommended Home Improvement Help, Inc. (HIH). On such recommendation, the DeCourseys hired HIH to do the work. Unfortunately, HIH’s finished product had a number of structural and other safety issues, which the DeCourseys anticipated would cost $525,289.78 to repair. Unbeknownst to the DeCourseys, Stickney and HIH’s owner formed a real estate joint venture eight years earlier and incurred approximately $400,000 in debt together. According to HIH’s corporate documents, Stickney was a twenty-percent shareholder in the company. The evidence at trial showed that Stickney gave a cell phone to HIH’s owner and allowed HIH to store documents on his computer. In addition to his recommendation to the DeCourseys, Stickney had recommended HIH to at least thirty of his other clients in the preceding five years. Stickney, of course, disclosed none of this. In an effort to recover the costs of repairing the home, the DeCourseys filed suit against Stickney and the firm at which he worked. The jury found that Stickney had a conflict of interest that he did not disclose to the De- Courseys and awarded them $522,200 in damages. The trial judge also awarded the DeCourseys $508,427 in legal fees and court costs. The brokerage was liable for these amounts, too. Lessons Learned Both results should not be surprising. When an agent knows that a third party, such as a lender, governmental authority, or board of directors, must approve the terms of a deal before it can close, that must be disclosed to the buyer. As the court correctly pointed out, such a duty arises because of an agent’s obligation to disclose material facts and to treat all parties to the transaction fairly. As for making recommendations, agents are wise to disclose all past and present dealings, personal or professional, that the agent has with the person or company being recommended. Even if the agent is simply passing along a list of potential contractors or inspectors, such connections should be disclosed. What is troubling, however, is that Stickney claimed he did not believe he had a conflict of interest. This suggests he considered the issue at some point and ultimately concluded no conflict existed. In doing so, he violated a significant rule of real estate brokerage: when in doubt, disclose. In other words, if one has to consider whether to disclose a connection with a contractor or a potential obstacle to closing, the answer is clear: yes. Doing otherwise might just cost you a million dollars. Posted via email from Title Insurance
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