Systemic foreclosure fraud was rampant in the years leading up to the 2008
financial crisis, throwing into question our nation’s entire property
records system and causing millions of people to wrongfully lose their homes.
A 2009 ruling out of the Kansas Supreme Court is an examination of the
many dubious practices that led to this disaster. The decision highlights
a critical yet obscure cog in our nation’s lending machinery: the
Mortgage Electronic Registration System, a privately owned loan tracking
service created in 1997 to improve efficiency and profits among lenders.
MERS also eliminated the need to record changes in property ownership
in local land records – one of the chief reasons behind the foreclosure crisis.
To put this into context, consider that for hundreds of years, changes
in property ownership have been recorded and filed to ensure a complete
history of ownership of a piece of property. Part of the reason for this
was to ensure that the priority of multiple liens placed on a property
were accurate. During the lending spree, however, home loans changed ownership
constantly as mortgages were sold to other companies – most often
without ever informing the homeowner. Since this happened so quickly,
frequently, and without ever being kept track of on paper, it became nearly
impossible to prove who was the legitimate owner of a piece of property
in order to foreclose upon it.
While it saved Wall Street over $1 billion in costs using MERS, millions
of people lost their homes in unlawful foreclosures. MERS flooded the
courts with foreclosure lawsuits that ended up being extremely confusing.
Lawyers representing struggling borrowers quickly realized how little
sense it made for an electronic registry with no ownership claims had
the right to turn people out of their homes.
While MERS still prevailed in court during the beginning, they soon started
losing cases. The Kansas Supreme Court ruling was one of the first instances
where MERS’s business model was challenged. Although it applies
only to one specific case, it is an encouragement to other judges to question
its validity and standing in certain cases. According to Christopher L.
Peterson, a law professor at the University of Utah, “If courts
are willing to say MERS doesn’t have any ownership interest in mortgage
loans, that may eventually call into question the priority of liens recorded
in MERS’s name, and there are millions and millions of them.”
For more on the foreclosure crisis, check out our blogs: