How Mortgage Electronic Registartion Systems (MERS) Complicates Foreclosure

In all the years I have been doing title research and helping people find out what is going on with their mortgage so they can avoid foreclosure, one name keeps popping up again and again. That name is MERS, short for the Mortgage Electronic Registration System. What this company is and what it does is a bit unclear, but many homeowners have had this company attached to their mortgage somewhere along the line.

MERS functions as a clearinghouse and computer registry that was established to track ownership changes in mortgages. Originally, it was designed to make the assignment and transfer of ownership of mortgages easier, especially in bulk transactions. MERS can be the assignee of record with counties, and any future transfers are only tracked in the MERS database.

However, homeowners who have a loan that is assigned to MERS will find it difficult to determine which lender actually owns their mortgage. MERS does not give borrowers the names of the true owner of a note, and will only disclose the servicing company taking care of the mortgage. From the servicer they can learn which company or institutions owns the mortgage, though.

The status of the Mortgage Electronic Registration System, though, is somewhat unclear when it comes to foreclosure actions. At least one court has held that MERS is not a real party in interest because it has no legal or beneficial interest in the mortgage or note. It is the mortgagee, but not the holder of the loan. MERS is also not a trustee, and is considered only a nominee for the holder of the mortgage.

However, MERS claims that it has the right to foreclose on mortgages in its system under its own name, due to its status as a nominee. On the other hand, some courts have decided that, since MERS does not actually own the note

Homeowners attempting to defend against a foreclosure lawsuit brought by MERS in its own name may have the best chance of success in states where the holder of the mortgage is an indispensable party to the lawsuit. Since MERS does not hold the actual paperwork, it can not show that it owns the mortgage. The entire prospect of a company that does not own a mortgage suing for foreclosure may be an indication of a wrongful foreclosure, as well.

In nonjudicial foreclosure states, MERS may also have trouble enforcing a power of sale clause in a deed of trust. It does not actually own the deed of trust, so may not have the authority to begin foreclosure proceedings against borrowers. Especially since the company claims not to have any beneficial interest in the debt, there may be no ability to start foreclosure on a property.

As more homeowners find themselves in foreclosure, more cases will be defended in court, and the Mortgage Electronic Registration System may be forced to define what its actual status and interests are in a note. Unfortunately, the company's status is quite a bit unclear right now, and even in foreclosure notices, MERS defines itself differently from sentence to sentence.