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MYTH: MERS signing officers lack authority to act on behalf of MERS Inc.
FACT: MERS Inc. is a Delaware corporation and its actions are governed by its bylaws and the Delaware General Corporation Law (DGCL). Under the DGCL, there is no requirement that an officer of a corporation be an employee of that corporation.58 In addition, under the DGCL, there is no requirement that individuals serving as officers of a corporation be employed or compensated by that corporation.
Under Delaware law, a corporation may by board resolution appoint officers to carry out the corporation's business.59 In addition, Section 142(a) of the DGCL provides that "any number of offices may be held by the same person unless the certificate of incorporation or bylaws otherwise provide."
Since MERS Inc. has no employees, a majority of the actions taken by MERS Inc. in its capacity as mortgagee under mortgages and/or deeds of trust are taken by designated officers commonly referred to as "certifying or signing officers." The signing officers are generally officers of MERS' members that are responsible for carrying out servicing functions on behalf of such MERS members.
The MERS Inc. signing officers are appointed pursuant to a corporate resolution, duly adopted pursuant to authority granted by the Board of Directors of MERS Inc. Pursuant to the corporate resolution, these signing officers are appointed as assistant secretaries, assistant vice presidents and vice presidents of MERS Inc. and their authority is limited to: (1) executing lien releases, (2) executing mortgage assignments, (3) executing foreclosure documents, (4) executing proofs of claims and other bankruptcy related documents (e.g., motions for relief of the automatic stay), (5) executing modification and subordination agreements needed for refinancing activities, (6) endorsing over checks made payable to MERS Inc. (in error) by borrowers, (7) taking such other actions and executing documents necessary to fulfill the MERS member's servicing duties, and (8) taking such ministerial actions and, in such ministerial capacity, executing and delivering all such instruments and documents as the officer(s) of MERS Inc. deem necessary or appropriate in order to effectuate fully the purpose of each and all of the foregoing powers, in each case only with respect to the loan owned by the related member.60 In order to be eligible for appointment as a signing officer of MERS Inc., a person must demonstrate a basic knowledge of the MERS® System and pass an annual certifying examination administered by MERSCORP Holdings.
We are not aware of any relevant case law that would suggest that the MERS Inc. business model of appointing signing officers is either inappropriate or illegal. In fact, several courts have upheld the MERS Inc. signing officer business model.61
The propriety of the MERS Inc. signing officer business model has also been upheld in an ethics opinion from the New York State Bar Association62 which found that no conflict of interest exists in violation of New York state bar professional conduct rules when an attorney serves as an officer of the mortgagee of record/assignor for the purpose of executing a mortgage assignment and also represents the assignee in the prosecution of the subsequent foreclosure action.
Courts have consistently upheld the authority of MERS Inc., in its capacity as mortgagee, to assign mortgages.63 When plaintiffs have challenged the authority of MERS Inc. signing officers to execute assignments in connection with foreclosure or bankruptcy proceedings, courts have consistently found that such plaintiffs lack standing to challenge such assignments because they are not parties thereto and are not the intended beneficiaries thereof.64 Significantly, such plaintiffs have failed to articulate any correlation between the alleged lack of authority and a resulting harm to the plaintiff occasioned thereby.
MYTH: The MERS® System creates a cloud on real estate titles.
FACT: The servicer (acting on behalf of the beneficial owner(s) of the note) is the entity responsible for initiating and completing foreclosure actions and, as such, the servicer (not MERS Inc.) is the entity that is responsible for assuring that mortgage assignments and mortgage notes are properly assigned to the real party in interest (i.e., the servicer or the note owner) prior to the commencement of foreclosure proceedings. MERS® System members have a substantial interest in providing accurate and current information because they rely on the MERS® System to obtain current information about note owners and servicers, as well as to obtain or receive legal notices served on MERS Inc. as mortgagee of record.65 Using MERS Inc. as the mortgagee of record actually reduces the possibility of missed or incorrect assignments that would create an unclear "chain of title" as to who is the actual mortgagee or beneficiary of the security instrument. When MERS Inc. serves as mortgagee, the recorded chain of title to the mortgage starts with MERS Inc. at origination and ends with MERS Inc. when it either releases the lien or assigns the lien to another entity.66 The MERS® System also streamlines the lien release process, reducing research time and recording fees.
MYTH: The MERS® System usurps the function of local recording officials to track changes in ownership of real property.
FACT: The land records have never been an authoritative source for who owns beneficial interests in and servicing rights to mortgages.67 The primary purpose of land records was not to track mortgage loan ownership rights, but to provide public notice of liens filed against the property in order to protect the lienholder (and not the debtor).68 A mortgage and any assignment of mortgage is typically recorded to protect the lienholder, and is generally not required by the county; rather there are incentives to record and disincentives for not recording.69 When a loan is registered on the MERS® System, the MERS member is required to record the mortgage (or assignment of mortgage) in the name of MERS Inc., at the loan owner's expense, in the appropriate recording office.70 Thus, the public is placed on notice that MERS Inc. is the mortgagee of record for the benefit of its members, and MERS Inc., in its capacity as lienholder, holds a perfected security interest in the real property that is valid against other lenders, judgment creditors or potential purchasers of the mortgaged property. More importantly, the role of the MERS® System is not to record or track changes in ownership of real property; rather the MERS® System tracks non-recordable contract interests in servicing rights and ownership of promissory notes secured by the related property for the benefit of MERS Inc. members. Consequently, the land records system continues to perform the services of recording ownership changes without usurpation by MERS Inc., and MERS Inc. performs the functions its members designed and created, both of which facilitate real estate ownership and financing by fulfilling their separate but interrelated roles.
One court considering the allegation of usurpation of a government function concluded: "Since the law does not require payment of a recording fee when new assignments are not recorded, and since the public is not using the 'MERS private recording system' to determine the true nature of encumbrances upon real estate, MERS is not usurping any governmental authority or power."71
MYTH: The MERS® System is a revenue evasion tool that deprives counties of needed revenues.
FACT: Recording fees are paid upon filing the original mortgage naming MERS Inc. as mortgagee. The MERS® System merely reduces the need to pay additional recording fees associated with subsequent transfers of mortgage loans or mortgage loan servicing rights among MERS members. Avoidance of these fees (which is not illegal) does not constitute revenue evasion. Fees are paid in exchange for a service. If the service is not required or necessary, then there is no "lost" revenue.72 As even one of the most vocal critics of MERS acknowledges, the real property records have become voluminous and difficult and expensive to search.73 Many county recording offices have not kept up with advances in technology or efficiency as other industries have, and simply were unable to efficiently and effectively handle the increasing volume of mortgage transactions as access to capital markets gave more consumers the ability to buy homes. Thus spawned the innovations and creativity of the private market and the development of the MERS® System. However, it is also important to note that the transaction volume for which county recorders would receive a fee should not decrease due to the use of the MERS® System from pre-securitization levels. MERS facilitates transfers of the note from originator to aggregator to depositor to trust—a minimum of three transfers in a short period of time—that did not occur prior to the development of the securitization market. A new mortgage or a release of mortgage must still be recorded any time that the borrower refinances or pays off her mortgage. Therefore, filing fees will still be paid for the several ongoing transactions requiring a filing in the public records. In a recent case brought against MERS Inc. by a county to recover damages for alleged intentional failure to record assignments and claiming unjust enrichment and civil conspiracy, the District Court held that, "There is simply no requirement to record assignments under Iowa law. To the extent the County's claims rely on such a requirement, they fail to state a claim upon which relief can be granted."74
MYTH: The MERS® System created or enabled securitization.
FACT: Securitization existed long before the development of the MERS® System. The earliest securitized transactions date back to the early 1970s and were the sales of pooled mortgage loans by the Government National Mortgage Association (Ginnie Mae). These transactions were followed by the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) in the early 1980s. The MERS® System did not originate until the mid-1990s. It is true that the MERS® System has facilitated the ease and efficiency with which securitization transactions are conducted, and this has been positive for bringing affordable financing options to more people. Securitization itself is not an evil to be vilified or destroyed. As Treasury Secretary Timothy Geithner said in announcing the Term Asset-Backed Securities Loan Facility (TALF) in February 2009, "No financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses."75
THE MERITS OF MERS
To hear some commentators characterize the MERS® System,76 one might think that it is a nefarious scheme of the financial oligarchy to obfuscate real property records, deprive tax-paying citizens of knowledge concerning the ownership of their mortgage loans and divest overburdened county recorders of direly needed revenue from recording fees. That is simply not the case. The MERS® System is a perfectly legal and valid system for the electronic registration and tracking of beneficial ownership of mortgage loans and servicing rights. It was created by some of the leading participants in the mortgage industry77 for the purpose of facilitating the operation of the secondary mortgage market. It has substantially increased the efficiency of mortgage loan transfers within the secondary mortgage market, and has played a significant role in establishing the U.S. housing market, despite recent troubles, as the envy of the free market world.78
Since its inception in 1995, the MERS® System has become a critical component of the American mortgage finance industry.79 More than 74 million mortgages have been recorded in the name of MERS Inc., of which 27 million are currently active. The MERS® System has streamlined the way residential and commercial mortgage loans are sold, traded and securitized by eliminating the need to prepare and record separate assignments of the mortgage lien. By doing so, the MERS® System has saved consumers, investors, and the mortgage industry millions of dollars each year in recording fees and related costs as well as reduced the problems and errors associated with multiple filings, and reduced delays in transactions.80
In addition to providing an electronic registration and tracking system to track conveyances of mortgage loans and servicing rights in the secondary market, the MERS® System creates accountability and transparency, helps reduce recordation costs (which may ultimately benefit the borrower), reduces the risk of errors in recordkeeping, eliminates breaks in the chain of title and makes it easier to keep track of liens as loans are sold to other investors.81 In addition, the MERS® System fills an information void that county recorders cannot provide—the identity of the current servicer and beneficial owner of the mortgage loan. Furthermore, the current and easily accessible information on the MERS® System assists homeowners, lenders and title insurers in arranging for consolidations, loan modifications, payoff statements, deeds in lieu of foreclosure, short sales and releases.
The MERS Mortgage Identification Number, or "MIN", which assigns a unique identifying number to each loan for the life of the loan, and the MERS® System have been fully integrated into the U.S. mortgage loan industry, and together they are the single most important existing tools for tracking loan level data in the home loan process.82 Through its use of MIN, the MERS® System helps:
- Identify for homeowners the servicer and, in most cases, the beneficial owner of their mortgage loans;
- Investors and credit rating agencies analyze the credit quality of mortgaged-backed securities;
- Regulators monitoring compliance with the law;
- Public agencies track housing and economic trends;
- Local governments identify the parties responsible for maintaining vacant properties in connection with neighborhood preservation efforts;83
- Keep distressed borrowers in their homes by speeding up the modification process; and
- Law enforcement officials fight fraud by tracking down criminals who attempt to obtain multiple loans secured by the same property.
While the recent recession brought one of the worst economic calamities experienced in several generations, it is disingenuous to attribute its cause, even in part, to a process and structure designed to facilitate efficiency and home ownership and bring about modernization long overdue in the mortgage finance industry, particularly one that had been modeled after a similar system successfully implemented by DTC in the securities industry. Homeowners who are facing foreclosure for failure to pay their respective mortgage loans may present a sympathetic cause, but the fact of the matter is that many participants in the residential mortgage process share in the blame for an overheated and unsustainable market. But none of this should overshadow the legitimate benefits brought to the mortgage industry by the MERS® System.
In sum, through thousands of lawsuits, many of which were held to be without merit, MERS Inc. has established that the process and structure of the MERS® System are based upon sound legal principles. Mistakes have been made, and improvements to the process have been implemented to ensure that the MERS® System will continue to serve and advance the goal of providing efficient and effective mortgage tracking. But those detractors who allege deceptive practices, flawed systems, and conspiracies have been, and will continue to be, proven without merit. In some cases, they seem to be more interested in obfuscating the issue of a lender pursuing its rightful claim to collateral upon default of a loan rather than bringing transparency or improvement to a process that, while not perfect, functioned fairly well. In those areas where deficiencies have been discovered or improvements identified, MERS Inc. and its members have been quick to respond. We would all do well to learn the lessons from the recent fiscal calamity and work to bring about prudent and appropriate changes to rebuild a vibrant and transparent mortgage finance market that continues to include, and benefit from, the MERS® System.
58. See Haft v. Dart Group Corp., 841 F. Supp. 549, 572 (D.Del. 1993).
59. Del. Code. Ann. Title 8, Sections 122 and 142.
60. Exercise of authority granted under clauses (3) and (4) is subject to rule changes effective July 22, 2011, limiting the member's ability to initiate foreclosures and make filings in bankruptcy proceedings in the name of MERS Inc.
61. See Bain v. Metro Mortg. Grp., 2010 WL 891585, at *6 (W.D. Wash. Mar. 11, 2010) (holding that MERS's designation of Members' employees as "vice president" and "assistant vice president" was not deceptive within the meaning of the Washington State Consumer Protection Act). See also Jackman v. Hasty, 2011 WL 5599075, at *3 (N.D. Ga., Nov. 15, 2011) (Defendants "were appointed as agents of MERS by a corporate resolution . . . According to the resolution, [Defendants] have authority to, among other things, "[a]ssign the lien of any mortgage loan registered on the MERS® System' . . . and "[e]xecute any and all documents necessary to foreclose upon the property securing any mortgage loan registered on the MERS® System' . . . The evidence thus shows that Defendants . . . although not employees of MERS, were duly appointed agents of MERS who had authority to assign the Security Deed to LaSalle on behalf of MERS. LaSalle thus had legal authority to foreclose on the Property."); Ocwen Loan Servicing LLC v. Kroening, 2011 WL 5130357, at *5 (D. Ill. Oct. 28, 2011) ("The assignment was executed for MERS by Scott Anderson. Anderson is an employee of Ocwen, but was designated by Corporate Resolution as an assistant secretary and vice president of MERS, and as such had the authority to assign any mortgage naming MERS as the mortgagee.").
62. New York State Bar Association, Committee on Professional Ethics, Formal Opinion #847 (12/21/2010).
63. See, e.g., Davis v. U.S. Bank Nat'l Ass'n, 2012 WL 642544 (Nev. Feb. 24, 2012); Bertrand v. SunTrust Mortgage, Inc., 2011 WL 1113421, at *4 (D. Or. Mar. 23, 2011) (stating that the language in the Deed of Trust "grants MERS the power to initiate foreclosure and to assign its beneficial interest . . ."); Wade v. Meridias Cap., Inc., 2011 WL 997161, at *2 (D. Utah Mar. 17, 2011) ("Under the plan terms of the Trust Deed, . . . MERS was appointed as the beneficiary and nominee for the Lender and its successors and assigns and granted power to act in their stead, including making assignments and instituting foreclosure.") (emphasis in original); Germon v. BAC Home Loans Servicing, L.P., 2011 WL 719591, at *2 (S.D. Cal. Feb. 22, 2011) (stating that under the Deed of Trust "MERS had the legal right to initiate nonjudicial foreclosures and could assign such right."); Saxon Mortg Servs., Inc. v. Coakley, 921 N.Y.S.2d. 552, 553 (App. Div. 2011) (rejecting foreclosure defendant's contention that MERS's assignment of mortgage was improper); Perry v. Nat'l Default Serv'g Corp., 2010 WL 3325623, at *4 (N.D. Cal. Aug. 20, 2010) (observing that numerous courts have held that "MERS had the right to assign its beneficial interest to a third party."); Rogan v. CitiMortgage, Inc. (In re Jessup), 2010 WL 2926050, at *3 (Bankr. E.D. Ky. July 22, 2010) (MERS had authority to execute an assignment as nominee of lender because "the language in the Lender's own instrument is sufficient to identify MERS as such."); GMAC Mortg., LLC v. Reynolds, 2010 WL 7746836, at *2 (Mass. Land Ct. Nov. 30, 2010) ("MERS, as mortgagee of record, has the authority to assign the mortgage."); In re Relka, 2009 WL 5149262, at *4-5 (Bankr. D. Wyo. Dec. 22, 2009) (The Deed of Trust granted MERS "the right to assign the mortgage."); Taylor v. Deutsche Bank Nat. Trust Co., 44 So. 3d 618, 623 (Fla. 5th DCCA 2010) (The mortgage granted MERS the "explicit and agreed upon authority to make . . . an assignment.").
64. See, e.g., Williams v. U.S. Bank Nat'l Ass'n, 2011 WL 2293260 at *1 (E.D. Mich. June 9, 2011) ("To the extent Plaintiffs challenge any assignment from MERS to U.S. Bank, Plaintiffs lack standing to do so because they were not a party to those assignments."); Bridge v. Aames Capital Corp., 2010 WL 3834059, at *3 (N.D. Ohio Sept. 29, 2010) ("Courts have routinely found that a debtor may not challenge an assignment between an assignor and assignee"); Livonia Prop. Holdings, LLC, 717 F. Supp. 2d 724, 735 (E.D. Mich. 2010) ("Borrower disputes the validity of the assignment [of mortgage] documents. But, as a non-party to those documents, it lacks standing to attack them.").
65.Jones, supra note 3, at 36.
66. Jones, supra note 3, at 36, 38.
68. See Amoskeag Bank v. Chagnon, 572 A2d 1153, 1155 (N.H. 1990) ("The purpose then of the recording statutes...is to provide notice to the public of a conveyance of or encumbrance on real estate."); Corpus v. Arriaga, 294 S.W.3d 629, 635 (Tex. App. 2009) ("The purpose of recording statutes in Texas is to give notice to persons of the existence of the instrument."); Burnett v. County of Bergen, 968 A.2d 1151 (N.J. 2009) ("The very purpose of recording and filing [assignments of mortgages, deeds, discharges of mortgages, and other public records] is to place the world on notice of their contents.").
69. See Fuller v. Mortgage Electronic Registration Systems, Inc., (U.S. Dist. Ct., Middle District of Fla.,Jacksonville Div.) (Case No. 3:11–CV–1153–J–20MCR) (June 27, 2012) at p. 3, fn. 1.
70. MERSCORP Holdings, Inc. Rules of Membership, Rule 2 - Registration on the MERS System, Section 5(a).
71. See Fuller, supra note 69, at pp. 18-19.
72. Joe Murin, MERS: Myths, Misconceptions and Realities, July 22, 2010 (available at http://mortgagenewsdaily.com/channels/voiceofhousing/164078.aspx); see also Fuller, supra note 69 and accompanying text.
73. Peterson, Foreclosures and MERS, supra note 9 at 1365-66.
74. Plymouth County, supra note 23 at p. 17.
75. Remarks of Treasury Secretary Timothy Geithner Introducing the Financial Stability Plan, February 10, 2009 (available at http://www.treasury.gov/press-center/press-releases/Pages/tg18.aspx).
76. See Christopher L. Peterson articles, supra note 9.
77. MERS' principal owners are the Mortgage Bankers Association, Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase Bank, HSBC, CitiMortgage, GMAC, American Land Title Association and Wells Fargo Bank.
78.See, http://www.aei.org/article/economics/financial-services/housing-finance/housing-affordability-us-is-the-envy-of-the-developed-world; see also http://absalonproject.com/wp-content/uploads/2010/12/Harvard-Lea-110v5.pdf.
79. Jones, supra note 3, at 40.
80. For an excellent discussion of the background, issues and certain case law developments regarding the MERS® System, see Beau Phillips, MERS: The Mortgage Electronic Registration System, 63 Consumer Fin. L.Q. Rep. 262 (Fall Winter 2009).
81. Murin, supra note 72.
83. Over 600 government institutions (cities, municipalities and states) utilize the MERS System free of charge to locate property preservation contacts for loans registered on the MERS System.
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