On Thursday the Multnomah County Commission voted unanimously to sue the Mortgage Electronic Registration System (MERS) to recover fees that the County has lost for recording documents of transactions involving trust deeds, due to MERS handling such transactions without recording them. Under Oregon's non-judicial foreclosure law, lenders and mortgage investors are required to record all changes of "beneficiaries" and trustees of such deeds. MERS skirts those requirements by purporting to be the beneficiary of trust deeds without actually owning them.
A story in The Oregonian names some basic facts, but misses the larger meaning of MERS. MERS is essentially a racket that makes it very difficult for people facing problems with their mortgages to know with whom to deal. MERS was designed to promote the securitization of mortgages that has created incentives to profit from abusive and predatory lending and was a major cause of the financial crisis of 2008. The O'sstory also fails to note that MERS transactions have recently been ruled by the Washington Supreme Court to violate Washington's similar non-judicial foreclosure law. In Oregon, lower courts have divided over the legality of MERS transactions, and the Oregon Supreme Court is supposed to rule on the question in the next few months.
Oregon's non-judicial foreclosure law was passed in 1959, providing for a streamlined process that enabled holders of trust deeds to avoid the time and expense of judicial foreclosures, as well as avoiding certain borrower rights to regain foreclosed property. Trust deeds are made by borrowers and lenders to go along with loan notes to secure loans, usually with mortgages against the property, and are administered by trustees on behalf of beneficiaries. Trustees administer the loans, sometimes by contracting out to loan servicers, and in the case of default, bring foreclosure proceedings. Until MERS, beneficiaries were commonly understood as the owners of the notes. The law requires that all changes of beneficiary or trustee be recorded in County records. The purpose of such recording is to provide clear chain of title. This protects borrowers from being foreclosed upon by parties with no right to foreclose, and it protects the title of future purchasers.
The Oregonian calls MERS "a mortgage giant," but that phrase is misleading insofar as it suggests MERS is a giant lender, like Wells Fargo or J.P. Morgan Chase or Citigroup. Actually MERS is an incorporated association of hundreds of lenders and mortgage investment companies who conspire to avoid both the fees and transparency requirements of non-judicial foreclosure laws like Oregon's. The members of MERS try to evade the law the better to pursue bundling of mortgages into pools, which are then used to back securities, whose value derives both from the income from the loans and the underlying value of the properties.
MERS avoids fees and transparency by purporting to separate the role of lender (holder of the note) from that of beneficiary. Trust deeds involving MERS identify the borrower ("trustor"), the lender, the trustee, and then say MERS is the beneficiary "as the nominee" of the lender, rather than the lender or note-owner being the beneficiary. If this means anything at all, legally, a point which is under challenge, it changes the basic and common sense meaning of "beneficiary" as recipient of the benefits of the loan. In fact MERS does not, say, receive the interest payments as income, nor take over ownership of the property if it is foreclosed. Rather it creates an obscuring cover, under which a trust deed may change hands several times, without the borrower or public officials knowing, because the transaction is never recorded with the County. Instead, at each point the new holder of the trust need "nominates" MERS as fictive nominal beneficiary.
From the County's point of view, those unrecorded transactions represent a loss of revenue. Multnomah County's prospective lawsuit apparently addresses only that part of the MERS evasions that deny it the income from recording fees. However, the abusive lending encouraged by MERS carries other costs to the County, including burdens on the Sheriff's department to administer foreclosure sales and enforce evictions, and on the County courts to handle the increasing number of lawsuits being brought due to MERS failing to provide clear chain of title under non-judicial foreclosure laws, as well as a growing shift by lenders or mortgage owners to seeking judicial foreclosure to avoid such challenges.
Even with its limited goals, insofar as the County suit brings pressure on MERS, in addition to that created by the lawsuits whose conflicting results the state Supreme Court must decide, the suit is a good thing. MERS helped to create the financial crisis, and promoted predatory lending, and abuses like robo-signing, contributing to the atmosphere of impunity that drove the abuses. Once the financial crisis created further crises in the lives of dozens of millions of people through loss of jobs, placing their mortgages under pressure, MERS created means by which lenders evaded dealing with people to enable them to stay in their homes, as they continue to do. MERS obscures relationships of accountability for blighted property when foreclosures and threatened foreclosures leave houses empty and deteriorating, neglected by far-off investment company owners that see them as abstract assets underlying securities whose trading is their main source of profit and whose risks have been hedged with swaps anyway.
Anything that weakens MERS is good. And the County needs the revenue.
However, the system remains stacked against ordinary people in crisis, whether it works through non-judicial foreclosure and MERS related shell-games, or through the judicial foreclosure process. In either case, families facing foreclosure rarely have the money for the legal support they would need to get justice, or even what the law provides for them which often is well short of justice. Programs that are supposed to provide compensation for past bad actions have strict time limits, after which people who have been victimized but don't know of the programs are out of luck. Borrowers have no statute of limitations on their debts or defaults, but their time to make claims against fraud and abuse is sharply limited. The very nature of mortgages as an all-or-nothing kind of security encourages an entire speculative industry in foreclosures, that decreases lender incentives to work out accommodations that would keep people in their homes.
So the County lawsuit is a good thing that may bring in some needed revenue, and create a bit more pressure for transparency in chains of title, and just because it brings pressure on MERS as a corrupt and corrupting way of doing business. But it does not address the fundamental injustice of the situation where the banks crashed the economy, but have been allowed to get away with it with no real penalty, and indeed to profit from the misery of millions due to the crash they caused. And it does nothing to address the crisis of housing justice reflected in foreclosures, reflected in unaffordable rents, reflected in widespread homelessness, and reflected in empty housing while thousands in the County are without even decent shelter, much less real housing.
Disclaimer: I work for We Are Oregon, an advocacy and community organizing project that works with people fighting foreclosure and evictions, including a number who testified at the County hearings on Thursday. However, this article represents my personal views and does not speak for anyone but me.