Mortgage Industry Shaken by Ruling Given by Judge in Kansas

The mortgage industry is badly shaken by a ruling delivered by a judge here. Other judges across the country have now found it to be a tool to stop the smooth run of foreclosures by lenders. The issue that has been raised is basic and fundamental – in many of the bankruptcy proceedings the foreclosure has been initiated by lender’s representatives. Now this latter may not have the legal right to do so. If this is proved to be true or put it another way – if the plaintiff cannot prove the right to foreclose the borrower may win by keeping the house.

As per law and tradition it has been the custom that all property transactions are recorded with either the county clerk of the ‘recorder of deeds’ together with documented information about the original holder of the mortgage. In the instance of multiple mortgages the place in the procession of each creditor has to be recorded.

For the jumbo lenders it was an onerous task to track down that information in all their dealings covering hundreds of jurisdictions straddling the country. This made the two biggest mortgage lenders, Fannie Mae and Freddie Mac put up a firm that would do this on the computers taking the help of electronic technology. It came to be termed Mortgage Electronic Registration Systems and has come to be known in short as MERS. This name is now tied up with millions of mortgages. In Nevada alone the number is 987,000.

As soon as a borrower defaulted MERS would notify on behalf of the lender. This made consumer advocates question whether this surrogating was legal and could go to the extent of MERS going to court to file foreclosure proceeding. But the judges till now let it go on without giving much importance.

A law professor from University of Utah Christopher Peterson (S.J. Quinney College of Law) was formerly an attorney fighting for the rights of consumers. He saw in the emergence of MERS as a fishy development and strongly questioned the legality of having mortgages recorded in its name. He said, “MERS has no ownership interest, but they put MERS’ name there instead of the lenders’ name. No legislature said they could do that.”

A law firm of Reno, Hager & Hearne has hired Peterson to follow up his stand in a class action lawsuit to make invalid the right of MERS to start foreclosure proceedings. This case will be relying strongly on the recent ruling by Kansas Supreme Court where the court had said that MERS had “no right to the underlying debt repayment secured by the mortgage.”

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