MERS is a ubiquitous name in the nation's foreclosure scene. Since its introduction to the world of mortgages as a tracking and recording agent, MERS has facilitated millions of originated mortgages but its clerical role has morphed.
As the nation’s foreclosure rate ripped through historic limits, the scope of MERS came into the focus of the nation’s courts. MERS weighed heavily on how foreclosures actions are processed. But MERS’ role [for more reasons than one] raises more questions than it had initially promised to answer.
WHO IS MERS?
MERS stands for Mortgage Electronic Registration Systems. It’s a conglomerate corporation founded in 1995 to help the banking industry track the increasingly complicated sales of residential mortgages.
MERS was a key component for the mortgage-backed securities (MBS) industry by offering the needed mortgage recording loop-hole. The origination of mortgages and related transfers and assignments require that they are documented at the county level.
However, MERS provided a pathway for banks to side-step those recording requirements thus fueling [with other factors] a deregulated mortgage boom that eventually collapsed in 2008.
MERS is exclusively positioned as the electronic recording agency for these complicated mortgage assignments which makes up large sector of the global marketplace. MERS allowed investors to distribute mortgages in multiples and diminutive fashion to real estate trusts and other shadow-banked pools.
But as the mortgage boom came to an end and foreclosure filings proliferated, MERS' footprint in the mortgage origination process became more broadly defined.
MERS' ROLE IN THE FORECLOSURE LAWSUIT
MERS is a lawsuit participant in almost every foreclosure action filed in the country, not as a plaintiff in support of the foreclosure application as one may assume – but as a defendant.
In a typical foreclosure action, MERS, the provider of the critical foundation for the loan’s origination, becomes a co-defendant and is essentially legally pitted against the foreclosing bank.
Ironically, without MERS' mortgage originator role, the mortgage covenant necessary for mortgage to be valid could not be perfected. As a result of being made a defendant MERS is made an antagonist to its birthed role in the loan.
In fact the bank would require MERS’ acquiescence to eventually relieve any encumbrance it has on the subject property provided the covenant was satisfied.
If the typical lawsuit aligns MERS to the same end-zone as the homeowner, then both the homeowner and MERS share similar tactical interests unless otherwise pleaded by either party. MERS’ fervor to defend its position against the foreclosure should be equal to that of the homeowner.
In large part, the mortgage origination process consists of a covenant or promise between the new homeowner and the bank that is securing its loan against the property.
The homeowner or "mortgagor" [the party giving the promise to repay the loan] and the bank "mortgagee" [the party receiving the promise of repayment] should theoretically be on opposite adversarial sides of the lawsuit, since it's the mortgagee that is alleging the loan's default and its right to foreclose.
However that is not what occurs within the context of the foreclosure lawsuit. MERS is usually recognized as a “mortgagee” by foreclosing bank attorneys but designated to a defense posture with the homeowner in title of the lawsuit.
This arguable “malignment” of MERS to the alleged wrongdoer side of the lawsuit offer homeowners a unique opportunity to seek a free legal defense payable by MERS.
This strategy for lawsuit defendants seeking a paid legal defense from another co-defendant occurs frequently but when the defense seeking co-defendant can demonstrate a legitimate basis for the defense.
MERS OWES HOMEOWNERS IN FORECLOSURE A LEGAL DEFENSE
The legitimate basis for MERS to provide homeowners with a legal defense rests with MERS obligation to observe the covenant it’s a party to with the homeowner. MERS should ensure that the covenant between the parties does not get compromised.
After all, it’s that special covenant between the loan originator and the homeowner that provides MERS with the rights to perfect the mortgage upon its eventual satisfaction.
The foreclosure lawsuit filed by the bank seeks to abrogate that mortgagee - mortgagor covenant in order to effectuate the foreclosure. But MERS, as a matter of equity, should not assume [as co-defendant] a position inherently beneficial to the foreclosing bank.
In other words, MERS should not assist its opponent [the foreclosing bank] to score a touch-down. And by merely doing nothing, it achieves an indifference to the homeowner. MERS should rigorously defend that end-zone shoulder-to-shoulder with the homeowner until the end of the game.
Regrettably in most instances MERS does remain silent probably in large part due to the homeowner's failure to compel the court to make MERS act.
It's true that if the loan goes into default then a foreclosure action by the rightful owner of the loan is a legitimate outcome. However, a finding of the loan's default should not be made as a result of MERS’ premature concession but after meaningful discovery.
Prior to a default finding being made, MERS owes the homeowner in foreclosure rigorous protection against any proposed dissolution of that covenant. MERS must be active in defending the covenant that it helped create.
In order for the homeowner seeking MERS' paid defense, the proper application must be made for the court’s consideration in a timely fashion once the foreclosure lawsuit is received.
A homeowner’s court recognized response to the foreclosure lawsuit is critical to ensuring that an application against MERS is made.