New York sues banks over use of electronic mortgage system

New York sues banks over use of electronic mortgage system

The New York Attorney general has charged three of the nation's biggest banks - Bank of America, JPMorgan Chase and Wells Fargo - with using the privately-owned national mortgage electronic registry system (Mers) to illegaly bring foreclosure proceedings against home owners who had defaulted on their loans.

The lawsuit asserts that bank employees, acting as "Mers certifying officers," have repeatedly submitted court documents containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have. The suit names JPMorgan Chase, Bank of America, Wells Fargo, as well as Virginia-based Merscorp. and its subsidiary, Mortgage Electronic Registration Systems, Inc.

The financial industry created Mers in 1995 to allow financial institutions to evade local county recording fees, avoid the hassle and paperwork of publicly recording mortgage transfers, and facilitate the rapid sale and securitisation of mortgages. Mers operates as a membership organisation, and most large companies that participate in the mortgage industry - by originating loans, buying or investing in loans, or servicing loans - are members. Over 70 million loans nationally have been registered in Mers System, including about 30 million currently active loans.

Because of its designation as the nominal mortgagee in the public records, Mers has granted over 20,000 "certifying officers" the authority to act on its behalf, to assign mortgages, to execute foreclosure paperwork, and to submit filings in bankruptcy proceedings.

The lawsuit asserts that the Mers System has effectively eliminated homeowners' and the public's ability to track property transfers through the traditional public records system.

"Instead, this information is now stored only in a private database - which is plagued with inaccuracies and errors - over which Mers and its financial institution members exercise sole control," states the Attorney General's office.

Says NY Attorney General Eric Schneiderman: "The banks created the Mers system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law."

Mers has filed over 13,000 foreclosure actions against New York homeowners listing itself as the plaintiff, but in many instances, says Schneiderman, Mers lacked the legal authority to foreclose and did not own or hold the promissory note, despite saying otherwise in court submissions.

The lawsuit seeks a declaration that the plaintiffs acted illegaly, as well as injunctive relief, damages for harmed homeowners, and civil penalties.

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